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Sunday, 22 July 2012

Comments

While I have no clue what income would land me in the 10%, I once had a good friend from Canada tell me that at least we Americans had a chance at being rich. When I pointed out that the vast majority of us didn't have a snowflake's chance in hell, he corrected himself and said that at least we had the dream of it.

Hell of a thing to live on, a dream of becoming rich.

Me, I'd settle for enough extra cash to buy a Holga, some film, and be able to pay for processing once a month.

Edie
But this month, all my money is going to my auto repair bill. Any 1-10%ers out there wanna lend me a hand?

It's why I'm fighting with my early teenage daughter. She wants to be a pop star, or an artist, but does not appear to appreciate that there's something like a 1:10,000 chance of her making it in that field. She does not want to study. I want her to become a doctor or a vet or a lawyer, which she actually has the brains to do. To my mind, there's something better than a 1:10,000 chance of her making it in one of those fields.

My mother tells me I was similar at her age, so there is some small hope that she'll come around and do something sensible. Then again, she takes after her mother, whose ambition was to marry a rich man (I don't know what her mother sees in me, apart from monthly arguments with the bank manager).

Check out
http://taxfoundation.org/article/summary-latest-federal-individual-income-tax-data-0

For split points for 2009
If you income was greater than 32396 you were in the top 50%.

I saw a BBC program (by Alain De Botton) that correlated wealth to happiness on a graph. The graph they showed was roughly linear up to about 15 thousand pounds (life/death and basic standards of living kinda purchases) then as income kept increasing it just became a scatter. There were happy people but it was something else that was their source. I find that kinda information suits what I would like to believe so am buying in :)

I've had occasion to meet a few millionaires and even a few multi-millionaires (old money type) and they are generally nice folks. Being a millionaire (net worth) ain't what it used to be. An accountant friend told me several years ago (about 20 in fact) that in order to retire and maintain his lifestyle (which was not lavish by any means) he needed 1.4 million in investments. Between the value of property and investments lots of business owners and professionals (doctors, lawyers, etc.) manage that. I suspect the dividing lines for the upper 10% and especially the 1% are measured in billions, not millions. BTW I'm not having any more luck with the LOTTO than your are Mike. One of us should win IMO.

The real problem with this level of inequality isn't that the super rich have too much, it's that they spend relatively little of what they do have. It's called the marginal propensity to consume (and it's consumption that drives our economy). The super rich have in effect taken all the marbles and left the game. The marbles of course are stored in Cayman Island bank accounts. The economy is stalled for lack of demand, and lack of demand only, and it is the staggering inequality of wealth that is causing that lack of demand. Direct redistribution of income will never be politically palatable in America so the only possible approach is to increase taxes on the wealthy, and cut regressive taxes like sales taxes and social security/medicare taxes on the poor and middle classes. Still a hard sell but there will be no return to prosperity until consumer spending increases and the rich simply won't spend enough to get us there.

Dear Mike,

Oh, what a wonderfully complicated question. I just spent about an hour data-mining and doing differential calculations to come up with some approximate answers. Thank you for a most entertaining time.

Medians and averages don't tell you thresholds, but if you can dig up enough data with different breakpoints, you can look at the differentials and get a fair idea what the thresholds would be.

First problem is getting current information, since things have been very volatile the last couple of years; I had trouble finding data that wasn't a few years old, so I've had to do a lot of fudging and estimating. Second problem is how you actually want to calculate worth, which turns out to be a much more difficult problem than one would think. It depends on what you think wealth is good for.

If you think it translates into “money you can spend” then someone like Warren Buffett is only worth a very small fraction of $40 billion, because there's no way he can cash in most of that $40 billion worth of assets. So you could make the argument that he's really worth “only” a few billion dollars.

Conversely, if you think it translates into “what wealth can get for you,” then it is, to borrow an advertising phrase, priceless. Buffett can exercise influence on the world that we (as in thee and me) cannot exercise any fraction of, not even a miniscule one. There are thresholds to play certain kinds of influential games, and we don't have the stakes to play.

Given that, I'm inclined to ignore both factors and just look at raw net worth, not how much of it is fungible, not what you reap if one cashed in all one's assets, etc. it's the least “political” estimate. Which, I emphasize, doesn't make it more accurate or legitimate.

Given all of that, I'm rounding things off to one significant figure. I conclude the current threshold to enter the top 1% is around $10 million net worth (And, given all the cautions I just mentioned, it wouldn't be hard to come up with an alternate estimate three quarters that or nearly twice that). The current threshold to enter the top 10% is around $1 million net worth. To enter the top 20% is around $500,000.

The 50% point (median net worth) is still pretty high, somewhere around $100,000. Below that it drops off very rapidly. I suspect a dominant factor is homeownership, which runs around 50% and even with the massively-“corrected” real estate market, is still a significant source of middle class worth.

The bottom 30-35% have effectively zero net worth.


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This post got me thinking. In the past, taxation was seen as a way to equalize income distribution, and people accepted it as such. In your article, you claim that most people do want to see more income equality, but most of these same people do not wish to see increased taxes.

Why is that? Is it possibly because we've lost faith in our government? I live in Canada, so I cannot comment on the state of the US government, but I have seen our federal government make a mess of so many things. Billions of dollars disappear and very little is accomplished. Most of the time its not corruption, it's just sheer incompetence.

