In response to Top 1% Received
121% of Income Gains During the Recovery I received a
couple of emails from readers that I would like to share.
Reader "Gordon" wondered how it was possible for a group to get
121% of income gains. Here is the example I sent Gordon.
Mary, Tom, and Joe work for the XYZ Corporation. They are the only three
employees. Mary's salary rose from $100,000 to $200,000. Tom and Joe were
informed of hardships in the corporation and their salaries fell from
$100,000 to $80,000 each.
In the above example, net salaries rose by $60,000. Mary's salary rose by
$100,000 (more than 100% of the total).
Quantifying Inequality
Reader "Z" writes ... "Inequality in the US has been rising
since the 80s. How do you justify your theory that inflation benefits the
wealthy? Not qualitatively, quantitatively."
First, let's take a look at inflation as measured by the CPI (any alternative
measure of inflation would suffice for this example).
CPI Percent Change From Year Ago
click on any chart for sharper image
Except for a brief period in 2009, price inflation has been positive. The
question is "Who Benefited?"
I claim it is those with "first access to money" namely
banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives
will prove my point.
Nominal US Household Incomes
From the above chart it appears the average and median households
income has been growing nicely since 1967. If that's what you believe, think
again.
Real US Household Incomes
In "real" (CPI-adjusted) terms, 50% of households are no better off
than they were in 1988. Let's dig a litter deeper.
Growth in Real Household Income by Quintile
The above chart shows percentage income growth by quintile since 1967. Since
1988, the bottom, 4th and middle quintiles (a combined 60% of households)
have negative real income growth. The next chart shows the same thing
in a different way.
Real Household Income by Quintile
No matter what your timeframe, only the top quintile did well. And from 1980
until 2000 the top 5% got the lion's share of income gains.
Ponder on that for a bit, then consider the following charts on total net
worth.
Nominal Total Net Worth
Real Total Net Worth
Total net worth includes stocks, bonds, real estate, pensions, etc. I cannot
precise quantify quintiles but we all know (at least we should) who has the
assets and who doesn't. The top 5 or 10% have most of the assets, the next
15% or so are OK and nearly everyone else is asset poor and high in debt.
Millionaire Households
The Wall Street Journal has some interesting stats on the Millionaire
Population.
According to
the Chicago-based Spectrem group, there are now 8.6 million households in the
U.S. with a total net worth (minus principal residence) of $1 million or
more. There are now 1,078,000 households worth $5 million or more and about
107,000 people worth $25 million or more.
The report also broke down today’s millionaires by occupation and former
occupation if retired. Managers make up the largest group, with 17%, followed
by educators (12%), corporate executives (7%), entrepreneur/business owners
(6%) and attorneys and accounts.
The $5 million-plus crowd, is dominated by senior corporate executives (17%)
and entrepreneurs/owners (12%).
Household
Net Worth
Chart from Spectrem Group
There are about 114 million households. Of that number 8.6 million (7.5%)
have a net worth of $1 million or more.
37 million households have a total net worth of $100,000 or more. Thus, 77
million households (67.5%) have a net worth less than $100,000. Counting
underwater houses, I suspect most of them live paycheck to paycheck and have
minimal if not negative net worth.
So who did inflation benefit? The answer is those with assets and those with
first access to money: the banks and the already wealthy.
The poor do not have assets, they have debt.
In spite of the often-heard mantra that "inflation wipes away
debt", I suggest otherwise. Income typically does not keep up with
expenses, and most have too few assets to inflate. The poor (last on the
credit totem pole) overpay for their assets with cheap credit given to them
at precisely the wrong times (as happened right before the housing bust).
Inflation Clobbers Those on Fixed Income
In case you missed it, please consider Hello Ben
Bernanke, Meet "Stephanie", my response to a reader on fixed income attempting
to live on Social Security plus interest on a $16,000 CD.
If routine price inflation did not benefit the banks and the wealthy at the
expense of everyone else, we probably would not have it. The word that best
describes the process is "theft".
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
"Wine Country" Economic Conference Hosted By Mish
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