5 ms·

The Wealthiest 5% Grabbed Most of the America’s Gains

90 points by privacyguru 15y ago

hammock 15y ago
Before jumping all over the rich, consider whether you are one. For example, if you earn $100k or more per year, you are IN the top 5% of income earners. And if you have a total net worth of ~$200k or more, you are IN the wealthiest top 5%. Easy to imagine that many HN readers are in these boats.
- sabat 15y ago
  You bet we are. But it doesn't necessarily follow that we think that the disproportion is a good thing.
- jeffreymcmanus 15y ago
  Not even close. A $100,000 income puts you at about the 75th percentile, not the 95th. http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg http://en.wikipedia.org/wiki/File:United_States_Income_Distr...
  - stephenbez 15y ago
    As the legend states, the graph shows family income not individual income. If you and your spouse both earn $100k, you'd be above the 95th percentile.
    - keithnoizu 15y ago
      Ahh, if only i didn't have an english major for a live in girlfriend.
  - hammock 15y ago
    That's household income, not individual. $100,000 or more; percent in group: 6.24% http://en.wikipedia.org/wiki/Personal_income_in_the_United_States#Income_distribution http://en.wikipedia.org/wiki/Personal_income_in_the_United_S...
Terry_B 15y ago
Not picking on this article in particular but whenever I read these types of stories I get the feeling that people don't make a clear separation of these two very different issues: 1. The bottom is worse off relative to the top in terms of wealth than they were before. 2. The bottom is worse off in terms of wealth (quality of life) than they were before. People seem to imply 2 when they talk about 1. but they are very different things.
- sabat 15y ago
  But it's both, isn't it? Fewer Americans have health coverage, fewer Americans have jobs, fewer Americans can stay in homes. What you hear people saying is that #1 implies #2.
  - Terry_B 15y ago
    Sure, it might if you show the data that proves it. But showing the data that the top has increased their % share of the wealth does not prove that.
    - jethroalias97 15y ago
      It hurts people's innate sense of fairness though. When you see the people who manufactured the crises repleting their losses with money from middle and working class american's it is upsetting and does indicate the system has problems.
  - robryan 15y ago
    At a most basic level over the period relative wages for the poor haven't moved a lot but the absolute basics such as food and clothing prices have come down a heap.
    - bluedanieru 15y ago
      What proportion of a person's wage does he spend on e.g. entertainment vs. food and clothing now compared to 40 years ago?
jeffreymcmanus 15y ago
This is pretty damning when you consider it's being run by the Wall Street Journal.
- jeffool 15y ago
  WSJ, Economist, Forbes, none of these pull punches. You want a stark look at these kind of numbers and the issues around them, they all provide it with no hesitancy or softballing. Don't be surprised when someone talks about the money they've made. They think they have it rightly, just as many feel slighted. No shame in the game of the wealthy.
  - cema 15y ago
    Just like it should be. Of all the "mainstream" publications, the financial (and business-oriented) newspapers are the ones I distrust less, because in my experience they tend to understand it is their interest to work with the facts and real numbers.
deleted 15y ago
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barmstrong 15y ago
Some PG thoughts on distribution of wealth: http://www.paulgraham.com/gap.html http://www.paulgraham.com/gap.html
- klenwell 15y ago
  PG asks: Why? The pattern of variation seems no different than for any other skill. What causes people to react so strongly when the skill is making money? I'd offer this passage from Robert Wright's The Moral Animal as one answer. This assumes the distribution of wealth serves as a proxy (inexact, even inaccurate, perhaps, but functional) for the distribution of access to sexual resources among males: Men have long competed for access to the scarcer sexual resource, women. And the costs of losing the contest are so high (genetic oblivion) that natural selection has inclined them to compete with special ferocity. http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1&dq=moral%20animal%20wright&pg=PA100#v=onepage&q=%22inequality%20amoung%20males%22&f=false http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1&#3... So the argument goes something like this: Material resources (wealth) provide access to sexual resources and reproductive success (any organism's raison d'etre). An organism hard-wired to persist its genes will probably also be hardwired to recognize the existential threat presented by unequal access to the resources required to persist its genes and take radical action to avoid it. Since among most animals (including humans), females make a greater biological investment, they enjoy the privilege of selecting among males, preferring those with resources to best provide for their offspring, which puts males in the position of scrabbling to accumulate the resources necessary to win the affections of a mate. That probably leaves out a few necessary premises, but if you're not familiar with the argument, hopefully you at least get the picture. Wright makes the point that a society in which there is such radical inequality of wealth that a significant number of men have not the resources to attract a mate, settle down, and marry, also tend to be the most violent and unstable. If you had a society in which there was radical inequality of wealth, but not radical inequality of access among young males to mates, you would expect less instability. But allowing for the shortcuts in reasoning that evolution might encourage, you'd still expect some. And as various behaviorial economic experiments have demonstrated, humans seem to have a tendency to reason about fairness in relative rather than absolute terms. So in such a society, you'd probably still have a greater threat of instability than one where there was a more equitable distribution of wealth -- and, especially, the perception of it.
callmeed 15y ago
I know this is wealth and not income, but I get sick of the media (and politicians) using the "top 1%" or "top 5%" label. When it comes to income, the top 1% includes an attorney making $250K and a hedge fund manager making $10M. I imagine its similar for wealth. My guess is that distribution curves spike somewhere past the 1% mark. Maybe I'm biased because I barely make the cut and don't want to pay more taxes, but it seems odd to use such an arbitrary cutoff for reporting and (especially) policy decisions. And please tell me if I'm wrong or off here–I'm geniunely interested in this. EDIT: downvoted? Seriously?
