Too Much Money At The Top

Economics, as I have said often, is confusing. Among the many matters that the so-called dismal science deals with badly is the distribution of wealth in a group, a society, or in the world at large. Wealth to many in the modern world basically means how much money you have or how much the value of the things you possess amounts to.

Often those who begin to accumulate wealth also gain power and influence, one feature of which is the capacity to accumulate more power and wealth. Then money or the possession of the other things we equate with money may simply become an end in itself. Those who possess great power and wealth often want more and more, and while the distribution of wealth in a community a nation or a society or in the world is not a zero sum game, the existence of many with great wealth often means that many others have less and some have very little wealth. Yet the existence of some in a group with great wealth often shows those who are behind that it is possible to be wealthy if we work hard at doing just that.

Great wealth is not always an end in itself, but rather comes to one who is smart or talented or both in ways that the society values. If you can build something, or you have a skill that you can organize and promote, others may pay you very well. Nevertheless, at times this distribution of wealth can get out of hand in that too much money can come into the hands of too few people. The kingpins of the society pay themselves more and more, managing to, in effect, tell others that they, the kingpins, do what is valuable and that they must be paid accordingly.

The CEOs and others who run the major industries pay themselves more and more claiming that because no one can do what they can do. They run their shops on very little or as little as possible, paying as low a wage as they can get by with. Some who work very hard or possess a key skill may be paid well, particularly if their talent is in demand elsewhere. The leaders of business often run their shops on as little as possible, paying out as little as possible for infrastructure renewal over time. Their businesses may pollute the environment toward which they may not pay in full measure what may be necessary to clean it up. The people who handle the money and guide reinvestment may collect and keep as much as is possible. The basic idea is to grow profits more and more.

Ultimately these profits may be removed from the consumer economy. Excesses may be removed into offshore accounts, and while these funds may still be reinvested to gain more and more profit or returned to share holders, the money is not available to elevate the status of the community or the country. Money and wealth are often used only to accumulate more money and wealth. Few, even the very wealthy, will ever make much use of a $100-200 million IRA sitting in an offshore, or protected account. It is money largely unspent in the short term, and contributes nothing or very little to the growth of the economy.

Certainly it is true that some of the very rich will give away large sums of money and wealth as they near the end of their lives, but we really don’t know if this is true in average. Bill Gates and Warren Buffett are not necessarily average. They are both billionaires many times over and at or pretty nearly at the top of the food chain. Still, they use sizable sums of their excess wealth to give back. Many others, give large sums of their excess wealth to politicians and political action committees, to universities and hospitals. This has likely increased a great deal over the years as the very rich have been motivated by such significant sums of money as they have to spend before they have to “give it away” to the government, unless they can manage to push Congressional action to eliminate or reduce measurably the inheritance taxes before they die.

The super rich and very rich are no longer restricted to America. Every country has them now, even China.

In the face of massive wealth at the top, the very poor are growing in numbers both in America and around the world. Wealth among the moderate wage earners has created a sizable middle class both in America and around the world. This is owed largely to a belief in the importance of a consumer economy. Even the kingpins of industry believe that if there are no workers, even those who earn a moderately low wage to buy products, then there is little reason to make them and everything collapses. In America and in many other countries in the developing world modest wealth has developed mainly in four areas: (1) owning a house, (2) possessing an IRA or equivalent retirement plan (3) Social Security (intended to provide minimal means as a safety net to those who may neither own their own home or possess a sizable IRA or its equivalent), and (4) Medicare/Medicaid (which provides baseline medical care). In 2008 the value of housing was basically cut in half while 30 -70 percent of the IRA may have disappeared at the same time. Now, there is considerable discussion regarding cutting Social Security and Medicare/Medicade over the long term.

While housing values appeared to have bottomed out by 2012 and some but not necessarily all IRAs have been rebuilt, the net value of where we are is still down considerably from where it was in 2008. Social Security as well as Medicare/Medicade will change over longer term and possibly be completely readjusted for those still distant from taking advantage of those programs. These changes have affected the net worth of the so-called middle class reducing it by as much as half early on. Some of that wealth has been rebuilt and reorganized, but it remains to be seen whether this is a lethal blow to those who are younger and still developing their skills and talents. It will certainly be harder now to accumulate wealth even at a low to modest level.

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