Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Snow in July in Austria and Switzerland
Why US Multinationals Oppose Trump and Favor Clinton
Apple’s CEO, Tim Cook, announced that Apple would not contribute to the costs of the Republican convention in Cleveland this year as it has done in past conventions. Apple is a corporation incorporated in the.US but almost all of its products are produced in China. It is a Chinese company much more than it is an American company. And so are many other “U.S.” multinationals, including a number of high-tech companies like Hewlett-Packard. Hundreds of major American corporations have shipped millions of jobs overseas, according to an analysis of Trade Adjustment Assistance (TAA) filings made to the U.S. Department of Labor's Employment and Training Administration on behalf of the displaced workers. According to a report on CNN, over 900 US corporations are producing products abroad, a "who’s who" of American manufacturing firms.
Given that the presumptive Republican candidate for President, Donald Trump has announced his intention to balance trade with China and re-negotiate all USA trade treaties to assure that trade becomes more balanced, Trump has incurred the opposition of companies that produce all or some of their products abroad and their spokesman, the US Chamber of Commerce. The latter in its propaganda lauds the advantages of U.S. exports and does not mention the disadvantages of U.S. imports which exceed the former by several hundred of billions per year causing the loss of millions of American manufacturing jobs. US multinationals account for a substantial share of manufactured goods exports to the US, so it is not at all surprising that these companies should prefer a tweedledee candidate to Hillary’s tweedledum candidacy, lest a tariff be imposed on their exports to the U.S..
U.S. policies contributed to the growth of China as the number two manufacturing power. Pres. Richard Nixon normalized relations with China in 1972. On 24 January 1980 Congress passed a trade agreement conferring Most Favored Nation (MFN) status on China. Despite this move, China’s MFN trade status (which was not granted permanently) created new legal and political impediments to Sino-American trade relations which were not removed until 2001, when China joined the WTO, whose rules prohibit members from imposing trade restrictions on other members except when they are experiencing chronic trade deficits.
Growth in the U.S. goods trade deficit with China between 2001 and 2013 eliminated or displaced 3.2 million U.S. jobs, according to a study by EPI Director of Trade and Manufacturing Policy Research Robert E. Scott. Trade with China has caused job loss in all 50 states and the District of Columbia, including all but one congressional district. About two-thirds of jobs lost, or 2.4 million, were in manufacturing. The U.S. Bureau of the Census reported that American companies abroad and US subsidiaries of foreign corporations trade accounted for about 50.9 percent ($1,178.7 billion) of total consumption imports ($2,314.0 billion) in 2014. Republican and Democratic presidents Pres. Bill Clinton and George Bush did not concern themselves with the trade deficits’ disastrous consequences for American manufacturing workers and the US. Economy tanked as a result, no doubt contributing to the popularity of Trump’s candidacy....
Conservative analyses of EU's failure cite regulation, ignore trade imbalances
I've noticed that conservative analyses of why the EU failed invariably focus upon regulation, but miss the trade imbalances. For example take the British Conservative Party's Daniel Hannan's eloquent and humorous oration at the Oxford Union in favor of Brexit:
Daniel Hannan is correct that the European Union has been an economic disaster. He cites some good statistics to prove his point. But like many other conservatives, he only attributed that disaster to one of its causes: the regulations of the European Commission. He missed the other major cause: the trade imbalances.
Eventually, every trading system which sustains imbalanced trade eventually slows economic growth....
Western Politics at a Point of Disjunction
Politics in the West -- in Europe and the United States -- it at a break point. A phase shift. If as currently appears the British have chosen Brexit, one might say that the moment of disjunction is upon us. What does it mean, and where is it going?
For more than half a century, the dominant political battle in the US and in much of Europe has been between economic and cultural left and right -- a fight principally over the degree to which governments will regulate, and the extent to which governments will tax and redistribute, and secondarily over secular versus traditional values. Major parties of the left and right have been relatively united in pursuit of globalism -- free movement of people, goods, and capital. With the strong vote for Brexit, the political toxicity of TPP and TTIP, and the strong performance of Trump and Sanders in US primaries, that epoch may be ending. The new lines of conflict are between nationalists of the left and right and globalists of the left and right.
