wealth

The arc of (pre)history bends towards greater inequality

Published by Anonymous (not verified) on Tue, 21/11/2017 - 1:00am in

wealth-2014

The United States, as I have shown over the past week (e.g., here, here, and here), has an obscenely unequal distribution of wealth.

As illustrated in the chart above, the members of the bottom 90 percent own only 27.8 percent of total household wealth, while the bulk of the wealth is held by the top 10 percent: 43.9 percent by the top 10 to 1 percent, 18.2 percent by the top 1 to 0.1 percent, 9.4 percent by the top 0.1 to 0.01 percent, and finally 9.7 percent by the top 0.01 percent.

How do we put that grotesque level of inequality into perspective? One way is by taking a historical perspective; the other is by looking across the world today.

As it turns out, Nature (unfortunately behind a paywall) has just published a study in which the authors attempt to estimate the degree of wealth inequality in ancient societies for which we do not have written records.* What they did is collect data from 63 archaeological sites or groups of sites, used the distribution of house sizes as a proxy for wealth, and assigned Gini coefficients to each society.**

What they are able to show is that wealth disparities generally increased with the domestication of plants and animals and with increased sociopolitical scale. The basic idea is that wealth disparities cannot accumulate within lineages until mechanisms for the transmission of wealth across generations become common, as is much more likely within sedentary societies. Thus, less wealth is typically transmitted across generations in hunter-gatherer and horticultural societies than in agricultural or pastoral societies.

prehistory

As is clear from the chart above, there were huge differences in the responses of societies to these factors in the New World (North America and Mesoamerica) and the Old World (Euroasia) after the end of the Neolithic period. Much to the researchers’ surprise, inequality kept rising in the Old World while it hit a plateau in the New World. They argue that the generally higher wealth disparities identified in post-Neolithic Eurasia were initially due to the greater availability of large mammals that could be domesticated, because they allowed more productive agricultural extensification, and also eventually led to the development of a mounted warrior elite able to expand polities to sizes that were not possible in North America and Mesoamerica before the arrival of Europeans.

These processes increased inequality by operating on both ends of the wealth distribution, increasing the holdings of the rich while decreasing those of the poor.

The authors note that the highest modeled wealth Gini coefficients in their Old World sample (0.48 at around ad 1, 0.60 at around ∆6,000 in the chart above) are similar to contemporary values for the Slovak Republic (0.45) and Spain (0.58), although much lower than for China (0.73) or the United States in 2000 (0.80).

Thus, the authors conclude,

Even given the possibility that the Gini coefficients constructed here may underestimate true household wealth disparities, it is safe to say that the degree of wealth inequality experienced by many households today is considerably higher than has been the norm over the last ten millennia.

How right they are!

wealth-pyramid

According to the latest Credit Suisse Research Institute’s Global Wealth Report, the members of the global top 1 percent now own more than half (50.1 percent) of all household wealth in the world.

In terms of wealth bands, the United States has by far the greatest number of millionaires: 15.4 million, an increase of 1.1 million adults over 2016. For 2017, that amounts to 43 percent of the world total. (Japan holds second place, with only 7 percent of the world’s millionaires, a decline of 338 from 2016 to 2017.)

top pyramid
Much the same degree of concentration also occurs at the top of the pyramid. According to the Credit Suisse calculations, 148,200 adults worldwide can be classed as ultra-high net worth individuals, with a net worth above US$50 million—an increase of 13 percent (19,600 adults) during the past year.

Once again, the United States dominates the regional rankings, with 75,000 ultra-high net worth residents (51 percent), with China occupying second place with 18,100 ultra-high net worth individuals (up 3,000 on the year).

The authors of the report are clear: since the crash of 2007-08, top wealth holders benefited in particular and, across all regions, wealth inequality has risen, as median wealth declined. And their projections for 2022 suggest “more pessimistic scenarios for the immediate years ahead.”

Yes, indeed, the arc of recent capitalist history appears to be following that of millenia of prehistory, which bends toward greater inequality.

 

*The archaeological contexts sampled from the Old World range from around 11,000 to about 2,000 years ago (plus one recent set of !Kung San encampments), and in the Americas, from around 3,000 to about 300 years ago.

