Tag: Concentration of Wealth

The Coming $73 Trillion Wealth Transfer

The Daily Escape:

We’ve been on Cape Cod for a few days visiting daughter Kelly. Here’s a sunset photo taken this week at Campground beach, Cape Cod, MA – August 2023 iPhone photo by Wrongo. Smoke from Canadian wildfires made the sunset colors more vibrant.

Welcome to our Saturday Soother! But first, let’s talk about the coming generational transfer of wealth that’s underway as the wealthiest generation (the boomers) retire. According to Ben Carlson, 10,000 baby boomers will be retiring every day between now and the end of this decade.

The first boomers were born in 1946, meaning they’re 77 and on the fast track to 80 years old. Fortune Magazine pegs the wealth transfer from boomers to their kids at $73 trillion (with another $12 trillion going to charity). That means the boomers have $85 trillion in personal wealth!

That sounds great, since so many in our younger generations really could use a little help right now. But fewer people than you might expect will actually receive a sizable inheritance. This is due to the fact that the top 10% of America’s wealthy own something like 90% of the stock market. The concentration of today’s wealth will lead to fewer people benefiting from the generational handoff.

Here’s a chart from the NYT:

According to the NYT, ultra-high net worth households — people with $5 million to $20 million in liquid net worth — make up 1.5% of the population but will constitute 42% of the money that gets passed down in the years ahead. Many of them are boomers. From the NYT:

“A key reason there are such large soon-to-be-inherited sums is the uneven way boomers superbly benefited from price growth in the financial and housing markets. The average price of a US house has risen about 500% since 1983, when most baby boomers were in their 20s and 30s, prime years for household formation.

As US corporations have grown into global behemoths, those deeply invested in the stock market have found even bigger returns: The stock market, as measured by the benchmark S&P 500 index, is up by more than 2,800% since the beginning of 1983…”

Those rates of growth in financial and real estate assets will probably never be seen again. We’re passing a slow growth economy on to the next generations, while their own salaries and savings are having trouble keeping up with inflation.

Some worry that retiring baby boomers will crash the stock market by spending down their portfolios in retirement, leaving nothing to inherit. While it could happen, it’s unlikely that it will. The inequality of stock ownership means few people in the top 10% will never come close to spending all of their wealth in retirement.

So the wealth transfer will be more of a stream than a tsunami. Given the longevity of the wealthy, the money is going to be passed down slowly over time. A married couple that is retiring today has a 50% chance of at least one spouse living into their 90s.

Wrongo sees more and more people in the younger generations talking about how much they need help from their parents right now rather than decades down the road. The challenge is that parents need to be sure that if they make early transfers of wealth, that they keep enough on hand to maintain themselves securely in their advancing old age.

This can only be done by families having honest discussions around very awkward subjects. Talking about it can be helpful. It may be possible to work something out where some of the inheritance is parsed out slowly so the parents can enjoy seeing the kids (or grandkids) use some of the money while they’re still here.

Enough! It’s time for our Saturday Soother, where we ignore the also-ran candidate show that the Republicans put on in Wisconsin, and where we also ignore the perp walk in Atlanta. Instead, let’s focus on clearing our heads for next week’s outrages.

To help clear your head, grab a comfy chair by a window, and pour a mug of cold brew over ice. Now, watch and listen to Beethoven’s “Septet, op. 20”. It had its first performance in 1800 and was one of Beethoven’s most popular works during his lifetime, much to the composer’s dismay! He ultimately wished he had never written the piece.

