Posts Tagged ‘wealth’

2019 was a very good year for the world’s wealthiest individuals. The normal workings of global capitalism created both more billionaires and more combined wealth owned by those billionaires.

According to Wealth-X, which claims to “have developed the world’s most extensive collection of records on wealthy individuals and produce unparalleled data analysis to help our clients uncover, understand, and engage their target audience,  as well as mitigate risk,” the size of the global billionaire population increased strongly in 2019, rising by 8.5 percent
to 2,825 individuals, while their combined wealth increased by 10.3 percent to $9.4 trillion.

To put that into perspective, the world’s real Gross Domestic Product grew by only 2.9 percent (International Monetary Fund) in 2019—while the value of global equities, which is key to billionaires’ wealth, soared by more than 25 percent (MSCI World Index).

The United States still leads the list of the world’s billionaire population and their wealth. In 2019, the number of American billionaires rose by almost 12 percent to 788 individuals, accounting for 28 percent of the global billionaire population (China has the next highest share at 12 percent). Cumulative billionaire wealth in the United States increased by 14 percent to $3.4 trillion, more than the combined net worth of the next eight highest-ranked countries and equivalent to a 36 percent share of global billionaire wealth.*

What about the novel coronavirus pandemic?

According to Bloomberg, only two of the world’s 10 richest people have seen their wealth decline in 2020: luxury mogul Bernard Arnault and Berkshire Hathaway Inc.’s Warren Buffett. Everyone else, whose wealth is tied to technology holdings (except for Mukesh Ambani, the Indian billionaire who chairs and runs oil and gas giant Reliance Industries), has seen their individual and collective wealth increase—none more so than Jeff Bezos (the Amazon.com Inc. founder who has seen his net worth soar by $63.6 billion this year) and Elon Musk (whose net worth has more than doubled to $69.7 billion on the back of surging Tesla Inc shares).**

On a global level, billionaires tied to technology businesses have outperformed all others, especially those whose wealth is tied to the automotive, shipping, media, textiles and apparel, and aerospace (less so defense) industries. They, of course, are the ones who most want to see a quick solution to the pandemic and a reopening of economic activity around the world.

In general terms, wealthier billionaires are more exposed to the ebbs and flows of the stock market, while those at lower tiers tend to have more of their wealth in private holdings, likely to be their primary business. For example, those in the two highest billionaire wealth tiers—above $10 billion— hold between almost half and more than three-quarters of their assets in public holdings. These individuals have withstood significant volatility in their wealth as stock markets first fell considerably and then rebounded equally dramatically—this past Friday, to a new record high in the United States—since the beginning of the pandemic.

So, what are the world’s billionaires, in the United States and around the globe, doing with their wealth in the midst of the pandemic? We know they’re not particularly worried with the same problems as their predecessors, the Robber Barons, whose enormous economic power in the United States created a fierce counter-reaction, in militant labor unrest and the adoption of reforms that once seemed radical, like the Sherman Antitrust Act and a federal income tax.

At least so far. . .

Instead, according to Wealth-X, they are

working with their wealth advisors and planners to ensure their financial holdings and wealth plans (whether concerned with investment diversification, wealth transfer or philanthropic aims) remain up to date and in the best possible state given the evolving global situation.

They’re also concerned about their own safety and new forms of luxury consumption. According to the Wealth-X Global Luxury Outlook 2020. “The wealthy’s mindset around what luxury is has changed—their priorities have shifted towards their families,” Jaclyn Sienna India, CEO of luxury travel company Sienna Charles, said in the report. “Luxury now includes a second passport, access to healthcare and the freedom to go when and where they feel safe and secure.”

“Quite a few wealthy people are looking for exclusive safe havens in the form of second homes—safety has become a priority for them,” Alistair Brown, CEO of Alistair Brown International Real Estate. “But with this purchase, they expect access to established locations often via residency and additional passports as well as access to medical help.”

Additionally, the wealthy have become increasingly accustomed to purchasing luxury goods online since the pandemic, as high-end brands expand their digital offerings, the report said.

