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bottom 60% of Americans have fallen way behind the top 40%
In one of his recent articles, Dalio argues that it is a serious mistake to think you can analyze or understand “the” economy because we now have two of them.

Wealth and income levels are so skewed between the top and the bottom that “average” indicators no longer reflect the average person’s experience or living conditions.

And that obscures the big picture when it comes to today’s prevailing economic and political trends.

Dalio has split the economy into the top 40% and bottom 60% and quantified the split with some startling numbers. Just a sampling:
  • The average household in the top 40% earns four times more than the average household in the bottom 60%.
  • Real incomes for the bottom 60% have been either flat or down slightly since 1980.
  • In 1980, the average top 40% household had six times more wealth than the average bottom 60% household. Now it is 10 times as much.
  • Only about a third of the bottom 60% saves any of their income.
Dalio also found some very useful data I had never seen before: household income adjusted to show the impact of taxes, tax credits, and government benefits.

This adjustment gets closer to the resources people actually have available for living expenses, savings, and investment.

Splitting that data by the top 40% and bottom 60%, we see a sharply growing difference in the percentage changes since 1980. The top saw its after-tax net household income grow almost three times faster than household income for the bottom 60%, even including government transfer payments.

You see the problem here? The bottom 60% know their own experience. Thanks to the Internet and social media, the bottom 40% is particularly aware of it and increasingly resentful.

Note also that the lower ranks of the top 40% are not “wealthy” by any stretch. Anyone below the 80thpercentile is probably struggling to some degree.

Look at the chart below.

The red line is the share of US wealth owned by the bottom 90% of the population, and the green line is the share held by the top 0.1%.
Now they are about the same but notice the trend. The wealthiest 0.1% has been increasing its share of wealth since the 1980s.

Meanwhile, the bottom 90% has been losing ground.

Thinking about this situation, I can't help but correlate it to my friend Neil Howe's idea of a historical "Fourth Turning" every 80 years or so.
(A Fourth Turning is a time when society’s foundational institutions are challenged. The generation that is young adults at that time must face the challenge and hopefully overcome it. The so-called Greatest Generation did so by persevering through the Great Depression and fighting World War II. It may not be a war, but the Millennial Generation will face a similar test.)

It fits well with Dalio’s data. Neil said at my 2016 Strategic Investment Conference in Dallas that we are in the middle stages of that Fourth Turning, and he expects conditions to worsen from here.

As he points out, for almost 500 years, the last half of Fourth Turning has always encompassed the most tumultuous times in Anglo-Saxon history.

This time is likely to be no different…

What are these bottom 60% types doing wrong?

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