Top 1 percent's 'missing' wealth

Very interesting!

Pondering America's Most Puzzling Inequality Stat

Families in the nation's top 1 percent are grabbing a rising share of the nation's income. So why do newly released Federal Reserve numbers show no jump in their share of the nation's wealth?

April 20, 2009

By Sam Pizzigati | TooMuchOnline.org

[...]

[I]n 2007, even without the fortunes of the Forbes 400, the top 1 percent still held a whopping 33.8 percent of America's total family wealth. Families in the bottom 90, all together, only held 28.5 percent.

Robert Frank, the Wall Street Journal reporter who covers the paper's wealth beat, finds these numbers deeply troubling — and not just for the obvious reason that they reveal a staggeringly unequal America. For Frank, the Fed numbers on the top 1 percent's wealth just don't make sense statistically.

[…]

The Wall Street Journal's Robert Frank has still another explanation for the top 1 percent statistical puzzle, an explanation that no one, he concedes, can yet prove.

Those huge incomes that go into rich people's pockets aren't translating into a greater share of the nation's wealth, Frank postulates, because the rich have been busy spending massively on "McMansions, yachts, planes, Gucci bags, bottles of Mouton Rothschild, and $300,000 watches."

The rich, in other words, have been consuming, not investing, a huge chunk of their incomes. Now some of this consumption may add to a rich person's net worth on paper. A yacht, for instance, can appreciate in value over time. But much of this consumption — a $2,632 ticket to a ballgame at the new Yankee Stadium, for instance — simply subtracts from a rich person's net worth.

Could America's rich actually be consuming, on personal pleasures, enough to put a statistically significant dent on their share of U.S. family net worth? Maybe. We have no reliable national data on rich people's personal consumption. But every so often we do get a glimpse at the immense fortunes America's rich are regularly spending to be all they can be.

The puzzle of our top 1 percent's static net worth share, for now at least, must remain unsolved. Should that bother us? Does this puzzle, in the final analysis, really matter?

Sure does. The puzzle that the Wall Street Journal's Robert Frank has identified carries much more than just statistical significance. The entire rationale for cutting taxes on the rich rests, after all, on the notion that the wealthy will "invest" the extra dollars tax cuts deliver unto them. These investments, the argument goes, will strengthen the core economy and leave all of us better off.

But if the rich are frittering away their fortunes, they're not creating wealth, they're burning through it. And that, advises the Journal's Frank, ought to be "a worrying sign for those who hope that the rich are sitting on the sidelines with loads of accumulated wealth, ready to lead us into recovery."