**The Gini coefficient (named after the Italian statistician Corrado Gini) is a measure of statistical dispersion intended to represent the distribution of income or wealth among the members of a group (e.g., a nation). Inequality on the Gini scale is measured between 0, where everybody is equal, and 1, where all the income or wealth is captured by a single person. I have expressed my own reservations about comparing Gini coefficients across countries or regions here.

Tagged: China, history, inequality, Japan, prehistory, United States, wealth

Chart of the day

Published by Anonymous (not verified) on Sat, 18/11/2017 - 2:30am in

pyramid

On Wednesday, I referred to the wealth pyramid in the United States. But I didn’t really represent that pyramid in the chart I provided.

Here it is, above, with the wealth share of the bottom 50 percent (in red), the middle 40 percent (in blue), and the top 10 percent (in green)—a wealth pyramid for each year, from 1962 to 2014.

wealth-pyramid-2014

Or, here’s another, if you prefer a three-dimensional version of the latest year for which data are available. In 2014, the wealth share of the top 10 percent was 73 percent, while the middle 40 percent had 27 percent of net personal wealth. And the bottom 50 percent? It was exactly zero.

Now that is a real wealth pyramid!

Tagged: chart, inequality, United States, wealth

At the bottom of the wealth pyramid

Published by Anonymous (not verified) on Thu, 16/11/2017 - 1:00am in

wealth shares

Yesterday, I looked at the enormous wealth of U.S. billionaires and the growing gap between them and the rest of the American people.

Today, I want to examine what’s happened in recent years at the bottom of the wealth pyramid.

We know that, for decades, the share of net personal wealth owned by the bottom 90 percent has been declining. It peaked at 38.5 percent in the mid-1980s and, by 2014, it had fallen to 27 percent—more or less where it started in the early 1960s.

As is clear from the chart above, most of the change occurred for the middle 40 percent (the blue area), since the bottom 50 percent in the United States has owned very little personal wealth. Its share (the red area), which reached a peak in 1987 (2.4 percent), has since fallen below zero (-0.1 percent, in 2014).

Clearly, the small and declining share of wealth owned by the vast majority of Americans challenges the fundamental presumptions and promises of the country and its economic institutions—that American workers should and would share in the nation’s growing wealth. They haven’t and, if current trends continue, they won’t.

In fact, as it turns out, there is only one dimension of American society where wealth inequality is actually decreasing: the racial wealth gap among low-income households. And that’s only because, since the onset of the Second Great Depression, the median net worth of low-income whites has been cut by nearly half—while the median net worth of low-income blacks and Hispanics has remained relatively stable.

According to an analysis conducted by the Pew Research Center of the data contained in the most recent Survey of Consumer Finances by the Board of Governors of the Federal Reserve System, there is a large gap between the median net worth of white families ($171 thousand) and both black ($17.6 thousand) and Hispanic ($20.7 thousand) families—a gap that increased between 2013 and 2016. The white-black gap grew from $132,800 to $153,500 while the white-Hispanic gap increased from $132,200 to $150,300.

FT_17.10.30_Wealth-Gap_gains

The gap between whites and both blacks and Hispanics also increased for middle-income Americans (those with incomes between two-thirds and twice the national median size-adjusted income). Thus, for example, white households in the middle-income tier had a median net worth of $154,400 in 2016, compared with $38,300 for middle-income blacks and $46,000 for middle-income Hispanics.

But for low-income Americans (those with size-adjusted household incomes less than two-thirds the median), the racial gap, while still large, has shrunk considerably since 2007, the year the most recent crash began. In that year, the white-black gap was 5 to 1 and the white-Hispanic gap almost 10 to 1. In 2016, those wealth gaps had fallen to less than 3 to 1 and 5 to 1, respectively.

As is clear from the chart above, the major reason for the decline in the racial wealth gap is the fact that the median wealth of low-income whites fell by more than half between 2007 and 2013, while the median wealth of both blacks and Hispanics decreased by much less (around 19 percent).

The cause of both the racial gaps and the decline in white wealth has to do with homeownership, the only major form of wealth held by low-income Americans. In 2007, 56 percent of low-income whites were homeowners, compared with 32 percent each for low-income blacks and Hispanics. The homeownership rate among low-income whites has trended downward since then, falling to 49 percent by 2016, but the rate for blacks and Hispanics is largely unchanged. The decline in low-income white wealth was caused by the crash of the housing market, leading to a fall in housing prices and a decline in the rate of homeownership.

