The Ebbing Tide Sinks All Boats (If You’re Rich Enough To Have A Boat)

David Leonhardt and Geraldine Fabrikant in NYT:

The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.

Daniel Indiviglio in the Atlantic:

The article explains that for the rich to recover their earnings quickly, they usually rely on bubbles. For example, after they lost wealth in the tech bubble of the late 1990s, the real estate bubble began, so they shifted investments to that market. If we can avoid a bubble going forward, then we might also avoid the wealth gap increasing. Of course, that might be hard to do.

Few may have sympathy for wealthy Americans losing some money if they’re still comparatively quite rich. But as the rich get poorer, so does everyone else. Even if you don’t believe in the trickle down effect, the wealthiest Americans affect the economy in many ways. If they have less money, then business investment and charity will also suffer. So will the arts. Government tax revenue will also take a major hit. Less money for the government from the rich will make social programs and entitlements more difficult to pay for.

That’s not to say it’s good for the wealth gap to widen to infinity. Obviously it isn’t. But for the rich to get poorer without the rest of the population getting richer isn’t a positive trend either.

Joe Weisenthal at Clusterstock here and here.

But the people who got super-rich during the housing bubble weren’t the dot-com billionaires, and the dot-com billionaires weren’t the billionaires of the early 90s. These populations change, and to the extent that people aren’t likely to ‘bounce back,’ it’s probably the case that most people never bounce back. If you’re insanely lucky you get one good run — streak of luck — and that’s it. And if you lose everything, no rising tide will make you super-rich again.

The same goes for discussions of the poor. You frequently hear about how “the poor” haven’t made strides in decades, but it assumes that the poor today are the same people who were poor in the 1970s. But the poor population is always  being replenished by new immigrants and others, and so this stat is misleading. People do jump around all the time.

Measuring economic mobility is important, and perhaps it’s not as good in the US as we’d like it to be. But just measuring “the poor” or “the rich” as a static block doesn’t get us very far.

Reihan Salam at National Review:

Again, we could see the return of ruinously high marginal tax rates, but it’s important to note that the Democratic coalition depends on a small number of affluent voters who, as we saw during the debate over the proposed income tax surcharge in the House health bill, are tax-sensitive. While progressive activists want significantly steeper progressive taxes, the Democratic donor base does not.

More Salam

The Blog of Legal Times

James Pethokoukis

Digby:

This economy is just terrible on so many people. The stories are just heart breaking, with people losing their life savings, their homes, their jobs, their health insurance, everything.

Thank the Good Lord for the NY Times or we wouldn’t hear about the absolute worst of the news. This one hurts so much:
Rise of the Super-Rich Hits a Sobering Wall

[E]conomists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

The individual stories will make you cry:

In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.

Auction his last big property? Down to his last four million? Dear God, where will it stop?

Can’t we do something to help these people? Oh, right. Well, something more, then?

Are we not our brother’s keepers?

UPDATE: Greg Mankiw

Matthew Yglesias

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