Top 1% US Pre-Tax income share 1913-2012

[Attic]

Not looking to jump on the 1% vs 99% here, interested in ideas why this wealth/income divide has come back since the early/mid 1970's. We had tax changes and we left the gold standard around this time. Given the recent jump since 2008 for the 1%, it's worth noting this was when QE and ZIRP polices from the FED were put into place.

Taken from:
http://charleshughsmith.blogspot.com/2015/09/time-to-trade-in-your-jag-benz-bmw-for.html


The US economy IMO has allowed for massive wealth skims through a model of granting productivity rewards to owners through the equity markets. How to return productivity rewards to the workforce when the main levers of the economy (The FED) appear to be beholden to wall street?

Unsure if a remedy is worse than the disease, ie) resolving the wealth inequality divide makes everyone worse off. Is cheaper really more expensive? ie) offshoring jobs to lower cost of goods hurts majority of Americans.

 

[Blackjack200]

Weren't we on the gold standard the last time income/weath was this concentrated at the top in the 1920's?

 

[sm625]

Notice how it was high in the roaring twenties? The period that followed is inevitable due to the distortions in the economy created by the top 1% owning so much. Their wealth was extremely ephemeral back then, just as it is now. The average person cannot own a home, because the price of homes is jacked up way waaaaay higher than the average person's income can support. This is why interest rates MUST be held at an extremely low level, because if interest rates were higher then even fewer people would be able to actually afford a mortgage. This is WHY the economy is stuck. Asset prices are too high for the majority of people to afford to purchase them at anything higher than bare minimum interest rates. When interest rates break higher,, the value of homes will eventually settle out to roughly 3X the average income. This implies a 50% or more cut to asset prices across the board. This needs to happen to bring the economy back into balance. Until it does, the velocity of money will remain extremely low and the economy will languish. It is only a question of how much wealth will the average person tolerate having stolen from them to protect asset prices for the top 1%?

How do you fix it? Protectionism. And a very high top marginal tax rate. It is critical that the top marginal tax rate be high to limit the power that the 1% have. Right now the 1% have so much power over the masses that the masses actually accept these false notions that low taxes = prosperity. This remains the hallmark central economic theme that everyone believes. But it is dead wrong. It took decades to build up that false notion. It is now so well ingrained into boomers (and even GenXers) that you have to basically let them die off before the economy can be recovered. Same goes with mainstream views toward protectionism and tariffs. It is universally looked upon as a bad thing. And right now, it is a bad thing. Because it would tear a giant hole in the economy. But that hole is actually already there. If you are in the working class, you feel that giant hole every single day. Only the rich do not see it or feel it; their wealth depends on them not seeing it. Protectionism and a high top marginal tax rate are what enable real true long term economic growth. But to get there you have to go through a painful period of purging the system that we have now, which only serves the 1%. These events take place over long multigenerational cycles because it is the core ideologies (for example low taxes = prosperity) that are the root causes of economic malaise. And in order for those root causes to be addressed, the people who believe these false assertions simply have to die off before change can happen.

 

[Attic]

Weren't we on the gold standard the last time income/weath was this concentrated at the top in the 1920's?

Correct. Do you think leaving the gold standard has anything to do with what the image in the OP shows since the early/mid 1970's?

I see the reasons to leave the Gold Standard from a policy standpoint, i'm interested in the actual observed effects of doing so as it relates to the middle class in the US.

We now need two worker households and the middle class has got hit pretty hard.

I'll have to dig up a national debt tracker since 1971. This is another policy anomaly where debt spending is suppose to help the poor middle class, but it may not in reality. Most of the debt goes to prop up those in control and the owners.

 

[fskimospy]

Notice how it was high in the roaring twenties? The period that followed is inevitable due to the distortions in the economy created by the top 1% owning so much. Their wealth was extremely ephemeral back then, just as it is now. The average person cannot own a home, because the price of homes is jacked up way waaaaay higher than the average person's income can support. Therefore, the value of homes can and will eventually settle out to roughly 3X the average income. This implies a 50% or more cut to asset prices across the board. This needs to happen to bring the economy back into balance. Until it does, the velocity of money will remain extremely low and the economy will languish. It is only a question of how much wealth will the average person tolerate having stolen from them to protect asset prices for the top 1%?

