Spreading the Wealth? Market IS Doing It!

At almost every election period candidates almost always raise the issue of income inequality as one of their top drawing crowd agenda. And almost always the seeming all popular solution has been to find ways to redistribute wealth.

It is like donating part of what you earn (although through legal coercion) to the underprivileged person on the street hoping that he/she uses this to improve on his/her life or at least to his/her family and much more importantly contribute to the wellbeing of society. Noble intentions indeed.

But here is the problem, what if the person turns up to be a dreg who takes your donation only to buy a bottle of gin? What if most of what we redistribute ends up producing a culture of dependency or to the pockets of the so-called wealth distributors? What if societies’ most productive resources are mainly channeled to non productive activities?

The end result is likely a lowered standard of living for the said society.

Nevertheless, who has the widest income equality or tendency to “spread the wealth” among the rich nations?

The answer is the US, that’s according to the Economist, `` And there is a lot of spreading potential: income distribution in America is the widest of the 30 countries of the OECD. The top 10% (or decile) of earners have an average $87,257 of disposable income, while those in the bottom decile have $5,819, among the very lowest of any country. Britain, Canada and Luxembourg also see big differences between the richest and poorest.”

Courtesy of the Economist

So it wouldn’t take so much for US Presidential candidates, during this election season, and liberal media to raise what development author Robert Ringer call as GAVEC ("guiltism", "angerism", "villainism", "envyism", "covetism") to ride along the advocacy to snag political power by promulgating policies of “spreading the wealth”.

But it doesn’t really require politicians to do it.

The way financial markets have been behaving today seems like more than sufficient force for wealth equalization.

For this year an estimated $30 trillion have been wiped off from global equity markets, notwithstanding losses written off by banks (estimated $680 billion) and global real estate markets.

Courtesy of Wall Street Journal

And which social group have been taking THE beating? You guessed... it the wealthiest!

This from Robert Frank in Wall Street Journal,

``The share of income held by the richest 1% of Americans has declined during each of the past three downturns. Between 2000 and 2002, their share fell to 16.9% from 21.5%, according to Internal Revenue Service income data compiled by economists Emmanuel Saez and Thomas Piketty.

``Their share also fell during the 1990 recession, hitting 13.4% in 1992 compared with 15.5% in 1988. The steepest decline was during the Great Depression, when the richest 1% saw their share of income plunge to 15.5% in 1931 from 23.9% in 1928.

"The Depression may be the best analogy for today when it comes to what will happen with income shares," said Mr. Saez, an economics professor at the University of California, Berkeley. He predicts that the share of income held by the top 1% will probably fall to 18% or 19% in the next year or two -- down from an estimated 23% or 24% in 2007.

``During the Depression, the assets of the wealthy declined along with their incomes. In 1928 the richest 1% held 36.5% of the nation's wealth; by 1932 it shrank to 28%. Studies by other economists and researchers show similar declines.

``The main reason for the declines: falling stock values. The wealthiest Americans have a greater share of their wealth concentrated in stocks and financial assets. When stocks plunge, as they have lately, the rich are hit disproportionately.

``The wealthiest 1% of Americans held more than half the nation's direct holdings of publicly traded stocks in 2004, according to the Federal Reserve. Stocks accounted for 11% of their wealth, compared with less than 3% for Americans in the 50th to 90th percentiles. The rich also earn more of their incomes from stock options.

``Of course, the rest of America also is losing wealth and income -- from falling home prices, rising unemployment and declining 401(k) accounts. But rising inequality has largely been fueled by surges at the top, and without capital gains or soaring business profits, those gains will reverse.”

So liberals should now pop the champagne bottles to celebrate the narrowing wealth inequality even without policy actions!

At the end of the day we get ourselves to be reminded of George Orwell's cynical Animalism laws in his satirical novel the Animal Farm ``All animals are equal, but some animals are more equal than others."