99% And The Top 1%


All of us are trying to figure out this #OWS stuff and  how it impacts us.  The opinions ranges from one of skepticism and disgust to respect and admiration.  Clearly the movement is having an impact.

My personal reaction to the movement is one of disdain.  It’s my understanding that these folks are upset that 1% of the people control more than 1% of the wealth.  That the remaining 99% of the population is somehow getting screwed.  To be sure, there is some version of protest that speaks to the very elite rich manipulating the “system” to their advantage in a way that endangers our economic fabric, but I firmly believe these people to be few and far between.

What we are seeing is a bunch of folks upset that there are rich people.  Or rather, who have more money than they have.  But is that the real picture?

Let’s take a look at the top 1%:

I sit in an interesting chair in the financial services industry. Our clients largely fall into the top 1%, have a net worth of $5,000,000 or above, and if working make over $300,000 per year. My observations on the sources of their wealth and concerns come from my professional and social activities within this group.

…a family enters the top 1% or so today with somewhere around $300k to $400k in pre-tax annual income and over $1.2M in net worth.

Okay, so that’s a lot of money.  A TON of money.  I can remember a time when earning that kind of money was stupid.  In fact, earning that kinda money for me is STILL stupid.

But let’s go further:

The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well….

The net worth for those in the lower half of the top 1% is usually achieved after decades of education, hard work, saving and investing as a professional or small business person.

Decades.  Hard work. Saving.  Investing.

Decades.  That is, these folks didn’t “come into” this money, they earned it.  EARNED it.  By working, risking and sacrificing.  THAT is the lower half of the 1%.  Which means that we are now talking about the top half of the 1%.

The whole read is fascinating.  But I’ll leave you with what the author leaves us with:

I could go on and on, but the bottom line is this: A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%.

I think this is true.  I am willing to believe that the top 0.01% of Americans have much if not all of the power and influence in this country.  Which, by the way, turns out to be about 32,243 people.  And we’re not really talking about people, we’re talking about families.  So it could be half that.

If the cost of 99.99% of us living like relative kings is having 16,000 of us live lives that we can only dream of?  Well, hell, I’m willing to pay that.

Don’t ever forget.  Ever.  That we have a life that would have been the envy of the richest people of the world just 50 years ago.  Imagine what the world’s wealthiest would have paid for what we now see as everyday convenience.

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9 comments
  1. Henry said:

    How do people NOT get poor? Here is a game that the students and I play. I call it “Wish LIst”.

    How to play:
    1. Write down a dollar amount that you consider to be small. The amount should have sufficient value, so you would never waste it, but the amount is still fairly easy to acquire. There is no right answer; everyone has their own figure.

    2. Create a wish list of everything that you would like to own that is priced below that amount.

    On the next day, the students and I discuss the items that they placed on their list. The amazing thing is that the lists are usually very short. If something is cheap, most people will buy it without considering the long term implications, so we use too much of our discretionary funds to purchase inexpensive stuff. We then do not have enough remaining for those more important big ticket items?

    What’s on your list???

    • pino said:

      Here is a game that the students and I play. I call it “Wish LIst”.

      Fascinating.

      It is a condition I am familiar with. Shopping for my wife and her for me, is difficult. There are few things that we would want that we don’t already have.

  2. Kate Formby said:

    John D. Rockefeller Jr. the student wrote: “Who can look about upon the millions of laborers whose life is a treadmill, a continuous round of work to which they are driven by dire necessity…without being fired with a desire to revolutionize their condition by adopting the profit-sharing system?”

    • pino said:

      John D. Rockefeller Jr. the student wrote

      I think it is critical to understand that virtually everybody I know feels that we as human beings should work everyday to strive to be better people. This would include being “better” in our jobs as well. We should strive to be fair, and disciplined. We should work hard to understand the condition of all of those around us.

      I do not object to this.

      I object to government TELLING me that I have to.

  3. In Japan the average CEO earns 12 times that of the average worker. It’s higher in Europe, but no one is higher than a 50:1 ratio. The US is 475:1. Consider the macro perspective: Wealth distribution after taxes and transfers is below every other advanced industrialized state (low in equality), while class mobility is very low

    The upshot: you can work hard, be dedicated, do what it takes, and still you end up getting less and less. Sure, some people can get rich, but not everyone can. Given the structure of our system, only a few people can actually break through. You can work hard and save, but that doesn’t guarantee that you’ll succeed, let alone get into the top 1%. Yes, some that make it there do work hard and save. That’s a NECESSARY condition, but not a sufficient condition. You need luck and some breaks. But for most of the working poor, that door isn’t open to them even if they save and work hard. Even people whose hard work got them comfortable during the boom are finding it hard to get employment.

    Simply: most people won’t get rich even if they work hard and save. The wealthiest do rig the game in their favor, and both parties are complicate. OWS isn’t completely new either — there was the populist movement back at the turn of the 20th Century, as well as anti-Wall Street protests in the depression (which did lead to action).

