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The rich getting poorer
For three decades, the rich have literally been getting richer. But there's statistical and anecdotal evidence that the trend is over. The question is -- what does that mean for everyone else?
For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs -- as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.
The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats -- or a zero-sum game.
On that question, economists are split:
If anything, these economists say, any problems the wealthy have will trickle down, in the form of less charitable giving and less consumer spending. Over the last century, the worst years for the rich were the early 1930s, the heart of the Great Depression.
Other economists say the recent explosion of incomes at the top did hurt everyone else, by concentrating economic and political power among a relatively small group.
Another thing in the article that stood out to me:
One of the starkest patterns in the data on inequality is the extent to which the incomes of the very rich are tied to the stock market. They have risen most rapidly during the biggest bull markets: in the 1920s and the 20 years starting in 1987.
"We are coming from an abnormal period where a tremendous amount of wealth was created largely by selling assets back and forth," said Mohamed A. El-Erian, chief executive of Pimco, one of the country's largest bond traders, and the former manager of Harvard's endowment.
Some of this wealth was based on real economic gains, like those from the computer revolution. But much of it was not, Mr. El-Erian said. "You had wealth creation that could not be tied to the underlying economy," he added, "and the benefits were very skewed: they went to the assets of the rich. It was financial engineering."
Creating wealth without creating anything else seems to exact a price during a bust. A recent study suggests the people with the most money lose the most income, percentage-wise, when the economy tanks.
I'd love to hear your thoughts on this. If the rich are getting poorer, is that a good thing or a bad thing?
The reason we did well after WWII was we sold to everybody else. Now China is in that boat and we are transferring our wealth to them. The company that makes most of the stuff wins for a while.
Those sectors that replied on excess disposable income spending will hurt the most. The rich on paper or in over their head in debt may not recover.
First, the rich always lose more in a recession than the majority of Americans for the banal reason that they have so much more financial assets.
Second, the metaphor, a rising tide lifts all boats, came closer to being true in America between the end of WWII and 1973, when democratic pretensions had more appeal than before or after, the 1930s excepted. Since then the tide has largely left the vast majority of Americans beached, popular illusions and propaganda to the contrary. See Emmanuel Saez’ updated “Income Inequality in the United States, 1913-1998†with Thomas Piketty, Quarterly Journal of Economics (http://emlab.berkeley.edu/users/saez/). See also James K. Galbraith’s excellent book Created Unequal for an economic analysis of the wage structures by industry.
Third, El-Erian’s comment that “the wealth was created largely by selling assets back and forth†doesn’t do justice to the fact that a lot of it was legalized fraud, as Frank Partnoy explains in his book, FIASCO: Blood In The Water on Wall Street. The transcript of an NPR interview he did is here (http://www.npr.org/templates/story/story.php?storyId=102325715).
Fourth, Simon Johnson explains some of the financial and political dynamic of the current recession in his Atlantic article, The Quiet Coup (http://www.npr.org/templates/story/story.php?storyId=102325715). The worst of it is that the economic policies pursued in America since the middle 1970s resulted in creation of an American oligarchy that has undermined democracy (also addressed in detail in Created Unequal). That is the major problem. Further, Johnson claims that during this decade America’s financial sector accounted for 41 percent of domestic corporate profits at its height. That raises the question of what could form the basis for economic recovery? Pumping $13 trillion into too big to fail banks and financial corporations who now have no need to provide credit does nothing to help recovery. If anything, it is just creating another financial bubble to get the world out of the one they helped create. Compare the latest Wall Street run up against the underlying economy.
The question is not whether the decline in wealth of the wealthy is good or bad, but what kind of a society we want. Do we want a fair and just society or one that continues to have extreme divisions between recipients of society’s burdens and benefits? Do we want an environmentally sane society? We thought the fall of the Soviet Union implied the fall of their nominal ideology and the triumph of ours. But now we see that our own nominal ideology has systemic rot, as Alan Greenspan more or less admitted.
Tell me what good these "super rich" did for the economy.
Did they create jobs with all that money? Or did their pressure on the manufacturing sectors cause jobs to be sent overseas to increase short term profits and fund higher executive pay.
And why has no one blamed the oil traders for the demise of the auto industry? The fortunes of the US automakers tanked when oil speculators had us paying $4.50 a gallon. It seems to me they deserve a lot of the blame for the woes of the auto industry worldwide.
Did you catch the Bloomberg article about German officials raiding Porsche? They are accused of manipulating VW stock as they played hedge fund instead of carmaker and tried a takeover of the much larger company, then found themselves saddled with $10 billion in debt they could not service.
I think I echo most of the rest of the population that these people are leeches on society and deserve punishment for their deeds not praise.
I've been wondering lately about how a "jobless recovery" will affect this equation.
A "jobless recovery" is basically the recovery of corporate earnings that came from cutting costs.
So, it seems like some people with invested assets or ownership in surviving any the increased profits that are the result of things like cutting jobs.
What do you all think?
oops, it looks like something accidentally got deleted there.
It should say that people who have investments or own businesses that survive the downturn may end up getting wealthier because they are geting a share of the profits that resulted from cutting jobs and other costs.
"The Rich" aren't a single group. Basically, there are makers, takers and fakers. The "makers," the rich who create real wealth by creating goods and services, will prosper in a wide range of economic climates. The others can only prosper when people have enough wealth to be careless with it. And, of course, retail investments (like the Market) are the sink for careless money. I imagine, if you look into it, that insurance (another classic retail investment) is also down.
I can't imagine what it would be like to have my wealth to diminish to a few measly million.
If all I had were a couple million bucks I'd still could afford better health care than most Americans, I wouldn't worry too much about my J.O.B., my retirement years safe and secure, a new car every couple years, a good home in a safe community, yearly vacations in different parts of the world...
Oh, wait. I don't have a million bucks. I'm on the other side of the scale. What if my last $10 diminished to $7.50?
