Top 1% Up $21 Trillion. Bottom 50% Down $900 Billion.

[RVonse]

NYT-The Rich Really Do Pay Lower Taxes Than You

For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data.

The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.

For middle-class and poor families, the picture is different. Federal income taxes have also declined modestly for these families, but they haven’t benefited much if at all from the decline in the corporate tax or estate tax. And they now pay more in payroll taxes (which finance Medicare and Social Security) than in the past. Over all, their taxes have remained fairly flat.

The combined result is that over the last 75 years the United States tax system has become radically less progressive.

This has a LOT more to do with wealth disparity than not investing and saving enough IMO.

 

[laughing dog]

The fed basically has told me my whole working life that my dollars are going to get cheaper tomorrow. And that I am better off buying something real with them today, because after inflation those dollars are going to be worth less even with the interest added.

The Fed told you no such thing. It sounds more like something an idiot goldbug would promote.

No, the fed told it to me. $100 in 1976 at the start of my working career is now equivalent to $461.44 according to the CPI calculator here:

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=197601&year2=201908

Put in other terms, it now takes one dollar to buy what it took 20 cents. And with that kind of inflation that has always existed in my lifetime, Bank of America is paying a whopping interest rate of less than 1% now. There has never been an incentive to save in my lifetime living in the US. And certainly no incentive to save since leaving the gold standard in 1971. Which is why no one in the US saves.

In your initial analysis, you explicitly included “interest added” but your calculations exclude interest added. Which means they cannot possibly support your claim.

In addition, there have certainly been incentives to save on the USA during your lifetime. One can save via the exclusion from income tax the capital gains from the sale of one’s home, IRAs, 401ks are other examples of friendly tax treatment of saving.

 

[Loren Pechtel]

Put in other terms, it now takes one dollar to buy what it took 20 cents. And with that kind of inflation that has always existed in my lifetime, Bank of America is paying a whopping interest rate of less than 1% now. There has never been an incentive to save in my lifetime living in the US. And certainly no incentive to save since leaving the gold standard in 1971. Which is why no one in the US saves.

Which is wrong. You don't put your long term savings in the bank. There is plenty of incentive to save and in the long run those of us who do end up way ahead of those of you who don't.

 

[Loren Pechtel]

Koy, your links seems to be at odds with your post that I replied to.

How so?

You ranted about the big problem is people don't save money. Then you post a link and quote a source that says many, many people simply don't make enough money to acquire savings, living from paycheck to paycheck.

But far more people live paycheck to paycheck than truly don't have the money to save.

 

[T.G.G. Moogly]

When I graduated from college in 1976 I did so with very little debt. That was possible because if I worked a summer job at one of the local mills I made enough to pay for nearly all of my education. The rest came from grants. Being a college graduate then enabled me to continue to possess higher paying jobs throughout my life compared to someone without the sheepskin.

The point is that the sheepskin was cheap compared to today. Today that same low class bum like me doesn't have the opportunity to graduate debt free just by having a decent paying summer job. It's really stacked against people just like me today.

But I'm 65 now and pretty set. The young people setting out today don't have the same opportunity by a very, very, very long shot. The reason is simply that income (wealth) is not redistributed like it used to be.

 

[RVonse]

You don't put your long term savings in the bank.

Where else except a bank or credit union do you put your savings Loren? Its either the bank or you can buy a government T-bill. Over a long haul, a dollar in a safe and liquid savings account will not be worth much (inflation adjusted) today.

Purchasing a home, stocks, bonds, and your other assets are not savings. Yes, they are long term investments subject to being taken away by an exwife or the IRS, but they are NOT savings.

 

[RVonse]

When I graduated from college in 1976 I did so with very little debt. That was possible because if I worked a summer job at one of the local mills I made enough to pay for nearly all of my education. The rest came from grants. Being a college graduate then enabled me to continue to possess higher paying jobs throughout my life compared to someone without the sheepskin.

The point is that the sheepskin was cheap compared to today. Today that same low class bum like me doesn't have the opportunity to graduate debt free just by having a decent paying summer job. It's really stacked against people just like me today.

But I'm 65 now and pretty set. The young people setting out today don't have the same opportunity by a very, very, very long shot. The reason is simply that income (wealth) is not redistributed like it used to be.

I blame that on the government giving out loans too easily. Which has made it too easy and convenient for everyone to go to college. Which in turn has caused colleges not to have to be competitive with their prices. Just like the health industry, it is the price of the actual service that is the problem. College is too expensive right now.

 

[DBT]

I think it comes down to position and circumstance, those who have aptitude for business, perhaps an inheritance, and the opportunity to profit will take a larger piece of the Economic Pie than those who don't have don't have these advantages. Then comes ever growing disparity, a society of haves and have nots, lives of luxury for some and varying degrees of struggle for the rest.

 

[ZiprHead]

When I graduated from college in 1976 I did so with very little debt. That was possible because if I worked a summer job at one of the local mills I made enough to pay for nearly all of my education. The rest came from grants. Being a college graduate then enabled me to continue to possess higher paying jobs throughout my life compared to someone without the sheepskin.

The point is that the sheepskin was cheap compared to today. Today that same low class bum like me doesn't have the opportunity to graduate debt free just by having a decent paying summer job. It's really stacked against people just like me today.

