

The Wealthiest 5% Grabbed Most of the America’s Gains  - privacyguru
http://blogs.wsj.com/wealth/2011/09/16/the-top-5-grabbed-most-of-the-americas-gains/

======
ender7
It's easy to start filtering yourselves into the camps of "the rich are too
rich, tax them!" or "the rich earned their money, you have no right to take it
away!". Then you can yell at each other from across great echoing divide until
the sun grows dark.

The sad fact is that America is no longer a country that makes things, and as
a result we no longer find ourselves in a position to employ people in
positions that are actually worth a damn. Or that pay a salary worth a damn.

We still make some things. Software. Circuit designs. Entertainment. Product
design (to sell things to ourselves). Pharma. People who work in these areas
are paid well.

Oh, and the financial industry. Which, despite demonstrating a wonderful
ability to make itself mountains of cash, has failed to demonstrate how it
benefits the rest of the country. (obviously, its ability to provide lines of
credit is valuable, but we had that long before investment banking came to
dominate the entire financial industry)

I remember reading Snow Crash for the first time and coming across this line:

    
    
      There's only four things we do better than anyone else: 
      music 
      movies 
      microcode (software) 
      high-speed pizza delivery
    

and thinking "what an alien dystopia that future must be".

~~~
webwright
More data: <http://en.wikipedia.org/wiki/List_of_countries_by_exports>

The US is the #3 country in terms of exports.

~~~
pbsurf
[http://en.wikipedia.org/wiki/List_of_countries_by_current_ac...](http://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance)

Scroll all the way to the bottom.

~~~
enjo
What does that have to do with anything?

~~~
sologoub
Short version: We buy more than we sell. Wealth is being transferred out.

Long version: It means we import way more than we export... In other words, we
buy from others a lot more than we sell to others. In theory, this would
create a strong downward pressure on US dollar, but as it is the reserve
currency of the world and is backed by giant consumer economy that everyone is
selling into, as well as US military might, the pressure is negated.

Some economists argue that this is extremely unhealthy and is unsustainable.
I'm not qualified to say if it's true or not. One thing I would say, is look
at most countries with a huge positive balance - most are oil producers or
cheap(er) labor sources for less skilled stuff. Notable exceptions here is
Germany. In fact, Germany is very luck that the rest of Euro zone likes to
spend profusely. If not for those other countries dragging the Euro down,
their currency would have appreciated exponentially, making their exports way
too expensive.

~~~
yummyfajitas
Wealth is being transferred in - it is _money_ that is being transferred out.
The net result is that we are trading China some green pieces of paper for
flat screen TV's.

I like my Chinese-made laptop more than green pieces of paper, so it sounds
like a win to me.

~~~
stouset
Unfortunately, on the macro-scale, we've run out of green pieces of paper and
are actually just issuing them IOUs at a higher value than the cost of the
goods.

In layman's terms, we're cashing out our hard-earned savings for meaningless,
disposable trinkets. It isn't going to last, and when it's over, it's going to
_hurt_.

------
callmeed
I know this is wealth and not income, but I get sick of the media (and
politicians) using the "top 1%" or "top 5%" label.

When it comes to income, the top 1% includes an attorney making $250K and a
hedge fund manager making $10M. I imagine its similar for wealth. My guess is
that distribution curves spike somewhere past the 1% mark.

Maybe I'm biased because I barely make the cut and don't want to pay more
taxes, but it seems odd to use such an arbitrary cutoff for reporting and
(especially) policy decisions.

And please tell me if I'm wrong or off here–I'm geniunely interested in this.

EDIT: downvoted? Seriously?

~~~
samfoo
If you only barely make the cut, you'll only be paying barely more in taxes.
Only your income above the cut is taxed at the higher rate. It's not like if
you make $239,999 and you get one more dollar in income you lose money. Only
that dollar is taxed at the higher rate.

