A tale of three US Fed misfits and the growing wealth gap
The three richest people in the US – Bill Gates, Jeff Bezos and Warren Buffett own as much wealth as the bottom half of the US population, or 160 million people.
Guardian, SCMP, November 10
This is not a statistic on which the United States has reason to pride itself but, in my view, it is often a misunderstood one. We actually have two different gaps here. The wealth gap measures the total value, mostly at current market prices, of what any person owns and the income gap measures the amount that any person earns from his work or his investments over a given period.
The two are quite different. Jeff Bezos of Amazon.com, for instance, may be one of the world’s wealthiest people by the market value of the Amazon shares he owns but he is far down the rankings on income. Amazon pays no dividends. He gets only his Amazon salary, if he takes one.
In general the wealthy are concerned mostly with their wealth while the poor are almost exclusively focused on their income. They need every cent of it to put food on the table and clothes on their backs. Anything saved is insurance against almost certain later shortages. They don’t think of it as wealth.
But if we are to do any moral colouring here then surely it is the income gap, or even the spending gap, which truly matters. We do not castigate wealthy individuals who spend little of their wealth and live frugally. If anything we admire them for self-denial.
Warren Buffett, for example, lives in the US in a modest home at 123 Anystreet, Anytown (Omaha, Nebraska), his idea of relaxing is a La-Z-Boy recliner chair, his preferred diet is a burger and coke, and his suits are off the rack. You may envy his wealth but what in his lifestyle could offend you?
Thus also Bill Gates of Microsoft. Personally I disdain Microsoft as a one client law firm protecting intellectual property rights to ideas that it copied from others. There never was much innovation in this bunch and I chuckle to see others pass it by these days.
But Bill Gates also lives quite modestly and his Bill and Melania Gates Foundation has done excellent work in funding health care across the world. He does not spend much of his money on himself.
If we are to take offence at the wealth gap, however, I can cite three other individuals who are much more responsible for it. They are Alan Greenspan, Ben Bernanke and Janet Yellen, the last three chiefs of the US Federal Reserve Board.
In thrall to woolly academic theories, they manipulated US interest rates to artificially low levels and distorted the yield on financial assets. In plainer speech, they widened the wealth gap by greatly pushing up stock and bond prices for any given level of return on investment.
Warren Buffett certainly would never have been anywhere near as wealthy if he had not been perfectly placed to ride this speculative tsunami as a lazy boy at work as well as play. Jeff Bezos would have been struggling and no household name.
But the three misfits at the helm of the Fed have done more than just this. Their false stimulus of financial markets took a toll of investment in the productive economy, thus slowing down employment and industrial growth.
Not only have they widened the wealth gap but, more importantly, widened the income gap by helping to turn decent full time jobs into lower paying part-time gigs, a serious disservice to the poor of their own country.
And now, as a new head for the Fed, their president has nominated a yes-man, Jerome Powell, who has never dissented from Fed consensus but talks right on TV and gives good visuals, too. Do not expect change.
No, I take that back. Change there will be. That ratio of three rich to 160 million poor will go to three and more than 200 million.