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Tuesday, August 11, 2009

Evening after a shower

Forbes १५०,०००,000

The Wealthy Forbes 400 Owns as Much
as the Non-Wealthy Non-Forbes 150,000,000

The net worth of the 400 notables is equal to the net worth of half of the U.S. population. This is the page on wealth posted at


In 1962, the wealth of the richest one percent of U.S. households was roughly 125 times greater than that of the typical household. By 2004, it was 190 times (EPI, State of Working America 2006-07, Figure 5B).
(note: typical means median household)

The richest one percent of U.S. households now owns 34.3 percent of the nation's private wealth, more than the combined wealth of the bottom 90 percent. The top one percent also owns 36.9 percent of all corporate stock. (EPI, State of Working America 2006-07, Table 5.1 and Figure 5F).

The total inflation-adjusted net worth of the Forbes 400 rose from $470 billion in 1995 to $1.25 Trillion in 2006. (Arthur Kennickel, Federal Reserve Board, Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004 (pdf) and Forbes Magazine.)

The U.S. Personal Savings Rate declined from 11.2 percent in 1982 to NEGATIVE 1.1 percent in 2006. (Bureau of Economic Analysis, National Income and Product Accounts, Table 2.1)

I should pre advise that the figures I cite are not strictly precise, but they are approximately precise and the general picture I draw is accurate.

I want to note the $1.25 trillion figure, the amount of wealth held by the Forbes 400, in the third paragraph. This amount,
$1.25 trillion, is equal to 2.5% of the total net worth of the U.S., according to the report cited. In the 2006 report, Currents and Undercurrents, the Federal Reserve authors state that the bottom 50% of U.S. households (half of the 118 million households) own only 2.5% of the total national net worth of just over $50 trillion. Multiplying $50 trillion by 2.5% is $1.25 trillion, the same amount that the report claims that the Forbes 400 owns. Therefore, with a population of 300,000,000 citizens, one can make a case that the richest 400 individuals own the same amount as the poorest half, or 150,000,000 citizens. Pretty amazing. It reminds one of Russia under the Czars, or of the reasons for fighting the Revolutionary War. Thomas Paine where are you? The city of Oakland has over 350,000 people; 400 divided into 150,000,000 is 375,000. One rich Forbes individual owns an amount equal to the population of Oakland, if all of Oakland were in the bottom 50% of wealth holders. Plutocracy lives.

This nation should tax those extremely wealthy individuals and use that money to create millions of jobs for the unemployed and underemployed, it should create subsidies for employers to hire additional workers, and it should increase the wages of poorly paid workers, increase the Earned Income Tax Credit, and so on. We have done this before.

On page 255 of State of Working America, 2006/2007, the table “Changes in average wealth by wealth class, 1962 - 2004 (thousands of 2004 dollars)” the average wealth per household is listed at $430.5 (thousand). With 118 million households, the total net worth or wealth of the nation comes to over $50 Trillion. (118 xs 430.5 = 50,799). From 1962 to 2004 the
median net worth of household wealth has increased by 73% while the average net worth has increased by 157%, an indication of the one-sided growth that advantaged the wealthiest sector of our society. The recent decrease in the housing market values will take down both median and average net worth values. In 1989 the household median net worth was $67,700. It had climbed to $77,900 by 2004, but much of that was unrealized gains in the housing values that increased, inflation adjusted, by 84% in ten years, 1995 to 2005. That bubble has popped. In any case, the health of the nation would be greatly improved by a public jobs program. As noted before, 35.6% of the workers are unemployed, underemployed or working for below poverty wages (see for reference to BLS current figures).

Some readers may be unconvinced of my data, so I offer these additional supports. Here is a selection of quotes, a few from the Federal Reserve report, and another from Les Leopold reporting in the Huffington Post, August 19, 2009.

"For example, from 1992 to 2004 the wealth share of the least wealthy half of the population fell significantly to 2.5 percent of total wealth."
from the Abstract, page one, of Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004, Arthur B. Kennickell, Senior Economist and Project Director, Survey of Consumer Finances.

