Practitioners of a new statistical discipline
called Econophysics have produced
the curve above, showing US wealth data plotted logarithmically. They
claim the richest 0.1% of the population's income is described by
Pareto's Law -- meaning that if you're born into that kind of money,
you'll only get richer, no matter what you do. And they claim the
poorest 99.9% of the population's income is explained by Boltzman's Law
-- describing random movement of gases in an enclosed area,
and meaning that even if you've struggled up to the left end of the
green curve, you're far more likely to then get poorer than to make it
to the 0.1% elite.
A recent survey
in the UK shows that, between 1995 and 2005, the average net wealth of
18-to-24 year-olds remained at zero, that of 25-to-34 year-olds fell
from $3000 to $995, and that of 55-to-64 year-olds tripled from $50,000
to $150,000, although their total debts actually rose during that
period.
In the US, reports USA Today, all
of the increased wealth since 1989 has accrued to those 55 years of age
or older. Like in the UK, the big losers have been those who are now 35
to 50. This generation doesn't look poor -- they have as much stuff or
more than previous generations at the same age, but their debts are
astronomical. They are horrifically vulnerable to an interest rate
spike (even a small one like the one that has, along with the US
housing crash, created the current credit crisis). The disparity is
expected to increase, and accelerate.
At a recent financial executives conference in Toronto, Peter Bernstein, one of the world's most distinguished economists
told the (mostly older) crowd that income and wealth disparity posed
the largest single threat to economic security and political stability
in affluent nations. The people I spoke to afterwards said they didn't
believe him. I wonder why.
I watched a program a couple of years
ago that showed an astonishing correlation -- community-to-community,
region-to-region, country-to-country -- between wealth disparity and
violent crime. This is nothing new, as anyone in a country with a high Gini index like Brasil (or, now, the US) can tell you.
I've also reported
on this blog that the belief that hard work or education is the road to
upward economic mobility is a myth. The chart above demonstrates that
if you're born rich, you're destined to get richer, and if you're not,
well, you're in for a lifelong struggle with at least a 50% chance of
actually ending up poorer for all your efforts.
Put these all together and you have a tinder keg. There are only three things keeping it from blowing:
- Ignorance:
The majority of people think they're financially better off than they
really are. They don't realize how vulnerable they are to economic
downturn. Just listen to people who have just been laid off, or who
realize (and this is the rich, older, boomer generation) that they
can't ever afford to retire.
- Shame: The propaganda machine, especially in the US, has convinced most of the poor that their situation is somehow their own fault.
- Economic
Overextension: The economy is wound up tighter than a drum, with all
the dominos propping up each other. It depends on sustaining high ROI
on listed stocks, a continuing housing boom, perpetually artificially
low interest rates, fuel costs and manufactured goods costs, and the
continued and uninterrupted exploitation of labour and natural
resources of struggling nations. None of these things is sustainable.
So
when the economy unwinds, will the poor overcome their ignorance and
shame and rise up in mutiny against the old rich elite that has hoarded
100% of the benefits of economic development for a half-century?
Especially since for the most part this elite is also
disproportionately responsible for the activities that has created
global warming?
It seems unimaginable, doesn't it? It just isn't
in the psyche of Americans, Canadians, Europeans to rise up in civil
war, is it?
Your answer to these questions will depend on how
well you have studied, and learned, the lessons of history. I suspect
Peter Bernstein's answers and mine are the same. He stole the show, and
all he got was polite applause. What will it take for us to learn?
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