Tom Wolfe called them “masters of the universe” in The Bonfire of the Vanities, and court records and reportage since the Great Recession showed investment bankers had begun to adopt that identity without a hint of irony. President Donald Trump’s cabinet-level appointments, heavy on Goldman, Sachs alums, show that the masters of the universe will steer public policy once again.
Ever since the Occupy Wall Street protests, a meme has been shorthand for the line between the masters of the universe and their servants. We talk about “the One Percent” to represent that class of people that expects government to ignore them except for cutting their taxes and abstaining from regulations... except those that harm competitors.
What is “rich” and “poor” is hotly disputed. Consider the fantastical federal poverty guidelines, according to which $30,000 annual income should support a family of four.
We can chop up the population by wealth rather than by earnings with 2013 figures from the Congressional Budget Office.
The top 10 percent control 76 percent of the wealth in the United States. Everyone else in the top half owns 23 percent. That accounts for 99 percent.
In 2013, the bottom half of the population controlled only one percent of the country’s wealth. The bottom quarter controlled none—they were in debt. Below we will see some evidence that many of our relatives are in that bottom quarter.
Where the money is can be fascinating, but in terms of making policy, the more pertinent question is, what are the trends?
In the 25 years between 1989 and 2013, which includes the Great Recession (2007-2009):
Those already in the 90th percentile saw their wealth grow by 54 percent.
Those at the 50th percentile gained 4 percent.
Those at the 25th percentile lost 6 percent. Once again, that bottom quarter is Indian Territory.
Wealth has been redistributing upward since 1978, a trend accelerated by the Reagan Administration, which cut taxes at the top and social programs at the bottom. Between the beginning of the New Deal in 1933 and 1978, wealth was redistributing from the haves to the have-nots.
The golden age of U.S. prosperity was the Eisenhower years, because the war was over and the pent-up demand hit an economy driven by consumers. The top marginal income tax rate was 91 percent.
The top rate slowly declined to 70 percent in 1971 and it stayed there until the Reagan tax cuts. Right now, it’s 39.6 percent, up from 35 percent during the Great Recession.
The striking change, in spite of the one-percent meme, is in the top one-tenth of that one percent. The top 0.1 percent had 7 percent of the country’s wealth in 1979, right after the direction turned. In 2012, that figure was 22 percent. In other words, the top 0.1 percent have about the same wealth as the bottom 90 percent.
If the .1 percent consisted of people living in their parents’ basement while starting a market disrupting business in the garage, then it would be hard to call the distribution unfair. In fact, though, social mobility in the United States is inferior to “Old Europe,” meaning the most likely way to get rich is to be born that way.
High inequality is positively correlated with low social mobility. On a chart, economists call this the “Great Gatsby Curve,” after the novel by F. Scott Fitzgerald that purportedly showed how the rich are different from us in ways besides having much more money.
Why do I think Indians are disproportionately in that bottom quartile that owns no wealth but rather is in debt? According to the American Community Survey, an office within the Census Bureau, the top two “races” ranked by median household income in 2015 are:
Skipping to the bottom, we see:
American Indians and Alaska Natives $38,530
African Americans $36,544
No group defined by “race” has a median household income below the Urban Institute’s definition of “poor.”
Note also that the Census has dealt with the analysis problems caused when it started allowing multiple self-definitions by only counting persons who listed themselves as American Indian or Alaska Native only. How that would skew both the median and the average could be the subject of argument, but I doubt undoing that skew could get us to upper middle class let alone rich.
These numbers are important because all acts of government redistribute wealth. Any particular act affects the distribution in ways that can be evaluated. Tax policy is obvious, as are the social safety nets like Medicaid, food stamps, and subsidized housing.
Then there is the cost of education, important because those with a college degree hold four times the wealth of people with a high school diploma. Also, the common practice of funding education primarily from local property taxes, insuring that people already poor get schools with lower per pupil expenditures.
There are the wage and hour laws in the Fair Labor Standards Act and the aggressiveness or lack of it by the National Labor Relations Board.
At the other end of the income spectrum, there are the limitations on gambling with other people’s money contained in the Dodd-Frank reforms that President Trump has promised to repeal. Investment banks limited by Dodd-Frank pay off for the already wealthy.
They were “too big to fail” in the Great Recession and so the taxpayers bailed them out and relied on Dodd-Frank to prevent a repeat. They are bigger now and Dodd-Frank is slated for repeal right after Affordable Care Act.
It is arithmetic rather than opinion that Presidents Franklin D. Roosevelt and Ronald Reagan both redistributed massive amounts of wealth with government policies and those redistributions went in opposite directions.
It is opinion whether there’s a fairness issue that has public policy solutions. In rawest terms, there are two competing views of the U.S. melting pot, leaving aside the undisputed but marginal role of luck.
Either intelligence and hard work always pays and the poor are poor because they are lazy and dumb or, as the melting pot actually works, scum rises to the top and everybody on the bottom gets burned.