Posted on 08/24/2009 8:27:39 AM PDT by SeekAndFind
“Any major shift in the financial status of the rich could have big implications…..Over the last century, the worst years for the rich were the early 1930s, the heart of the Great Depression.” -- New York Times, August 21, 2009
On Friday, the New York Times had a cover story, “After 30-Year Run, Rise of the Super-Rich Hit a Sobering Wall.”
The financial crisis has hit the rich hard -- the net worth of rich Americans has fallen an average 24% in the past year, according to a new Merrill Lynch Wealth Management report. The number of people with investable assets over $1 million has fallen from 3 million to 2.5 million. They have lost big money in real estate and stocks, their two biggest holdings. Even the price of Mei Moses Art Index has fallen 32% in the past six months.
The real question is: What is the impact of less wealth on the average American? The answer is: serious.
The wealthy, including business entrepreneurs such Bill Gates and independent investors such as Warren Buffett, have led the global economy to astonishing new heights over the past generation.
The New York Times may not want to admit it, but over the past 50 years, the rich have gotten richer and the poor have gotten richer too due to the new global market economy. If you look at average real income figures, the wealthy have benefited more from the growth economy since the Reagan eighties, and many critics argue that income inequality has worsened in the US.
But wage income does not tell the whole story. If you look at actually goods and services used by Americans over the past 30 years, middle and poor income earners may have done much better, and may have even done as well as the rich in terms of the quality and variety of life.
According to a recent study by the Dallas Fed, the poor and middle class are enjoying substantially more and better quality cars, food, housing, education, and entertainment since 1980. If you look at average size of a new home, households with a computer, cable TV, microwave, and washer/dryer, the indicators are all higher for all income levels. (See chapter 1 of “Economic Logic.”)
The positive effects of market capitalism have been felt around the world. Even in countries such India and Brazil, the number of poor people have declined markedly since 1980. Worldwide the number of extreme poor has fallen by 50%.
Trickle-down economics appears to be have more a waterfall than a drizzle. As Andrew Carnegie once said, “Capitalism is about turning luxuries into necessities.”
But what about the future? The answer is simple: When times are good, the rich get richer and the poor get richer too. But when times are tough, the rich get poorer….and so do the poor and middle class.
And times are tough. When you tax the rich, you get less wealth, and fewer rich people….When you regulate successful corporations, you get less profits, less retained earnings, and less job creation. That means fewer job opportunities for everyone, rich and poor, and less income.
It’s all a cycle of wealth and poverty. Want to return to prosperity? Encourage the rich to invest, hire and spend more. You don’t do that by taxing, regulating and attacking the rich. Are you listening, President Obama and Capitol Hill?
Calvin Coolidge said it best: “Don't expect to build up the weak by pulling down the strong.”
-- Mr. Skousen is a renowned financial economist, author and university professor. He has been the editor of the financial advice newsletter, Forecasts & Strategies, for 28 years. Two of his books highlight Milton Friedman's career: "The Making of Modern Economics" and "Vienna and Chicago, Friends or Foes?." Check out his latest book "The Big Three in Economics: Adam Smith, Karl Marx, And John Maynard Keynes" or "Investing in One Lesson" and "EconoPower: How a New Generation of Economists is Transforming the World." He is the producer of FreedomFest, the world's largest gathering of free minds, in Las Vegas every July (www.freedomfest.com).
Take a look down south at Venezuela... everyone is poor now and thanks to Hugo’s idiotic (but very dangerous) meddling in the economy... Venezuela actually has to IMPORT coffee now...
The “make everyone even” mentality is going to cause this country to crumble in record time. Putting a corrupt Kenyan in charge of everything will do that for ya.
Uhhhh, no. 0bama, Pelosi, Reid and the rest believe the opposite. From those who have to those who don't.
"And guess what this liberal would be all about. This liberal will be about socializing … uh, um. …"
"...would be about, basically, taking over, and the government running all of your companies. …" - Maxine Waters
Up until right now, anyone with over $100,000 would be a fool (or a drug dealer) to keep the money in cash. Even the very, very rich had almost all their money tied up in investments.
Any beyond just a million dollars or two, if those investments were in the same place, like the same company, the *value* of those investments was based on their staying invested.
That is, Bill Gates plowed almost all his money back into Microsoft stock. But if he wanted cash, and started to sell that stock, the value of that stock would plummet. For him to sell a billion dollars in stock means he would lose ten billion on paper.
To get around this, he created a charity. By law, charities must use no less than 10% of their capitalization every year. Bill gave them some of his Microsoft stock, instead of money, with instructions that they could spend no *more* than 10% of it in a given year.
This guaranteed to the other stockholders that all the stock owned by the charity would decline at a low, orderly rate. And this would stabilize the stock price, they couldn’t sell faster than that, even if the stock price strongly fluctuated.
This meant that Bill could use his charity like a buffer, so he could still sell stock without driving the price down. And another plus, he could write off the taxes for the money he gave to his charity.
This is just an example of what “rich” people have to do. Right now, everybody, even the rich, are so scared of the economic crisis that there are fewer and fewer safe investments out there. So more and more they are saving up cash and not investing it.
But savings are not investments, and make little or no money, so little or no taxes are paid on them.
And without those investments, business stagnates or even collapses.
The elite have to be wealthy. Of course they aren’t producers and don’t create any jobs. But they have to be wealthy because they are the elite.
NEW YORK—The 2008 global recession caused the first worldwide contraction in assets under management in nearly a decade, according to a study that found wealth dropped 11.7% to $92.4 trillion.
A return to 2007 levels of wealth will take six years, according to a Boston Consulting Group study that examined assets overseen by the asset management industry.
North America, particularly the United States, was the hardest hit region, reporting a 21.8%decline in wealth firms’ assets under management to $29.3 trillion, primarily because of the beating U.S. equities investments took in 2008.
http://www.foxbusiness.com/story/markets/economy/world-wealth—fewer-millionaires/
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