The top 0.1 percent

Today’s articles in the NY Times class series are the best written so far. Previously I’ve expressed only disdain for the series, but today is different.

The theme is the “hyper-rich.” The well researched article by David Cay Johnston uses statistics to shine light on the top 0.1 percent, a group seldom talked about. Kerry talked about the top one percent in his campaign, but never said anything about the top 0.1 percent.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002.

That a pretty uneven distribution of income. People will criticize the article and say it reads more like an editorial, and it does. It also uses some deceptive statistics that are designed bolster the point of the writer rather than shed any light. I give a big thumbs down to deceptive statistics. They are especially uncalled for considering that the non-deceptive statistics, like the one quoted above, are so illuminating.

With great wealth comes great power. The power to bend supposedly democratic government to one’s will. The interest of the new aristocracy is to hang onto the power they’ve obtained. Their interests are not the interests of regular Americans.

I know some libertarians will say “but they deserve their wealth.” I don’t buy into that argument for reasons that are too long to explain here. Even libertarians have to agree that their children certainly don’t deserve anything based on any accomplishments besides being born. Yet their children inherit a role in the aristocracy and wield great power.

* * *

The article about Nantuckett by Geraldine Fabrikant is also worth reading.

They [the new rich moving to Nantuckett] feel they have earned their money, and they are not shy about spending it. They construct huge mansions, outdo one another in buying high-end status symbols like mega-yachts (100 years ago it was private railroad cars) and not infrequently turn to philanthropy. Their wealth is washing over the upper reaches of society as it did a century ago, bringing cultural and political clout as they take up positions on museum boards and organize presidential campaign fund-raising dinners.

It sure seems to me like the author stole these ideas from two of my recent posts. I recently wrote about income and status seeking and about how people seek status through charity.

One thing that’s silly about the Nantuckett article is that the writer wants us to feel sorry for the middle-class being forced off the island. These people are making million dollar profits on their houses when they sell them and leave. I don’t feel sorry for them, I feel envious of them. If only I could be so unlucky.

Comments

[reader]

Do the ultra rich deserves the money they have? Often, the answer is no because their productivity does not merit the return they received. These are the "lucky" people who happened to be at the right time and right place. If you and I were in that same spot, we'd probably be ultra rich too.

For example, fund managers in Wall St. are known to be well compensated. These folks might not be in the top 0.1%, but they are certainly in the 1% bracket. Do they deserve a 7 figure salary? Probably not given the fact most of them can't beat the index funds in the long term. This suggest that when they do beat it, luck probably has more to do with it than actual talent.
So, why do investors allow them to keep their multimillion dollar salary is a mystery to me.

The libertarian's notion of a free market is much of an utopia as socialists's social equality. Neither are practical on this planet given the inhabitants we got. There is something in human nature that prevents a creation of a 100% efficient system that fairly rewards the merit of the individual in the market place.

This is why various societies have created wealth transfer system like a progressive income tax to accomodate these inefficiencies in the economic system. Neither of these systems are prefect, but there appears to be no alternative to keep things in check.

[Scott S]

"Do the ultra rich deserves the money they have?"

That depends, did they steal it from someone else? If yes (see, for instance, every government in existence), then they did not deserve it. Otherwise, feel free to feel jealous and buy as many lottery tickets as you want. But don't try claiming that forced labor/property redistribution schemes are needed to keep these people "in check".

[drtaxsacto]

Huh? The Times as usual has it about 25% right. Are these percentiles permanent or more fluid? Do they account for the influx of new people into society? Is the system stacked against the common man? Does the progressive income tax solve the problem in any way? Do you actually think things like the alternative minimum tax (designed to capture people who don't pay their fair share) actually does what it is intended to do?

The system (whatever that is) is not stacked against the common man. Economic opportunity is still there for people who work hard and who are educated. Are there always going to be superrich in a society? Sure. But which kind of superrich would you think are better - the Trumps or the Politbureau types?

