We’ve all seen these statistics before in one form or another, but David Cay Johnston does an excellent job going into more detail for us in an article he published late last month. As he correctly notes, when things get extreme like this you ultimately end up with serious social unrest. Furthermore, as I have pointed out for years and years, this kind of disparity does not happen under free markets with rules and regulations applied equally to all. It happens under totalitarian societies, whether fascism, communism or crony capitalist corporatism (which is the model in the USA). It only happens when a very small oligarch class takes over the political process of a nation and then uses it to game the system.
However, I would take exception to Mr. Johnston’s conclusion that the root problem is the tax system. While I do not for one moment deny that the oligarchs game the tax system to provide loopholes for themselves, this is not why the 1% of 1% has taken all the wealth of the nation. This is much more related to the Federal Reserve and its policies of printing trillions of money out of thin air and distributing it to the oligarchs, either directly or through low interest loans. If you tax the rich more, they will still make more because they will still have the access to the cheap money. The Federal Reserve is the core cancer of the entire thing and they must be stopped. Some excerpts below:
The average increase in real income reported by the bottom 90 percent of earners in 2011, compared with 1966, if measured at one inch, would extend almost five miles for the top 1 percent of the top 1 percent.
Remember, we got off the gold standard in 1971, after which the Federal Reserve could print as much as they wanted and distribute it wherever they wanted…and they have.
Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.
Ponder that last fact for a moment — the top 1 percent of the top 1 percent, those making at least $7.97 million in 2011, enjoyed 39 percent of all the income gains in America. In a nation of 158.4 million households, just 15,837 of them received 39 cents out of every dollar of increased income.
In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.
Between 1980 and 2005, more than 80 percent of the total increase in income went to the top 1 percent of American households.1
The median wage has been stuck since 1999 at a bit more than $500 per week in real terms and job growth has lagged far beyond population growth. But capital gains and dividends have soared, a new Congressional Research Service study shows. And, of course, the rich get most of that income. Thomas Hungerford concluded:
That is a lot of stress being placed on people between the bottom rung and the top. I think it is more stress than the social ladder can bear, although when and how it will break no one will know until it happens.
Tax policy is driving these trends.
As I mentioned before, I disagree with the statement above. He correctly points out that the super rich make their money from capital gains and dividends, but why have those grown so much? It’s all Federal Reserve policy, which targets increases in assets prices that the oligarchs own. It’s not a secret that Ben Bernanke is actively targeting the stock market with his money printing and not the real economy. So who does that benefit? That’s not tax policy, that’s monetary policy.
Full article here.
In Liberty,
Mike
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“It’s not a secret that Ben Bernanke is actively targeting the stock market with his money printing and not the real economy.”
This why his “wealth effect” isn’t getting much traction this time around. The oligarchs are the ones that have bought the real estate and turned the little guy into rent slaves; while the stock market might make some feel like spending more, the reality is that it won’t make the ultra wealthy really lift the economy in any short term artificial way like the housing bubble did since they’re spending won’t change much at the margins.
This is why the Federal Reserve is so insane! They’ll keep doing what they are doing by golly until they get what they want. Like I said in prior posts: at what point does the Fed feel satisfied: when the little guy finally caves in and goes long at Dow 16,000? 17,000? 20,000? After all, Greenspan just recently called the stock market “significantly undervalued.” This whole thing is so scary especially given that people will act like Pavlov’s dogs at the end of the day.
Just curious Mike: You liked short DOW/Long Gold awhile back. That would have been painful. I’m not short anything nor would I but wonder what your take is on it now? It’d be interesting to get your take on the macro picture from here!
Hey Nic, yes I don’t comment much on the markets any more for two reasons. 1) I am 95% focused on my blog now, so I don’t really trade or pay much attention to the phony markets anymore 2) While I for certain think gold will increase in value dramatically versus stocks when this unravels, TPTB are sitting on gold like crazy so the timing is totally impossible. This is why I support Bitcoin. It can’t be manipulated in the same manner in the interim. Best, Mike
In other words: You were wrong, no?
Bitcoins: Who benefits from issuing these and who controls the system?
“1) I am 95% focused on my blog now, so I don’t really trade or pay much attention to the phony markets anymore”
That’s the smart thing to do. : – ) You’re right, I wouldn’t comment on the phony markets either if I didn’t need to. : – ) That’s why at the end of the day you’ll be far more sane than I. This whole thing is driving me out of my mind.