America’s Perilous Path Of Wealth Distribution

Summary

• We illustrate the stark contrast in the growth of household wealth between the different percentile groups since Q1 2000
• The top 1% of households now hold more wealth than the bottom 90%
• The aggregate nominal wealth of the bottom 50% of households has fallen by almost 10 percent since 2000, from 3.4 percent of total household wealth to just 1.3 percent
• The share of the top 1% is now over 31 percent and has grown by over 165 percent since Q1 2000
• The average wealth of the bottom 50% of households has declined 25 percent in nominal terms and 50 percent in real purchasing power compared to the 1%’s increase of 118 percent and 50 percent, respectively
• The widening wealth gap is a major factor in the rise of populism in the country and the debate over a wealth tax will be a central focus of the 2020 presidential election
• Asset inflation resulting from quantitative easing (QE) has contributed to the wealth gap
• Long pitchforks

Wealth Tax

We hear a lot these days about wealth taxes.   A new wealth tax on the upper top of the 1% will likely be at the center of the 2020 presidential campaign.

This kind of rhetoric and these ideas just don’t happen in a vacuum and are gaining political momentum.  Our analysis will illustrate how it is based and mored in the two-decade-long change in the country’s wealth distribution.

The prediction markets now give Elizabeth Warren a 50 percent probability of winning the Democratic nomination compared to only 21 percent for Joe Biden.

Upshot

So, there you have it, folks.  It doesn’t take a few Ph.D. economist or political scientist to understand today’s political economy.  Just contemplate the few charts and data points above.

It will certainly be one of the main drivers of the 2020 presidential election and the winner will most likely be the candidate who convinces the majority of the electoral college or the swing states, that he/she can best fix it or is better at exploiting the rage against it.

The concept of fairness in the distribution of resources is not just political but the literature increasingly shows is more innate and helps an economy and society run more efficiently and smoothly.  See our June post, The Innate Angst Of Inequality, or take a few minutes to view the video in the Appendix at the bottom of the post.

Either way, we suspect 2020 will be ugly.

We are hoping for new policies that pull the lower middle and bottom 50% of households up to close the wealth gap rather than an ugly asset price deflation.  The quickest but ugliest path to close the wealth gap is for both public and private equity markets to take a 50 percent hit, which will hurt the most vulnerable more.

We are not so sure asset markets can handle and sustain a hard-left political turn.  We are fairly certain, however, the current trajectory is not politically sustainable.  Whatever the scenario, the markets are very vulnerable and to extract ourselves from this mess it is going to take some effective leadership.

Stay tuned for more data posts.   Long pitchforks.

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Appendix