Updated: "Who Rules America - An Investment Manager's 2014 Update on the Top 1%"

[Mo Money]

Updated: "Who Rules America - An Investment Manager's 2014 Update on the Top 1%"

I know there's a thread on the original version, but this is the rich-are-getting-richer 2014 update, which I did not see on the forum after a ER.org search. (If I'm wrong, flail me, dear moderator!)

Who Rules America: An Investment Manager's View on the Top 1%

 

[travelover]

According to this site, I'm in the top 4% and it doesn't include the value of pensions. Don't worry, be happy.

 

[robnplunder]

For me, the article's author lost credibility when he stated "So, overall, things are not looking better economically for 9 out of 10 Americans." That's not what I see. I wonder what other numbers he quoted are in suspect. But, I believe rich are getting richer.

 

[daylatedollarshort]

Thanks for posting the update. It was just as interesting as the original article.

 

[ejman]

My apologies but I call BS on the premise of that article. I am certain that many posters here have achieved membership in the top NW percentages by virtue of LBYM and patient not panicked diversified low cost investing over a long period of time from adequate but not exorbitant salaries - not by minimum earnings far in excess of $400K a year as seems to be the requirement as I understand the article.

 

[Andre1969]

Here's one particular paragraph that triggers my BS radar...

"The years 2009-2012 saw an enormous transfer of wealth upwards to the top 1% and, particularly, the top 0.1%. According to economists working with Census data at the Pew Foundation, from 2009 through 2011 (the latest available data), the net worth of the top 7% gained 28% while the bottom 93% dropped 4%. These wide variances were driven by gains in stock, bond, and real estate prices. Since the end of 2011, these markets have continued to climb, further enhancing wealth and income at the top."

Mmkay, I've heard that you need to have $1M in investable assets to be in the top 8% nowadays. I'm not quite there yet. Well, looking at the period from 12/31/08 to 12/31/11, which I would presume means "2009-2011", my net worth has gone up 146%.

I think it's odd to put the dividing point at 7% and 93%. I'm guessing they tried to simply take the largest number they could, where the aggregate net worth went down. If they tried to break it at 6% and 94%, that extra 1% might have gained enough to wipe out the losses of the rest?

I don't like the fact that they treat that "bottom 93%" as one Borg-like collective mindset, and making it sound like everyone in that group is worse off than before. No doubt there have been plenty of individual winners in that group. Just as there have most likely been some losers in the top 7%, who were lucky enough to not loose too much, so they could remain in that group.

What's that old saying about lies, damned lies, and statistics?

 

[MooreBonds]

Here's one particular paragraph that triggers my BS radar...

"The years 2009-2012 saw an enormous transfer of wealth upwards to the top 1% and, particularly, the top 0.1%. According to economists working with Census data at the Pew Foundation, from 2009 through 2011 (the latest available data), the net worth of the top 7% gained 28% while the bottom 93% dropped 4%. These wide variances were driven by gains in stock, bond, and real estate prices. Since the end of 2011, these markets have continued to climb, further enhancing wealth and income at the top."

It's also telling with their subtle influence by picking that range of dates. Obviously, the top 1% (or whatever single digit percentage you wish to include) has a significant majority of their net worth in both real estate and/or investments, so whenever the market climbs, a lot of the gains will be going to those that have investments.

If the S&P/Dow climbs from Dow 6000 to Dow 14,000, it's obviously going to have a huge impact on everyone's investments. Not to mention that housing values have recovered.

But if the author took the data range of 1/1/2008 to 1/1/2011, I'm quite sure the massive wealth increases would be slashed down to a far lower number.

The other fact that always gets ignored is that the "top x%" is never a lifetime membership. People enter/leave various income and net worth categories all the time. The top x% in 2009 is not the same membership as the top x% in 2011 or in 2014 or in 2020.

