Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

American Income Inequality – it’s worse than you think

Present day Income Inequality in the United States rivals that during the Great Depression. That’s the determination of hedge fund manager Ray Dalio.

Dalio did a little number crunching on Income Inequality and calculated that it is worse than most people think. He posted the results on LinkedIn back on October 23, 2017, but surprise, surprise, the mainstream media did not notice. I only noticed because our friends at the Motley Fool noted them, and for some reason, Google added their commentary to my search results recently.

The conclusions Dalio came to about Income Inequality are absolutely chilling. The highlights of his findings include:

  • The holdings of the top 10% of the top one percent of income owners, is equal to the wealth of the bottom 90% of America’s population. That means .01% of Americans now own as much as 90% of the country’s population.


  • This Wealth Gap is equal to that which existed in 1935 and 1940 – the last five years of the Great Depression.


  • There are has been no growth in earned income and salary and wage earnings since around 1980 for 60% of the American population.


  • Only 40% 0f the population has experienced income growth since 1980, but that income growth has been higher.

  • “Since 1980, median household real incomes have been about flat, and the average household in the top 40% earns four times more than the average household in the bottom 60%,” Dalio wrote.


  • The average household in the top 40% has 10 times more wealth than the average family in the bottom 60%.


  • Only one-third of the bottom 60% saves any of its income.


  • Only one-quarter of the savings available to the bottom 60% is in cash or financial assets.


  • The number of factory jobs in America has fallen by around 30% since 1997. Dalio thinks this has hit the middle class hard.


  • Only one-third of the families in the bottom 60% have retirement savings accounts, and most of those are inadequate.

  • Around 15% of working age white males are not working. This figure has more than doubled since 1980 when the rate was 7%.


  • The average income for Americans without a college degree is half that of those with college degrees.


  • The Federal Reserve might be making things worse by using the wrong statistics and following a misguided monetary policy.


Income Inequality is Killing Us


  • Premature death rates for those in the bottom 60% have increased by 20% since 2000. Dalio blames this on increases in drug overdoses and suicide.


  • The odds of a person in the bottom 60% dying prematurely are more than twice that for those in the top 40%.

  • The United States is the only major industrialized country with a rising death rate.


  • The rate of premature deaths for whites without a college degree has increased by 25% since 2000.


  • “The US white population is unique among large groups in the developed world for seeing increases in their death rates,” Dalio wrote.


Income Inequality is making everybody Poorer

Dalio thinks that income inequality is making everybody poorer by taking large amounts of money out of circulation. His belief is the United States is suffering from a sort of reverse-Keynesianism in which money is slowly being removed the economy and sucked into the bank accounts of the rich.

“Said differently, if you give rich people more money, they probably won’t spend much of it, whereas if you give poorer people more money, they will probably spend more of it, each motivated by the extent of their unmet needs and desires,” Dalio wrote.

That makes a great case for Basic Income and increases in programs like Social Security. Republicans and libertarians will not want to hear that because it runs counter to their trickle-down fantasies.

It also raises serious doubts about the recent Republican tax bill which will reward the rich for hoarding money. A better strategy might be higher income taxes on the rich and increased government spending.

That means Democrats, and Republicans open to tax and spend policies like President Donald J. Trump (R-New York), are better equipped to deal with the situation than the fiscal conservatives in control of Congress. It also indicates that the present Republican Congress’s austerity policies will make the situation worse.

The picture Dalio paints looks grim for everybody but left-wing Democrats and U.S. Senator Bernie Sanders (I-Vermont). He also predicts that things will get worse before they get better and that Income Inequality may peak about five years from now, around 2022.

Everybody who is concerned about America’s future should read Ray Dalio’s piece. It will explain a lot of the problems facing the nation, and make us all frightened for the future.