“The wealthy continue to value luxury as they did prior to Covid-19. However, the way they buy luxury has changed, with more having moved to making their purchases online,” Winston Chesterfield, principal of luxury watch company Barton.

Meanwhile, what is everyone else supposed to do? Well, they have to stay as safe as they can at home and on the job—as they are subjected to the second or third wave of the pandemic—and try to obtain sufficient food, remain in their shelter while not being able to keep up with their rents and mortgages, and pay for their healthcare—in the midst of widespread pay cuts and soaring unemployment.

And, perhaps, begin to sharpen the twenty-first century equivalent of pitchforks. . .

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*That’s my quick (and, I understand, overly simplistic) argument against the rise of fascism in the United States: billionaires and the other members of the group of ultra-wealthy individuals don’t need it, since they’re doing quite well the way things are.

**Currently, five of the largest American tech companies—Apple, Amazon, Alphabet, Facebook, and Microsoft—have market valuations equivalent to about 30 percent of U.S. gross domestic product. That’s almost double what they were at the end of 2018.

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You know your generation’s screwed when even Monopoly is mocking you.

Back in 2016, I argued that Millennials were in fact generation screwed.

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For example, in 2010 (when some of them were 20 to 24 years of age), their unemployment rate was 17.2 percent, much higher than the already high national average of 9.9 percent.*

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Partly because of the difficulty they had finding jobs, but also because they have been saddled with high student and healthcare debt, the typical Millennial family lost ground between 2010 and 2016, falling further behind the typical wealth lifecycle than any other birth cohort. According to the Federal Reserve Bank of St. Louis (pdf), a typical 32-year-old family respondent in 2016 (born in 1984) was 34 percent ($12,000) below the 32-year-old benchmark established by earlier generations.

No wonder Hasbro decided to lampoon their inability to purchase real estate.

Still, the authors of the report thought there were grounds for optimism, since “These families have many more years to earn, save and accumulate wealth.”

Except now, according to Vox (first in early April and now in May), Millennials have been screwed again.

As someone on the tail end of the millennial generation, I was lucky enough to still be in school when the 2008 recession hit. Yet financial anxiety has been an omnipresent part of how I see the world. It feels as though the one-time hallmarks of adulthood — buying a house, having kids, stability, even thinking about these things — are no longer milestones, but irresponsible dreams. Meanwhile, millennials older than me, many of whom are in their 30s and began their job searches in the thick of the 2008 recession, are even more financially fragile.

In fact, Millennials have every reason to be concerned, about their present and their future. They (and the next younger cohort) appear to have been most affected by furloughs, layoffs, and pay cuts in the midst of the current economic crisis. Moreover, we know that those making less money and those working in certain sectors (such as hospitality, restaurant services, and retail trade) have been more likely to be laid off than other, often older workers. And yet still Millennials have to continue to pay off their student loans and healthcare debts and make their rent payments.

The last time I analyzed the situation of Millennials, I discovered they were more inclined to identify as members of the working-class (and not, for example, as middle-class) and more critical of capitalism than previous generations.

I wonder now, when they’re being screwed a second time in their short lives, how they will identify and what economic and social arrangements they will end up criticizing.

Millennials still have plenty of time, if not to accumulate wealth, at least to change the world.

 

*For the sake of comparison, the difference between the two unemployment rates in 2007 was only 2.8 points.

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It must be confessed that though the plague was chiefly among the poor, yet were the poor the most venturous and fearless of it, and went about their employment with a sort of brutal courage; I must call it so, for it was founded neither on religion nor prudence; scarce did they use any caution, but ran into any business which they could get employment in, though it was the most hazardous. Such was that of tending the sick, watching houses shut up, carrying infected persons to the pest-house, and, which was still worse, carrying the dead away to their graves.

— Daniel Defoe, A Journal of the Plague Year

I’m almost sick of hearing the refrain, “We’re all in this together.”

I say almost, because I do think there’s a utopian moment in that phrase in the midst of the current pandemic. It speaks of solidarity, of being in common, of paying attention to and honoring healthcare workers and others who are currently laboring in “essential” activities while the rest of us are instructed to stay at home. In that sense, it betokens—or at least aspires to—a thinking about and caring for others.