Economically, then, the crash and the uneven recovery moved low-income Americans—white, black, and Hispanic—much closer together at the bottom of the U.S. wealth pyramid. Politically, those changes created losses and resentments that affected the outcome of the presidential election of 2016, which in turn have made it difficult to challenge the conditions and consequences of the Second Gilded Age.

Tagged: blacks, Gilded Age, Hispanic, homeownership, inequality, race, United States, wealth, white

Why We Need to Confront the Billionaires’ Paradise

Published by Anonymous (not verified) on Wed, 15/11/2017 - 5:28am in

This post originally appeared at Our Future.

The concentrated wealth of the global plutocracy is the dark matter of the world economy: It is rarely glimpsed and difficult to measure, yet it reshapes everything around it.

Two recent reports — the UBS/PwC report on the “new Gilded Age” of the international billionaire class, and the “Paradise Papers”  released by the International Consortium of Investigative Journalists (ICIJ) reveal ways corporations and the ultrawealthy avoid taxes. In doing so, they offer a glimpse into this darkness.

Together, these releases tell us a lot about the wealthy few who run the world.


RELATED: Activism


Trump Tower in Manhattan on Oct. 8, 2016. (Photo by Spencer Platt/Getty Images)

Trump’s Second Gilded Age: Overcoming the Rule of Billionaires and Militarists

BY Henry Giroux | December 12, 2016

We now know that the British royal family has been less than open with the people they rule, who preserve their dubious privilege to monarchy. And we have learned that, by investing in a Lithuanian shopping center as an end run around taxes, U2’s Bono may have finally found what he’s looking for.

But these reports also help us see how much we still don’t know about the powerful few. In an era when, according to the Institute for Policy Studies, only three Americans — Bill Gates, Jeff Bezos and Warren Buffett — own more wealth than half of our entire population, we need to do more to understand — and confront — the super-concentration of resources.

 
Billionaire Boom

The Swiss bank UBS and the American accounting firm PriceWaterhouseCoopers weren’t looking to write an exposé when they prepared their annual “Billionaires Insights” report for 2017. On the contrary. So-called “very high net worth individuals” are the financial industry’s most sought-after clients. The report is entitled, without any apparent irony, “New value creators gain momentum.”

And gain momentum these billionaires did. As the report notes, “Globally, the total wealth of billionaires rose by +17 percent in 2016, up from USD $5.1 trillion to USD6.0 trillion.”

Did your net worth grow by 17 percent last year?  Unless you’re one of the world’s 1,542 billionaires, chances are it didn’t.

 
The US Wealth Gap

In the United States, wealth for most households grew at a much slower rate, while racial disparities in wealth persist in middle-class households.

Analyses from economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman show a dramatic gain in income for the very wealthy — and no one else — in recent decades. In a useful explainer, David Leonhardt of The New York Times concluded:

Yes, the upper-middle class has done better than the middle class or the poor, but the huge gaps are between the super-rich and everyone else. The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.

Meanwhile, the Federal Reserve reports that millions of Americans continue to struggle. Thirty percent of adults, roughly 73 million people, are finding it difficult to make ends meet or are barely getting by. Just under one-fourth of all adults said they could not pay all their bills for the current month. Forty-four percent said they could not cover an emergency expense of $400, and one-fourth of all adults reported that they had to forgo medical treatment during the past year because of the cost.

 
A Second Gilded Age

As of last report, America’s 10 wealthiest men — they are all men — are collectively worth more than $633 billion. The combined wealth of these 10 men has risen by nearly $116 billion since the start of this year alone.

The explosive growth of billionaire wealth, at a time when the middle class is dying and millions of Americans are struggling, has implications for democracy as well as the economy.

The work of political scientists Martin Gilens and Benjamin Page has shown that the preferences of the majority have very little effect on government policy, while the political wishes of the wealthy few are far more likely to become reality.

As history teaches us, centralized wealth often leads to political oligarchy. Our country is no exception. Expand this oligarchical effect across the globe, and you get a sense of the global reach of the billionaire class. As Oxfam international reported earlier this year, just eight men possesses as much of the world’s wealth as half the global population.


RELATED: Inequality


Protesters in the Occupy Movement in 2011. (Photo by Jagz Mario/ flickr CC 2.0)

Runaway Inequality Elected Trump. Here’s How It Can Help Defeat Him.