~~~
sage_joch
This isn't something that's communicated very well in our society. I didn't
realize it until I actually did the math on the tax tables.

~~~
roel_v
It's not about being communicated imo, it's about most people not being
numerically literate enough to be able to understand (not saying you aren't,
just in general). I'm convinced that more than half of the population simply
isn't capable of truly understanding progressive taxation, just like they
cannot comprehend time value of money or similar things. When you spell it out
on a sheet of paper most people will say 'oh yeah', but they cannot really
internalize it, and never will.

Of course this is a problem, because how can you expect people to abide by law
they cannot understand? Worse, how can you communicate to people that they're
incapable of understanding without being (or even just 'coming across as')
condescending? I don't know, I don't have an answer. But when people like
this:
[http://www.nytimes.com/2009/05/03/magazine/03european-t.html...](http://www.nytimes.com/2009/05/03/magazine/03european-t.html?pagewanted=all)
show being absolutely oblivious to the mechanism (people who are for the rest
presumably quite intelligent, and who - _professionally_ \- spend quite a bit
of time on a piece like this), how can we expect the average citizen to really
understand?

I guess it's a recent problem too - just 50 years ago people just listened to
their banker about financial things and their doctor on medical things, and
believed whatever they said, but we've long passed that point.

------
noonespecial
Has anyone ever stopped to try to get an estimate of how much of these gains
this 5% have _created_?

I honestly have no idea what this number would look like but it must be non-
zero. Everybody wants to fit a picture of a fat, stupid, cartoonish banker
gambling away grandma's pension and getting a mammoth bonus into this slot but
how much is that the case? If the number's not zero, then its something. How
much?

Its not completely outside the realm of possibility that the 5% created nearly
_all_ of the gains and then only grabbed most. Net win.

~~~
shawnee_
Milton Friedman said that most fallacies in economic thinking were derived
from the "fixed pie" assumption: that one party can gain only at the expense
of another. In an ideal world, the pie would always be growing, and those
marginal increases in utility would spill over and everybody would increase
well-being gradually over time.

But that's not what happens.

The top 5 percent may create _some_ gains for the other 95, but their gains
that "trickle down" do so very, very selectively, and only go so far. Probably
the most obvious evidence that trickle-down economics doesn't work is this:

 _The share of wealth held by the bottom 60% dropped 7.5%._

When over half of the people are on the shrinking pie side of the table, it's
pretty tough to spell "Net win"

~~~
webwright
So the pie hasn't grown? I'm serious asking-- I don't know.

It it has, then it COULD be a net win. Example: Pie consists of $100. I (rich
guy) have $50, the rest of the folks (5 people) split the other $50, and have
$10 apiece. I cleverly invest abroad and double my money. I now have $100. The
rest of the folks invest less cleverly, and turn their $10 into $12. Their
share of the wealth declines, no?

~~~
0x12
In absolute sense (number of dollars) the pie grows and so does everybody's
share in the pie. But you have to take in to account buying power as well and
once you do that for lots of people their actual take drops.

~~~
noonespecial
But also remember that there are things they can buy now with those dollars
(even if they have less of them) that before they just couldn't.

They might be making less inflation adjusted dollars than their parents did in
the 70's working at the Ford plant, but how many 1970's dollars did it take to
buy an iPad, or laser vision correction, flat screen HD tv, cable with 500
channels etc etc? (1)

Steve Jobs is a billionaire. I make less programming than my dad did at my age
as a lowly salesman. But I have _so much more_. I'm OK with that.

(1) I don't mean what would the inflation adjusted price of the iPad be in
1975 or whatever. I mean all the money in the world in 1975 couldn't have
bought even one seeing as how they didn't exist and all. "The Pie" is more
than dollars.

------
Tichy
I usually defend capitalism, and I read and mostly agreed with PGs wealth
essay. But having seen pictures of how the poor live in the US (I am not from
the US), this just feels wrong. How much wealth do you really need? It is one
thing if everybody lives a happy live, and some people live in slightly bigger
houses by the seaside. It is another if lots of people live in squalor at the
same time.

I think some things should be rewarded. If you find a cure for cancer, you
deserve to be rich. But even then, maybe a couple of million $ would be
enough, even if what you gave to society is worth trillions. Perhaps related:
Joel Spolsky's article on how to compensate an intern who created a lot of
value for the company. Can't find the article atm, but I think he ended up
giving hardly anything. Cancer researchers are just interns of society, when
seen from space.

~~~
learc83
I'd be interested to know where you saw these "pictures".

