Mauldin: A Generational Reset Redistributing Wealth To The Bottom 60% Is Near

Tyler Durden's picture

Authored by John Mauldin via MauldinEconomics.com,

Billionaire founder of top hedge fund Bridgewater Associates Ray Dalio got where he is by having keen insight into both human nature and economic trends.

Occasionally, he shares some of his wisdom publicly.

In one of his recent articles, Dalio argues that it is a serious mistake to think you can analyze or understand “the” economy because we now have two of them.

Wealth and income levels are so skewed between the top and the bottom that “average” indicators no longer reflect the average person’s experience or living conditions.

And that obscures the big picture when it comes to today’s prevailing economic and political trends.

The Top 40% vs. The Bottom 60%

Dalio has split the economy into the top 40% and bottom 60%, and quantified the split with some startling numbers. Just a sampling:

  • The average household in the top 40% earns four times more than the average household in the bottom 60%.
  • Real incomes for the bottom 60% have been either flat or down slightly since 1980.
  • In 1980, the average top 40% household had six times more wealth than the average bottom 60% household. Now it is 10 times as much.
  • Only about a third of the bottom 60% saves any of their income.

Dalio also found some very useful data I had never seen before: household income adjusted to show the impact of taxes, tax credits, and government benefits.

This adjustment gets closer to the resources people actually have available for living expenses, savings, and investment.

Splitting that data by the top 40% and bottom 60%, we see a sharply growing difference in the percentage changes since 1980. The top saw its after-tax net household income grow almost three times faster than household income for the bottom 60%, even including government transfer payments.

And note something in the right-hand side of the chart, which depicts income changes for the bottom 60% only, divided into three segments. There is a significant difference in the income growth of the middle 40–60% segment and the bottom 40%, too, and that difference accelerated during and after the Great Recession.

Think About That in the Context of Recent Political Trends

You see the problem here? The bottom 60% know their own experience. Thanks to the Internet and social media, the bottom 40% is particularly aware of it and increasingly resentful.

Note also that the lower ranks of the top 40% are not “wealthy” by any stretch. Anyone below the 80th percentile is probably struggling to some degree.

Since the 1980s, most of us at the top have believed that a rising tide would lift all boats. We were half-right: It has lifted all the boats but not at the same rate, and a good many boats have sprung holes and are taking on water. We’re now near the point where our differences in income and wealth are too great to ignore.

Think back 30 years. None of us would want to go back and live with that same technological base. All of our lives have dramatically improved. From health care to communications to entertainment to transportation and a host of other things, we are all better off.

But the key here is that no matter how much better our lives have become, those in the bottom 20 or 40 or 60 or 80% notice the relative differences between where they are and where the top 10% or 1% reside, and they can see those differences growing.

While the majority of those living in Africa, in some parts of Asia, and in the slums in Latin America would see the lives of what we call the poor in America as vastly superior to their own lifestyles, that is not who the bottom 20–40–60% of the income strata in the US are comparing their lives to.

It is simply human nature that we compare ourselves to those who have more, and that we want more for ourselves.

We Stand on the Verge of a Generational Reset

Look at the the chart below.

The red line is the share of US wealth owned by the bottom 90% of the population, and the green line is the share held by the top 0.1%.

Now they are about the same, but notice the trend. The wealthiest 0.1% has been increasing its share of wealth since the 1980s.  Meanwhile, the bottom 90% has been losing ground.

Looking back, we see a similar pattern in the 1920s—which dramatically reversed in the following decade. Then there was an almost 50-year period during which the masses gained wealth and the wealthy lost ground.

In the big picture, we see about a half-century when the net wealth gap widened in favor of the bottom 90%, followed by another 30 or so years in which the wealthiest gained ground while most of the population lost it.

It’s not a coincidence that populism emerged as a political force in both the 1920s–1930s and the 2010s.

In each case, people at the bottom could tell the economy wasn’t working in their favor. The best tool they had to do something about it was the vote, so they elected FDR then and Trump now.

The two are very different presidents, but both address the angriest voters of their eras.