The median US home sales price is about $190,000.

The median US household income is about $52,000.

$52,000 x3 = $156,000.

That means that even if we wanted to get back to exactly 300% of median income (a dubious standard anyway), housing prices are only about 20% overvalued as compared to median income. This is probably not a good way to look at it regardless considering low interest rates on mortgages, etc, but even using your own terms you're wildly wrong.

 

[Attic]

Notice how it was high in the roaring twenties? The period that followed is inevitable due to the distortions in the economy created by the top 1% owning so much. Their wealth was extremely ephemeral back then, just as it is now. The average person cannot own a home, because the price of homes is jacked up way waaaaay higher than the average person's income can support. Therefore, the value of homes can and will eventually settle out to roughly 3X the average income. This implies a 50% or more cut to asset prices across the board. This needs to happen to bring the economy back into balance. Until it does, the velocity of money will remain extremely low and the economy will languish. It is only a question of how much wealth will the average person tolerate having stolen from them to protect asset prices for the top 1%?

A lot there. I'd simply counter with where is the boundry of what the financial levers are willing to accomodate to sustain the current status quo of home prices beyond the 3x number you mention, of massive wealth gains for the 1%, and losses for the 90%.

I'm thinking negative interest rate policy, and QE that are sold on the basis of helping Main Street, but which actually simply sustain the current model of wealth inequality.

 

[fskimospy]

Correct. Do you think leaving the gold standard has anything to do with what the image in the OP shows since the early/mid 1970's?

I see the reasons to leave the Gold Standard from a policy standpoint, i'm interested in the actual observed effects of doing so as it relates to the middle class in the US.

We now need two worker households and the middle class has got hit pretty hard.

I'll have to dig up a national debt tracker since 1971. This is another policy anomaly where debt spending is suppose to help the poor middle class, but it may not in reality. Most of the debt goes to prop up those in control and the owners.

I would go back and look at the Gilded Age, where inequality was sky high and we were also on the gold standard. There seems to be little correlation between inequality and being on a commodity based currency.

If anything I imagine moving away from commodity based currencies would reduce inequality.

 

[Attic]

The median US home sales price is about $190,000.

The median US household income is about $52,000.

$52,000 x3 = $156,000.

That means that even if we wanted to get back to exactly 300% of median income (a dubious standard anyway), housing prices are only about 20% overvalued as compared to median income. This is probably not a good way to look at it regardless considering low interest rates on mortgages, etc, but even using your own terms you're wildly wrong.

Number i've always seen used in reference to the 3x multiplier on historical terms, is average house price. Which is closer to 240k IIRC. If it's median, then agreed, not a noteworthy difference from historical standards.




Here's a look at the median:

Taken from:
http://www.mybudget360.com/buying-a-home-in-america-today-is-expensive-thanks-to-the-banking-sector-examining-income-and-home-prices-from-1950-to-the-present-can-home-prices-fall-another-38-percent/

 

[Atreus21]

Notice how it was high in the roaring twenties? The period that followed is inevitable due to the distortions in the economy created by the top 1% owning so much. Their wealth was extremely ephemeral back then, just as it is now. The average person cannot own a home, because the price of homes is jacked up way waaaaay higher than the average person's income can support. Therefore, the value of homes can and will eventually settle out to roughly 3X the average income. This implies a 50% or more cut to asset prices across the board. This needs to happen to bring the economy back into balance. Until it does, the velocity of money will remain extremely low and the economy will languish. It is only a question of how much wealth will the average person tolerate having stolen from them to protect asset prices for the top 1%?

Stolen?

Provide some evidence for that allegation.

 

[fskimospy]

Number i've always seen used in reference to the 3x multiplier on historical terms, is average house price. Which is closer to 240k IIRC. If it's median, then agreed, not a noteworthy difference from historical standards.

Here's a look at the median:

I think that median is a far more useful term here, because it represents the situation of the average person much better. (income and housing prices are both heavily influenced by extremes at the high end) If you use average house price you would have to use mean income, which is considerably higher than $52k. (but still a bad idea IMO)

 

[Attic]

I think that median is a far more useful term here, because it represents the situation of the average person much better. (income and housing prices are both heavily influenced by extremes at the high end) If you use average house price you would have to use mean income, which is considerably higher than $52k. (but still a bad idea IMO)

Agreed.