Otherwise, and this is why I’m getting tired of it, the expression serves to deflect our attention from and to paper over the obscene inequalities that afflict American society. I’m referring not only to the pre-existing unequal condition in the United States—the sharp fissures and enormous chasms that have been highlighted by the pandemic—but also to the ways the gap between the haves and have-nots has played an important role in actually causing the spread of the dreaded disease, as well as to the possibility those inequalities will only get worse as a result of the pandemic and the way the response to it has been devised and implemented in the United States.

It has now become almost commonplace, at least within the liberal mainstream media, to note that the unfolding of the novel coronavirus pandemic and the ensuing economic crisis have focused a spotlight on the grotesque inequalities that preceded their onset. With every day that has gone by, it has become clearer that the spread of the virus has been profoundly lopsided and uneven—from access to testing and decent, affordable healthcare and who’s been able to shelter in place to the presence of underlying “comorbidities,” all of which have made the virus both more prevalent and more lethal among working-class Americans, including African Americans, who have been left behind.

The pandemic has also brought with it an economic crisis—and that too has reflected existing inequalities. On one hand, tens of millions of low-wage workers have been especially vulnerable to layoffs, with restaurant and retail workers especially at risk, increasingly obliged to acquire sustenance for themselves and their families in the country’s understocked food pantries. On the other hand, millions of other workers—who drive buses, care for hospital patients and the elderly, pack and transport commodities, take their places on the assembly-line in slaughterhouses—have been forced to have the freedom to continue to commute to and labor at their jobs in perilous conditions, increasing the risk of contagion to themselves, their families, and the communities in which they live.

Meanwhile, the former or current employers of those same workers have been lining up to receive loans from private banks and through the various government bailouts, with few of any restrictions (e.g., on stock buybacks and dividends payments to shareholders) and high-profile chief executives of corporations have announced voluntary salary cuts, which turn out to be nothing more than publicity stunts.

Not only do the consequences of the pandemic appear to reflect existing inequalities. It also seems to be the case that those same inequalities are acting as multipliers on the coronavirus’s spread and deadliness. It is no coincidence that the United States, with the most unequal distribution of income and wealth among rich countries, also has the highest number of confirmed cases of and deaths from the coronavirus. One reason is that, as inequality has increased, health disparities themselves have widened—and lower-income Americans are much likelier than those at the top to have one or more chronic health conditions, thus exposing them to more risk from the coronavirus. Moreover, those same people are the ones who have been continuing to work in their “essential” in-person jobs, which require more contact both with other workers and customers. In other words, workers, who have more health problems and less health care, are at greater risk of transmission.

The pandemic under extreme inequality thus involves a devastating feedback loop, for workers and society as a whole. The people who can least afford it, given their health and working conditions, are forced into the position of being more exposed to contagion and becoming agents of transmitting the disease to others—in their workplaces and households and in the wider community.

And there’s another feedback loop, or cycle of injustice—from existing inequalities through the uneven effects of the pandemic to even more inequality in the future. As Charlie Cooper has argued,

With social distancing here to stay for the foreseeable future, it’s becoming increasingly clear that the next stage of the pandemic is going to change many lives for the worse.

Specifically, it’s going to exacerbate existing inequalities, as the privileged buffer themselves against its pernicious effects while the world’s most vulnerable struggle not to fall through the rapidly widening economic fissures.

For one thing, even after recovery from the immediate affliction, the coronavirus infection may cause lasting damage throughout the body, thereby worsening both the health and economic activity of some (still unknown) portion of an entire generation.

On top of that, the effects of the economic crisis, with tens of millions of workers furloughed or laid off while banks and corporations are bailed out and the stock market is on the rebound, may be even worse than those of the Second Great Depression. Let’s remember that, aside from a brief hiatus (in 2009), the trend of growing inequality that preceded the crash of 2007-08 was quickly restored during and after the so-called recovery.