Now, if the author REALLY wanted to do a good study, they could consult the top 1% in the Soviet Union during the Cold War. Or in Cuba. Or in North Korea. Or Iraq under Sadaam Hussein. THAT would be an interesting article to compare to the US.....if they were truly interested in looking at wealth distribution, and how fair the US is!

 

[haha]

This is just more populist class baiting. What else would you expect from a sociologist at UC Santa Cruz?

 

[marko]

This is just more populist class baiting. What else would you expect from a sociologist at UC Santa Cruz?

+1 Wha, wha, wha.....

The rich have been getting richer for, lets see...today is Saturday.....6,000 years!

 

[Mo Money]

Well, I'm glad I tossed in an article that stirs up spirited commentary!

 

[Texas Proud]

I remember reading an article back when Bill Gates had more money than a lot of small nations... and before he started to give most of it away...

They said that his net worth was more than the bottom 50% of Americans.... this was back when there were less than 300 mill people... so, he had more wealth than the bottom 150 million people...


Since most people under 25 have negative net worth.... they can have a big negative to overcome for the group that is barely over zero... I also bet if you look today it is similar....

 

[ERD50]

More selective data that I think someone who was predisposed to this train of thought would likely just lap up as 'proof' w/o question:

The CIA Factbook ranks the US as the 42nd most unequal country in the world, with a Gini of 45, and the OECD ranks it the 26th most unequal out of 33 developed countries. Most developed countries have Gini's in the high 20's to mid 30's, and even countries like Egypt (34.4) and Yemen (37.7) are more equal.

Hey, Yemen is more equal than the US! We should be so jealous of this statistic ! They put the US to shame!

So would a poor person in the US be better off in Yemen? Let's see (also from the CIA Factbook):

Yemen remains one of the poorest of the world’s low-income countries; more than 45 percent of the population lives in poverty. The influx of an average 1,000 Somali refugees per month into Yemen looking for work is an added drain on the economy, which already must cope with a 20 to 40 percent rate of unemployment.

And note that their definition of 'poverty' is adjusted for the country, it is far different from the definition of 'poverty' in the US. A World Bank reference seems to put a 46% number at less than $2/day.

So this is why I see articles like this as just 'preaching to a choir'. The numbers they present sound supportive to someone who wants to believe in these things, but the numbers lack context and are near meaningless.

Not to say there are not real issues that need to be addressed, but reports like this obfuscate the issues, rather than illuminate them. But pitchfork salesmen are all for it!


-ERD50

 

[target2019]

The statistics are what they are. Seems to be popular to align oneself with an interpretation of numbers to reconcile beliefs.

I know that I live in an area where the upper brackets are liberally represented. I view class stratification as a trend that has existed for a long time. There have been times when the trend reverses. Hopefully there will be increasing opportunity for all that need it.

 

[photoguy]

This is just more populist class baiting. What else would you expect from a sociologist at UC Santa Cruz?

I believe the sociologist is the publisher, the actual author is an investment manager. Still as publisher he would have significant bias in what he decides to reproduce and "baiting" helps one get eyeballs.

I didn't get much from the update but I found the original article interesting. It was somewhat like the millionaire next door except for people with >5M and who use an investment manager. All anecdotal of course.

 

[CaliforniaMan]

More selective data that I think someone who was predisposed to this train of thought would likely just lap up as 'proof' w/o question:



Hey, Yemen is more equal than the US! We should be so jealous of this statistic ! They put the US to shame!

So would a poor person in the US be better off in Yemen? Let's see (also from the CIA Factbook):



And note that their definition of 'poverty' is adjusted for the country, it is far different from the definition of 'poverty' in the US. A World Bank reference seems to put a 46% number at less than $2/day.

So this is why I see articles like this as just 'preaching to a choir'. The numbers they present sound supportive to someone who wants to believe in these things, but the numbers lack context and are near meaningless.

Not to say there are not real issues that need to be addressed, but reports like this obfuscate the issues, rather than illuminate them. But pitchfork salesmen are all for it!