BY Les Leopold | February 15, 2017

The author of the UBS/PwC report commented that “We are now two years into the peak of the second Gilded Age,” with levels of inequality not seen since 1905. He also says that “this is something billionaires are concerned about,” leading to fears that the world’s population could “strike back.”

It’s a rational fear.

 
How They Hide

The report lists some of the ways the billionaire class spends its money. Art collections, sports clubs and philanthropy all rate a mention. Recent political events in the US demonstrate that they’re also using their power to further enrich themselves and keep the majority from “striking back.”

One thing the wealthy are apparently not doing with their money is paying much in taxes. The ICIJ’s Panama Papers revealed that many people are using illegal means to avoiding taxation.

The Paradise Papers reveal something equally important: how billionaires and corporations can evade taxation — and public scrutiny of their wealth — through legal means. These documents were obtained from Appleby, one of the world’s leading law firms specializing in offshore accounts.

The New York Times recently profiled two billionaire political donors, one Democratic and one Republican, in an article about the papers that also cited an Appleby publication on the ultrawealthy’s problem of “motivating children with means.”

The Appleby brochure includes the picture of a small boy in a three-piece suit; apparently that counts as cute to the super-rich. Another handout shows “a handsome couple” rushing to board a private jet, while another is captioned “wealth seeks out safe harbours.”

 
Appleby’s Clients

Appleby clients include prominent Democrats like Penny Pritzker, commerce secretary under President Obama, George Soros and the aforementioned donor, James Simons. They also include prominent Republicans like Sheldon Adelson, Carl Icahn and billionaire Robert Mercer, who used some of the money he saved avoiding taxes to set Steve Bannon up with a media empire.

When it comes to disseminating their ideas, it’s striking how many hard-core conservatives don’t trust the “free market” to get the job done.

Sen. Bernie Sanders has called for an investigation into the papers, noting that corporations such as Wells Fargo, Citigroup, Apple and Nike are implicated in the documents.

Offshore havens do more than just help clients evade taxes. They also help them avoid responsibility. As The Times reports, “another offshore firm… advertises that it helps clients ‘preserve wealth from the ravages of litigation, political tumult and divorce.’”

 
The Frontman

Pop stars also availed themselves of Appleby’s services, including the aforementioned Bono, who took advantage of Malta’s generous tax rates for foreign investors when he funneled money into that Lithuanian shopping center.

But then, the self-satisfied singer has a long history of giving high-minded speeches while failing to deliver for the poor, either personally or politically.

In his book The Frontman, author Harry Browne writes that Bono’s politics are “broadly … conservative” and can be seen as “fundamentally nonthreatening to the elites that have wreaked havoc on the world.” To Browne, Bono is “a slick mix of traditional missionary and commercial colonialism, in which the poor world exists as a task for the rich world to complete.”

 
A Veneer of Conscience

In an oligarchical world, figures like Bono matter. They provide the singer’s “friends,” who range from Bill Clinton to George W. Bush to Jesse Helms, with a veneer of conscience. They inoculate members of the global elite from the guilt that is rightfully theirs.


RELATED: Inequality


The average 1 percent household took an additional $3 million of our national wealth in one year while education and infrastructure went largely unfunded. (Photo by Quinn Dombrowski/ flickr CC 2.0)

How 90% of American Households Lost an Average of $17,000 in Wealth to Plutocrats in 2016

BY Paul Buchheit | March 9, 2017

Speaking of “frontmen”: the papers also show that Britain’s Prince Charles invested millions of pounds offshore. His estate insisted that the investment, which may have indirectly benefited from the prince’s environmental campaigns, be kept secret. The Queen also invested heavily in offshore companies, including one that has been criticized for exploiting poor families.

The Royals insisted that they obtain no tax advantage from these investments, which suggests that the public face of Britain’s government may well have been trying to hide its wealth from Britain’s people.

 
The Network

The authors of the UBS report probably didn’t intend these words to sound as ominous as they do:

Billionaires are leveraging their networks. They have always worked with groups of peers for business, investment and philanthropic ends. But they are using them more, for example to access significant funding outside the capital markets. Better connectivity is helping them to work together more effectively.

They are undoubtedly correct. Americans need look no further then Donald Trump’s Cabinet and circle of advisers, where billionaires gather to plot everyone else’s future while the rest of the Republican Party dutifully falls in line. Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross and chief economic adviser Gary Cohn were among those implicated by the Paradise Papers.

