Naked Capitalism reprints the article Exploding Wealth Inequality in the United States by Emmanuel Saez, Professor of Economics, University of California Berkeley and Gabriel Zucman, Assistant Professor of Economics, London School of Economics. Originally published at VoxEU
I pull a few snippets to give you a hint of the article content.
In other words, family fortunes of $20 million or more grew much faster than those of only a few millions.
When you hear top 0.1% or top 1% or top 10%, it may be hard for you to figure out where you stand. Putting a dollar amount on the net value of your family fortune gives you a handle on where you stand. If your family fortune is less than $20 million, you aren’t rich enough to be able to expect to get much richer. So now you know which side is your side in the class war.
Since the housing and financial crises of the late 2000s there has been no recovery in the wealth of the middle class and the poor. The average wealth of the bottom 90% of families is equal to $80,000 in 2012 – the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012. In 2012, the wealth of the top 1% increased almost back to its peak level of 2007. The Great Recession looks only like a small bump along an upward trajectory.
So now you can understand why the view of how well the economy is recovering is quite different if you are a Charlie Baker from what you see if you are a Martha Coakley.
There were several interesting graphs, below is the caption to one of them.
Today, the top 1% families save about 35% of their income, while the bottom 90% families save about zero (Saez and Zucman 2014).
Oddly, the authors talk about incentives for increasing savings. Here is paragraph from the conclusion:
There are a number of specific policy reforms needed to rebuild middle-class wealth. A combination of prudent financial regulation to rein in predatory lending, incentives to help people save – nudges have been shown to be very effective in the case of 401(k) pensions (Thaler and Sunstein 2008) – and more generally steps to boost the wages of the bottom 90% of workers are needed so that ordinary families can afford to save.
If you read between the lines, maybe the authors are recognizing that incentives for saving will only help people at the top of the bottom 90%. The rest of the bottom 90% don’t save because they are unable to, not because they don’t have motivation that can be enhanced by incentives.
Now back to some things from the body of the article.
Ten or 20 years from now, all the gains in wealth democratisation achieved during the New Deal and the post-war decades could be lost. While the rich would be extremely rich, ordinary families would own next to nothing, with debts almost as high as their assets.
I hear talk that Elizabeth Warren should not run for president until after Hillary Clinton’s term is over. Since Hillary has a very weak understanding of these issues compare to the strength of Warren’s understanding, waiting another 10 years ordinary families would already have next to nothing or be very close to being in that situation.
Progressive estate and income taxation were the key tools that reduced the concentration of wealth after the Great Depression (Piketty and Saez 2003, Kopczuk and Saez 2004). The same proven tools are needed again today.
This is a lesson that some young, self-declared Democrats haven’t seemed to learn in their study of history.