The 10-year period in which the green line was above the red line included the Roaring 20s, the 1929 market crash, and the first part of the Great Depression. For the 0.1%’s share of the wealth, 1929 was roughly the high point.

Wealth lost in the crash sent their share plummeting. It has not fully recovered to this day, but it’s getting close.

Thinking about this situation, I can't help but correlate it to my friend Neil Howe's idea of a historical "Fourth Turning" every 80 years or so.

(A Fourth Turning is a time when society’s foundational institutions are challenged. The generation that is young adults at that time must face the challenge and hopefully overcome it. The so-called Greatest Generation did so by persevering through the Great Depression and fighting World War II. It may not be a war, but the Millennial Generation will face a similar test.)

It fits well with Dalio’s data. Neil said at my 2016 Strategic Investment Conference in Dallas that we are in the middle stages of that Fourth Turning, and he expects conditions to worsen from here.

As he points out, for almost 500 years, the last half of Fourth Turning has always encompassed the most tumultuous times in Anglo-Saxon history.

This time is likely to be no different...

*  *  *

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Mazzy's picture

We need neither Capitalism nor Communism to solve our problems.  We only need to boot the money-changers and usuers from our countries....forever this time.  It has been shown time and time again that once this is done your economy and society prosper for as long as you do not readmit them.

Billy the Poet's picture

We need neither Capitalism nor Communism to solve our problems.  We only need to boot the money-changers and usuers from our countries..

 

Ending the Fed would be one step toward restoring capitalism. Capital should be earned and saved rather than printed from nothing by a government sanctioned cartel. That alone is likely the major factor in wealth disparity.

toady's picture

Yeah, right.

Not gonna happen.

WernerHeisenberg's picture

"Think back 30 years. None of us would want to go back and live with that same technological base."

What is he smoking???  I would like to go back 50+ years, to a time of reasonable privacy, when governments could not afford to constantly wiretap and record from CCTVs.  I remember the Kennedy era well.  It was great, we lacked for nothing.  Honestly I could get by just fine going back 100+ years to a 1910 technological base.  Electric lights, cars, telephones, radio but no Hollywood TV/film brainwashing yet.

Philo Beddoe's picture

No shit. I would go back in time in a heartbeat and blow the fuck out of my Delorean. 

Escrava Isaura's picture

Conservatives call liberal socialists because conservatives are socialists.

Conservatives want to own the means of production. Conservatives want to own and control the money issuance. And conservatives don’t want government. That’s socialism.

Capitalism is who owns the money, owns the production and the labor.

 

Mauldin: A Generational Reset Redistributing Wealth To The Bottom 60% Is Near

No, it’s not.

Unless you change the current social order, which is capitalism. 

The richer will get even richer under a Republican administration. Just look at their policies.

1) Shifting all the responsibilities to the states but, the states are broken, and the states can’t issue their own money.

2) Tax cuts. The rich will get about $1.9 trillion dollars in the next 10 years, if the tax cut passes.

3) And privatization. You can clearly see the scam call privatization in Northern Virginia, where you drive about 10 miles and cost you over $20 dollars

 

So, Mr. Mauldin, your statement is nonsense, because it doesn’t reflect reality…… at least my reality.

 

 

kochevnik's picture

> Conservatives want to own the means of production. Conservatives want to own and control the money issuance. And conservatives don’t want government. That’s socialism.

You are profoundly stupid poster

 

Not My Real Name's picture

Yes. Think MDB ... the only exception is that Escrava actually believes the stuff he writes is true.

Code Duello's picture

2 Mauldin doom porn articles on the 'Hedge in a 24 hour period. Wow!

And the new Tylers keep reaching for their old base that's jussst beyond their grasp.  How's the saying go - good luck with that?

Billy the Poet's picture

Conservatives want ... Conservatives want .... And conservatives don’t want ....

 

There you go mind reading again despite the feeble performance of that skill which you've displayed previously.

 

Withdrawn Sanction's picture

"Unless you change the current social order, which is capitalism."