-ERD50

+1 Very well said!

 

[Chuckanut]

IMHO, unless we preserve a strong middle class nobody is going to buy all that stuff the big corporations want to sell.

Free enterprise includes the freedom to fail, even if one is a big investment bank or an auto maker. Or even a powerful union that won't face the reality of a world economy.

 

[Gumby]

As a matter of philosophy, I believe that John Rawles' formulation is correct -- inequality is permissible (or just) if by permitting it we improve the plight of the least among us. As pointed out above, it's hardly any solace for a Yemeni to know that all of his neighbors are equally dirt poor.

In our modern free market economy, we need to allow some inequality to encourage people to work hard, save their money to generate a pool of investment capital, make good choices and take risks -- actions that benefit all of us. But, above a certain point, the unequal distribution of resources loses its beneficial effect. When you have more wealth accumulating in certain people than they can possibly spend or intelligently invest, the economy suffers rather than blooms.

I think that almost everyone, even poor people, intuitively understands that a certain inequality is necessary, beneficial and tolerable, even if they can't articulate it. But there are limits to that toleration. What really annoys people is not the idea that there is a 1%, but the increasing appearance that the plutocrats have captured the government and the commanding heights of the economy in a way that not only prevents anyone else from improving their lot, but actually increases the misery for many.

To analogize, I'm willing to accept the idea of lords and ladies living in the castle, warm and well fed in their cozy beds, so long as there is at least some possibility that I or my children might someday number among them. But when they've pulled up the drawbridge and barred the gate, and I know that I will never, ever be anything but cold, tired and hungry, then my thoughts turn to burning down the castle.

 

[marko]

To analogize, I'm willing to accept the idea of lords and ladies living in the castle, warm and well fed in their cozy beds, so long as there is at least some possibility that I or my children might someday number among them. But when they've pulled up the drawbridge and barred the gate, and I know that I will never, ever be anything but cold, tired and hungry, then my thoughts turn to burning down the castle.

You mean like when they overturned Czarist Russia, killed all the wealthy and created a "fair---to each their own needs" world? Don't recall that working out well.

Sorry, I just have a hard time buying into the "you can't win", the-system-is-against-you, victim mentality. Life isn't fair but it's not a zero-sum game, and I do believe that many (not all) can overcome and succeed.

 

[marko]

the increasing appearance that the plutocrats have captured the government and the commanding heights of the economy in a way that not only prevents anyone else from improving their lot.

Unfortunately, I can't find the statistic, but I saw somewhere that the "1%" who prevent anyone else from joining is a false argument. The data show that it is really a revolving door where you might be "1%" for four years and then fall off only to be replaced by someone else. Of course, the Waltons, Buffets and Gates are the exception

 

[Chuckanut]

But there are limits to that toleration. What really annoys people is not the idea that there is a 1%, but the increasing appearance that the plutocrats have captured the government and the commanding heights of the economy in a way that not only prevents anyone else from improving their lot, but actually increases the misery for many.

+1

A great example of that is the FCC. The current chairman was a lobbyist for the National Cable Television Association. A former FCC commissioner left her job at the FCC and a few months later took a job with Comcast after voting to approve the Comcast/NBC merger.

 

[razztazz]

As a matter of philosophy, I believe that John Rawles' formulation is correct -- inequality is permissible (or just) if by permitting it we improve the plight of the least among us.

Exactly. We only permit The Rich to be rich and have their property if it is agreed that doing so is in aggregate best for all of us. To the extent it fails to be good for everybody the property rights and thereby forfeited.

 

[haha]

Sorry, I just have a hard time buying into the "you can't win", the-system-is-against-you, victim mentality. Life isn't fair but it's not a zero-sum game, and I do believe that many (not all) can overcome and succeed.

This "can't win attitude" is so odd among a bunch of still young people who are very well off, and who don't have to work. And many of whom brag about how poor their parents and ancestors were. I sounds to me like the opposite of can't win.

