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Monday, June 22, 2015

Forget the 1%: It is the 0.01% who are really getting ahead in America







Free exchange

Forget the 1%

It is the 0.01% who are really getting ahead in America



AMONG the most controversial of Thomas Piketty’s arguments in his bestselling analysis of inequality, “Capital in the Twenty-First Century”, is that wealth is increasingly concentrated in the hands of the very rich. Rising wealth inequality could presage the return of an 18th century inheritance society, in which marrying an heir is a surer route to riches than starting a company. Critics question the premise: Chris Giles, the economics editor of the Financial Times, argued earlier this year that Mr Piketty’s data were both thin and faulty. Yet a new paper suggests that, in America at least, inequality in wealth is approaching record levels.*

Earlier studies of American wealth have tended to show only small increases in inequality in recent decades. A 2004 study of estate-tax data by Wojciech Kopczuk of Columbia University and Emmanuel Saez of the University of California, Berkeley, found an almost imperceptible rise in the share of wealth held by the top 1% of families, from about 19% in 1976 to 21% in 2000. A more recent investigation of the Federal Reserve’s data on consumer finances, by Edward Wolff of New York University showed a continued but gentle increase in inequality into the 2000s. Mr Piketty’s book, which drew on this previous work, showed similarly modest rises in wealth inequality in America.


A new paper by Mr Saez and Gabriel Zucman of the London School of Economics reckons past estimates badly underestimated the share of wealth belonging to the very rich. It uses a richer variety of sources than prior studies, including detailed data on personal income taxes (which the authors mine for figures on capital income) and property tax, which they check against Fed data on aggregate wealth. The authors note that not every potential source of error can be accounted for; tax avoidance strategies, for instance, could cause either an overestimation of the wealth share of the rich (if they classify labour income as capital income in order to take advantage of lower rates) or an underestimation (if they intentionally seek out lower yielding investments for their tax advantages). Yet they believe their estimates represent an improvement over past attempts.

The results are enough to make Mr Piketty blush. The authors examine the share of total wealth held by the bottom 90% of families relative to those at the very top. Because the bottom half of all families almost always has no net wealth, the share of wealth held by the bottom 90% is an effective measure of “middle class” wealth, or that held by those from the 50th to the 90th percentile. In the late 1920s the bottom 90% held just 16% of America’s wealth—considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929. From the beginning of the Depression until the end of the second world war, the middle class’s share of total wealth rose steadily, thanks largely to collapsing wealth among richer households. Thereafter the middle class’s share grew along with national wealth thanks to broader equity ownership, middle-class income growth and rising rates of home-ownership. The expansion of tax breaks for retirement savings also helped. By the early 1980s the share of household wealth held by the middle class rose to 36%—roughly four times the share controlled by the top 0.1%.


Track wealth distribution decade-by-decade with our interactive inequality "swing-o-meter"
 
From the early 1980s, however, these trends have reversed. The ratio of household wealth to national income has risen back toward the level of the 1920s, but the share in the hands of middle-class families has tumbled (see chart). Tepid growth in middle-class incomes is partly to blame; real incomes for the top 1% of families grew 3.4% a year from 1986-2012 while those for the bottom 90% grew 0.7%. But Messrs Saez and Zucman reckon the main cause of falling middle-class net worth is soaring debt. Rising home values did little to raise middle-class wealth since mortgage debt also soared. The recession battered home prices but left the debt untouched, further squeezing middle-class wealth.

The really, really rich get much, much richer

On the other side of the spectrum, the fortunes of the wealthy have grown, especially at the very top. The 16,000 families making up the richest 0.01%, with an average net worth of $371m, now control 11.2% of total wealth—back to the 1916 share, which is the highest on record. Those down the distribution have not done quite so well: the top 0.1% (consisting of 160,000 families worth $73m on average) hold 22% of America’s wealth, just shy of the 1929 peak—and exactly the same share as the bottom 90% of the population. Meanwhile the share of wealth held by families from the 90th to the 99th percentile has actually fallen over the last decade, though not by as much as the net worth of the bottom 90%.
The outsize fortunes of the few would not be too worrying were they largely the product of entrepreneurial activity: riches amassed by hardworking billionaires who are as likely as not to give their bounty away through philanthropy. Messrs Saez and Zucman find some evidence for this dynamic. Wealthy families are younger than they were a generation or two ago, and they earn a larger share of the country’s income from labour: 3.1% in 2012 versus less than 0.5% prior to 1970.