- jfruh 15y ago
  I think one of the problems of wealth distribution and attitudes about it in the U.S. is that it does shoot up so rapidly in the upper 1%. We're a very upward-looking society so it's easy for someone making $250K a year to say "I'm not rich, I still have a mortgage, I have to work for a living I can't just spend whatever I want, whenever I want -- I know there are people further up the latter than me who have so much more money, I must be middle class." Absolute percentiles are useful because they do show you where you stand in relation to the rest of society. Families making $250K may not be Scrooge McDuck-style super-rich, but they're indisputably in the top few percent of the nation in terms of income. It's hard for those folks to claim to be middle class when 90+ percent of their fellow citizens make less. It's also worth noting that people's lifestyles and "necessities" expand to fit their income, particularly if their income goes up relatively gradually. I've literally heard people say, "Well, I make $400K a year but I'm not rich because it costs a lot of money to pay mortgage and taxes in Westchester County and send my kids to private school and drive a nice car." They think that "rich" means "disposable income I can spend a whim," when in fact living in Westchester and sending the kids to private school is part of being rich.
  - jfruh 15y ago
    I should add that I'm not definitely not exempting myself from this set of attitudes. When I was in grad school in my early 20s (in the mid-late '90s, so it's not like inflation makes a huge difference here) I made less than $17K a year for several years, but I never felt particularly deprived and don't particularly recall not doing things I wanted to do because of money worries. Now my wife and I make more than $100K combined (putting us in the top 25 percent of US workers) and yet we are constantly bumping up against the limits of our income, particularly because we enjoy travelling. I don't feel rich but I know I'm better off than a significant majority of Americans.
DanielBMarkham 15y ago
Once again, this is a statistical aggregate. As difficult as it might be, please do not picture a filthy rich old white Scrooge character stealing cookies from poor orphans on the street when you read numbers like this. As the author clearly indicates, these numbers are in relation to averages, not real people. Movement between income groups is an area of current study, but I've seen numbers as high as 40% moving from one statistical group to another inside of a year. The rich may indeed be getting richer, but it may only be a small percentage of them who stay in that group over a period of decades. There might be many new arrivals and many people leaving each decade. Of course, it's perfectly fair to say that the disparity is important whether or not the same people are involved year-to-year or not. I'm not trying to get into that part of the discussion. I'm simply trying to point out the difference between stereotypes and averages and real, live people. There are lies, damned lies, and statistics. (old joke)
- hammock 15y ago
  One thing that has always bothered me about these reports is that they are not longitudinal, as you point out. We say "the poor are getting poorer" but is it the same poor person that got poorer, or did that poor person discover his inner tycoon and move up while some terrible, lazy deadbeat took his place in the income ladder? If it's the latter, would that not be considered a success despite the fact that "the poor have gotten poorer"?
  - jbellis 15y ago
    In particular, "[immigration] disproportionately brings low-skill workers into the U.S. instead of moving jobs abroad. As immigration increases the relative supply of low-skill workers, the income of individuals at the 20th percentile declines." http://www.frbsf.org/publications/economics/letter/2007/el2007-28.html http://www.frbsf.org/publications/economics/letter/2007/el20...
  - Tichy 15y ago
    Why do I get the feeling that you already have answered the question for yourself? Yes of course only the terrible, lazy deadbeats fall on hard times. At least it is very convenient to think so...
graiz 15y ago
It drives me crazy when I see encoding issues in popular articles. Come on, it�s embarrassing.
- byoung2 15y ago
  Looks like it was composed in Word and copied into a rich text editor (without using the paste from Word feature). It converts the double spaces to space,  , and doesn't convert the smart quotes.
steve_b 15y ago
Wealth != income as pg says in http://www.paulgraham.com/wealth.html http://www.paulgraham.com/wealth.html. I think wealth is more equal to total free time left on the planet. So total time minus time spent working to provide things for survival minus time spent surviving (like cooking, sleeping, running from lions). The washing machine is invented, lots of peoples' wealth skyrockets. Food gets cheaper, people's wealth goes up. Looking at income is a short-sighted definition of wealth.
prostoalex 15y ago
Most of the US wealth is ephemeral and is tied up to the real estate market. The poorer one is, the greater proportion of personal wealth is tied up to the value of their real estate. If you started off wealthy before the real estate crisis, and just stayed in cash, your wealth in absolute terms would decline slightly as your house lost value and your super-conservative cash holdings earned you 0%. In relative terms the guy who bought with no money down, easy mortgage guaranteed is now seeing his total wealth delta in severe red, so yeah, the wealthy ones are seeing their proportion rise by staying stable.
noonespecial 15y ago
Has anyone ever stopped to try to get an estimate of how much of these gains this 5% have created? I honestly have no idea what this number would look like but it must be non-zero. Everybody wants to fit a picture of a fat, stupid, cartoonish banker gambling away grandma's pension and getting a mammoth bonus into this slot but how much is that the case? If the number's not zero, then its something. How much? Its not completely outside the realm of possibility that the 5% created nearly all of the gains and then only grabbed most. Net win.
- spenrose 15y ago
  Yes. The Fed has spend 30 years ensuring that labor never has the upper hand: http://thinkprogress.org/yglesias/2011/09/14/319359/how-asymmetrical-monetary-policy-ensures-wage-stagnation/ http://thinkprogress.org/yglesias/2011/09/14/319359/how-asym... http://rortybomb.wordpress.com/2011/03/18/the-federal-reserve-unions-wage-stagnation-and-risk-shifted-jobs/ http://rortybomb.wordpress.com/2011/03/18/the-federal-reserv... WRT manufacturing: http://rortybomb.wordpress.com/2011/01/21/immelt-ge-capital-and-the-financialization-of-manufacturing/ http://rortybomb.wordpress.com/2011/01/21/immelt-ge-capital-...