But I'm 65 now and pretty set. The young people setting out today don't have the same opportunity by a very, very, very long shot. The reason is simply that income (wealth) is not redistributed like it used to be.

I blame that on the government giving out loans too easily. Which has made it too easy and convenient for everyone to go to college. Which in turn has caused colleges not to have to be competitive with their prices. Just like the health industry, it is the price of the actual service that is the problem. College is too expensive right now.

Which came first, the rising college prices or the loans. You seem to feel it was the loans. I don't know.

 

[laughing dog]

Purchasing a home, stocks, bonds, and your other assets are not savings.

You are very much mistaken. Purchasing any asset is a form of saving since it is to postpone consumption until a later date.

 

[T.G.G. Moogly]

When I graduated from college in 1976 I did so with very little debt. That was possible because if I worked a summer job at one of the local mills I made enough to pay for nearly all of my education. The rest came from grants. Being a college graduate then enabled me to continue to possess higher paying jobs throughout my life compared to someone without the sheepskin.

The point is that the sheepskin was cheap compared to today. Today that same low class bum like me doesn't have the opportunity to graduate debt free just by having a decent paying summer job. It's really stacked against people just like me today.

But I'm 65 now and pretty set. The young people setting out today don't have the same opportunity by a very, very, very long shot. The reason is simply that income (wealth) is not redistributed like it used to be.

I blame that on the government giving out loans too easily. Which has made it too easy and convenient for everyone to go to college. Which in turn has caused colleges not to have to be competitive with their prices. Just like the health industry, it is the price of the actual service that is the problem. College is too expensive right now.

Which came first, the rising college prices or the loans. You seem to feel it was the loans. I don't know.

It doesn't matter. The key to success is having money. For most of us that means a decent paying job or business, which means for most of us it's a decent paying job. And wages are stagnant compared to decades ago so in effect there are a lot more jobs but most of them do not come with decent pay or compensation such as when I was young.

Most people starting out will never have the opportunity I had, which was actually less than my parents had at my age. Even I could see that coming thirty years ago.

 

[Koyaanisqatsi]

Here is an excellent article that goes into the meat of the issues: Why We Need to Stop Obsessing Over CEO Pay Ratios. Try to ignore the title (or the fact that it’s published by Harvard Business Review).

Snippets:

The numbers are striking. In 2015 U.S. CEOs earned 335 times the pay of the average worker. In the U.K. they earn 129 times more; the High Pay Centre marked “Fat Cat Wednesday” (January 4, 2017) as the day by when a CEO has already earned more than an average worker earns in the entire year.

This ratio is the number one piece of evidence that executive pay is excessive and the number one statistic that advocates of pay reform argue should be fixed. Accordingly, the Dodd–Frank Act is forcing U.S. firms to disclose this ratio from this year; the U.K. is contemplating similar legislation. The world’s largest investor, BlackRock, wants to move beyond simply disclosing pay ratios, to capping the ratio of some forms of pay. It recently wrote to over 300 UK companies to say it would only approve salary increases for top executives if worker wages increased by a similar amount.

The idea is that a high pay ratio is unfair. It indicates that the CEO is being disproportionately rewarded, supposedly at the expense of other workers. Forcing disclosure will shame firms into lowering the ratio; investors, customers, and employees can boycott firms with overpaid bosses.

I strongly believe that executive pay should be reformed. My own research demonstrates the substantial benefits to firms of treating their workers fairly. However, disclosure of pay ratios may have unintended consequences that actually end up hurting workers. A CEO wishing to improve the ratio may outsource low-paid jobs, hire more part-time than full-time workers, or invest in automation rather than labor. She may also raise workers’ salaries but slash other benefits; importantly, pay is only one dimension of what a firm provides. Research shows that, after salary reaches a (relatively low) level, workers value nonpecuniary factors more highly, such as on-the-job training, flexible working conditions, and opportunities for advancement. Indeed, a high pay ratio can indicate promotion opportunities, which motivates rather than demotivates workers. A snapshot measure of a worker’s current pay is a poor substitute for their career pay within the firm.

The pay ratio is also a misleading statistic because CEOs and workers operate in very different markets, so there is no reason for their pay to be linked — just as a solo singer’s pay bears no relation to a bassist’s pay.
...
The same argument does not apply to average workers. A CEO’s actions are scalable. For example, if the CEO improves corporate culture, it can be rolled out firm-wide, and thus has a larger effect in a larger firm. One percent is $20 million in a $2 billion firm, but $200 million in a $20 billion firm. In contrast, most employees’ actions are less scalable. An engineer who has the capacity to service 10 machines creates, say, $50,000 of value regardless of whether the firm has 100 or 1,000 machines. In short, CEOs and employees compete in very different markets, one that scales with firm size and one that scales less.

In addition to creating misleading comparisons between firms of different size, the pay ratio is not comparable across different industries. It is lower in investment banks than supermarkets — but that’s because midlevel bankers are paid well rather than because banking executives are paid poorly. Even within an industry, average pay depends on which countries a firm operates in and its mix of capital and labor.