Europe, threatened with fragmentation, may yet find the way to a new and more effective synthesis. What is called for is a continental nationalism akin to the nationalism that draws Californians, Alaskans, New Yorkers, and Texans together in the United States. And one that moves effectively to address the critical challenges faced -- defending the great good at the core of the enlightenment project Europe, the UK, and the United States share against both the narrow temptations of nativist nationalism and the dangerous naiveté of globalists who think that a world of perpetual and democratic peace will follow if only they shut their eyes to the folly, short-sightedness, and counter-productivity of their own policies, and the enemies of liberal democracy and the enlightenment on the march abroad.
Inequalities of Wealth and Income Are Poorly Measured and Grossly Overstated
One hears a lot about the inequalities of wealth and income and how immoral and obscene they are. But wealth and income are rewards for what individuals contribute to the economy. The contributions of individuals to the society are grossly unequal. So the rewards should be expected to be unequal. But although they are unequal, they are not nearly as unequal as people believe. In the first place, the inequality of wealth is measured improperly by excluding many forms of wealth such as the value of accumulated social security, annuities, insurance, and pensions. These are largely owned by the middle and working classes. So those who measure wealth inequality are overstating the proportion of wealth owned by the most wealthy. Second, inequality of wealth varies substantially with business fluctuations and interest rates. Inequality of wealth is as great currently as it has ever been but that’s the fault of the Federal Reserve Policy of low interest rates as we shall show below. Third, government taxes wealth at death in the form of estate, gift, and inheritance taxes and this induces the wealthy, in the U.S. at least, to give much of their wealth away, to universities, hospitals, non-profits, and charities during their lifetimes. As for income inequality, it is usually measured before income tax. After tax income is much more equal and a lot income is not counted at all, things like free school, librairies, food stamps, Medicaid, and much else. And those who talk about inequality of wealth and income seldom talk about the relative equality of consumption, or the fact that Americans enjoy the highest standard of living in the world.
Consumption is what individuals take out of the economy. While the rich consume more that the poor and lower middle class, measures of inequality of consumption fail to include not only welfare benefits such as welfare payments, Medicaid, public housing, and food stamps but social security payments, public parks, free schools, public libraries, and much else. Wealth and income are measures of the value that households contributed to the economy whereas consumption measures what households take out of the economy. Inequality of consumption is therefore the only inequality that should be of concern and in the U.S. inequality of consumption is not a problem. The problem that poor are rightly concerned about is their inability to find and hold a job. ...
How Trump could avoid a Trade War -- We're published in the Washington Examiner this morning
To read it, go to:
Global Trade down 9% since 2014
Robert Romano, writing on Net Right Daily, Americans for Limited Government's website, reports that global trade is down about 9% since 2014. He begins:
Most economists think that global trade collapses during global economic recessions due to the fact that countries often raise their tariff rates during those recessions. But the causation is different. First trade becomes imbalanced. Then the trade deficit countries get into financial problems and can no longer buy as many imports from the trade surplus countries. Then trade collapses and world growth stagnates. Finally, trade deficit countries impose balancing-trade tariffs upon the products of the trade surplus countries which allows them to get out of the recession. So the economic recession itself causes both the decline in world trade and the rising tariffs.
We are not the first economists to understand that imbalanced trade leads to global economic slowdowns. We attributed that understanding to John Maynard Keynes in our journal article about our Scaled Tariff when we wrote:...
Jesse was interviewed by Fox News on Saturday
Here's the link:
Paul Krugman, a Nobel Prize winner and a former Princeton University Professor of Economics in an opinion piece entitled “Trade, Labor and Politics” in the New York Times (3/28/2016) and Alan Blinder, currently a Professor of Economics and Public Affairs at Princeton in an opinion piece entitled “Five Big Truths about Trade” in the Wall Street Journal (4/22/2016), urge doing nothing to eliminate the trade deficits the U.S. has been experiencing for over two decades. Princeton was the home of Woodrow Wilson, who created the League of Nations, the beginning of globalization, which is relevant because both are globalists which may explain why they wrote the nonsense we criticize. It is to be hoped that they are not representative of the economics faculty at Princeton.
Krugman begins by writing that the “Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist…” Donald Trump is hardly a crude protectionist. He has said he wants to end the huge chronic trade surplus China has had with us for nearly two decades and will take action to prevent American firms moving their factories abroad. That makes him a wise protectionist because these are actions we need to take. Was Keynes a crude protectionist when he said decades ago that Britain should take retaliatory action against mercantilist “beggar-thy-neighbor” policies pursued by its trading partners? And am I, a University of Chicago Ph. D. in Economics, a crude protectionist for pointing out that economics as a science does not justify “free” trade at all. All that economics has to say is that balanced trade is always beneficial to trading partners. Trade does not need to be balanced with every country but a country’s trade should be balanced overall with its many trading partners. Free trade as a policy could only be recommended by economists when the trading partners 1) have a common currency, 2) there is free movement of labor and capital between them, and 3) neither partner can impose barriers to trade, restrictions imposed on the States by our Constitution. The European Union has similar conditions.
