Careful, or you may land in the top 1%.

The new liberal bible is by a French economist (Thomas Pinetty) “proving” that capitalism causes income & wealth inequality.

So that you don’t inadvertently land in the evil 1%, MarketPlace.com recapped some research on what it takes to make it to the top 1%

The conclusion: The top-earners club isn’t quite the bastioned, unreachable world it’s been painted out to be …  a household income just north of $300K gains entry …  and there is a “strong sense of fluidity in terms of folks entering the top income percentiles,”

image

Note the big spike during the dot-com bubble ….   garage-tech entrepreneurs flooded the top 1%, pushing the entry level to almost $450,000  … showing that all it takes is an idea and an IPO to make the top 1%.

And, these entrepreneurs also demonstrated  the fluidity of the top 1% …. most of them aren’t there now.

Also, note that the 1% entry level in 1993 – in nominal terms (i.e. not adjusted for inflation) — was higher than it was in 2010 – also in nominal terms.

Here’s what I found most interesting …

 

On an inflation adjusted basis, the 1% entry income has stayed pretty flat for the past 35 years.

image

 

Wouldn’t you have thought that evil capitalism would have bumped that number up … by a lot?

Hmmm.

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8 Responses to “Careful, or you may land in the top 1%.”

  1. Chris Says:

    Let’s highlight the difference between income and wealth. According to the same study, it takes ~$8M to clear the top 1% in terms of wealth. Assuming a 35% tax rate, a savings rate of 50%, and a compounded annual return of 5%, it will take someone with a $300k income 34 years to get to the $8M level. Meanwhile, people in that top 1% wealth bracket are collecting their capital gains, likely at a higher compounded annual rate while being taxed at a much lower rate. Hence the widening wealth (not income) gap and the lack of fluidity of the top 1% (again, in terms of wealth, not income).

    • Los Says:

      The professor doesn’t care for your type of facts. He’ll throw a couple of Horatio Alger anecdotes to try to contradict any argument. It is a mathematical fact that capitalism leads to concentration of wealth. Capital is going to where it is going to generate the greatest return and given economies of scale and scope it is going to be towards large enterprises. Even innovation (i.e. entrepreneurship opportunities) are mostly concentrated in areas that already have great concentrations of human capital and technological infrastructure. I’m far from being a socialist, but I do recognize that our current capitalist system results in several market failures.

      The 1% argument is not against making money or being rich, rather is an argument against those have the wealth and bend the rules of the game to their benefit: the C student go gets into an Ivy because daddy was an Alumn or promised a big donation, the mediocre Ivy league who gets the posh internship b/c daddy is a partner, the “entrepreneur” who succeeds b/c the family can afford him an endless stream of capital, etc. I call this the Jenna Bush effect: she gets to be a co-anchor of the Today show despite being a mediocre student at a mediocre school, meanwhile star students at top journalism schools have to content themselves with working for free and having a blog.

      • JLR Says:

        So what’s your point?… Life is not fair? There’s no such thing as true meritocracy? That has nothing to do with the point of the article that the income of 1% has remained flat when adjusted for inflation.

      • Los Says:

        1) Income is an imperfect metric to see if the requirements to join the 1% have in fact remain flat. Membership to this club is not as fluid as the article tries to paint.

        2) The 1% bruhaha is not about envy but opportunity.

        The metapoint is that what makes America great is that we have been the land of opportunity for most of our history and that fact has allowed us to attract the most talented and ambitious people from all over the world.

        At one point “life is not fair” included slavery, women with no rights, Jews not allowed into Harvard, segregation, etc. You might be satisfied with having an unfair system because the current “unfairness” has tilted in your favor, but that I believe that we are better than that.

      • JLR Says:

        For a one page article with 2 graphs, I wouldn’t expect to see an in-depth analysis covering all aspects of income inequality. Just because the author didn’t write a book on the topic does not take away from his key points.

        You could name hundreds of topics, legitimate or ridiculous, not addressed by a 200 word article, and you’d still be missing the “metapoint”.

  2. Gary Blemaster Says:

    This is a really good post on inequality. Click through the post at the bottom to find out the real truth. People in general never understand how inflation distorts impressions of reality.

  3. JLR Says:

    oops… minor flubbub in the first chart. The lines are drawn such that 1993 occurs after 1995.

  4. Reid Says:

    Why are we lookin at the past 35 years? Maybe the time horizon should be expanded. The recent research by Rank and Hirschl on the same topic (but with different findings) goes back to ’67. If the purpose of this post is to refute one of their findings, it would be good to use the same period.

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