Last week we pointed to a chart from Berkely economist Emmanuel Saez showing that the gap between the rich and the poor had never been wider, with the top .01% collecting over 6% of the nation’s income.
Today though the NYT declares that the super-rich have hit a wall, and that the collapse of financial markets has finally reversed the trajectory of this group.
Last year, the number of Americans with a net worth of at least $30 million dropped 24 per cent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 per cent since last summer, the biggest such decline since the government began keeping records in 1959.
Bill Gates, Warren E. Buffett, the heirs to the Wal-Mart Stores fortune and the founders of Google each lost billions last year, according to Forbes magazine. In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.
Immediately, we can see one difference between what they’re talking about here, and what Saez is talking about. He’s talking about the income gap; they’re talking about the wealth gap. The two aren’t necessarily contradictory.
What’s irritating about all of these stories though is the way the “the rich” or “the super rich” as a defined cohort, rather than a fluid population, which people are always joining and dropping out of.
But economists say that the rich will probably not recover their losses immediately, as they did in the wake of the dot-com crash earlier this decade. That quick recovery came courtesy of a new bubble in stocks, which in 2007 were more expensive by some measures than they had been at any other point save the bull markets of the 1920s or 1990s. This time, analysts say, Wall Street seems unlikely to return soon to the extreme levels of borrowing that made such a bubble possible.
But the people who got super-rich during the housing bubble weren’t the dot-com billionaires, and the dot-com billionaires weren’t the billionaires of the early 90s. These populations change, and to the extent that people aren’t likely to ‘bounce back,’ it’s probably the case that most people never bounce back. If you’re insanely lucky you get one good run — streak of luck — and that’s it. And if you lose everything, no rising tide will make you super-rich again.
The same goes for discussions of the poor. You frequently hear about how “the poor” haven’t made strides in decades, but it assumes that the poor today are the same people who were poor in the 1970s. But the poor population is always being replenished by new immigrants and others, and so this stat is misleading. People do jump around all the time.
Measuring economic mobility is important, and perhaps it’s not as good in the US as we’d like it to be. But just measuring “the poor” or “the rich” as a static block doesn’t get us very far.
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