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For example, in 2007, the top 1 percent of Americans captured 19.9 percent of pretax national income (the blue line in the chart on the left), while the bottom 50 percent had only 13.7 percent (the red line). By 2014 (the last year for which data are available), the percentages were 20.2 and 12.6, respectively. The story of wealth inequality is even more dramatic: while the share of wealth owned by the top 1 percent (the red line in the chart on the right) grew from 34.1 percent in 2007 to 36.6 percent in 2016, the tiny share owned by the bottom 50 percent (the blue line) barely changed, rising from 0.3 percent to 0.4 percent.

Since we’re only at the beginning of the current crisis, we still don’t know what the final results will be. Even a quick, V-shaped economic recovery (about which I have my doubts) would still be accompanied, according to current modeling, with millions of cases of coronavirus and 100 thousand or more deaths, spread unevenly within the U.S. population (especially now that the Trump administration is set to dismantle its coronavirus task force). While the effects of a longer and more severe downturn—a third economic depression, perhaps—will likely be characterized, especially since there have been no major policy changes compared a decade ago, by the same kind of unequalizing dynamic.

All signs, then, point to the fact that existing inequalities will give rise, on their own and through the consequences of the pandemic, to even more obscene levels of inequality in the future—unless, of course, there is a profound change in the way the American economy and healthcare system are currently organized.

Undoing those inequalities is the only way of ensuring that, in reality, “we’re all in this together.”

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A new report from the Institute for Policy Studies, “Billionaire Bonanza 2020: Wealth Windfalls, Tumbling Taxes, and Pandemic Profiteers,” reveals that the wealth of U.S. billionaires is indeed staying at home.

Since 10 April 2020, there’s been both an increase in the number of billionaires (to 629) and a surge in billionaire net worth. Billionaire wealth increased $282 billion, or 9.5 percent, in just 23 days, bringing the combined net worth of the billionaire class to $3.229 trillion.

That’s on top of a dramatic increase in both the numbers and total wealth of U.S. billionaires for the past three decades. In 1990, 66 U.S. billionaires held a total wealth of $118.8 billion, or $239.56 billion in 2020 dollars. The United States, by the beginning of this year, hosted 614 billionaires with a total wealth of $2.947 trillion.

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And the rest of us? While U.S. billionaire wealth soared by 1,130 percent since 1990, median household wealth increased by only 5.37 percent.

As the authors of the report argue,

If expanding billionaire wealth “lifted all boats” and created, in effect, a society that worked well for everyone, we could perhaps afford to worry less about billionaire fortunes. But the number of households with zero or negative wealth. . .is increasing. Our society is most definitely not working for all of us. A high percentage of U.S. households are living on the edge, paycheck to paycheck. The current pandemic is exposing our central economic and social reality: Extreme wealth inequality has become America’s “pre-existing condition.”

The comorbidity of dramatically increasing wealth inequality and economic precarity for a larger and larger number of American workers has made it difficult, if not impossible, to mitigate the economic and social effects of the response to the novel coronavirus pandemic in the United States.

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233757  We Tenatively Oppose War on Strictly Procedural Grounds

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Well that didn’t go so well. . .

Still, Elon Musk’s new Cybertruck would appear to be the perfect design for America’s contemporary dystopia. Its bullet-proof stainless steel alloy panels and transparent metal glass are tailor-made to keep its elite occupants safely guarded from attack. And even though the windows obviously need considerable improvement before production begins, and “despite ‘no advertising & no paid endorsement’,” Tesla has already received almost 150 thousand orders for the truck.

Clearly, there’s a lot of surplus available—in cash and loans—to the small group at the top of the U.S. wealth pyramid to purchase such vehicles.

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In fact, as we can see from the chart above, auto loans comprise more than 50 percent of the installment loan debt of the top 10 percent of American households (as of 2016, the last year for which data are available). Not so for those in the bottom 50 percent, for whom loans for vehicles make up a little more than a quarter of their installment loans. For them, the largest portion—almost two-thirds—goes to finance higher education.

