The Fed sounds a red alarm about rising inequality

Summary: The Fed gives us bad news about America. It should be headline news. More important, it should be news that shocks Americans into action. The process can begin with you.

Unequal sign

 

Changes in U.S. Family Finances from 2013 to 2016

Evidence from the Federal Reserve’s
Survey of Consumer Finances.

From the Federal Reserve Bulletin, September 2017.

 

This report provides pages of horrific news about America. If we had real elections, this information would be rich fodder for debate among the candidates. The two graphs that follow reveal the bottom line about how America has changed, and will continue to change unless we retake the reins. A new Gilded Age has become, as the 1% gain an increasing share of America’s income, wealth — and (inevitably) political power.

The top 1% grab all of America’s income growth – and take away from what we got.

Income distribution - Fed Survey - Sept 2017

“The share of income received by the top 1% of families was 20.3% in 2013 and rose to 23.8% in 2016. The top 1% of families now receives nearly as large a share of total income as the next highest 9% of families combined (percentiles 91 – 99), who received 26.5% of all income. This share has remained fairly stable over the past quarter of a century. Correspondingly, the rising income share of the top 1% mirrors the declining income share of the bottom 90% of the distribution, which fell to 49.7% in 2016.”

The top 1% are much richer than the bottom 90%. And getting more so.

Wealth distribution - Fed Survey - Sept 2017

“The wealth share of the top 1% climbed from 36.3% in 2013 to 38.6% in 2016, slightly surpassing the wealth share of the next highest 9% of families combined. After rising over the second half of the 1990s and most of the 2000s, the wealth share of the next highest 9% of families has been falling since 2010, reaching 38.5% in 2016. Similar to the situation with income, the wealth share of the bottom 90% of families has been falling over most of the past 25 years, dropping from 33.2% in 1989 to 22.8% in 2016.”

Conclusions

America has one of the most powerful engines of innovation and economic growth in the world. New business methods, new technology, new marketing ideas. And since 1970 the resulting gains have been skimmed off by the 1%. This was controversial when I first wrote about rising inequality in 2008 (note the comments of conservatives asserting that it can’t be so). But now that it is incontrovertible, our reaction to it becomes as important as the facts.

For decades we have been fleeced without protest. Rather than fight, we elect more Republicans determined to further depress wages, crush unions, reduce worker protections, and many other policies that boost inequality.

What kind of people allow this? Let’s look at this from the perspective of the 1%. They see our passivity, apathy, and gullibility — and so they logically believe themselves best suited to rule America. That is the hidden truth of American politics. It is unflattering to us and so unmentioned by journalists. America is well-governed in the best interest of its stakeholders. We are just not among them. For details see…

We can change this (if we act soon). The Founder’s political machinery remains idle but potentially powerful, needing only our energy to set it in motion. For ideas about you can do see Reforming America: Steps to New Politics.

For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about increasing income inequality and falling social mobility, especially these…

  1. Why Americans should love Tolkien’s Lord of the Rings – we live there,
  2. Why Elizabeth Bennet could not marry Mr. Darcy. Nor could your daughter.
  3. When marriage disappears: rising inequality as the threat to the family.
  4. See America’s income inequality grow during 1979-2011, a driver of Campaign 2016.
  5. Warning: the income gap between races is widening in America.

21 thoughts on “The Fed sounds a red alarm about rising inequality

  1. Is this down to wages or capital? Were is the income coming from? In the US it has generally been wages that have driven inequality. Ie rising CEO remuneration. In Europe its always been Capital thats been the driver of inequality. It would be interesting to see if the policy of qualitative easing has changed that dynamic.

    In Thomas Pickerty Capital in the 21st Century, he posits that rising inequality is driven by Capital, and that rising inequality is a feature of capitalism overtime, as Capital slowly increases in value and is passed down through generations. Its only when there is concentrated re distributive policy, coupled with capital destruction (war) that it slows or reverses. Modern conservative and liberal thought developed in the 50’s and 60’s, times of historically low inequality, they still havent been able to adapt to a world where rising inequality is the default, not a aberration.

    1. merocaine,

      “Is this down to wages or capital? Were is the income coming from?”

      It is both. For the CEOs, it is “wages” — although being paid hundreds of millions or billions is not “wages” in any usual sense of the word. But capital is a far larger factor — hedge fund operators, VCs, owners of tech companies, owners of land near growing cities. Those are the large drivers.

