Presentation Transcript
Slide1: Spikes in American Wealth
In Wealth and Democracy Kevin Phillips argues that large spikes in wealth have been driven by three factors:
New technologies
Financial speculation
Government policies supportive of free markets and the wealthy
Slide2: Spikes in American Wealth, cont.
Three major waves of wealth:
Gilded Age
Roaring Twenties
Third Wave
Slide3: Gilded Age
Post Civil War era
New technologies: railroads, oil, and steel
Government supportive of large corporations
Mid-1800’s largest fortune was about $20 million, by 1900 John D. Rockefeller had worth of $1 billion
By 1890 approximately half of the countries wealth was held by top 1%
Slide4: Roaring Twenties
Long expansion following WWI
New technologies: radio, moving pictures, autos, and telephones
Reduced taxes on dividends
Number of millionaires rose from about 6,000 in 1921 to about 30,000 in 1929
Top 1 percent still held about half of the nation’s wealth
Slide5: Post WWII Period
Substantial amounts of wealth created but more widely distributed
Substantial growth in manufacturing employment
High marginal tax rates (maximum of 91%)
Share of nation’s wealth held by top 1% fell to just over 20% in late 1970’s
Slide6: Third Wave
1990’s to present
New technology: information technology
Half of America’s total wealth has been created over the last 10 years
Substantial reductions in marginal tax rates in the 1980’s and Bush administration
Substantial reductions in taxes on capital gains and dividends
Top 1% holds about 33% of wealth
Slide7: Creation of Financial Wealth
Value of stock is based on expected future profits
New technologies may create high expectations of profits
Expectations of profits can create high valuations of stocks, individuals can become “paper millionaires” or realize the capital gain (liquidity event)
Slide8: New York Times, March 29, 2007
Slide9: Categories of New Rich
Founders (Entrepreneurs who went public)
Stakeholders (nonfounders who cash out when the company goes public)
The acquired (founders who sell to other companies)
Money movers (investment bankers, hedge fund managers)
Salaried rich (stock options)
Slide10: Wealth
To be in the top 1% need to have net worth of $6 million
To be in Forbes 400 you need to be a billionaire (Only needed $418 million in 1995)
Slide11: Sources of Wealth
If $10 million is defined as “rich”:
About 60% reported wealth as equity or post-equity
About 23% reported source of wealth as “executive”
About 10% reported “inherited”
About 3% are celebrities
Slide12: Investing
Stocks – Ownership in company, returns are capital gains and dividends
Bonds – Some type of IOU, returns are in difference between price and face value
Slide13: Investing
Want maximum return for minimum risk!
Power of compounding (rule of 70)
Slide14: Returns on Stocks
Slide15: Returns on Bonds