Krugman admits that “for the past few decades globalization has probably been, on net, a depressing force for the majority of U.S. workers.” What an understatement! Millions of American workers have lost good jobs in manufacturing which is the cause of the economic malaise afflicting this country. But Krugman talks about “globalization” as the cause. It was not globalization but the ideology of free trade and the trade treaties that accompanied globalization that produced the unintended consequence of U.S. trade deficits. The United Nations, the World Bank, the International Monetary Fund, the International Labor Organization, the World Health Organization, and hundreds of other agencies were created in the process of globalization but none of them have had a depressing effect on American workers. Only the trade deficits have done that. Krugman ought to stick to economics. Globalization is not economics, trade deficits are. ...
Journalists and Their Economic Illiteracy I.
The editorial page of the Trib-Review in its Saturday edition 4/16/1016 illustrates what is wrong with the media today. First, the editorial on the page criticizes the Republican Party for not opposing the Export-Import Bank created by the Truman administration in 1945. The editorial calls the X-Im Bank crony capitalism because the bulk of its loans go to large companies like Boeing and GE, but in 2015 the bank made more than 2,300 transactions that helped U.S. small businesses export their products. The Ex-Im bank guarantees to keep U.S. banks harmless on loans they make to foreigners to purchase U.S. goods but requires them to use sound economic criteria when they make such loans. The Ex-Im Bank has been entirely self-funded since 2007 and cost the government very little over its life as a bank. It adds nothing to the budget deficit at all. Surely there are better things to cut. There are, according to the EX-Im Bank 85 foreign countries that have export credit agencies. It is not an example of “Crony capitalism”. The latter is evidenced by government grants, subsidies, and tax breaks to favored companies. Examples are the huge subsidies and guarantees given companies producing electricity from wind and solar sources and the tax credits given to buyers of hybrid and electric vehicles which line the pockets of the companies that produce such vehicles. Given the fact that the U.S. imported $500 billion worth of goods and services in 2015 than it exported, there is good reason for its continued existence. The editorial would have been more appropriate when the U.S. was the leading creditor nation in the 1950s and 1960s but today it is the leading debtor nation.
Second, in a column on the editorial page John Stossell,
The Law of Diminishing Returns; How we Escaped Its Consequences
Most of us do not understand the economic Law of Diminishing Returns. Parson Malthus, who gave economics its reputation as the dismal science, postulated that given the fact that the earth’s surface is limited, as population grows the product that each additional worker adds to land’s output of productive land would eventually begin to diminish and that if growth of population were left unchecked, earnings in agriculture per person would diminish to below the level needed to sustain the population. What Malthus and all the classical economists, including Karl Marx, failed to realize was that land was not the only resource employing labor. Most of our labor is employed in producing non-agricultural products and services, combining labor not with land alone but will growing amounts of physical capital. Since the time when Malthus wrote, the end of the 18th century, the U.S. and Europe have experienced rising wage rates as capital per worker increased. But there is some evidence that we have begun to experience diminishing returns again, the result of forgetting that for wages to rise wage-increasing capital investment must grow relative to labor input.
Not many decades ago, after World War II, Japan began to experience rapid economic growth so rapid in fact that a colleague of mine at the University of Pittsburgh predicted it would catch up to the U.S., just as many have been predicting that China’s rapid growth would make it the number one economic power exceeding the U.S. But even economic growth is subject to the law of diminishing returns.ot surprising to economists familiar with the law of diminishing marginal productivity, China’s rate of growth slowed down just as Japan’s had before it. The returns to capital are high when there are lots of new investment opportunities. But new investment opportunities often grow slower that savings, the source of investment capital. Marx thought that savings would always rise faster than investment opportunities. Marx was the real economic pessimist. Marxism is the real dismal science.