  2. None of this is surprising, is it? This has been commented on many times. Sometimes the comments have been rather dramatic (referring to banksters etc) but they have all looked at the same set of observations. In any case the situation of rising inequality is fraught with peril, as it strongly correlates with expected economic collapse and, potentially, war.

    I only recently realised that China’s foreign debt is actually less than the amount that the USA owes China.

    1. Andrew,

      “as it strongly correlates with expected economic collapse and, potentially, war.”

      That seems unlikely. Do you have some examples, or supporting cites?

      “China’s foreign debt is actually less than the amount that the USA owes China.”

      Why is that significant? China’s foreign debt is small. It is their internal debt that is worrisome (aka bizarrely large), mostly in the private sector and some local governments.

  3. Hmm- I missed the boat here– what I should have said first was this:
    t seems to me that the US Federal Reserve is being disingenuous here– after all, it is their policies, and the policies encouraged by their owners (The Fed is not a part of government- it is a privately owned, for profit venture) that have set the scene to encourage and grow this inequality ( which increases the wealth of the owners of the Fed Reserve).

    1. Andrew,

      “it is a privately owned”

      False. The regional Fed banks are privately owned, but have no substantial role in the management of monetary policy.

      “have set the scene to encourage and grow this inequality”

      Absurd. The first Gilded Age occurred before the creation of the Fed (roughly 1870 to 1909), driven by concentration of economic power, immigration, and deflation. The second was 1970 – now, driven largely by government policies (reduced support for colleges, flattening of tax rates, deregulation, reduced anti-trust enforcement, increased immigration, etc).

  4. While I can agree with you when you say “Rather than fight, we elect more Republicans determined to further depress wages, crush unions, reduce worker protections, and many other policies that boost inequality.” I think that is not only the Republicans to blame. For example, when the Democrats claim green energy policies are a great thing for jobs they miss the point that raising energy costs hurts manufacturing jobs which pay better than the green service jobs. The opportunity for good middle class well-paying jobs are evaporating and both political parties are not addressing the causes.

    1. Roger,

      “they miss the point that raising energy costs hurts manufacturing jobs which pay better than the green service job”

      True. But there is near-zero evidence that energy costs have been a substantial drag on manufacturing. Oil prices at near their lows since 2000. Natural gas prices are near their lows since 2004. Electricity prices have risen an average of 2.4% per year during the past 20 years.

      Also, if rising energy was a big drag on manufacturers then we should have lost competitiveness. Export of goods (a broad category, but the only relevant one on FRED) has been a big success story. It hit rock bottom of 3.2% of GDP in 1972, and has risen in fits and starts (they’re volatile) to 7.9% now. Exports of goods have risen faster than the overall economy.

    2. Larry,

      Of course I cannot find the reference but I am under the impression that higher prices have driven manufacturing jobs out of Germany. The “leave it in the ground” crowd would eliminate the jobs associated with products derived from fossil fuels. My point is that maybe we have not reached the tipping point to see the impacts in the US. Let’s watch NY and CA and see what happens when they implement their plans for clean energy that will raise energy prices significantly.

    3. Roger,

      ” I am under the impression that higher prices have driven manufacturing jobs out of Germany.”

      Like so many of the sciences, economics plagued by bogus analysis. No developed nation can hold its labor-intensive manufacturing jobs from leaving to cheaper nations. That’s know as getting rich, and comparative advantage (first described by Richado in 1817). Germany has choosen its economic trade-offs to retain a larger share of manufacturing than most of its peers (see this HRB article for some details). There is no way to say if that was a good or bad choice than made by other nations. It’s worked for them.

      The US had taken a different path to the same end, with the real manufacturing output index rising from 73 in 1991 to 130 now — focusing on automation and high-tech processes.

      “My point is that maybe we have not reached the tipping point to see the impacts in the US.”

      I’ve been reading such doomster forecasts about energy costs since the 1970s. Wake me when one of them comes true.

      “Let’s watch NY and CA”

      I don’t know what you’re specifically talking about, but I doubt whatever it is comprises a significant fraction of manufacturing costs. Please get numbers before making such big claims, or cite some kind of expert analysis. Otherwise your error rate will be near 100%. It’s a complex world.

