I have been struggling for months to finish a post about wealth inequality. I’m not sure what it means that the rich are getting so much richer when most people are getting poorer in real-terms – or what, if anything, should be done about it. But I’m sure there’s something important going on.
It’s more acute in the US. According to The New York Times [1] (from March):
In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households.
Still more astonishing was the extent to which the super rich got rich faster than the merely rich
In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.
The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.
These are devastating trends, but what to say about them? It’s hard to bring anything but more noise to the debate.
I extracted the angrier elements of my draft for my article about overpaid bankers [2], where ranting felt justified. But when it comes the wider system – where wealth accumulates not just through capital but also increasingly through network effects, enabled by technology, and where I can’t help feeling we’re at the limits of personal taxation already – it’s not clear to me what’s the solution.
Smarter people than me are also struggling with the issue.
A new article in the FT [3] by Edward and Robert Skidelsky (the latter being nobody’s idea of a bleeding heart socialist) is one of the more thought provoking I’ve read, because it’s not so concerned with those at the top – where envy must always be suspected of adding fuel to any outraged debate – but with the millions of under- or unemployed.
The Skidelskys argue that too many people are working for too long in order to earn too much to buy stuff they don’t need. This isn’t just diminishing their own lives, they claim, but also preventing others from having an acceptable standard of living by reducing the jobs available. (That’s debatable, in my opinion).
Their solution:
We must convince ourselves that there is something called the good life, and that money is simply a means to it. To say that my purpose in life is to make more and more money is as insane as saying my purpose in eating is to get fatter and fatter. But second, there are measures we can take collectively to nudge us off the consumption treadmill.
It’s interesting that eminent economists are now reaching similar conclusions to the legions of personal finance bloggers who have arrived in recent years.
However I don’t think this will be an answer to wealth inequality.
Those who keep playing the game adroitly – and I hope to be a modest member of that club – will continue to gather wealth around them. More free time for the masses to play with their kids in the shadows of the castles of the super-rich doesn’t seem a very sustainable solution.
Of course, I agree people should buy less rubbish. But I think they should save and invest more.
A proper shareholder society instead of a consumer society – with everyone taking more responsibility for themselves – would be a revolution worth having.
The rich get rich primarily because they have more capital. We must save and invest more to fightback for a glorious revolution, my capitalist comrades!
Money and investing blogs
- Risk happens – Five Cent Nickel [4]
- Three keys to greater wealth – Rick Ferri [5]
- Exploring dividend returns via backtesting – Clear Eyes Investing [6]
- Passive fund managers should become non-exec directors – Munro blog [7]
- We need to work less, like the Germans [8] – Simple Living in Suffolk [9]
- Bonds versus equities, via the metaphor of pizza – Investing Caffeine [10]
- Why we’re attracted to clueless, over-precise pundits – The Psy-Fi blog [11]
- How rising rates affect bonds [Canadian, but relevant] – Couch Potato [12]
Product of the week: This new 3.55% one-year fixed rate bond [13] from the Yorkshire Building Society tops the best buy tables. But other banks are paying 4% if you lock away your money for three years.
Mainstream media money
- Peston: The elusive truth about Barclay’s [later] lies – BBC [14]
- Flanders: Bank of England sets sail with QE3 – BBC [15]
- Are you properly diversified? – Marketwatch [16]
- Fire sale on Warren Buffett – Kiplinger [17]
- Higher tax on French holiday homes – FT [18]
- Emerging market bonds – FT [19]
- 78% tax relief lures start-up investors – FT [20]
- John Lee: Why do investors complicate things? – FT [21]
- 10 ways to earn extra cash [slideshow] – Telegraph [22]
- Barclays whistleblower: Culture came from the top – Independent [23]
- Bank of Dave: One man’s attempt to set up a bank – The Guardian [24]
Book of the week: Richard Branson’s new business book, Like A Virgin [25]
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