The Obamas hosted a state dinner for French ‘Socialist’ leader Francois Hollande. Michelle Obama wore a $12,000 dress, more than the annual poverty level in the US. [ Poverty Level = $11,490]. Nearly one in three Americans experienced a stint of poverty between 2009 and 2011, the Census Bureau reported.
Most Americans still think of themselves as middle class. For the last 15 years, an international consortium of economists has been building data bases on the income shares of the richest people in the developed countries, based on pre-tax market income including capital gains and tax-exempt income, and excluding government transfers. The American data reveals the greatest inequality by far, followed by Great Britain.
In 2012, the top 10 percent captured half of all reported income. But the top 1 percent got almost half of that — 22.5 percent — while the top 10th of 1 percent (0.1 percent) captured half of that. All three are within a few decimal places of the previous highs — which occurred in 1928, just before the market crash that ushered in the Great Depression.
The stock market implosion of the 1930s followed by World War II’s strict price controls and high marginal taxes brought the top 1 percent’s income share down to about 9 percent by the end of the war. Executive and financial sector pay was quite restrained, even through the good times of the 1950s and 1960s, and the 1 percent’s income share did not start to rise until the late 1970s. It took off for the stratosphere then — amid the oceans of cash sloshing around Wall Street during the 1980s leveraged buyout boom.
The sums involved are enormous. The difference between the 1 percent’s income share in 1975 (8.9 percent) and today’s 22.5 percent is 13.6 percent. That additional share of personal income is worth $1.6 trillion. Each year.
What can you buy with $1.6 trillion? Well, it’s more than the annual outlays for Social Security payments, and about twice as large as Defense Department appropriations. It’s enough to pay off the federal debt held by the public in about seven years.
To amass that incremental $1.6 trillion, the 1 percent took 68 percent of all personal income growth between 1993 and 2012. To be fair, those same folks lost a great deal of income during the 2008 financial collapse, because much of their income comes from financial assets. But during the recovery of 2009-2012, they took a whopping 95 percent of the income growth — so their relative income and wealth positions are nearly all the way back to their pre-2008 high.
The canonical retort to such musings is that all segments of society benefit from a well-fed and contented super-rich. They are the ones, the argument goes, who supply the high-octane financial fuel to maintain America’s advantage in high technology, keep its job-creation machinery humming, and lay the foundation for solid long-term growth.
Unfortunately, that is not proved true in recent experience. Since financial markets were liberalized in the 1980s, the finance sector’s income and debt has soared, income inequality has skyrocketed, and the world economy has flopped from crisis to crisis – the Savings and Loan fiasco, the petrodollar debacle, and the leveraged buyout circuses of the 1980s; the “hot-money” driven currency crises and hedge-fund collapses of the 1990s, and the hallucinatory mortgage games of the 2000s.
The dangers of runaway finance have been getting some academic attention of late, as scholars have begun connecting the dots between the super-rich and financial instability. The very rich do invest productively, of course, and are also interested in capital preservation — so large segments of their portfolios are invested in safe, AAA-rated assets. As their income soared, however, their appetite for safe assets greatly outstripped the available supply. so the financial industry dutifully set about creating allegedly top-quality assets out of whatever lower-quality paper was at hand. The history of all developed countries shows that as finance employment rises, economic growth and productivity increases. But only up to a point. After that, continued growth of the finance sector often triggers falling growth and declining productivity.
As the financial sector grows more sophisticated, it competes with technology and manufacturing industries for the smartest and most ingenious engineers and mathematicians. At the same time, however, broad-gaged finance needs highly “pledgeable” assets that can be readily leveraged, like residential and commercial mortgages. (High-technology investing has a very high risk of failure, and so is the preserve of specialist venture-capital firms.) The best and the brightest, they found, instead of creating new technology breakthroughs, become the servants of the super-rich — because they pay the most. The engineers devote themselves to increasing low-productivity, easily understandable assets in order to transmute them into new, highly complex, instruments that look super-safe, but often aren’t.
From Here
Most Americans still think of themselves as middle class. For the last 15 years, an international consortium of economists has been building data bases on the income shares of the richest people in the developed countries, based on pre-tax market income including capital gains and tax-exempt income, and excluding government transfers. The American data reveals the greatest inequality by far, followed by Great Britain.
In 2012, the top 10 percent captured half of all reported income. But the top 1 percent got almost half of that — 22.5 percent — while the top 10th of 1 percent (0.1 percent) captured half of that. All three are within a few decimal places of the previous highs — which occurred in 1928, just before the market crash that ushered in the Great Depression.
The stock market implosion of the 1930s followed by World War II’s strict price controls and high marginal taxes brought the top 1 percent’s income share down to about 9 percent by the end of the war. Executive and financial sector pay was quite restrained, even through the good times of the 1950s and 1960s, and the 1 percent’s income share did not start to rise until the late 1970s. It took off for the stratosphere then — amid the oceans of cash sloshing around Wall Street during the 1980s leveraged buyout boom.
The sums involved are enormous. The difference between the 1 percent’s income share in 1975 (8.9 percent) and today’s 22.5 percent is 13.6 percent. That additional share of personal income is worth $1.6 trillion. Each year.
What can you buy with $1.6 trillion? Well, it’s more than the annual outlays for Social Security payments, and about twice as large as Defense Department appropriations. It’s enough to pay off the federal debt held by the public in about seven years.
To amass that incremental $1.6 trillion, the 1 percent took 68 percent of all personal income growth between 1993 and 2012. To be fair, those same folks lost a great deal of income during the 2008 financial collapse, because much of their income comes from financial assets. But during the recovery of 2009-2012, they took a whopping 95 percent of the income growth — so their relative income and wealth positions are nearly all the way back to their pre-2008 high.
The canonical retort to such musings is that all segments of society benefit from a well-fed and contented super-rich. They are the ones, the argument goes, who supply the high-octane financial fuel to maintain America’s advantage in high technology, keep its job-creation machinery humming, and lay the foundation for solid long-term growth.
Unfortunately, that is not proved true in recent experience. Since financial markets were liberalized in the 1980s, the finance sector’s income and debt has soared, income inequality has skyrocketed, and the world economy has flopped from crisis to crisis – the Savings and Loan fiasco, the petrodollar debacle, and the leveraged buyout circuses of the 1980s; the “hot-money” driven currency crises and hedge-fund collapses of the 1990s, and the hallucinatory mortgage games of the 2000s.
The dangers of runaway finance have been getting some academic attention of late, as scholars have begun connecting the dots between the super-rich and financial instability. The very rich do invest productively, of course, and are also interested in capital preservation — so large segments of their portfolios are invested in safe, AAA-rated assets. As their income soared, however, their appetite for safe assets greatly outstripped the available supply. so the financial industry dutifully set about creating allegedly top-quality assets out of whatever lower-quality paper was at hand. The history of all developed countries shows that as finance employment rises, economic growth and productivity increases. But only up to a point. After that, continued growth of the finance sector often triggers falling growth and declining productivity.
As the financial sector grows more sophisticated, it competes with technology and manufacturing industries for the smartest and most ingenious engineers and mathematicians. At the same time, however, broad-gaged finance needs highly “pledgeable” assets that can be readily leveraged, like residential and commercial mortgages. (High-technology investing has a very high risk of failure, and so is the preserve of specialist venture-capital firms.) The best and the brightest, they found, instead of creating new technology breakthroughs, become the servants of the super-rich — because they pay the most. The engineers devote themselves to increasing low-productivity, easily understandable assets in order to transmute them into new, highly complex, instruments that look super-safe, but often aren’t.
From Here
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