The effect of billionaire “networks” may also be found in the Democratic Party’s struggle to develop a platform that reflects the needs of working Americans without alienating very many high-net-worth donors. Hint: It can’t be done.

 
The Response

Concentrated wealth tends to be amoral, and the ultrawealthy are growing more powerful all the time. And since small businesses usually can’t afford the services of firms like Appleby, legalized tax evasion increases inequality among both individuals and businesses.

How can the United States and the world respond before it’s too late? Economists like Piketty and Zucman have called for a global wealth tax, although that would be difficult to enforce.

The International Monetary Fund (IMF) argued that taxes on the Western world’s 1 percent should be “significantly higher.” The Paradise Papers illustrate the importance of ending legalized tax evasion, and Zucman wrote an op-ed on the topic for The New York Times.

But it is hard to pass such measures in today’s political world. Here in the United States, there’s a strong chance Trump and Congress will cut taxes on billionaires and corporations instead. That’s what that happens when wealth becomes too concentrated and political power follows suit.

 
What We’re Looking For

The undemocratic and unequal state of our own country can no longer be hidden. These reports are informative, but so far we’ve only glimpsed the oligarchy’s reach and power.

This concentration of power must be investigated, and then it must be confronted – by a majority determined to take back the economy and democracy from the powerful few who have made it their plaything, before it’s too late.

It’s time to “strike back” — not against wealthy individuals, but against oligarchy itself.

The post Why We Need to Confront the Billionaires’ Paradise appeared first on BillMoyers.com.

Monopoly men*

Published by Anonymous (not verified) on Wed, 15/11/2017 - 1:00am in

monopoly_crop-1152x648

Wealth inequality in the United States has reached such extreme levels it is almost impossible to put it into perspective.

But the folks at the Institute for Policy Studies (pdf) have found a novel way, by comparing the fortunes of the 400 wealthiest Americans to the meager assets of everyone else.

Forbes

Here’s what they found:

  • The three wealthiest people in the United States—Bill Gates, Jeff Bezos, and Warren Buffett—now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households.
  • America’s top 25 billionaires—a group the size of a major league baseball team’s active roster—together hold $1 trillion in wealth. These 25 have as much wealth as 56 percent of the population, a total 178 million people or 70 million households.
  • The billionaires who make up the full Forbes 400 list now own more wealth than the bottom 64 percent of the U.S. population, an estimated 80 million households or 204 million people—more people than the populations of Canada and Mexico combined.

wealth

Here’s another way: the average wealth of the top 10 billionaires (from the Forbes 2017 list) is $61 billion. In 2014 (the last year for which data are available), the average wealth for the United States as a whole (the blue line in the chart above) was only $297 thousand, while the average wealth owned by the middle 40 percent (the green line) was even less, $202 thousand. As for the top 1 percent, their average wealth (the red line) was $1.15 million—clearly far more than most other Americans but not even close to the extraordinary level of wealth that has been accumulated by the tiny group at the very top.

As the authors of the report explain,

The elite ranks of our billionaire class continue to pull apart from the rest of us. We have not witnessed such extreme levels of concentrated wealth and power since the first Gilded Age a century ago. Such staggering levels of wealth inequality threaten our democracy, compound racial and class divisions, undermine social cohesion, and destabilize our economy.

The problem is, while mainstream economists look the other way, politicians in Washington continue to allow the Monopoly men to pass Go, collect their additional billions in wealth, and win the game.

 

*”Monopoly men” are not just men: there are 50 women on the 2017 Forbes 400 list, who are worth a combined $305 billion. (An additional five women who built and share fortunes with their husbands also made the list.) They include Alice Walton (with a net worth of $38.2 billion), Jacqueline Mars ($25.5 billion), Laurene Powell Jobs ($19.4 billion), Abigail Johnson ($16 billion), and Blair Parry-Okeden ($12 billion).

Tagged: 1 percent, billionaires, Forbes, inequality, Monopoly, United States, wealth

Them That Has, Gets

Published by Anonymous (not verified) on Thu, 09/11/2017 - 9:15am in

There is no starker measure of inequality in the United States than net wealth—and over the last four years, the divide has only grown.

Conspicuous tax evasion

Published by Anonymous (not verified) on Wed, 08/11/2017 - 1:00am in

paradisepapers

The release of the so-called Paradise Papers confirms, with additional names and more salacious details, what we already knew from the Panama Papers and other sources: the world’s wealthy increasingly use offshore tax havens to engage in conspicuous tax evasion.

