Wealth Inequality in America – Who Posted This Crappy Video?

A relative of mine made me aware of this viral video going around on YouTube by the author “politizane”. As you can imagine, I have quite a few issues with this video. I’m not suggesting some of the information is incorrect, I just have an issue with the conclusions and some of its assessments.

Wealth Is Dynamic

The primary issue I have with this video is it assumes the “1%” in wealth are always the same 1% every year. Not in terms of income, but net worth. The fact of the matter is it’s not always the same. One of the first things learned in economics 101 is the pie isn’t fixed.

“The analysis also found that the composition of the very top income groups changes dramatically over time. Less than half (40 percent or 43 percent by different measures) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Only about 25 percent of individuals in the top 0.01 percent in 1996 remained in the top 0.01 percent in 2005.”
Source: Dept. of the Treasury – Income Mobility in the U.S. from 1996 to 2005

Wealth is created primarily by productive individuals adding value to society. Wealth does not come out of thin air or (like Ben Bernanke would like to lead you to believe) the printing press. So for the most part, if you work hard, take some risks, more than likely you will be rewarded for your efforts. It’s not guaranteed, but then again nothing in life is guaranteed, nor fair. Individuals are paid a wage based upon the skills needed for the job and the demand for that skill in the marketplace. Almost always this axiom is true: low skills work gets paid a low wage; high skilled work gets paid a high wage.

Second, 80% of millionaires today (in terms of net worth) are first generation (source: Millionaire Next Door). Meaning they did not inherit their wealth. So somehow they were able scale the social ladder and become individuals in the top %1. Again, disproving that wealth is static.

Socialism Yields The Same Results?

In part of the video, the narrator states with socialism the wealth would be equally distributed. The narrator then states in 2009 our economy had a total net worth of $54 trillion. The fallacy is with socialism we would have that same net worth. How many socialistic and communistic countries do you need to look at to know this statement is completely false? A great petri dish of an experiment is the economic differences between South and North Korea.

We would NEVER have $54 trillion of net worth under socialism. It forgets to mention the flatter the distribution in wealth the less typically wealth is created. Mind you, I’m NOT suggesting in the existing form of wealth inequality is good. What I am suggesting is that you need inequality in capitalism, and it is a “good thing”. The fact of the matter is that the reality graphs the narrator shows you have more under socialism and corporate cronyism. A small amount of rich politically connected individuals who capture most of the economy.

But Individuals Got More Wealthy?

From the Pew Research, you could just as easily manipulate the economic data to say that from 1970-2011 more Americans moved into the upper middle class bracket than at any other time.

“The Pew Research analysis finds that upper-income households accounted for 46% of U.S. aggregate household income in 2010, compared with 29% in 1970. Middle-income households claimed 45% of aggregate income in 2010, compared with 62% in 1970. Lower-income households had 9% of aggregate income in 2010 and 10% in 1970.”

Wealth Inequality Increasing

What the video fails to tell you in the past 5 years, the wealth inequality has been increasing, NOT decreasing. Now some socialists might make this as a claim – this is because capitalism has failed. What we have now in the USA is anything but capitalism, but rather corporate cronyism and/or modified version of socialism. History has shown repeatedly central planning does not work and only leads to everyone more poor with only a few in the upper end.

Only CEOs Are In The 1%?

The video goes into a discussion about “greedy” CEOs. As if they are the only ones who compromise the 1% in salary. The fact of the matter is that the 1% are of many different individuals from many different backgrounds. Many professionals are part of the %1: doctors and lawyers, but also small business owners, entertainers, and oddly enough politicians are a decent part. Physicians actually make a good part of this group. But instead this video tries to outcast one specific group. However, this statement is completely false, and the 1% is a diverse group of individuals. Not all of them earning 380 times the average worker.