    4. Roger,

      Clarification: “Like so many of the sciences, economics plagued by bogus analysis. ” By that I meant that you probably did read such an article about Germany. I suspect that most articles on the internet about economics by non-economists are bogus.

    5. NY and CA seem to be in a race to use the most renewable energy and I think that this is ill-considered. Mostly because they are great at setting goals but abysmal at explaining how they will reach those goals. Ultimately I fear that the biggest impact will be markedly higher prices when all the costs to implement their goals are included which I am certain will have an impact on those least able to pay and I suspect even though you do not will also impact manufacturing which is already a rare commodity in NY. That is why I say watch NY and CA so we can observe the impacts rather project what may happen. Thanks for your responses to my comments.

    6. Roger,

      I have full confidence in the ability of the New York and California state governments to screw up any policy. Higher prices are a likely result. But there is little evidence of any impact on manufacturing from past energy policies — and it seems unlikely that planned policies will have any substantial effect on manufacturing. Electricity and transportation are too small cost elements for increases from those State policies to have much effect.

    7. Roger,

      I just read the opening. I agree with the CATO report. These programs have minimal effect (I’m not sure why). And even if effective, they are probably orders of magnitude too small to have a visible effect. Drawing more conclusions about this report would require more time than I have now. But it looks like an interesting analysis!

      Whatever the results, that does not mean these policies should not be tried. Experimentation by all levels of government is an important feature of our system. Good public policy ideas don’t fall from the sky, but emerge only after research plus a period (sometimes long) of trial-and-error plus more research.

  5. What’s the problem? Legitimate question, why is this a concern? Are you unhappy with the compensation you receive from your employer? If so, what prevents you from changing jobs or careers? Does it simply seem “unfair” that the rich get richer? I assure you, it will always be so.

    It is telling that you would pose “retaking the reins” as your solution. Clearly, you feel that Washington-knows-best and that “fair” can actually be quantified and delivered to the happy sheep of your master-planned Utopia.

    1. JDmensing,

      “why is this a concern?”

      After five years of this being discussed in every media, you are either trolling us or just don’t want to know. If you really have just tuned into the news, Wikipedia has adequate intros to income inequality and more generally, economic inequality. As always, the value is in the links to detailed info at authoritative sources.

      “Clearly, you feel that …”

      The classic “clearly you believe A so you believe B and C” delusion. After 50,000 comments, I’ve have found that kind of nonsense usually indicates a mind deeply indoctrinated with propaganda — and immune to both logic and facts. Perhaps you are the rare exception.

    2. The secret to Germany’s happiness and success: Its values are the opposite of Silicon Valley’s” by Rebecca Schuman at Quartz, 27 Sept 2017.

      I found this to be an interesting article that discusses a different perspective (I know, us Americans have a psychological barrier to considering other viewpoints) on wealth and income distribution. Interestingly a good friend of mine and retired Coastie spent a month in Germany visiting family there (his mother is German who immigrated to this country after World War II) and came back with the desire to move there in the near future. He said the people were nice (most would speak in English to him even though he speaks German), the towns were picturesque, the problems we hear about in Germany are way over-blown here, and the public services are exceptional. Apparently, immigrating there is rather straight forward.

      The biggest obstacle is the language, they do require you speaking the language, but other than that, the government will actively support you becoming employed, even training you for a vocation if you are lacking in needed skills.

    3. McCloud,

      That’s a fun article. But pretty silly. It draws extravagant conclusions about Germany from the small vote share of one new party. She could write similar articles about Germany by looking at the AfD, the Left Party (ex-commies), and the Greens. If the US had a real multi-party system (which imo would be a bad idea), she could write similar tirades about the US from its inevitable similar small parties.

      Silicon Valley as a population of arpox 3 million, 0.9% of the US total. Germany has 8.3 million. Are there 760 thousand hard-charging people in Germany, similar to those of Silicon Valley. She doesn’t ask. My guess is yes. They are just spread out. She could write an article about those people and say that they are responsible for much of Germany’s success, just as those people are responsible for America’s success.

      My guess is that both of those articles would be wrong. Silicon Valley has contributed to America’s success, but I doubt more so than New York or LA — or the energy industry (oil, nat gas, and coal are success stories), or Florida, or etc.

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