Wealth gains and distribution

US Fed Chairman Jerome Powell believes our two greatest challenges for the next decade are ‘the widening wealth gap and sluggish productivity’

But Lawrence Fuller, in an article for Seeking Alpha, claims the Fed’s attempts to create a wealth effect by inflating the value of financial assets has mostly benefited the top 10%, and even more so, the top 1% of the population

New found wealth has not trickled down to the middle classes in the form of wage gains – according to data from the Congressional Budget Office, income gains since 1980 are as follows:

  • 242% – Top 1%
  • 79% – Next 19%
  • 78% – Middle 60%
  • 46% – Bottom 20%

Given the above, one might have thought a surge in investment in plant, equipment and employees would follow

Not so

Instead, corporations have returned capital to shareholders via stock buybacks and dividends – some even took advantage of very low interest rates to borrow capital to fund them

This simply filled the pockets of managers and shareholders but did little for productivity improvement and employees’ wages and their quality of living – it also reduced the latter’s demand for more goods and services and so the revenue and earnings of those same corporations

Hence the wealth moat between the very wealthy and the rest has been widening over the last few decades

However, Fuller expects ‘wealth disparity and income inequality to revert to the mean’ over the coming decade:

  • Current trends are not sustainable 
  • Economies should work for everyone
  • Strong headwinds are expected as capital shifts from the ownership to working class

“Our economy cannot be considered healthy when 40% of adults can’t come up with $400 in the case of an emergency”

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