June’s issue of Atlantic Monthly brings to the reader a series of graphs as presented by Derek Thompson’s “How the Rich Shall Inherit the Earth”. The article gives a pictorial representation of what has taken place since the eighties in skewing income to a small, very small group of individuals numbering < than a hundred thousand taxpaying households. The bulk of the ~1 % are much like the 99% and make their income mostly from wages. It is the 1% of the 1% who have excelled in making their money from investments and inheritances.
There are quite a few discussions going on at various blogs as to whether r > g or not and whether it is a fundamental law of capitalism/economics. Side comment; FIFA governs soccer games utilizing the laws of the game which are open to interpretation by various referees monitoring the game. Laws are not rules and are open to interpretation. Courts also give interpretations of laws, which can be superseded by higher courts. When various district federal courts disagree, SCOTUS can and may make an interpretation. There does not appear to be such a governing body in economics the same as FIFA or SCOTUS..
This one comment by Yves Smith caught my eye as it does ring true:
“What I’m bothered by is that the ‘fauxgressives’ are flogging Piketty, when I don’t see his argument as helpful to the left. If you believe r > g, then large and rising wealth disparity is a state of nature. You have handed the argument over to conservatives, who will contend that you have to interfere in a very basic way in the operations of capitalism to undo that.”
In my opinion, this result is not a natural state of being and it is the result of manipulation. In a series of charts, Thompson has captured what Piketty has said in 700 pages(?) and the result of the skewing of income to a minority of taxpaying households.
– Since the late seventies, income growth among the top 1 percent of Americans has outpaced the income growth of the other 99%. In further examining the 1%, it is the top 1% of the 1% which has experienced the greatest growth.
– Thompson poses the question; Who are these people? and answers his own question “amongst the top 0.1 percent half work in finance or as corporate executives. They are people compensated directly or indirectly by the growth of the stock market in various forms other than payroll wages. In the past 30 years, CEOs at top firms have been paid more and more with stock.”
– Adding to his earlier comment; “the richer you are, the more likely it is that your wealth came from stocks and not income from payroll wages. Most people want to believe they are capable of achieving great wealth resulting from their labor and the wages paid for it. Wages resulting from Labor “are less relevant to earnings at the top of the income pyramid”.
“The above chart compares the inflation-adjusted incomes of the top 0.1 percent with annual inflation-adjusted S&P 500 prices, both indexed to 100 beginning in 1913. (Note: The income numbers for the 0.1 percent come from Picketty and Saez. The real S&P prices come from Robert Shiller).”
– The importance of those various factors to the increase of 3.6 percentage points in the Gini index for total market income between 2002 and 2007 differs yet again. More than 80% of the total increase in the Gini index over those years stemmed from an increase in the share of total income coming from more highly concentrated capital gains. An increase in the concentration of capital income accounts for most of the remaining increase. Labor income became somewhat less concentrated over that period, but the effect on overall income dispersion was small.” Page 12-13, Trends in the Distribution of Household Income Between 1979 and 2007
– ‘The top 1% of US households, own 38.2% of all US stock market wealth and the richest 10% of households own a combined 81.2% of all the stock market wealth, whilst the bottom 60% of US households only own 2.5% of stock market wealth.'”
Taken from: Economic Policy Institute, “‘The State of Working America 2011, Share of Stock Holdings Held by Top 10% Has Barely Budged in Last Two Decades.’ Includes direct ownership of stock shares and indirect ownership through mutual funds, trusts, IRAs, Keogh plans, 401(k) plans, and other retirement accounts.