In realty, CEOs are in the 0.01% of all income, not the 1%. It’s a completely different category. They are the rock stars, pro sports players, and famous actors, of the business world. It’s expected they earn a high income. Are they worth the salary they earn? In many cases, yes, otherwise board members and shareholders will want the CEO replaced for poor company and stock performance.

Who Is ‘Politizane’?

Damned if I know. The YouTube user politizane only has this one video on YouTube, with no other information about the author. Like the State Farm commercial, if it’s on the Internet, it must true, right?

Without question, I can say the video is professionally produced. This wasn’t done by some part-time blogger in their mother’s basement. If someone paid for the work, I suspect it would have cost at least $10-15k to produce. Not exactly chump change that some Occupy Wall Street member would have lying around in one of those evil bank accounts. If paid for by an individual, perhaps someone with a 1% net worth? Hmmm, makes you wonder, but I digress..

Actually the more reasonable answer is some liberal progressive group paid for the video and wanted to get their agenda out there in a viral way. Yet they wanted to make it appear it was done by some amateur so they did not disclose this information. I personally would like to know who did this video. At least be honest in the source. Are they part of some larger organization? I would be willing to bet yes. The bigger question then becomes, why hide this fact, and what is their ulterior motive?

Summary

I guess the positive aspect of this video is it does talk about everything in terms of wealth and not just income. The downside to this video then, expect more of our government to discuss means to tax actual net worth. After all it’s not “fair” that these individuals have most of the net worth.

All this video is propaganda for more taxes on individuals like me (which trickles down to the poor and middle class), and yet again more class warfare. If anything, what the narrator suggests will cause more distance between the rich and the poor, not less.

Comments

  1. fi25m says:

    This video is done well. The ideas behind it – pretty scary. If you ask me, it was produced by one of the communist governments of Iran, Venezuela, Cuba or North Korea.
    Did you hear how he acknowledges that even distribution of wealth doesn’t work, and says with sarcasm that “it wouldn’t motivate people to work” ?
    The video also claims that a CEO shouldn’t make 380x the average worker, since “the CEO doesn’t work 380x harder”. He fails to realize, that capitalism rewards are results-based rather than effort or need-based.
    I believe that the disparity in wealth, is what motivates people to aim higher. I think that without this disparity, or – god forbid – with laws that prohibits such a disparity, we all will be less wealthy. Everyone – from the CEO to the poorer worker.

  2. Matt says:

    Hadn’t seen this yet – went to facebook and sure enough, there it was, posted by several friends.

    Several of your points are well taken, yes I would agree wealth is fluid, but I don’t see the video as arguing that wealth is static, as you have written. To me, the video is advocating a distribution closer to our ideals than the current reality and insinuating that the average worker has been receiving less while the top dogs have been receiving increasingly more. If the stats are right and the top 1% is now taking 24% rather than the 9% of the 70′s, then I would have trouble arguing against that point.

    I agree that the presentation of socialism is fairly simplistic and could be more accurate, but then again, most people consider socialism an even distribution, so I can live with them splitting the sum up evening to make a visual point.

    Not sure what the last 5 years have to do with the video, unless slamming Obama is your personal agenda, but the wealth distribution problem is one that, as the video shows, is a longer-term trend and reflects how our entire system has evolved, not just current white house policy. Are you drinking the “Obama is making our country socialist” kool aid? The video does not need to isolate the past 5 years because it is highlighted the past 30+ years, the previous 5 included. Or am I missing something?

    Also, I would mention the video says nothing about the top 1% being made up of only CEOs. Don’t understand why you interpret it that way. In fact, most of the other professions you mention (doctors, lawyers, celebrities) are mentioned by the narrator when he is separating the people in line by wealth. I think comparing a CEO to his employees is a fairly natural comparison to make, particularly when we hear about CEOs who are still receiving their enormous bonuses, despite their poor results, bank failure, etc., while lower-level workers are laid off.