Total net worth of nation, All Families, $50,250.6 billions. Total assets of 0 -50 percentile group, $1.278.6 billions (page 29). (2004)

same report, page 7, "following the pattern of growth in the top rank of the Forbes group, the proportion jumped to 2.5 percent in 1998, before falling off a bit in both 2001 and 2004. In 2005 the fraction was 2.0 percent." --- not the same amount as reported by

same report, page 7, "For example, in 1989, 26.5 percent of families had net worth of less than $10,000; by 2004 the figure was 22.7 percent. Over the same period, the share of families with at least $500,000 in net worth rose from 10.8 percent to 17.7 percent." --- very positive news, but does it counter-weigh the fact of half owning 2.5%???
Why Warren Buffett Must Take Aim on Our Obscene Distribution of Wealth
August 19, 2009, Huffington Post, Les Leopold

This is the perfect time to call for a new progressive tax schemes on the superrich. In fact, if we had in place a fair system, there would be no deficit problem at all. Consider the fact that by 2008, the top 400 billionaires in the U.S. averaged $3.4 billion in assets each! Their total net worth was a whopping $1.56 trillion. That capital accumulated because, as a matter of policy, we encouraged income and wealth to concentrate at the very top of the income ladder. If we had kept in place the Eisenhower era tax system, the deficit Buffett worries so much about would nearly vanish.
The top marginal tax in 1980 when Reagan won the election was 70% on income over $400,000. Effectively the tax was much lower. Leopold has access to very current wealth data that I do not know about.

There is surprisingly little academic information about wealth and its effects. I have not read these books, but I’ll recommend them anyway. Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It, Second Edition, 2002, by Edward N. Wolff. Two books by Lisa A Keister, Wealth in America: Trends in Wealth Inequality, 2000, and Getting Rich: America’s New Rich and How They Got That Way, 2005. And the last unread recommendation is Who Rules America? Challenges to Corporate and Class Dominance by G. William Domhoff, 2009. --- August 11, 2009

Saturday, August 8, 2009

Oregon Lake

Wages Must Rise

Wages Must Rise
Wages must rise. Public employment is a solution.
The wealthiest 1% of U.S. households own more wealth than the lower 91% of households. They earn each year almost as much as the lower 60% of households. This is why our economy does not work well.
(Sources: Federal Reserve report, Survey of Consumer Finances, Currents and Undercurrents, 2006; and Tax Policy Center, Brookings and Urban Institutes, quoted in State of Working America, 2006/2007, page 79, by Mishel, Bernstein, Allegretto)

Any economy is limited by the wage rate for most workers.
When workers as a group cannot afford to purchase what they produce as a group because their wages are depressed as a group, then the economy must constrict. This is an inviolable law, just like supply and demand. That is why wages must be kept high. As anyone can see, capitalism tends to suppress wages; inherently capitalism’s competitive nature constantly forces a reduction in production costs, but in doing so this inescapable depressing force deprives the economy of purchasers. The economy then plummets to the level of available income and savings. This should be recognized as an inviolable law of economics. Marriner Eccles, the Chairman of the Federal Reserve during the Great Depression, cited this shrinkage of aggregate demand as the cause of the economic depression. Economist Ravi Batra says that wages are demand and productivity is supply, and they must be in balance.

In 2009 we have 35.6% of the workforce, or 55 million workers in a workforce of 155 million, who either have no job (9.4%), not enough job (involuntary part-time workers and discouraged workers --- 10%) or they are working for below poverty wages (16.2%). (See for BLS statistics to confirm.) One out of three of workers are not buying much. As a result we have one in nine buying food with food stamps, one in six without health care, and over one in four children living in poverty. Among developed nations we have the highest inequality and the highest child poverty rate. We need to raise wages, but it requires a concerted strategy.

In 1939, ten very long years after the commencement of the Great Depression, the rate of unemployment still stood at 19%. Four years later, in 1943, ‘44, ‘45, it was below 2%. How this was done should be question number one for the general public. Simply put, public jobs were created. This transferred idle wealth into paychecks of working people. The same principle will work today, but we do not need a world war to prod us into a good policy. Wealth was idle because no one had money to buy additional products (called aggregate demand); very many people were very poor while very few people were very wealthy. Wealth was transferred, and massive public employment changed business expectations as more buyers entered the marketplace through this transfer of wealth. This activated the latent energy in America.

When government hires workers, it transfers idle money into paychecks of formerly non-working people. The most recent stimulus of $787 billion dollars promises to save -- or create -- 3.5 million jobs. Yet there are 15 million workers without jobs. Creating new jobs helps in two ways, it shrinks the job market which forces private employers to pay higher wages, and it transfers wealth to non-purchasing unemployed workers. Those newly employed government workers begin purchasing, and eventually enough traction creates demand in the private market so that employers hire again. (Economist E. James Welsh has a good essay about this phenomenon, available at, April 9, 2009.) Furthermore, we can increase the Earned Income Tax Credit, we can provide subsidies for food, child care, housing, health care, and education. And we can make it simpler for workers to form unions. All these create added demand in the economy, at the cost of future loan repayments or higher taxes to the top one percent who own more than 91% of the U.S. households combined.

