Is Inflation Driving the U.S. Wealth/Income Gap?

The bears video got us motivated to put together a chart of the S&P500 and gas prices over the past year.   It’s stunning, though not surprising, to see how both series move together.   The two charts below help explain a big part of what’s driving U.S. wealth/income inequality and why this recovery feels so shitty for what’s left of the middle class, in our opinion.

Higher income households hold more common stock than those of lower income groups.  In fact, data from the Census Bureau show that in 2007,  91 percent of the families in the 90-1oo percentile income group (> $141 K) own stocks versus only 34 percent of households in the 20-4o percentile ($21-37 K).

As stocks increase with inflation — or gas prices as the chart illustrates —  higher incomes groups are partially hedged with their stock holdings whereas the real wages of the lower income groups decline without the wealth hedge.  a/

This evident in the second chart and one that should concern President Obama.  Though job creation has picked up,  real wages have not.  In fact, isn’t that a big part of why hiring has increased?   As real wages fall (prices)  demand for labor increases?

Also, check out the bears video if you already haven’t.  Priceless, especially 4 minutes in.

a/ This is reinforced further as housing is the largest proportion of the wealth of the lower income groups, which continues to head south.

(click here if charts and video are not observable)

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4 Responses to Is Inflation Driving the U.S. Wealth/Income Gap?

  1. Anonymous says:

    Time for a Paul Harvey moment. And now for the rest of the story.
    http://www.economist.com/blogs/dailychart/2011/10/income-inequality-america
    Inequality has been increasing for the past 30 years even during periods of declining prices such as in the 90s. It is true that wealth is distributed much less equally than income so your argument in favor of inflation increasing inequality is true but it is apparently not the whole story. Furthermore, I may be mistaken but I think capital gains are not included in the income figures. And there is also the fact that capital gains are taxed at preferential rates. Inequality is a complex problem.

  2. Joe Calhoun says:

    I wrote about this over a year ago:

    http://www.alhambrapartners.com/2011/01/09/is-income-redistribution-the-key-to-economic-growth/

    Inflation creating inequality was recognized by the Austrian economists years ago.

  3. tochigi1 says:

    This is a great post. It could be complemented by analysis about housing prices in various countries. Asset inequality is a far more significant issue than income inequality. And asset prices have mainly been driven by monetary expansion.

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