    I’m confused when you say what the narrator suggests will lead to class warfare and more distance between the rich and poor. So being aware of the difference between our ideals and reality will worsen the trend described? Huh. Or can you point out to me where the narrator describes a specific approach to addressing this trend?

    I don’t doubt the rich will fight to keep what they have though, should our politicans ever get off their butts and take an interest in enriching the lives of the poor and middle classes. And hey, I’m in the 1% too. Just sayin’…. not really following your interpretations here….

    • Larry Ludwig says:

      Hi Matt,

      I’m not blaming Obama specifically, just stating that all we hear is rhetoric about “leveling the playing field” and making sure everyone pays their “fair share”. Then how come poverty has increased in the past 5 years? Could it be the very economic policies are causing a bigger gap than doing the reverse that they state it is supposed to do? More individuals are on food stamps now than ever! That’s my point. I would be willing to wager in the next 4 years it will be even more.

      There also has to come a point in which congress and the current administration owns the economy. Bushes’ fault just doesn’t cut it anymore.

      Regarding Obama himself, what exactly is he for? Is he a socialist in the traditional sense? No, but he is certainly no capitalist. I can’t remember a more recent president who bashes the wealthy more, and all about class warfare than this current administration. If you can list another president please name one in the past 30 years. Obama is more towards crony capitalism, or maybe more a socialist lite.

      Without question he is certainly not pro job growth (unless government workers) and not pro small business owner. This isn’t rhetoric from Fox News or the other slanted MSM, but seeing it as he is. If you think he’s pro capitalist, please name anything he’s said or actual done that doesn’t inhibit job growth or get out of the way of the private sector? Unlocking cell phones so you can switch from carrier to carrier isn’t a core issue and a sideshow to the real issues in our economy.

      “Also, I would mention the video says nothing about the top 1% being made up of only CEOs. Don’t understand why you interpret it that way.”

      Then why does the video single them out? Other than in single out a specific group and instill hatred to the entire 1%? Most individuals and certainly the ones watching, have no clue what the 1% really compromises.

      “I think comparing a CEO to his employees is a fairly natural comparison to make, particularly when we hear about CEOs who are still receiving their enormous bonuses, despite their poor results, bank failure, etc., while lower-level workers are laid off.”

      Yes, but again that is NOT typical. 70-80% of all workers work at small businesses (under 500 employees). Is a small business owner who is in the 1% that same person you mention and the video singles out? Without question no. And if they do earn that salary and bonus, it’s because they are ones who started the business and took all of the risks. Most small business owners have most of their wealth tied into the business. So while they might be wealthy now, it could change very quickly and is my other point.

      A Fortune 500 company is typically a completely different animal. First and foremost, how many CEOs are we talking about 500 (based upon being the Fortune 500 :-) ). You are aware they don’t represent the 1%, but actually 0.01%? They are such a small group of individuals. No different than NBA or NFL sports stars. A complete different category, but yet are also part of the “1%”.

      Am I for the crony capitalism you mentioned? Without question no. Though my beef is the administration is all for this type of policy.

      If I’m incorrect with any of my assessments please tell me otherwise.

    • My name is incorrect says:

      Thank you matt for your unbiased perspective. I wish more people were like you.

  3. Brick By Brick Investing | Marvin says:

    I don’t know why it still surprises me but I cannot believe the arguments of some individuals. I could write, talk and complain about this for hours. But the simple fact is this, the most productive individuals will typically be the wealthiest. I don’t know why this is such a hard concept to understand. Ultimately wealth goes to those who work hard to earn it. Nobody in their rigth mind can sit down and tell me that an employee works just as hard and has the same responsibilities as a CEO/Owner. NOBODY!

    • Larry Ludwig says:

      Brick By Brick, Of course there are always exceptions to the rule, but yes the vast majority did it via ethical and legal means. Yes some got lucky as well, but luck typically runs out in the long run.