Today we listen to the first movement, “Adagio – Allegro con brio” played in 2014 by the WDR Symphony Orchestra in Cologne, Germany. The WDR is a German radio orchestra:

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A Few Wealthy A—holes Want To Secede From America

The Daily Escape:

Poppy bloom, Picacho Peak SP, Picacho, AZ – February 2023 photo by Leila Shehab

Wrongologist blog commenter Terry McK had this to say responding to Wrongo’s post about Speaker McCarthy and his lieutenant Marjorie Taylor Green’s antics surrounding gifting Tucker Carlson with the J6 videos:

“We lie to ourselves about the nature of our government…..Nor have we a marketplace of ideas. We could have – but the marketplace is dominated by the intellectual equivalent of soda and snacks….Now most speeches are performance art delivered to an empty chamber. ”

He’s correct. Here are a few recent developments that track with Terry’s thinking. First, Joe Perticone in the Bulwark: (emphasis by Wrongo)

“A strange proposal is working its way through the Idaho state legislature that would have that state envelop more than a dozen of Oregon’s most conservative eastern counties—in effect, shifting the border between the states 200-plus miles to the west. While last Wednesday’s vote in the Idaho House approving this “Greater Idaho” idea is nonbinding, it does legitimize the movement that has long been promoting the plan.”

A Bluer Oregon and a Redder Idaho. This movement is by the far-Right members of Idaho’s government. And among the 15 Oregon counties targeted to become part of Idaho, 11 have so far formally expressed their support for the plan. So unlike Taylor Greene’s rantings about a national divorce, this idea has a lot of elected officials on board.

Second, Ars Technica reports that:

“Two Republican lawmakers in Idaho have introduced a bill that would make it a misdemeanor for anyone in the state to administer mRNA-based vaccines—namely…COVID-19 vaccines made by Pfizer-BioNTech and Moderna.”

This probably won’t go anywhere. And state-level politicians everywhere also have tons of bad ideas.

Finally, a sober look how some of the wealthy in the fancy towns across the western US are angling for succession or civil war comes from Vanity Fair’s James Pogue. Writing about Jackson Hole, Wyoming:

“…there was a constant traffic of small jets and private aircraft, humming into and out of a town that has become a modern refuge for people with remote jobs…many of them driven to the Northern Rockies by a worry…that the rest of America is on its way toward environmental, political, or economic breakdown.”

Pogue speaks with Catharine O’Neill, great-great-granddaughter of John D. Rockefeller. She’s a Conservative who worked in Trump’s State Department and after the 2020 election moved to Wyoming:

“She…views the corporate elite as enemies of America and believes that we’re on the cusp of a populist uprising against the brand of transnational capitalism championed by Republicans for most of the last half-century.”

She lives on a 580-acre “vertically integrated cattle operation” she started. Today she’s anti both Parties but would happily vote for Tucker Carlson if he’d step forward. These are the thoughts of the “dissident right”. A few of the wealthy have created secretive groups to help people “exit’ from society and from what they see as a failing American system.

From Pogue:

“Who even needs a civil war,” one…texted me recently, “when the institutions are doing such a good job of delegitimizing themselves?”

This cohort sees the Northern Rockies as one of a few places in America that will be livable once life in much of America is fighting heat waves, floods, storms, and fires. They’re focused on how to live through “managed decline,” the wind-down period after the age of cheap fossil-fuels and rapid economic and technological progress wane.

They’re certain that will also bring about the erosion of America’s “state capacity”, the government’s ability to do things. Then our “real economy” will hollow out, and our political divisions will worsen, even more than currently.

But this movement isn’t only supported by the wealthy. Average American workers are increasingly priced out of housing and better educational opportunities for their kids. Many of these workers have service jobs that support the wealthy from Los Angeles to Jackson Hole, and from Cape Cod to Miami Beach. A Moody’s Analytics report says that for the first time in 20 years, the average American is “rent-burdened”, meaning they put at least 30% of their income towards housing.

This makes many middle class Americans very susceptible to arguments by the dissident right about how corporate elites and modern capitalism are hurting their chances to realize the American Dream. This was the basic thrust of the “Occupy Wall Street” movement in 2011. Now, the right wing is trying to take up their cause.

Will there be a second civil war? It doesn’t need to be a war. People don’t understand how easy it would be to launch an insurgency in America. We should take a lesson from the way the Taliban defeated the American military using small arms, and there are plenty of small arms in America. Insurgencies are less a war than an extended political conflict, in which the insurgents try to get governments to overreact. And when they inevitably do, the insurgents build support. It doesn’t take all that much to create a plausible scenario for conflict.

