E The 0.01%

Since three readers sent me the following note I guess I'd better react to it. Matt O'Brien wrote Wednesday in Follow@ObsoleteDogma about research by Emmanuel Saez of UC Berkeley and Gabriel Zucman of the London School of Economics:

“Once upon a time, the American economy worked for everybody, and even the middle class got richer. But this story has only been a fairy tale for almost 30 years now. The new, harsh reality is that the bottom 90% of households are poorer today than they were in 1987.
“This is actually a much more dramatic statement than it sounds. While the Federal Reserve has already told us that the median households is worth less now than it was in 1989 -- that's the household right in the middle -- it turns out that everybody but the richest 10% of Americans are worst off. That includes the poor, the entire middle class, and even what we would consider much of the upper class.

“This troubling finding [is] based on data from Saez- Zucman's new paper on U.S. wealth inequality, based on tax data. Inflation-adjusted net worth from 1945 indexed to 100, [shows] that the bottom 90% actually did very well during the first decades of the postwar period -- adding more wealth, in percentage terms, than those at the top.

“But these days of shared prosperity have come to an end, gradually and then suddenly. It started in the 1980s when the top 1% awoke from their long postwar slumber, thanks to the combination of lower taxes, financial deregulation, and new technology. It wasn't a total disaster for the bottom 90%. Even as most Americans saved much less, accumulating far less wealth, stock markets and housing prices continued to rise. Until they didn't, coming crash down in 2007-2008.

“The problem was that middle class doesn't own that much in stocks, but went into debt to buy lots of housing. So the housing crash turned their biggest financial asset into an albatross, wiping out their equity but not their debt. And the housing recovery hasn't done much to fix this, since it's struggled to move beyond the 'nascent' stage.

“Stocks, meanwhile, collapsed during the crisis, but came back soon after. The middle class, in other words, missed out on the big bull market in stocks, but not on the even bigger bear one in housing.

“That's why the recovery has restored so little of the wealth that the recession destroyed. The bottom 90% kept losing net worth the past few years, in large part due to rising student loan debt."

Lost 25 Years

“It's been a lost 25 years for the bottom 90%, but a lost 15 [years] for the next 9% too. Altogether, the bottom 99% are worth less today than they were in 1998.

“This isn't a story about the top 1% running away from everybody else. It's a story about the top 0.01% doing so. Since 1980, the top 0.01 percent's piece of the wealth pie has increased by 8.6 percentage points, while the next 0.09 percent's has done so by 5.4. The bottom 99%, meanwhile, have seen their wealth share fall an astonishing 18 percentage points.

“A bit of historical perspective: the top 1% now own over 41% of all the wealth in the country. That's the most since 1939, although still well below the all-time high of 51% in 1928.”

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