How American Wealth Inequality Has Become A Huge Problem.
Written by David Kelly
Published 5 December 2018
The next time that your closed-minded, uninformed, propagandized, partisan-hack family member or friend talks, posts, or tweets about how wealth inequality in America does not exist, I want you to send them this article. Seriously.
Like so many important issues, epidemics, and problems in America, wealth inequality has taken a backseat to Russiagate, Jim Acosta’s press pass status, and the president’s latest 2 am tweet. These distractions do not change the truth. There is no denying that wealth inequality certainly exists in America.
The United States is by far the wealthiest nation in the world. The GDP of the United States in 2017 was $19.39 trillion. Unsurprisingly, the second-place finisher in 2017 was the ever-growing economy of China, finishing the year with a GDP of $10.43 trillion, or just under $9 trillion less than the U.S. To put this in perspective, Japan had the third highest GDP of 2017. The GDP of Japan last year was $4.8 trillion.
America’s GDP has been growing and shows no signs that it will do otherwise. By 2022, Statista projects that the United States will have GDP of over $23 trillion. Given these statistics, it is rather mind numbing to accept that such a large portion of Americans are actually struggling.
Below are some statistics that highlight this very fact:
The top 1 percent in America own more wealth than the entire bottom 90 percent of America combined.
How can a nation with so much wealth have a population that is struggling so mightily? The answer is simple: economic inequality. In dealing with economic inequality, both income and wealth are important data points, and both are needed to tell the story of how the majority of individuals are faring.
Income inequality refers to how unevenly income is distributed across a population. Wealth inequality refers to how unevenly wealth is dispersed across a population. In this article we will be focusing on the wealth inequality that is now plaguing America.
Cartoon by Rob Rogers, then of the Pittsburgh Post-Gazette, 2013.
A Brief History of Wealth Inequality in America
To truly appreciate and grasp the level of wealth inequality that currently exists in the United States, we must first understand a brief history of the subject. Throughout the last century, the portion of wealth held by the wealthiest in America has fluctuated substantially. Directly before the days of the Great Depression, the wealth gap in America was unequivocally present.
The wealthy saw their share of America’s wealth peak right before the Great Depression in the late 1920s.
Throughout the next three decades following the Great Depression, the share of wealth that the upper echelon of American households possessed decreased. In fact, over those three decades, their wealth decreased by nearly 50 percent. The mid-20th century saw equalizing trends taking place along the wealth spectrum. Naturally, the Great Depression played a role in closing the wealth gap, but there were other reasons this took place.
Just How Bad Is It?
The trends, policies, and economic opportunities for the overwhelming majority of Americans that existed in the mid-20th century have now been almost completely undone. We have reverted back to the levels of inequality that were seen since the days of the Great Depression. We once again find ourselves in the midst of extreme dynastic wealth and a massive wealth disparity. If this is not considered problematic, what truly is?
According to economist Edward N. Wolff, the wealthiest 1 percent of the country now owns 40 percent of the nation’s wealth. This is the highest share that wealthiest in the nation has owned in at least 56 years. The wealth of the top 1 percent has been accumulating at an increasing rate. Since 2013, the top 1 percent has seen their wealth increase 3 percent. There is a finite amount of wealth that exists both in the world and the United States at any one given time. As the top 1 percent accumulate more wealth, the bottom 99 percent lose more wealth.
The net worth of the average American household fell from 2000 to 2011. This period includes the 2008 economic collapse commonly called the Great Recession. Was this decrease of net worth a symptom of that collapse? Possibly, at least in part; however, if that were the case, we would expect a similar decrease in the net worth of the wealthiest Americans as well. This was not the case. Not only did the wealthiest not see a decrease in net worth, the top two quintiles of American wealth distribution increased in net worth.
This fact is truly a microcosm of the wealth inequality problem from a modern standpoint. The Great Depression was obviously a catastrophic economic event. However, it helped lead toward leveling the playing field in terms of wealth in America. The Great Recession appears to have not done this. In fact, it seems to have had the opposite effect. The Great Recession appears to have made wealth inequality worse in America.
The problem of wealth inequality really becomes apparent when we view the extremely wealthy in America. The Institute for Policy Studies published a report where it used data from the annual ranking of Forbe’s Richest 400 Americans. Most notably, it found that Bill Gates, Warren Buffet, and Jeff Bezos collectively hold more wealth than the bottom 50 percent of the nation. To put this in true perspective, the three wealthiest Americans hold more wealth collectively than 160 million people or 63 million American households combined.
