This is basically the Pareto principle in action, and isn't surprising.
Most of the top tier wealth is driven by investments and in the wake of globalization (and "easy" money from CBs,) stocks and other asset classes have risen drastically. Given that the lower rungs in the world all have little to no investments compared to the "upper class" it's just basic math than people with investments will out perform those with none.
There will undoubtedly be a mean reversion on asset prices at some point in the future, which will lower the wealth gap as prices fall...but that might not be a good thing. What we really need, if we want to bridge the gap, imo, is teaching people to invest their money...and I mean in more than just a 401K and a house. If you look at actual living standards, even the middle and lower classes are in much better shape than they were in every previous decade. So we're making strides there. So we need to improve our education system (specifically for the lower class) and teach everyone to invest in the economy as a whole.
The thing about poor people is, they don't have money to invest. Teaching the poor to invest is like teaching the starving to cook.
Moreover, you are simply not correct to say that living standards are improving for everyone. Life expectancy in the United States has gone down for the third year running (the first time that's happened since WWI) due in large part to crises that disproportionately affect poor people.
You not only have to have money to invest, you have to have the further means to be able to leave it there for the long term.
I'm middle class and about 18 months ago finally moved some modest savings (5 figure amt) into a robo-advisor controlled account. It's basically been flat the entire time, and is now up 1.4%, not even beating inflation over the same time period. Now, I get it, patience is everything. But it's definitely pretty detached from reality to blame poor people for their bad financial literacy in not having tens of thousands to drop into "investments" when this kind of thing is the reality even for those of us that do.
Life expectancy has gone down because of the Opioid crisis and suicides. That certainly does effect poor people, but it is not -because- they are poor.
And poor people usually do have money to invest, I grew up very poor. My grand mother had no plumbing, no A/C or central heating (and this is the US,) so I know what true poverty is. You will not find that virtually anywhere in the US now.
> Life expectancy has gone down because of the Opioid crisis and suicides. That certainly does effect poor people, but it is not -because- they are poor.
I beg to differ. The area where I grew up, in rural southeastern Ohio, has been ravaged by the opioid crisis. IMHO, it goes hand-in-hand with the loss of industry and jobs and the rise of poverty and hopelessness that's been left in the wake of that loss of economic prosperity.
Not directed at you, but I find it amazing that now that drugs are hitting “rural America” it is seen as caused by the lack of opportunity, jobs, and social mobility but when it was happening in the “inner city” it was all about “pulling yourself up by your bootstraps”, “the government doesn’t owe you anything” and because of a “culture of dependency”.
It is true that if you redefine poverty so that no Americans are poor, and quality of life so that dying young of opioid overdose doesn't count against it, then the entire country is rich and happy.
Because, that's exactly what I said, that there are no poor Americans...right. You can acknowledge, at the very least, that living standards are much higher now than in the 80s, 90s or 00s...and every decade before.
They're not. Wages in the US have been flat for thirty years, social mobility is down, student debt load is up, this generation of young adults will have a far harder time finding housing than their parents did, life expectancy is down. Most places in the world are better off than in the 1990's, but the United States is not one of them.
So, you're saying that technology has not positively effected people's lives? Are you saying that the number of people with access to the internet, computers, tech in general...better clothing and food is...not better than it was in the 90s? Did you even live in the 90s? Things that were once reserved for only the richest of the rich are now in the hands of the poorest of the poor. There has been enormous deflation in several realms that have absolutely improved people's lives or at the least improved their living standards. Almost all of your complaints have simple explanations behind them as well, and some of them aren't actually that bad.
The majority of student debt is held by a very very small percentage of overall students, and many of them came from wealthy families or are going into very rich fields.
I never said your grandfather (though I did use my grand parents as an anecdote to point how far society has come)...I said, literally 10 years ago, even 20 years ago. Life is better now; and once again, most students only carry around ~$5K in student debt, the vast majority of student debt is carried by 10% of students. There is no way you can convince me that your living standards are now lower than they were in the 90s or 10 years ago; everyone is living in nostalgia for the past...people have been saying "the good ole days" forever, and yet lives continue to be improved and poor people are lifted from poverty despite this longing for the "good ole days."
For a good look at what modern poverty in America looks like, see Stephanie Land's amazing book Maid. The overall picture is of someone doing extremely demeaning, physically demanding manual labour, and spending months at a time barely able to afford food for herself and her daughter, in that precarious position where even a trivial unexpected expense could easily send her back to homelessness.
40% of the US would have a hard time covering a $400 expense [0]. How in God's name do you think they have any kind of stability to think about investing? 2 out of 5 Americans are essentially living paycheck to paycheck.
I keep seeing people make the push to have people invest; but what I never see is any clarification in in what or how; which leads me to assume the pusher is really saying, put your cash in money manager's hands and let them make those decisions for you, and enjoy the interest.
Here's the thing though: I'm not really sure that even with a fiduciary responsibility that the mere incentive of "getting a percent of interest earned on the behalf of clients" really does the market any good.
A 10000 dollar investment in the right place at the right time can make the difference for a small business, which won't even appear on the radar for an investment fund.
These types of money management schemes basically bias the system in favor of a smaller population of larger beneficiaries.
I don't know about anyone else, but I think if people held onto their cash, and managed it to improve what they can locally, I think that we'd see more bang for the capital buck expenditure.
I have seen much more get done with a bit of money in the right place at the right time rather than just throwing absurdly large amounts around and just banking on getting a couple percent back.
The interesting part is the historical contingency of the distribution, that is based not just on rational economic principles but purposeful policy.
For example, you would need to explain why up from post-war until the mid-70s you see increases in income for most people basically matching increases in productivity, and why today there is a disjunction between the two.
And age is strongly correlated with wealth, with people nearing or in retirement often having the highest level of wealth. When the value of equities goes up, they benefit the most.
It did. If you invest $1 Million but someone else invested $1 Billion, and you both made a 25% return, the wealth gap between you still widened fairly drastically. And it gets much worse when people have no investments at all.
Ok, let me rephrase: top 1% had 23% of wealth in 1989 to invest. The next 9% had 37%. If, say, all of them were equally "smart" investors (just different starting positions), for every 1 billion of investment from the top 1%, you get roughly 1.7 billion investment from the next 9%, and their returns are proportional as well. The fact that this 1.7 billion is distributed across 9x more people should not matter in the big picture.
The proportional wealth gap of these groups (not individuals in each of the groups) should stay the same, and even the absolute gap should decrease (on 25% return, one group earns 0.25 billion and the other earns 0.42 billion, thus decreasing the gap by 0.17 billion).
I could understand the argument that the top 1% are smarter investors (though my butt-feel disagrees :), or that the next 9% have less non-tied funds available for investment, but you haven't brought those arguments: you even mention the same returns on their proportionally smaller investments.
So how did the top 1 to next 9 go from 23:37 to 32:38? It does not flow from your initial or subsequent argument, or am I missing something?
Most of the top tier wealth is driven by investments and in the wake of globalization (and "easy" money from CBs,) stocks and other asset classes have risen drastically. Given that the lower rungs in the world all have little to no investments compared to the "upper class" it's just basic math than people with investments will out perform those with none.
There will undoubtedly be a mean reversion on asset prices at some point in the future, which will lower the wealth gap as prices fall...but that might not be a good thing. What we really need, if we want to bridge the gap, imo, is teaching people to invest their money...and I mean in more than just a 401K and a house. If you look at actual living standards, even the middle and lower classes are in much better shape than they were in every previous decade. So we're making strides there. So we need to improve our education system (specifically for the lower class) and teach everyone to invest in the economy as a whole.