That’s on top of their participation in conspicuous consumption, conspicuous philanthropy, and conspicuous productivity.

According to Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, in a study published before the release of the Paradise Papers, the equivalent of 10 percent of world GDP is held in tax havens globally—and that’s only counting bank deposits, not the portfolios of equities, bonds, and mutual fund shares that wealthy individuals entrust to offshore banks.

And, as it turns out, offshore wealth is extremely concentrated: the top 0.1 percent of richest households own about 80 percent of it, while the top 0.01 percent own about 50 percent of offshore wealth.

So, how does it work? There is a great deal of evidence that the vast majority of offshore wealth, both legal and illegal, is not reported on tax returns. That’s because offshore wealth is done “by combining trusts, foundations, and holding companies, so as to disconnect assets from their beneficial owners.” Thus, tax authorities won’t be able to observe or collect taxes on either the wealth or investment income earned or reported offshore, except in rare circumstances (e.g., a taxable and properly declared inter-generational transfer of assets).

That means the tax burden is shifted onto the rest of us who don’t hold offshore wealth and aren’t able to—or choose not to—engage in conspicuous tax evasion.

wealth-no offshore

Not surprisingly, accounting for offshore assets increases the top 0.01 percent wealth share substantially. However, the magnitude of the effect varies a lot across countries.

wealth-offshore

In Scandinavia (Norway, Sweden, and Denmark, the blue lines in the charts above), which does not use tax havens extensively, the top 0.01 percent wealth share rises from about 4 percent to around 5 percent. Offshore holdings have a much larger effect on wealth inequality in Europe (the United Kingdom, France, and Spain, the red lines), where by the estimates of Alstadsæter et al. 30-40 percent of the wealth of the 0.01 percent of richest households is held abroad.

In the United States (the green lines in the charts), offshore wealth also increases inequality but the effect is much more muted than in Europe. That’s only because the U.S. top wealth share is already very high—9.9 percent, without offshore wealth in 2010, compared to 11.1 percent when offshore wealth is included.

Clearly, the world’s wealthiest individuals—including those who call Scandinavia, Europe, and the United States home—have plenty of opportunities via their offshore paradises to engage in conspicuous tax evasion.

Tagged: conspicuous consumption, Europe, inequality, philanthropy, productivity, Scandinavia, tax evasion, tax havens, United States, wealth

True wealth

Published by Anonymous (not verified) on Wed, 01/11/2017 - 4:57am in

I’ve been meaning to write about National Wealth: What is Missing, Why it Matters edited by Cameron Hepburn and Kirk Hamilton. This volume (in which I have a chapter, The Political Economy of National Statistics) looks at different types of wealth from a number of perspectives. The opening set of chapters look at the link between wealth and sustainability (measurement of assets being essential to take the future into account) and the link between wealth and well-being, as well as my paper looking at how one might move from a GDP/income flow to a wealth measurement standard. Part two covers the historical perspective on wealth. Part 3 looks in more detail at the measurement of specific components of wealth, and part 4 at sustainability.

As the editors write, “Policies that create wealth go beyond increasing output; they involve investments today for returns in the future … A focus on wealth generation … shifts policy away from supporting immediate consumption.” There are plenty of ideas and an increasing amount of data making it possible to start accounting for wealth, and specifically the change in real wealth. The challenge is the policy challenge of getting consensus about the need to change the focus.

With my co-author Benjamin Mitra-Kahn, we suggested how to go about this as our entry for the inaugural Indigo Prize, which we were honoured to win jointly with Jonathan Haskel and his colleagues. Their ideas for improving GDP are excellent; but Ben and I still think priority needs to be given to the sustainability-enhancing potential of a wealth focus rather than an amended GDP focus. Wealth and sustainability are “joined at the hip,” as National Wealth puts it.


 What is Missing, Why it Matters


National Wealth: What is Missing, Why it Matters

Price: £65.00

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Haunted by surplus

Published by Anonymous (not verified) on Wed, 01/11/2017 - 12:00am in

income  wealth

Inequality in the United States is now so obscene that it’s impossible, even for mainstream economists, to avoid the issue of surplus.

