Investors Assail Income Gap as 68% in Poll Say Government NeededMike Dorning
International investors say the gap between rich and poor hampers economic growth and that governments should act to reduce income inequality, according to a Bloomberg Global Poll.
Fifty-eight percent of global respondents say the disparity hinders the economy and 68 percent say governments should confront the problem, according to the Jan. 16-17 survey of 477 investors, traders and analysts who are Bloomberg subscribers. U.S. respondents are divided over the issue.
The income gap is emerging as a key theme for this week’s annual meeting of the World Economic Forum in Davos, Switzerland, at a time when global growth is accelerating and asset prices are rising.
President Barack Obama warned in December of a “fundamental threat to the American dream” and Pope Francis in November attacked the “new tyranny” of “an economy of exclusion and inequality.”
“This is really one of the most pressing and delicate tasks for governments over the next 10 years,” said poll respondent Mario Cribari, 40, head of asset management at Veco Invest SA in Lugano, Switzerland. “The decreasing real wage of the huge majority of the population” and “a very polarized” economy risks “social, investment and consumption stagnation” and “potential social unrest.”
A study by the Davos forum of 31 risks last week identified the income divide as the most likely peril to the global economy over the next decade. The disparity -- driven by globalization and fueled by the last financial crisis -- threatens to breed poverty and social disorder, it said.
The development charity Oxfam released a report before the forum showing that the richest 85 people now control as much wealth as the poorest half of the global population.
The richest 10 percent of Americans earned a larger share of income in 2012 than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top one-tenth of income distribution earned at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show.
Investors within the U.S. aren’t as alarmed about the gap as their foreign counterparts.
Among U.S. respondents, 52 percent say inequality hampers growth compared with 46 percent who say it doesn’t; 51 percent say it’s appropriate for government policy to address the disparity, while 48 percent say it isn’t.
“Income is a direct result of the effort put towards earning the income,” said poll respondent Ron Anari, 57, a senior vice president in the Jersey City, New Jersey, office of ICAP Plc, the largest inter-dealer broker of U.S. government debt. “Our greatest shortcoming is not the income inequality of the top 2% from the bottom 2% but the systematic destruction of the middle class through handouts creating the entitled and complacent class,” he said in an e-mail.
Investors prefer incremental steps to address income inequality rather than rapid action. Worldwide, 22 percent want “urgent” action, 46 percent incremental action and 30 percent no government action. Just 13 percent of U.S. respondents said they favor aggressive action.
“It is an issue that needs addressing,” said poll respondent Kit Murray, 31, a corporate bond broker at Eiger Securities in London. “It remains a very difficult problem as excessive taxation of the business leaders/entrepreneurs of the world would only cause a larger hindrance to economic growth.”
Across the world, poll respondents said the income gap is greater in the U.S. than in other developed countries, though more investors outside the U.S. were certain of it. Fifty-nine percent of American investors say income inequality is greater in the U.S. compared with 72 percent of investors in other countries who hold that view.
The majority opinion is consistent with statistical data.
In the 34-nation Organization for Economic Cooperation and Development, only Chile, Mexico and Turkey have more unequal societies than the U.S., according to the standard statistical measure of inequality known as the Gini coefficient.
The U.S. Gini score rose to .48 in 2012 from .39 in 1968. Developed by the Italian statistician Corrado Gini in 1912, the scores represent a kind of distributional thermometer, ranging from 0 -- each person enjoying equal shares of income -- to 1 -- one person has all income.
Obama has signaled that income inequality will be a central focus for the remainder of his administration, with an agenda that includes an increase in the minimum wage and a press for universal access to pre-school education.
Investor opinion of the president is rebounding from a dip in November following the 16-day partial shutdown of the U.S. government in October and a partisan political standoff over raising the U.S. legal debt limit.
The administration also botched the rollout in October of the online insurance exchanges at the heart of Obama’s signature health-care law and didn’t fix the enrollment website until late November.
Forty-one percent of poll respondents say they are “optimistic” about the impact of Obama’s policies on the U.S. investment climate; that’s the same number as in September after a drop to 27 percent in November.
Forty-five percent say they have a favorable opinion of the U.S. president, up from 38 percent in November though still below a 50 percent support level in September.
U.S. investors are less enthusiastic about Obama than their counterparts elsewhere, a divergence of opinion registered consistently in the poll since the first survey in July 2009. Twenty-six percent of U.S respondents have a positive opinion of Obama compared with 55 percent of respondents outside the country.
U.S. stocks finished last year with their strongest performance since 1997, during the dot-com boom, as the benchmark Standard & Poor’s 500 index surged more than 29 percent in 2013.
Federal Reserve leaders, who have managed a monetary stimulus since the global financial collapse in 2007, were more popular with investors than the president. Sixty-eight percent hold a favorable view of Janet Yellen, the current Fed vice-chairman who will take over the reins of the central bank on Feb. 1. Seventy-nine percent have a positive opinion of Ben S. Bernanke, the outgoing chairman.
Looking ahead over the next decade, investors mostly see average annual U.S. growth broadly similar to the 2.6 percent over the past two decades. Forty-four percent anticipate average growth of about 2 percent during the coming decade and 40 percent see growth of about 3 percent. Only 8 percent expect average growth of less than 2 percent, and 6 percent average growth of 4 percent or more.
The poll, conducted by Des Moines, Iowa-based Selzer & Co., has a margin of error of plus or minus 4.5 percentage points.