A factoid I keep hearing is that almost all of the increase in the US economy today is going to an elite of 1% or less. But how exactly is this manifesting? If they’re raking in more money, what is it getting spent on? Are the 1% living in ever more decadently appointed mansions? Buying more superyachts or custom fitted private planes? Owning more private islands? Buying clothes from elite designers who charge a million dollars a pop? I have heard that the wealthy are buying up collectable antique art (and thereby driving up the price) but it can’t all be that. If the super-rich are living more luxuriously than they did forty years ago I can’t point to an example.
Is it rather that the 1% simply own more, in the sense of shares of profitable corporations with huge company assets? If forty years ago someone owned 51% of a company valued at a billion dollars, and today they own 51% of a company valued at half a trillion dollars, on paper they’re MUCH richer– but does this actually translate into disposable income?
In the normal consumer sense, billionaires can’t spend down their wealth on goods. Even a half billion dollar yacht to sail to your private island won’t make a dent.
What they can do is pass wealth around. If you’re a billionaire you can buy stock in other people’s companies, or just buy the whole company. Warren Buffett has made an entire career of that. If you control a $500 billion company, you almost literally can’t afford to buy anything under $50 billion. The expenses of doing so are rarely worth the cost (unless you’re just eliminating a future competitor). Wealth at that scale creates more wealth much faster than wealth can be distributed, which is why the rich get richer.
The second main thing that billionaires do is give to charity, either directly or through trusts and foundations. Buffett and Bill Gates created the Giving Pledge.
The Giving Pledge is a charitable campaign, founded by Bill Gates and Warren Buffett, to encourage wealthy people to contribute a majority (i.e. more than 50%) of their wealth to philanthropic causes. As of June 2022, the pledge has had 236 signatories from 28 countries.
While the idea is quite worthy (although people have quarrels with the execution) giving money to poor people, maybe on a different continent, rarely shows up in your pocket. You don’t see it. The GDP doesn’t see it. Other than the morality of doing so, the economic value is created by reducing negatives. People will live longer, healthier lives, at best creating goods and services and becoming consumers, which will affect GDP, but far in the future.
What’s left is still quite large. That’s what generates generational wealth, kicking the question down the road. And because wealth creates wealth, the succeeding generation will start with just as much wealth as their parents do today before dissipating their wealth. The cycle needs to be broken.
I don’t know what they’re doing with it, but this is my favorite video to demonstrate just how bad the situation is.
Before you watch it, note that this was made in 2010. 2010. Before any Trump tax cuts for the wealthy. Which gave them billions more in the wealth transfer.
The amount of wealth concentration at the top is staggering and obscene.
But what does wealth concentration do? Is it simply that one billion dollars in assets would permanently lift a thousand people out of poverty, if they could simply become privileged to, as Kurt Vonnegut put it, drink from the “Money River”?
While “generational wealth” tends to concentrate that wealth in a successively smaller proportion of the population, unaddressed inequality begets greater poverty. People without means struggle to advance themselves or their children, and because this occurs at a community level, the access to resources and support systems are lacking those children become mired in generational poverty. And it is bad enough when this is occurring to people who started in the lower socioeconomic classes, but now the costs of higher education and health care—two services that should be regarded as a societal benefit worthy of subsidy for their manifest benefits—the children of middle class families who attend college using student loans (as school counsellors encourage them to do) often end up less well off (sometimes in near-poverty) and with little if any wealth to inherit, spend most if not all of their prime ‘working years’ paying of interest on those debts, and cannot afford to own a home, build retirement savings, or participate meaningfully in the economy aside from buying cheap imported goods.
Massive wealth inequality—especially where the top 1% of the population controls more then half the fungible wealth of the nation—creates a self-reinforcing system where there are fewer occupational and educational opportunities, greater political influence and corruption, and a general abeyance of democratic norms even in a nominally representative country. Because the wealthy can insulate themselves in protected enclaves, they see little need in the maintenance of infrastructure or providing “entitlements” such as education, basic health care and nutrition, police and fire services, et cetera to the non-wealthy. Look to India as an example of how the extreme concentration of wealth in the hands of a fortunate very few ends up.
It is to everyones’ benefit to have a more equitable distribution of wealth and to facilitate upward mobility through education and opportunity. Except, of course, the extremely wealthy who don’t want to mix with dirty proles and those classless louts who eat pizza with their hands.
New Federal Reserve analysis of stock markets has found that the concentration of ownership of the public equity stock market has hit an all-time high.
“The rich now own a record share of stocks,” Axios reported on January 10, noting that the top 10 percent hold about 93 percent of U.S. households stock market wealth.