Consider what this means for the Americans in the bottom 50 percent. According to the latest Survey of Current Finances by the Federal Reserve, 31 percent carry student loans and their average outstanding education debt is $34 thousand. (For those in the bottom 25 percent, it’s even worse: 40 percent of families have student debt, and their average is $43 thousand.) Just student debt is considerably more than the $23,250 average annual pre-tax income of those in the bottom 50 percent.

The only Tesla pickup they’ll be buying is the one with the shattered windows.

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The disparities in the United States are even starker when comparing the assets and liabilities of the bottom 50 percent and the top 1 percent in 2019. As can be seen in the chart above, families in the bottom half own only 6.1 of total assets but are liable for more than one-third of total debts, while the situation of those in the top 1 percent is almost exactly opposite: they have 29 percent of assets but only 4.7 percent of the liabilities.

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It should come as no surprise, then, that the net worth (excluding real estate assets and mortgage liabilities) of the bottom 50 percent of Americans is tiny ($1.1 trillion) compared to that of the the top 1 percent (more than $30 trillion).

The question is, why is the net worth of the bottom 50 percent of American households so low? As is obvious from the chart above, they don’t own much in the way of assets and their debt is much greater than that of those in the top 1 percent.

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That fundamental inequality in the distribution of wealth in the United States stems from one key factor: American workers’ wages have been stagnant for the past four decades. The average (median) real hourly wage for workers in the private sector is currently $14.99, virtually unchanged (rising only $0.62 or 4 percent) since 1979.*

So, on one hand, American workers simply don’t have the means to acquire many assets, since their wages are just enough for them and their families to get by. And when they do attempt to acquire more, for themselves or their children (in purchasing homes, paying for college, or just keeping with medical bills), they have to go into debt. Therefore, as I argued last week, without wealth of their own, workers and their children are forced to have the freedom to continue to sell their ability to work to employers in order to subsist.

On the other hand, stagnant wages mean that the value workers produce above what they receive in wages goes to their employers, who keep some and distribute the rest to those in the top 1 percent. They’re the ones who accumulate assets, while incurring relatively few liabilities.

That wealth disparity thus ends up playing two roles in the United States: it keeps assets out of the hands of workers (thus forcing them to continue to work to purchase the necessary commodities and to repay their debts) and it concentrates assets at the top of the wealth pyramid (thus permitting the top 1 percent to continue to lay claims on the resulting surplus, whether or not they work).

I have no doubt that taxing some of that wealth would support and expand the kinds of government programs that would help American workers. I’m thinking, for example, of financing universal health care, paying off student debts, providing adequate childcare, and so on. But it wouldn’t increase workers’ wages much less undo the nexus whereby, on a daily basis, most Americans are forced to have the freedom to sell their ability to work to a small group of employers.

One of those employers is, in fact, Tesla, which a California judge recently found is in violation of U.S. labor laws.

Imagine, then, an alternative scenario in which Tesla workers, who since 2016 have been battling to form a union (because of high injury rates and low wages), actually owned and ran the Fremont, California factory. The workers, and not Musk and the other members of the board of directors, would then decide what to do with the surplus. The workers themselves would become the board of directors (which might, in turn, decide to hire Musk as a day-to-day executive). The key is that the workers, as a group, would own the assets—not a tiny group of individuals at the top. The worker-owners would thus have acquired a new freedom: to work for themselves, not for someone else. That change in the way Tesla is organized would serve as an example of how to finally undo the obscene wealth inequality that for now decades now has characterized the United States.

It might also eliminate the need for those bulletproof windows.

 

*I’ll save you the arithmetic: that amounts to a pre-tax annual income of $29.980. That’s the monetary value of the customary standard of living of workers in the United States— which, as we can see, has remained virtually unchanged for the past 40 years.

Emmanuel Saez and Gabriel Zucman begin their new book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, with the moment in 2016 during the first presidential election debate between Donald Trump and Hillary Clinton when the former Secretary of State challenged the reality-show celebrity about how little he had paid in federal income taxes over the years. Trump proudly admitted it: “That makes me smart.” And Clinton, for all her carefully crafted technocratic proposals to fix the tax code, failed to effectively respond to Trump.