- shawnee_ 15y ago
  Milton Friedman said that most fallacies in economic thinking were derived from the "fixed pie" assumption: that one party can gain only at the expense of another. In an ideal world, the pie would always be growing, and those marginal increases in utility would spill over and everybody would increase well-being gradually over time. But that's not what happens. The top 5 percent may create some gains for the other 95, but their gains that "trickle down" do so very, very selectively, and only go so far. Probably the most obvious evidence that trickle-down economics doesn't work is this: The share of wealth held by the bottom 60% dropped 7.5%. When over half of the people are on the shrinking pie side of the table, it's pretty tough to spell "Net win"
  - yummyfajitas 15y ago
    The key word here is share. I.e., if I become 10% richer, but some other guy becomes 20% richer, my share of the wealth is lower but I'm still wealthier.
aj700 15y ago
I supported (absolutely past tense) capitalism on the basis that the right people would end up with the money. Maybe they will. Waiting another 30 years isn't on. Things shouldn't go to people "according to his need". But now things are going to people "according INVERSELY to his need". Endless claim checks on future productivity are being stockpiled by precisely those who have no need of 99% of that productivity. In many cases they also have very little future, because they are old. Politics is bought and paid for. People will not pay taxes. Inflation must now be used as a regressive wealth tax of last resort. At least it transfers purchasing power from the old to the young. Poor people should, if they were intelligent, stop spending their disposable income and use it to buy the thing that gives the best return on investment - which is bribing politicians. And no, corporations aren't people, and money isn't speech.
ender7 15y ago
It's easy to start filtering yourselves into the camps of "the rich are too rich, tax them!" or "the rich earned their money, you have no right to take it away!". Then you can yell at each other from across great echoing divide until the sun grows dark. The sad fact is that America is no longer a country that makes things, and as a result we no longer find ourselves in a position to employ people in positions that are actually worth a damn. Or that pay a salary worth a damn. We still make some things. Software. Circuit designs. Entertainment. Product design (to sell things to ourselves). Pharma. People who work in these areas are paid well. Oh, and the financial industry. Which, despite demonstrating a wonderful ability to make itself mountains of cash, has failed to demonstrate how it benefits the rest of the country. (obviously, its ability to provide lines of credit is valuable, but we had that long before investment banking came to dominate the entire financial industry) I remember reading Snow Crash for the first time and coming across this line: There's only four things we do better than anyone else: music movies microcode (software) high-speed pizza delivery and thinking "what an alien dystopia that future must be".
- suking 15y ago
  It's not even investment banking anymore, GS might as well just be a prop trading firm - how many companies are raising cash now or doing private placements.
- yummyfajitas 15y ago
  The sad fact is that America is no longer a country that makes things, and as a result we no longer find ourselves in a position to employ people in positions that are actually worth a damn. This is incorrect. We make plenty of things, more than in most historical periods. http://research.stlouisfed.org/fred2/series/INDPRO http://research.stlouisfed.org/fred2/series/INDPRO We just do it more efficiently, resulting in fewer manufacturing jobs. http://research.stlouisfed.org/fred2/series/MANEMP http://research.stlouisfed.org/fred2/series/MANEMP
- nerfhammer 15y ago
  Not really. http://www.ourfuture.org/blog-entry/2010020825/no-virginia-us-manufacturing-isnt-dead http://www.ourfuture.org/blog-entry/2010020825/no-virginia-u... Manufacturing output is up and has increased at a relatively stable clip over the past 50 years. Manufacturing productivity has increased at a faster rate, however.
linuxhansl 15y ago
I am quite tired reading the top x%. Many people living in the SF bay area for example technically belong to the richest 3-5%... But cannot even afford a nice house here. And with "nice" I do not mean a pool, 10 rooms. movie room, etc, but just enough rooms for the kids and in a neighborhood with good schools. Now I have a very liberal viewpoint, and above categorization mostly fits me. Still I personally do not mind to be taxed a bit higher. But all that talk about the richest 5% living the life of riches is just not accurate.
- Game_Ender 15y ago
  > But all that talk about the richest 5% living the life of riches is just not accurate. It's relative. You seem to define rich as basically being able to spend whatever you want and not have to worry about money. As another commentor has stated, being able to own a home in an area like the SF bay area is rich. It is a very desirable area, with good climate, and jobs.
- nazgulnarsil 15y ago
  "neighborhood with good schools" examine this condition more closely. you will be surprised and disgusted.
- kitsune_ 15y ago
  The cute thing with this argument is the idea that your hardships are similar to the bottom 5% somehow. If you're not happy with your income, what should the people making less than you be?
MarkPNeyer 15y ago
divide (rather arbitrarily) the population into a few groups. very wealthy: anyone with net worth exceeding $10M. wealthy: anyone with net worth between $1M - $10M upper middle class: anyone with net worth between $100k - $1M middle class: anyone with net worth between $10 and $100k poor: anyone with net worth < $10k now let's make some overt generalizations! the very wealthy seem to fall into one of two groups: successful business owners and venture capitalists on the one side, and bankers, traders, and some classes of lawyers on the other. the wealthy and middle classes all seem to consist of professionals and small business owners, who have met with varying degrees of success. the poor consist largely of immigrants, people living in impoverished urban and rural areas, as well as people without a trained skill. here's what i think is happening: a group of the very wealthy, mainly those on the banker-trader-lawyer side of the divide, have this country by the balls. they have accomplished this by having their politician friends (how many politicians are former