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Where Wealth Surged In The '90s

Economic Trends


Among a thin slice of households

There's little dispute that incomes have grown more unequal in the U.S. in recent decades. But the question of the distribution of wealth is more controversial. While research by economist Edward N. Wolff of New York University found a sharp increase in the share of wealth held by the top 1% of households in the 1980s, Federal Reserve survey data relying on different statistical adjustments show relatively little change in the concentration of wealth.

The 1990s, however, may be different. A new technical working paper by Arthur B. Kennickell of the Federal Reserve and R. Louise Woodburn of Ernst & Young suggests that the top 1% of the population--especially the top half of that 1%--has been getting a lot richer.

From 1992 to 1995, a period in which household net worth grew by more than $2.7 trillion, the study finds that the richest 1% boosted their share of the total from 30.2% to 35.1%. What's more, almost all of that gain accrued to the top half of that segment, a group that saw its average net worth jump from $8 million to $11.3 million. (The average for the whole top 1% was $7.2 million.) Meanwhile, the share held by the bottom 90% of households slipped to just 31.5%, down from 32.9%. Their average net worth: nearly $73,000--but just $39,000 when home equity is excluded.

Interestingly enough, the biggest part of the gain racked up by the wealthiest 1% of the population came at the expense of the next 9%. The average net worth of this group remained around $766,000, but its share of the pie fell by 3.7 percentage points.

What's behind the rising concentration of wealth among the top 1%? A big factor is their growing share of business assets such as private companies, entrepreneurships, and professional corporations, which jumped from 56.5% of the total for all households in 1992 to 71.4% in 1995. And the concentration of stock ownership among the very wealthy means they have reaped huge rewards from the stock market boom, despite the rising number of households investing in mutual funds.

From 1992 to 1995, the value of stocks held by the top 1% surged by a heady 72%. And the group's share of household equity holdings also climbed, from 38.5% to 42.2%, as the share held by the bottom 90% actually fell.BY GENE KORETZReturn to top

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American League batters beware

Economists call it "moral hazard," and it's a particularly galling problem for insurance companies. It refers to the tendency of persons who are protected from bearing the full costs or negative consequences of particular acts to indulge in such behavior more than they would otherwise do. Those with loss or theft insurance, for example, tend to be more careless about their property than those lacking such security.

But moral hazard occurs in many situations besides insurance. (One often cited example is drivers' tendency to drive more recklessly since seat-belt laws were passed.) In an intriguing study in the current issue of Economic Inquiry, Brian L. Goff of Western Kentucky University, William F. Shugart II of the University of Mississippi, and Robert D. Tollison of George Mason University point to a "classic moral hazard problem" created by a rule change in Major League Baseball.

In 1973, the American League introduced the designated-hitter rule, which relieved pitchers of having to come to the plate. The National League never adopted the rule. Since the rule allows American League pitchers to throw at opposing batters with greater impunity than their opposite numbers in the National League (who have to take their turn at bat), the researchers theorized that more American League batters would get hit by pitched balls.

That is exactly what the study shows. From the start of the century through 1972, a batter's chance of getting hit remained roughly the same in both leagues. But since the designated-hitter rule was introduced, American League batters have been hit by pitches 10% to 15% more than National League batters in a typical season.

Thus, whatever the original intentions of the American League in adopting the designated hitter rule, it has created a clear moral hazard for the game. Freed of worries about having to face personal retaliation from an opposing pitcher, American League pitchers have become far more willing to cut it close--or loose--from the mound.BY GENE KORETZReturn to top

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