The Rich Continue To Get Richer And Richer And Richer

According to USA Today, the top one percent had a good year last year.

The gulf between the richest 1% of the USA and the rest of the country got to its widest level in history last year.

The top 1% of earners in the U.S. pulled in 19.3% of total household income in 2012, which is their biggest slice of total income in more than 100 years, according to a an analysis by economists at the University of California, Berkeley and the Paris School of Economics at Oxford University.

The richest Americans haven't claimed this large of a slice of total wealth since 1927, when the group claimed 18.7%. The analysis is based on data from Internal Revenue Service data.

I'm not an economist, but I'm better these data will show that raising the minimum rage will limit the top 1% to earning only 19% of  next year's total household income. However will they survive?

Some Rich Are Really Rich

Snow days let one catch up on minutia. The world has approximately 7 billion people. According to Gawker, the world is home to 1,426 billionaires, 442 from America. The world's billionaires have a net worth of $5.4 trillion.

To put those numbers in perspective, only the U.S., China, and Japan have a GDP higher than that $5.4 trillion. In fact, that total is greater than the 2012 GDP of England and France combined.

I realize accumulated wealth and production are two different things. Still, the fact that 1,426 people can buy everything produced in Germany last year and still have $2 trillion left, more than the GDP of Canada, is both fascinating and a little troubling.

Defining Freedom Down

Earlier today, I mentioned this Bob Mercer post that points out that groups that grade government transparency aren't necessarily transparent. It turns out that groups that grade freedom have skewed version of freedom.

Constant Conservative points to the Mercatus Center study that finds that the Dakotas are the freest states in the United States and rejoices:

So, congratulations fellow citizens (and the government which you all helped to elect). We may not be doing everything right, but we are doing better than many

As with the transparency study, things are not what they seem. Mercatus sees economic freedom, especially a low tax burden, as the most important freedom. The ability to avail one's self of a prostitute while high and shoot a gun to celebrate seem to be the most important personal freedoms:

Fiscal Policy (35.3%)

The fiscal policy dimension consists of the following categories: Tax Burden (28.6%), Government Employment (2.8%), Government Spending (1.9%), Government Debt (1.2%), and Fiscal Decentralization (0.9%).

Regulatory Policy (32.0%)

The regulatory policy dimension consists of the following categories: Freedom from Tort Abuse (11.5%), Property Right Protection (7.6%), Health Insurance Freedom (5.4%), Labor Market Freedom (3.8%), Occupational Licensing Freedom (1.7%), Miscellaneous Regulatory Freedom (1.3%), and Cable and Telecom Freedom (0.8%).

Personal Freedom (32.7%)

Personal freedom dimension consists of the following categories: Victimless Crime Freedom (9.8%), Gun Control Freedom (6.6%), Tobacco Freedom (4.1%), Alcohol Freedom (2.8%), Marriage Freedom (2.1%), Marijuana and Salvia Freedom (2.1%), Gambling Freedom (2.0%), Education Policy (1.9%), Civil Liberties (0.6%), Travel Freedom (0.5%), Asset Forfeiture Freedom (0.1%), and Campaign Finance Freedom (0.02%).

The economic freedoms certainly dominate the results. Paul Waldman writes that "the factors that matter are things like low taxes, lack of gun control, and "freedom from tort abuse," i.e. laws that make it hard to sue when your surgeon cuts off the wrong leg."

As for civil liberties, Timothy Lee points out they aren't really considered:

The right to own a gun is given five times as much weight as the “civil liberties” category, described as a “grab bag of mostly unrelated policies, including raw milk laws, fireworks laws, prostitution laws, physician-assisted suicide laws, religious freedom restoration acts, rules on taking DNA samples from criminal suspects, trans-fat bans, and laws that can be used to prosecute people who audiorecord public officials in the performance of their duties.”

Alex Pareene adds:

“Economic freedom” is of course their most important freedom, and so it is weighted the heaviest, with fiscal and regulatory matters making up a bit more than two-thirds of each state’s score. Which is how their No. 1 freest state is ranked 39th on the “Civil Liberties” list. Though that list is fairly useless, as their definition of “civil liberties” is “unrelated policies, such as fireworks laws, prostitution laws, and trans-fat bans.” On the list taking into account “incarceration rates, non-drug crime arrests, and drug enforcement,” Freest State North Dakota is at 24. (Second-freest state South Dakota is 48.) And Arizona has climbed to No. 11 on the overall list, because at no point are the rights of immigrants or people whom the police may suspect are immigrants taken into account

Pareene concludes, "Almost any Liberty issue that wouldn’t concern a straight, white, male capitalist is wholly ignored."