There's a group of people who like to paint the picture that the US is
devolving in to a Dickensian nightmare. There is always room for improvement,
but as someone who lives here and has traveled extensively I don't think you
can say that "lots of people live in squalor".

Sure, we have 300+ million people, so you can find people who are homeless and
living on the street, but that would still be the case even if the government
offered unlimited free housing.

~~~
Tichy
I saw them on German TV, and OK, maybe also in Michael Moore's movie (not
sure, I watched it recently but I am foggy about the details). For example
there are pictures of the tent cities that emerge.

To be honest lots of stories from the USA sound disturbing, but then again I
can not claim to know every corner of Germany. Perhaps there are lots of
people living in squalor here, too.

~~~
learc83
I have traveled very extensively through the US (still, there are plenty of
places I haven't been). From my experience, you'd have to look very hard to
find what I'd classify as a tent city.

That being said I know where one is and I've been there working with a local
church organization. It's in the woods behind a local shopping center, and at
any given time there are about 15-20 people living there.

The church helps out the best they can, but the vast majority of the men
living there wouldn't leave if they were offered free housing. Most of them
have mental issues, and the only way to really get them out would be
involuntary commitment.

In short, it's ridiculous to find a tent city somewhere, film it, and use it
to claim that America is devolving into Calcutta.

~~~
Tichy
I am not sure if I trust your research. How have you traveled - did you seek
out poor places? I don't think tent cities emerge at the typical tourist
locations.

Are you saying that there is no problem in the USA, no financial crisis etc?
Because I have been hearing other things - but I know the media likes to hype,
too...

~~~
learc83
Yes, plenty of the places I've gone have been by plane, to tourist locations.
However, I've travelled extensively by car throughout the middle to lower
sections of Georgia and Alabama (fairly poor areas).

I'm fascinated with how technology has changed rural life, so I like to visit
small towns just to observe. For instance 10 years ago I noticed fairly
substantial differences in the way teenagers from rural areas dressed compared
to suburban teenagers (i was a suburban teenager at the time). Now the
differences, in apparel are closing rapidly. Also, when I was a kid and the
Nintendo 64 came out but everyone was out of stock. All you had to do was
drive to some small town (Hazlehurst, GA) Walmart to find one. Now because
everyone is so connected, that same Walmart had a line out the door on the day
the PS3 was released.

I'm also the type of person who likes to go to a city with no plan in mind and
just wing it. A few friends and I, went to New Orleans about 2 years after
Katrina, we got a hotel near Bourbon Street, but we spent most of our time
just walking. We walked for miles, covered a huge part of the city, and
definitely ended up in some places where we probably shouldn't have gone.

In summary, yes I've definitely been in places where one would expect to find
tent cities.

I'm not saying they don't exist, but if you do find one, it's likely to be
just a handfull of people living in the woods, not what I'd really call a
"tent city."

Also there is a problem in the US, there is a financial crisis, but the
average person gets up everyday and goes to work. They may be worried about
the economy, but no more than the other stuff the 24 hour news warns them
about (you know--child murderers, plagues, terrorists etc...)

------
prostoalex
Most of the US wealth is ephemeral and is tied up to the real estate market.
The poorer one is, the greater proportion of personal wealth is tied up to the
value of their real estate.

If you started off wealthy before the real estate crisis, and just stayed in
cash, your wealth in absolute terms would decline slightly as your house lost
value and your super-conservative cash holdings earned you 0%.

In relative terms the guy who bought with no money down, easy mortgage
guaranteed is now seeing his total wealth delta in severe red, so yeah, the
wealthy ones are seeing their proportion rise by staying stable.

------
hammock
Before jumping all over the rich, consider whether you are one. For example,
if you earn $100k or more per year, you are IN the top 5% of income earners.
And if you have a total net worth of ~$200k or more, you are IN the wealthiest
top 5%. Easy to imagine that many HN readers are in these boats.

~~~
jeffreymcmanus
Not even close. A $100,000 income puts you at about the 75th percentile, not
the 95th.

[http://en.wikipedia.org/wiki/File:United_States_Income_Distr...](http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg)

~~~
stephenbez
As the legend states, the graph shows family income not individual income. If
you and your spouse both earn $100k, you'd be above the 95th percentile.

~~~
keithnoizu

       Ahh, if only i didn't have an english major for a live in girlfriend.

------
Terry_B
Not picking on this article in particular but whenever I read these types of
stories I get the feeling that people don't make a clear separation of these
two very different issues:

1\. The bottom is worse off relative to the top in terms of wealth than they
were before.

2\. The bottom is worse off in terms of wealth (quality of life) than they
were before.

People seem to imply 2 when they talk about 1. but they are very different
things.

