"As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending."
I'm pretty sure it isn't. The increasing power of technology is probably the biggest force driving variation in wealth, and I don't see any signs that technological progress is slowing.
The question is: in which country? The title of this article should really be appended with "in the USA", because the data doesn't consider foreign wealth.
Technology will continue to make people in Asia and India incredibly rich. Meanwhile, our markets are drowning in debt, the US middle class is shrinking, and the regulatory system is increasingly biased toward entrenched players in areas like intellectual property and finance and international trade. I wouldn't be surprised if it's getting harder to make money in the US, and easier in other places.
The "middle class" now consists of virtually the entire population. Even the people classified as "poor" by the government now have more material goods and services than the middle class even a short time ago (e.g., 1970).
Probably the most correct comment here...but also not quite right. The middle class in America, or to be more precise, almost everyone who hasn't gone to great lengths of destructive excess to ensure their life is screwed up (as opposed to actually going out of their way doing something worthwhile) has pretty much the highest standard in the history of the world. You can buy an awesome, huge LCD TV for $1000, DVD player for $69 ($169 if you want BluRay), a great shirt for $10, or pair of jeans for $40, shrimp for ~$8 / kg or less in the grocery store (who knows whats in it though), etc
And all of this is unearned...people in China, Thailand, Malaysia, etc are working 70+ hours a week in exchange for next to nothing, enough to live on and a bit. And here in the west, we buy the fruits of their labor for pennies on the dollar, and all of our energy is expended on building nicer homes for ourself, or services (massage, nails) with no lasting value. All we have to do is push a button on a computer to print money and sent it over there, and for some reason they keep sending us manufactured goods. It's really quite amazing.
You can buy a Coca Cola made from sugar vs corn syrup and in a bottle vs a can. However, going from rich to supper rich does not let you have even better Coca Cola.
The article points out that variation in wealth began to increase when the top personal income tax rate dropped under Reagan from 70% to 35%, thereby making it far more feasible for individuals to capture great personal wealth. (If you think 70% is high, during the great expansion of the middle class post WW II the top tax rate was 93%. Coincidence?) There have been a number of signals from the Obama administration that they wish to increase the top personal income tax rate. If they increase it enough, then wealth variation WILL come down. Increasing power of technology or no. The only questions are how high they would have to raise taxes to do it, and whether they will do so.
That said, the economic value created by the increasing power of technology is a great driver of wealth, and will remain so for some time to come. But government policy can certainly create a "headwind" that is sufficient to reduce the number of great fortunes created.
The two are related, though. The decrease in tax rates was one of the main causes of the increase in startups, and if higher taxes made it harder to get rich from a startup, fewer people would do it.
Also, people in mid-century were richer than statistics indicate:
Deductions tend to grow over time as lobbyists tweak the system. Yes, they always point to loopholes closed..while opening 5 more. So historically there were fewer deductions to go with the higher rates. So including deductions makes the picture even more stark.
Which brings me to my favorite tax deduction ever. If you go back to the 50s, the most useful tax exemption available to the rich was that if they donated at least their annual income to charity then they didn't have to pay taxes. (This was called the flying nun exemption because the law was passed for a very rich nun who was sworn to poverty and hence donated her whole income to the church.)
How on earth was that useful? Well donations were valued at current worth, not what you paid. So invest large amounts in assets of increasing value (eg art), then a few years late donate the asset to a charity. Asset valuation could be made to grow by the simple expedient of donating large amounts of money to a charity you ran so that it could afford to buy a piece of artwork from you at inflated value. Then that set the valuation for the other pieces of art you chose to donate.
If you've ever wondered how art wound up costing so much, and how America's great public museums acquired so much of it, wonder no more.
> So historically there were fewer deductions to go with the higher rates.
Not so fast. (You even provided a counter-example.) It's no where near that clear-cut.
The Reagan tax cuts were accompanied by a huge reduction in deductions. (One of the biggies was the elimination of the deduction for personal interest.) The result is that how you made and spent your money became less important in how much you got to keep.
We are seeing more "no taxes for {specific company}" shennanigans now, but they're a different class of chicanery as they're basically payoffs to specific people.