Of course, income inequality is just one of many problems plaguing North America these days. I don't think that we'll find the answers in the old ideologies. Things are going to have change, but I'm not sure how.


Mike, I believe Wikipedia has it nailed down:
http://en.wikipedia.org/wiki/Social_class_in_the_United_States

The top 1% includes the super rich families, heirs, celebrities and startup founders and CEOs, which can be counted as "upper class" citizens and "corporate elites". As you mentioned, they hold about 35% of wealth.

The next is the "upper middle", whose members are typically highly educated with graduate degrees. As you mentioned, they constitute 9% of population, and hold about 40% of the wealth. This also means that in average they have 1/10th the wealth of the upper-classers. Still not too shabby.

Then there are lower middle, working and the poor.

What is interesting to me in this picture is that to become moderately rich in this country, there is a hard but low-risk way of doing it: Keep studying until you get an advanced graduate degree, and you'll start earning a low 6 figure salary (around $100K or more), placing you among the top 10%. But if you want to become really rich then there are only two ways: A) be born rich, and B) be a high risk taker (startup founders, CEOs).

P.S. out of every 100 people doing a startup, only 5 are moderately successful and perhaps 1 makes a big splash. The rest 95 go back home bankrupt. It is highly risky, very competitive and it's not easy to increase your odds.

This statistic is completely disingenuous, because the "bottom x%" number is entirely dominated by the reverse 1%: people living in mansions under mountains of debt. The percentile is so high because it takes an incredible number of actual poor people to make up for each fake rich person: someone like local Minneapolis celebrity Denny Hecker, who even post-bankruptcy and in prison has a net worth of -$83,000,000. In the bankruptcy filing he claimed debt of $766,000,000, nearly a backwards billionaire. And this dude isn't even important enough to have a Wikipedia page.

I found this page in Wikipedia:
http://en.wikipedia.org/wiki/Wealth_in_the_United_States
This has some tables of net worth. The top 10% of earners have a median net worth of $1M, and a mean of $3M.
It also has graphs that show the household median net worth by percentile of net worth (as opposed to income above). Top 10% have median net worth of $2M, and mean of $4M. You can also see that the bottom 50% are almost on the X axis, i.e. have next to nothing. Or is that the X axis, and the bottom 25% are below it? I can't really tell on my screen.

The answer to your question won't be found at this link, but I think you will find some of the info that can be found there to be quite interesting:

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96426,00.html

You managed to put forth, however briefly, some serious thoughts on one of the most divisive issues of the day.
And I'd like to think no one in your audience was offended.
Now, how about gun control!

http://www.whatsmypercent.com answers your question, I believe.

So the (unanswerable) question is: why do the lower 50% and more still vote for this system of relocating the wealth to the top?
The difference between manure and money: the former runs downhill, the latter uphill. Always.

It might be interesting to compare those statistics with their equivalents (if that's possible) during the feudal era.

The other side of the story, from the National Taxpayers Union, is that the top 1% pay 36.73% of total federal income taxes. Those in the top 10% of income ($112,124 and above) pay 70.47% of total federal income taxes. Ninety percent of income earning Americans pay just 29% of the total federal income taxes.

Two sites that I found with hard figures:
http://inequality.org/income-inequality/
and
http://www.joshuakennon.com/how-much-money-does-it-take-to-be-in-the-top-1-of-wealth-and-net-worth-in-the-united-states/

I looked at the CBO web site, and I couldn't figured out where the US income information is on it. The IRS has income information, but its statistics only go up to the top 3.9%.

As long as I have enough money to live comfortably it doesn't make any difference to me how much money I make in relation to others. I'm not particularly interested in either competition or envy.

I haven't seen the breakdown of net worth required for each percentile. I have seen numbers based on income at http://en.wikipedia.org/wiki/Household_income_in_the_United_States

It's actually worse than the official statistics show, especially when you look at the rest of the world. There is a lot of hidden money out there. http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy

I worry about the stability of society when (or if) the poor and middle class in this country wake up to the reality of what is happening. I think the super rich are going to regret that Romney is running for president, as he is drawing a lot of attention to the issue of income and tax inequality, and offshore bank accounts.

Actually a lot of people in northern Europe assume that income and wealth inequality in the US to be huge :-)

"All demographic groups—even those not usually associated with wealth redistribution such as Republicans and the wealthy—desired a more equal distribution of wealth than the status quo."

Some wish it done by knocking down those at the top. Some prefer that those on the bottom rise up. Warren Buffet wasn't always a one percenter.

For those who prefer the former ...
"The declines in before-tax income were 5 percent or less for households in each of the four lowest income quintiles and 18 percent for households in the top quintile. For households in the top one percent, income fell by 36 percent, reducing their share of before-tax income from 18.7 percent to 13.4 percent."
http://www.cbo.gov/publication/43373

For those complaining that the rich should pay taxes at a rate higher than Warren Buffet's secretary ...
"The average federal tax rate—that is, households’ federal tax liabilities divided by their income (including transfer payments) before taxes—was 17.4 percent in 2009 for all households and ranged from 1.0 percent for households in the lowest quintile to 23.2 percent for households in the highest quintile (and to 28.9 percent rate for households in the top percentile)."
http://www.cbo.gov/publication/43373

Not sure where to find the US breakout, but globalrichlist.com will show you the placement of any income amount in the world context. They are using World Bank numbers from the 1990s, which put the top 10% at 20,400 USD annual income.