If anything I imagine moving away from commodity based currencies would reduce inequality.

Agree here as well in terms of what it would allow. Specifically, moving away from commodity based currencies would allow for more effective (accommodating) economic policy that if used properly could reduce inequality if reducing inequality is considered effective economic policy.

Moving away from commodity based currencies allows for more control. I think it's a matter of how the control is used and can those put in charge be trusted. I'm not convinced that control, when granted to a privileged few, is effectively being used. I'd cite the wealth inequality we observe around us and shown in the graph. I am open to the idea that a rising tide lifts all boats, so the relativity of an expanding economy for all vs nitpicking on (in)equality is meaningful to me here.

 

[Jhhnn]

Stolen?

Provide some evidence for that allegation.

Stolen isn't the right term. Swindled is more like it.

The Reaganites chumped America long ago & it's been a rocket ride into financial orbit for the financial elite ever since.

How do we correct that?

Taxes. Reduce the difference in after tax income. Tax all income the same in a highly progressive fashion with the top marginal rate near 70%. Limit inheritance with highly graduated estate taxes.

Wages. Make Unionization a lot easier.

Redistribution through more govt jobs and greater benefits for everybody.

The gold standard has nothing to do with it & merely complicates the issue.

Financialized capitalism creates oligarchy which creates the need for socialism or revolution. I'll take the former.

 

[fskimospy]

Moving away from commodity based currencies allows for more control. I think it's a matter of how the control is used and can those put in charge be trusted. I'm not convinced that control, when granted to a privileged few, is effectively being used. I'd cite the wealth inequality we observe around us and shown in the graph. I am open to the idea that a rising tide lifts all boats, so the relativity of an expanding economy for all vs nitpicking on (in)equality is meaningful to me here.

I do agree that monetary policy is unduly influenced by the privileged few and I think we can see that now. Generally speaking, the average joe in the US tends to be a net borrower, so somewhat higher inflation could be helpful to them, and the fed has a target rate of 2% for inflation.

Theoretically that should mean that the fed would be equally likely to overshoot on inflation as undershoot, but they seem to take overshooting to be far more serious than undershooting. (as evidenced by their desire to raise rates even in a low inflation environment) I think this reflects the preferences of the elites as opposed to the regular people.

 

[bshole]

Stolen isn't the right term. Swindled is more like it.

The Reaganites chumped America long ago & it's been a rocket ride into financial orbit for the financial elite ever since.

How do we correct that?

Taxes. Reduce the difference in after tax income. Tax all income the same in a highly progressive fashion with the top marginal rate near 70%. Limit inheritance with highly graduated estate taxes.

Wages. Make Unionization a lot easier.

Redistribution through more govt jobs and greater benefits for everybody.

The gold standard has nothing to do with it & merely complicates the issue.

Financialized capitalism creates oligarchy which creates the need for socialism or revolution. I'll take the former.

All this and tariffs too. I'll take the latter thank you very much, it is time to stick a boot in that ass.

 

[trenchfoot]

So far, a most interesting and informative thread.

Thank you all.

 

[Atreus21]

Stolen isn't the right term. Swindled is more like it.

In either case, the allegation is that something was dishonestly taken from poorer Americans. I'm one of those Americans, and I don't recall rich people coming to my door trying to swindle me out of my money.

The only way they get my money is by offering me something I want.

The Reaganites chumped America long ago & it's been a rocket ride into financial orbit for the financial elite ever since.

How do we correct that?

Taxes. Reduce the difference in after tax income. Tax all income the same in a highly progressive fashion with the top marginal rate near 70%. Limit inheritance with highly graduated estate taxes.

I don't think a marginal tax rate that high is going to make any difference. Marginal rates have gone up and down with no real correlation in revenue.

I do agree that all income should be taxed the same though. I understand the argument that short term capital gains should be taxed higher than long term, but I think income is income.

Wages. Make Unionization a lot easier.

Redistribution through more govt jobs and greater benefits for everybody.

Unionization in the private sector? No problem. If they want to band together to raise the price of their labor, go right ahead. But if their employer goes under from being uncompetitive as a result... they'd better be prepared for that.

Public sector? No way. We have enough people taking from the public trough as it is.