Thus, I fully share the aim behind pay ratios, which is to consider other stakeholders. But this aim is best achieved by encouraging CEOs to increase the pie for all, rather than shrinking CEOs’ share of the pie. The best way to do this is to link pay to the long-run stock price. Research shows that improving employee satisfaction increases the stock price by 2%–3% per year in the long run — that’s $400–$600 million in the average Fortune 500 firm, which is much greater than the amount that can be saved by reducing CEO pay.

Moreover, unlike the pay ratio, the long-run stock price takes into account other stakeholders, such as customers and the environment. Firms with greater stock-priced compensation beat their peers by 4%–10% per year, and implementing long-run stock compensation improves not only profitability and innovation but also the stewardship of customers, the environment, society, and, in particular, employees. Large-scale studies in both the U.S. and the UK have independently found that the pay ratio is positively correlated with long-term performance — pie expansion — due to either attracting talented managers or incentivizing them to grow the pie.

80% of CEO compensation comes from performance based bonuses, not from their salary. If the company does well, they get big pay days. If it doesn’t, they don’t relative to their payscale

Seeing some asshole we don’t know get a twenty million dollar performance bonus when the company is laying off workers definitely doesn’t look right and it’s obviously impossible to feel any sympathy for the guy, but it also means that he didn’t receive the $200 million he was supposed to get if the company had improved, because his bonus is performance based.

Again, I KNOW it’s cry me a river for someone to “only” be making $20M as a bonus, but just scale that down and consider that you were given the ability to make a $20,000 bonus, but instead, you fucked things up to the point where you’re only going to be given $2,000.

So, as before, how do we deal with positions in a firm that are not scalable in the same manner? When a CEO of a large company improves the bottom line by even the smallest percentages, the overall impact to the entire company can be huge—on the order of hundreds of millions of dollars in revenue. When a janitor in the same company empties a wastebasket, does that carry equal weight? How equal? What’s the metric?

Try to forget for one second that we’re talking about large amounts of money, because that is difficult to wrap your head around. I’m not saying this because I have such amounts—far the fuck from it—but because I’ve worked in high net-worth finance in NY for many years and dealt with a LOT of people who have such amounts. To them, it’s all relative, as in the above $2,000 to $20,000 analogy.

So let’s instead say we’ve got a CEO at the high end of the compensation ladder making $100K in salary and the potential to make an additional $400,000 in a bonus, but only if she increase the performance of the company overall by a certain percentage. And we have the lowest paid employee being a receptionist, who makes $10 K with an annual bonus that is basically just automatic, not really performance based, but let’s say it is and it’s potentially $1,000. Their job is to greet people and answer the phone.

And yes, we’re assuming the receptionist can survive on that amount—paycheck to paycheck.

Someone make a cogent argument as to why the receptionist should be paid twice that in salary—taken from the CEOs salary—and be given the possibility of earning a performance based bonus of $10,000 and exactly how that could be measured. What bonus performance does the receptionist do above and beyond their job function that would justify those amounts?

Again, we’re not talking about a more nebulous “the company needs to increase base pay to reflect society.” I agree. A living wage should be the base wage. So, take that as read and in our hypothetical the receptionist is earning a living wage. Why should the company go beyond that based entirely on the employee’s performance of their job?

And I’m not talking about a general goodness of their heart argument, where profit sharing is just a philosophy adopted by the President. I agree with that, but it’s not something that could be legislated.

CEO’s get more because they increase a company’s profits, an easily measurable metric. What is the like easily measurable metric justification for why a receptionist should get more?

 

[ZiprHead]

I strongly believe that executive pay should be reformed. My own research demonstrates the substantial benefits to firms of treating their workers fairly. However, disclosure of pay ratios may have unintended consequences that actually end up hurting workers. A CEO wishing to improve the ratio may outsource low-paid jobs, hire more part-time than full-time workers, or invest in automation rather than labor. She may also raise workers’ salaries but slash other benefits; importantly, pay is only one dimension of what a firm provides. Research shows that, after salary reaches a (relatively low) level, workers value nonpecuniary factors more highly, such as on-the-job training, flexible working conditions, and opportunities for advancement. Indeed, a high pay ratio can indicate promotion opportunities, which motivates rather than demotivates workers. A snapshot measure of a worker’s current pay is a poor substitute for their career pay within the firm.

They're doing that already.

And if they do that to hide their ginormous pay ratios, they are still being greedy fucks.

 

[Koyaanisqatsi]

I strongly believe that executive pay should be reformed. My own research demonstrates the substantial benefits to firms of treating their workers fairly. However, disclosure of pay ratios may have unintended consequences that actually end up hurting workers. A CEO wishing to improve the ratio may outsource low-paid jobs, hire more part-time than full-time workers, or invest in automation rather than labor. She may also raise workers’ salaries but slash other benefits; importantly, pay is only one dimension of what a firm provides. Research shows that, after salary reaches a (relatively low) level, workers value nonpecuniary factors more highly, such as on-the-job training, flexible working conditions, and opportunities for advancement. Indeed, a high pay ratio can indicate promotion opportunities, which motivates rather than demotivates workers. A snapshot measure of a worker’s current pay is a poor substitute for their career pay within the firm.

They're doing that already.

Some most definitely are. But why are they doing it? In order to game this new system.

And if they do that to hide their ginormous pay ratios, they are still being greedy fucks.