    Here’s the thing about democratic capitalism: 1) Capitalists once they “win” usually do not want to keep playing the game the way the market would dictate, they’d prefer to secure their position by creating an advantage for themselves; 2) The state needs to protect the market by trying to prevent the winners from subverting the market to create distinct classes (such as in third world countries where there is a clear elite class and many poor); 3) if “big money” gets too cozy with government, then government regulations start reflecting those interests, which subvert the proper functioning of the market. Thus: OWS can be seen as a pro-market protest, wanting the state to stop using the tax code and regulations to benefit the elite and be more of a watch dog against unfair deals, while promoting real opportunity so class mobility improves. That’s been a driving force for such movements for over 100 years; in that sense, OWS is part of a long tradition.

    • pino said:

      The US is 475:1.

      I do agree that CEO compensation is bad news here. Nothing but a bunch of guys compensating each other.

      Wealth distribution after taxes and transfers is below every other advanced industrialized state (low in equality), while class mobility is very low

      I’ll have to do more work on this, but I don’t think it’s a mark of a good system when you take money from the wealthy via tax and give it to the poor via transfer, and call that income mobility. I would rather have a system where the wealthy are more wealthy in comparison but get to keep their money. The concept of Individual Liberty and property rights is a very strong one.

      Simply: most people won’t get rich even if they work hard and save.

      Here is where the Left rigs the “game”. By definition, most people don’t fit into the top 1%. Literally only 1 out of 100 do. If we are going to claim that the poor can’t get rich, we have to define it using some other number besides a ratio of total population. Something like:

      -Access to quality housing
      -Access to quality food
      -Access to a job that will move them up

      Stuff like that.

      The poorest among us are very VERY wealthy compared to the rest of the world.

      The wealthiest do rig the game in their favor

      See above. Only the very Very VERY wealthy are able to do that. While I don’t defend them, I don’t see it as impacting my ability to care for my family.

      So I ask, at what point would you feel successful in “defeating the rich rigging the game”? When there are .001%? .0001%? None?

      At some point you have to claim victory and be satisfied.

      1) Capitalists once they “win” usually do not want to keep playing the game the way the market would dictate, they’d prefer to secure their position by creating an advantage for themselves

      Agreed. Though I suggest this is true of all people.

      2) The state needs to protect the market by trying to prevent the winners from subverting the market to create distinct classes (such as in third world countries where there is a clear elite class and many poor);

      Disagreed. The state needs to protect the market such that the market is the same for the winners and losers before the winners became winners. This would allow those who are not winners to be called “not winners yet”.

      There will ALWAYS be people like my dad. He never, ever, wanted more money than he made teaching.He was happy and content doing what he did. In at 8, out at 4. June July August were his. He never EVER would have accepted the work life I have. 70 hour weeks, cell phones and massively stressful days.

      Ever.

      So it’s okay that he made less than me. He found compensation in other ways; an easy good life.

      3) if “big money” gets too cozy with government, then government regulations start reflecting those interests, which subvert the proper functioning of the market.

      Agreed. When this happens, we need to work to separate that.

      OWS can be seen as a pro-market protest, wanting the state to stop using the tax code and regulations to benefit the elite and be more of a watch dog against unfair deals, while promoting real opportunity so class mobility improves.

      In the first aspect, we agree and I can support that. However, these people actually feel that they are poor not because of their own actions, but because of the actions of someone else.

      For example, if you wanna go get wealthy, crack a Cisco book, go to tech school and learn how to fix computer networks. Then, work 7×24 hour shifts. And do that for 10-15 years.

      You too will be wealthy.

      If you don’t wanna do that stuff, then it seems maybe you don’t wanna be wealthy. It’s like these kids wanna study “Women’s Studies” and get paid $150,000 for a job in the world doing Women’s Studies stuff. Crazy.

  4. Wealth disparity is inherently destabilizing, regardless of absolute wealth. People compare themselves with other people in their own society, not with the third world. So it is totally irrelevant that the poor can have TVs and eat well if relative to the wealthy their situation is declining it will be politically significant. That’s not an “ought” statement but an “is” statement, it’s human nature.

    I don’t think protesters are saying money should just be given to the poor, very few people want that. Both social welfare programs and regulations should focus on assuring opportunity for all.

    The concept of individual liberty is romantic, but incomplete. People are all members of society and thus interactions all involve power relationships. No person is wealthy because of his or her actions alone, it is a social process which he or she is a part. Markets are not magic, of course, they aren’t self-sustaining without the state to regulate them. Individual liberty isn’t just freedom from the government, but opportunity to partake of more options.

    Think of it this way. I put you and nine others in a room with some comforts, food and the like, plus you can go out into a court yard. I tell you that you are absolutely free to do what you want in those places, but when you try to leave the area obstacles are put in your place that almost always hold you back. Now one person manages to make it through out of special skill or luck. Then when you complain to me that you want those obstacles removed so you can leave as well, I say, “you’re free to do what you want. Joe managed to get out, that means you can too, do what he did.”

    You might say, “yeah, but he got lucky (or is stronger/taller), those obstacles are unfair!”