  4. PK says:

    Do you have hard numbers on the varying wealth brackets year by year? I have delved into studies on the income variety, and I’m definitely with you on those… but I haven’t seen comparable longitudinal wealth studies. That said, it might still be unfair to only take a snapshot – note that (I’ve done an article and I’ve seen a few more) another reason the disparity is increasing on the income side is because higher earners still tend to marry, while the lower end of the income scale has a higher propensity to stay single.

    Also, I can prove the “Socialism would lead to equal wealth” thing wrong – if you accept that Denmark, while not socialist, is more socialist than the United States. According to Wikipedia, their ‘Wealth Gini’ coefficient is .808, vs .801 for the US. Yeah, I know, Gini coefficients have issues – but it’s funny to show people that statistic.

    • Larry Ludwig says:

      PK, raw data? No I haven’t I’ve only seen it in graph form.

  5. Matt says:

    I’m going to decline to discuss Obama or his administration in depth with you, as it has absolutely no bearing on this video. The only thing I will say is they have done little to nothing to address the increasing disparity, and I don’t seem them as radically different from previous administrations in this regard.

    You asked why CEOs are singled out in the video. Other than the fact that an example by its nature singles things out, let me get make sure I’m understanding you: because the video uses CEOs as an example to highlight the disparity in workload-to-income ratios between CEOs and their average workers, the video is promoting hate? The videos promotes outrage perhaps, and rightfully so I would say, but I do not see this as a hate-filled piece of propaganda. We are talking about a visual comparison, which immediately follows the key statistic of the entire video, which is that the top 1%’s earnings have increased 30% since the 70′s, from a 9% share to a 24% share.

    My question for you, do you think that’s right? Do you agree or disagree with the premise of this video, that distribution should be better in our society today? You criticize the video as being crappy, but have really ignored the central question in your post and comments. Note that the narrator explicitly states at the end that we don’t have to go to socialism, and further than we don’t even have to achieve the bipartisan ideal shown earlier, only that we need to realize that a problem exists. Do you realize that there is a problem, or is everything perfectly fine?

    • Larry Ludwig says:

      Matt,

      The issue I have with the video is simply this. That the video implies the 1% must have somehow “stolen” their wealth from others, therefore it must be taken back via taxes. Not just income taxes, but again implies a wealth tax. That’s what I have a problem with. I am not for outright theft from the government to take from one group and give to another. Otherwise then we do have socialism in this country if we go down that path. So while the narrator states not wanting socialism, what other ‘ism’ is he implying then?

      The video is well done in this respect as it does a classic advertising tactic. States socialism is bad, but in the end leads the viewer to make that conclusion. It’s like the saying “when was the last time you beat your wife?”

      While it might be “unfair”, social justice will not resolve the issue and if anything make it worse, not better. What am I in for to make it more less favoritism in: tax laws (ie flat tax), less entitlements overall (for everyone), and no crony capitalism (so smaller government with better regulations). Instead the direction we are going as a country is the exact reverse. Ever more complicated tax rules, more regulations that inhibit job growth, and overall larger government. Bottom line taxes were supposed to be a means to collect revenue for the government. Instead it’s turned into some means to punish/reward individuals for specific behaviors.

      Again the CEOs represent a small part of the “1%”, yet why is it representative as the whole group in this video? It’s not the whole group. It’s only purpose is to somehow the 1% somehow didn’t deserve their wealth because they earn 380x the average worker salary. It’s meant to vilify the 1% that’s the intent.

      Lastly, which I didn’t mention in my complaints, it wrongfully interchange incomes and net worth in many parts of the video. Especially comparing 1% net worth (which is about $16M today), and 1% in income for CEOs (which in reality is 0.001% in terms of income).

      To spell it out for you, the video is pure propaganda. I will keep that stance until the details of who exactly made this video is reviled. That is why it’s crappy.

      • Heather says:

        Larry I think the point Matt is making and the point that you are perhaps taking too personally is that the CEO’s are an example. That’s it. By definition an example is “one (as an item or incident) that is representative of all of a group or type”.

