the big story with US wealth is the growth in wealth/GDP ratio and the growing share of that wealth held by the top 1%. The share of wealth going to the top 1% shows occasional setbacks, like when the stock market fell in 2001 or in the aftermath of the Great Recession, but overall, the share of wealth going to this group has risen from about 24% of the total back in 1990 to above 30% of the total more recently.
Read the whole post.
Note that the ratio of wealth to GDP can be decomposed as the ratio of earnings of assets to GDP times the price/earnings ratio for assets. My impression, and I could check this, is that earnings of real estate have gone up a lot as a share of GDP, but corporate profits as a share of GDP have not gone up as fast. Instead, what has powered the stock market has been an increase in the price/earnings ratio, and/or the ratio of profits of firms on the stock exchange to profits of small businesses has gone up considerably.
As to “shares” of wealth, I bet that if you look at the actual households that were in the top 1 percent in 1990, their share of wealth did not go up over the past 30 years. What went up was an arithmetic measure of the share of the wealth in 2020 held by the top 1 percent of households as of 2020 relative to the share of the wealth in 1990 held by the top 1 percent of households as of 1990.
My guess is that the amount of churn at the top of the wealth distribution is higher than it was thirty years ago, although that is something that one could check. You could compare the turnover in a magazine’s list of the richest people from say, 1985-1990 to the turnover from 2015-2020.
How much of the increase in the top 1%’s wealth is due to the run up in stock prices caused by the response to COVID by Congress and the Fed?
Not a lot — most of the run-up happened before the pandemic.
“and/or the ratio of profits of firms on the stock exchange to profits of small businesses has gone up considerably.”
Is there a good way to measure this? In an era where small business is practically outlawed it seems especially relevant.
FWIW – the 2020 Credit Suisse Global Wealth Report offers some data consistent with your intuitions.
“To give some idea of the degree of churning within this group of billionaires, we cross-classified billionaires according to their (100-member) decile groups on 19 February and 30 June. The results reported in Table 3 show that most billionaires stayed within their decile group or moved one group up or down. However, 45 billionaires moved down more than one group and 85 moved up more than one.
The biggest loser (recorded in row 3) was a billionaire in the UK “fashion and retail” industry, whose wealth of USD 8.1 billion on 19 Feb- ruary dropped to USD 5.5 billion on 18 March and then down to USD 2.4 billion at the end of June. In contrast, a US billionaire in the used car business saw his wealth fall from USD 3.6 billion on 19 February to USD 2.4 billion on 18 March, but then recover to USD 7.9 billion by 30 June (Table 3, column 3). In all, we iden- tified 13 billionaires whose wealth increased
by more than 50% during this difficult period. These include six from China, four from the United States and one each from Canada, Hong Kong SAR and Malaysia. Most (7) list their industry as Technology, and the most common sector (4) is “e-commerce.” However, there are some surprises: one is listed in the pig-breeding sector of the food and beverage industry. Less surprising, and more indicative of the age in which we live, is the doubling of wealth of a Malaysian manufacturer in the “synthetic glove” sector”
And with respect to millionaires:
“But the high degree of mobility to which we have drawn attention means that there will be an unusually large number of new millionaires and an unusually large number of new ex-millionaires. At the start of the year, we estimate that there were 49.9 million millionaires worldwide, up 4.5 million during the course of 2019. The United States added half of this number – 2.3 million newcomers – to its sizable stock. This was more than the combined total of newcomers in the next nine countries: China, the United Kingdom, Canada, Japan, Australia, Switzer- land, India, Spain and Taiwan (Chinese Taipei).”
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2020-en.pdf
https://statmodeling.stat.columbia.edu/2020/12/17/if/
If you can argue that knuckleheads are rational
And that assholes serve the public good,
But then turn around and tell us we need you
To nudge us as you know we should;
If you can be proud of your “repugnant ideas”
And style yourself a rogue without taboo,
If you assume everyone is fundamentally alike
But circulate among the favored few;
If you can do math—and not make math your master;
If you can analyze—and not make thoughts your aim;
If you can meet with Cost and Benefit
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on a top-5 journal,
And lose, and start again at your beginnings
And never breathe a word diurnal;
If you can force your models and assumptions
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’
If you can talk with rich people and keep your virtue,
Or walk with NGOs—nor lose the common touch,
If neither data nor experience can hurt your theories,
If all measurements count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of consulting,
Yours is Academia and everything that’s in it,
And—which is more—you’ll be an Economist, my son!
