Why the Rich Are So Much Richer

If people have been making profits for the last 25 years and investing them, the amount of money in the markets will increase regardless of the instruments involved. Wealth is accumulating, but people don't really know what to do with it besides giving it to someone else to invest.

Asset prices have gone up 2 orders of magnitude; real inflation for "real" things (not financial instruments) hasn't gone up as much (80% or so).

In part this is because profits have been up, therefore equities are up. Profits are up because companies aren't investing in the real economy as much since the 2008 crash. As to whether this is sustainable... PE ratios are trending higher but no where near the dot-com era levels. So it's not like equities are completely out of whack with reality.

The article omits some of the basic information needed for making sense of the data: What is the composition of the one-percent?

I doubt that corporate executives make up a significant percentage of the super-wealthy, despite the attention the media pays to them. If that's true, then ipso facto changes in CEO compensation cannot account for most of the structural increase in inequality over the last half century.

A more likely suspect is the influence of technology, which has interlinked global markets so that the dominant players are able to extract significantly more value than in the past. Outsourcing has suppressed wages while increasing profitability, which naturally contributes to inequality. And in an interconnected global trading system, economies of scale become more and more beneficial, which consolidates resources among the top competitors in a given field.

One interesting question is how the sharing economy will affect this phenomenon in the future. Will the creation of 'Ubers for everything' drive down wages even further by saturating labor markets with even more surplus human capital? Will it destabilize some of the entrenched social hierarchies in America by gutting the fortunes that legacy industries currently enjoy?

Another issue worth serious thought is which kinds of inequality are most harmful to society and why. Is stratification of the middle class and the hyper-rich the primary dilemma, simply because it accounts for the greatest resource disparity on paper? Or in practice is America's social cohesion damaged more by the smaller gaps between members of the other social classes?

Finally, how should concerns about inequality influence America's immigration policy? If we view the current situation as a problem, then importing more low-skilled laborers will exacerbate things. It's hardly a coincidence that the super-rich are some of the strongest advocates of comprehensive immigration reform. That may well be a desirable policy for humanitarian reasons, but we should remember the relevant externalities.

There's no reason to limit that kind of obviously beneficial practice to just the CEO.

Imagine how beneficial it would be to apply it to all the employees. Company is earning money? You get your paycheck. Company is losing money? Cough up.

Not specifically, though indirectly. The FEDs activities are intended to counter balance the lack of economic activity and investment capital coming out of the banks after the 2008 crises left them having to unwind their debt positions globally. Someone has to keep the fuel spigot on - usually that's the government but most did the opposite (austerity) due to politics.

What you're witnessing is a LOT of unused capital sitting around trying to find low risk returns. Interest rates are low so money is cheap, and there are only so many places to park capital, thus... Prices go up. Post 2008 Companies aren't investing as much in the real economy: wages, productive capital, etc. are stagnant. they're profit taking and retaining the profits. What's important to know is that while assets are trending higher historically , these are all mostly paper assets - they're indirectly tied to the real economy, and haven't completely become unhinged yet like in 2000.

See http://mobile.nytimes.com/2014/07/08/upshot/welcome-to-the-e...

Zimbabwe was a case of hyperinflation. Which is what eventually happens when you have more money than productive capacity - prices of "real stuff" go up fast. But real inflation in the U.S. and Europe is very low by historical standards. We are not going to become Zimbabwe.