I guess societies just get tired and self-immolate from time to time.

Ha

 

[TimSF]

When I glanced at the following sentence, I realized the article was a puff piece and not worth reading: "If an average physician today is unlikely to make it into the top 1%, then it seems pretty clear that crossling that line via income, savings, and investments will be impossible for nearly every American in the future." Um, yes, 99% of future Americans will not make it into the top 1%. Geez.

 

[Gumby]

Unfortunately, I can't find the statistic, but I saw somewhere that the "1%" who prevent anyone else from joining is a false argument. The data show that it is really a revolving door where you might be "1%" for four years and then fall off only to be replaced by someone else. Of course, the Waltons, Buffets and Gates are the exception

That may well be true; I don't know. But what I do know, from long observation, is that for most people what they believe to be true is more important than what is really true. That is why my post said ". . . the increasing appearance that . . ." It actually may be the case that most people who work hard enough and make wise choices can "overcome and succeed" (as you put it). I have serious doubts about that theory, but I'm sure you sincerely believe it. But knowing that you were right will be scant solace when the castle is going up in flames with you inside.

Let me give you some context for my remarks. The young wife and I have for a number of years now enjoyed a place among the top 1% in income and, more recently, in wealth.* Yet I was born to teenaged high school dropouts and grew up in poverty, living in a variety of trailer parks and cheap, often dilapidated apartments. I went to generally crappy public schools, sometimes several different ones in a single year, and was sometimes out of school for extended periods of time when my family moved around. I am the first in my family to go to college, and that was only possible because I joined the military. It has taken long years of very hard work, self-deprivation and wise choices to get where I am now. I am the example that validates your own belief, if you will.

At this point, I could easily sit back and condemn those who complain about rising inequality as whiners with a "victim mentality". After all, I made it here, why can't they? Yet I never forget that I have been incredibly fortunate along the way. I was born with abilities and interests that society values. People have helped me when they didn't need to. Opportunities have arisen at precisely the right time. Yes, I have made the most of them, but most people will never see those opportunities. For a poor kid, the path to success is a walk along a knife edge - one slip and it's all over. Kids born to wealthy families get many more opportunities to fail. There is a built in safety-net that catches them and sets them back on the path to a successful life.

I may be wrong, but I do see an increasingly self-contained world of the elite. They live separately, they work separately, they play separately, and they educate their children separately. It is an entirely separate reality, a gilded life where it is possible for a child to grow up and never know that poverty, illiteracy, hopelessness and despair are the norm for all too many people. Growing up like that, how could they not come to see themselves as normal, not privileged. And how could they not simply assume that if you don't have what they have, it must be because you are lazy, stupid or criminal. The better parents will ensure that their children see life outside the bubble and develop an appropriate appreciation for their own good fortune. But I have spent much time among them and have seen that all too many of those parents do not.

You don't have to apologize for being rich, Marko. I don't. But I do believe that mine is a path that most cannot follow. Looking around at our society today, it is my impression that social mobility is in fact dropping in the US, that more and more people are being squeezed out of the middle class, that the elite are becoming more and more distant, and that our government and our financial system are directly contributing factors. I think it is unhealthy for the economy and our democracy. Even setting aside any moral considerations, I care about inequality because when the flames come, they will burn the just and the unjust alike.



* Probably. There is some debate about the proper "entry point" for the 1%. This is an interesting discussion about that issue. How Much Money Does It Take To Be In The Top 1% of Wealth and Net Worth in the United States

 

[marko]

They live separately, they work separately, they play separately, and they educate their children separately.
s[/URL]

Well put and points taken, but I don't see how it is any different from any other time in history.

I just see a growing zero-sum resentment toward the wealthy along the lines of: "if you're rich, you made it on the backs/at the expense of the poor".

We've gone from an aspiration society to one of envy. I dunno...the very first time I saw a guy in a Rolls Royce, I said: "Man, I want to be him someday"...now people throw rocks at the car!