Around Christmas time most Americans are cheerful and giving. They take time to appreciate their friends, family, and fellow citizens. Charities collecting food, clothing, and toys for the needy can be found on every corner as those who are well to do attempt to give back to their community and country. It’s a shame the well-off are only filled with this charitable spirit once a year. To many lower and middle-class Americans, “Tickle-Down” economics is starting to look more like a way for them to merely be “Trickled On” by the upper echelons.
During a year where vast amounts of wealth for the super-rich were created in US equity markets, the warnings of increasing inequality in our nation suddenly became more real. While the outrageously wealthy and “conservative” (i.e. crony capitalists) power brokers consider any mention of inequality or higher taxes socialism, most Americans are waking up to the reality which is this: the American dream has become more like a work induced coma.
While many people cite record after-tax profits as the main driver of inequality due to deterioration of wages (see this chart), our inequality can’t be pinned on any single metric. There are plenty of reasons contributing to this growing problem. Stanford even created a page titled “20 Facts About US Inequality that Everyone Should Know“. Pundits will pick their favorite stat on this page to write about and place a bulk of the blame, but it’s the combination of these issues which have created a cocktail for social unrest in America.
The fact that it took this long for inequality to make headlines more frequently is probably a result of American’s attitude toward wealth. Most Americans believe they are a few risks away from striking it big… others just simply didn’t believe there was much inequality until more media sources filled them in on just how outrageous the inequality is. Just look at how our nation has become more and more unequal since the late 1970’s. Since the 2008 recession inequality has only become more extreme. Since the recession, 95% of gains in income went to the top 1%.
The 1% is a diverse group and I wouldn’t dare lump them all together in the same category. It may surprise you just how many 1%’ers are extremely hard working individuals who aren’t making millions a year. That doesn’t mean they aren’t making serious money, but once you peel back a few layers of the 1% and see the ridiculous wealth held by the .5% and .1%… that’s when all the calls to lessen inequality by the “mere mortals” in the nation seem less like class war and more like a solid idea.
During the election last year there was plenty of heated discussion about inequality in America, and this discussion led to one of the best video illustrations of wealth in America being created. I highly suggest you watch it to get an idea of how Americans perceive wealth distribution compared to the reality. It may surprise you just how ridiculously wealthy the 1% is. However, once you break it down further it becomes clear that it’s those in the top .5% who are truly rolling in the dough.
There is hope for the masses, though. Many of the wealthiest and most influential Americans are catching on to our wealth disparity and believe they should be paying more to help society as a whole. While I’m not sure them paying higher taxes will solve everything, it’s at least a start. I don’t really trust that the government will somehow solve this issue if they were to receive more money… it’s more likely they would squander that. I do believe that by investing more in their employees, corporations can make a considerable improvement in our situation. While wage increases and stronger hiring may cause a drop in profitability, aggregate demand would improve and create more wealth for the entire pie rather than only those at the top.
As the economy continues to improve, it’s the hope of many that inequality will solve its-self. I don’t think that will be the case, so as investors we must take into consideration what, if any, action(s) will be taken to reduce this dramatic gap in wealth. What is your stance on the issue? It’s a great time of year to reflect on personal views about society, wealth, and equality.
This will be my final post of 2013, so I hope you all have a Merry Christmas and a Happy New Year!