It’s really shocking to examine the wide
income gap between the veritable one percenters in the United States. The last
Great Recession gave them an unparalleled opportunity to buy distressed assets
and expanded the rough 33% of American wealth they owned in the early 1990s
considerable. The December 6, 2017 Washington Post elaborates: “The wealthiest 1 percent of American households own 40
percent of the country's wealth, according to a new paper by economist Edward N. Wolff. That share is higher
than it has been at any point since at least 1962, according to Wolff's data,
which comes from the federal Survey of Consumer Finances.
“From 2013, the share
of wealth owned by the 1 percent shot up by nearly three percentage points.
Wealth owned by the bottom 90 percent, meanwhile, fell over the same period.
Today, the top 1 percent of households own more wealth than the bottom 90
percent combined. That gap, between the ultrawealthy and everyone else,
has only become wider in the past several decades.” Those are truly nasty
numbers, no matter how you slice it, and the wealth gap continues to go in the
wrong direction under Trump policies of deregulation and tax cuts that merely
funnel more wealth into the hands of the mega-rich.
We have also witnessed
an acceleration of real estate prices, particularly in the hottest financial
and tech-driven cities in the United States. Rent has increased so rapidly in
these markets that landlords have been tripping all over themselves to find
ways to evict tenants unable to pay significant increases to cater to the
newbies. Rent control measures are popping up on the ballot in many states with
landlord organizations spending millions and millions of dollars to defeat such
efforts. Adult children are moving back home with their parents, an
uncomfortable reality, and residences built for a much lesser number of
occupants are turning into sardine mode.
“Hard-pressed families have long turned
couches into beds, and it’s common for recent graduates to bunk with friends in
a house. But amid a sharp rise in housing costs in booming U.S. cities, a
growing number of companies say the affordability crisis has become so severe
that there’s significant money to be made in offering, if not solutions, at
least some relief.
“Some companies are selling dividing
walls or curtains to create new bedrooms. Others are filling rooms with bunk
beds. And some — armed with Silicon Valley backing and a brand of ‘co-living’ —
are offering a variety of sleeping situations and services that make it easier
to find roommates and then live with them.
“In the largest sense, these outfits
effectively are adding bedrooms in a region that’s hard-pressed to build enough
new houses and apartments to meet demand… ‘People are sharing spaces at a very
large rate,’ said Tyler Lundmark, chief executive of RoomDividersNow, which
sells partitions. ‘We have ridden that wave.’
“Such set-ups have grown more
noticeable because of the housing situation in many large cities, which have
added lots of jobs but not enough residential units. Median rent for a vacant
apartment in the already pricey cities of Los Angeles, San Diego and San
Francisco is one-third higher than it was in 2012, according to Zillow…
“The tried-and-true way to cut down
on costs is to double or triple up. Nationally, the number of people per
housing unit has been on the decline. But in California, that rate has
increased from 2.79 per unit in 1990 to 2.97 this year, according to data from
the state’s Department of Finance.
The percentage of renters in crowded
situations — more than one person to a room — jumped during the recession, then
started declining, before taking off again in 2014 as rents climbed. As of
2017, the most recent year for census data, crowding was higher than before the
downturn.
Many companies that facilitate
sharing cater to people who can afford added services, if not their own
comfortable apartment.” Los Angeles Times, November 25th.
Based on these trends, even outside
of the one percenters, there is a growing American wealth gap that is pretty
close to the worst in the developed world between what I will call the
landlord/business owner class and the balance of average Americans. The
November 26th Los Angeles Times examines a recent working paper
produced by Austrian central bank economists Pirmin Fessler and Martin Schürz
based on a long-running U.S. wealth survey and its newer European counterpart
to compare wealth across continents.
“In the United States more than
almost anywhere else, wealth and income are concentrated among business owners
and landlords. That club, blessed by capitalism, is becoming increasingly
difficult to join… Business owners and landlords tend to be about four times as
wealthy as the average American. That’s more than in almost any other country
included in a new study. On the other end of the spectrum, renters in the
United States tend to have about an eighth as much wealth as the average
American…
“It’s one of the first such
comparisons to look at wealth in terms of what people use it for, rather than
at arbitrary percentile cutoff points. The widest inequalities, they find, are
between groups inside countries, not across country borders.