lawyers? and how many came from wall street? ok, now how many are former business owners or venture capitalists?) convince the poor that the "rich" are responsible for their plight. to fix this problem, they propose raising taxes on the "rich." this proposal invariably means raising income taxes, which the very wealthy rarely pay because their income is mostly in the form of capital gains. the democrats propose a tax raise, the poor vote them into power, and income taxes go up. the wealthy and the middle class both feel like they're getting fucked, probably because they are. so they fight back, saying they want to lower taxes, reduce government spending, and cut social programs. the republican party says they support these ideals, so they get this type of vote. once in power, the republicans pass a tax cut on both income and capital gains taxes. they also increase government spending, because, hey, why not, fuck you buddy. the poor see this response and it confirms to them what the very wealthy have been saying through their proxy politicians, so the fight goes on. if this process is going to stop, we need a new word to describe the members of the very wealthy who are contributing nothing but misery to the economy, whether by gambling with other people's wealth and getting bailouts when they lose, or simply by using the broken legal system as a weapon to extract wealth from the venture capitalist / successful business owner side of the divide. if we had a single word to embody this concept, i think more people would become aware of the distinction between the 'productive rich' and the 'destructive rich' and we could fix the problem. since 'destructive rich' isn't exactly catchy, i propose we call those people 'dicks.'
charlesju 15y ago
There are a lot of stats everywhere. Here is one I like. The top 1% pays for 38% of all taxes. The top 10% pays 70%. If I showed you this stat, you would lean on taxing the poor more, but that isn't right either. Everyone should look at the problem in aggregate and decide for themselves what is fair for our system as opposed to analyzing individual stats and extrapolated analysis from that alone. http://ntu.org/tax-basics/who-pays-income-taxes.html http://ntu.org/tax-basics/who-pays-income-taxes.html
- danssig 15y ago
  >If I showed you this stat, you would lean on taxing the poor more No I wouldn't. The ones who are getting most of the benefit should be paying the most for the service.
Tichy 15y ago
I usually defend capitalism, and I read and mostly agreed with PGs wealth essay. But having seen pictures of how the poor live in the US (I am not from the US), this just feels wrong. How much wealth do you really need? It is one thing if everybody lives a happy live, and some people live in slightly bigger houses by the seaside. It is another if lots of people live in squalor at the same time. I think some things should be rewarded. If you find a cure for cancer, you deserve to be rich. But even then, maybe a couple of million $ would be enough, even if what you gave to society is worth trillions. Perhaps related: Joel Spolsky's article on how to compensate an intern who created a lot of value for the company. Can't find the article atm, but I think he ended up giving hardly anything. Cancer researchers are just interns of society, when seen from space.
- HSO 15y ago
  I agree with your sentiment but ask how questions such as "how much is enough" can be answered? I could imagine an arrangement analogous to "floating currency rates" where you define a band within which the market price can fluctuate. Progressive taxation coupled with social safety net can have this effect if taken to its combined extreme. But how realistic is that sort of thing in today's monetized society? On a tangent, I find it curious how we all seem to have been brainwashed somehow into taking certain assumptions _automatically_ for valid that then frame the entire discussion. I mean, where does the connection between "what you gave to society" and your financial profit come from? It's not at all clear to me, on second thought, that they are connected so closely. Also, what exactly does it mean to "give to society" when your (more neutrally formulated) net effect on your environment is determined not just by "effort" but also by randomness and by the very environment you interact with? Finally, it's not clear to me that everything can be quantified (in the special sense of putting a competitive market value on it). The concept of value is, I suspect, a strict superset of "monetary value", and it's important we understand (as a society) better what are the special conditions under which a mapping to "money space" makes sense. Big, hairy questions, sure, but to give a concrete example for the last one: Since when does it make sense that the "performance" of museums or orchestras is measured in how much tickets they sell? (Incidentally, see how far today's terminology is off?) Yes, I can't pull a better answer out of my hat right now but I _am_ quite sure this question itself is framed in the wrong way because we already presuppose the applicability of concepts like "competitive exchange" and "valuation". Don't get me wrong, I'm a big believer in competitive markets, private property and responsibility, and entrepreneurship. The thing is, I feel more and more that this type of thinking can only be applied to a subset of political issues, it is not a universal acid. And I just got reminded of how deep these issues are because even in your post, which goes generally in the same direction I am currently thinking, I can see certain ideas "embedded" already.
deleted 15y ago
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Hyena 15y ago
Of course they did. As more gains are realized in capital rather than wages, the rich will literally get richer. At the same time, it's becoming ever less clear that many of them serve a useful purpose. Justifying executive pay is losing ground in economic literature and, frankly, has always required recourse to casuistry.
paulnelligan 15y ago
I would say that the problem is systemic - you have two political parties which are basically at eachothers throats the whole time, and a historical belief in a very pure form of capitalism - money is the bottom line, and the markets should govern themselves - the result? - all of the manufacturing has moved abroad, effectively killing the working classes ... Any attempts to change this system gets vigourously branded 'socialism' both by the media (fox news) and by republican opposition which also has historical connotations harking back to McCarthyism and the Cold War ... I don't think this is going to change anytime soon unless we see some sort of systemic collapse ... I would argue that this is possible ...

