Earlier this week, I put up a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”
Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm.
Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:
1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).
2) Gini Coefficients estimated levels of inequality across the globe.
1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.
Here goes:
The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).
The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.
The top 10% has 62.3% of the wealth.
The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.
Finally, the bottom 50% have 5.6%.
Source: St. Louis Federal Reserve Bank, 2024
All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund.
Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence.
2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient.
What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.
Still, here are some stats from the World Bank.
The least egalitarian places on earth (highest Gini Coefficient) include:
Nation Gini Score
South Africa 63.0
Namibia 59.1
Suriname 57.9
Zambia 55.9
Belize 53.3
Brazil 52.9
Columbia 51.5
Angola 51.3
A score over 50 is looked upon as a danger zone with extreme inequality.
Those with the lowest Gini Coefficient are all in Europe. Some examples are:
Nation Gini Score
Norway 22.7
Slovakia 23.2
Slovenia 24.0
Moldova 25.7
Netherlands 26.0
Belgium 26.0
Iceland 26.1
Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well.
What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45.
In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.
Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here.
Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.
How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.
If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.
In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.
Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
Earlier this week, I put a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”
Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm.
Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:
1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).
2) Gini Coefficients estimated levels of inequality across the globe.
1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.
Here goes:
The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).
The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.
The top 10% has 62.3% of the wealth.
The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.
Finally, the bottom 50% have 5.6%.
Source: St. Louis Federal Reserve Bank, 2024
All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund.
Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence.
2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient.
What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.
Still, here are some stats from the World Bank.
The least egalitarian places on earth (highest Gini Coefficient) include:
Nation Gini Score
South Africa 63.0
Namibia 59.1
Suriname 57.9
Zambia 55.9
Belize 53.3
Brazil 52.9
Columbia 51.5
Angola 51.3
A score over 50 is looked upon as a danger zone with extreme inequality.
Those with the lowest Gini Coefficient are all in Europe. Some examples are:
Nation Gini Score
Norway 22.7
Slovakia 23.2
Slovenia 24.0
Moldova 25.7
Netherlands 26.0
Belgium 26.0
Iceland 26.1
Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well.
What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45.
In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.
Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here.
Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.
How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.
If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.
In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.
Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