~~~
sabat
But it's both, isn't it? Fewer Americans have health coverage, fewer Americans
have jobs, fewer Americans can stay in homes. What you hear people saying is
that #1 implies #2.

~~~
yummyfajitas
Apart from short term fluctuations during the recession, more Americans own
homes and health insurance coverage is roughly the same as it ever was.

<http://research.stlouisfed.org/fred2/series/USHOWN>

[http://en.wikipedia.org/wiki/File:U.S._Uninsured_and_Uninsur...](http://en.wikipedia.org/wiki/File:U.S._Uninsured_and_Uninsured_Rate_\(1987_to_2008\).JPG)

~~~
sabat
What you call "fluctuations" most of us call a downward trend. And the fact
that you think that it's "same as it ever was" is somehow a positive thing is
somewhat disturbing.

~~~
yummyfajitas
I made no claim that anything is positive or negative, I merely pointed out
that you are factually wrong on two of your points.

------
barmstrong
Some PG thoughts on distribution of wealth:

<http://www.paulgraham.com/gap.html>

~~~
klenwell
PG asks:

 _Why? The pattern of variation seems no different than for any other skill.
What causes people to react so strongly when the skill is making money?_

I'd offer this passage from Robert Wright's The Moral Animal as one answer.
This assumes the distribution of wealth serves as a proxy (inexact, even
inaccurate, perhaps, but functional) for the distribution of access to sexual
resources among males:

 _Men have long competed for access to the scarcer sexual resource, women. And
the costs of losing the contest are so high (genetic oblivion) that natural
selection has inclined them to compete with special ferocity._

[http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1...](http://books.google.com/books?id=MuI_DVZ1Xo8C&lpg=PP1&dq=moral%20animal%20wright&pg=PA100#v=onepage&q=%22inequality%20amoung%20males%22&f=false)

So the argument goes something like this:

Material resources (wealth) provide access to sexual resources and
reproductive success (any organism's raison d'etre). An organism hard-wired to
persist its genes will probably also be hardwired to recognize the existential
threat presented by unequal access to the resources required to persist its
genes and take radical action to avoid it. Since among most animals (including
humans), females make a greater biological investment, they enjoy the
privilege of selecting among males, preferring those with resources to best
provide for their offspring, which puts males in the position of scrabbling to
accumulate the resources necessary to win the affections of a mate.

That probably leaves out a few necessary premises, but if you're not familiar
with the argument, hopefully you at least get the picture.

Wright makes the point that a society in which there is such radical
inequality of wealth that a significant number of men have not the resources
to attract a mate, settle down, and marry, also tend to be the most violent
and unstable.

If you had a society in which there was radical inequality of wealth, but not
radical inequality of access among young males to mates, you would expect less
instability. But allowing for the shortcuts in reasoning that evolution might
encourage, you'd still expect some. And as various behaviorial economic
experiments have demonstrated, humans seem to have a tendency to reason about
fairness in relative rather than absolute terms. So in such a society, you'd
probably still have a greater threat of instability than one where there was a
more equitable distribution of wealth -- and, especially, the perception of
it.

~~~
rphlx
This is a Beta male view of female sexual selection: "if I can just get rich
enough, girls will like me".

The truth is that for the middle class and above, social intelligence, wit,
charm, "Game", and other characteristics matter as much, or more, than raw
financial net worth. Of course, these are often correlated, but there are
plenty of broke bikers, musicians, and womanizers doing quite well too, in
comparison to Aspie SW millionaires.

------
steve_b
Wealth != income as pg says in <http://www.paulgraham.com/wealth.html>.

I think wealth is more equal to total free time left on the planet. So total
time minus time spent working to provide things for survival minus time spent
surviving (like cooking, sleeping, running from lions). The washing machine is
invented, lots of peoples' wealth skyrockets. Food gets cheaper, people's
wealth goes up.

Looking at income is a short-sighted definition of wealth.

------
jeffreymcmanus
This is pretty damning when you consider it's being run by the Wall Street
Journal.