“The running of the bulls in 2023 was more like the waddle of the fat cats,” quipped Irina Ivanova in Fortune.
Our Institute for Policy Studies Inequality.org analysis of the Fed data found that the lion’s share of these gains went to the richest 1 percent. This elite group owns 54 percent or public equity markets, up from 40 percent in 2002. The next 9 percent (or households in the 90th to 99th percentile) saw their share of public market value grow from 38 percent in 2002 to 39 percent, a modest gain.
Clearly high stock market values has made this worse. I recall reading that the short crash due to the pandemic improved wealth equality.
Without getting out of FQ territory, it is also reasonable to expect that those with money and thus donation power would support laws and rules that help them keep and grow this money.
While it’s true there’s a significant wealth gap in the U.S., it’s a relative measurement. Based on quality of life and creature comforts (hot shower, air conditioning, clean water, etc.) the “poor” in this country (however that’s defined) would be considered middle class or even upper middle class in most places in the rest of the world.
So each one of those would be getting a million dollars. Great for them. Of course, like lottery winners, their lives are immediately upended and they may have to go into hiding, but it sounds nice.
What about the rest? The latest official figure is that 37.9 million Americas live below the poverty line. Make that 40 million for ease of multiplication.
Give each one a million. That would take $40,000 billion. Not going to happen. Giving each $1,000 is conceivably doable but solves very little. Which, BTW, is the usual objection to UBI (Universal Basic Income) schemes.
The problem digs deeply into the way we have chosen to run capitalism. The enormous concentration of wealth in the top 1% is not predestined. The U.S. did not suffer from this disease from 1930 through the 1970s. Then conservative economists led by Milton Friedman put forth the proposition that the only - only - duty of companies was to reward stockholders. (Worker safety, environmental concerns, being a good civic neighbor, even product quality, anything that had costs, could and should be ignored.) Instead of planning for the long-term, executives worried about how to raise the stock price in the current quarter. As an additional consequence, those executives no longer wanted compensation in salary but in stock options redeemable when the stock price rose. Wealth was the object and the result.
As a side effect, corporations were no longer rated on how much money they actually made in the past year but on how much they might make in future until infinity. Tesla is the most famous recent case. Though it made only 1% of all cars, its market cap (stock price times number of outstanding shares) was higher than all other western car companies combined.
The process therefore created enormous wealth, but it’s imaginary in a way. Tesla may be a great, world-changing car company but it doesn’t generate revenue by the trillions. Yet it allowed Elon Musk to act as if it did. He could start a half dozen companies. It allowed him to buy Twitter. But he can’t alleviate poverty because that does not generate more future imaginary revenue. He can only use wealth to generate more wealth. It’s a closed loop.
Sure, they can buy more stuff and more expensive stuff but it’s a fraction of of their wealth.
E.g., Jeff Bezos in 2023 made $7.9 million a hour, every hour, every day. Even with expensive toys like rocket ships, that’s coming in way faster that he could realistic spend. It’s Brewster’s Millions on super-steroids.
One psychological problem most rich people have is that a ton of money isn’t enough. They desire to the max even more money despite there not being any need for it. (It’s like a car collector who is constantly getting more cars even though they can’t even deal with what they have.)
So their money goes into investments. But there is only so many feasible investments. Ergo, we get bubbles. Real estate then tech stocks then real estate again and now both tech and real estate at the same time.
One big advantage of working people is that they spend most of their money quickly. This is a major driver to the economy. Rich people don’t spend like that. They are a drag on the economy.
But aren’t their investments helping the economy, and helping the middle class? Surely some of the money is being lent out to others, and a lot of it goes to building things. Seems the middle class would surely be benefiting from the investments…
Well, there’s all the people employed by the gallery and auction house for starters. Plus all the people at the Ferrari dealership, Ferrari International, etc. And all the people they spend the money with.
As long as they are spending, they are doing something positive for the economy. It’s the fact that, by and large, they don’t spend that is the bigger problem. See the Sam Vimes “Boot” Theory.
But spending on collectibles like artwork, rare cars or fancy watches just involves trading among the billionaire class; none of us poors ever see any money.
The money is going to the seller. Perhaps the seller will invest the money, which means it will go toward loans for the middle class, home builders, etc. etc.
Unless the money is stuffed in a mattress or is going overseas, the money is doing some kind of “work,” much of which is beneficial to the middle class in one way or another.
Dribble-down economics; servants of the the ultra-rich toss their chamber pots over the battlements of their fortified fiscal towers and everyone below can lick the walls for moisture and sustenance, just as Nature and Francis Galton intended.
Neither of these (the poor in America compared to the rest of the world, or the poor in America today compared to a hundred years ago) is really a compelling argument for maintaining the status quo.