I am not sure of the actual numbers for the top 10%, but I am almost certain it is more than I have...

Mike,
there is a lot of data about expenditure, income and wealth at

http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html

According to the site, the median wealth in 2007, that is wealthiest household in the bottom 50%, had assets worth $120k.

But there is probably more detailed data elsewhere.

From what I understand, the reason why people are not more outraged by this distribution is the illusion that we all have a chance at making it big. Now, where this idea comes from is anyone's guess...

Martin

For some fascinating reading into the effects of inequality in developed countries, visit the Equality Trust at www.equalitytrust.org.uk.

In particular, their work came about from a book called the Spirit Level, which was written by two research scientists collating all the epidemiological research over the years into the effects of inequality on a huge number of measures - health, education, infant mortality, homicides, social mobility, teenage pregnancies, and others.

They show that their is a significant relationship in developed countries between inequality and social wellbeing, and that increasing wealth does not increase happiness levels - instead reducing inequality does.

Although the authors are British, the two data sets that they use are across developed countries, and across the 50 states of the US - more equal states have better outcomes on a whole range of measures.

Fascinating stuff - well worth a good read.

"Actually a lot of people in northern Europe assume that income and wealth inequality in the US to be huge :-)"

Oskar,
Well then, maybe I'm wrong, and non-Americans know more about it than we do. Perhaps it can be easier to see others objectively than it is to see ourselves.

Mike

You might enjoy watching this TED talk:
http://www.ted.com/talks/richard_wilkinson.html

Guess you missed this one:

http://www.cnbc.com/id/48257611

Cheers... M

I hope this doesn't count as a "Diatribe", I just think this story is relevant the topic...

Many years ago, I worked in a "boatyard" on Florida's Gold Coast, in the Ft. Lauderdale area. We used to drive around and service the Yachts parked in the canals behind the big estates. Usually there would be a Bentley, Rolls, Ferrari (or insert dream car here_____) or two parked in the drive. We rarely ever saw the owners of all this and certainly never spoke to them if we did. We were just another variety of help, of course. After a few months of doing this every day, I started to become deeply dissatisfied with my meager lot in life. I was really starting to resent those people with all their wealth and getting pretty bitter about "everything I didn't have".

I finally quit the boatyard and signed onto a merchant ship for a 4 month 'hitch' in Diego Garcia. Diego Garcia is a small island situated in the middle of the Indian Ocean and is a British Territory. It probably qualifies as a 'tropical paradise' depending on your particular definition and experience. The island is completely staffed by Filipino laborers who do everything from maintaining the buildings and facilities, to serving beer in the Seaman's club. They live in these little communal shanty towns on the backside of the island and did all their cooking in little open 'porch kitchens' with charcoal grills.

They were the other end - almost the complete opposite end - of the spectrum from where I just came from. And they were still doing a whole lot better than someone living in the street in, say, Calcutta. They were on top of the world compared to that and they knew it. I'm sure they were paid a couple hundred bucks a month, or something like that and I got to know some of those people. Their life was pretty darn good there. And so was mine. And while the gap between what I was being paid and what the Filipinos were being paid was substantial (not quite comparable to the gap back in Ft. Lauderdale), being shipboard in DG, money and how much you made was almost totally irrelevant.

The thing is, there weren't really any "Have and Have Nots" on the island. There also weren't any gated estates or yachts there either, to admire and wish you had. Everyone had everything they needed and no one (that I know of) was going hungry, getting rained on, or running around naked... unless you wanted to, but then the Brits would throw you in the brig and you'd miss the evening launch back to the ship.

I know this is taking the long way around to make a simple point, but when all your basic needs are met and then some, and everyone around you is about the same, then the whole notion of "wealth" gets kinda hazy and hard to comprehend. As soon I realized that and was able to internalize that idea in the context of where I'd just come from, I was able to rid myself of the jealousy and resentment toward those "really rich people and all their stuff", back in Florida. That idea has, fortunately, stayed with me my whole life.

I still buy a lottery ticket on occasion and daydream about living in a big gated estate (and there are lots of them where I live, in Dallas) with hot-and-cold-running-anything-I-want. I'm pretty sure I'm not alone on that point, but I sure did learn to appreciate what I do have and I'm not doing too bad when I look at it through the lens of that experience. I'm perfectly satisfied being a 50-percenter.

Lies and statistics... I think all of the vanishing wealth of average people can be traced to the housing market crash... Because for most people that is where their wealth is and that is why you are seeing this problem now. Many of us were close to being paper millionaires due to our homes - now not such much.

In 2010, the cutoff for the top 10% was $138,923. The census bureau has all the data.

Google "household income limits by percentile", first result. Wikipedia has a good entry too, but its a bit out of date.

Also, education pays.
http://www.bls.gov/emp/ep_chart_001.htm/

"I assume non-Americans have even less idea." I wouldn't assume this, Mike. Many of us peruse U.S. media. I doubt there's a comparable proportion of Americans that pay attention to foreign media. But maybe that's a questionable assumption, as well.

I hold no grudges toward the wealthy as long as they made the $$ fair and square. Actually they have my admiration and respect. Don't forget these are the folks creating jobs and paying guys like you and me for services. Less fortunate folks can't always afford to do so.

PS I don't believe the rich should pay more taxes. Penalizing these folks for being successful is wrong. They should though pay the same rate as the middle class and by that I mean pay your fair share.