Knowledgeable readers may have already guessed that the law of diminishing marginal productivity is merely an application of the economic Law of Supply and Demand. The supply of land being relatively fixed combining it with an ever-increasing supply of labor reduces the amount of product eventually that each additional unit of labor produces, hence the law of diminishing returns. But Malthus did not anticipate the extensive growth of non-agricultural industries over the next two centuries. The production of new products increases the demand for labor causing wages to rise. He never expected the incredible rise in productivity in the industrial and commercial sectors. ...
Recent polling data on trade
Public opinion on trade policy continues to be at substantial odds with most U.S. public policy.
A mid-March Bloomberg poll asked the following question: "Turning now to trade, generally speaking, do you think U.S. trade policy should have more restrictions on imported foreign goods to protect American jobs, or have fewer restrictions to enable American consumers to have the most choices and the lowest prices?" 65 percent supported more restrictions. 22 percent supported fewer restrictions.
Another question asked "Overall, do you think NAFTA, the North American Free Trade Agreement, has been good or bad for the U.S. economy?" 44 percent said it had been bad for the U.S. economy, and 29 percent said it had been good.
Bloomberg's analysis of the poll can be found here. They titled it "Free-Trade Opposition Unites Political Parties...
Who's got the trade policy delusions?
The counter-attack by the "free-traders" is under way. It's unfortunate for them that they have little more to sell than lies, distortions, and delusions.
Case in point is a recent piece on trade in The Daily Beast by Will Marshal and Ed Gerwin (http://www.thedailybeast.com/articles/2016/04/11/donald-trump-and-bernie-sanders-are-delusional-on-trade-policy.html).
The U.S. exports half as many cars as it imports. Imposing tariffs on countries like China and Japan that have worked hard to exclude U.S. made cars from their markets might well move trade toward balance. Tariffs on imports from Mexico would perhaps change Ford's calculus about its newest shipment of U.S. auto-production to that country.
Such a tariff would also provide valuable incentives for some re-shoring of production to the US if maintained....
If the tariffs were imposed by means of the balanced trade "scaled tariff" then retaliation would only further hurt these country's exports. Their better policy would be to begin taking down trade barriers, stop manipulating their currencies, and start finding ways to buy more U.S. products....
Here's how we begin:
To read it, go to:
Trade Agreements Have Been an Economic Disaster for the USA
When the U.S. began negotiating the General Agreement on Tariffs and Trade (GATT) in 1947, it was the world’s leading creditor. By the time the ninth round of negotiations was concluded in 1994, it had become the world’s leading debtor nation, millions of well-paid manufacturing workers lost their jobs, and the U.S. suffered two recessions in less than ten years, in 2000-01 and 2008-09. No wonder the malaise that led to what is clearly a popular revolt in the 2016 primaries. If there is a single statistic that shows the cause of the malaise—and surely it has many causes all associated with government intervention in the economy!—it is the growth of our international trade deficit in the following table.
The table shows that U.S. Gross National Product, GDP, the total output of goods and services, which equals C+I+G+(X-M), ie., total private consumption expenditures, C, plus gross private domestic investment expenditures, I, plus government consumption and investment expenditures, G, plus exports minus imports (X-M). It shows the GDP for selected years 1960 to 2015. It shows that the U.S. had a trade surplus of $4 billion in 1960, which made a contribution to GDP of 0.74 percent, less than one percent but at least positive. As a result of GATT trade agreements from 1947 to 1994 and subsequent agreements with China, Korea, and Mexico, the U.S. experienced growing trade deficits which exploded after 1994.
In 1980 the trade deficit was $13 billion or about 0.45 percent of GDP, less than one-half of one percent. As a result of the successive GATT trade agreements, it grew enormously reaching $376 billion in the year 2000, diminishing GDP by 3.7 percent and contributing to the 2000-01 recession. The U.S. trade deficit grew to a record level reaching $723 billion in 2008 diminishing GDP by a record 4.9 percent and helping to precipitate the Great Recession of 2008-09. As a result of the Great Recession, the trade deficit fell, recovering to $530 billion in 2015, reducing GDP by about 3 percent. In other words, had our trade been in balance in 2015, our GDP would have been $18.5 trillion instead of $17.9 trillion. ...
Cruz' tax plan -- analysis by Tax Policy Center
Tax Policy Center has put together an analysis of Senator Cruz' tax plan. Here are some quotes from an article about it that appeared in Dow Jones Business News:...
