Tuesday, January 26, 2016

The 1% Have Now Surpassed the 99% in Wealth

Yes, that’s right. A report from Oxfam found that the top 1% of the world’s earners now has the combined wealth of the bottom 99%. Even worse, the richest 62 individuals in the world have as much wealth as half of the people on the globe combined. This trend has been ongoing since the 80s, but has accelerated dramatically in recent years. 

Free market advocates would argue that these individuals deserve the money they’ve earned and invest it in the economy to make us all better off. But that is inaccurate, as the accumulation of wealth in the hands of the few tends to lead to riskier investment behavior, dramatic waste and conspicuous consumption in cars, housing, fashion and the like, which have high profit margins but where there are fewer employees. 

Ben Southland of the Adam Smith Institute is among the critics of the report, claiming: “"More meaningful measures show greater equality. Those in the middle and bottom of the world income distribution have all got pay rises of around 40% between 1988-2008. Global inequality of life expectancy and height are narrowing too—showing better nutrition and better healthcare where it matters most. What we should care about is the welfare of the poor, not the wealth of the rich.” While I agree we should care about the welfare of the poor, this is highly correlated with the share of global wealth in the hands of the few.

It’s not a complicated argument, either. The more money amassed by the few, the less there is for the rest of us. Other economic booms have involved wealth creation, but more equally distributed across the population. That is no longer the case and many in the West actually have net-negative wealth, given their outstanding debt obligations. This is the result of relatively flat wages for the average worker, higher unemployment rates, inflation that is higher than reported by the official measures and increasing debt (particularly student loan balances).

So is there a solution to this problem? Of course there is! It involves returning to more progressive tax policy, expanding the earned income tax credit, putting limits on executive compensation, breaking up the big banks and expanding the “living wage” movement across the country and then globe. Workers have been increasing productivity over the past 30 years and profits have steadily risen (except during economic downturns), but the fruits of those increases have increasingly gone into the hands of the few. At the global level, we could take inspiration from the Nordic countries that not only have a higher average standard of living with high taxes and “big government” but higher life expectancy, higher happiness rates and, surprisingly to Americans, more income mobility. Addressing global poverty in the developing and underdeveloped worlds should begin with forgiveness of foreign debt and an end to the demands of “liberating” markets for foreign capital and competition.

If you are wondering whether you are among the lucky few, it takes $68,800 in savings to hit the top 10 percent and $760,000 to make that top 1 percent.

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