Spreading the Wealth

"I'm looking, and I don't like what I see."
--Bud Fox (Wall Street)

I ran across this year old NYT piece discussing growing income inequality in the US. If we accept the NYT measure of income capture as limited to the fraction of all income earned by the top %1 of US households (many studies I've seen use a more inclusive percentage such as top 5, 10%), then in 2007 the top 1% claimed 24% of the total--a fraction matched before only by the runup before the Crash of '29 (which should right away give some hint as to source of the spread).

The article suggests that 'market forces' drove much of the increasing spread. But this claim holds little water as our markets have been becoming less free over the past 100 yrs, not more free. Interestingly, btw, the time period for the data reported was 1913 forward--which corresponds roughly with the advent of the Progressive Movement. 1913, btw, saw the passage of both the Federal Reserve Act and the Sixteenth Amendments as part of President Wilson's 'New Freedom' initiative.

So shouldn't the obvious and intellectually honest question go something like this: Why in a century of 'progressivism, where markets became less free and government intervention, which included the institution of a progressive tax code, increasingly became the norm, did we get periods of record income spreads between high and low earners? Could it be some combination of the interventions themselves that drives periods of bigger spreads?

While not addressing this question directly, the article does note that the spread has widened since 1980 (the beginning of the great bull market in stocks), and that most of the increase in high earners comes from stocks and bond investments. It also indicates that the wealth spread is coming in with lower stock prices.

Those seriously looking for insight into the causes of increasing income spreads in the US over the past century, then, might want to start with questions such as:

-->What interventionary policies have triggered big run ups in stock prices (look at a chart of the S&P 500 since 1980 and ask youself if that represents 'normal' market behavior)?
-->What policies help the wealthy to lever up risk capital beyond what would be facilitated in free markets alone?
-->What policies help the wealthy protect huge gains from being wiped out if (when) excessive risk taking goes awry?

Few people seem to want to go down this road.

position in SPX