Ken Solow, chief investment officer for Pinnacle Advisory Group and a financial planner for some very wealthy clients, was struck by two charts on one of the many newsletters he receives at his office in Columbia. The newsletter came from Ned Davis Research, considered an authority on stock market data, and it addressed two historical factors central to understanding how we got into this mess and how long it might take the nation's economy to complete the severe "correction" it's going through: concentration of wealth and accumulation of debt.
The first chart shows income disparity in the United States over the last 90 years.
The chart looks like two soaring mountain peaks with a craggy but peaceful valley in between.
Mr. Davis' chart tracks the share of total income, including capital gains, of the top 10 percent of Americans from World War I through 2006. While the top tenth was doing quite well, with about 40 percent of total income by 1917, it darted further ahead of the middle class and poor for the next decade, until disparity peaked, north of 49 percent, in 1929. That, of course, was the year of the Wall Street crash.
The chart shows a sharp decline in wealth, with some spikes in the 1930s, followed by a fast drop in the 1940s, then into a deep crevice by the end of World War II.
From the 1950s through the 1970s, the rich started to get richer again, but disparity was not so wide - the Top 10's share of income ran over the low- to mid-30 percent range.
That is generally thought of as a period of relative prosperity, with a strong middle class, a stable industrial base and union membership at its peak.
By 1980, the year Ronald Reagan took office, income disparity started to grow quickly again, hitting nearly 41 percent in 1990, and soaring further during the Clinton years, dropping by about 3 percent after Sept. 11, 2001, and jumping to another peak, north of 49 percent, by 2006.
"It's this chicken-or-egg question," says Mr. Solow, looking at Mr. Davis' chart in his office at Pinnacle Advisory. "Which came first? Did the stock market go up, causing disparity, or did incomes go up first? The stock market probably went up first. Either way, disparity is not good for the market."
Not good for the nation.