Incorrect...again. We do not now and have not had a capitalistic system since the 1800s (if then). The closest for today's variant would be crony capitalism, or modern mercantilism, or even fascism where connected people employ the levers of state power to divert resources in their direction.

You are correct about Mr Mauldin however. He's a shallow, name-dropping lightweight who hasn't had an original thought in years...if ever. The fact that he thinks Dalio is "sharing" a nugget of his "wisdom" (vs. talking his book) demonstrates Mauldin is either misinformed, or misinforming.

Escrava Isaura's picture

We do not now and have not had a capitalistic system since the 1800s 

Have you consider that conservatives don’t understand capitalism?

That the capitalism conservative wants never existed?

My therapist used to tell me when I can’t understand that I should get 'curious'. Not so much of the issue in itself but, more in a personal matter.

Why can’t the conservative see the obvious?

Or, it’s because they’re incapable of getting curious?

 

Billy the Poet's picture

I think that capitalism works like this:

 

Imagine that you are stuck on a desert island. To survive, you catch fish by hand in the ocean. Since they are fast and slippery, it’s a difficult job, taking you 12 hours to catch two fish; 6 hours per fish. You can therefore catch only two fish per day. But then you get smart: you decide to make a net. Yet making a fishing net by hand takes time, too, as it involves many steps: searching the island for raw materials like grasses and vines; finding something to serve as the handle; twining and bending strong but pliable vines or twigs into a rim to support the netting; and finally braiding and weaving vines into netting and tying it to the frame to form a sieve-like scoop. With no tools available, this process will take you five days by hand. To take five days off of fishing without going hungry, you must save some of your caught fish for a couple of days by eating only one fish per day instead of two. The saved fish will sustain you for the five days it takes to build the net, and once the net is complete, you can catch 50 fish per day.

 

This example introduces some basic components of an economy.You have savings (the fish you set aside to eat over the course of several days) that sustained you while you produced a capital good (the net). The capital good, which, in this case, was also a new technology, allowed you to improve your productivity (the number of fish you “produced” per day). Now that you have plenty of food to keep you from starving, you have more free time and labor available. You can use this to improve your standard of living by building a hut, a bed, clothes, and maybe even a boat. In addition to time and labor, though, you will need tools (more capital goods) with which to build these things. That means that it will take a lot of time, savings, and  production of capital goods to improve your standard of living.

 

https://mises.org/files/case-legalizing-capitalism2pdf/download?token=eg...

 

Free market capitalism is when the person who catches the fish gets to use the fish as he sees fit.

kochevnik's picture

Maybe you confuse USA neoconservative with the Liberal Democrats founding American Constitution.  Neocons offspring of British Torries which simply represent Catholic Church and fondly remember Dark Ages and Flat Earth

gmrpeabody's picture

As long as you have been hanging around here, one would think you would have become smarter by now, even if only a little.

Jim Ludwig's picture

Toady...it seems the only question is: Will the US survive being bled out by the fed, or will we be fed up in time to do what you say is not gonna happen. Eh? Will we roll over and croak, or....

http://www.informationclearinghouse.info/article33792.htm

 

ParkAveFlasher's picture

Capitalism is not an ethical or moral standpoint in totality, however it does point to the sacredness of property, which is good.  Communism fails even at that.

What society needs is to declare both property and cooperation as sacred and essential.  It is a false dichotomy to suggest you can only have one or the other.

Billy the Poet's picture

I would agree.

Let's look at capitalism in its basic form by identifying what capital is. Capital is the preparations you make today in order to be more productive tomorrow. A student who learns a skill, a farmer who sharpens his plow and an entrepreneur who reinvests his profits all practice capitalism. Without this simple technique mankind would still be picking fruit and eating bugs caught be hand.

Capitalism not only contributes to life as we know it, it is the foundation for all human productivity.

 

PS -- Down voters should explain how anyone can be productive without acquiring and maintaining physical and/or intellectual capital.

Dincap's picture

LOL. This is laughable. If Mauldin doesn't know much of capitalim thoug long since writes a sort of personal diary and impressions, many besides ignoring capitalism totally are ready to destroy everyhing on the basis of their superstitions. 