Yet one should not yet rule out the return of Mr Piketty’s “patrimonial capitalism”. The club of young rich includes not only Mark Zuckerbergs, the authors argue, but also Paris Hiltons: young heirs to previously accumulated fortunes. What’s more, the share of labour income earned by the top 0.1% appears to have peaked in 2000. In recent years the proportion of the wealth of the very rich held in the form of shares has levelled off, while that held in bonds has risen. Since the fortunes of most entrepreneurs are tied up in the stock of the firms that they found, these shifts hint that America’s biggest fortunes may be starting to have less to do with building businesses, just as Mr Piketty warned.

*Studies cited in this article

"Top wealth shares in the United States, 1916-2000: Evidence from estate tax returns", by Wojciech Kopczuk and Emmanuel Saez, National Tax Journal, June 2004.

"Recent trends in household wealth in the United States: Rising debt and the middle-class squeeze—an update to 2007", by Edward Wolff, Levy Economics Institute Working Paper, March 2010.

"Wealth inequality in the United States since 1913: Evidence from capitalized income tax data", by Emmanuel Saez and Gabriel Zucman, National Bureau of Economics Research Working Paper, October 2014.

How the Stinking Rich Ate the Economy



The Atlantic


Business



How the Stinking Rich Ate the Economy


Income inequality is accelerating fastest at the top. Who are the 0.1%?


"If a $100,000-a-year household thinks itself to be middle class," the neoconservative writer Irving Kristol once wrote, "then it is middle class." This sentiment is widely held, but it makes no mathematical sense. Any family whose income exceeds that of 90 percent of all other families cannot sensibly be called anything but rich. To believe otherwise would oblige you to judge your child mediocre when his teacher gives him an A.

But within the top decile distinctions are nonetheless worth making.

-- The Rich, defined as the top 10 percent, which today means everyone making $109,000 or more, increased their share of national income during the Great Divergence from about one third (34 percent) to nearly one half (48 percent).

-- The top 5 percent (Basically, Undeniably, Really, and Stinking Rich; today, everybody making at least $153,000) increased their share from 23 to 37 percent.

-- The top 1 percent (Undeniably, Really, and Stinking Rich; today, everybody making at least $368,000) more than doubled their share of the national income from 10 to 21 percent.

-- The top 0.1 percent (Really and Stinking Rich; today, everybody making at least $1.7 million) tripled their share of the national income to 10 percent.
-- The top 0.01 percent (the Stinking Rich; today, everybody making at least $9.1 million) nearly quadrupled their share of income during the Great Divergence, from 1.4 to 5 percent.

Notice a pattern? The richer you are, the faster you expand your slice of your country's income. Or as Emmanuel Saez put it to me, "The [inequality] phenomenon is more extreme the further you go up in the distribution," and it's "very strong once you pass that threshold of the top 1 percent."

WHO ARE THE STINKING RICH?

The Great Divergence is a dramatic departure from the status quo that prevailed in the United States from the end of World War II through the early 1980s.
Although top income shares are rising in many developed countries, nowhere are they rising as fast as in the United States. Also, nowhere (except Argentina) have top income shares reached the same high level as in the United States. Indeed, if you update income share for America's one-percenters to 2008, the United States pulls slightly ahead of Argentina--not that this is a competition any sensible country would want to win.

Who is it exactly who got rich?

A 2010 study by Jon Bakija, Adam Cole, and Bradley Heim, economists at Williams College, the U.S. Treasury, and Indiana University, respectively, found that among the Really and Stinking Rich -- the top 0.1 percent, who currently make at least $1.7 million -- 43 percent were executives, managers, and supervisors at nonfinancial firms, and 18 percent were financiers. Together they accounted for the majority. The professions next in line were law (7 percent), medicine (6 percent), and real estate (4 percent).

American chief executives typically get paid two to three times what their European counterparts earn. Such pay levels were not the norm during most of the twentieth century. Pay for top executives declined steeply during World War II, increased gradually from the mid-1940s to the mid-1970s, and then took off like a rocket during the 1980s and 1990s. In 1973, a survey of large companies in the United States found that chief executives were paid twenty-seven times more than the average worker. By 2005 that had risen to 262 times.

The 43 percent of the Really and Stinking Rich who run America's nonfinancial corporations were very significant players in the Great Divergence. No other occupational group had a larger membership among the top 0.1 percent. But, incredibly, the quadrupling of chief executives' pay during the 1990s wasn't enough to increase this group's presence among the Really and Stinking Rich once the run-up in top income shares began. Proportionally, its membership actually diminished slightly, from 48 percent in 1979 to percent to 43 percent in 2005.