This is Wrongo’s second wakeup call this week. We can’t do much about the wealthy who tell themselves that they’re better off without America.

But we can and must do a lot to persuade average Americans not to fall victim to their rhetoric.

Jimmy Carter’s 1976 stump speech included this:

“I’ll never lie to you”…and…”we need a government as good as its people…”

Would living his message today help us hold the country together?

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Monday Wake Up Call – April 3, 2022

The Daily Escape:

Makapu’u Lookout, Oahu, HI – January 2022 photo by TwoBongs on Tour

Let’s talk about the “Wealth Effect”. It’s the notion that when households become richer as a result of a rise in asset values, such as stock prices or home values, they spend more and stimulate the broader economy. The idea is that consumers feel more financially secure and confident about their wealth, even if their income and costs are the same as before.

This concept has been endorsed by two recent former Fed Chairs, Janet Yellen and Ben Bernanke. It’s simply another term for trickle-down economics.

In 2019, after nearly 11 years of the Fed’s policy of adding money to the economy, by “Quantitative Easing” (QE), the National Bureau of Economic Research (NBER) did a study on the Wealth Effect, to quantify how much richer the rich would have had to become to have x% impact on the overall economy, and how long this boost lasts before it fades.

They found that QE makes 10% of the population a lot richer, producing immense concentration of wealth at the top 1%, and mind-boggling concentrations of wealth at the billionaire level. After which, there were some very muted trickle-down effects on the economy.

Wolf Richter used the Fed’s wealth distribution data to create a chart he calls the Wealth Effect Monitor. The Fed divides the US population into four groups by wealth: The “Top 1%,” the “2% to 9%,” the “next 40%,” and the “bottom 50%” to report on wealth.

Richter divides this data by the number of households in each category, to obtain the average wealth per household in each category. Here’s his chart for the past 21 years:

Note the immense increase in the wealth for the 1% households after the Fed’s latest QE effort that began in March 2020. They have been the primary beneficiaries of the Fed’s policies since 2020.

True to the Wealth Effect’s concepts, the Fed’s policies helped to inflate asset prices, and thus only asset owners benefited: The more assets held, the stronger the benefit. Here’s Richter’s analysis of average wealth (assets minus debts) per household, by category in the 4th quarter, 2021:

  • “Top “1%” household (red): $36.2 million
  • The “2% to 9%” household (yellow): $4.68 million
  • The “next 40%” household (purple): $775,000
  • The “bottom 50%” household (green): $59,000

The Fed doesn’t provide separate data on the 0.01% and the Billionaire class, but they were the biggest beneficiaries of the Fed’s monetary policies. The top 30 US billionaires have a total wealth of $2.12 trillion, sliced into 30 slices for a wealth of $70.8 billion per billionaire, according to the Bloomberg Billionaires Index.

Compare that to the bottom half of the US population (the “bottom 50%”) who have a combined wealth of just $3.7 trillion, divided into 165 million slices for each individual. The way percentages work, you would think that households in the bottom 50% would have the largest percentage gains since they start from a lower base. But because they own fewer assets, when adjusted by population, they stay mired in last place. From Richter:

“When the wealth of the bottom 50% increases by 5%, they gain about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they on average gain $3,500,000,000.”

More from Richter:

“In 1990, the wealth disparity between the average top 1% household and the average “bottom 50%” household was $5 million.”

Since March 2020, the wealth disparity between the average top 1% household and the average bottom 50% household has grown by $11.2 million per household.

The bottom 50% of Americans spend all or nearly all their income on housing, transportation, food, healthcare, etc. They hold few stocks and very little real estate. Add that to our current round of inflation, and in order to get by, the bottom 50% are spending nearly all of their income.

They’re the ones paying for the Fed’s policy of enriching asset holders.

We know that average wages and salaries have gone up a lot. Ben Casselman of the NYT says that the wages of low-wage workers have gone up by nearly 12% in the last year; but remember, that’s on a low base. So the worker bees in our economy have a long way to go, while the richest asset holders got vastly wealthier, thanks to the Fed’s policies.