Lee, Waldman, and Pareene all exhibit a bit of urban arrogance toward the rural lifestyle and they show little appreciation for winter. That being said, short lines at a Hy-Vee checkout along with relief from heat and humidity does not necessarily make one free. Neither does emphasizing wealth  over civil liberties. In fact the latter situation makes Janis Joplin's lyrics more relevant. (I know it's a trite thing to do, but hearing Janis on a Saturday afternoon makes me feel good.)

A Quick Reminder About Wealth Inequality

 It's not a pretty picture.



HT: Daniel Luzer at Ten Miles Square

A Musing About Incentives, Profits, And Stagnant Salaries

The Sioux Falls Argus Leader reports, "No one testified against Building South Dakota, part of Senate Bill 235. Several lawmakers had skeptical questions about part of the proposal, but the committee voted 12-0 to send SB 235 to the full House." The legislation is an effort to bribe provide incentives for corporations to locate in South Dakota:

The complex proposal includes tax incentive for large business projects, grants for local infrastructure and affordable housing, and millions of dollars for education.

It would be funded by tax revenue from projects incentivized by the fund, and from part of the state’s “unclaimed property” revenue from banks.

Meanwhile, the New York Times reports that the Dow has hit a record high.

The Dow Jones industrial average, which measures the performance of 30 blue-chip companies, rose more than 100 points in morning trading on Tuesday, surpassing its previous record close of 14,164.53, which it achieved nearly five and a half years ago, as well as its record intraday high, set around the same time, of 14,198.10.

The Times also reports, "the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold." That trend seems unlikely to change:

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

The Times also reports that this golden age of corporate profits has not been seen in decades:

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said

.Let's review:

1. South Dakota legislators believe that companies that are making record profits can be given incentives to come to South Dakota

2. Despite record profits corporations aren't hiring new workers and the workers who are on the payroll are not getting raises.

3. In effect, South Dakota is going to give corporations awash in cash a chance to make more money even though the evidence indicates that they will not do anything to employ more workers or raise the salaries of the workers they do employ.

Why is this a good idea?

The Wealth Concentration Iceberg

The Guardian looks at the amount of money hidden in tax havens around the world:

Using the BIS's measure of "offshore deposits" – cash held outside the depositor's home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world's tax authorities.

"These estimates reveal a staggering failure," says John Christensen of the Tax Justice Network. "Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

"This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich."

In total, 10 million individuals around the world hold assets offshore, according to Henry's analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world's movers and shakers like to use as homes for their immense riches.

To put the last paragraph in perspective, Sioux Falls, South Dakota has about 150,000 people according to the 2010 Census. The 2011 US GDP was about $15 trillion; China's was about $7 trillion.

In short, a relatively small group of people equivalent to half the population of Sioux Falls hides assets that are larger than the GDP on a country of 1 billion people or 60% of the American economy.

If one wishes to be ironic, Mitt Romney can take comfort in these numbers.  Whatever he's hiding in the Caymens and Swiss accounts is only the tip of the tip of an iceberg capable of slowing down every economy in the world.

Now That We've Solved The Problem Of Giving Everything The Proper Political Label,

Can we please try to deal with a few substantive issues?

Cory has an excellent post about the dangers of labeling every government act "socialism" and the logical fallacy inherent in equating socialism with totalitarianism.

Blogger, political gadfly, and label attacher extraordinaire, Steve Sibson responds:

Just because communists like Obama haven’t completely implemented their communist plan does not excuse them from being communists. Communism evolution style, versus revolution style, is Fabian socialism. And this is not happening in America as a nation. It is happening in America on an international basis via the United Nations…Agenda 21, UNESCO, etc. It is happening in South Dakota via the 6 planning Districts, International based education standards, economic development for a global economy, and now RomneyCare/ObamaCare/DaugaardCare.

Sibson is extreme but not unique in his effort to label opinions and opinion holders. A cursory search of most Madville Times comments threads will find one of his comments contending that some person or idea is "Masonic," "New Age," "New World Order"-ish, or crony socialistic capitalistic fascism.