The group to watch -- the group that expanded its share of the top earners' pie -- was the nation's financiers. Back in 1979, the financial sector represented only 11 percent of the Really and Stinking Rich. By 2005, financiers represented 18 percent. In their 2010 book 13 Bankers, Simon Johnson, an economist at MIT's Sloan School of Management, and James Kwak, a former consultant at McKinsey and Company, describe the financial sector's astonishing growth over three decades through mergers and expansions into new businesses.
Between 1980 and 2000, the assets held by commercial banks, securities firms, and the securitizations they created grew from [the equivalent of] 55 percent of GDP to [the equivalent of] 95 percent ... The growth was faster still for the largest banks. Between 1990 and 1999, the ten largest bank holding companies' share of all bank assets grew from 26 percent to 45 percent, and their share of all deposits doubled from 17 percent to 34 percent.
In effect, Wall Street ate the economy.

Excerpted from The Great Divergence by Timothy Noah, published by Bloomsbury Press, 2012.

Meet the 0.01 Percent: War Profiteers



Huffpost Politics




Meet the 0.01 Percent: War Profiteers

Posted: Updated:
There's the top 1% of wealthy Americans (bankers, oil tycoons, hedge fund managers) and there's the top 0.01% of wealthy Americans: the military contractor CEOs.

If you've been following the War Costs campaign, you already know that these corporations are bad bosses, bad job creators and bad stewards of taxpayer dollars. What you may not know is that the huge amount of money these companies' CEOs make off of war and your tax dollars places them squarely at the top of the gang of corrupt superrich choking our democracy. These CEOs want you to believe the massive war budget is about security -- it's not. The lobbying they're doing to keep the war budget intact at the expense of the social safety net is purely about their greed.

In many areas, including yearly CEO salary and in dollars spent corrupting Congress, these companies are far greater offenders than even the big banks like JP Morgan Chase or Bank of America.


Egregious Military Contractor CEO pay

The top 0.01% of earners make at least $9.14 million per year, a rarefied strata of income that includes defense company CEOs and Wall Street bank chieftains alike. But a deeper dive demonstrates how defense companies outpace the big banks' knack for enriching themselves at the expense of everyone else.

Military Contractor CEO Pay in 2010
Just to put that in context, consider how these annual payoffs compare to the people we're used to thinking of as poster children for the top 1 percent:

Financial Sector CEO Pay in 2010
Considering how they stack up to financial sector heads, war industry CEOs aren't just members of the 1%; they're the super-elite among them, the one-hundredth of a percent.

Lobbying Domination

Disgusted by the overwhelming corporate influence in Congress? Look no further than the big military contractor companies, whose flagship companies spend enough on lobbying to dwarf even financial sector titans.

War Industry Lobbying Expenditures for 2010
  • Lockheed Martin: $12.7 million.
  • Northrop Grumman: $15.7 million.
  • Boeing: $17.89 million.

  • Again, just to provide some context, here are the same lobbying totals for some of the most recognized names in the financial sector.

    Financial Sector Lobbying in 2010

    The war industry gets away with blowing our money on job-killing spending because it can bend Congress to its whim. In the process, the industry is like a vacuum sucking up brain power and engineering resources that could and would establish and grow entirely new wholesome industries. It's no surprise that Americans confront a 9.1% unemployment rate and an under-employment rate flirting with 20 percent this year.

    Want to know where all the money went that could be putting people back to work or keeping U.S. manufacturing industries competitive? The war industry CEOs dumped lobbying cash on Congress and diverted all that wealth to their private bank accounts.

    Striking a blow for democracy

    The war contractors' iron grip on the wealth and politics of our country has caught the attention of our friends at Occupy Wall Street, who are targeting war profiteers in its draft list of demands with a call to bring home "all military personnel at all non-essential bases" and to end the "Military Industrial Complex's goal of perpetual war for profit."

    We're allies of the Occupy movement, which swells from the 99%'s disgust and dysfunction with our system. A democracy for and of the people that favors the 0.01% at the expense of the 99.99% of us is no democracy at all.
    We here at Brave New Foundation and the War Costs campaign have been inspired by the incredible work of the Occupy movement, so we created our latest video to help push this critical piece of their message: war for profit has to end. We're asking viewers to share our video with their local Occupy groups and organize a guerrilla screening at an Occupy protest in your city.

    The Occupy protests have a lot to teach us, and the leaderless movement is at minimum an indictment of our political system. They've stopped whispering, and we've all started shouting.

    Occupy your city and show this video to your community.