Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

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Tuesday, February 5, 2013

The failure of American capitalism

The charts below (via Peter Whiteford of the Australian National University in Canberra) are most interesting.  On the same scale (so comparison is facilitated) they show the average annual growth rate in real income by decile for men and for women.  So, taking Australia as an example, they show how, over the quarter century from 1980 to 2005, men in the lowest decile (i.e., the poorest 10 % of the population) had a real (i.e., after inflation) growth in their incomes of around 0.5% per annum, or roughly 13% compounded over the whole period.  During the same period, women in the lowest decile had income growth in real terms of around 1.4% per annum.  Notice how men in the top decile--the richest 10%--had annual growth of 1.5%,  or a cumulative increase of 45%, so that income inequality among men increased, between men and women decreased, and within women increased a little.  I expect much of this difference was because of the decline of blue-collar jobs in manufacturing as Ozzie industries faced a decline in protective tariffs, whereas women weren't doing blue-collar jobs, and were also entering the labour force in a big way for the first time.

Now look at little Finland's real income growth rates.  Once again, women's incomes have grown faster than men's, but the overall growth rate has been higher and much more equal than in Australia.  In fact, almost all deciles across the spectrum had real income rises of 64%.

The United States' chart is the shocker:  Over the 25 years, for men, the poorest 10% had falling real incomes, by (I'm reading this off the chart) about 0.6% per annum.  That's a 14% decline over 25 years.  The richest had real income rises of 0.8% per annum, which over the whole period equals 22%.   Once again, women did better than men as gender income inequalities were reduced.  But notice this: apart from Canada, the total growth for all deciles was lower than in any other country.  And this was before the GFC (2008 and ongoing).  All the "socialist" countries did better than the US.  These are all countries where business is privately owned, but individuals have a comprehensive welfare safety net, including such things as universal free health care, the dole, income support, progressive income tax, etc.

The argument for the extreme dog-eat-dog form of capitalism in the US with all it entails is that even though it produces greater inequality within the populace, it produces greater income growth for everybody.  Yet this is clearly not true.  And that is very interesting indeed.



  1. What, exactly does "real earnings" mean in this context? Is this wages or actual total income? In other words, does this include such things as dividends and capital gains on stocks -- money made that didn't involve actual work? It would seem that even the richest 10% of Americans didn't do as well as the poorest in the Netherlands or the entire population in England or Finland.

  2. I'd assume it includes "unearned income", i.e., dividends, interest and rent, but it would exclude capital gains since economists don't consider this income.

    And ans you say, it is striking that the top 10% did worse than almost every decile across the other countries. However, I suspect the top 1% will have done substantially better.