90 points by privacyguru 15y ago

Before jumping all over the rich, consider whether you are one. For example, if you earn $100k or more per year, you are IN the top 5% of income earners. And if you have a total net worth of ~$200k or more, you are IN the wealthiest top 5%. Easy to imagine that many HN readers are in these boats.

sabat 15y ago
You bet we are. But it doesn't necessarily follow that we think that the disproportion is a good thing.
jeffreymcmanus 15y ago
Not even close. A $100,000 income puts you at about the 75th percentile, not the 95th. http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg http://en.wikipedia.org/wiki/File:United_States_Income_Distr...
- stephenbez 15y ago
  As the legend states, the graph shows family income not individual income. If you and your spouse both earn $100k, you'd be above the 95th percentile.
  - keithnoizu 15y ago
    Ahh, if only i didn't have an english major for a live in girlfriend.
- hammock 15y ago
  That's household income, not individual. $100,000 or more; percent in group: 6.24% http://en.wikipedia.org/wiki/Personal_income_in_the_United_States#Income_distribution http://en.wikipedia.org/wiki/Personal_income_in_the_United_S...

Terry_B 15y ago

Not picking on this article in particular but whenever I read these types of stories I get the feeling that people don't make a clear separation of these two very different issues: 1. The bottom is worse off relative to the top in terms of wealth than they were before. 2. The bottom is worse off in terms of wealth (quality of life) than they were before. People seem to imply 2 when they talk about 1. but they are very different things.

sabat 15y ago
But it's both, isn't it? Fewer Americans have health coverage, fewer Americans have jobs, fewer Americans can stay in homes. What you hear people saying is that #1 implies #2.
- Terry_B 15y ago
  Sure, it might if you show the data that proves it. But showing the data that the top has increased their % share of the wealth does not prove that.
  - jethroalias97 15y ago
    It hurts people's innate sense of fairness though. When you see the people who manufactured the crises repleting their losses with money from middle and working class american's it is upsetting and does indicate the system has problems.
- robryan 15y ago
  At a most basic level over the period relative wages for the poor haven't moved a lot but the absolute basics such as food and clothing prices have come down a heap.
  - bluedanieru 15y ago
    What proportion of a person's wage does he spend on e.g. entertainment vs. food and clothing now compared to 40 years ago?

jeffreymcmanus 15y ago

This is pretty damning when you consider it's being run by the Wall Street Journal.

jeffool 15y ago
WSJ, Economist, Forbes, none of these pull punches. You want a stark look at these kind of numbers and the issues around them, they all provide it with no hesitancy or softballing. Don't be surprised when someone talks about the money they've made. They think they have it rightly, just as many feel slighted. No shame in the game of the wealthy.
- cema 15y ago
  Just like it should be. Of all the "mainstream" publications, the financial (and business-oriented) newspapers are the ones I distrust less, because in my experience they tend to understand it is their interest to work with the facts and real numbers.

deleted 15y ago

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barmstrong 15y ago

Some PG thoughts on distribution of wealth: http://www.paulgraham.com/gap.html http://www.paulgraham.com/gap.html

klenwell 15y ago
PG asks: Why? The pattern of variation seems no different than for any other skill. What causes people to react so strongly when the skill is making money? I'd offer this passage from Robert Wright's The Moral Animal as one answer. This assumes the distribution of wealth serves as a proxy (inexact, even inaccurate, perhaps, but functional) for the distribution of access to sexual resources among males: Men have long competed for access to the scarcer sexual resource, women. And the costs of losing the contest are so high (genetic oblivion) that natural selection has inclined them to compete with special ferocity. http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1&dq=moral%20animal%20wright&pg=PA100#v=onepage&q=%22inequality%20amoung%20males%22&f=false http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1&#3... So the argument goes something like this: Material resources (wealth) provide access to sexual resources and reproductive success (any organism's raison d'etre). An organism hard-wired to persist its genes will probably also be hardwired to recognize the existential threat presented by unequal access to the resources required to persist its genes and take radical action to avoid it. Since among most animals (including humans), females make a greater biological investment, they enjoy the privilege of selecting among males, preferring those with resources to best provide for their offspring, which puts males in the position of scrabbling to accumulate the resources necessary to win the affections of a mate. That probably leaves out a few necessary premises, but if you're not familiar with the argument, hopefully you at least get the picture. Wright makes the point that a society in which there is such radical inequality of wealth that a significant number of men have not the resources to attract a mate, settle down, and marry, also tend to be the most violent and unstable. If you had a society in which there was radical inequality of wealth, but not radical inequality of access among young males to mates, you would expect less instability. But allowing for the shortcuts in reasoning that evolution might encourage, you'd still expect some. And as various behaviorial economic experiments have demonstrated, humans seem to have a tendency to reason about fairness in relative rather than absolute terms. So in such a society, you'd probably still have a greater threat of instability than one where there was a more equitable distribution of wealth -- and, especially, the perception of it.

callmeed 15y ago

I know this is wealth and not income, but I get sick of the media (and politicians) using the "top 1%" or "top 5%" label. When it comes to income, the top 1% includes an attorney making $250K and a hedge fund manager making $10M. I imagine its similar for wealth. My guess is that distribution curves spike somewhere past the 1% mark. Maybe I'm biased because I barely make the cut and don't want to pay more taxes, but it seems odd to use such an arbitrary cutoff for reporting and (especially) policy decisions. And please tell me if I'm wrong or off here–I'm geniunely interested in this. EDIT: downvoted? Seriously?