Sibson, talk radio hosts, and an an avenging horde of political leaders have engaged in an epic struggle to discover and assign political labels to every noun on the planet. They have won! TV news even covered the event:

Now that that little problem is taken care of, can we move on to the minor issue of inequality?

Writing in The Atlantic, Eliot Gerson points out:

America is moving toward the kind of bifurcated society we used to deride in banana republics--rich getting richer in gated communities, while the poor grow poorer, barely seen in segregated urban ghettos and hidden rural decay. Over 20 million Americans live in extreme poverty. One in 50 Americans' only income is food stamps. Add the poor and the near-poor--that is under $44K for a family of four--and you have more than 100 million people.

The richest country in the world now has the highest rate of child poverty in the developed world. The U.S. has gone from being relatively egalitarian to one of the most unequal countries in the world.

And mobility from the poor to the middle class is not as open to anyone of talent and ambition as it once was; demographers and sociologists all agree on this. Americans now have less upward mobility--and those born privileged have less downward mobility--than in many of the formerly aristocratic countries our ancestors fled from.

 The inequality and lack of mobility is likely to worsen. A Pew Study finds:

At all levels, Americans are likely to exceed their parents’ family incomes, but the extent of their income growth varies by quintile. Americans raised in  the bottom who surpass their parents' incomes do so by the smallest absolute amounts, while Americans raised in the top who surpass their parents’ incomes do so by the largest absolute amounts . . . .

The rungs of the income ladder have widened during the past generation, reflecting
economic growth at all levels, but especially at the top. Median income in the bottom
income quintile increased by 74 percent between the two generations, compared with
126 percent in the top income quintile  

The results of the income disparity are predictable:

During the past generation, the amount of wealth held by people at each rung of the ladder has diverged: Wealth has decreased at the bottom and middle and has increased at the top two rungs of the ladder. The wealth compression is especially notable at the bottom: Median wealth for those in the lowest wealth quintile decreased from just under $7,500 in the parents’ generation to less than $2,800 in the children’s generation. Conversely, at the top of the wealth distribution, median wealth increased from just under $500,000 in the parents’ generation to almost $630,000 in the children’s generation. [Emphasis mine]

Most people are making more money than their parents, but the poor and the middle class are lessable to create and hold wealth.

Finding a solution to the wealth gap has been hampered in no small measure by the fact that those who attempted to offer solutions were automatically called "socialists" or "fascists" or "class warriors determined to destroy the fabric of American society."

Now that all the nouns have been labeled, the country should start looking at ways to help Americans fulfill the promise that those who work hard and play by the rules will get ahead not fall behind.

The New York Times Buries The Lede About Education Gap

The New York Times reports that the education gap between the rich and poor:

 . . . . in analyses of long-term data published in recent months, researchers are finding that while the achievement gap between white and black students has narrowed significantly over the past few decades, the gap between rich and poor students has grown substantially during the same period.

More importantly,

The changes are tectonic, a result of social and economic processes unfolding over many decades. The data from most of these studies end in 2007 and 2008, before the recession’s full impact was felt. Researchers said that based on experiences during past recessions, the recent downturn was likely to have aggravated the trend.

However, the biggest part of the story is the last sentence:

There are no easy answers, in part because the problem is so complex, said Douglas J. Besharov, a fellow at the Atlantic Council. Blaming the problem on the richest of the rich ignores an equally important driver, he said: two-earner household wealth, which has lifted the upper middle class ever further from less educated Americans, who tend to be single parents.

The problem is a puzzle, he said. “No one has the slightest idea what will work. The cupboard is bare.”

"No one has the slightest idea what will work."  The statement should produce both desperation and innovation.  Yet, in South Dakota, Governor Daugaard has deceided to rely on political orthodoxy and push a warmed over  merit pay plan that has been shown not to work.

Quotation And Chart Of The Day: Class Warfare Edition

From this Derek Thompson post at The Atlantic.

. . . . more than half of the folks who pay no federal income tax make less than $20,000 a year. It is also true that 7,000 millionaires paid no federal income tax last year. . . .

If you think the 47 Percent are getting away with free-riding, consider that they're mostly poor families making $20,000, which means they would have to work for 116 years at that wage just to make the average annual salary of someone in the top 1 percent. . . .