~~~
jeffool
WSJ, Economist, Forbes, none of these pull punches. You want a stark look at
these kind of numbers and the issues around them, they all provide it with no
hesitancy or softballing.

Don't be surprised when someone talks about the money they've made. They think
they have it rightly, just as many feel slighted. No shame in the game of the
wealthy.

~~~
cema
Just like it should be. Of all the "mainstream" publications, the financial
(and business-oriented) newspapers are the ones I distrust less, because in my
experience they tend to understand it is their interest to work with the facts
and real numbers.

------
aj700
I supported (absolutely past tense) capitalism on the basis that the right
people would end up with the money. Maybe they will. Waiting another 30 years
isn't on.

Things shouldn't go to people "according to his need".

But now things are going to people "according INVERSELY to his need".

Endless claim checks on future productivity are being stockpiled by precisely
those who have no need of 99% of that productivity. In many cases they also
have very little future, because they are old.

Politics is bought and paid for. People will not pay taxes. Inflation must now
be used as a regressive wealth tax of last resort. At least it transfers
purchasing power from the old to the young.

Poor people should, if they were intelligent, stop spending their disposable
income and use it to buy the thing that gives the best return on investment -
which is bribing politicians. And no, corporations aren't people, and money
isn't speech.

------
graiz
It drives me crazy when I see encoding issues in popular articles. Come on,
it�s embarrassing.

~~~
byoung2
Looks like it was composed in Word and copied into a rich text editor (without
using the paste from Word feature). It converts the double spaces to space,
&nbsp;, and doesn't convert the smart quotes.

------
linuxhansl
I am quite tired reading the top x%.

Many people living in the SF bay area for example technically belong to the
richest 3-5%... But cannot even afford a nice house here.

And with "nice" I do not mean a pool, 10 rooms. movie room, etc, but just
enough rooms for the kids and in a neighborhood with good schools.

Now I have a very liberal viewpoint, and above categorization mostly fits me.
Still I personally do not mind to be taxed a bit higher.

But all that talk about the richest 5% living the life of riches is just not
accurate.

~~~
Game_Ender
> But all that talk about the richest 5% living the life of riches is just not
> accurate.

It's relative. You seem to define rich as basically being able to spend
whatever you want and not have to worry about money. As another commentor has
stated, being able to own a home in an area like the SF bay area _is_ rich. It
is a very desirable area, with good climate, and jobs.

------
DanielBMarkham
Once again, this is a statistical aggregate. As difficult as it might be,
please do not picture a filthy rich old white Scrooge character stealing
cookies from poor orphans on the street when you read numbers like this. As
the author clearly indicates, these numbers are in relation to _averages_ ,
not real people. Movement between income groups is an area of current study,
but I've seen numbers as high as 40% moving from one statistical group to
another inside of a year. The rich may indeed be getting richer, but it may
only be a small percentage of them who stay in that group over a period of
decades. There might be many new arrivals and many people leaving each decade.

Of course, it's perfectly fair to say that the disparity is important whether
or not the same people are involved year-to-year or not. I'm not trying to get
into that part of the discussion. I'm simply trying to point out the
difference between stereotypes and averages and real, live people. There are
lies, damned lies, and statistics. (old joke)