jfruh 15y ago
I think one of the problems of wealth distribution and attitudes about it in the U.S. is that it does shoot up so rapidly in the upper 1%. We're a very upward-looking society so it's easy for someone making $250K a year to say "I'm not rich, I still have a mortgage, I have to work for a living I can't just spend whatever I want, whenever I want -- I know there are people further up the latter than me who have so much more money, I must be middle class." Absolute percentiles are useful because they do show you where you stand in relation to the rest of society. Families making $250K may not be Scrooge McDuck-style super-rich, but they're indisputably in the top few percent of the nation in terms of income. It's hard for those folks to claim to be middle class when 90+ percent of their fellow citizens make less. It's also worth noting that people's lifestyles and "necessities" expand to fit their income, particularly if their income goes up relatively gradually. I've literally heard people say, "Well, I make $400K a year but I'm not rich because it costs a lot of money to pay mortgage and taxes in Westchester County and send my kids to private school and drive a nice car." They think that "rich" means "disposable income I can spend a whim," when in fact living in Westchester and sending the kids to private school is part of being rich.
- jfruh 15y ago
  I should add that I'm not definitely not exempting myself from this set of attitudes. When I was in grad school in my early 20s (in the mid-late '90s, so it's not like inflation makes a huge difference here) I made less than $17K a year for several years, but I never felt particularly deprived and don't particularly recall not doing things I wanted to do because of money worries. Now my wife and I make more than $100K combined (putting us in the top 25 percent of US workers) and yet we are constantly bumping up against the limits of our income, particularly because we enjoy travelling. I don't feel rich but I know I'm better off than a significant majority of Americans.

DanielBMarkham 15y ago

Once again, this is a statistical aggregate. As difficult as it might be, please do not picture a filthy rich old white Scrooge character stealing cookies from poor orphans on the street when you read numbers like this. As the author clearly indicates, these numbers are in relation to averages, not real people. Movement between income groups is an area of current study, but I've seen numbers as high as 40% moving from one statistical group to another inside of a year. The rich may indeed be getting richer, but it may only be a small percentage of them who stay in that group over a period of decades. There might be many new arrivals and many people leaving each decade. Of course, it's perfectly fair to say that the disparity is important whether or not the same people are involved year-to-year or not. I'm not trying to get into that part of the discussion. I'm simply trying to point out the difference between stereotypes and averages and real, live people. There are lies, damned lies, and statistics. (old joke)

hammock 15y ago
One thing that has always bothered me about these reports is that they are not longitudinal, as you point out. We say "the poor are getting poorer" but is it the same poor person that got poorer, or did that poor person discover his inner tycoon and move up while some terrible, lazy deadbeat took his place in the income ladder? If it's the latter, would that not be considered a success despite the fact that "the poor have gotten poorer"?
- jbellis 15y ago
  In particular, "[immigration] disproportionately brings low-skill workers into the U.S. instead of moving jobs abroad. As immigration increases the relative supply of low-skill workers, the income of individuals at the 20th percentile declines." http://www.frbsf.org/publications/economics/letter/2007/el2007-28.html http://www.frbsf.org/publications/economics/letter/2007/el20...
- Tichy 15y ago
  Why do I get the feeling that you already have answered the question for yourself? Yes of course only the terrible, lazy deadbeats fall on hard times. At least it is very convenient to think so...

graiz 15y ago

It drives me crazy when I see encoding issues in popular articles. Come on, it�s embarrassing.

byoung2 15y ago
Looks like it was composed in Word and copied into a rich text editor (without using the paste from Word feature). It converts the double spaces to space,  , and doesn't convert the smart quotes.

steve_b 15y ago

Wealth != income as pg says in http://www.paulgraham.com/wealth.html http://www.paulgraham.com/wealth.html. I think wealth is more equal to total free time left on the planet. So total time minus time spent working to provide things for survival minus time spent surviving (like cooking, sleeping, running from lions). The washing machine is invented, lots of peoples' wealth skyrockets. Food gets cheaper, people's wealth goes up. Looking at income is a short-sighted definition of wealth.

prostoalex 15y ago

Most of the US wealth is ephemeral and is tied up to the real estate market. The poorer one is, the greater proportion of personal wealth is tied up to the value of their real estate. If you started off wealthy before the real estate crisis, and just stayed in cash, your wealth in absolute terms would decline slightly as your house lost value and your super-conservative cash holdings earned you 0%. In relative terms the guy who bought with no money down, easy mortgage guaranteed is now seeing his total wealth delta in severe red, so yeah, the wealthy ones are seeing their proportion rise by staying stable.

noonespecial 15y ago

Has anyone ever stopped to try to get an estimate of how much of these gains this 5% have created? I honestly have no idea what this number would look like but it must be non-zero. Everybody wants to fit a picture of a fat, stupid, cartoonish banker gambling away grandma's pension and getting a mammoth bonus into this slot but how much is that the case? If the number's not zero, then its something. How much? Its not completely outside the realm of possibility that the 5% created nearly all of the gains and then only grabbed most. Net win.

