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Tuesday, January 10, 2012

Random Thoughts on the 1 percent





In the Huffpo, the Real Johnson has a well written article from the 1 percent to the 99 percent decrying the failure of the OWS people to spur any real political action on wealth inequality through their recent protests. All PP readers are encouraged to check it out.

Anyway, the article repeats a statistic that I’ve read a lot recently: Do the top one percent of wealth owners hold 40 percent of all the world's wealth? And if so, what does that mean? First, wealth inequality looks at the total value and distribution of financial assets. It’s a hard statistic. First, unlike income data, it’s not reported to tax authorities. The main research on this data, Ed Wolffe notes that it’s collected via household surveys. It is not as reliable as a general metric as income data. Second, I don’t like it as an indicator of standard of living: better to look at (a) income; (b) consumption. Why? You don’t actually consume or “earn” the financial assets until they are translated into ‘income’. So that’s what matters. At that point, asset earnings are declared and we can see the real picture from tax reports.

According to income: at its peak in 2007, the top 1 percent of income earners in the U.S. had an income equal to 23 percent of total wealth. Second, it’s fallen a bit during the recession: the 1 percent now has an income equal to about 17-18 percent of total income. The Great Recession actually hurt the 1 percent the most if you consider percentage declines. Third, to get into this one percent income bracket, you don’t need to be a gabillionaire: an annual household income of 400 k should probably do it, according to University of Chicago economist Steven Kaplan. Finally, it’s not a homogenous category: people come and go from this category and they have very different jobs: some are evil/corrupt wall street execs, others are sports and movie stars, others are entrepreneurs and business owners, hedge-fund managers, venture capitalists, some lawyers etc… Kaplan breaks it down here.
Overall, I don’t think the narrative of the 99 percent is very helpful. It’s meant to convey a specific political message, but on balance, it serves more to oversimplify and obscure than to provide us with any meaningful insight into the state of the economy.

1 comment:

  1. Cool analysis - so the financial crisris actually hurt the top one percent quite substantially. Is that because it affected stock prices and assets or is it because of salaries? Is this before or after taxes?
    I didn't read the whole Kaplan thing, I'm a bit innumerate for that.
    J

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