The Rich Aren't Getting Richer

Yesterday, I wrote a post in a response to a piece by economist Simon Johnson posted on the New York Times' Economix blog. He argued that the current recession might make income inequality worse, broadening the gap between the rich and everybody else. I argued that, while I agree with logic of his overall thesis, he might be underestimating the effect the recession has had on the rich's wealth. David Leonhardt and Geraldine Fabrikant, also of the NY Times, have provided some support for my argument. They've got a piece out today explaining how adversely the rich have been affected over the past two years.

In their article, they say that despite the common belief that the rich always get richer, recent evidence suggests otherwise:

But economists say -- and data is beginning to show -- that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs -- as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

How about some of that data?

Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 percent since last summer, the biggest such decline since the government began keeping records in 1959.

The article explains that for the rich to recover their earnings quickly, they usually rely on bubbles. For example, after they lost wealth in the tech bubble of the late 1990s, the real estate bubble began, so they shifted investments to that market. If we can avoid a bubble going forward, then we might also avoid the wealth gap increasing. Of course, that might be hard to do.

Few may have sympathy for wealthy Americans losing some money if they're still comparatively quite rich. But as the rich get poorer, so does everyone else. Even if you don't believe in the trickle down effect, the wealthiest Americans affect the economy in many ways. If they have less money, then business investment and charity will also suffer. So will the arts. Government tax revenue will also take a major hit. Less money for the government from the rich will make social programs and entitlements more difficult to pay for.

That's not to say it's good for the wealth gap to widen to infinity. Obviously it isn't. But for the rich to get poorer without the rest of the population getting richer isn't a positive trend either.