Time to wake up America! The phony trickle-down theory has amazing persistence among US policy makers, despite being amazingly damaging to most of us.

To help you wake up watch an American icon, Taj Mahal perform “Good Morning Ms. Brown” in 2014 while riding in a mule-drawn carriage in the French Quarter in New Orleans:

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Monday Wake Up Call – December 10, 2018

The Daily Escape:

The twin peaks of Ushba, Caucasus Mountains, Georgia – photo by Pflunt

Last week, Bernie Sanders was with Paul Jay on the Real News Network. The discussion was about how growing income inequality isn’t simply unfair. Bernie said:

Concentration of wealth in America causes concentration of political power.

Sanders had spoken at (his wife Jane’s) Sanders Institute in Vermont on Wednesday. In his subsequent interview, Bernie said:

But it is not just that the one tenth of 1 percent owns more wealth than the bottom 90%. They don’t put their wealth underneath their mattresses….They use that wealth to perpetrate, perpetuate their power. And they do that politically. So you have the Koch brothers and a handful of billionaires who pour hundreds of millions of dollars into elections, because the Supreme Court gutted the campaign finance laws…and now allow billionaires quite openly to buy elections.

We all know that wealth equals political power. Sanders gave a great example:

Lloyd Blankfein, the head of Goldman Sachs, came to Congress a few years ago…after the taxpayers of this country bailed them out because of their greed and their illegal behavior…..These guys, after getting bailed out, they come to Congress. They say, you know what we think Congress should do is…cut Social Security, and Medicare, and Medicaid. And by the way, lower corporate tax rates and give more tax breaks to the wealthy. That’s power. That’s chutzpah. We have it all, we can do whatever we want to do.

He closes with this:

My vision is that we have got to have the guts to take on Wall Street, take on the pharmaceutical industry, take on the insurance industry, take on the 1 percent, and create an economy that works for all.

….We’re seeing great young candidates who didn’t wait on line for 20 years to get permission to run, but kind of jumped in and beat some long-term incumbents. They’re saying, hey, I come from the community. I know what’s going on in this community, and I’m going to fight for working people, and I’m not afraid to take on big money…..So a two-part approach…..we need to fight for our agenda. We need to elect candidates from the grassroots who…are going to implement that agenda.

Bernie is the best messenger about our urgent need to reform capitalism.

In a similar vein, Seth Godin wrote last week about what he calls “Linchpin Jobs”. These are jobs that few can do, and which contribute greatly to society. That’s an interesting concept, but Wrongo focused on his apt description of “Cog Jobs”, which anyone can do, and which can be done with little effort, or skills: (emphasis by Wrongo)

Industry offered a deal to the worker:

Here’s a job. We’ll pay you as little as we can get away with while still being able to fill the job. We’ll make sure it’s easy to find people for this job, because we don’t want you to have much in the way of power or influence….In return, you’ll work as little as you can get away with. That’s the only sane way to respond to the role of being a cog.

This is the dilemma that faces low-skilled workers today: They can find work, but they can’t live on what they make at only one job. Clearly, cog-like work doesn’t create nearly as much value as intelligent work, but not everyone can find a linchpin job, they’re rare.

Can the paradigm that concentration of wealth equals concentration of power be shifted? Is Bernie Sanders the next FDR? While Wrongo thinks we need a younger leader to reform capitalism, Bernie is the right messenger for reform. His effectiveness as a messenger is clear when we see that 70% of the American people now support Medicare for All, just two years after his 2016 campaign.

And the message is clear. Without reform, we’ll have to look our grandchildren in the eye, and say we’ve wrecked their future.

Time to wake up America! This is the signal issue of our time. The reform of Capitalism must be at the top of our agenda.

Whomever the Democrats nominate for president in 2020 has to be a person that can start America down the road toward reducing the concentration of both money and power in America.

The choice in 2020 will either be more Trump, or a Democrat.

We shouldn’t select another tepid corporate Democrat. They probably won’t win. If by some chance one wins, we’d have to watch as our society becomes even more unequal for the rest of our lifetimes.

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