From: eder@hsvaic.boeing.com (Dani Eder)
Newsgroups: misc.invest
Subject: Re: Concentration of wealth
Date: 5 Oct 92 21:51:43 GMT
Distribution: na
Organization: Boeing AI Center, Huntsville, AL

mcdonald@cs.sfu.ca (Ken Mcdonald) writes:

>Um, actually, I'm not making this mistake.  Notice that I said
>IF the real growth of these families grows faster than the
>country's real growth; this is an explicit recognition of the
>growth of wealth, if I've ever seen one.

>The big mistake being made by people who oppose any of this
>sort of government intervention is their assumption that things
>will work out reasonably fairly if left to themselves.  Historically,
>the reverse has often been true; many countries have move from
>relative freedom to a state where more and more political and
>economic power is concentrated in the hands of fewer and fewer
>people.  This trend, to me at least, seems very obvious in the US.

>I am very wary of government, because government has traditionally
>been the tool of the concentration of wealth and power, through
>the passage of laws which favour those with money and influence,

An even distribution of wealth is an unstable equilibrium as long
as there is a distribution of incomes based on ability and a
distribution of expeditures based on personal preference.  In my
own case, I'm a fairly well paid engineer, and my livings expenses
aren't that high, since I don't spend that much.  Consequently I've
always saved a considerable portion of my income.  Real wealth
has been growing at something like 4% per year in the US.  The
expected rate of return on investments is about 8%.  So if someone
has accumulated a net worth of 25 times their annual income, they
can stop working, spend 4% of the income, and let the other 4%
compound.  If they are above this point, they will tend to
accelerate ahead of the general wealth.

The trend in the US in the 80's is far from clear.  The statistical
abstract of the US provides data on total wealth and top wealth-
holders:

In 1982, total private wealth (not counting government assets) was
7,384 billion dollars (B$).  Millionaires, those with a net worth
over 1 million dollars (M$), were estimated to be 407,700 in number
(from estate tax returns), and to have an aggregate worth of
1,122 B$.  Semi-millionaires (net worth >0.5 M$ but under 1 M$)
numbered 868,000 with an aggregate worth of 651 B$.  

Thus the millionaire category
represented 0.48% of the 84 million households in the US, and
held 15.2% of the private wealth, which means they averaged 31.6
times the average worth per household.  The semi-millionaires
represented 1.03% of the population and held 8.8% of the wealth,
thus they averaged 8.54 times the average worth.

In 1986, total private wealth increased to 9,170 B$ (current dollars).
Millionaires numbered 941,000 with an aggregate worth of 2,480 B$.
Semi-millionaires numbered 1,548,000 with an aggregate worth of
1,066 B$.  There were 89 million households.

Thus in 1986 the millioniare category represented 1.06% of the
population and 27% of the wealth, being 25.4 times the average
worth.  The semi-millionaires represented 1.74% of the population
and 11.6% of the worth, so they averaged 6.67 times the average
worth.

These figures can be looked at in two ways.  One is that the
'wealthy' defined by those who have over 0.5 M$ have become
more numerous, so more people are getting rich.  Another is
to look at the concentration of wealth.  In 1982 the 'wealthy'
had 24% of the wealth and 1.5% of the population, thus the
not-wealthy had 76% of the wealth and 98.5 % of the population.
Therefore the wealth of the wealthy was 20.7 times the per-capita
wealth of the not-wealthy.  In 1986, 2.8% of the population had
38.6% of the wealth, and 97.2% of the population had 61.4% of
the wealth.  The ratio of wealthy to not-wealthy became
21.8:1.  The difference, given the errors inherent in estimating
wealth of the whole population based on the sample who died
during one tax year, is too small to say anything is happening.

Note that the wealth of the not-wealthy (under 0.5 M$) went from
5,611 B$ to 5,624 B$, while the numbers went from 83 million to
86.5 million.  Given that there was inflation at the time, there
is some justification for saying that the not-wealthy went
backwards, but at the same time, you had a movement of perhaps
300,000 households over the 0.5M$ threshold simply due to inflation
in the 1982-1986 time period, and they carried 150 B$ with them over
the line.  This makes the situation of the not-wealthy less
bad.

 
As far as whether the government acts as a tool to concentrate
wealth, there is a calculation I would like to see.  Government
takes money (in taxes mostly) from a distribution of wealth
categories - from those who are working poor and pay cigarette
and gasoline taxes, to estate taxes on dead Rockefellers.  On
the other side, people get money from the government - from
the paychecks of federal employees, to interest payments on
treasury bonds, to Social Security checks.  I would like to
see the graphs of the money collected as a function of wealth
(net worth) vs. money disbursed as a function of wealth, to
see if the government predominately takes money from the
rich and gives it to the less well off, or the other way
around.

I don't really know which way it goes, but I'm curious.  If there
is no one on the net who can point to such as study, I may 
dig into the data and try to do it myself.

Dani Eder

-- 
Dani Eder/Boeing/Advanced Civil Space/(205)464-2697(w)/232-7467(h)/
Rt.1, Box 188-2, Athens AL 35611/Member: Space Studies Institute
Physical Location: 34deg 37' N 86deg 43' W +100m alt.
***THE ABOVE IS NOT THE OPINION OF THE BOEING COMPANY OR ITS MANAGEMENT.***
Newsgroups: misc.invest