I liked John Denniston's story. Gets to the heart of the matter, I suppose. Does anyone eer feel they have enough? What does it take to feel rich?
For me, regardless of how much I'm earning or have accumulated, while I still need to work for a living I'll never feel rich. The trick to making it happen is not to ever expand ones living costs as income goes up. I think I'm doing OK so far. I've hit a fairly steady point where I'm happy and can see a way out of the need for full time employment: I'm a lucky guy.

This whole topic is encrusted with b.s. I've concluded that almost anything that could be done about the wealth disparity in this country is worse than doing nothing. And I've thought about it, a lot.

The one single thing that I've thought about so far, that might be done, is to have a generous inheritance provision -- say, $25 million or $50 million or whatever -- and everything over that gets hit at 95%.

(This ended up being far too long and I missed the sunny, hopeful tone I was aiming for.)

Mike, there's the thorny question of whether we're defining inequality by wealth, such as your linked statistics, or by income. My guess is that a certain significant segment of the population has no real wealth at all even if they have an income slightly north of the poverty line; their money is entirely spent on quotidian demands and their assets are canceled out by debt. Ironically, a jobless wealthy person can enjoy an income, through dividends, rents and capital gains, far higher than someone in the lower quintiles struggling with two jobs.

It's a dangerous mess and it won't be fixed following the status quo. Even if one dismisses the concept of fairness; we can all see the economy strangling itself. People are running out of money to spend. Yet no one trusts the government to reverse the trend. The merest hint of remedy brings shouts of 'socialism' and 'class warfare'. The reformers are too timid; the reactionaries too loud. Experts keep telling us the situation is fait accompli; a global juggernaut that can’t be stopped.

Is there a non-government solution, then? Something without tax hikes and entitlement growth, without stimulus through deficit spending? A peaceful approach avoiding tumbrels and pitchforks; pepper spray and sound cannons? Well, no, probably not, if we all just remain what we now call realistic, that is, we just accept, without question, a world of political intransigence and beggar-thy-neighbor attitudes.

But one approach could be simple, really, as a matter of arithmetic, if not instant attainment. It doesn’t involve a re-distribution of wealth, merely income; an adjustment of how we, as a society, reward work. Based on my admittedly potted research into current income trends (googling through a hoary thicket of statistical websites) it seems that if the top 5-10% cut their own incomes dramatically, but not so much they wouldn’t still be the top earners, and that money was to find its way into the incomes of the bottom 50%, the resulting surge of spending and entrepreneurialism would stimulate new investment in every corner of the economy. Everyone would benefit; no one would suffer. The poor could live better lives and the rich would still be rich.

This isn’t just a pipe dream. How we got here, to our gilded present, from a time, say 40 or 50 years ago, of more equitable income distribution, was no accident of history, but the result of deliberate arbitrary choices. We now see the results: an ever more unstable society and needless widespread suffering. I don’t think politics can save us now, but maybe good will and a change of heart can.

I generalize here, which I hate to do. There are some fine, patriotic wealthy people. Some have just ridden the wave, but others (Wall Street?) seem to have a more sinister agenda. They got a lot of their money by taking it from working people.

The reason the wealthy are getting wealthier is because they are in control of elections and politicians - because without big money, no politician has a chance. Then beholden officials make the laws they are expected to make, or else.

The 10% also has enough influence on the media and political ads that only the wealthy get their message out.

The strategy is that when anyone mentions fairness or equality the wealthy say, "Hey, what about abortion?" Or, "What about immigrants," or "They're going to take away your guns," or "Terrorists," or anything else they can say to divert attention away from the real problems and the obscene inequality.

The 10% only has 10% of the vote, so they depend on most people voting against their own interests. Incredibly they are quite successful at getting poor people to do just that.

And education will never be a priority, because the last thing that the rich want is an educated electorate.

The system seems rigged.

As George Carlin said, "They call it "The American Dream" because you'd have to be asleep to believe in it anymore."

"I assume non-Americans have even less idea".

I'm not so sure about that, Mike. US media is probably less likely to report on this than foreign media. For example, how widely was this report published in the US, from today's Sydney Morning Herald?
http://www.smh.com.au/world/us-poverty-on-track-to-rise-to-highest-since-1960s-20120723-22it7.html

Or this?
http://www.smh.com.au/business/world-business/20-trillion-hidden-in-tax-havens-report-20120723-22isg.html

From the title, I thought you were going to be citing this article:

http://www.nytimes.com/2012/07/08/opinion/sunday/dont-indulge-be-happy.html

That talks about $75,000 in income a year being the "happiness" or "enough" point. Of course, you can probably hit the same "happiness" for an awful lot less money if you don't live on the coasts.

The data on percentile distribution of income can be found here:

http://taxpolicycenter.org/numbers/displayatab.cfm?DocID=2970

That puts the aforementioned $75,000 income point at the 70th percentile. Not a lot of the US population over the "enough" point.

Annual income needed to be in the:

1% $506,000
10% $158,000
50% $43,000


These figures are for income only and don't include accumulated wealth.

Source: http://blogs.wsj.com/economics/2011/10/19/what-percent-are-you/

This was reported just a few days ago.