An Analysis of the Proposals of the Republican Candidates for President
Following are the proposals and views of the Donald Trump. Sen Cruz, Sen. Rubio, and Gov. Kasich and my comments on their proposals:
Donald Trump, a businessman and graduate of the Wharton School at the University of Pennsylvania, makes the following proposals. Trump
Ted Cruz, a lawyer, graduate of Princeton University, received a law degree from Harvard University makes the following proposals: ...
Rubio, Cruz and Kasich pretended they hadn't backed Obamatrade in yesterday's debate
Julia Hahn of Breitbart is on the story (Rubio, Cruz, Kasich All Backed Obamatrade, Pretend They Didn’t at Miami Debate). Here are some selections. First, Marco Rubio:...
Here's a selection:
Follow the following link to read it:
Memo to Media: Stop the Idiocy -- Focus on the Delegate Counts
The vast majority of the media coverage of the March 1st Super Tuesday primaries had a fundamentally mistaken focus. Most journalistic coverage obsessed about absolutely the WRONG facts and stats. In both parties, all of the states voting on Super Tuesday used some form of proportional allocation of the delegates, with subtly and very importantly different formulas across the states. Because the delegates are allocated semi-proportionately, the right statistics to focus on are not how many states a particular candidate has 'won' but how many delegates.
A close second place finish can net the same number of delegates as a weak first-place finish. For instance, Trump and Kasich tied in the delegate count in Vermont. On the other hand, a blow-out first place finish can yield a very large delegate lead. Sanders ran the table on Clinton in Vermont, taking every single delegate despite proportional rules. The delegate math doesn't conflate these two. Simple-minded coverage that highlights states won does...
Peter Morici: Trump's Edge over Clinton
Morici had a another great column a few days ago: Trump's Edge over Clinton. He laid out the economic case, citing economic statistics, that a Trump economy would be much better than a Hillary Clinton economy. After pointing to the decline in median family income during Obama's presidency, the recession in U.S. manufacturing, currency manipulations by China, and other similar factors. Here's his comparison between the candidates:
Book Review: Henry M. Paulson, Dealing With CHINA (NY, Hachette Books, 2015)
The book shows that Henry Paulson, former Goldman Sachs president, is a fabulous salesman, a friend of the Chinese oligarchy and helped create China as an efficient economic power. As he writes in his preface: “Today’s China is a land of superlatives. It is home to the world’s fastest supercomputer, the biggest wind-power base, the longest sea bridge. It produces and uses nearly half of the world’s coal, cement, iron ores, and steel; it consumes 40 percent of the aluminum and copper. Forty years ago most Americans wouldn’t have imagined owing China one red cent. Now it is the U.S.’s biggest creditor, owning just under $13 trillion of our government’s debt.” And “The Chinese are formidable competitors. But we should not fear competition or shrink from it.”
The first part of his book is devoted to Goldman Sachs' successful attempt to give key Chinese industries access to international capital markets. He describes his meetings with an important Chinese leader, Zhu Rongji, in charge of directing China’s economy, former Mayor of Shanghai and a protegé of Deng Xiaoping the leader of China whose reforms beginning in 1978 led to the spectacular double-digit growth of the Chinese economy during the succeeding decades. The meeting led to Goldman Sachs being appointed to take the nations’s telecom business private, and Goldman Sachs became well-known in China and the rest of Asia.
He deals with the efforts to privatize China’s state-owned oil company which was a conglomerate, including petro-chemicals, gas stations, and many other business activities, and had responsibilities for workers’ housing, health and other social services for several hundred thousand employees. It was an enormous task to create a company that met SEC requirements for an IPO. An optimist, he believed that China’s embrace of markets over central planning would inevitably lead to more economic and political freedom there. He wrote in an op-ed article published in the New York Times, “The case for permanent normal trade relations with China is the story of PetroChina repeated a hundred-fold or a thousand fold.... The individual freedom, initiative, and responsibility inherent in free markets are, by their very nature, at odds with authoritarian rule.” Time will tell. He does not mention that the U.S. and China seem to be on a collision course in the Spratlys. He writes in Ch. 6. Cleaning the Stables in Guangdong, that China had embarked on reforms but the reforms required changes that led to “waste, mismanagement, fraud, and corruption on a massive scale.”...
