The New Jersey Star-Ledger noted in an editorial (Obama is to blame for income inequality? Puleez, which I referenced in my last post) that “The richest 1 percent has captured 95 percent of the income gains since the Great Recession.” That figure comes from a chart based on data compiled by Thomas Piketty, Emmanuel Saez, and National Bureau of Economic Research, and covers the period 2009-2012.
However, correspondent SHAPE, commenting on the Star-Ledger editorial, wrote that “1% control over 95% of the wealth.” That’s something altogether different. I left this reply to SHAPE:
RE: “1% control over 95% of the wealth.”
This is absurd on its face. Statistics like that are grossly misleading because they don’t distinguish between money and wealth. Money is not wealth: It is a store of value waiting to be exchanged for wealth. When you trade your money for Microsoft Word, you get wealth. Bill Gates gets money (leaving aside, for simplicity’s sake, that the cost of the product must first cover employee compensation, suppliers’ bills, raw materials, and other costs of production, as well as stockholder dividends, corporate taxes, and other company expenses). Contrary to that stat’s implications, the value of the wealth gained by consumers typically is immeasurably greater than the monetary fortune earned by the producer. For example, Microsoft founder Bill Gates is worth some $80 billion. But what is the sum of the value, in dollar terms, of all of the Microsoft products bought by consumers over the decades? Just in 2014 alone, Microsoft earned $86 billion in revenue; that’s how much consumers valued Microsoft products by their voluntary choice to buy them—more in one year than Gates’s entire fortune. And that doesn’t tell the whole story. Consumers typically value the products they buy more than the money they surrender for it. Otherwise, why spend the money? Those products bring years of use to consumers—for business, education, personal finance, or just plain personal enjoyment (I’m using Windows 8.1 right now, and enjoying it immensely). How do you put a value on that?
Gates’s monetary fortune is small next to the tens of trillions of dollars in direct and indirect economic value spread through the economy over the decades resulting from the creation of his fortune. If you measure wealth only in liquid monetary accounts, the great capitalist fortunes seem outlandish. But, in reality, fortunes like those amassed by the likes of John D. Rockefeller, Henry Ford, Bill Gates, Steve Jobs, et al, are not disproportionately large. They are the small tip of a vast iceberg of wealth creation that benefits millions and billions of average people—the sum of which dwarfs the creators’ fortunes. Measured correctly, the vast majority of wealth is held by the middle class. It’s just mostly held in material, rather than monetary—i.e., savings—form.
As the data cited by the Star-Ledger show, that 95% income gain figure applies only from 2009-12, a period of massive inflationary monetary expansion, including the lowest-ever interest rates and so-called “quantitative easing.” As financial market expert Jim Brown observes in his essay Monetary Fascism, this Federal Reserve policy features a massive government-engineered transfer of wealth from the lower and middle income groups to the upper income segment.
Furthermore, the data shows that, during the 1980s and 90s, the period of “Reaganomics”—lower tax rates and partial deregulation—the 99% did quite well, accounting for well over 50% of income gains. But after 2000, a period of resurgent regulatory welfare statism, the 99% did less than half as well as it did in the previous two decades. This statistical correlation between bigger government and greater income inequality is backed up by empirical data, as Reason’s Ronald Bailey observes in Less Economic Freedom Equals More Income Inequality.
Monetary Fascism—Jim Brown
Piketty's "Capital" and Obama's "You Didn't Build That": Perfect Together