According to data from the Federal Reserve, median family wealth in America dropped by nearly 40% between 2007 and 2010. But, during that same, the wealth of the Walton family increased 22% to nearly $90 billion. So now, the six Walton heirs have more wealth than 48 million American families – or more than 41% of all American families – COMBINED.

Hiya!

> I assume non-Americans have even less idea.

Not necessarily.

America's Poor
http://www.bbc.co.uk/programmes/p00nm3fm

(this is the World Service, so should be listenable most places)

Dean

Hi again.

And then there's this - the global version, which popped up yesterday.

"A global super-rich elite had at least $21 trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a major study."

http://www.bbc.co.uk/news/business-18944097

Dean

"You might enjoy watching this TED talk: http://www.ted.com/talks/richard_wilkinson.html"

Mark,
The only thing I don't like about that one is that it isn't longer....

Mike

You may also be interested in this article from The Guardian, which reports on a study showing that globally the situation is actually even more askew because of the truly staggering amounts that the 1% have managed to hide from traditional accounting: http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy

The follow-up question is "what value to the top 10% (or their parents) created relative to the bottom 10% or 25%"? If you are comparing entrepreneurs, inventors and plain hard/smart workers to people who aren't creating much value for others, then the comparison of net worth simply follows their usefulness to their compatriots.

I will always remember vividly the middle-aged guy bagging groceries at my local Safeway in Colorado for probably $8/hour, limited by the store to working part-time status so he's not going to be entitled to benefits, carrying on about the unfairness of the estate tax and how it mustn't be taxed- this, at the time, kicked in at taxable estate of $5 million. As long as these folks drink the Kool-Aid, the 1% is totally safe.

Debt (mortgages, student loans, etc.) counts as negative wealth, so the small share of wealth held by the bottom shouldn't surprise. What matters more is the extent to which those taking on debt are able to build wealth later, and the extent to which the wealth of parents predicts the wealth of their children.

I can't answer your question, but I'm sure you have readers who are qualified to do so.
All I have is a sort of anecdote:
I went to college, at a private school, in the 60's. I clearly remember writing the tuition check for one semester: $760.00. Now all by itself that's just a chuckle, like 25 cent hamburgers or 35 cent gasoline. What's important about it is that I was able to pay it myself. Nothing heroic, just working in the cafeteria during the school year and a solid factory job each summer.
This year the tuition for one semester at my alma mater is $17,000. Room and board, about $5000.
Doing some back-of-the-envelope numbers, I figure that the most a student could make today, working the same way, is about
$13,000 per year; and that assumes she could find a factory job in the summer. More likely, she'll find a minimum wage job in a burger joint, or in retail.
Not even enough for one semester.
The same price increases are evident everywhere else, too. Car then: $2000 to $3000, car now: $20,000 to 30,000. Candy bar then: 5 cents, candy bar now: 50 cents.
Across the board, prices have increased by a factor of 10. College tuition by much more than that.
(Yes, I know it's more complex than that, and that people write books about the subject, but these are prices that I know about.)
I couldn't find good numbers about average incomes over time, but there's this: the minimum wage in 1968 was $1.60 per hour.
2012: $7.25. About 4.5 times more.
Of course, not everybody works for minimum wage, but it does provide a floor. In effect, if you flipped burgers in 1968, you were making about twice as much real money as you would today.
In 1968, none of the mothers in my neighborhood worked. In 2012, nearly all mothers work, if they can find work.
I guess my only point is that we have undergone a real, but slow, lifechanging transformation in our economic life, and that now, after the banker-driven collapse of our economy, we seem to be approaching some kind of end point.
I am afraid for my children. I know something about history, and I know what has happened in the past, in other places, when most of the people feel they have no stake in the society they live in.
With luck, I'll be dead before it happens here. I'm encouraging my kids to maintain their passports.

"I assume non-Americans have even less idea."

I'm sorry Mike, you assume incorrectly. Few people I know would like to live in the United States, due to problems like you describe.

If I were to assume something, I'd say it's quaint you still seem to think that non-Americans all view the US as some sort of utopian, light-on-the-hill we all aspire to. We don't. I'll take my Medicare and easy access to tertiary education over it any day.

Comments 0?? I'm the first to comment?

Yes, Mike, go man go. I have some idea even from this antipodean outpost, the arse end of the earth as people call us. (Uh oh, too strong for sensitive US eyes?)

The Guardian recently used the word LOOTING to describe Barclays Bank chief Bob Diamond, a US banker in England, to describe the behaviour of bankers now. (I will put a u in behaviour if I like, thank you Blogger!)

There is no better word to describe it: rape and pillage, fraud, robbery, looting, piracy, hoarding, and above all GREED.

How many Mercedes or Lincolns can one man eat? How many country estates can one man live in? How many beach houses does one family need? How many apartments, town houses, diamonds, bonds, safe deposits ...?

While the rest of your country begs, goes without medical insurance or proper care, and ends up killing themselves with drugs or shooting others out of insane desperation.

"Not my problem." "Government should stay out of people's lives."

Oh you poor people, literally. I am so sorry for the USA, that once great country.

I think you might be surprised at just how widespread knowledge of the general shape of those stats are outside the USA. For many of us who tend to regard ourselves as friends of the USA, we are bewildered by the growing hostility we feel Americans have for themselves. Surely a country's concern for its own citizens is the stuff that binds a country together? In duscussions with US friends, I find that community programs that most western countries take for granted tend to be dismissed in the USA as "socialism". That fear of each other also appears to be directly linked to USA attitudes on gun laws.

