Some of us can remember Gil Scott-Heron’s “The Revolution Will Not Be Televised."
Debate Scott-Heron’s poetic symbolism if you like (hint — television was a metaphor), but there’s little dispute that the economic recovery has not been homogenized. The fruits of our post-2009 rebound have been concentrated in the upper end. From 2009-2011, the 8 million households with net worth exceeding $835,000 saw their aggregate wealth increase roughly $5.5 trillion while 111 million households not making the cut had an aggregate decline of over a half trillion dollars.
The Pew Research Center analyzed census data and found the top 7 percent of households’ mean net worth grew by 28 percent from 2009-2011. Conversely, the bottom 93 percent saw their net worth slide 4 percent. Wealthier Americans benefitted from a booming stock and bond market while housing values have lagged.
Yes real estate has gained some strength but the recovery has been restricted to certain pockets like South Walton or particular types like commercial and farmland. These wide variances directly relate to demographic reality that affluent households have more financial holdings while less affluent households have more wealth concentrated in the value of their home.
Compare the S&P/Case-Shiller index, a rough measure of overall residential homes prices, still below its 2006 peak versus the S&P 500 eclipsing its pre-Great Recession peak.
While wealthier people own more stocks, tax rules help make venture capital/hedge fund managers wealthy. A married couple whose taxable income exceeds $72,500 pays a higher tax rate (25 percent) than the “carried interest exclusion” (20 percent) available to the financial gentry.
For single taxpayers, the 25 percent rate kicks in at $36,250. At least rappers like Jay Z speak the truth, “Some days I feel like I’m gettin’ away with murder."
Spare me the baloney about regulations stifling growth. Money emasculated the much-maligned Dodd-Frank bill. From July 2010-April 2013, the top five consumer protection groups have had 116 lobbyist meetings with Congress while the top five commercial banks counter with over 900. Shelia Bair, a life-long Republican nominated by George W. Bush to head the Federal Deposit Insurance Corporation says, “At the end of the day regulators are outgunned.”
The jury is quite clear; unregulated derivatives were the prime contributors to Bear Stearns/Lehman Brothers implosion and subsequent economic morass.
Clients are happy when their nest eggs grow; of such I can attest, but savvy investors think long-term. When I graduated from high school in 1973, you went to college, went to work or were just plain sorry (correctly pronounced saw-ree). America faces an economic unwinding and the genie is out of the bottle. Extended wealth inequality has consequences, specifically crime.
South Africans can buy an after-market flamethrower to deter carjacking while wealthy Mexicans are saying “Adios” to violence and settling in Houston’s The Woodlands. Works for me, my son-in-law builds homes in Houston.
I’m bullish on America, every month I along with many clients buy mutual funds invested primarily in American companies. Last century the Dow Jones Industrial Average advanced over 17,000 percent despite four costly wars, The Great Depression and numerous recessions but growing wealth inequality is a new wrinkle.
There have always been winners and losers but remember “E Pluribus Unum,” Latin for “Out of many, one,” is on America’s coins and currency.
Buz Livingston, CFP, offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast. Contact him at 850-267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net.