Yes, well, being a "greedy fuck" is not something that can be legislated away, unfortunately and there is nothing in the Dodd-Frank reform that I can find that penalizes companies for doing shit like the above, which only means there is more incentive for them to do the above shit in order to make it look like their pay ratios are lower than actual compensation rates would imply.

So we have a situation where poorly thought-out legislation--however well-intentioned--has arguably resulted in hardships for the very people it was intended to help. To be painfully and abundantly clear, that is NOT an argument in favor of deregulation; it's an argument in favor of smart regulation. The problem in this case is, what exactly constitutes "smart"? That is a genuine question that I am asking and not some esoteric or ironic point I'm trying to allude to or the like. I don't know the answer, but I can certainly see what isn't working.

And, again, it doesn't address the real issue, which is performance bonuses. Again, most CEOs don't have huge salaries. Most of the disparity comes from the fact that they get huge performance bonuses. Most are contractually set, but all any company would need to do to get around that is make them discretionary. And the incentive to do that is to attract the best people.

No Board hires morons just so that they can all pass around all the slices of the wealth pie that doesn't exist and laugh at the little people. They hire people conditionally and if you think you've ever faced any kind of pressure at work, try to consider the kind of pressure facing someone who could either make ONE move that increases productivity to by just 1% or decreases by just 1%.

If you or I do that, it's not even noticeable. We do that on an hourly basis. If a CEO of a $20 B company does something that decreases productivity by just 1%, they've fucked the company out of $200 million.

Again, just try to forget about the numbers. The numbers are irrelevant and cloud the issue because none of us can conceive of a world where you're facing a potential $20 million bonus. What should the bonus be based on, if not performance?

Or better still, think of these numbers for ten seconds. You just made your company $200 million. How much should you get as a bonus? $10,000? That would be 0.00005% of what you made for the company.

Scale that to your current salary and imagine how quickly you would leave that job at the end of the year if your bonus check reflected .00005% of what you made for that company.

The real problem with this kind of thing is, first and foremost, emotions. We don't make that kind of money; we can't fathom that kind of money. So what do we do? We take our own situations and say, "It's not fair that I live the way I live and you guys live the way you live, so you guys need to change to make it fair for me."

That's the heart of ALL of this plain and simple. My perception is that our lives are radically different due to one thing and one thing only--money--therefore you need to be forced to either give me more of your money than you already are or you get less than you do.

Ok. Why? That's "fair"? To whom?

If CEOs aren't earning their pay, then of course no Board should be paying them any money. But inherently implied in all of this is that there is just some sort of boy's club where rich people just give each other more and more money for no reason; just because they're in the club and therefore here you go! You get the magic key to the magic kingdom!

Which is Hollywood's understanding of how this shit actually works.

So, again, if a receptionist were to somehow, through their excellent receptionist skills, earn the company $200 million then absofuckinglutley they deserve a huge fucking performance bonus and no one on here would say shit about it (well, except for the right wing fucknuts who would then ironically argue against it). But if their performance is simply doing their job, beyond the benevolence of management--and a legislated minimum wage--what other metric is there to justify paying them more?

The company can afford to? Ok, but, again, how do you legislate that? How do you legislate the idea of giving a receptionist more salary than they are technically worth? They are the best goddamned receptionist in the whole world? What would that entail?

So it's NOT about commensurate pay for commensurate work. It's, once again, "fairness." It's not fair that a receptionist for a multi billion dollar company is only making 1/300 nth of what a VP or above is making. They should just automatically have their pay scale up as well for some reason that no one can explain.

And, again, I AGREE. I fully affirm and support the notion that EVERY company spread the profits in as equitable fashion as possible and that upper management just voluntarily decides to be good people with good and generous hearts and if I ever had my own company I would hope I could do the same and every study I've ever seen shows that when a company does behave that way toward their corporate culture, productivity skyrockets, etc. And that's the best way to make that happen more, imo, is to keep highlighting those studies.

But short of Boards deliberately and consciously instilling a more altruistic corporate culture, how does any of that get legislated? That's all elective, not mandatory. And since it's not mandatory, well, we have what we have.

ETA: And it should be noted as a primary condition, we don't have any idea how bad the problem may be. All we ever react to are the headlines. Does anyone have any idea how many companies out there are worthy of our ire and how many are actually already doing or attempting the more altruistic/egalitarian approach?

I found this: CEO compensation has grown 940% since 1978
Typical worker compensation has risen only 12% during that time. Quite another shocking headline until you read the first paragraph (the summary; emphasis mine):

What this report finds: The increased focus on growing inequality has led to an increased focus on CEO pay. Corporate boards running America’s largest public firms are giving top executives outsize compensation packages. Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure. (Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.”) CEO compensation is very high relative to typical worker compensation (by a ratio of 278-to-1 or 221-to-1). In contrast, the CEO-to-typical-worker compensation ratio (options realized) was 20-to-1 in 1965 and 58-to-1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.

So what does that mean? Stock options are evidently the biggest issue (and "realized" means they've been allowed to sell them). But the value of a company's stock is directly tied to the company's performance, which means that if the CEO doesn't do well, the stock plummets and so therefore does their compensation. This is why we sometimes see CEOs trying to illegally sell their stock before a big fall (and they usually get fucked for trying to do that; it's called "insider trading").