Oh, OK, just noticed the warning. Well, um, I'll try.

Australia is regarded as a socialist country! Wow, lefty people, full of government interventions. Yes, you are right.

But the news item this morning was "Australia has just chalked up 21 years straight without a recession. This is unequalled in the world. No other country has done this."

There are no bank or savings and loan (Building Society) failures here, no beggars, no-one need fear illness or disability or real poverty. My medications cost me $5.80 each, as long as they are doctor prescribed.

Australia has sailed through four, count 'em four, major financial crises: the 1996/97 Asian bank crisis, the 2000 "Tech Wreck"; the 2008/9 financial crisis; and now, this Euro/US crisis.

To get one right could be called luck, to pass two was good fortune, to pass three was good management, maybe, and to cruise through this one, we MUST be doing something right. And we are! The Australian Reserve Bank and the Treasury Dept are competent, common sense people who inspire confidence. I feel safe.

My state, Western Australia, is absolutely off the charts booming. We have a jobs crisis! Not enough workers. We need 5,000 engineers right now. Projects are being delayed or cancelled due to lack of people.

So ignore us if you will. Good luck.

Mike,

Playing with words and statistics can produce quite misleading results. Even without that, statistics alone can mislead.

Your discussion starts out talking about “income inequality” then uses wealth statistics to continue the discussion. Income and wealth are two very different things. Using the wealth distribution in Speed’s comment there are people of very modest income in the 75th or 90th percentile and people with very high incomes in the 25th percentile.

Wealth, or net worth, is assets minus liabilities. Most of the U.S. population has very little net worth because the culture has changed drastically from Shakespeare’s “Neither a borrower nor a lender be” to the last couple of decades (especially) when the norm is for people to carry balances at 15% on their credit cards.

The statistics you give are more reflective of people borrowing to buy things they can’t afford with current cash when their wealth would greatly benefit from waiting until they have the cash. Of course, buying on credit causes them to pay interest that in turn reduces cash available for future purchases thus increasing future borrowing. This is a cultural effect producing cultural results, not an economic statement of good or bad.

I was lucky enough to be raised by parents who recognized the true cost of borrowing. When I got my first job and quickly got married my wife and I lived on my salary and saved hers. We have only borrowed to buy a house, and paid that off in 10 years. Both our incomes would be considered modest, but after 35 years of saving we are well into the 90th percentile of Speed’s chart. We have no debt to subtract from our assets. However, many a person earning several hundred thousand a year has borrowed to buy fancy cars, vacation homes, and generally borrowed to live high with a resulting small net worth. I know some and am related to one. They lose their $200 thousand a year job and within a year they are in bankruptcy court.

Our current recession is a debt recession. People have borrowed until they can borrow no more. They spent their future income, and now the future is here and all their current income goes to paying debt. (That kills demand for goods which causes businesses to need fewer workers which causes people to inaccurately blame lack of jobs as the problem when the real problem is lack of demand for goods because people borrowed too much.) Of course the majority of people have no net worth. Only those who resisted keeping up with the Joneses have wealth.

About Income distribution in the world, a large usefull database :

http://g-mond.parisschoolofeconomics.eu/topincomes/

You all know the French passion for Equality, often a source of ideological conflict - poor Fraternity - and antinomic with our Revolutionary first Pillar - Liberty...

A discussion of high quality here :

http://www.bostonreview.net/BR37.2/ndf_david_b_grusky_inequality.php

http://www.bostonreview.net/BR37.2/ndf_thomas_piketty_emmanuel_saez_stefanie_stantcheva_inequality.php

As recently as last year, social mobility was higher in Europe than in the U.S., according to the very thorough economy pages of my (Dutch, not left nor right wing) newspaper. Could it be that in the U.S. social inequality is made acceptable (or bearable, or justifyable) by a rags-to-riches chimera that is taken for real by most everyone, from the rich to the poor - albeit for very different reasons?

£13tn hoard hidden from taxman by global elite
• Study estimates staggering size of offshore economy
• Private banks help wealthiest to move cash into havens

http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy

I'm a Swede with an American (OK) wife, and I tried to explain the rationale between the Swedish and the American tax system versus voting to my father in law. To me it boils down to trust. A Swedish low income worker trusts the system and votes for social security. An American low income worker does not trust the system and votes for low taxes ...but that's my take.

To see where you stand, in the USA: http://www.nytimes.com/interactive/2012/01/15/business/one-percent-map.html

But, maybe even more relevant, globally: http://www.globalrichlist.com/

Almost all of us here on TOP are probably in the 1%, or very close to it, on a global scale. I don't say this to diminish problems on a local or country-wide scale, but we should not forget that even the less-well-off among us are relatively rich compared to the rest of the world. Let's keep some perspective.

By the way, I do think it to be quite strange that there does seem to be real poverty (not "poverty", where people complain they can't afford a new camera) in one of the leading countries of the developed world, just like I don't understand how a society can willfully elect not to want to have socialized health care. Aren't these things what living in a civilized country is all about? Isn't the absence of insecurity the greatest freedom there is? (Full disclosure: I have never lived in the USA, and have briefly lived on welfare in my home country Germany. I also pay a lot of taxes, and it can be taxing. But to me, this is The Price Of Freedom.)