You would need to show incredible evidence for this -- the distribution of America's wealth has fluctuated greatly over the last century, and can be clearly linked to government policies, social trends, etc., and certainly has not been constantly shifting towards the wealthy, nor were the 40s to 70s devoid of technological development. (You could argue the last three decades eclipsed them, but I would have to see that argument.)
More generally, throughout history, the growth of the middle class has clearly been a key driver of consumer technology.
Completely agreed based on the fact that we are seeing new technologies and new uses of technologies impact the amount of wealth available. Think of all of the money that Google is generating? Where did it come from? Did it exist before Google? Is that money being taken from somewhere else or is it new money?
I'm not sure exactly what new information we're supposed to get from this article: obviously, when the stock market busts, those with the highest exposures to it are going to be hurt more in percentage terms than those with very little exposure. That this has happened does not indicate any systemic change that's likely to alter the overall concentration of wealth.
There are potentially some such systemic changes occurring, of course - the middle-millionaire worker bees in the finance industry (particularly the gamblers...oops, I mean traders :) ) are probably going to see a leaner few years ahead. But the more normal pieces of our economy, where wealth is gained via production instead of positioning, are not changing in any fundamental manner.
Re: your comment, I just re-read http://www.paulgraham.com/gap.html, and it brought up a very important point regarding distribution of wealth, one that I'd not considered before. It's a real shame that we don't have any numerical way to measure overall wealth level across time periods, all we can do is measure relative distributions at a single time. Trivially, there's got to be an ideal distribution of resources at a given time that will maximize the expected value of total wealth as we move forward (this is true even if that "total wealth" number is calculated with some penalty for massive inequality).
But what I hadn't considered before is that this optimal distribution may change significantly as the baseline rises.
The usual assumption, one I've been guilty of in the past, is that a constantly shifting distribution of wealth implies that even if we hit that optimum, we're going to move right past it. But it's quite possible that with the leverage of technology coming into play, the distribution that optimizes overall wealth could continue to concentrate a higher and higher percentage of said wealth in fewer hands, and the "steady state" equilibrium that the physicist in me is desperate to solve for is actually shifting upwards over time.
I wonder if there are any existing economic models that explicitly account for this effect (not an economist, so I'm not sure); it would be very nice to have a realistic model to see concretely the means by which an income gap might not be such a bad thing for everyone, and to be able to see the relative effect of controlling that gap via taxes. After all, if the net effect of chopping half the income of the top 0.01% of earners is only to reduce the net economic output by .5%, many people would find this to be a fair tradeoff, since there is some societal utility in equity. But if it's going to reduce overall output by 5% to do such a thing, forget it, we're all going to be worse off in the end.
<sarcasm>I bet they reprinted this article and substituted 1999 with 2007.</sarcasm> Comparing a 30 year trend vs. a 2 year trend is a bit short sighted, especially when there were other dips in some previous years when the rich were on the rise.
This article is very naive and poorly researched. Obviously there are less people with a net worth of over 30 million now!?!?!? Hmm I wonder why?
Obviously mcdonalds workers are not invested in large corporations, so when equities fall rich people get hit, but this doesnt mean the end of rich people.
I guess this is why the NYT might be going bankrupt soon itself.
Fair comment, but just how tangible was that $100mm valuation? McAfee anti-virus software appears to have grown primarily through paying for pre-installed trial version placement on new pcs - not through being a 'better product'.
Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group
because everyone in the fucking world still believes in zero-sum mercantilism. people are only a couple hundred years behind. maybe in another 50 years the marginal revolution will finally seep into the public conscious.
the concept of everyone getting richer or everyone getting poorer is completely alien to most people.
I think you make a good point, though it seems to me that Congressional Democrats (and their voting base) are more enamored of handing the bill to the wealthy than the White House, which has a good few pragmatic people in it.
Sadly, factual statements on political matters often alienate both sides in the debate - without context, they may assume the worst about your motives.
They're voting you down, at least in part, because you're personalizing and over-simplifying the debate. Had you said:
"This is bad for the current health care proposals that are working their way though congress, because they tend to rely on taxes on upper-income citizens"
you would have communicated the same point, and sounded much less like a troll.
I'm pretty sure it isn't. The increasing power of technology is probably the biggest force driving variation in wealth, and I don't see any signs that technological progress is slowing.