Consider the two charts at the top of the post. On the left, income inequality is illustrated by the shares of pre-tax national income going to the top 1 percent (the blue line) and the bottom 90 percent (the red line). Between 1976 and 2014 (the last year for which data are available), the share of income at the top soared, from 10.4 percent to 20.2 percent, while for most everyone else the share has dropped precipitously, from 53.6 percent to 39.7 percent.

The distribution of wealth in the United States is even more unequal, as illustrated in the chart on the right. From 1976 to 2014, the share of wealth owned by the top 1 percent (the purple line) rose dramatically, from 22.9 percent to 38.6 percent, while that of the bottom 90 percent (the green line) tumbled from 34.2 percent to only 27 percent.

The obvious explanation, at least for some of us, is surplus-value. More surplus has been squeezed out of workers, which has been appropriated by their employers and then distributed to those at the top. They, in turn, have managed to use their ability to capture a share of the growing surplus to purchase more wealth, which has generated returns that lead to even more income and wealth—while the shares of income and wealth of those at the bottom have continued to decline.

But the idea of surplus-value is anathema to mainstream economists. They literally can’t see it, because they assume (at least within free markets) workers are paid according to their productivity. Mainstream economic theory excludes any distinction between labor and labor power. Therefore, in their view, the only thing that matters is the price of labor and, in their models, workers are paid their full value. Mainstream economists assume we live in the land of freedom, equality, and just deserts. Thus, everyone gets what they deserve.

Even if mainstream economists can’t see surplus-value, they’re still haunted by the idea of surplus. Their cherished models of perfect competition simply can’t generate the grotesque levels of inequality in the distribution of income and wealth we are seeing in the United States.

That’s why in recent years some of them have turned to the idea of rent-seeking behavior, which is associated with exceptions to perfect competition. They may not be able to conceptualize surplus-value but they can see—at least some of them—the existence of surplus wealth.

The latest is Mordecai Kurz, who has shown that modern information technology—the “source of most improvements in our living standards”—has also been the “cause of rising income and wealth inequality” since the 1970s.

For Kurz, it’s all about monopoly power. High-tech firms, characterized by highly concentrated ownership, have managed to use technical innovations and debt to erect barriers to entry and, once created, to restrain competition.

d7c290116b17732db276c7a508a98911.16-9-xlarge.1

Thus, in his view, a small group of U.S. corporations have accumulated “surplus wealth”—defined as the difference between wealth created (measured as the market value of the firm’s ownership securities) and their capital (measured as the market value of assets employed by the firm in production)—totaling $24 trillion in 2015.

Here’s Kurz’s explanation:

One part of the answer is that rising monopoly power increased corporate profits and sharply boosted stock prices, which produced gains that were enjoyed by a small population of stockholders and corporate management. . .

Since the 1980s, IT innovations have largely been software-based, giving young innovators an advantage. Additionally, “proof of concept” studies are typically inexpensive for software innovations (except in pharmaceuticals); with modest capital, IT innovators can test ideas without surrendering a major share of their stock. As a result, successful IT innovations have concentrated wealth in fewer – and often younger – hands.

In the end, Kurz wants to tell a story about wealth accumulation based on the rapid rise of individual wealth enabled by information-based innovations (together with the rapid decline of wealth created in older industries such as railroads, automobiles, and steel), which differs from Thomas Piketty’s view of wealth accumulation as taking place through a lengthy intergenerational process where the rate of return on family assets exceeds the growth rate of the economy.

The problem is, neither Kurz nor Piketty can tell a convincing story about where that surplus comes from in the first place, before it is captured by monopoly firms and transformed into the wealth of families.

Kurz, Piketty, and an increasing number of mainstream economists are concerned about obscene and still-growing levels of inequality, and thus remained haunted by the idea of a surplus. But they can’t see—or choose not to see—the surplus-value that is created in the process of extracting labor from labor power.

In other words, mainstream economists don’t see the surplus that arises, in language uniquely appropriate for Halloween, from capitalists’ “vampire thirst for the living blood of labour.”

Tagged: 1 percent, competition, economics, income, inequality, information, mainstream, Monopoly, surplus, surplus-value, technology, Thomas Piketty, United States, wealth

The gilded age: a tale of today*

Published by Anonymous (not verified) on Tue, 31/10/2017 - 12:00am in

billionaires

The timing could not have been better, at least for me. It just so happens I’m teaching Thorsten Veblen’s Theory of the Leisure Class this week. It should become quickly obvious to students that, as I have argued before on this blog, we’re now in the midst of a Second Gilded Age.