Regarding the comment by John Denniston about a certain successful local artist by the name of Alan Wood, it's funny how I've come across a remark very much like it, and it was by Kurt Vonnegut:

True story, Word of Honor:
Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island.

I said, "Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel 'Catch-22'
has earned in its entire history?"

And Joe said, "I've got something he can never have."

And I said, "What on earth could that be, Joe?"

And Joe said, "The knowledge that I've got enough."

Not bad! Rest in peace!

There's a mantra that gets repeated that it's the wealthy who created jobs, ergo, they create the economy, and so therefore, the argument goes, we should not tax them (much), or we shouldn't threaten to tax. This leads to situations where towns, counties and even countries compete with each other to attract that wealth by creating tax havens, tax holidays, etc.

Somehow, the idea has permeated that society is here to create an economy. Isn't the economy something that should be at the service of the surrounding culture.

Also, is this idea, i.e., that the wealth create jobs, true? I'm just asking the question. It's too easily accepted as a trueism, which makes me suspicious.

At some point, I don't know when that is, if enough wealth is concentrated in the hands of too few, then that minority exerts a monumentally undue influence on all public policy. Laws are passed NOT for the benefit of citizens or the surrounding culture but rather to benefit a few private interests. How is that different from serfdom? Is that really what we want?

One quick comment about wealth in general. If we're looking at net worth for Americans two important factors come into play - the average home mortgage held by Americans and the average savings balance. During the past five years the average home mortgage has been over $200,000 while the average savings balance has been about $30,000. One economist recently stated correctly that if you could pay off all of your debts and still have $10 in your pocket you fall in the upper ranks of wealthy Americans. In some ways, the division between the wealthy and those less fortunate in the US comes down to age.

Looking at wealth in the US from another perspective, if you disregard the top 10% of wealthy Americans and just look at what is required to fall in the remaining upper reaches of the net worth scale it's education, work and thrift. It's so easy to talk about taking money from the rich to give to the poor we forget about encouraging our youth to do well in school, find a good job, keep a good job, and spend less than you earn.

Well, who wouldn't like to be well off?

The issue is that mobility is becoming increasingly inaccessible in much of the West to entire classes of society who are badly let down by the public education system.

If you need to be well off in the first place to afford a decent education (either by geography or private school) then you are simply creating a new class system. Yet the standard of state education in the UK (and quite a few other places) depends entirely on where you live, which in turn depends on income class. So it's self-perpetuating. It's difficult for the kids from the 'hood.

Education is the key that for most of us provides the only reliable route to a decent income and semi-secure employment. All others require extreme amounts of luck, talent, deeply unethical behavior or inheritance.

I count many banking practices of recent years as being deeply unethical.

From each according to his ability - to each according to his need...give me some of your money!

It's not so hard to be a 10%er; that is, to accumulate $1 million in net worth. A house with equity of $400,000 and $600,000 in investments, especially IRA, gets you there. I know a few of those guys.

It's actually pretty easy. Get a university degree, even if you have to work two jobs to pay for it. Get a job with the potential to get to management. Work harder and longer than most of your contemporaries. Get a few promotions. When you are offered a promotion to a plant in Tumbleweed, Iowa, take it and excel. Live below your means. You don't need a new BMW, you need a used Ford. Save money. Add to your IRA. Rinse and repeat for 40 years.

After you retire with a million or more in net worth, ask yourself if you should be ashamed that you achieved more and were paid more for doing it.

I appreciate that I live in a country where such a thing is even possible.

Here is a nice diagram about money.

http://xkcd.com/980

"Money brings some happiness. But after a certain point, it just brings more money."

Neil Simon

I think the biggest problem is how the top 1% / 10% got there.

These days, far too many are there because of crony capitalism (the entire banking sector, regulatory capture in many industries, etc.) and not from actually succeeding at serving customers needs.

The really scary thing about this thread is that apparently so many are willing to consider the idea of income redistribution and hail it as a good thing without thinking through the implications and outcome of such a policy.

This reminds me of something I once heard:

"Bankers talk about art at dinner and artists talk about money."

Everyone seems to care so deeply about income equality, and I'm not sure why, or what sensible metric there would be for a fair spread, or any way to maintain the spread just so if you could achieve it. In any competitive system there will be winners and losers; that's not a value, moral, or fairness judgement, just a simple fact. And railing against it ignores the fact that even in systems that claim to address income inequality, they still occur; i.e. in Soviet Russia there were people that stood in bread lines and people with nice dachas on the Volga, good Party members all. The real question, the real focus, should be on income mobility, or better the lack thereof, and the fact that the system only begins to work if the majority of people believe that they've got a realistic shot at the brass ring if they work hard and play by the rules. Once people stop believing that they can get ahead, what real reason do they have to buy in? Only 14% in the US believe it's even possible for them to do as well as their parents. Especially when they see people that screwed up royally getting what amounts to a handout, because they happened to have screwed up big enough. Playing the game from in the hole is one thing; knowing that the game is rigged is entirely different.

Thanks for taking the time with this mike. I think it's important for people to talk about and debate wealth distribution in this country.

"Some wish it done by knocking down those at the top. Some prefer that those on the bottom rise up."

We see in todays New York Times
http://www.nytimes.com/2012/07/23/business/profitable-caterpillar-pushes-workers-for-steep-cuts.html

where Caterpillar, which made profits of $4.9 billion last year and is on track to surpass that this year, is simultaneously a) showering executives with raises and bonuses, and b) squeezing the rank-and-file for wage and benefit concessions, including a six-year wage freeze, in an effort to replace $26/hr workers with $13/hr workers.