    That’s what I’m saying happens now in the market. Obstacles to success and class mobility exist, and the demand is not to equalize outcomes but to remove those obstacles so that people really can become ‘winners.’ Right now the winners pat themselves on the back and point to their hard work, assuming that the ‘losers’ didn’t work as hard and thus need to up their game. I claim that many of the losers work just as hard and put in the effort but obstacles exist that make it harder to break out.

    Also, when the country has massive debt, the winners arguably have benefited a lot more from the social system of markets. They are rich because a legal system, an infrastructure, access to labor, clear rules, and protection from police. Their government has created a free trade regime that helps many. Since they have benefited so much more from this system, they should pay more — especially when there is a crisis. When budget cuts hit the poor and middle class hardest, while the wealthy pay the lowest tax rates ever — and with lots of deductions — then one isn’t a radical leftist to say that’s not right.

    • pino said:

      People compare themselves with other people in their own society, not with the third world.

      I think people compare themselves to their day-to-day peer group. For example, I live a comfortable life, but I don’t compare myself to movie stars in Hollywood. Rather, I compare myself to my neighbors and the people I “bump into” everyday. People at the Y, the grocery store, shoe store…stuff like that. I don’t think that people making $30k in rural Minnesota feel diminished by million dollar hedge fund managers.

      I don’t.

      Both social welfare programs and regulations should focus on assuring opportunity for all.

      I might be able to agree with that; I say might because in theory I don’t but in practice I do. However, we have to focus on the right thing.

      IN my lodge we are working to identify a charity. One of the guys mentioned supplies for the homeless, you know, the really homeless. Sleeping under bridges and stuff. I wasn’t interested.

      Why?

      I wanna help people not be poor anymore. I do NOT wanna make poor more comfortable.

      No person is wealthy because of his or her actions alone, it is a social process which he or she is a part.

      Yes, I agree.

      We could all go back to pioneer days when we had to build our own house and barn, weave our own clothes and raise and slaughter our own beef. No one wants that.

      Trade, in essence, makes us wealthy.

      Obstacles to success and class mobility exist

      Certainly. No one pays a short crummy player millions to play in the NBA. Similarly, we don’t hire people who don’t understand physics to be nuclear engineers. If the only job a person can get is working as a custodian at the local middle school, there is a certain limit to his economic well being. Or, perhaps that the only job that person WANTS.

      To achieve financial success, in almost every single case, requires staggering amounts of study, focus, dedication and years of unrelenting hard work. Most people are unwilling to subject themselves to the sacrifices required.

      Consider my VP. He travels so much he would occasionally wake up in a hotel room and not know what COUNTRY he was in. The time zones, the jet lag and the schedule were so intense that he was on the go that often. His days were filled with 16 hours of work. He’d be gone from his family for consecutive weeks, come home for 3 days and go again.

      Honest. If they offered me his job today, I’d decline it. While I enjoy financial rewards, I am not willing to pay that price to achieve it. And most no one I know would.

      In short, if offered that kinda money, almost every single person I know would turn it down.

      Since they have benefited so much more from this system

      Who is better off in the trade you made for the computer you are typing on? You or the PC maker?

      I would claim that YOU are.

      As wealthy as Steve Jobs was, every single dollar of his wealth is a representation of the “wealth” his products gave his customers. That is, if I give the milkman $3.50 for a gallon of milk, he is $3.50 richer. And so am I.

      For every aggregate winner, there are millions of individual winners as well. The rich do not get rich by making the world poor. They do it by making them rich as well.

      the wealthy pay the lowest tax rates ever — and with lots of deductions

      The tax is the same. Go back as far as you want to [though I suggest start after WWII, that seems to be when things settled down]. The tax receipts are a consistent 18-19%. 90% tax rates? Sure, 18% GDP. 35% tax rates? Sure, 18% GDP.

      I would suggest that more destabilizing than wealthy people is the condition where more than 50% live off less than 50%. When one half of the population foots the bill for the other half. THAT is a recipe for disaster.

  5. Half the population does not foot the bill of the other half. Those who pay no taxes are usually working poor middle class who produce a lot of value for their employers but are compensated very little because that’s what the market bears. The work of those who pay no taxes helps those who employee them increase their profit margin and make more money, and thus live lifestyles the working middle class and poor cannot obtain.

    That’s what is so insulting and misguided by lumping the bottom 50% into a group that gets denigrated as free loaders. That’s the stuff of class warfare, insulting those who work hard but yet earn very little just because they aren’t working just as hard (or even working less) but earning a lot more.

    I know people who are hard working and the economy has caused them to lose their jobs. One guy – a conservative Republican who is also a devout Christian – spent a year and a half on unemployment before he finally found a job. He hated not working, but couldn’t find anything. The bottom 50% are NOT lazy bums, but almost all of them — the vast majority – are people who work hard and earn little, or want to work hard but haven’t found a job (some got laid off at age 50 and thus have trouble getting employed.) To the extent budget cuts kick these folk while their down, while the wealthy enjoy a lifestyle they can only dream of, well…

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