A couple researchers – Natasha Sarin and Sylvain Catherine – found that much of the recent increase in wealth inequality is more or less an accounting artifact: poorer people’s wealth is increasingly in social security and Medicare benefits, but if they simply saved the same amount and put it in assets, their nominal wealth would’ve gone up by much more in recent years due to low interest rates driving up asset prices. But since at the low end of the spectrum (even many middle class people) have much or most of their ‘real’ net worth in SS benefits that aren’t evaluated in terms of market value (and thus their value isn’t seen to fluctuate with interest rates like other assets), the affect declining interest rates have on asset values appears to boost only rich people’s wealth.
Oddly enough, I admit to having absolutely no idea what the proper percentage of wealth in the hands of the top 1% should be. My guess is that considering their wealth tends to be invested into productive assets, that the optimal number is larger than our intuition would suggest, and that in a dynamic market it would go up and down over time.
I guess whether or not the 1% of the 90s are the same 1% of 2020s is only relevant if the “stickiness” of being extremely wealthy is important. i.e. social mobility issues of wealth distribution. But one could also have other objections to extreme nonuniformity of wealth distribution regardless of social mobility. I don’t know what those objections would be, but there seems to be a growing sector that objects to extreme concentration of wealth regardless of turnover and social mobility. Something about justice or morality or both.
I personally think there is enough stickiness to wealth that I’d be worried about social mobility issues, the despair that comes with facing one’s dim chances in life, if you’re at the bottom 10%. I think the desperation leads to all sorts of bad things, depression, addition, crime, etc, that take the fun out of it for the top 1%. Or I hope it does.
Maybe the 90s one-percenters don’t make it to the 2020s one-percentile, but
perhaps they are still inside the 10 percentile. Your wealth back then is a pretty strong predictor of your wealth now. And more tragically, your lack of wealth then, a strong predictor of your lack of progress today.
“Amount of churn higher than it was 30 years ago…”
When I read this I think the writer is trying to say something like “don’t be concerned about the 0.1% because people don’t stay in it. There’s more churn than there was 30 years ago.”
I am not sure this is true.
1985 Forbes 400 top 10
Sam Walton
Perot
Packard
Margaret Hunt Hill
Caroline Rose Hunt Shoelikopf
SI Newhouse Jr
DE Newhouse
Rockefeller
Hillman
Kluge
Helmsley
Buffett was at 12
1990 Forbes 400 top 10
Kluge
Buffett
Perelman
Hillman
Barbara Cox Anthony
Ann Cox Chambers
SI Newhouse Jr
DE Newhouse
Jay Pritzker
Alan Pritzker
There are 4 Waltons in the top 20
2015 Forbes 400 top 10
Gates
Buffett
Ellison
Bezos
Charles Koch
David Koch
Zukerberg
Bloomberg
Walton, J
Page
Other Walton heirs in the top 15
2020 Forbes 400 top 10
Bezos
Gates
Buffett
Ellison
Zukerberg
Walton, J
Walton, A
Walton, R
Balmer
Page
Kochs dropped to 13 (Charles tied with family of David)
Sorry, Arnold. I find too difficult to make sense of Tim’s post. For the past 60 years, I have been relying on national accounts for my work and I have found it quite difficult to relate the income of national accounts with income as reported by other sources as well as with wealth. I have yet to find a good, updated discussion of welfare, wealth, and income. I’d appreciate greatly your reference of the top 3 books or papers attempting to relate the 3 concepts.
Let me add that I think the most interesting issue about wealth and income distributions in the U.S. refers to how they are distributed across states. Given the attempts by rotten and corrupt democrats to fund their states and larges cities via the Treasury and the Fed knowing that their governors and majors will never payback, the submissive servants of those democrats will be able to enjoy income levels similar to the Soprano’s lackeys but without the risk of being killed.