Sierra Raynes: Half of Republicans see foreign trade as threat to United States
Sierra Raynes had a great blog posting on the American Thinker website about a poll result showing Republican voters souring on trade and also showing the correlation between trade volume and U.S. GDP growth. Here's what she said about the poll:
And here is an excellent graph that she put together showing the correlation between trade volume (exports plus imports as a percentage of GDP) and U.S. per capita growth. It shows that the higher the trade volume, the lower the U.S. GDP growth:
She is definitely correct. But trade volume is not the culprit; trade deficits are the problem. When trade is balanced, trade volumes correlate positively with economic growth. The problem is that the U.S. trade deficit has been growing. But Raynes is also aware of this. She includes another graph which shows that U.S. trade deficits have been growing. And she writes:...
To read the rest, go to:
Trade imbalances, inequality, and the political pressure cooker
Michael Hirsh has an interesting analysis in the most recent Politico entitled "Why Trump and Sanders Were Inevitable." His argument is that failed US globalization policies (I would say trade policies), rising inequality, and increasing insecurity are at the root of the rise of Trump and Sanders. A few choice quotes:
Rubio, and many establishment Republicans, are currently in the midst of an all out war to stop Donald Trump. Whether they succeed or not remains to be seen. Clinton seems to be consolidating support versus Sanders. But not matter what the Super Tuesday returns reveal, one thing is certain. This isn't the last round of the struggle to reshape America's catastrophically bad trade policies towards something more likely to promote the general prosperity of its citizens, their security, and their freedom.
On this blog we have been attempting to promote and develop such policies for a number of years. Our 2008 book "Trading Away Our Future" outlined our thinking at that point in its final chapter: "A Program For a Strong America." Since then we have added the Scaled Tariff idea promoted in our second book "Balanced Trade".
It has become fashionable to dismiss the emerging "ideology" Hirsh refers to as populist. But there is room in the real response to these rising problems for effective, reasoned policies that promote prosperity, diminish inequality, and begin to restore balance to the U.S. economy. Whatever his faults and failings, Trump is right that the US must take steps to balance its trade with China. And with the rest of the world. And flawed though some of his prescriptions (and budget projections) are, Sanders is right that inequality is a problem that US leaders must begin to take more seriously.
Unfortunately, we are arguably now in an era Ray, Howard, and I predicted in our 2008 book, one in which polarization and radicalism are rising: "If Republicans were in power during the crash," we wrote...
Wealth and Income Inequality Is Not As Bad As You Think
Sen. Bernie Sanders says, “There is something profoundly wrong when the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.” He writes: “The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time.” The trouble is that none of it is true except the fact that it is a political issue because leftists like Sanders make it so. The propaganda is based on calculations of the inequality of wealth which do not tell the whole story. They exclude the value of pensions, annuities, and social security. They also exclude the value of government wealth – national, state, and city parks and other land and buildings, including schools, libraries, stadiums, vehicles, streets and roads, and public transit facilities which are owned by everyone equally.
Wealth used in the measure of inequality includes the value of the assets owned by a household including stocks, bonds, and real estate, including the net value of homes. Income used in measures of equality is defined as the return one receives in the form of wages and salaries, rents, interest, profits, and returns from past savings and investments, including dividends, annuities, pensions, and social security benefits. The income measured is income before income taxes. Income after income tax as we shall note is considerably more equal than income before tax. Moreover, not all income is consumed. Consumption is a measure of what households take out of the economy, whereas income before income tax and wealth are measures of what the household has contributed to the economy. Obviously income after tax and consumption are much more equal that the distribution of household wealth.
One of the myths propagated by the left is that the inequality of wealth and income are constantly rising. In fact both rise and fall over decades they have been studied. Profs. Emmanuel Saez (UC Berkeley) and Gabriel Zucman (LSE) studied wealth inequality and produced the graph below which shows that the share of total household wealth owned by the top 0.1 percent was 25% in 1916, then it fell to 15% in 1923, rose to 25% in 1929, then began a downward trend reaching 7 percent in 1978 and rose to 22 percent in 2013. It continued to rise until 2015. The degree of inequality depends largely on the level of prices of corporate stock and real estate. The rise since 2009 can be attributed to the Federal Reserve policy of artificially causing low interest rates. The prices of corporate stock and of real estate are determined by the capitalization of their net incomes which depends on the level of interest rates. Their values increase as interest rates fall and fall as interest rates rise. And that was the FED’s policy beginning in 2009, the FED hoping that increased values of real estate and securities would cause their owners to increase consumption and investment. Unfortunately, the FED’s expectations turned out to be wrong; neither consumption nor investment increased as much as they expected, so the recovery languished. ...
Journal of Economic Literature:
Atlantic Economic Journal: