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The richest Americans hold more of the nation's wealth than they have in almost a century. What do they spend it on? As you might expect, personal jets, giant yachts, works of art, and luxury penthouses.
And also on politics. In fact, their political spending has been growing faster than their spending on anything else. It's been growing even faster than their wealth.
According to new research by Emmanuel Saez of the University of California at Berkeley and Gabriel Zucman of the London School of Economics, the richest one-hundredth of one percent of Americans now hold over 11 percent of the nation's total wealth. That's a higher share than the top .01 percent held in 1929, before the Great Crash.
We're talking about 16,000 people, each worth at least $110 million.
One way to get your mind around this is to compare their wealth to that of the average family. In 1978, the typical wealth holder in the top .01 percent was 220 times richer than the average American. By 2012, he or she was 1,120 times richer.
It's hard to spend this kind of money.
The uber rich are lining up for the new Aerion AS2 private jet, priced at $100 million, that seats eleven and includes a deluxe dining room and shower facilities, and will be able to cross the Atlantic in just four hours.
And for duplexes high in the air. The one atop Manhattan's newest "needle" tower, the 90-story One57, just went for $90 million.
Why should we care?
Because this explosion of wealth at the top has been accompanied by an erosion of the wealth of the middle class and the poor. In the mid-1980s, the bottom 90 percent of Americans together held 36 percent of the nation's wealth. Now, they hold less than 23 percent.
Despite larger pensions and homes, the debts of the bottom 90 percent -- mortgage, consumer credit, and student loan -- have grown even faster.
Some might think the bottom 90 percent should pull in their belts and stop living beyond their means. After all, capitalism is a tough sport. If those at the top are winning big while the bottom 90 percent is losing, too bad. That's the way the game is played.
But the top .01 percent have also been investing their money in politics. And these investments have been changing the game.
In the 2012 election cycle (the last for which we have good data) donations from the top .01 accounted for over 40 percent of all campaign contributions, according to a study by Professors Adam Bonica, Nolan McCarty, Keith Poole, and Howard Rosenthal.
This is a huge increase from 1980, when the top .01 accounted for ten percent of total campaign contributions.
In 2012, as you may recall, two largest donors were Sheldon and Miriam Adelson, who gave $56.8 million and $46.6 million, respectively.
But the Adelsons were only the tip of an iceberg of contributions from the uber wealthy. Of the other members of the Forbes list of 400 richest Americans, fully 388 made political contributions. They accounted for forty of the 155 contributions of $1 million or more.
Of the 4,493 board members and CEOs of Fortune 500 corporations, more than four out of five contributed (many of the non-contributors were foreign nationals who were prohibited from giving).
All this money has flowed to Democrats as well as Republicans.
In fact, Democrats have increasingly relied on it. In the 2012 election cycle, the top .01 percent's donations to Democrats were more than four times larger than all labor union donations to Democrats put together.
The richest .01 percent haven't been donating out of the goodness of their hearts. They've donated out of goodness to their wallets.
Their political investments have paid off in the form of lower taxes on themselves and their businesses, subsidies for their corporations, government bailouts, federal prosecutions that end in settlements where companies don't affirm or deny the facts and where executives don't go to jail, watered-down regulations, and non-enforcement of antitrust laws.
Since the top .01 began investing big time in politics, corporate profits and the stock market have risen to record levels. That's enlarged the wealth of the richest .01 percent by an average of 7.8 percent a year since the mid-1980s.
But the bottom 90 percent don't own many shares of stock. They rely on wages, which have been trending downward. And for some reason, politicians don't seem particularly intent on reversing this trend.
If you want to know what's happened to the American economy, follow the money. That will lead you to the richest .01 percent.
And if you want to know what's happened to our democracy, follow the richest .01 percent. They'll lead you to the politicians who have been selling our democracy.
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America's richest got richer between 1992 and 2000, according to an Internal Revenue Service report.
The adjusted gross income of the country's top 400 taxpayers totaled almost $70 billion in 2000, according to the IRS, for an average of $173.9 million. The richest 400 in 1992 accumulated just under $19 billion, for an average of only $46.8 million.
Over the nine-year period, the minimum adjusted gross income to get on the top 400 list more than tripled, from $24.4 million to $86.8 million.
In 2000, the 400 paid 22.3 percent of their income to federal income taxes, down from 26.4 percent in 1992.
The richest 400 made 1.09 percent of U.S. income in 2000,
more than double the percentage in 1992, when they accounted
for just 0.52 percent, the IRS said.
Human mental bandwidth is finite. Youve probably experienced this before (though maybe not in those terms): When youre lost in concentration trying to solve a problem like a broken computer, youre more likely to neglect other tasks, things like remembering to take the dog for a walk, or picking your kid up from school. This is why people who use cell phones behind the wheel actually perform worse as drivers. Its why air traffic controllers focused on averting a mid-air collision are less likely to pay attention to other planes in the sky.
We only have so much cognitive capacity to spread around. It's a scarce resource.
This understanding of the brains bandwidth could fundamentally change the way we think about poverty. Researchers publishing some groundbreaking findings today in the journal Science have concluded that poverty imposes such a massive cognitive load on the poor that they have little bandwidth left over to do many of the things that might lift them out of poverty like go to night school, or search for a new job, or even remember to pay bills on time.