        • Larry Ludwig says:

          Hi Heather,

          I’m not taking it personally. I’m not a CEO, nor do I have any love for them as a group either. Only the fact it’s not representative of the entire group of 1%ers.

  6. Matt says:

    Sorry, I’m finding your point of view very unclear here – do you agree or disagree that this issue exists?

    • Larry Ludwig says:

      The issue exists, but not much as it’s played out to be. It has always existed.

      Especially if individuals are able to move up the economic class. The video makes the assumption wealth is static.

      • Monty Kerr says:

        Well before commenting on class mobility and acting as if the rates of mobility are high, do some research. I think you will find when wealth/income gaps are small you get better movement through the classes, when the gap is large you get less movement. PK above used Denmark as an example for an index of wealth, maybe he should have used it as an example of mobility, because they have higher rates of mobility than the US. I’m not a socialist, I don’t think the claim of european socialist is for everyone to have equal wealth, by using redistribution(taxes a.k.a theft in your world) they are trying to creat equal opportunities, kind of like we did from the 1940′s through the 70′s, changing in the 80′s to a more hate government, freemarket economy. As the programs of past got pushed aside, individual wealth became more of a goal than individual opportuntiy for our government (We the People). This has worked great for a few. According to you they are the hard workers and maybe they are, but so are the working poor. With the benefits/opportunities going to an increasingly smaller groups, hard work is not going to get you into a higher economic class, I know the stats show the greatest creator of mobility is education, have you priced a higher education latley, for the haves, not for the have nots. Unlike many libritarians and free marketer’s, I was born into a country with roads, schools, infrastructure that gave me an opportuntiy to do as well as my abilities. I did well enough to be aware of the great country that was left for me. and the amount of theft that must of occured to create the most advanced country on earth with incredible opportunties for all. I know it wasn’t cheap but at least it was coopertive effort, when everyone that could pay their fair share,even if forced to, they did and seemed to like the government (We the People) Seems to me, you with the theft argument you act as if you were born into a barron country, you and those CEO’s worked 380 times harder than everyone else and you owe nothing to anyone, unless you agree with every expenditure of your money stolen from you. I leave you with a paraphrased comment from Bill Gates, I could not have created Microsoft in some west african country , only in america did I get the benefit of a workforce with a 1st class education, governmental research and grants to universities and the market place for my products. Sounded to me he was thanking “We the People”.

  7. Matt says:

    I would follow up only to say that I find your analysis of the video to be focused very much on the periphery, rather than the heart of the matter, which is the transfer of money from the lower and middle classes to the top percentiles.

    It’s not a crappy video, because it is sparking a conversation, and effectively so. More than 3 million folks have already checked it out, and I’ve already seen several interviews on TV regarding the subject (including a very interesting one with Joseph Stiglitz, nobel prize-winning economist whose book on the matter I may have to check out).

    As you clearly have a different political perspective from me, I could have actually learned something from you, if you had chosen to engage the topic at hand and discuss how you think the problem of increasing class inequality should be addressed. Then again, I don’t get the sense that you see it as a problem, as you have stated that the issue exists, but that it “has always existed”. Well, no, the point of the video is that this problem has gotten significantly worse since the 70′s, so much so that it is now a 30+ year trend.

    The fact of the matter is that the video suggests no remedies to the problem, only that it be addressed. You interpretation is full of stated assumptions and fear of invisible forces at work, none of which are included in the actual content. Why does it matter who made it? Aren’t the ideas what are important?

    If you agree not only that the issue exists, but that it is a problem for our society, then you should be interested in discussing the real issue and potential solutions. That would be a chance for your voice to have a positive impact. This article adds nothing, sorry to say.

  8. Jacob says:

    Hi again – Larry. I felt obliged to comment on your Never Prepay a Mortgage column a while back as i thought it was important to look at the other side of things.

