Ron Unz models the economy with a doughnut

The always interesting Ron Unz, publisher of The American Conservative, has a new piece (Raising American Wages…by Raising American Wages) arguing for his plan to raise the minimum wage to $12/hr. In retrospect, clearly Mitt Romney should have taken Reihan Salam’s advice that he run on Unz’s plan. (h/t Tom Hickey).

But I digress, the most interesting part of Unz’s piece is the graphic showing the distribution of the US’s $60 trillion or so in household net wealth.
Wealth Distribution Doughnut

That’s really astonishing. BTW, the comparable income distribution figures for the top 1%, next 4% and remaining 95% are income shares of 20%, 15% and 65% respectively, a good deal more equally distributed than wealth. To that end, I think its worth considering Daniel Altman’s suggestion in the Times this morning that we replace the income and estate taxes with an annual wealth tax (Ronald McKinnon and James Bowery have also proposed taxing net wealth).

Finally, this sad story about the Pete Peterson Day festival (with contestants competing for best austerity plan) has made me resolve to type up and post my Kobayashi Maru deficit reduction plan tomorrow. There’s a rather simple way to cut deficits by $4 trillion over the next decade without raising taxes, cutting discretionary spending or touching entitlements. Did any of Peterson’s gimps mention it? Of course not. I’ll post the plan (and born doer of good that I am, I’ll even throw in the necessary legislative language) when I get back from court tomorrow.

Comments
  • Greg November 20, 2012 at 5:00 am

    Hurry back from court, I’d love to see that plan.

    I have seen different numbers in the past regarding the distribution that arent quite as equitable as these (top 1% with over 40% of wealth), they used a top 10% cutoff which was 90% of wealth. Of course this could be true with Mr Unzs, the next 5% would have 26.9%, which doesnt sound improbable.

  • beowulf November 20, 2012 at 11:11 am

    Just have a few minutes for lunch but the higher numbers (top 1% with over 40% of wealth) is distribution of financial net worth (ex real estate).

    One of the many ways the economy is a mess was that home equity was the main (in some cases only) source of wealth for middle class families. Conversely, the wealthier you are, the more like you are to own securities so the housing market crash has had a much greater impact on the middle class than a stock market crash would. A lot of people on the verge of retirement found themselves flat busted when the value of their retirement savings followed the Case-Shiller Index into the dirt.
    http://upload.wikimedia.org/wikipedia/commons/9/91/Case-Shiller_index.png

  • Greg November 20, 2012 at 1:41 pm

    Ok, net worth vs net wealth.

    Net worth being more a function of prices of course (MoA) but if real estate were included wouldnt the net worth difference be much much higher?

    Do Mr Unzs numbers include real estate?

    • beowulf November 20, 2012 at 2:44 pm

      Net worth, net wealth, net assets are interchangeable (if there’s an accounting distinction that I’m missing, I trust Mike will jump in to bring balance to the Force). Net ________ is a person or family’s marketable wealth. That is (with a few minor exceptions) all their assets minus all their debts. There’s also financial wealth, which William Domhoff defines as, “net worth minus net equity in owner-occupied housing”.
      http://www2.ucsc.edu/whorulesamerica/power/wealth.html

      Also too, notice that net equity in housing is a difference kettle of fish than a parcel’s fair market value ( regardless of any mortgage), which is what local property taxes hit.

      • Michael Sankowski November 21, 2012 at 6:11 pm

        Ha! That would be Ramanan bringing balance to the force.

        It’s a good point to separate out net financial wealth over plain vanilla wealth. As my dad always says “You have to live somewhere”. Wealth tied up in owning a home isn’t a 100% positive, as we’ve found out over the last few years.

  • Greg November 20, 2012 at 4:18 pm

    All right now Im totally confused. If net worth, net wealth and net assets are interchangeable I dont understand the distinction that was being made here;

    ” the higher numbers (top 1% with over 40% of wealth) is distribution of financial net worth (ex real estate).”

    • beowulf November 20, 2012 at 7:18 pm

      Household Net worth is N
      Homeowner equity is E
      Household Financial wealth is F
      N – E = F
      Or to plug in the current numbers;
      Household net worth is $63 trillion (of which top 1% owns 35%, $22 trillion)
      Homeowner equity is $17 trillion
      Financial Wealth then is… $46 trillion (bigger slice of smaller pie. Top 1% owns 42%, or $19 trillion). Homeowner equity is Khmer Rouge socialism by comparison, top 1% own only 18% (less, in fact, than their 20% share of income). Which makes the following kind of sad.