Iow, "compensation" can mean many things.

So when a headline says some CEO got paid $20 M while the company had to lay people off, it's actually possible that what the CEO did was make necessary cuts, which in turn helped save the company as a whole and that's why he or she is getting a performance bonus or stock options. Maybe not, but maybe so. You have to look at the details, of course, instead of the headlines and bumper stickers of political candidates. Does it look bad for one person at the top to get a shit ton of money while those underneath are getting pink slips? Of course, if you're just looking on the surface. But if your job is to save the whole company--and you are able to do that--then you should be compensated for that work commensurate to what you accomplished, which, from your perspective--and the perspective of everyone else in that company--would not be letting some go; it would be saving everyone else.

That, too, is part of the stress of such positions. A receptionist never has to fire anyone, or close an entire warehouse. CEOs do.

Yes, I know, cry me a river again, but that isn't the point of any of this. The point is that it's not a Disney cartoon and bumper stickers don't actually provide any insights; just incites.

 

[RVonse]

Yes, I know, cry me a river again, but that isn't the point of any of this. The point is that it's not a Disney cartoon and bumper stickers don't actually provide any insights; just incites.

Put the labor leaders on the corporate boards and that solves everything. And even if the pay ratio does not go lower, the workers will at least feel it is fair.

 

[Canard DuJour]

You ranted about the big problem is people don't save money.

Actually, I said:

Yes, I know, that's oversimplification and avoiding the serious issue of being poor in a rich country, but it's also the majority condition. You aren't as rich as your neighbor for one primary reason: you didn't save or invest when you had the ability to save or invest. For like 80% of us.

Then you post a link and quote a source that says many, many people simply don't make enough money to acquire savings, living from paycheck to paycheck.

That's not what the source said. They said:

For the bottom 90%, average wealth is $84,000...The key driver of the declining bottom 90% share is the fall of middle-class saving, a fall which itself may partly owe to the low growth of middle-class income, to financial deregulation leading to some forms of predatory lending, or to growing behavioral biases in the saving decisions of middle-class households.

They then conclude their report with (emphasis mine):

Encouraging saving for the bottom 90% could also boost middle-class wealth by reducing the growing inequality in saving rates. The best policy to encourage middle-class saving depends on the reasons for the observed drop in the saving rate of bottom 90% families. Middle-class saving might have plummeted because of the lackluster growth in middle class incomes relative to top incomes, fueling demand for credit to maintain relative consumption (see e.g., Bertrand and Morse (2013)). In that case, policies to boost middle-class incomes would probably boost saving as well and powerfully affect the bottom 90% wealth share. Financial deregulation may have expanded borrowing opportunities (through consumer credit, home equity loans, subprime mortgages) and in some cases might have left consumers insufficiently protected against some forms of predatory lending. In that case, greater consumer protection and financial regulation could help increasing middle-class saving. Tuition increases may have increased student loans, in which case limits to university tuition fees may have a role to play.

Yet the fall in the bottom 90% saving rate might also owe to growing behavioral biases in the saving decisions of middle-class households; many individuals, for instance, do not know how to invest optimally and end up spending too much on servicing short-run debt at high interest rates.

This is alluded to several times throughout the paper, not just in their conclusion. They noted this earlier in their analysis (emphasis mine):

The share of wealth owned by the middle class has followed an inverted-U shape evolution: it first increased from the early 1930s to the 1980s, peaked in the mid-1980s, and has continuously declined since then (Figure 8, bottom panel). The large rise in the bottom 90% share from 16% in the early 1930s to 35% in the mid-1980s was driven by the accumulation of housing wealth, and more importantly pension wealth. Pension wealth was almost non-existent at the beginning of the twentieth century. It first developed in the form of defined benefits plans, then from the 1980s in the form of defined contribution plans such as IRAs and 401(k)s. The decline in the bottom 90% wealth share since the mid-1980s owes to a fall in the net housing and fixed income (net of non-mortgage debt) components. The net housing wealth of the bottom 90% accounted for about 15% of total household wealth from the 1950s to the 1980s, while it now accounts for about 5–6% only. In turn, the decline in the net housing and net fixed income wealth of bottom 90% families is due to a rise in debts—mortgages, student loans, credit card and other debts.
...
The share of income earned by the bottom 90% fell from 70% in the early 1980s to 60% in 2012. While this fall is significant, it is smaller than the decline in the bottom 90% wealth share (from 36% to 23%). The dynamics of the bottom 90% wealth share is thus primarily explained by the sharp fall in its relative saving rate.

So, yes, their conclusion is that for the majority of Americans--with an average wealth of $84,000 so we're talking about people who have the means to save and/or invest, but for primarily behavioral reasons did not do either--the main reason their "share of wealth" (which does not exist but for the conceit of the report) is lower due to not saving/investing and to behavioral debt issues (i.e., living beyond one's means), but not necessarily exclusively due to living from paycheck to paycheck, which I would consider necessary debt.

As I "ranted" there are, obviously, those who do live paycheck to paycheck, but they are clearly not the ones Zucman and Saez are referring to as they make specific note of:

The second key result of our analysis involves the dynamics of the bottom 90% wealth share. The bottom half of the distribution always owns close to zero wealth on net. Hence, the bottom 90% wealth share is the same as the share of wealth owned by top 50-90% families — what can be described as the middle class.

