Busting the 1% vs. 99% Inequality Myth

[expat_panama]

Inequality: President Obama's class-envy strategy is built on a false premise - that the rich get richer at the expense of the poor. Amazingly, such zero-sum thinking is influencing public opinion.

Twice as many Americans support the anti-Wall Street protesters as oppose them. And even Rasmussen is polling that nearly half of Americans support proposals to soak the rich.

This is an emotional response to both the hard economic times and dishonest political rhetoric. People are buying into the notion peddled by the left that the rich steal from people. It's a pernicious myth left over from preindustrial Marxism.

The left says current levels of income inequality echo the late 1920s and the Gilded Age. They've zeroed in on the richest 1%, citing Census Bureau data showing these top earners "grabbing" more income than the bottom 90%.

But the census stats are misleading.

For one, they are a snapshot of income distribution at a single point in time. Yet income is not static. It changes over time. Low-paying jobs from early adulthood give way to better-paying jobs later in life.

And income groups in America are not fixed. There's no caste system here, really no such thing even as a middle "class." The poor aren't stuck in poverty. And the rich don't enjoy lifetime membership in an exclusive club.

A 2007 Treasury Department study bears this out. Nearly 58% of U.S. households in the lowest-income quintile in 1996 moved to a higher level by 2005. The reverse also held true. Of those households that were in the top 1% in income in 1996, more than 57% dropped to a lower-income group by 2005.

Every day in America, the poor join the ranks of the rich, and the rich fall out of comfort.

So even if income equality is increasing, it does not mean income mobility is decreasing. There is still a great deal of movement in and out of the richest and poorest groups in America.

The beauty of our free-market system (what's left of it), is that even among the thousands of Wall Street protesters thumping, "We are the 99%," there are those who might not be able to say that a decade or so from now. Some might go on to profit from an Internet start-up. Others might get a rap contract. Anything's possible in America.

One of those street agitators might even become president, following in the shoes of Obama, who's now one of the 1-percenters he mocks.

Another problem with the census data is they don't include the noncash income received by the lowest-income households. Each year, the poor get tens of billions of dollars in subsidies for housing, food and health care. None of these transfer payments, a lot of it paid for by the 1%, is counted as income by the Census Bureau.

One report estimates that the share of total income earned by the lowest-income group would rise roughly 50% if such welfare were considered.

Likewise, the share of total income earned by the top income quintile would drop about 7% if taxes paid to fund welfare were considered.

Census doesn't take into account the equalizing effects of taxes. Though they earn more than 45% of total income, the top 10% of taxpayers pay over 70% of the total income-tax burden. The top 1%? They shoulder a whopping 40% of the tax load.

Federal Reserve and other data - which include all financial and nonfinancial assets, including bank accounts, investments, houses and cars - give a more complete picture of the gap. When you count all wealth, not just income, inequality has not gotten worse.

The top 1% account for 35% of total wealth, compared with 37% in 1922. In fact, the worst wealth disparity ever was in the 1990s under President Clinton.

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More at Latest Editorial News, Opinion, Michael Ramirez, Political Cartoons - Investors.com

 

[editec]

Inequality: President Obama's class-envy strategy is built on a false premise - that the rich get richer at the expense of the poor. Amazingly, such zero-sum thinking is influencing public opinion

Go read book.

Reading your musings on this economy, one that is obvious based on your 8th grade grasp of macroeconomics, is embarrassing.

 

[expat_panama]

...your musings on this economy, one that is obvious based on...

lol! While I'd love to claim credit for the piece, these were IBD's musings and my musings were just to ask for input from the forum. Yours are welcome but besides the idea that you're unhappy about something, please share your take on Obama's 1% vs. 99% crusade.

 

[Brutus]

Each year, the poor get tens of billions of dollars in subsidies for housing, food and health care. None of these transfer payments, a lot of it paid for by the 1%, is counted as income by the Census Bureau.

Great great point. The liberals love to talk up the poverty rate in failed America but don't mention that the poor are not poor after they get all the welfare.

As importantly, by denying the would-be poor the sting of poverty with trillions in welfare they are actually encouraging more poverty.

 

[cbirch2]

Ridiculous.

I will give you a very real example of how the rich hoard money, literally, and prevent recovery.

During an recession an economy goes through deflation. People think of inflation as bad, but deflation is equally bad. During periods of inflation, the fed attempts to generate deflation; likewise during times of deflation the fed tries to induce inflation. But the banks and the rich, anticipating that later the fed will reverse its moves (because no central bank in its right mind would cause large permanent inflation) will simply hoard the cash.

So the fed tries to counter the deflationary pressure of the recession but it cant because the banks keep the money. The US monetary base has tripled since 2007. Neocons screamed inflation while Keynesians knew a rise in the monetary base wouldnt necessarily cause inflation. Inflation was lower than its last target, so guess who was right.

The rich do everything a capitalist would, hoard as much money for him or herself as possible.

 

[Mr. H.]

And wherein does that hoarded money reside?

 

[cbirch2]

And wherein does that hoarded money reside?

Well the federal reserve lends money to 12 large banks. It basically resides mostly in the federal reserve accounts of those banks.

 

[Brutus]

Ridiculous.

I will give you a very real example of how the rich hoard money, literally, and prevent recovery.

Hoard is not an economic term. People save invest and spend money in sustainable ways that grow the economy and create jobs. Liberal theft of money is wasted to create bubbles like the housing stimulus bubble that burst and deepen recessions .

Now you know how Fdr prolonged the Depression for 10 years and how BO is prolonging this recession.

 

[expat_panama]

...liberals love to talk up the poverty rate in failed America but don't mention that the poor are not poor after they get all the welfare...