Sounds to me like those at the top are rising on the backs of those at the bottom.

"everything over that gets hit at 95%" -- Say hello to expatriation, then. Robbery is never popular with people. And note also that inheritance is rarely in cash, so heirs would have to liquidate at a fire sale in order to pay up.

It probably doesn't matter what the income disparity of the nation actually is, but what is important is what the nation's acceptance or tolerance is. Gini coefficient, which measures income inequality (higher the number between 0 and 100, expressed as percentage, the higher the inequality) ranks the US the 16th from the bottom. Here are the counties that have worse inequality: [United States 45] Costa Rica 46.5, Philippines 46.6, Malaysia 49.2, Peru 49.8, Thailand 51.1, Argentina 52.2, Mexico 54.6, Chile 57.1, South Africa 59.3, Brazil 59.7, Bolivia 60.6, Sierra Leone 62.9, Botswana 63, Lesotho 63.2, Namibia 70.7

By the way, this "dream" that is supposed by most Americans as the freedom to dream--there is nothing particularly American about it. Every rickshaw puller in India also dreams of becoming rich, and some even do.

"The follow-up question is "what value to the top 10% (or their parents) created relative to the bottom 10% or 25%"? If you are comparing entrepreneurs, inventors and plain hard/smart workers to people who aren't creating much value for others, then the comparison of net worth simply follows their usefulness to their compatriots."

Oleg,
No doubt. But as with most things, it's a question of degree. I fail to see, for instance, how Alice Walton, say, is as valuable to society as 22,000 garden-variety millionaires, just for being her father's daughter.

Mike

Personal wealth is created by keeping your spending smaller than your income – earn more, spend less. Many people haven't figured this out.

The primary jobs of personal wealth are to provide flexibility (I can quit my job and not starve), security (I won’t starve if I’m fired) and a financially secure retirement. And you may want to send your kids to college. And medical school -- make sure they sign a promissory note.

Once you retire you are unemployed and must live off Social Security, a pension and personal savings – 401(k) (or equivalent), investment accounts, bank accounts and income from non-financial assets such as real estate. If you have no pension you will require more personal wealth.

Assuming a six percent annual rate of return (perhaps a stretch), each million dollars of personal wealth will provide $60,000 per year of income without touching the principal. You have to decide for yourself how many or how few millions you’ll need and if you want to spend down the principal without knowing exactly how long you’ll live.

Some say that the best retirement plan is the one where the check to the undertaker bounces. And those lenses? You can't take them with you.

Interesting comments but in doing my research on the internet I have only come up with two of the four relevant numbers.
A net worth of $1.2 million puts you into the top 10%, what puts you in the top 1%?
An income of $350k puts you into the top 1%, but what puts you into the top 10%?
It may well be in the links above, but I've been through most of them without finding it.
The "value to society of the new super rich" question is interesting, but I fear that the answer boils down to opinion with little hard factual basis. The right-wing think tanks have convinced half of the American public that lower taxes on the rich will spur business. Economists seem not to agree, but....

Regarding Ctien's figures, I find it astonishing that you can be a 20-per-center for *ONLY* a half million, and a one-per-center for just ten mil.

Ok, ten million is absolutely a lot, but its achievable over a lifetime for an average business owner. And a half-mil is around the BARE MINIMUM a person would need to comfortably retire around 55-60 years old without any welfare or pensions. As in, EVERY DANG PERSON ALIVE is on one of three tracks, A) kinda poor and working til death, B) being taken care of by someone else ('s money) in retirement, or C) on-track to be worth upwards of a half-million dollars and retire on his own assets.

Doug C. asked what net worth puts one in the top 1% and what income puts one in the top 10% ...

" ... for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million ... "
http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/

"Of those individuals with income who were older than 25 years of age ... the top 10% had incomes exceeding $82,500 a year."
http://en.wikipedia.org/wiki/Personal_income_in_the_United_States

I always thought income/wealth inequality was, in general, due to globalisation. It decreases disparity between countries and increases disparity in countries. The guy who sells a one dollar widget into a market of say, 10 million people, suddenly finds he has a potential market of, say, 500 million because of globalisation. If he can take advantage of that, his income/wealth then takes-off into the stratosphere leaving everyone else behind.

As a Briton filled with full-on ravaging anger, I can only state the Enclosure era protest rhyme:

The law doth punish man or woman
Who steals the goose from off the common
But lets the greater felon loose
Who steals the common from the goose.

My wife and I both came from fairly low-income families, though not bottom rung. We ended up with the usual pile of debt after college (my wife with more thanks to med school). Now she makes a quite good salary as a family doctor, but coming from a zero asset starting point (from both families) makes it harder than you might think to spring into the secure upper middle class, even with a six figure income. Hitting 50 in a few years, so another 15 of working and the 401k should be fine, but it's hard to see how so many others get by with less money (well, as a former cook, I know how-- it sucks, and you skimp). I don't look forward to seeing the retirement problems that most post-boomers will face, and I would like to see massive tax changes resulting in income re-distribution to the working class (yes, even if it means we pay a lot more in taxes).

I feel like even liberal high-income folks said to the Bush tax cuts, "tsk tsk, but thank you."

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