Comments on: United States Inequality in the Recovery Period

By: arlene

arlene — Fri, 21 Aug 2009 16:37:15 +0000

loved your response

By: Will

Will — Thu, 20 Aug 2009 20:28:59 +0000

typo (change “seperate” to “separate”) about 3/4 of the way through the post:
“I bring it up because, in a separate analysis of similar data, Zero Hedge made similar points”

By: LAS

LAS — Thu, 20 Aug 2009 17:57:13 +0000

Were the super wealthy ever really doing economically productive activities in excess of middle and lower class peoples? I am skeptical. I think that’s a lovely myth paid for by the super wealthy and exceptional pompous. Thousands and thousands of middle and lower class people make many small donations practically daily. They are at least as caring. Wealth ownership does not prove superiority of morality in any manner. Homage to wealth merely proves the social prison that we live in.

By: Robert

Robert — Thu, 20 Aug 2009 17:54:29 +0000

I think the middle class was and will be impoverished by labor arbitrage due to globalization. Bargaining power is shifted from labor to capital due to the increased labor supply from Asia and Eastern Europe. This was only covered up by the credit expansion but has been visible in places that did not participate in the credit bubble for years. Real incomes in Germany and Japan have been falling considerably in the last decade.

I don’t think this can be changed by wealth redistribution. We will have to wait until incomes globally have converged enough to make labor arbitrage (in the form of outsourcing, immigration or imported stuff) less profitable. In the meantime we should protect what is left of the manufacturing sector. Otherwise we end up as a colony of Asia.

By: Skeptic

Skeptic — Thu, 20 Aug 2009 13:34:09 +0000

Have you checked this data? If you look at the chart, you see that the middle class debt is only 25% of their assets. My first reaction is that is not a very large amount of debt at all. When you buy a first house, you put 20% or less down, and that usually absorbs all your assets. At 20% down, 80 % loan, you immediately have a debt/asset ration of .8. (Your debt is the 80% loan, your only asset is the house ) At 10% down, that ratio becomes 0.9. This is assuming all your wealth went into the down payment and the house price is really its worth, or asset value. The middle class looks to be in good shape at a debt/asset value of 0.25.

The other segments are in even better shape. Either the data is wrong, or we are all in better shape than we thought!

By: StatsGuy

StatsGuy — Thu, 20 Aug 2009 04:19:01 +0000

Actually, another point has to do with identification. Not only is paper housing wealth harder to measure, it’s also less variable year on year (for most years). The stock market fluctuates much more dramatically, which yields more leverage with which to estimate the parameter.

For housing wealth, it might be more appropriate to include the 3 or 5 year change…

By: StatsGuy

StatsGuy — Thu, 20 Aug 2009 04:14:20 +0000

Interesting paper (read the PDF link), a couple weaknesses:

- It’s the EU, not the US. Generally speaking, the EU wasn’t quite as profligate as the US.

- Measuring housing wealth is noiser than measuring cash/stock assets, and therefore subject to EIV (errors in variables) and the iron law (tends to attenuate estimates).

- The paper attempts to measure the impact of UNREALIZED housing (i.e. “paper”) wealth. However, during our boom, MUCH of that “paper” wealth was converted to currency wealth (by selling), which was funded by large mortgages (leaving other people impaired, and the banks holding lousy assets).

- They use a 1 year lag, but it’s quire possible that’s not the appropriate lag. Again, cash/stocks are more liquid and the recognition of that wealth potentially more immediate than paper housing wealth. This also does not account for the phenomenon of housing wealth being used as a backstop to cover excessive consumer loan indebtedness (via consolidation HELOCs).

The paper makes a point, but I would not dismiss the housing wealth argument in the US so quickly…

By: Guillaume Nolin

Guillaume Nolin — Thu, 20 Aug 2009 02:42:47 +0000

Ask the Argentines how that turned out…

http://www.ft.com/cms/s/2/778193e4-44d8-11de-82d6-00144feabdc0.html

By: engineer27

engineer27 — Thu, 20 Aug 2009 01:23:51 +0000

For those interested, Studs Turkel interviewed some rich people during the Depression. The gist of the interview I heard was “we had to keep a low profile so we weren’t lynched.”

You can hear part of the interview on an episode of “This American Life.”
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1269

By: Silke

Silke — Wed, 19 Aug 2009 23:11:05 +0000

I don’t mind Hegemony that has always existed albeit in multiple disguises – I wonder about what he means by eugenics and family planning – is he dreaming of Napolas? http://en.wikipedia.org/wiki/National_Political_Institutes_of_Education
to the best of my knowledge they were encouraged to breed to enhance the quality of the stock

By: Silke

Silke — Wed, 19 Aug 2009 23:06:23 +0000

hey!!!
Andrew Somebody the last guy who became prominent because he honestly as his contract says earned a 100 million Dollars bonus owns a castle in Germany – therefore I want that country to be included in your list
- especially since Northern Germany where the castle is needs tourism urgently though Andrew ??? has first to be shamed in turning it from a private into a public museum.

By: Yakkis

Yakkis — Wed, 19 Aug 2009 23:02:51 +0000

Hegemony and eugenics forever! eh pacer?

By: Yakkis

Yakkis — Wed, 19 Aug 2009 22:54:05 +0000

What happens if instead of engaging in those things they buy Japanese or German cars (lexus? infiniti? bmw?), Swiss watches (rolex?), time-shares in foreign resorts, offshore bank accounts, large yachts flying the panamanian flag, second/third/fourth/fifth/sixth homes (chateaux in france? london? tuscany?), investments in Chinese real estate, foreign currency, hedge fund investments, helicopters and aircraft from airbus, exclusive club memberships, assorted global stocks and bonds, small islands, artwork and sculpture from international dealers, antique rugs from persia, etc…

Then what?

By: StatsGuy

StatsGuy — Wed, 19 Aug 2009 22:19:54 +0000

Actually, not so badly for those who stayed in hard cash or gold… For those who had money, life in the depression was exceptionally luxurious and very cheap.

There just weren’t that many of them – many people were highly leveraged, or margined, in the stock market. Many had assets in failed banks.

The key, for those who stayed in cash, was to spend a smaller percentage of their wealth than the rate of deflation. And this was easier for the wealthy than the poor.

By: Rob Horning

Rob Horning — Wed, 19 Aug 2009 21:10:19 +0000

The Economist’s blog reported on a recent paper that seems relevant to your point here about housing wealth vs. wealth from other investments.

http://www.economist.com/blogs/freeexchange/2009/08/the_housing_wealth_effect.cfm

The upshot: housing wealth effects are statistically insignificant; investment wealth effects are statistically significant. Possible that investment wealth translates more readily into consumption, which reinforces status, strengthens the perception of inequality to go along with its appearance in statistics.