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Income Distribution & the Middle Class

Income Distribution & the Middle Class

How big is the middle class, and how is it defined? ”The Pew Research Center defines the high end of the US middle class as those earning two-thirds to twice the median household income, which was $60,336 in 2017, meaning middle-class Americans were earning about $40,425 to $120,672”  This group represents about 50% of the families in the U.S. “

“A new survey by Northwestern Mutual found that 70 percent of Americans consider themselves middle class. However, a 2015 report from Pew Research Center shows that the middle class has been shrinking over the past four decades and now makes up only 50 percent of the United States’ total population. One reason for this discrepancy might be the fact that wages have been largely flat while costs have gone up, so, in many places, even those making a six-figure income feel like they’re struggling to get by.

Of the survey participants who labeled themselves as middle class, 50 percent earn between $50,000 and $125,000 annually. Although these Americans consider themselves in the middle, the actual dollar amounts needed to qualify as middle class are slightly lower. Pew Research Center defines the range as adults whose annual household income is two-thirds to double the national median, which was $55,775 as of 2016. This would lower the range to $40 to $110,000 That equates to singles making between $24,000 and $72,000 annually are middle class.”

While the top 10% of income families have enough discretionary income to have limited participation in Capitalism, it is the top 1% (the Capitalist Group) that controls wealth. The majority of middle-class families struggle to provide just one annual vacation. We can expect them to little or no participation as owners of capital. Fully 37% of families have incomes below the definition of the middle class, and another 12% have incomes below the poverty level.

Currently, the middle class is the engine that drives our economy. Has this group been benefiting from the economic prosperity of the past 20 years? While GDP has increased from $9.6 trillion to $21.3 trillion (a 120% increase), average wages have only increased by about 10%. Where did all that additional GDP go?

List of countries by income equality

Income Distribution by Country

List of countries by income equality

From Wikipedia, the free encyclopedia

This is a list of countries or dependencies by income inequality metrics, including Gini coefficients. The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income—and everyone else has no income).

R/P 10%: The ratio of the average income of the richest 10% to the poorest 10%.
R/P 20%: The ratio of the average income of the richest 20% to the poorest 20%.
Gini: Gini index, a quantified representation of a nation’s Lorenz curve. A Gini index of 0% expresses perfect equality, while index of 100% expresses maximal inequality.
UN: Data from the United Nations Development Program.
CIA: Data from the Central Intelligence Agency‘s The World Factbook.

Country UN R/P World Bank Gini CIA R/P ] CIA Gini 
10%20%Year 10%Year Year 
Australia 12.55.834.7201012.7199430.32008
Austria 6.94.930.520146.8200426.32007
Belgium est.
Canada 9.46.23420139.5200032.12005
Costa Rica 23.412.948.7201637.3200350.32009
Denmark 8.1428.52014122000 est.24.82011 est.
European Union     8.62015 est.30.62012 est.
Finland 5.63.926.820145.7200026.82008
Greece est.34.42013 est.
Iceland  3.625.62014  282006
Israel 13.49.841.4201211.8200537.62012
Italy 11.66.634.7201411.7200031.92012 est.
Japan 4.55.432.120084.5199337.92011
Netherlands 9.24.428.620149.2199925.12013
New Zealand 12.4     36.21997
Portugal 156.435.620149.21995 est.34.22013 est.
South Africa 33.128.463201431.9200062.52013 est.
Spain 10.37.336201410.22000342011
Sweden 6.24.627.220146.2200024.92013
United Kingdom 13.85.434.1201413.6199932.42012
United States 18.59.441.52016142014 est.472014

Using the above 24 countries as a benchmark there are only two countries that have more unequal income distribution than our country, Costa Rica & South Africa. This chart illustrates the issue of the decline in income equity for the middle class. Since 1980 the real GDP per Capita has increased by 80%, but real income to the middle class has increased less than 8%. Does this seem fair to you?

The Wealth Gap

The Wealth Gap

Recently I posted several times regarding the income gap disparity and the fact that it continues to widen. I also think it important to examine how this impacts our system of Capitalism, which I advocate. It doesn’t take a genius to realize that as the income gap widens so does the distribution of wealth. The following chart illustrates that, as a country we were making good progress in wealth distribution until the mid-80s at which point the trend takes a nosedive. This coincides with the time when inflation adjusted wages began the stagnation which continues today, despite our increase in GNP during the same period.

The share of wealth owned by the top 0.1% is almost the same as the bottom 90%

The share of wealth owned by the top 0.1% is almost the same as the share owned by the bottom 90%

The research by Emmanuel Saez and Gabriel Zucman [pdf] illustrates the evolution of wealth inequality over the last century. The chart shows how the top 0.1% of families now own roughly the same share of wealth as the bottom 90%.

What this illustrates that as our country’s wealth has grown in the past 35 years only the super-rich have benefited and the middle class has been screwed. The Capitalism playing field has been manipulated. A Capitalistic system means that capital is king. Those with wealth and excess capital control the system. In a situation where .1% control as much of the capital as the group that includes all of the “middle-class” guess who is in total control.

Next week we will examine what changed in the mid-80s that has led to this unacceptable disparity.

The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90%, according to the report’s authors. Many middle-class families own their homes and have pensions, but too many have higher mortgage repayments, higher credit card bills, and higher student loans to service. The average wealth of bottom 90% jumped during the stock market boom of the late 1990s and the housing bubble of the early 2000s. But it then collapsed during and after the most recent financial crisis. What about the rising cost of Healthcare and advanced education….along with the previously mentioned wage stagnation.

Since then, there has been no recovery in the wealth of the middle class and the poor, the authors say. The average wealth of the bottom 90% of families is equal to $80,000 in 2012— the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012.