Inequality is as much in the news as ever. Here’s an infuriating piece from The Guardian telling us about the ludicrous amounts of money we pay star (and perfectly ordinary) fund managers. And here’s one from The Daily Mail on the grotesque overpayment of university vice-chancellors.
There are all sorts of reasons for rising income and wealth inequality, and I’ve written about it a great deal before.
There is the way executive compensation works, the lack of effective competition in the financial industry, the pathetic inactivity of long-term shareholders when it comes to remuneration (although clearly we can’t expect over-paid fund managers to effectively police overpaid investment bankers and corporate CEOs).
Then there is the tax system across the West, which taxes income way more than wealth and has pretty much abandoned the idea of using estate taxes to force a modicum of equality of financial opportunity within societies.
There has also been a long and unchallenged trend to ‘oligopolisation’ in big business. And finally, of course, there is quantitative easing which has ended up doing little more than pushing up asset prices such that anyone holding the right assets (US equities, London houses, etc) has been made significantly richer than they might have been, through no effort of their own.
But within this inequality debate, a few very important points have been missed. The first is that the new wealth has accrued to very few people. There is much talk about the 1%. But the 1% doesn’t actually exist in this context. It is more about the 0.1%.
There is an excellent article on the matter here, but the key point is that for the vast majority of the people at the top of the income tree, not much has changed. They are still making more than everyone else, but in much the same proportion has they always have.
However, within the 1% there is a tiny group of people for whom incomes and wealth have risen exponentially, making them not just very well off relative to everyone else, but very rich relative to everyone else.
Its worth looking at the charts to see the point at which the 0.1% really started to shift away from the rest of us. The year in which Alan Greenspan took over at the Fed and started the long process of responding to every crisis or potential crisis with an interest rate cut – see the chart here.
“Long story short,” says the Atlantic, “this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it’s this investment income, rather than ordinary earned income, that’s creating this extraordinary wealth gap.” Monetary policy has changed our world.
We’ve written before that extreme monetary policy is a (bad) fiscal policy in that works as a regressive redistribution policy – transferring massive wealth to asset owners. There is now no doubt of that.