Tuesday, January 24, 2012

Income Mobility vs Wealth Mobility

The world was on fire and no one could save me but you
It's strange what desire will make foolish people do
--Chris Isaak

In a Facebook thread initiated by my sister, a contributor noted that defining 'rich' in terms of 'wealth' (stock of resources) is more appropriate than defining rich in terms of 'income' (flow of resources).

Indeed. But the reality is that 'rich' and 'income' enjoy popular association, as evidenced by the piles of income inequality pieces published in the mainstream press (one dated but still instructive example here by the NYT).

The contributor also discounted the use of income mobility studies to discern the extent that 'the rich stay rich,' arguing that incomes can vary wildly from year to year for individuals. And, to be sure, a rich person could own a stock of resources that generates little income.

I can't be sure, but I believe this person was implying that 'wealth mobility' measures would be more accurate measures of the durability of 'richness' over time.

I am not familiar w 'wealth mobility' studies in kind, but my sense is that they too would reflect significant temporal change. Those who own equities, for example, see big changes in net worth when markets move. And because wealthier people own more equities as well as other risky securities, it stands to reason that top wealth brackets are pretty volatile.

For those unsatisfied with current distribution of wealth, let me submit that the most nefarious activity that favors 'the rich' is the immense government intervention in markets that serves to prop up asset prices. Government intervention in markets clearly benefits the wealthy and helps them stay 'rich.'

The NYT data noted above provide some empirical support. Overlay, for example, a chart of the S&P 500 since the 1970s over the timelines shown and you'll find a pretty good correlation.

Remove monetary, fiscal, and regulatory stimulus that is propping up markets worldwide, and watch the gap between rich and poor narrow.

position in SPX 


dgeorge12358 said...

It is untrue that some are poor because others are rich. If an order of society in which incomes were equal replaced the capitalist order, everyone would become poorer.
~Ludwig von Mises

dgeorge12358 said...

The saving man becomes the free man.
~Chinese proverb

dgeorge12358 said...

Failure to file a tax return could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

dgeorge12358 said...

According to his 2010 return, Mitt Romney paid about $3 million to the IRS and a similar amount to charities.

Any dissenters may consider similar actions and at least match these paltry sums.