[Michael A. Clem]

I don't buy the idea that we should criticize the top 0.1% simply because they're the top 0.1%. Statistically, there's always going to be a top 0.1%. The question, as Scott S. pointed out, is did they acquire their wealth honestly? If so, then and only then do they deserve their wealth, and we're only talking about the politics of envy.
But if not, then we're talking about force or fraud, or something criminal. The problem is that often, the government is the agency enabling them to gain wealth dishonestly. By not limiting the government to its proper functions of rights-protection, we the people are providing the wealthy the very tools they need to maintain and increase their wealth in dishonest ways.
But as for inheritance, people don't seem to believe in the fluidity of the economy. As they say, "a fool and his money are soon parted". I don't care how much wealth a son or daughter inherits, they have to at least have some degree of money-handling ability and sense, or they will quickly not have any money. And they need to be even more skilled if they're going to take their money and make even more money out of it. Or, as noted, figure out how to use the government to their own advantage.

[dan]

I have to say that I enjoy the blog but I fail to see how the super-rich in this country are wielding uber-amounts of power. I have not heard of Buffett or Gates shredding the constitution (like the gov't with Ashcroft v. Raich.) Check out Soros and the last election, he didn't exactly get what he wanted.

On another notes, lets assume you are correct and the superwealthy do not deserve their wealth, who then does? WHy are "poor" people more deserving than Buffett (he did make the investment decisions after all)?

[David Cay Johnston]

You wrote that my June 5 New York Times lead article "uses some deceptive statistics that are designed bolster the point of the writer rather than shed any light. I give a big thumbs down to deceptive statistics. They are especially uncalled for considering that the non-deceptive statistics, like the one quoted above, are so illuminating."

For example? You don't cite a single example of a supposedly depective statistic.

I presented data back to 1920. I used rounded examples. I did not pick outliers, but reasonable cases. For example, the $18,000-to-$1 comparison in my article would have been $66,000-to-$1 had I used the most extreme example I found in the data. And you can check this because the original source document for every statistic in the two charts is posted so you can check my work or make your own analysis.
The original source documents are available from links at:
http://www.nytimes.com/2005/06/05/national/class/05class_graphic_sources.html?ex=1118980800&en=5d9b6808c11d90be&ei=5070

I used 2002 income tax return data because it is a) the most current and b) shows that even after the fallback in capital incomes after 2000 the share going to the top is double what it was in the 70s.

BTW, I broke the story in 2003 that incomes fell most at the very top, a story I dug out of dry statistical tables on my own initiative, just as I did with the June 5 story on which I worked for months to make sure it was rounded, balanced and fair in every way as well as providing lots of information no one knew. That is, of course, the definition of news.

The data on tax shares, tax rates and how the tax cuts are distributed comes from a compter model at the Tax Policy Center that the Bush administration considers reasonable and reliable. The model is base don the law so far plus the President's 2006 budget.
I would have used official Treasury data, but as my article noted the administration chooses not to release such data from its own computer model and it has blocked the Internal Revenue Service from releasing certain other data.

So do tell what statistics did I use that deceive?

The administration has voiced no compliant over any of our findings nor have any of the economists with a wide range of views who reviewed the data before publication or have commented on it since. But maybe all of us missed something.

There have been complaints from people who misread what I wrote or assumed what was in my article and the charts and then attacked me for things I did not write or put in the charts. One TV poersonality and nationally syndicated columnist did suggest I wanted the top 145,000 taxpayers shot, a crazed claim which reflects on the commentator's competence rather than anything I wrote.

If you can show that I used depective statistics then you should go to the Public Editor of The New York Times (button on left rail at our home page) and seek my dismissal for unethical conduct. Any reporter who knowingly uses depective statistics ought to be fired. And I knowingly used every number in my piece and the charts.

In nearly 40 years at this, more than 10 of them at The New York Times, no one has ever shown that my stories were anything but rounded, thorough and fair. My stories have caused CEOs to lose their jobs, people to be indicted and sent to prison for long terms, an innocent man to be freed from life in prison, a third of a billion dollars given to poor children to be saved from theft, businesses to be shut down, a dozen federal laws to be enacted. Congress and others acted after they concluded that my facts were square and fair and presented a problem that needed redress.

My articles have stood up under scrutiny by grand juries, legislative and Congressional committees, lawsuits and investigations by competing news organizations hoping to knock my work down for their commercial advantage.

If you don't have an example of unethical conduct -- and that is what you accused me of -- but rather blogged without carefully thinking first then a corrective post would be the honorable response.

David Cay Johnston
The New York Times
212-556-3605