More government jobs is precisely what is not needed. People need to be working more in the private sector. Every government job is made possible through taxpayer funds made in the private sector.

Financialized capitalism creates oligarchy which creates the need for socialism or revolution. I'll take the former.

Whatever else it may be called, capitalism is nothing but economic freedom. Allowing people to spend their money how they wish. This carries with it the same caveat that political freedom carries: we may not like what they spend their money on. I wish people wouldn't spend money on porn, spinning rims, and drugs.

 

[Atreus21]

All this and tariffs too. I'll take the latter thank you very much, it is time to stick a boot in that ass.

Tariffs do nothing but benefit a small minority at the expense of a huge majority. We could tariff all goods from China. That would impose an effect tax increase on poor people shopping at Walmart. And who benefits? A few thousand people in the cheap-goods industry, who cannot compete without government intervention. Those people are getting a subsidy, paid for by the poor (in this case).

 

[bshole]

In either case, the allegation is that something was dishonestly taken from poorer Americans. I'm one of those Americans, and I don't recall rich people coming to my door trying to swindle me out of my money.

The only way they get my money is by offering me something I want.

You and your ilk are the reason that the American middle class has been nearly erased. Who can blame the rich for wanting a bigger slice of the pie for themselves, that is simple human nature. It is disgusting to see the little people like Atreus willing and slovenly BEGGING to give the rich the slice. It makes utterly no sense. In the long term it is completely counter productive. When the middle class is erased (as Atreus desires), the shit hits the fan and we have revolution and chaos and the rich are attacked. So in the end, the people he reveres the most are harmed the most by these policies.

 

[fskimospy]

More government jobs is precisely what is not needed. People need to be working more in the private sector. Every government job is made possible through taxpayer funds made in the private sector.

Just an FYI this is a fundamental misunderstanding of how the economy works. Government jobs do not require private sector jobs to exist. They never have and they never will.

Also, government jobs or private sector jobs are not inherently good or bad either way. The question is if the particular job we want done is best accomplished by government or best accomplished by the private sector.

EDIT: Also, just so you know public employees as a percentage of all employment has declined substantially over the last 7-8 years. So if your dream is more private and less public employment, that's been happening for the better part of a decade now.

 

[senseamp]

I guess it's a complete coincidence that the years with lowest top 1% income share are considered the best years for the American middle class.

 

[Atreus21]

Just an FYI this is a fundamental misunderstanding of how the economy works. Government jobs do not require private sector jobs to exist. They never have and they never will.

Also, government jobs or private sector jobs are not inherently good or bad either way. The question is if the particular job we want done is best accomplished by government or best accomplished by the private sector.

Where else does government get the money to pay for government jobs except from tax revenue, printing money, or loans? All of which has to be paid for by...whom?

 

[Atreus21]

You and your ilk are the reason that the American middle class has been nearly erased. Who can blame the rich for wanting a bigger slice of the pie for themselves, that is simple human nature. It is disgusting to see the little people like Atreus willing and slovenly BEGGING to give the rich the slice. It makes utterly no sense. In the long term it is completely counter productive. When the middle class is erased (as Atreus desires), the shit hits the fan and we have revolution and chaos and the rich are attacked. So in the end, the people he reveres the most are harmed the most by these policies.

You ever read Don Quixote?

 

[fskimospy]

Where else does government get the money to pay for government jobs except from tax revenue, printing money, or loans? All of which has to be paid for by...whom?

As a quick and easy example the Soviet Union technically had no private sector employment (or next to none). How were those jobs paid for?

The private sector is not what enables the government and government jobs to exist. The production of goods and services is what allows the government and government jobs to exist, and facilitating that production can take many forms.

 

[HomerJS]

In either case, the allegation is that something was dishonestly taken from poorer Americans. I'm one of those Americans, and I don't recall rich people coming to my door trying to swindle me out of my money.

Actually that did happen even though they didn't come to your door. Its called the financial crisis of 2007-2008.

And did middle class and poorer people get the recovery of the top 1%? The 1% are the only ones who have recovered and have gotten even richer.

 

[Atreus21]

As a quick and easy example the Soviet Union technically had no private sector employment (or next to none). How were those jobs paid for?

Frankly I don't know. All I can think of is that the government was involved in selling oil and gas, their principle natural resource.

I suppose you have a point.