You are the reason America’s wealth gap is growing worse

From Alexander Green, Chief Investment Strategist, The Oxford Club:

The Washington Post ran an article a few weeks back claiming that income inequality – the fact that some people earn so much more than others – is a problem in this country. But it’s not the real injustice.

That would be the so-called “Wealth Gap.”

(Investors, better touch your wallets.)

The Wealth Gap refers to the fact that the vast majority of America’s wealth is the hands of a relatively small percentage of the population.

Here’s how Post writer Christopher Ingraham put it:

“Let’s imagine that there are just 100 people in the United States. The richest guy (and, yes, he’s probably a guy) owns more than one-third of the total wealth in this country. He’s got a third of all the property, a third of the stock market and a third of anything else that can be owned. Not bad.

The next-richest four people together own 28 percent of all the stuff. The next five people together own 14 percent of all the things, and the next 10 own 12 percent.

We’ve accounted for just 20 percent of the people but nearly 90 percent of the total wealth. You can probably tell where this is going.

By the time we reach the bottom 40 percent of Americans, guess what? We’ve run out of stuff. Sorry guys, you get nothing.”

The clear insinuation here is that if you’re an individual with significant financial assets, you have earned them by depriving others. Thanks to your wealth accumulation, the country has “run out of stuff” (whatever that means) – and ordinary folks “get nothing.”

You have to scratch you head about how that supposedly works.

In my experience, your earned income is generally decided by eight factors:

  • Your educational attainment
  • Your chosen profession
  • Your years of experience
  • Your work ethic
  • Your social skills
  • Your competence and proficiency at what you do
  • Your ability to cooperate with, inspire and lead your co-workers
  • Your ambition to rise in the organization.

What Mr. Ingraham and his ilk seem to miss is that every transaction in a free-market economy is a voluntary one. Nobody “takes” someone else’s wealth in a business deal. (That would be fraud or theft – for which perpetrators will be prosecuted – not “business.”)

As for the Wealth Gap, my 30-plus years as a money manager, investment strategist and financial writer have revealed that most wealth accumulation is based on these primary factors:

  • Your ability to maximize your income
  • Your propensity to save
  • Your appetite for risk
  • Your willingness and ability to let your money compound
  • The investment costs you absorb
  • The taxes you pay.

How do the Forbes 400 keep you and me from taking these steps? They don’t.

They can’t. Warren Buffett – someone who knows a thing or two about wealth accumulation – emphasized just this point in a May 22 op-ed piece in The Wall Street Journal:

“In recent decades, our country’s rising tide has not lifted the boats of the poor. No conspiracy lies behind this depressing fact: The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.”

Envy and resentment cause some folks to blame investors, entrepreneurs and business owners for their own lack of economic success. Instead of praising risk-takers – who innovate, create jobs and pay most of the taxes – they demonize them.

Of course, if your real goal is not truth or enlightenment but confiscation and redistribution, demonization is your necessary first step.

Good investing,

Alex

Crux note: Alex Green has one of the top track records in the newsletter business. The independent Hulbert Financial Digest has ranked his portfolios on its Honor Roll of top-performing investment letters in the nation for the last 13 years. And much of that success is derived from something he calls the “7-minute habit.” It involves a simple calculation that will tell you what the “true value” of a stock really is. You can learn all about it right here.

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