Key Points
- The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter.
- All of the gains came from stock holdings thanks to an end-of-year rally.
- Economists say the rising stock market is giving an added boost to consumer spending through what is known as the “wealth effect.”
The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, as an end-of-year stock rally lifted their portfolios, according to new data from the Federal Reserve.
The total net worth of the top 1%, defined by the Fed as those with wealth over $11 million, increased by $2 trillion in the fourth quarter. All of the gains came from their stock holdings. The value of corporate equities and mutual fund shares held by the top 1% surged to $19.7 trillion from $17.65 trillion the previous quarter.
While their real estate values went up slightly, the value of their privately held businesses declined, essentially canceling out all other gains outside of stocks.
The stock market and bank-bonds are how factories buy more equipment so that peasants can run that equipment (ie: more jobs).
Farms don’t run on peasants alone today, they need fertilizers, tractors, combines and other machines. These machines cost money, and the easiest way to raise money for such machines is from the stock market. (IE: sell stock, buy machines, distribute profits from those machines back to the shareholders). Shareholders then buy more stock from more companies, and the cycle grows.
Now maybe its a bit consumerist to be overly focusing on our production + consumption. But there’s a good reason people talk about it: its the core of our economic growth strategy. Encouraging the “peasants” to participate in this through 401k plans (tax-advantaged accounts that encourage stock-buying) is one trick we have, albeit flawed but its one of the better plans that we got.
Of all methods for managing food production, capitalist free markets are one of the worst. Farmers must purchase everything to grow the crops, including the seeds and machinery. The machinery for modern farming alone costs $500k when 40 years old, used, and broken. If a large area, say the Midwest, has extremely fertile land capable of growing most crops then farmers will incentivized to purchase the machinery to grow a crop that is profitable in the moment. See the problem yet?
The farmers will then be financially forced into continuing to grow that crop, even if it’s no longer profitable to do so. The government then needs to provide assistance to these farmers: subsidies, research into utilizing thousands of tons of a single crop, exporting most of the crop grown, etc.
Due to the free market, farmers in the Midwest started growing corn because it was profitable during and after WW2. Now the Midwest grows seas of corn and soybeans, because government subsidies mean that growing any other crop is an extremely risky and very expensive. The market needs to hold for multiple years to pay for the seeds and machinery, because everything about farming is expensive. Rather than take the risk, farmers use the machinery they have to purchase the subsidized crops we don’t need because they need money to buy food that was imported rather than grown locally.