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Investment Insights, LLC

Concentration of Wealth Matters

Hal Masover, CRPC®

Every fall, after the leaves have fallen and the trees are bare, and hopefully before the first snow, my wife and I drive to Florida.  It’s a long drive made easier by the many convenience stores, restaurants and hotels that line the highways of America.  We stay overnight for at least one night during this drive at some middle market hotel or another found in every town and major highway interchange along our route. 

This is a very familiar part of life in America and has been for my entire life.  But that is not true everywhere in the world.  And in some of the places where it is not true, the reasons might be very important. 

Some years ago, we took a family trip to Peru.  I put a lot of effort into planning a trip that did not involve a package tour because I did not want to be in the bubble of a group where everyone spoke English.  I believe tour guides can add a lot to our experience of new places, but I also believe that getting to meet local people and spend time simply wandering around is enormously valuable.  Not using a tour company meant booking our own hotels.  What I found in Peru was almost no middle market.  There were hotel rooms and hostels that were very low priced, and there were luxury accommodations that were extremely expensive and almost nothing in between. 

We spent most of our time there at an eco-lodge in the town of Urubamba.  It was a real find!  One night I had occasion to walk into town with the proprietor.  As we walked, I asked him about the high crime rate and he asked me why I thought the crime rate was high?  I pointed to bars on all the windows and the razor wire topped walls we were walking past.  His response, “Oh.  You live in a country where the houses are not surrounded by walls.”

In Lima we saw vast poor areas, but we also saw high end office towers, hotels and shopping districts. 

Everywhere I looked I saw evidence of extreme concentration of wealth.  The largest percentage of people were poor.  Clearly there were wealthy people but because so much of the country was poor, those few wealthy people had to protect their homes with razor wire, bars on the windows, and more. 

The ubiquitous middle market hotels, restaurants and convenience stores familiar to travelers in the US were very few and far between in Peru.  This made long distance driving and so many other aspects of life much more difficult than in the United States. 

One of America’s greatest assets has long been its vast middle class.  But for the last few decades that middle class has been in decline.  The rich have gotten richer.  The poor have remained roughly the same percentage of the population, but the middle class’s portion of national wealth has been in steady decline. 

Capitalism remains the greatest economic system ever invented.  It is responsible for the vast American middle class and the life of abundance that so many enjoy.  The chance to get rich is the single biggest driver of innovation.  And as a result, some concentration of wealth is necessary. 

And, as with all things in our free and open society, there isn’t really a perfect balance, no matter how hard we try to find it.  No one really knows what is the ideal concentration of wealth.  But I know that what I saw in Peru wasn’t it and I know that current trends towards greater and greater concentration of wealth in the US are worrisome. 

Of course, there’s a vast difference between a diminished American middle class and the tiny middle class of third world countries. 

But too much concentration of wealth isn’t good for anyone.  The wealthy people of countries with little or no middle class need to have bodyguards, live behind razor wire, and they would not have their smart phones, computers and automobiles were it not for the market demand in other countries with a large middle class. 

Let’s look at some numbers.

In 1950 the top 20% of Americans controlled 42.8% of the nation’s wealth (Encyclopedia of Nations).  In 2007 that number was up to 80%.  80%!  (Wikipedia).  And that trend has only continued.  By 2021 the top 20% controlled 86% of the nation’s wealth (Federal Reserve).  The Federal Reserve also shows that the top 1% control 32.8% of the nation’s wealth. 

We are a far cry from the Peru I saw in 2007, but the above noted trends cannot continue unless we want to become a third world country.

According to Pew Research, middle income earners took in 62% of the nation’s income in 1970, but by 2018 that had declined to 43%.

In 1945 American industry was geared for a purpose that was coming to an end – war.  Factories that made tanks, airplanes and machine guns would have to be either closed or repurposed.  At the same time millions of American men were returning home in need of jobs.  The potential for economic disaster was huge, and widely expected.  The Great Depression was a living memory and many expected that the country would simply fall back into depression now that the need for wartime production had gone away.

We know that’s not what happened.  Instead, we built the suburbs, the interstate highway system, schools for the baby boom, new airports for the new airlines.  An economic boom happened.  It happened because of government investment and the wonderful capitalist system.  The suburbs were built by entrepreneurs employing armies of construction workers.  But they were possible because governments-built highways to access the suburbs, schools in the newly built areas, and provided, via the GI Bill, low-cost mortgages for veterans, of which there were a very large number eager to have families and a normal life. 

The top tax rate in 1950 was 91%.  This enabled us to do all the above and a lot more all the while paying down the huge debt from WWII.  Incredible. 

Today we have far, far lower tax rates, far more wealth held in just a few hands, and public debt as far as the mind can see. 

You know?  92% tax rate is confiscatory.  But borrowing money like there’s no tomorrow doesn’t work either.  There’s a middle ground.  The question is, will the top 20% who own 86% of the wealth of this country allow us to find that middle ground?

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights, LLC is at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not affiliated. Comments and questions can be sent to These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

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