The 47 Percent are mostly working families whose tax burden was offset by the Earned Income Tax Credit (invented by Republican President Ford and expanded many times since the 1970s), the child tax credit (doubled under Bush), and other exemptions passed into law by Republican and Democratic legislatures and administrations. The 47 Percent aren't running away from the law; they're benefiting from 30 years of Congress whittling away at the tax code. Some of this whittling was smart. Some of it wasn't. The only way to fix it is to raise taxes on working class families.

I guess I'm some sort of Marxist or Socialist or anti-American anti-capitalist, or just a terrible human, but I find the 116 year to 1 year ratio unconscionable.  I accept that fact that some people produce much more than others and should earn more.  That being said, one person should not have to spend more than two working lifetimes to earn what another does in a year.

I also find it curious that Republicans love tax cuts until they benefit people earning less than $30,000 a year,  It will be interesting to see how they modify the tax code to protect the 7000 millionaires from paying taxes while making people earning  $20,000 have a tax increase.

Some Economic Queries

The Madville Times points to this Washington Post editorial that questions Republican economic theory.  South Dakota Politics counters by pointing to a New York Times article that indicates the green jobs initiatives fail.

Dr. Blanchard also takes issue with Cory's assertion that

Republican economics is wrong, intellectually, empirically, and morally. It’s really just class warfare, trying to convince the majority that government has no role in the economy so they can take the government’s hand off the tiller and let wealth naturally accumulate upward.

Blanchard responds,

The green jobs agenda is an intellectual and empirically verified farce. My friends on the left will still believe in it, and insist that we invest in it. What else could they do? But this kind of spending on useless things means that somebody isn't getting a raise and somebody else isn't getting a job. That might matter morally.

I have been thinking a lot about conflicting priorities and underlying problems lately. The fact that the country needs more jobs is indisputable.  Blanchard's rejoinder, however, seems to miss the point of Cory's question about economic policy and morality.

Politifacts rates as true the claim that he 400 richest people in the country control as much wealth as the bottom 50% of the population.  In other words 400 people control as much wealth as 150 million people.

The PBS NewsHour has developed this chart to show the how wealth is distributed in the United States.

 

Blanchard wants to leave morality out of the conversation, so I won't ask if this distribution is moral.  Instead I'll ask the following four questions.

First, is this distribution desirable?

Second, is this distribution sustainable?

Third, if the answer to either of the previous questions is "No," what's the best way to change the distribution?

Fourth, how does this distribution affect job creation?

Blanchard and many others are rightly concerned about avoiding Greece's fate.  Avoiding bankruptcy or default is a necessary goal.  However, it strikes me that one needs to work to achieve a more desirable distribution; one that looks like this chart that shows Sweden's distribution.

We may never achieve Sweden's breakdown.  As a country we may decide that this distribution has negative consequences that we want to avoid.  That being said, it seems blatantly obvious that the bottom 60% need more than 4.3% of the pie.

If There's Going To Be A Marxist Revolution. . .

Furthering situations like the those described in these paragraph from the New York Times article "Even Marked Up, Luxury Goods Fly Off Shelves" show how the country may creating the situation to make such a revolution possible.  This story illustrates the widening wealth gap far better than any chart or graph.

Reporter Stephanie Clifford leads with

Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin “Bianca” platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.

Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.

Later, Clifford reports,

Apparel stores are holding near fire sales to get people to spend. Wal-Mart is selling smaller packages because some shoppers do not have enough cash on hand to afford multipacks of toilet paper. Retailers from Victoria’s Secret to the Children’s Place are nudging prices up by just pennies, worried they will lose customers if they do anything more.

She follows that paragraph with a stunningly obtuse statement.

While the free spending of the affluent may not be of much comfort to people who are out of jobs or out of cash, the rich may contribute disproportionately to the overall economic recovery.

So, people who have trouble affording toilet paper should thank people who are buying $775 pumps for saving the economy?  Seriously?

Those who can't afford the basics get to ask "What recovery?"  So can those who formerly frequented Target but now shop WalMart as well as those who formerly shopped Wal-Mart but now shop Dollar Tree.

Articles like this one illustrate how successful that the war against the middle class has been prosecuted.  The middle class is being squeezed in ways that I've never seen in my lifetime.  That includes the malaise of the 1970s.

Right now, many of the people suffering disproportionately still buy the American Dream.  They listen to talk radio hosts who tell them that class warfare is terrible and those who rail against the rich are merely jealous.  As the number of people who can't afford basics or who are reduced to viewing Wal-Mart a luxury shopping destination rises, that message will fall on deaf angry ears.