    With that said, wealth distribution is one of my favorite topics to think about and thought it was interesting that I came across another post on your site. Frankly, I agree with most of what you’re saying this time.

    Being in my young 20′s, it ashames me to think how much of my generation fails to realize the importance of basic economic lessons in our daily lives. This video is a classic play on emotion and I’m honestly surprised that I haven’t seen it posted by any Facebook friends, as of yet.

    There are many flaws in the video, but I want to focus on 2.

    #1 is the CEO to average worker example – does the average CEO work 380x harder… etc? I think it’s irrelevant. Pay is based on the value that someone adds, not directly the “level of hardwork” that someone puts in, whatever that means anyway. If that average worker works hard enough and adds enough value, or takes enough risk maybe someday they too will be a CEO if they desire…

    #2 is the lack of clarity between income and wealth. I think it’s eye-opening that flawed arguments like these are usally not too clear on distuinguishing income vs. wealth. If you compare 2 “middle class workers” – 1 of whom spends more than he makes, borrows to buy TVs, etc. and 1 who saves and invests diligently for decades – basically these types of arguments are saying that the saver should be penalized for doing so. That really doesn’t make sense to me and concerns me for the future.

    Just some thoughts,
    Jacob

    • Larry Ludwig says:

      Your #1 point is debatable with some CEOs, but for the most part this is correct. It’s demand for your skills in the marketplace – the value you add. It’s not how many hours you work or how hard you work. The goal in corporate life is make yourself worth more to others.

  9. Donald says:

    This video, while the general principle is sound, polarizes the viewer. I firmly believe it is the goal of both media and government to remove any intelligent discussion from any topic in fear of change. It’s easier to keep people uneducated and divided.

  10. scott ernster says:

    This Larry Ludwig character is obviously interested in one thing, his own ill gotten, grossly overinflated gains. As a nonfuditiary financial “adviser he’s lined his own pockets off the backs of people who actually work for a living. For a guy like this to downplay the significance of this video is not surprising. Anybody who can witness a tiny minority swimming in an ocean of ridiculous wealth while vast amounts of people are scrounging out an existance on fumes and crumbs, is a man with serious flaws of character. If there is a god I fear for this guy. Take a look at Bill Gates and learn how to be a man. He’s seen the absurdity of his ways and is giving it all away.

    • Larry Ludwig says:

      Scott. First off I am NOT anything of the sort of a financial advisor. I generate my wealth by hard work, intelligence, and taking risks. How do you? What do you produce? My guess is you will have no idea how real wealth is created.

      Second of all you use Bill Gates as an example. If you knew his full history you would know he wasn’t known exactly as a nice guy during his business tenor. In fact if anything he would fit my description of a crony capitalist, especially after the Microsoft anti-trust investigation. He likes laws that favor his position.

      As far as “giving it all away” he’s pledged to give half. Which would leave him with still $25 Billion. My heart bleeds for his poverty. While I have no issue giving to charity, either him or myself it is my decision of when and who to give to. I can suppose from statement you give your income all to charity?

      If you think by Bill Gates giving his wealth (or all of the others started by Warren) will solve income inequality, I have a bridge to sell you in Brooklyn.

    • Larry Ludwig says:

      In addition since you used Bill Gates as an example. We as a society are better off because of Bill Gates and Microsoft (as much I in fact hate to state this because what I think is crappy software). We are richer because of what they produced.

      Bill Gates added value and got rewarded for the value he created. What is wrong with this?? Is it because you think what wealth he created for himself (and many others directly and indirectly) you deem it’s too much?? Who are you to determine this?

      While I do not agree with many of the business practices Microsoft did/does, we were not forced at the point of a gun to buy their products. We choose to because it added value.

      Bill Gates by creating his wealth did NOT make others poorer. If anything the reverse. The economic pie is not fixed that that lies within your economic fallacy and your whole statement is wrong.

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