~~~
hammock
One thing that has always bothered me about these reports is that they are not
longitudinal, as you point out. We say "the poor are getting poorer" but is it
the same poor person that got poorer, or did that poor person discover his
inner tycoon and move up while some terrible, lazy deadbeat took his place in
the income ladder? If it's the latter, would that not be considered a success
despite the fact that "the poor have gotten poorer"?

~~~
jbellis
In particular, "[immigration] disproportionately brings low-skill workers into
the U.S. instead of moving jobs abroad. As immigration increases the relative
supply of low-skill workers, the income of individuals at the 20th percentile
declines."

[http://www.frbsf.org/publications/economics/letter/2007/el20...](http://www.frbsf.org/publications/economics/letter/2007/el2007-28.html)

------
Hyena
Of course they did. As more gains are realized in capital rather than wages,
the rich will literally get richer. At the same time, it's becoming ever less
clear that many of them serve a useful purpose. Justifying executive pay is
losing ground in economic literature and, frankly, has always required
recourse to casuistry.

------
paulnelligan
I would say that the problem is systemic - you have two political parties
which are basically at eachothers throats the whole time, and a historical
belief in a very pure form of capitalism - money is the bottom line, and the
markets should govern themselves - the result? - all of the manufacturing has
moved abroad, effectively killing the working classes ...

Any attempts to change this system gets vigourously branded 'socialism' both
by the media (fox news) and by republican opposition which also has historical
connotations harking back to McCarthyism and the Cold War ...

I don't think this is going to change anytime soon unless we see some sort of
systemic collapse ... I would argue that this is possible ...

------
MarkPNeyer
divide (rather arbitrarily) the population into a few groups.

    
    
      very wealthy: anyone with net worth exceeding $10M.
      wealthy: anyone with net worth between $1M - $10M
      upper middle class: anyone with net worth between $100k - $1M
      middle class:  anyone with net worth between $10 and $100k
      poor: anyone with  net worth < $10k
    

now let's make some overt generalizations!

the very wealthy seem to fall into one of two groups: successful business
owners and venture capitalists on the one side, and bankers, traders, and some
classes of lawyers on the other.

the wealthy and middle classes all seem to consist of professionals and small
business owners, who have met with varying degrees of success.

the poor consist largely of immigrants, people living in impoverished urban
and rural areas, as well as people without a trained skill.

here's what i think is happening: a group of the very wealthy, mainly those on
the banker-trader-lawyer side of the divide, have this country by the balls.
they have accomplished this by having their politician friends (how many
politicians are former lawyers? and how many came from wall street? ok, now
how many are former business owners or venture capitalists?) convince the poor
that the "rich" are responsible for their plight. to fix this problem, they
propose raising taxes on the "rich."

this proposal invariably means raising income taxes, which the very wealthy
rarely pay because their income is mostly in the form of capital gains. the
democrats propose a tax raise, the poor vote them into power, and income taxes
go up. the wealthy and the middle class both feel like they're getting fucked,
probably because they are. so they fight back, saying they want to lower
taxes, reduce government spending, and cut social programs. the republican
party says they support these ideals, so they get this type of vote. once in
power, the republicans pass a tax cut on both income and capital gains taxes.
they also increase government spending, because, hey, why not, fuck you buddy.
the poor see this response and it confirms to them what the very wealthy have
been saying through their proxy politicians, so the fight goes on.

if this process is going to stop, we need a new word to describe the members
of the very wealthy who are contributing nothing but misery to the economy,
whether by gambling with other people's wealth and getting bailouts when they
lose, or simply by using the broken legal system as a weapon to extract wealth
from the venture capitalist / successful business owner side of the divide. if
we had a single word to embody this concept, i think more people would become
aware of the distinction between the 'productive rich' and the 'destructive
rich' and we could fix the problem. since 'destructive rich' isn't exactly
catchy, i propose we call those people 'dicks.'

~~~
ryanlar
There's a a real word for this. 'Plutocrat.' A member of the 'plutocracy': a
government controlled by the wealthy.

If we had a flat tax (say, 20% on both capital gains -- short and long term --
and income tax), we wouldn't have any of this nonsense. But then, we'd have a
lot of out-of-work lobbyists (read: politicians in 'retirement') and people
who work for non-profits and charities...

~~~
MarkPNeyer
i would argue plutocrat doesn't have a ring to it, and makes the user sound
like onna them lib'ral elitists

------
charlesju
There are a lot of stats everywhere. Here is one I like. The top 1% pays for
38% of all taxes. The top 10% pays 70%. If I showed you this stat, you would
lean on taxing the poor more, but that isn't right either. Everyone should
look at the problem in aggregate and decide for themselves what is fair for
our system as opposed to analyzing individual stats and extrapolated analysis
from that alone.

<http://ntu.org/tax-basics/who-pays-income-taxes.html>

~~~
danssig
>If I showed you this stat, you would lean on taxing the poor more

No I wouldn't. The ones who are getting most of the benefit should be paying
the most for the service.