“In their analysis, they split
households into three groups. Homeowners, whose primary wealth is also their
primary residence, form the bulk of the middle and upper-middle class. Business
owners and landlords (about 15% of U.S. households), tend to be among the
wealthiest. Their wealth is typically used to generate additional income. Those
who pay to rent their residences (about 35% of households), and whose wealth is
typically used to cover needs such as emergency expenses or retirement, fill
out the bottom of the spectrum. They’re joined by homeowners and business
owners whose debt exceeds their equity.
“The bottom 40% are most likely to be
renters. The top 5% are most likely to own businesses or rental properties. The
authors found this polarization has increased since 1962… In every country
Fessler and Schürz studied, homeowners’ wealth hovers near the national
average. The biggest gaps are between those who own businesses and rental
properties and their customers and tenants… In terms of wealth, that gap is
widest in the United States and Austria. In terms of income alone, the United
States tops the list…
“Understanding how ownership of real
estate and financial assets differs across levels of wealth helps economists
evaluate other consequences of wealth inequality, such as disparities in
safety, social power and consumption, said Maximilian Kasy, a Harvard
University economist who has collaborated with Fessler in the past.
“The analysis ‘helps with
understanding the causes and consequences of differences in the distribution of
total household wealth across time and across countries,’ Kasy said… Those
differences arise when people use their savings to make up for missing or
inefficient public pension systems, higher-education opportunities, housing and
healthcare…
“Fessler says social relationships
reveal how wealth levels and wealth uses interact. A renter might use her
wealth to fund retirement, while a business owner might use her wealth for
technology, machinery or even influence by making political donations or running
for office... ‘It is not the same to save for an emergency, or to accumulate
wealth in order to exercise power in society,’ said Schürz, Fessler’s coauthor.
‘When researchers only measure the distribution of net wealth between
households, they risk overlooking these distinctions.’…
“In a working paper released in 2016
by the National Bureau of Economic Research, [University of Michigan economist
Gabriel] Ehrlich and University of Illinois economists David Albouy and Yingyi
Liu wrote that because housing is a basic need and an expense that can’t be
avoided, price increases hit poor Americans hardest. They find ‘increases in
the relative price of housing have increased real income inequality by 25%
since 1970.’
“‘In terms of well-being, the gap is
even wider than it first looks,’ Ehrlich said. ‘It’s precisely because
lower-income households spend more of their money on housing. They are getting
hurt more than the official statistics would suggest.’… Housing costs have
risen 40% more than the prices of other goods since 1970, Albouy, Ehrlich and
Liu found. The share of renters who spent more than half their income on
housing doubled from 1970 to 2011…
“[And] it’s getting harder for
renters to become homeowners. ‘Prices have gone up relative to income,’ Ehrlich
said. ‘A 20% down payment is a lot more money now than it was 30 years ago.’
Ehrlich said zoning restrictions have
helped raise home prices, especially in high-cost communities. He said that,
according to another recent analysis he conducted with Albouy, ‘the effect in
terms of raising home prices turns out to be bigger than any of the benefits.’”
Bottom line: that old maxim that the
“rich get richer” has never been truer than it is today. Upward mobility has
dissipated as the effective cost of higher education has escalated well beyond
the cost of living and as solid-paying jobs require vastly more education and
training than the world that existed even two decades ago. Generally today,
Americans are mostly trapped into the economic stratum in which they are born.
The gates to a better life are
increasingly costly, beyond the means of most, with payments at every level –
from student loans to rent and food – much higher even in inflation-corrected
dollars than they have ever been. Even if you get that education, you are so
busy paying off loans and the higher price of basics that you just never get
the same chance for the middle-class house with a white picket fence your
parents and grandparents had.
Think about the longer-term political
ramifications of that trend, literally the erosion of our middle class. Add the
impact of artificial intelligence in job displacement and a growing anger and
frustration of younger people trying to begin their lives in this harsh and
competitive world. Exactly what form of government will this class vote into
office?
I’m Peter Dekom, and increasingly, the doors
to what was once an average middle-class life are closed, a challenge to the
sustainability of democratic capitalism at its core.
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