spenrose 15y ago
Yes. The Fed has spend 30 years ensuring that labor never has the upper hand: http://thinkprogress.org/yglesias/2011/09/14/319359/how-asymmetrical-monetary-policy-ensures-wage-stagnation/ http://thinkprogress.org/yglesias/2011/09/14/319359/how-asym... http://rortybomb.wordpress.com/2011/03/18/the-federal-reserve-unions-wage-stagnation-and-risk-shifted-jobs/ http://rortybomb.wordpress.com/2011/03/18/the-federal-reserv... WRT manufacturing: http://rortybomb.wordpress.com/2011/01/21/immelt-ge-capital-and-the-financialization-of-manufacturing/ http://rortybomb.wordpress.com/2011/01/21/immelt-ge-capital-...
shawnee_ 15y ago
Milton Friedman said that most fallacies in economic thinking were derived from the "fixed pie" assumption: that one party can gain only at the expense of another. In an ideal world, the pie would always be growing, and those marginal increases in utility would spill over and everybody would increase well-being gradually over time. But that's not what happens. The top 5 percent may create some gains for the other 95, but their gains that "trickle down" do so very, very selectively, and only go so far. Probably the most obvious evidence that trickle-down economics doesn't work is this: The share of wealth held by the bottom 60% dropped 7.5%. When over half of the people are on the shrinking pie side of the table, it's pretty tough to spell "Net win"
- yummyfajitas 15y ago
  The key word here is share. I.e., if I become 10% richer, but some other guy becomes 20% richer, my share of the wealth is lower but I'm still wealthier.

aj700 15y ago

I supported (absolutely past tense) capitalism on the basis that the right people would end up with the money. Maybe they will. Waiting another 30 years isn't on. Things shouldn't go to people "according to his need". But now things are going to people "according INVERSELY to his need". Endless claim checks on future productivity are being stockpiled by precisely those who have no need of 99% of that productivity. In many cases they also have very little future, because they are old. Politics is bought and paid for. People will not pay taxes. Inflation must now be used as a regressive wealth tax of last resort. At least it transfers purchasing power from the old to the young. Poor people should, if they were intelligent, stop spending their disposable income and use it to buy the thing that gives the best return on investment - which is bribing politicians. And no, corporations aren't people, and money isn't speech.

ender7 15y ago

It's easy to start filtering yourselves into the camps of "the rich are too rich, tax them!" or "the rich earned their money, you have no right to take it away!". Then you can yell at each other from across great echoing divide until the sun grows dark. The sad fact is that America is no longer a country that makes things, and as a result we no longer find ourselves in a position to employ people in positions that are actually worth a damn. Or that pay a salary worth a damn. We still make some things. Software. Circuit designs. Entertainment. Product design (to sell things to ourselves). Pharma. People who work in these areas are paid well. Oh, and the financial industry. Which, despite demonstrating a wonderful ability to make itself mountains of cash, has failed to demonstrate how it benefits the rest of the country. (obviously, its ability to provide lines of credit is valuable, but we had that long before investment banking came to dominate the entire financial industry) I remember reading Snow Crash for the first time and coming across this line: There's only four things we do better than anyone else: music movies microcode (software) high-speed pizza delivery and thinking "what an alien dystopia that future must be".

suking 15y ago
It's not even investment banking anymore, GS might as well just be a prop trading firm - how many companies are raising cash now or doing private placements.
yummyfajitas 15y ago
The sad fact is that America is no longer a country that makes things, and as a result we no longer find ourselves in a position to employ people in positions that are actually worth a damn. This is incorrect. We make plenty of things, more than in most historical periods. http://research.stlouisfed.org/fred2/series/INDPRO http://research.stlouisfed.org/fred2/series/INDPRO We just do it more efficiently, resulting in fewer manufacturing jobs. http://research.stlouisfed.org/fred2/series/MANEMP http://research.stlouisfed.org/fred2/series/MANEMP
nerfhammer 15y ago
Not really. http://www.ourfuture.org/blog-entry/2010020825/no-virginia-us-manufacturing-isnt-dead http://www.ourfuture.org/blog-entry/2010020825/no-virginia-u... Manufacturing output is up and has increased at a relatively stable clip over the past 50 years. Manufacturing productivity has increased at a faster rate, however.

linuxhansl 15y ago

I am quite tired reading the top x%. Many people living in the SF bay area for example technically belong to the richest 3-5%... But cannot even afford a nice house here. And with "nice" I do not mean a pool, 10 rooms. movie room, etc, but just enough rooms for the kids and in a neighborhood with good schools. Now I have a very liberal viewpoint, and above categorization mostly fits me. Still I personally do not mind to be taxed a bit higher. But all that talk about the richest 5% living the life of riches is just not accurate.

Game_Ender 15y ago
> But all that talk about the richest 5% living the life of riches is just not accurate. It's relative. You seem to define rich as basically being able to spend whatever you want and not have to worry about money. As another commentor has stated, being able to own a home in an area like the SF bay area is rich. It is a very desirable area, with good climate, and jobs.
nazgulnarsil 15y ago
"neighborhood with good schools" examine this condition more closely. you will be surprised and disgusted.
kitsune_ 15y ago
The cute thing with this argument is the idea that your hardships are similar to the bottom 5% somehow. If you're not happy with your income, what should the people making less than you be?

MarkPNeyer 15y ago

divide (rather arbitrarily) the population into a few groups. very wealthy: anyone with net worth exceeding $10M. wealthy: anyone with net worth between $1M - $10M upper middle class: anyone with net worth between $100k - $1M middle class: anyone with net worth between $10 and $100k poor: anyone with net worth < $10k now let's make some overt generalizations! the very wealthy seem to fall into one of two groups: successful business owners and venture capitalists on the one side, and bankers, traders, and some classes of lawyers on the other. the wealthy and middle classes all seem to consist of professionals and small business owners, who have met with varying degrees of success. the poor consist largely of immigrants, people living in impoverished urban and rural areas, as well as people without a trained skill. here's what i think is happening: a group of the very wealthy, mainly those on the banker-trader-lawyer side of the divide, have this country by the balls. they have accomplished this by having their politician friends (how many politicians are former lawyers? and how many came from wall street? ok, now how many are former business owners or venture capitalists?) convince the poor that the "rich" are responsible for their plight. to fix this problem, they propose raising taxes on the "rich." this proposal invariably means raising income taxes, which the very wealthy rarely pay because their income is mostly in the form of capital gains. the democrats propose a tax raise, the poor vote them into power, and income taxes go up. the wealthy and the middle class both feel like they're getting fucked, probably because they are. so they fight back, saying they want to lower taxes, reduce government spending, and cut social programs. the republican party says they support these ideals, so they get this type of vote. once in power, the republicans pass a tax cut on both income and capital gains taxes. they also increase government spending, because, hey, why not, fuck you buddy. the poor see this response and it confirms to them what the very wealthy have been saying through their proxy politicians, so the fight goes on. if this process is going to stop, we need a new word to describe the members of the very wealthy who are contributing nothing but misery to the economy, whether by gambling with other people's wealth and getting bailouts when they lose, or simply by using the broken legal system as a weapon to extract wealth from the venture capitalist / successful business owner side of the divide. if we had a single word to embody this concept, i think more people would become aware of the distinction between the 'productive rich' and the 'destructive rich' and we could fix the problem. since 'destructive rich' isn't exactly catchy, i propose we call those people 'dicks.'

charlesju 15y ago

There are a lot of stats everywhere. Here is one I like. The top 1% pays for 38% of all taxes. The top 10% pays 70%. If I showed you this stat, you would lean on taxing the poor more, but that isn't right either. Everyone should look at the problem in aggregate and decide for themselves what is fair for our system as opposed to analyzing individual stats and extrapolated analysis from that alone. http://ntu.org/tax-basics/who-pays-income-taxes.html http://ntu.org/tax-basics/who-pays-income-taxes.html

danssig 15y ago
>If I showed you this stat, you would lean on taxing the poor more No I wouldn't. The ones who are getting most of the benefit should be paying the most for the service.

Tichy 15y ago

I usually defend capitalism, and I read and mostly agreed with PGs wealth essay. But having seen pictures of how the poor live in the US (I am not from the US), this just feels wrong. How much wealth do you really need? It is one thing if everybody lives a happy live, and some people live in slightly bigger houses by the seaside. It is another if lots of people live in squalor at the same time. I think some things should be rewarded. If you find a cure for cancer, you deserve to be rich. But even then, maybe a couple of million $ would be enough, even if what you gave to society is worth trillions. Perhaps related: Joel Spolsky's article on how to compensate an intern who created a lot of value for the company. Can't find the article atm, but I think he ended up giving hardly anything. Cancer researchers are just interns of society, when seen from space.

HSO 15y ago
I agree with your sentiment but ask how questions such as "how much is enough" can be answered? I could imagine an arrangement analogous to "floating currency rates" where you define a band within which the market price can fluctuate. Progressive taxation coupled with social safety net can have this effect if taken to its combined extreme. But how realistic is that sort of thing in today's monetized society? On a tangent, I find it curious how we all seem to have been brainwashed somehow into taking certain assumptions _automatically_ for valid that then frame the entire discussion. I mean, where does the connection between "what you gave to society" and your financial profit come from? It's not at all clear to me, on second thought, that they are connected so closely. Also, what exactly does it mean to "give to society" when your (more neutrally formulated) net effect on your environment is determined not just by "effort" but also by randomness and by the very environment you interact with? Finally, it's not clear to me that everything can be quantified (in the special sense of putting a competitive market value on it). The concept of value is, I suspect, a strict superset of "monetary value", and it's important we understand (as a society) better what are the special conditions under which a mapping to "money space" makes sense. Big, hairy questions, sure, but to give a concrete example for the last one: Since when does it make sense that the "performance" of museums or orchestras is measured in how much tickets they sell? (Incidentally, see how far today's terminology is off?) Yes, I can't pull a better answer out of my hat right now but I _am_ quite sure this question itself is framed in the wrong way because we already presuppose the applicability of concepts like "competitive exchange" and "valuation". Don't get me wrong, I'm a big believer in competitive markets, private property and responsibility, and entrepreneurship. The thing is, I feel more and more that this type of thinking can only be applied to a subset of political issues, it is not a universal acid. And I just got reminded of how deep these issues are because even in your post, which goes generally in the same direction I am currently thinking, I can see certain ideas "embedded" already.

deleted 15y ago

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Hyena 15y ago

Of course they did. As more gains are realized in capital rather than wages, the rich will literally get richer. At the same time, it's becoming ever less clear that many of them serve a useful purpose. Justifying executive pay is losing ground in economic literature and, frankly, has always required recourse to casuistry.

paulnelligan 15y ago

I would say that the problem is systemic - you have two political parties which are basically at eachothers throats the whole time, and a historical belief in a very pure form of capitalism - money is the bottom line, and the markets should govern themselves - the result? - all of the manufacturing has moved abroad, effectively killing the working classes ... Any attempts to change this system gets vigourously branded 'socialism' both by the media (fox news) and by republican opposition which also has historical connotations harking back to McCarthyism and the Cold War ... I don't think this is going to change anytime soon unless we see some sort of systemic collapse ... I would argue that this is possible ...