Living and Dying In The Shadow Of The Dow Jones

As far as I’m concerned, all that needs to be said about the near record-breaking Dow Jones numbers (accounting for inflation, the true all-time high would be 15,731.54) was said by Jason Linkins and Zach Carter:

The distribution of the stock market’s largesse has been perhaps the most un-egalitarian aspect of American economics for years. A full 50 percent of all capital gains go not to the richest 1 percent of Americans, but to the richest 0.1 percent, according to The Washington Post.

But the stock market’s persistent upward climb since the spring of 2009 has revealed another massive disparity: the multinational corporate machinery that generates stock gains has become unmoored from the economic reality in which the vast majority of Americans live and die.

6 Comments

  1. The Washington Post link is an excellent recap of the history of the capital gains tax debate. I was surprised not to see in it an apologia for it I have often heard, i.e., that taxing capital gains is double taxation because taxes were paid on whatever the initial investment was, but that of course is fallacious. Why? Because no labor, no productive physical or mental labor is expended to earn capital gains through the investment process. I offer my own finances as an example. Since retirement, and even before, our savings have been invested at least 50% in mutual funds, mostly index funds, and such funds do generate capital gains in the process of management. I just checked my last return and last year’s capital gains were 16% as high as the dividends generated. And when capital gains are reinvested, the tax advantage is multiplied even further.

    The tax policy we have is regressive because of this policy, and as the WP says, even many Democrat congressmen support keeping it. All I can recommend is that the average Joe realize it and resolve to dollar-cost-average his savings to reap his own benefits. The real secret to wealth, by the way, is to spend less than you make. (Don’t tell anyone I let the secret out, please.)

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    • Jim,

      The capital gains tax cuts under Clinton, which disproportionately benefit already wealthy folks, is one reason I still have a hard time evaluating his presidency (another would be “welfare reform).

      The article quotes one of my favorite Democratic legislators, Chris Van Hollen:

      There’s no strong economic rationale for the huge gap that exists now between the rate for wages and the rate for capital gains.

      Just as with a lot of voodoo economics practiced by conservatives, the fact that there is “no strong economic rationale” for keeping taxes on capital gains obscenely low means absolutely nothing. The voodoo is a sham but folks keep pretending that it’s good medicine. It’s all so damn frustrating, especially when the country is starving for revenue.

      I won’t tell anyone your secret, but I have a better secret for acquiring wealth: pick the right parents.

      Duane

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  2. Jane Reaction

     /  March 10, 2013

    Gentlemen:

    The entire sequester amount came to only $85 billion, stolen mostly from the poor or unprotected, such as Head Start kids, railroad retirees, and especially Medicaid patients, while the damned Treasury is still throwing in $85 Billion every month for the Fed to invest. And regardless of what the administration says, it isn’t all going to buy mortgages, The “market” is being force-fed upwards.

    The Dow has thirty selected stocks in it. Just last week they booted an actual producer, a food company, and replaced it with a tech stock. The artificial US wealth indicator was created by private interests and the NYSE, not to be a barometer of the so-called market, but a reflection of a manipulated index.

    Main Street has little to do with Wall Street now, if it ever did. The mergers and acquisitions wave has passed with the result that most of the deals have been done. There haven’t been any large construction projects since the Big Dig in Boston. All we build are extended-stay hotels and schools.

    Our country’s savings rate hit bottom in 2007, but since then the American people had actually been saving money, possibly as a result of home re-financing, paying off debts and such. We had achieved a healthy savings rate by December of 2012 of 6.4%. Since then a precipitous drop left the February number down 62.5% to end February at 2.4% rate.

    We have nothing to cheer about.

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    • I disagree that “we have nothing to cheer about.” There is some good news out there:

      We are not facing the abyss, as we were in 2008.

      Private sector job growth has been slow but steady.

      GDP growth has been slow but at least the economy is growing (think about Europe).

      House prices appear to be on the rebound.

      And since the market hit bottom early in 2009, the average 401k balance has gone from $46,200 to $77,300 (about a 70% increase or so; some of the increase was due to an increase in contribution levels, but most was market gains). That’s a big deal to a lot of folks who were looking at big losses at the end of 2008.

      So, yeah, there are a lot of negatives still, but we shouldn’t overlook the positive signs.

      Duane

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    • Oh, and I might add that the progress that has been made has been made in the face of an obstructionist Republican Party bent on sabotaging the economic recovery.

       

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