      “Despite the overall steady increase in U.S. net worth, many Americans have seen little or no improvement in their own wealth. The gains have occurred mainly in stocks, bonds and other financial assets. Fifty-four percent of U.S. households owned no stocks of stock mutual funds as of the end of 2011…
      Home equity, the primary source of wealth for most American households, has just barely started to recover… home equity rose in the second quarter for only the second time since 2006, up 2.1 percent to $16.9 trillion. That’s up from a bottom of about $16.1 trillion. Home equity remains far below the $22.7 trillion reached in 2006, at the peak of the bubble.”
      http://www.mercurynews.com/business/ci_21593373/americans-net-worth-approaches-pre-recession-levels-thanks

      • Michael Sankowski November 21, 2012 at 6:11 am

        A little sideways detail on wealth and savings in the U.S.

        “If we expand our survey to the top 1% of all households, we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%) This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.”

        Link to full article http://www.nakedcapitalism.com/2009/08/guest-post-the-savings-rate-has-recoveredif-you-ignore-the-bottom-99.html#ZjtHU6VqLdOCy7BH.99

        • Greg November 21, 2012 at 10:32 am

          Right Mike. This is the flaw in just looking at private sector saving. 90% of the population is not saving at all, are not expanding credit use at all (just working on paying back past debts) and are not consuming as many goods in the present period as they would like to (and that retailers would like them to).

          So if they arent saving they are pissing off the Austrians, they arent using credit which pisses off the monetarists and they arent consuming enough in present period to piss the rest of us off who want to sell all we can produce. 90% are just getting it from all sides

          • Michael Sankowski November 21, 2012 at 5:30 pm

            “So if they arent saving they are pissing off the Austrians, they arent using credit which pisses off the monetarists and they arent consuming enough in present period to piss the rest of us off who want to sell all we can produce. 90% are just getting it from all sides”

            This is totally great.

          • Michael Sankowski November 21, 2012 at 6:07 pm

            Not only that, these people aren’t able to express their opinion in the marketplace. They do not have the resources to express that opinion. This must result in some severe market distortions.

            Because they use credit to smooth lifetime consumption instead of savings, the 90% are particularly vulnerable to debt deflations, and 0% inflation starts to seem less like being fair and more like a debt slavery creation device.

            Mosler always thinks we could have 10-15% real (!) growth if we got policy right.

            I talked a bit about this in “Keith Moon Economics” over at Traders Crucible. What if we decided to see what the hot rod could do?

            • Greg November 22, 2012 at 5:33 am

              “Because they use credit to smooth lifetime consumption instead of savings, the 90% are particularly vulnerable to debt deflations, and 0% inflation starts to seem less like being fair and more like a debt slavery creation device.”

              Yep. Its no wonder that its easy to get people to think there is a grand bankers conspiracy……. and in a sense there is. Not necessarily in a way its envisioned but in a sort of bankers group think that results from being unable to model your own system properly. The entire econ/banking edifice is supported by academia, politicians and the business world. Thats a lot of people who have learned the power of persuasion. The average guy just KNOWS it cant work when you make debt paying citizens less unable to pay back their debt !! It really is that simple yet there are just billions of gallons of ink spilled on fancy “models” proving it will work………. in the long run.

              I dont know about perpetual 10-15% growth. That sounds like a cancer tumor, but even it kills its host and stops growing.

              I gotta look back at Keith Moon Economics I dont recall it

          • Fed Up November 24, 2012 at 10:01 pm

            “Right Mike. This is the flaw in just looking at private sector saving.”

            I see (I-S)+(G-T)+(X-M)=0 at the top of this page. I’d rather state it as:

            current account deficit = gov’t deficit plus private deficit

            What needs to be done is deaggregate the private sector and add an entity.

        • Fed Up November 24, 2012 at 9:53 pm

          “This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.”

          How about doing this for corporations?

  • Greg November 21, 2012 at 5:22 am

    Got it!

    Thanks Beowulf