Since 1980, the share of income in New York City going to the top 1 percent has gone from 12 percent to 47 percent. More:
There are about 34,500 households, representing about 90,000 people, in the city in the top one percent. On average, these households have annual incomes of $3.7 million.11 New York is also a city where 10.5 percent of its population—about 900,000 people, lives in “deep poverty.”
“Deep poverty” is half of the federal poverty line; for a four-person family, that means an income of $10,500.13 An income of $3.7 million translates into a daily amount of $10,137…
That disparity is largely because of Wall Street, of course, which the report notes “sits within 15 miles of the Bronx—the nation’s poorest county.”
Why did all this happen?
The failure in the 1980s to raise the minimum wage floor to keep pace with inflation put downward pressure on wages at the low-end of the labor market. Failure to reform labor laws to allow workers to more freely choose whether or not to organize unions undercut the wage bargaining power of unions and limited wage gains and fringe benefit improvements for millions of workers. Ultimately, the weakening of labor unions paved the way for businesses to garner an increasing portion of the fruits of productivity growth for corporate profits rather than compensate employees in a manner that long permitted wages and productivity to grow in tandem.
The many steps taken since the 1970s to deregulate financial markets have become much better understood recently for the role they played in contributing to excessive speculation and poorly designed and unregulated financial innovations, and eventually, to the 2008 financial collapse. Deregulation gave financial institutions virtually a free hand to combine commercial and investment banking operations, increase leverage, and sell exotic financial instruments such as derivatives without regard for effective risk management. In financial bubble periods, whether based on commercial real estate lending in the 1980s, tech company stock in the late 1990s, or securitized subprime mortgages in the mid-2000s, financial firms reaped enormous profits and paid their top bankers and traders unheard of bonuses. Nationally, in 2004, nearly 20 percent of the super-wealthy (the top one tenth of one percent) worked in finance; 40 percent were CEOs and other executives.
Oh, and also:
Among the biggest contributors to income concentration have been changes in federal tax policy to reduce top tax rates or capital gains tax rates—as Presidents Ronald Reagan and George W. Bush did—and maintaining glaring loopholes as has been the case with the treatment of a portion of the management fees (“carried interest”) received by hedge fund managers as capital gains rather than ordinary income in order to take advantage of preferential capital gains tax rates. Piketty and Saez found that the average effective federal income tax rate on the top one percent fell by one third from 1970 to 2004, and the average effective federal income tax rate for the top one hundredth of the top one percent dropped from 75 percent to 35 percent.
— Reuters’s Jonathan Spicer has a very interesting investigation on how “For Wall Street, dumb money pays.”
The lede anecdote is great, explaining clearly how this works:
Qin, 40, who describes her strategy as “impulsive,” said she recently purchased 300 shares of Bank of America. Though she didn’t realize it at the time, the amateur trader likely got a tad better deal on the stock than even the most sophisticated Wall Street traders.
How did she manage that? E*Trade, rather than shipping her order directly to the New York Stock Exchange or Nasdaq, routed it to a large firm known as a market maker, which sold Qin the stock at a slightly cheaper price — probably a 10th of a penny.
The market maker also paid E*Trade Financial Corp a small stipend, and in return got a chance to profit from what the industry considers “uninformed” trades — or dumb money, to use the term of art.