Jump ahead three years, and the issue of wealth inequality in America has risen to the top of the political agenda. Clinton lost the election, Trump is probably not worth what he has claimed, but the nation’s wealth is even more unequally distributed today—much worse even than the obscene inequalities in the distribution of income.

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In fact, according to the Federal Reserve’s Distributional Financial Accounts, the share of total net worth of the top 1 percent of American households (32.4 percent) now exceeds that of the so-called middle-class, households in the 50-90-percent bracket (28.7 percent).

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Moreover, we know that the lion’s share of the assets owned by the top 1 percent ($35.4 trillion) stems from business ($20.8 trillion)—as against the real estate holdings, consumer durables, pensions, and other assets that make up the bulk of the wealth owned by others, especially those in the bottom 90 percent.**

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It should come as no surprise then that major presidential candidates in the Democratic Party, especially Bernie Sanders and Elizabeth Warren, have proposed taxing the large concentrations of wealth at the top. Nor should we be astonished that billionaires have shed public tears over the proposed taxes or that the New York Times highlighted a fundamentally flawed Wharton School study showing that taxes on wealth would reduce economic growth by nearly 0.2 percent a year, over the course of a decade.**

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Just to illustrate the severe concentration at the top of the wealth pyramid in the United States, as well as the enormous benefit to the rest of society of using that wealth for other purposes, consider the following two-tier tax formula: a 10-percent tax on wealth over $50 million and 100 percent on wealth over $500 million. Utilizing the Wealth Tax Explorer devised by Emmanuel Saez and Gabriel Zucman, such a tax scheme would affect only 0.05 percentage of U.S. households (a total of 62,598 taxpayers) and yet it would generate in any given year a flow of revenues equal to total federal tax revenues in the United States! (And, yes, as a side benefit, it would also represent a wealth cap of $500 million.)

But that’s only one side of the story, which has been the sole focus of billionaires, mainstream economists, and political pundits. The other, perhaps even more important, side is the enormous gap between the wealth owned by the tiny group at the top and that of households who find themselves at the bottom.

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Since 1990, the net wealth of the top 1 percent has soared to $35 trillion while the bottom 50 percent of Americans have been left with only $2 trillion. For those in the top 1 percent, what this means is they’ve managed to capture a large share of the surplus, which they’ve used to accumulate enormous assets (with relatively few liabilities), which in turn can be used to continue to get a cut of the surplus generated by workers in the United States and around the world (in addition to financing politicians and setting the rules of the game). And the bottom 50 percent? They get wages and salaries that allow them to continue to work but prevent them from accumulating much wealth (which consists, as we can see in the second chart above, mostly of real estate, and even then is largely offset by mortgages and other liabilities). Without wealth of their own, workers in the bottom 50 percent are thus forced to have the freedom to continue to sell their ability to work to employers in order to subsist.

So, yes, the small group of owners of American wealth might in fact be smart—because they sit on top of a system that generates enormous wealth, most of which they own, and which does not trickle down to those at the bottom, who continue to have to work for a living and aren’t even allowed to benefit from programs financed by taxes on the concentrated wealth at the top.

But all the smarts in the world can’t hide the essential injustice and unfairness of the grotesquely unequal distribution of wealth in the United States. The discussion to change the system may begin with taxes but it won’t end there. It has to be aimed at both the economic institutions that are the root cause of that inequality and the ideas that serve to justify the obscene degree of inequality in the United States and to undermine any and all attempts to reform it.

Any candidate who makes that clear will be one worth voting for.

 

*In fact, as I showed back in 2018, specifically business-related wealth is even more unequally divided than total assets. For example, in 2014, the top 1 percent owned almost two thirds of the financial or business wealth, while the bottom 90 percent had only six percent.

**The article failed to note two flaws in the analysis: (1) that wealthy Americans would invest less in order to avoid accumulating wealth that would be subject to the tax (as if all their savings were directed into growth-inducing investments as against equity shares, art, and other forms of conspicuous consumption) and (2) that all the revenue raised by a wealth tax will go toward reducing the federal debt (and not, as Sanders and Warren have proposed, to providing universal childcare, tuition-free college, and other social programs).

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