Iow, they acknowledge that the poor simply have no wealth, but they are measuring wealth, so the poor are just bundled into the 90% figure. What they are really comparing, however, is the middle-class to the upper classes.

Note, too, their definition of "wealth":

Let us first define the concept of wealth that we consider in this paper. Wealth is the current market value of all the assets owned by households net of all their debts.

So you could be making $250,000 a year and have $500,000 in your 401K and the like, but if you have a mortgage on your house of say $1,000,000, for the purposes of their analysis you would be considered to have a net negative wealth ranking of -$250,000. Iow, according to the methodology of their analysis, you--who makes a quarter of million/year, has half a million invested and lives in a million dollar home--because it's mortgaged (in spite of your more than capable means of paying the monthly premiums), you would be considered poor and placed in the bottom 50%.

That's why all of this kind of nonsense is so misleading. There is no finite wealth pie. People don't "own" more "wealth" than you do in the sense of keeping something from you that is otherwise rightfully yours. Aggregating total amounts is highly misleading and serves no purpose other than to incite emotional responses, but that's just as bad as the right inciting nazi hatred and violence.

Bill Gates did not take anything from anyone and the fact that he has billions and you don't is utterly meaningless, other than it sucks to not have as much money as he does. But it's got zero to do with you and zero to do with him and absolutely zero to do with government unless it's about a proper tax structure and making sure loopholes are closed and the rest of the normal political flow.

Again, if the idea is to force companies to pay higher wages, what's the justification for that argument? It can't be, "they got more than we do and that sucks and we want more too!" It must instead be value for value. Does a secretary deserve a million dollar raise for his secretarial skills? Do we somehow force companies to cap their salaries? How? Under what pretext? "Fairness"? That's not a legitimate argument as it stands, so what's your better argument?

I'm all for someone actually coming up with an argument, but trotting out this misleading bumper sticker nonsense ain't it.

What ZiprHead said. The authors you cite seem agnostic as to the cause of the fall in middle class savings; the "behavioral biases" you've bolded being just one of the possible causes they posit. Maybe you've just quoted the wrong bits, but most of what you say either doesn't follow from them or has nothing to do with them.

 

[Koyaanisqatsi]

The authors you cite seem agnostic as to the cause of the fall in middle class savings; the "behavioral biases" you've bolded being just one of the possible causes they posit.

The very fact that they purposefully qualify their analysis with "behavioral" argues against your perception:

The key driver of the declining bottom 90% share is the fall of middle-class saving, a fall which itself may partly owe to the low growth of middle-class income, to financial deregulation leading to some forms of predatory lending, or to growing behavioral biases in the saving decisions of middle-class households.

They very clearly delineate (1) income stagnation, (2) getting into debt due to "predatory lending" and (3) behavioral biases in the saving decisions of middle-class households. They also end their research by reiterating all three, but focus exclusively on behavioral biases in their concluding paragraph:

The best policy to encourage middle-class saving depends on the reasons for the observed drop in the saving rate of bottom 90% families. Middle-class saving might have plummeted because of the lackluster growth in middle class incomes relative to top incomes, fueling demand for credit to maintain relative consumption (see e.g., Bertrand and Morse (2013)). In that case, policies to boost middle-class incomes would probably boost saving as well and powerfully affect the bottom 90% wealth share. Financial deregulation may have expanded borrowing opportunities (through consumer credit, home equity loans, subprime mortgages) and in some cases might have left consumers insufficiently protected against some forms of predatory lending. In that case, greater consumer protection and financial regulation could help increasing middle-class saving. Tuition increases may have increased student loans, in which case limits to university tuition fees may have a role to play.

Yet the fall in the bottom 90% saving rate might also owe to growing behavioral biases in the saving decisions of middle-class households; many individuals, for instance, do not know how to invest optimally and end up spending too much on servicing short-run debt at high interest rates (see e.g. Thaler and Sunstein, 2008). To address these biases, recent work in behavioral economics shows that nudges are more effective than tax incentives (see e.g. Chetty et al., 2014a). A good model for building wealth among the bottom 90% might therefore have three components...

And then they go on to recommend a form of forced ("nudged") savings/investment account as their solution specifically to "address these biases," thereby further arguing that they didn't feel the primary issue was an inability to save due to necessity.

Generally speaking, when someone reiterates a particular point in their concluding paragraph--just prior to stating their recommendation to that particular problem--it's a good indicator as to what they consider to be a primary cause.

And, of course, the fact that they were specifically talking about people with an average net wealth (net of all forms of debt) of $84,000 conclusively indicates that the majority have the means to save, but for these "behavioral biases."

but most of what you say either doesn't follow from them or has nothing to do with them.

I, obviously, disagree with your opinion.

ETA: For further consideration:

The large rise in the bottom 90% share from 16% in the early 1930s to 35% in the mid-1980s was driven by the accumulation of housing wealth, and more importantly pension wealth. Pension wealth was almost non-existent at the beginning of the twentieth century. It first developed in the form of defined benefits plans, then from the 1980s in the form of defined contribution plans such as IRAs and 401(k)s. The decline in the bottom 90% wealth share since the mid-1980s owes to a fall in the net housing and fixed income (net of non-mortgage debt) components. The net housing wealth of the bottom 90% accounted for about 15% of total household wealth from the 1950s to the 1980s, while it now accounts for about 5–6% only.

