The Rising Tide Of Money Which Lifted All Yachts, Part 1

The assumption that market capitalism is working according to the scriptures penned by St. Adam Smith is dead wrong, and has been for decades now. That’s because today’s bailout-ridden crony capitalism is not remotely the real thing, and because free markets can’t function efficiently and productively when they are flooded with cheap credit printed by the central bank.

The ill effects of these perversions are legion, but one of the most obnoxious is massive financial windfalls to a tiny elite of the wealthy and a concomitant depletion of the middle class. So here is but one of the smoking guns that can be offered in evidence.

To wit, in 1989 the collective net worth of the top 1% of households weighed in at $4.8 trillion, which was 6.2X the $775 billion net worth of the bottom 50% of households. By Q1 2022, however, those figures were $45 trillion versus $3.7 trillion, meaning that the wealth differential is now 12.2X.

In round numbers, therefore, the top 1% gained $40 trillion of wealth over that 33-year period compared to the mere $3 trillion gain of the bottom 50%.

In more mundane terms, there are currently 65 million households in the bottom 50%, which have an average net worth of just $56,000. This compares to the 1.2 million households in the top 1% which sport an average net worth of $38 million.

Needless to say, there is no reason to believe that left to its own devices free market capitalism would generate this 680:1 wealth differential per household. Indeed, three decades ago—and well before the Fed went into money-printing overdrive—the per household wealth differential between the top 1% and the bottom 50% was barely half of today’s level.

Stated differently, the heyday of America’s post-war prosperity confirmed President Kennedy’s famous aphorism that “a rising tide lifts all boats”.

But once Alan Greenspan inaugurated the current era of rampant money printing, stock market coddling and egregious bailouts, the more accurate characterization is that a rising tide has been mainly lifting all the yachts.