Sweeping Wealth Under The Mat

by: Steven Hansen

Summary

This week we were bombarded by the Panama Papers.

Some pointed out that the tax lost would be enough to gift the poor with a base income.

What evidence is there of economic inequality?

I wish I had the answer to correct the wealth imbalance between the average Joe and the ultra-rich. Personally I see no evidence that taxing the crap out of the rich to gift the poor will do anything to correct the imbalance.

The rich have the wherewithal to avoid, recoup, reorganize .... any solution to create better economic balance must provide profitable avenues for the poor to gain ground - not sock it to the rich who have the resources to defeat taxation and regulation. This is part of trickle up schemes which are as ineffective as trickle down. This week we were reminded again of the power of the rich with the ongoing release of the Panama Papers. From the National Observer:

The numbers are staggering. The OECD claims that offshore banks globally hide some (US) $5-trillion to (US) $7-trillion from tax authorities, or up to 8% of the world's assets under management. Moreover, an estimated (US) $11.5-trillion is being stashed in offshore accounts worldwide for one reason or another.

How does one know there is an imbalance? It is the difference between the average and median income and wealth. As a reminder:

  • The median of a set of numbers is that number where half the numbers are lower and half the numbers are higher; and
  • The average of a set of numbers is the total of those numbers divided by the number of items in that set.

Generally speaking, if the average and the mean are close to each other, there is balance. In the case of personal income, proof of the imbalance is easy to visualize. The average disposable personal income per capita is up over 22% since 2000.

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While median household income is still slightly negative (down 0.3% since 2000).

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According to my back-of-an-envelope calculations, it seems that there was roughly a 20% growth differential between median and average income in the previous 20-year period.

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It is hard to be exact as median income data sets are based on household income whilst average income data sets are per capita. I find it interesting that the government is doing little to help track economic balance - simply the data is not being collected to facilitate accurate analysis.

Nowhere is income disparity more obvious than looking at net worth from a 2014 Credit Suisse survey [hat tip to Financial Samurai].

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There were always very rich people, while the masses were generally poor. There are limits to the data that make it difficult to say that the imbalance is getting worse or better. Being a conspiracist, I always consider if manipulation by the powers could suppress data which could illuminate. There are many issues for which I would like hard data - and in today's information age it would be relatively easy to accumulate. Instead the USA uses the information age to monitor communications instead of creating monetary flows data bases which would help track the economy - and give immediate and accurate feedback.

Because it is relatively easy to track economic inequality if the data was accumulated, I can only assume the divide between the rich and poor is getting worse (based on my conspiracy theory biases).

My usual weekly wrap is in my instablog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.