DownWithYogaPants's picture

Let's be specific:

-1- end the fed

-2- end fractional reserve lending

-3- United States Notes 

-4- currency diversity so those that want to can opt out and vote with their economic feet. That means gold, silver, cryptocurrency et al.

-5- Make all government positions unpaid volunteer positions. Afterall wouldn't they do it for the children? DO IT FOR THE CHILDREN!

Cloud9.5's picture

Yoga while I find your avatar inspirational, if my wife reads this I will have to sleep in the yard for a week, how precisely are you going to unwind this.  Nailing ninety five these to the church door did not end the church.  The simple fact is that the tax base does not pay the cost of government.  High finance and manipulation is all we’ve got.  Shut down the Fed and the government cannot write a check.

Billy the Poet's picture

Loss of faith in the Fed is what's needed. Bring on the audit and let the chips fall where they may.

Withdrawn Sanction's picture

"Nailing ninety five these to the church door did not end the church. "

No, not right away, but it was the beginning of the end of the Church's authority in temporal matters. Identifying and clearly labeling hypocrisy, like selling "indulgences" is always a useful thing.

Im told the current Church has been doing the modern equivalent: elevating individuals to sainthood...for a price. JP relaxed the standards for sainthood and whatdya know, the applicants (and cash) came streaming in. Helps to make up for the crushing losses in Peter's pence. Priests diddling kids will do that, you know.

slice's picture

Shut down the Fed and the government cannot write a check.

 

You say that as if it would be a bad thing. 

 

Stated correctly:
Shut down the Fed and the government cannot write a fraudalent check.

factorypreset's picture

Congress had(has) the authority, under the Constitution, to issue money.  The fed is not necessary.  The biggest scam of all time is this authoroty was willingly given over to a consortium of private bankers as a ploy ironically enough to appease a public concerned with the power that bankers and financiers had to crash the economy. You can't even make this shit up.  

Jim Ludwig's picture

Excellent, Mazzy. Perhaps the solution is too obvious for most Americans to see?

https://www.activistpost.com/2013/01/the-incredible-debt-spider-its-time...

 

mkkby's picture

Really weak analysis based on... nothing.

Stock markets will go down, so rich down poor up. But what will make the poor go up this time? He doesn't say. Meaning he pulled it out of his ass.

The great depression brought the lower ranks some socialism and a lot of WWII jobs. We're tapped out now. Peak socialism, peak MIC, peak USA... Unless Trump can impose tariffs and bring back those manufacturing jobs.

richsob's picture

Who cares about equality if it means we're all broke or struggling?  Am I supposed to look forward to WWIII so things can "get back to normal"?  The thing that I would like to see is a smarter inheritance tax system so a fair amount of wealth can be handed down to your heirs.  What's fair?  Let's just say $5 Million tax free and then some graduated rates up to where a multi-billion estate is taxed very heavily.  And CUT income taxes so each generation can earn its own wealth from its own labor/investments.

Billy the Poet's picture

Always easy to ask for others to be "taxed very heavily." Why not flush the cronies out of the sytem and let productive people do as the want with their own money? Allowing the cronies to remain and then taxing them perpetuates a bad system and is unsustainable because connected individuals will always use their power to keep their ill gotten gains.

Philo Beddoe's picture

At least he gave a solution. Beats theory and more debate. 

Billy the Poet's picture

What is inherent to his solution that requires no debate while other options can only be discussed and not acted upon?

Philo Beddoe's picture

Every solution is open to debate. Sure. Gotcha. We just bitch around here too much without offering up a possible solution (self included). When I read his comment I liked that he through out some real numbers. Numbers which seemed reasonable. 

Billy the Poet's picture

Let's talk about those numbers. You likely have a higher income than I do and if so I would like you to be heavily taxed. Care to debate that?

As I said, it's always easy to say "tax the other guy." That isn't a solution to a problem that was created by the massively top heavy system under which we currently labor. The solution is to stop the elites from hurting people and taking their property rather than looking for someone else to screw harder.

waspwench's picture

The elites are hurting people and they are taking their property. There is, in fact, "A Generational Reset Redistributing Wealth to the Bottom" and IT IS GOING ON RIGHT NOW.