In turn, the decline in the net housing and net fixed income wealth of bottom 90% families is due to a rise in debts—mortgages, student loans, credit card and other debts. On aggregate, household debt increased from the equivalent of 75% of national income in the mid-1980s to 135% of national income in 2009 and, despite some deleveraging in the wake of the Great Recession, still amounts to close to 110% of national income in 2012. Since about 90% of (non-mortgage) debt belongs to the bottom 90% of the wealth distribution, the upsurge in debt has had a large effect on the bottom 90% wealth share. It has more than offset the increase of pension wealth, and as result, in 2012 the bottom 90% share is as low as in 1940.

Having a mortgage is not a liability unless you can't pay the premiums. Same with student debt and, for that matter, credit card debt. Those are choices people make and I would consider them equity, not liability, but for the purposes of their study, Z&S considers them as negatives because their focus is on net aggregate wealth for some unspecified reason.

Credit card debt is definitely more nebulous. There are definitely a lot of people in that 90% that were using credit cards (debt) to extend their paychecks, but there are also a lot of people that used them recklessly and not out of necessity. And a certain percentage that used them both recklessly and out of necessity, probably in the very same day.

Exactly how many did what when and due to why is not clear, but, again, the bumper sticker shorthand obscures ALL of that far more detailed issue. Which is one of the many reasons why it's so deeply misleading.

My wife and I are currently deeply in debt because of a combination of necessity (due to a death in the family) and our own damn fault. We were used to a certain lifestyle that came from two paychecks. We rented a place that at the time we rented, we could afford, but after the prolonged death took its financial toll, we no longer could, so we had to rely on savings, then IRA liquidation and then credit cards. It's a deep fucking hole made all the deeper because we also both decided to get secondary degrees, but again, I consider those to be equity, not liability, but Z&S would absolutely rate them as negatives.

But the bigger question here is, what does any of that have to do with society writ large? We made those decisions knowingly and while a huge factor was force majeur, we have likewise decided not to declare bankruptcy and dig ourselves out of the pit we made in the first place.

We are most definitely squarely in the middle class, but on paper and using Z&S's net of debt methodology, we would be classified as dirt poor in spite of the fact that my wife just got a job paying $125K and I just signed a client account worth nearly as much and we are still managing to live in a beautiful one bedroom with a spectacular view of Manhattan and a rent/debt ratio of seemingly impossible numbers.

So what the fuck does it matter to me what my neighbors are or are not doing in regard to their decisions or inability to choose in their lifestyle? They have a bag of gold, and we don't. So? That does not in any way effect me or my circumstances or my choices or my inability to choose, etc., etc., etc.

And, more importantly, how does government factor into any of that, other than to provide safety nets which are already in place (but always in need of shoring up thanks to asshole Republicans)?

A forced savings account for every citizen at birth sounds like a great idea. That is, after all, what Social Security effectively is, the only difference being that asshole Republicans wouldn't be able to steal from it.

 

[PyramidHead]

It's not a math problem, it's a class problem, a fact that will always escape bourgeois economists and the people who believe what they say. And, in the end, it's not a problem of class in one nation, but of imperialism. Inequality such as this (and concentrated wealth in general) simply cannot exist without an impoverished third world. The wealth doesn't belong to the 1% in America, but it doesn't belong to the 99% in America either, if we're being honest. It belongs primarily to Africans, South Americans, and Asians whose free/underpaid labor is the foundation of commodity capitalism in this century. To the extent that their prospects for survival and social reproduction were stunted by centuries of exploitation, they are owed.

 

[Canard DuJour]

The very fact that they purposefully qualify their analysis with "behavioral" argues against your perception:

But they don't "qualify their analysis with "behavioral"," they call one of several possible reasons for the fall in middle class savings "behavioral". They qualify that with "might be".

They very clearly delineate (1) income stagnation, (2) getting into debt due to "predatory lending" and (3) behavioral biases in the saving decisions of middle-class households.

Indeed.

They also end their research by reiterating all three, but focus exclusively on behavioral biases in their concluding paragraph:

The best policy to encourage middle-class saving depends on the reasons for the observed drop in the saving rate of bottom 90% families. Middle-class saving might have plummeted because of the lackluster growth in middle class incomes relative to top incomes, fueling demand for credit to maintain relative consumption (see e.g., Bertrand and Morse (2013)). In that case, policies to boost middle-class incomes would probably boost saving as well and powerfully affect the bottom 90% wealth share. Financial deregulation may have expanded borrowing opportunities (through consumer credit, home equity loans, subprime mortgages) and in some cases might have left consumers insufficiently protected against some forms of predatory lending. In that case, greater consumer protection and financial regulation could help increasing middle-class saving. Tuition increases may have increased student loans, in which case limits to university tuition fees may have a role to play.

