Roaring 1980s, 1990s, 2000s, and 2010s

Posted: 29 October 2014 in Uncategorized
Tags: , , , , , ,

saezfig1

In the United States, we’ve witnessed a return of the Roaring Twenties—for the past three and a half decades.

As Emmanuel Saez and Gabriel Zucman show, the share of wealth (defined as total assets, including real estate and funded pension wealth, net of all debts) held by the top 0.1 percent of families is now almost as high as it was in the late 1920s.

saezfig2

The opposite side of the wealth coin has been an erosion of wealth, beginning in the mid-1980s, among the middle class and the poor. By 2012, the bottom 90 percent of Americans collectively owned only 23 percent of total U.S. wealth, about as much as they owned in 1940.

According to Saez and Zucman,

The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90% of families. Many middle-class families own homes and have pensions, but too many of these families also have much higher mortgages to repay and much higher consumer credit and student loans to service than before. . .For a time, rising indebtedness was compensated by the increase in the market value of the assets of middle-class families. The average wealth of bottom 90% of families jumped during the stock-market bubble of the late 1990s and the housing bubble of the early 2000s. But it then collapsed during and after the Great Recession of 2007–2009. . .

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.

How can we explain the growing disparity in American wealth? The answer is that the combination of higher income inequality alongside a growing disparity in the ability to save for most Americans is fuelling the explosion in wealth inequality. For the bottom 90% of families, real wage gains (after factoring in inflation) were very limited over the past three decades, but for their counterparts in the top 1% real wages grew fast. In addition, the saving rate of middle-class and lower-class families collapsed over the same period while it remained substantial at the top. Today, the top 1% families save about 35% of their income, while the bottom 90% families save about zero.

And looking forward?

If income inequality stays high and if the saving rate of the bottom 90% of families remains low then wealth disparity will keep increasing. 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.

To put it differently—and in honor of the season—what we can expect in the future is a tiny group of extremely wealthy vampires continuing to share in a larger and larger share of the blood of living labor, accumulating more and more wealth, while the vast majority wander the economic and social landscape like zombies, being paid the same amount for the work they do and owning next to nothing.

Comments
  1. Alex Casanas says:

    Reblogged this on Zagonomics and commented:
    Income inequality has grown to the same levels we saw in the Roaring Twenties. Is there a solution to this? Leave your thoughts in the comments.

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