One demerit of public job creation is that productivity rates fall, but that is not a permanent effect. Another is that interest rates rise because of government borrowing, and this brakes private investment because their expansion credit costs rise. This also is temporary.

From 1942 to 1960 -- Roosevelt, Truman and Eisenhower -- the maximum marginal income tax was 91% on incomes over $3.4 million. You may call this “confiscatory” but keep in mind it saved the overall economy. Over the past decades only a few boats have risen with the rising tide, in the 50s and 60s all boats were rising. Another benefit would be that the insanity of billion dollar hedge fund operators being taxed at lower rates than their secretaries would be put to an end. Today, a reinstated high marginal income tax would finance economic recovery quickly.

I recommend Jack Rasmus's solutions. He is an economics professor, see, or see Dean Baker, or my own blog, Jeff Madrick, the editor of Challenge Magazine and author of Why Economies Grow says much the same thing. John Mauldin’s Investors’ Insights has contributors from many sides, especially the skeptical side. Also Ravi Batra agrees with raising wages. He says that productivity equals supply and wages equal demand and the two must balance for growth and widespread prosperity. It's pretty obvious. But since 1980 that logic has been reversed.

In 2008 the annual GDP was $14.3 trillion and the number of active workers equaled 141 million. That means that almost $100,000 of value was produced by each worker in 2008, on average. Yet half the workers earned less than $40,000 a year, the median income for individual workers was below $40,000. (This from U.S. Census, 2007) The bottom half earned about 15% of the total national income, the top half earned 85%. The top one percent of households in 2006 earned 18.3% of the national income, while the bottom 60% earned only 20.3%. (See State of Working America, 2006/2007, page 79) The figures for wealth are even more egregious. The top one percent of households owns more wealth than the combined wealth of the lower 91% of households. Half the households own 2.5% of the national wealth, the other half own 97.5% of the national wealth. (See Currents and Undercurrents, 2006, Arthur Kennickel, U.S. Department of Treasury, Federal Reserve, Survey of Consumer Finances) Time for readjustment through higher wages?

We suffer from chronic low wages and a slavery mentality. In theory (only) Capitalism could actually seize up and die if corrections are not made. We have lots of room to increase wages in a systematic way. Only the richest, 3% at the top, would feel any loss, and their gain will be to live in a much happier world, a saner world, a safer world, and a world more just and productive.

I feel like ranting a little, so here goes:
Food stamps feed 11% of the population, one in nine Americans, in June of 2009, the number has nearly doubled from 17 million in 2000 to 33 million in 2009. (See for an interesting news article on food stamps) You must have less than $2000 in assets to receive them, but 70% of food stamp recipients (that’s 23 million Americans) have “no countable resources”. Half the recipients are children. (Our child poverty rate is double the average for developed nations.) That’s almost 20% of the nation’s children. $95 a month is the median benefit, when the typical (median) American household spends $184 a month per person on food. In November, 2008, approximately 67% of those eligible were receiving the food stamp benefit. If all who are eligible applied, over 40 million would qualify, more than one in every eight Americans. The economic multiplier for every dollar of food stamps is about $2 of added economic activity. The same applies for creating public jobs.

The article features a retired postal worker, Adell Davis age 63, who declined the $20 a month food stamp benefit when she moved into subsidized senior housing. She lives on a $672 Social Security check, and has about $200 a month left over after paying her bills. “I thought someone else could use it better than me,” she says. She never eats bacon and eggs nor fresh fruit and vegetables. Davis probably would qualify for work as a public school auxiliary classroom assistant, or many other valid work activities that public jobs could create. If we would let the banks go bankrupt, and transfer the $700 billion we kicked in to keep them solvent, and the $23 trillion in guarantees, we could easily employ the unemployed and create economic security for all citizens. No, instead we shovel taxpayer money to failed business men so they can continue their get-rich-at-all-cost schemes--- even collective bankruptcy --- before we employ those who cannot find full-time, decent paying work, the 55 million Americans whom I mentioned in the first paragraphs of this essay. We shovel $1.1 trillion a year in the military, double all other nations combined (See Chalmers Johnson, "Going Bankrupt" ZMagazine, and, January 24, 2008), even though there is no significant threat to our security, the most significant being the global economic depression that we created ourselves through non-regulation of the financial sector and low wages to 80% of the workforce over the past 30 years.

We should try to raise wages. In the U.N. Human Development Index we rank 15th now, despite the fact that our economy generates $41,890 per capita, more money per capita than all but one other nation. The median personal income (for 141 million workers) is less (about $40,000 per worker) than the per capita income for over 300 million citizens. Go figure.
How can anyone be poor in such a wealthy nation?

Ben Leet, see