This is confirmed in a new report by UBS/PwC, according to which, after a brief pause in 2015, the expansion in billionaire wealth around the world has resumed.

Thus, billionaire wealth rose 17 percent in 2016 (up from $5.1 trillion to $6 trillion), far more than the 5.8-percent nominal GDP growth figure and double the rate of the MSCI AC World Index.** There was also a 10-percent rise in the number of billionaires globally to 1,542. Despite a period of heightened geopolitical uncertainty, the world’s ultrawealthy are flourishing.

The United States still has the world’s largest concentration of billionaire wealth. It grew by 15 percent from $2.4 trillion to $2.8 trillion as billionaires prospered, far outstripping the MSCI AC World Index. Thirty-nine Americans entered the billion-dollar plus wealth band and 14 dropped off.

asian

Europe’s billionaire population was static in 2016. Twenty-four entered this wealth band, while 21 dropped off.*** There were 342 European billionaires at the end of 2016.

The biggest jump occurred in Asia. Three quarters of the newly minted billionaires are from the region’s two biggest economies—China and India. China had by far the highest number, adding a net 67 to total 318. India’s billionaire population climbed 16 to 100. Taken together, the wealth of Asian billionaires grew by almost a third (31 percent) in 2016, up from $1.5 trillion to $2 trillion.

So, what do the world’s billionaires do with their vast wealth? Most of it is used to capture even more income and wealth. Thus, the 1,542 billionaires in the UBS/PwC database own or partly own companies that directly employ at least 27.7 million people worldwide—roughly the same as the UK’s working population. And, via an array of financial instruments and “club deals,” they manage to siphon off a large part of the surplus created by the rest of the global working-class.****

sports

Apparently, the world’s billionaires are also becoming major patrons of sports, such as football (both global and American), hockey, baseball, and basketball. According to the report, more than 140 of the top sports clubs globally are owned by just 109 billionaires.*****

One European entrepreneur explains why he owns a sports club in the following way. “Sport is my life and my dearest hobby,” he says. “Further, the publicity you get from the broadcasting is global. The business works according to the theme ‘you win on Sunday and sell on Monday.’ People always identify themselves with winners. A er all, I not only sponsor, whatever I do in this eld must be sustainable and needs to make commercial sense.”

It should come as no surprise that Veblen held a quite different view:

Addiction to athletic sports, not only in the way of direct participation, but also in the way of sentiment and moral support, is, in a more or less pronounced degree, a characteristic of the leisure class; and it is a trait which that class shares with the lower-class delinquents, and with such atavistic elements throughout the body of the community as are endowed with a dominant predaceous trend.

Clearly, the Gilded Age today shares with its historical predecessor a “dominant predaceous trend” that enables the world’s billionaires to accumulate more and more wealth and leaves the rest of us behind.

 

*The title of this post is from the collection of short stories by Mark Twain and Charles Dudley Warner, published in 1873. Apparently, the name chosen by Twain and Warner was inspired by William Shakespeare’s The Life and Death of King John (Act 4, Scene 2):

Therefore, to be possess’d with double pomp,
To guard a title that was rich before,
To gild refined gold, to paint the lily,
To throw a perfume on the violet,
To smooth the ice, or add another hue
Unto the rainbow, or with taper-light
To seek the beauteous eye of heaven to garnish,
Is wasteful and ridiculous excess.

**The MSCI AC World Index is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets.

***Germany, Europe’s largest economy, also has the most billionaires, at 117. The United Kingdom comes a distant second, at 55, followed by Italy (42), France (39) and Switzerland (35).

****One high-profile example of clubbing together occurred when Warren Buffett’s Berkshire Hathaway group backed the ill-fated Kraft Heinz $143-billion bid for Unilever in February 2017. Buffett has a record of helping the 3G private equity vehicle behind the bid to finance its deals. 3G is controlled by Jorge Paolo Lemann, Brazil’s richest man, and his partners. Buffett has added his financial firepower to 3G’s acquisitions of doughnut chain Tim Hortons as well as Kraft Heinz.

*****The Glazer family, worth an estimated $4.7 billion in 2015, controls 83 percent of my own favorite sports team.

Tagged: Asia, billionaires, China, Europe, Gilded Age, India, inequality, Second Gilded Age, sports, Thorstein Veblen, United States, wealth

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