Wealth, Income, and Power

[David Franks]

Here's an interesting article on our nation's distribution of wealth and what it means. It is based on data up to 2007. If indicated trends have continued since that time, then wealth and power are even more concentrated now. It might have been posted here before; I didn't check.)

I like the fact that it distinguishes between income and wealth, and breaks down wealth by asset type, which can be useful for tailoring one's arguments.

Wealth, Income, and Power
by G. William Domhoff
September 2005 (updated July 2011)

http://sociology.ucsc.edu/whorulesameri ... ealth.html

[Dardedar]

Good stuff. And he also references an earlier article, which I want to quote here. This was written in July

An Investment Manager's View on the Top 1%

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Folks in the top 0.1% come from many backgrounds but it's infrequent to meet one whose wealth wasn't acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a "paper" asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

I think it's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top. Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.5%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

Not surprisingly, Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%.

I could go on and on, but the bottom line is this: A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic."

And a chart from David's article referenced above:



"The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America."

[Dardedar]

Is Redistributing Wealth a Bad Thing? You Betcha!
By Scott Lilly | October 21, 2008

Excerpt:

"For many years in this country it was understood that as worker productivity rose, the benefits of that increase should be shared equally between workers and their employers. That is exactly what happened during the 30 years between 1950 and 1980. Worker productivity rose by 93 percent during that period, and wages rose by 89 percent. It wasn’t that the corporate leaders of that period or Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter were socialists, or even that some of them had a particular commitment to economic equity. They simply respected one of the cardinal rules of economic growth—if you want output and profits to grow, you have to have consumers with the buying power to purchase those products.

That is precisely what failed to happen in the years leading up to the stock market crash of 1929 and the Great Depression that followed shortly thereafter. During the 1920s, high productivity gains were accompanied by declining wages and falling income for the vast majority of American consumers. The past eight years have not been quite that bad, but they are markedly similar.

Since 2000 the productivity of American workers has increased by 20 percent, while the wages of the average worker have grown by less than 1 percent. Was the savings made by employers from paying lower wages passed on to consumers in order to strengthen the competitiveness of American produced goods and products? The answer is no. But there was a remarkable bonanza in the income of businesses and high-income individuals during this period. Between 2000 and 2006, corporate profits grew at an average rate of more than 10 percent a year—more than five times the average rate of growth in corporate profits during the previous 50 years. Corporate profits as a percentage of national income skyrocketed from around 9 percent to more than 15 percent during the same period—higher than at any point in the past half century.

Well-to-do individuals also did extremely well. Based on data prepared by the Internal Revenue Service from tax returns filed during the post-9/11 recovery (2002 to 2006), household income grew by $863 billion during the period. The 15,000 families at the top of the income scale saw their annual incomes go from about $15 million a year to nearly $30 million. They alone accounted for more than 25 percent of all of the growth in income for the entire country. The remaining 1.7 million families in the top 1 percent of households accounted for nearly another 50 percent.

The bottom 90 percent of families accounted for only 4.7 percent of that growth, which went entirely to the top 20 percent of this group. Families in the middle of the income spectrum actually lost ground."

LINK