The Rich Get Richer Because the Game Is Rigged

This is one of those must reads to come to grips with what has, and is, happening.

From the Of Two Minds blog:

Financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.

Emmanuel Saez and Thomas Piketty are leading lights in the exploration of rising wealth inequality. Both are academic economists who have devoted considerable time and effort to assembling data that deepens our understanding of the issues.

For example, Saez’s recent essay Striking it Richer: The Evolution of Top Incomes in the United States, provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.

Here is a chart of the top 10% share of income, based on their research: (the note in red marking the beginning of financialization in 1982 is my own)

piketty-saez-top10a

Why are the rich getting richer in America, while most are in an escalating struggle, just to pay for our existing obligations and daily needs?

The top 1 percent of Americans raked in 95 cents out of every dollar of increased income from 2009, when the Great Recession officially ended, through 2012. Almost a third of the entire national increase went to just 16,000 households, the top 1 percent of the top 1 percent…

Charles Hugh Smith nails it down: Those who provide the largest campaign donations–to both Democrats and Republicans–are the scoundrels with the most to gain from the transformation of the economy away from real production and wealth-building, and toward financial games.

Smith’s conclusion, as usual, is right on:

You want to fix wealth inequality? Abolish the Fed, eliminate the too-big-to-fail banks, tax speculative profits from high-frequency trading and other skimming operations at 90% and lower the corporate tax rate on productively invested capital to 5%. The only way to reduce wealth inequality is to change the incentives and disincentives to favor productive investments and innovation rather than financialization.