Institutions such as Medicare and Social Security are being weakened. Monies are being redirected from these programmes to support those on welfare, to support the millions of illegal aliens streaming into the country and to support the so-called "refugees." who are being imported by the elites. Certain segments of the populace are being villified and frozen out of jobs and higher educational opportunities to the benefit of the so-called "disadvantaged." Those who have jobs are being heavily taxed to pay for those who are unproductive. If you own anything it will cost you (punitive property taxes) and near zero interest rates on savings.

There is a massive reset under way right now but it will not take anything away from the top 1%, or the top 10%, rather it will take away from the white middle classes. It is intended to impoverish and to destroy the white middle classes. That is the plan and it is being implemented as I write. Mauldin is correct about the reset but it is not the reset that he envisions.

Scornd's picture

how long have people said " less govt is the solution"?

richsob's picture

I agree with you, Billy, that the system needs to be purged of the bad apples.  Seriously purged.  However, the two options are (a) use the system as it was intended to be used with people being replaced through honest elections who then implement better policies.  Unfortunately that hasn't proved to be sufficient.....or even possible.  Or (b) which is the use of violence and that sucks too.  Maybe the only hope is if we get a small, dedicated group of people with an iron will to indict, conduct fair trials and carry out harsh punishments for the politicians/financiers/intelligence personnel/military leaders who are found guilty.  In that scenario I am not in favor of the electric chair; I am in favor of electric bleachers.

Billy the Poet's picture

Maybe the only hope is if we get a small, dedicated group of people with an iron will to indict, conduct fair trials and carry out harsh punishments for the politicians/financiers/intelligence personnel/military leaders

 

The plan to create a killer government to sit on top of the regular government digs the hole deeper. Less government is needed.

 

"I heartily accept the motto, "That government is best which governs least"; and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe- "That government is best which governs not at all"; and when men are prepared for it, that will be the kind of government which they will have. ...  

Government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. It does not keep the country free. It does not settle the West. It does not educate. The character inherent in the American people has done all that has been accomplished; and it would have done somewhat more, if the government had not sometimes got in its way. For government is an expedient by which men would fain succeed in letting one another alone; and, as has been said, when it is most expedient, the governed are most let alone by it. Trade and commerce, if they were not made of india-rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way; and, if one were to judge these men wholly by the effects of their actions and not partly by their intentions, they would deserve to be classed and punished with those mischievous persons who put obstructions on the railroads.

richsob's picture

If the "good guys" were successful in taking enough "bad guys" out of commission, the policies and laws you and I would both like to see would have a chance of being passed and enforced.  It only takes maybe a hundred of the right people with the balls and intelligence needed to purge the system.......people who are real leaders and make no secret of their intentions.  I still have enough faith in the American people these people would be supported IF they themselves were above suspicion, non-partisan, and not tainted by the corruption that has nearly destroyed our society.  The odds of this happening are very small.  The odds of things not changing appreciably and everything goes straight dead to hell or we stumble into a huge war are far larger.  But what is life without a spark of hope?

Billy the Poet's picture

If the current government is so corrupt that a special cadre of enforcers must be placed above them then where are you going to find honest people to fill those positions? The more power you would hand to such a force the more corrupt they are sure to be.

Looking for others to fix your problem is the problem. Any system based on principle rather than brute force can only be maintained by those who think for themselves and take responsibility for themselves.

richsob's picture

No.  You completely misunderstand.  The people who would be doing the cleaning would have to be inside the government not on the outside.  They would have to be the President, FBI Director, Attorney General, judges, prosecutors and investigators, etc. who would hopefully have a handfull of powerful Senators and Congressmen helping them follow the U.S. Constitution.  True change for the better could not be imposed by a cadre of oppressors.  It would have to be lead by patriots who put their country first and were willing to face down a huge amount of opposition.  And the American people would have to be lined up behind the leaders doing the heavy lifting.  Anything else would lead to fascism, a military junta or something else just as bad.