The fact that we are increasingly becoming a society governed by the wealthy cannot be understated. This truth becomes even clearer when we view the three wealthiest families in the United States. The three wealthiest families in the United States are the Waltons of Walmart, the Mars candy family, and the Koch brothers. These families inherited their wealth largely from the work done by their grandparents and parents.
The three aforementioned families, collectively, hold a combined wealth of $348.7 billion. On its own, that figure appears extremely large. But let’s put this combined wealth in perspective. The combined wealth of these three families is 4 million times greater than that of the median wealth of a United States family. Since 1982, these three families have watched their wealth grow 6,000 percent, a preposterous amount. This 6,000 percent growth in wealth comes while the median household wealth in the United States has fallen 3 percent since 1982 (The Guardian Chris Collins).
How Income Inequality Affects Wealth Inequality
We’ve heard it time and time again: “The stock market is booming! Everything is great! The economy is thriving!” What Fox News, other mainstream news sources, and Donald Trump do not seem to understand is that a vast majority of Americans are left out of stock market gains. Only 54 percent of Americans hold stock ownership. A Gallup study published in May of 2017 found that those who really benefit from the stock market fall into three major groups. Those that are 65 and older, those that make over $100,000 a year, and non-Hispanic whites.
Though this article is focusing on wealth inequality, it is important to highlight how income inequality relates to wealth inequality. Even with a low unemployment rate of 3.8 percent under Donald Trump, Americans have continued to struggle more and more. That is because American workers rely on wage growth in order to see their economic status improve.
When the stock market is booming, it is primarily those who make over $100,000 per year that benefit. These people are not struggling to afford a basic needs such as rent or food like 40 percent of the country. People who make less than $30,000 per year simply do not have the disposable cash to invest in the stock market, a situation that describes nearly half of American workers.
Another interesting metric to consider is Wall Street bonuses against minimum wage earnings. Though this is more of an income inequality issue, it highlights just how much disparity there truly is between the ultra wealthy and those struggling to get by. In 2016, Wall Street banks dished out over $24 billion in bonuses to 177,000 New-York based employees. This is 1.6 times more than the entire earning of the 1,075,000 Americans who worked full-time at the federal minimum wage level. Redirected to those workers, the entire Wall Street bonus pool was large enough to increase the pay of any one of following three major low-wage groups to $15 per hour:
- All of the country’s 3.1 million restaurant servers and bartenders
- All 1.7 million home health and personal care aides
- All 3.2 million fast food preparation and serving workers
Most Americans like to believe that we live in a meritocracy, a system whereby the most talented and deserving are rewarded. Were that truly the case, the Waltons, Mars candy family, and Koch brother would have had to work 6,000 percent harder than the average American household over the last 36 years.. It is unlikely that Jeff Bezos, Bill Gates, and Warren Buffet have collectively worked harder than 160 million people combined, but if we lived in a true meritocracy, this would be the case.
The French economist Thomas Piketty warns of the need for intervention to reverse the wealth dynamics that currently exist. Piketty warns that if we do not intervene, we will end up with a society where our politics, culture, philanthropy, and economy are dominated by the ultra wealthy (The Guardian). Paul Vocker, the former chairman of the Federal Reserve believes we are already at that point. Vocker has stated, “We are living in a plutocracy.” A plutocracy, in plain English, is a government by the wealthy.
Those on the right in America love to falsely accuse the left for trying to redistribute the wealth. Make no mistake, over the past 40 years, the wealth in America has been redistributed. Rather than having it take from those at the top and sharing it with the middle class and poor, it has gone the other way. The wealthy in this country have redistributed the wealth to themselves.
Think that your return on investment for your 401k or stock portfolio is good? Try buying legislation through lobbying and campaign contributions. The wealthy spend millions of dollars on lobbying and campaign contributions and reap billions in benefits.. As a case in point, the elimination of the estate tax (a subject for a future article) benefited a small percentage of the extreme wealthy with tax breaks amounting to billions of dollars.
This article is not my opinion. It is not the regurgitation of talking points. This is pure facts backed up by data. The political discourse in America needs to recenter itself around data, science, and reason. Until this is done, propaganda, misinformation, and anti-science will dominate the rhetoric. This failed political discourse hurts Americans like you and I. Yet, it serves the large majority of the political establishment and wealthy.
We have to recognize the failures of our system to make improvements. America is the wealthiest nation on the planet. As the majority of this wealth increasingly rises to the top 1 percent, the majority of the country increasingly suffers. The American Dream seems far out of reach to the 80 percent of American workers that are currently living paycheck to paycheck. This economic system is both morally and ethically backward. And as many economists have warned, the wealth inequality in America threatens the viability of our democracy.
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