Yet the fall in the bottom 90% saving rate might also owe to growing behavioral biases in the saving decisions of middle-class households; many individuals, for instance, do not know how to invest optimally and end up spending too much on servicing short-run debt at high interest rates (see e.g. Thaler and Sunstein, 2008). To address these biases, recent work in behavioral economics shows that nudges are more effective than tax incentives (see e.g. Chetty et al., 2014a). A good model for building wealth among the bottom 90% might therefore have three components...

And then they go on to recommend a form of forced ("nudged") savings/investment account as their solution specifically to "address these biases," thereby further arguing that they didn't feel the primary issue was an inability to save due to necessity.

Generally speaking, when someone reiterates a particular point in their concluding paragraph--just prior to stating their recommendation to that particular problem--it's a good indicator as to what they consider to be a primary cause.

Why? You might just as well say that the points they reiterate first are a good indicator as to what they consider the primary cause. In any case, they're quite clear that "The increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality", with "behavioral biases" only one possible cause of the latter. They are certainly not saying that "behavioral biases" are the primary cause of wealth concentration.

And, of course, the fact that they were specifically talking about people with an average net wealth (net of all forms of debt) of $84,000 conclusively indicates that the majority have the means to save, but for these "behavioral biases."

(a) No it doesn't and (b) Even if they saved every cent they could, there'd still be a huge wealth disparity with the 1%.

but most of what you say either doesn't follow from them or has nothing to do with them.

I, obviously, disagree with your opinion.

ETA: For further consideration:

The large rise in the bottom 90% share from 16% in the early 1930s to 35% in the mid-1980s was driven by the accumulation of housing wealth, and more importantly pension wealth. Pension wealth was almost non-existent at the beginning of the twentieth century. It first developed in the form of defined benefits plans, then from the 1980s in the form of defined contribution plans such as IRAs and 401(k)s. The decline in the bottom 90% wealth share since the mid-1980s owes to a fall in the net housing and fixed income (net of non-mortgage debt) components. The net housing wealth of the bottom 90% accounted for about 15% of total household wealth from the 1950s to the 1980s, while it now accounts for about 5–6% only.

In turn, the decline in the net housing and net fixed income wealth of bottom 90% families is due to a rise in debts—mortgages, student loans, credit card and other debts. On aggregate, household debt increased from the equivalent of 75% of national income in the mid-1980s to 135% of national income in 2009 and, despite some deleveraging in the wake of the Great Recession, still amounts to close to 110% of national income in 2012. Since about 90% of (non-mortgage) debt belongs to the bottom 90% of the wealth distribution, the upsurge in debt has had a large effect on the bottom 90% wealth share. It has more than offset the increase of pension wealth, and as result, in 2012 the bottom 90% share is as low as in 1940.

Having a mortgage is not a liability unless you can't pay the premiums. Same with student debt and, for that matter, credit card debt. Those are choices people make and I would consider them equity, not liability, but for the purposes of their study, Z&S considers them as negatives because their focus is on net aggregate wealth for some unspecified reason.

You don't understand why outstanding mortgage debt, credit card debt and student debt are liabilities? Really?

Credit card debt is definitely more nebulous. There are definitely a lot of people in that 90% that were using credit cards (debt) to extend their paychecks, but there are also a lot of people that used them recklessly and not out of necessity. And a certain percentage that used them both recklessly and out of necessity, probably in the very same day.

Exactly how many did what when and due to why is not clear, but, again, the bumper sticker shorthand obscures ALL of that far more detailed issue. Which is one of the many reasons why it's so deeply misleading.

My wife and I are currently deeply in debt because of a combination of necessity (due to a death in the family) and our own damn fault. We were used to a certain lifestyle that came from two paychecks. We rented a place that at the time we rented, we could afford, but after the prolonged death took its financial toll, we no longer could, so we had to rely on savings, then IRA liquidation and then credit cards. It's a deep fucking hole made all the deeper because we also both decided to get secondary degrees, but again, I consider those to be equity, not liability, but Z&S would absolutely rate them as negatives.

But the bigger question here is, what does any of that have to do with society writ large? We made those decisions knowingly and while a huge factor was force majeur, we have likewise decided not to declare bankruptcy and dig ourselves out of the pit we made in the first place.

We are most definitely squarely in the middle class, but on paper and using Z&S's net of debt methodology, we would be classified as dirt poor in spite of the fact that my wife just got a job paying $125K and I just signed a client account worth nearly as much and we are still managing to live in a beautiful one bedroom with a spectacular view of Manhattan and a rent/debt ratio of seemingly impossible numbers.

So what the fuck does it matter to me what my neighbors are or are not doing in regard to their decisions or inability to choose in their lifestyle? They have a bag of gold, and we don't. So? That does not in any way effect me or my circumstances or my choices or my inability to choose, etc., etc., etc.

And, more importantly, how does government factor into any of that, other than to provide safety nets which are already in place (but always in need of shoring up thanks to asshole Republicans)?

A forced savings account for every citizen at birth sounds like a great idea. That is, after all, what Social Security effectively is, the only difference being that asshole Republicans wouldn't be able to steal from it.

..see, most of this has nothing to do with the paper you cite either, apart from your now disputing its definitions.

 

[PyramidHead]

If people simply chose to pay for their house, education, car, and all other purchases in cash, rather than borrowing to cover those expenses (and chose to save enough money to do so, rather than having clothes or food), the whole problem disappears