--and they they claim we need still more welfare because we haven't fixed the problem yet. People that complain about income inequality also refuse to take into account--

--hours worked (those that work 60 hrs/week make more money than part timers),

--education (some get more schooling to land a better job),

--age (older people make more money)

--and mobility (from year to year most people move up the ladder).​

There is no inequality after these factors are considered.

 

[Toro]

It is a false premise that the rich get richer by stealing from the poor. Capitalism is not a zero sum game. In fact, inequality fell during the Financial Crisis because since the wealthy have most of their wealth in assets, as asset markets fell, the wealth of the richest fell at a faster rate than anyone else.

However - rightly or wrongly - there is a sense the game is rigged against the average individual. The further up the income ladder one goes, the faster the growth rate of wealth that has been accrued. In some instances, wealth has actually fallen. For example, over the past 40+ years, the median income of a white male without a high school education adjusted for inflation has actually declined. It used to be that a guy coming out of high school could make a decent middle class living working in a factory. That is much less true today because many of those low skilled jobs have fled overseas.

There is significant empirical evidence that the gaps in income growth have occurred due to changes in technology, and to those best able to manipulate technology. Thus, generally, the more education one has had over the past 30 years, the faster your income has grown. For the first 30 years after WWII, incomes amongst the income stratas grew more or less in line. Since then, however, divergences have occurred where more and more of the wealth has been captured by those with more education and those up the income scale.

Generally, social progress occurs with a lag when society broadly is benefiting from economic conditions. When society is not benefiting broadly, it can lead to strife. If people believe that the game is rigged against them, then they are more likely to support legislation that benefits themselves and less so others. IOW, if people can't extract gains out of the economic arena, they'll attempt to do so out of the political arena. I think this is what you are seeing today. This is why you see broad support for increasing taxes on the rich and not cutting spending on anything that really matters to people. (It's OK to cut spending on things that don't affect me, i.e. foreign aid, government employees, etc., but not social security, medicare, schools, etc.)

This is a problem. There is no doubt that the Obama administration has been demagogic in both its rhetoric and its policies that feed off the resentment of one group over another, i.e. singling out corporate jet owners. This demonstrates a disheartening failure in leadership. But it is also wrong to dismiss the underlying concerns condescendingly as merely the rhetoric of "class warfare."

As for the Occupy Wall Street crowd, the financial industry has brought much of this onto themselves. Being an active participant and catalyst in the Financial Crisis, taking hundreds of billions of dollars in bailout money, then paying themselves million dollar bonuses and jacking up people's debit card fees demonstrates an unbelievable tin ear and unresponsiveness to the issues today. Both the Flea Party and the Tea Party are in agreement on the fact that a certain few, i.e. the financial industry, have benefited enormously from government support at the taxpayers' expense.

 

[editec]

When it comes to the CLASSISM playing out thanks to tax and trade policies effecting the MACRO ECONOMY?

It ends up playing out like a zero sum game, folks.

The current economy's sickness is a direct result of the imbalance of wealth and incomes in this nation.

In that sense it most definitely IS a zero sum game.

 

[cbirch2]

Ridiculous.

I will give you a very real example of how the rich hoard money, literally, and prevent recovery.

Hoard is not an economic term. People save invest and spend money in sustainable ways that grow the economy and create jobs. Liberal theft of money is wasted to create bubbles like the housing stimulus bubble that burst and deepen recessions .

Now you know how Fdr prolonged the Depression for 10 years and how BO is prolonging this recession.

How is obama prolonging the recession? Is you plan cut spending? Please, explain to me how cutting spending will improve the economy. Yields on treasury notes are already at record lows so the whole idea that the confidence fairy is going to make borrowing cost cheaper is mathematically impossible.

 

[expat_panama]

...Please, explain to me how cutting spending will improve the economy...

You're absolutely right, it shouldn't. Years of experience and study have shown that governments need to tax during booms and spend during busts, it even goes back to biblical times with storing harvests during the seven years of plenty or the seven of hunger.

Today's calls for spending cuts come from a different position though and more spending now is a bad idea for two reasons. The first is that we already have had massive spending and any possible benifits (such as they are) have played out. The other is that today's calls for spending are paired with even louder calls for tax hikes.

Please explain to me how massive tax hikes will improve the economy...

 

[cbirch2]

...Please, explain to me how cutting spending will improve the economy...

You're absolutely right, it shouldn't. Years of experience and study have shown that governments need to tax during booms and spend during busts, it even goes back to biblical times with storing harvests during the seven years of plenty or the seven of hunger.

Today's calls for spending cuts come from a different position though and more spending now is a bad idea for two reasons. The first is that we already have had massive spending and any possible benifits (such as they are) have played out. The other is that today's calls for spending are paired with even louder calls for tax hikes.

Please explain to me how massive tax hikes will improve the economy...

Ill agree that massive tax hikes wont improve the economy. Of course a tax by definition shrinks the private sector. First, just note that an increase from 35% to 39% isnt exactly a massive tax hike..

But even more importantly, note that not all taxes arent created equal. A tax on the rich isnt going to reduce aggregate demand in the same way that a sales tax will. And demand is the problem right now.

So the debate becomes whether that money is better allocated by the rich, who will save a certain percentage of it, or by the government, who can put it all back into the economy.

Of course the efficiency of government can be debated. But the government can certainly create increases in demand through hiring the unemployed, enacting subsidies, or giving tax credits. Government is especially good at increasing demand at times when the private sector is unwilling or unable to lend, borrow, or spend.

 

[Sallow]

I'm in monaco now. Your OP is hilarious. Today I walked past a port filled with yachts that everyone who posts here could never hope to own. And that's all of combined.