Billy the Poet's picture

The people who would be doing the cleaning would have to be inside the government not on the outside.  They would have to be the President, FBI Director, Attorney General, judges, prosecutors and investigators, etc. who would hopefully have a handfull of powerful Senators and Congressmen helping them follow the U.S. Constitution.

 

Not trying to be snarky but are you under the impression that up until now folks haven't been trying to elect decent people who will uphold their oaths of office? What magic do you intend to work to fill those offices with good people?

The only plan I could think of is to pick names out of the phone book. At least then we'd have people who aren't connected or sociopaths seeking power.

But once again, wouldn't it better to reduce the power of those who have defrauded and betrayed us rather than to go on searching for honest folks who can make a corrupt system work?

richsob's picture

You aren't being snarky at all.  You make good points.  But there is no practical way to reduce their power because they control the power in the first place and won't give it up.  The only solution is for new, better leaders to make the changes necessary from the inside.  Will that happen?  Probably a .00001 chance.  I agree with you; it's probably hopeless.  So we are going to have to live with some alternative that is going to a hell of a ride.  I wish it was different but that's the reality we both live in.

Billy the Poet's picture

But there is no practical way to reduce their power because they control the power in the first place and won't give it up. 

There is a long history of unjust governments which have fallen for various reasons. There is no unjust government in history that has gone on forever. You are constraining yourself by imagining barriers that don't exist. The elites want you to think that you could never get rid of them but tell that to King George.

Final Authority's picture

The first step is to take control of your own property. Learn the law and apply it to your situation:

http://www.losthorizons.com/

 

Withdrawn Sanction's picture

"What's fair? Let's just say $5 Million tax free ..."

Interesting...that's the current estate tax exemption ($5.49m). You cribbing from the IRS?

D503's picture

Taxes taxes taxes, like the fucking government isn't easily handled by those you would tax. The issue is far more one based on the wealthy being so completely disenfranchised with living on a minimum wage and trying to limp by on 2+ low income dead end jobs without a safety net, a free car, and daddy's credit card to lean on. 

Most of the children of the 0.1% are fucking retarded, but you want to take their money and hand it out to the welfare baboons via government largesse anyway? You'd be better off fucking burning it.

We all know the issue is usury. We all know the issue is allowing complex contracts with unforseen costs to the average American as being the driving force behind the buyer beware crony capitalism that gets shit like Obamacare and banks destroying people with overdraft fees and .01% savings accounts. The issue is, no one wants to risk their own ass to flip the fucking table and walk away from their false claims on gains through usury. 

Gross conflation like "the market will correct for supply and demand" don't exactly sit well with endless legislation raising the bar on property taxes, license requirements, insurance laws, building codes, greater restrictions on driving laws, a criminal record that follows you state to state for crimes that went unpunished, or unprovable a generation ago, college degrees and years of experience for "entry level" jobs held by boomers with high school diplomas that compete directly with H1b's, the list goes on and on. 

When you can make more off the books serving tables than using your STEM degree, when you can understand that SS, medicare, and pensions won't exist for your generation, when you can acknowledge the fuels being sourced are shittier than what your parents were sucking down, you simply lay low and wait for your chance to strike.

Millenials are by and large incapable of maintaining this social structure. They lack the interest, the knowledge, and/or the resources to buoy the nursing home wheel of fortune life boomers imagine is coming. Half want to feed you to the lions, the other half believes in free everything for everyone forever, and that gender is a social construct. Which half do you think is going to dictate the direction of this country? 

Theta_Burn's picture

When people at EF Hutton speak people listen..

Smith Barney? they made money the old fashion way..

But in actuality, its rigging, insider trading, crony capitalism and globalism that made a few people rich.

Working for a living? thats for rubes.

Lore's picture

Today's population was supported by cheap energy. That's ending, evidenced by the soaring debt (kicking the can One Last Time) and rise of cryptocurrencies.

Shortages will grow. Disorder will grow. The elites will deal with the zombie hordes by introducing lucrative bullshit wars and variants of the "Pig Flew" or "Bird Flew" or other patented pathogens and lucrative vaccines.