The condition of poverty imposed a mental burden akin to losing 13 IQ points
In a series of experiments run by researchers at Princeton, Harvard, and the University of Warwick, low-income people who were primed to think about financial problems performed poorly on a series of cognition tests, saddled with a mental load that was the equivalent of losing an entire nights sleep. Put another way, the condition of poverty imposed a mental burden akin to losing 13 IQ points, or comparable to the cognitive difference thats been observed between chronic alcoholics and normal adults.
The finding further undercuts the theory that poor people, through inherent weakness, are responsible for their own poverty or that they ought to be able to lift themselves out of it with enough effort. This research suggests that the reality of poverty actually makes it harder to execute fundamental life skills. Being poor means, as the authors write, coping with not just a shortfall of money, but also with a concurrent shortfall of cognitive resources.
This explains, for example, why poor people who arent good with money might also struggle to be good parents. The two problems arent unconnected.
Its the same bandwidth," says Princetons Eldar Shafir, one of the authors of the study alongside Anandi Mani, Sendhil Mullainathan, and Jiaying Zhao. Poor people live in a constant state of scarcity (in this case, scarce mental bandwidth), a debilitating environment that Shafir and Mullainathan describe in a book to be published next week, Scarcity: Why having too little means so much.
What Shafir and his colleagues have identified is not exactly stress. Rather, poverty imposes something else on people that impedes them even when biological markers of stress (like elevated heart rates and blood pressure) arent present. Stress can also positively affect us in small quantities. An athlete under stress, for example, may actually perform better. Stress follows a kind of classic curve: a little bit can help, but beyond a certain point, too much of it will harm us.
This picture of cognitive bandwidth looks different. To study it, the researchers performed two sets of experiments. In the first, about 400 randomly chosen people in a New Jersey mall were asked how they would respond to a scenario where their car required either $150 or $1,500 in repairs. Would they pay for the work in full, take out of a loan, or put off the repair? How would they make that decision? The subjects varied in annual income from $20,000 to $70,000.
Before responding, the subjects were given a series of common tests (identifying sequences of shapes and numbers, for example) measuring cognitive function and fluid intelligence. In the easier scenario, where the hypothetical repair cost only $150, subjects classified as poor and rich performed equally well on these tests. But the poor subjects performed noticeably worse in the $1,500 scenario. Simply asking these people to think about financial problems taxed their mental bandwidth.
And these are not people in abject poverty, Shafir says. These are regular folks going to the mall that day.
The rich subjects in the study experienced no such difficulty. In the second experiment, the researchers found similar results when working with a group of farmers in India who experience a natural annual cycle of poverty and plenty. These farmers receive 60 percent of their annual income in one lump sum after the sugarcane harvest. Beforehand, they are essentially poor. Afterward (briefly), theyre not. In the state of pre-harvest poverty, however, they exhibited the same shortage of cognitive bandwidth seen in the American subjects in a New Jersey mall.
The design of these experiments wasn't particularly groundbreaking, which makes it all the more astounding that weve never previously understood this connection between cognition and poverty.
This project, theres nothing new in it, theres no new technology, this could have been done years ago, Shafir says. But the work is the product of the relatively new field of behavioral economics. Previously, cognitive psychologists seldom studied the differences between different socio-economic populations (a brain is a brain, a head is a head, Shafir says). Meanwhile, other psychology and economics fields were studying different populations but not cognition.
Now that all of these perspectives have come together, the implications for how we think about poverty and design programs for people impacted by it are enormous. Solutions that make financial life easier for poor people dont simply change their financial prospects. When a poor person receives a regular direct-deposited paycheck every Friday, that does more than simply relieve the worry over when money will come in next.
When we do that, we liberate some bandwidth, Shafir says. Policymakers tend to evaluate the success of financial programs aimed at the poor by measuring how they do financially. The interesting thing about this perspective is that it says if I make your financial life easier, if I give you more bandwidth, what I really ought to look at is how youre doing in your life. You might be doing better parenting. You might be adhering to your medication better.
The limited bandwidth created by poverty directly impacts the cognitive control and fluid intelligence that we need for all kinds of everyday tasks.
When your bandwidth is loaded, in the case of the poor, Shafir says, youre just more likely to not notice things, youre more likely to not resist things you ought to resist, youre more likely to forget things, youre going to have less patience, less attention to devote to your children when they come back from school.
At the macro level, this means we lost an enormous amount of cognitive ability during the recession. Millions of people had less bandwidth to give to their children, or to remember to take their medication.
Conversely, going forward, this also means that anti-poverty programs could have a huge benefit that we've never recognized before: Help people become more financially stable, and you also free up their cognitive resources to succeed in all kinds of other ways as well.
For all the value in this finding, it's easy to imagine how proponents of hackneyed arguments about poverty might twist the fundamental relationship between cause-and-effect here. If living in poverty is the equivalent of losing 13 points in IQ, doesnt that mean people with lower IQs wind up in poverty?
Weve definitely worried about that,
Shafir says. Science, though, is coalescing around the
opposite explanation. All the data shows it isn't
about poor people, its about people who happen to be
in poverty. All the data suggests it is not the person, it's
the context theyre inhabiting.
Only 3.8% of all households have incomes of $200,000 or more a year. Click here for source
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