Growing Wealth Inequality:
A Danger Sign for Democracy
By D.S. Mitchell & Jones William
Uneven Distribution
Wealth inequality occurs when income and assets are unevenly distributed within a group of people, or society. There are at least three measures of that distribution of wealth. Economic inequality is generally grouped into three categories; pay, income and wealth.
1) Pay
Pay is the amount received from employment only. Pay can be based on an hourly, weekly, monthly or yearly basis. Pay may also include bonuses and benefits. Pay inequality: the difference between individuals’ pay across all 50 states (or within one company).
2) Income
Income includes all the money received through pay, investments, state benefits, rent, pensions (personal, company, state) and savings. Income is calculated on an individual or household basis. Income inequality, is the disparity of money streams between groups and individuals.
3) Wealth
Wealth is the total assets of an individual or household. It includes all assets of value: bonds, stocks, pensions, art, jewelry, boats, planes, automobiles, savings, investments, and real estate. Wealth is a collection of assets minus liabilities. Wealth inequality, is the difference between the valuation of all assets owned by groups or individuals.
All About the Numbers
Dull numbers, boring statistics. Hold on there! The statistical breakdown of wealth in the United States over the last 40 years is startling. Over the last 15 years it is terrifying. The looming crisis predicted by such numbers, sure the hell isn’t boring, but it sure the hell is dangerous. We’ve got a 5 alarm blaze ripping through our society and there seems to be no one willing to speak loudly and persuasively enough to get the attention of the fire brigade. In other words, government officials.
A Predictable Result
Look at the last 100 years. You can see the pattern. When the wealthiest took home a much smaller proportion of the total income, as in the years between 1947 and 1980, the nation as a whole grew rapidly and wages across the spectrum soared. During periods when the wealthiest took home a larger proportion of total income, as between 1918 and 1933 and from 1981 until today, economic growth slowed, median wages stagnated and enormous economic downturns resulted. We are at a critical point in our country’s history. Economic inequality, in all its forms, has risen dramatically in the United States particularly over the last 40 years.
Unsustainable
We are in the middle of a full-fledged national emergency, and it sure the f isn’t at our southern border. The growing disparity between the have’s and have not’s is potentially the greatest threat to our democracy since the founding of the country. The unprecedented disparity of wealth between the wealthiest people in the United States and the ‘average man’ is unsustainable. “Some income inequality and wealth is inevitable, if not necessary. The real issue is at which point does such disparity become so great that it poses a threat to the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.” Robert Reich.
Negative Effects on Our Economy
As wealth collects at the top spending slows. It is the vast middle class that moves the economy. If that group is suffocated purchases will drop and the economy will slow.
Negative Effects on Equal Opportunity
Widening inequality challenges the core ideal of equal opportunity because it derails upward mobility.
Negative Effects of Democracy
The connection between widening inequality and the undermining of democracy is an accepted reality. “As income and wealth flow upward, political power soon follows. Money flowing to political campaigns, lobbyists, think tanks, expert witnesses and media campaign buys disproportionate influence.
Old Sayings
That old saying, “the rich just get richer” is an undeniable truth. And the conclusion of that saying, “the poor just get poorer” is a most painful reality. Average wages are stagnant, falling behind inflation, and upward social mobility is at its lowest level in the last 100 years. A quarter of American employees earn less than $10 per hour, which puts them officially below the federal poverty level. Economists Thomas Piketty and Emmanuel Saez show in their study that the rich became dramatically richer during the 2008 financial crisis. The top 10 per cent earners got 50 per cent of all income, and the top 1 per cent earned 20 per cent of the income.
Piling On
By 2015, the top 10 per cent averaged over 9 times more income than the bottom 90 per cent. And the top 1 per cent averaged more than 40 times as much income as the bottom 99 per cent. According to a report by the Economic Policy Institute, CEOs current compensation is 271 times more than the average worker.
Racial discrimination:Furthermore, racial discrimination is operational in the labor market; distributing assets unequally by race. Black Americans and other people of color have less wealth and fewer opportunities than whites even after the introduction of positive factors like improved education.
Gender discrimination: Throughout the 20th century, the average woman earned 55 % less than that of the average man. The figure increased to 80% from the late 1970’s. Unfortunately, the rise plateaued in 2005, and the gap has remained roughly unchanged today.
No Chance
These are but a few of the barriers facing poor Americans. Currently there is almost no chance for a person of modest means to reach even the lower middle class, much less the upper middle class. But what is driving economic inequality?
How Did We Get Here?
I’m going to break it down, just like Robert Reich did in a recent article. In the late 1970’s the middle class began to show signs of weakening. Productivity continued to rise but wages flattened, as new technologies, computers, satellite communications, the internet, and globalization changed the market place. In the 1970’s as the middle class weakened they continued to spend. First enabled by the flow of women into the work force. By the end of the nineties 55% of women with children were working. When two parents working did not cover all the expenses, the middle class went deeper and deeper into debt. From the end of the 1990’s to the crash of 2007 the debt of the average American grew by over 35%.
Home Equity Loans
Most of the debt was taken in equity loans, or second mortgages on primary residences. This was great as long as the home values continued to rise. When the bubble burst millions of Americans lost their homes. To quote Reich directly, “That ended the middle class’s remarkable ability to keep spending in the face of near stagnant wages.” Now the pain was felt. What has been put off for 40 years is now a threatening monster sitting in our front yard.
Economic Inequality
Politicians and citizens are all looking for someone to blame for entrenched poverty, stagnant wages and broadening gap between poor and rich. Bernie Sanders holds Wall Street responsible. Hillary Clinton, also blames the 1% and Wall Street. President Trump lays the blame on companies moving overseas. Elizabeth Warren blames the tax system, and supports a ‘wealth tax’ in addition to an income tax, which she sees as an untapped financial well.
The following are some of the factors blamed for the growing economic inequality:
1) Political Leaders
While economic inequality is an international issue, the United States is more unequal than others. Why? Republican leaders over the last forty years have worsened it in nearly every conceivable way. Rather than make higher education affordable, they have proposed an $80 billion cut to the Pell Grant Program, which many poor Americans depend on to get through college. Instead of boosting social safety nets that help in job training, healthcare or education, they have advocated for a massive cut to Medicaid and SNAP. They have devised an even more unfair tax code that benefits the richest families.
2) Supreme Court
The Supreme Court, which should be the anchor to the poor, has been the primary driver of economic inequality. Since late 1970, the court has issued rulings that have rewarded the wealthy and businesses over the working class. Arguably, this has made it an institution for the 1%. For instance, Justice Scalia, who served from 1986 to February 2016. Scalia wrote five opinions that pushed workers out of court into costly and futile arbitration.
3) Cheap Labor Overseas
China is widely blamed for economic inequality by their cheap labor, discriminatory exchange rates and jobs outsourcing. Corporations put profits ahead of workers. U.S. companies are forced to compete with Chinese companies who pay their employees much less. This has seen many companies outsourcing their manufacturing jobs and high-tech overseas to the Philippines, India, Vietnam and Malaysia. As a result, the U.S. has lost over 20 per cent of its higher-paying factory jobs since 2000.
Solutions to Economic Inequality
Politicians often talk about rising economic inequality and the slow recovery as separate occurrences, when they are actually intertwined. Inequality oppresses, restrains and holds back our economic growth. The International Monetary Fund (IMF) has outlined the systematic connection between economic inequality and economic instability. The following are some ways that can directly address inequality:
- The government should invest in America’s young people. Young people are a nation’s most valuable resources and investing in them is a sure-fire way to improve the labor force and increase individual wealth. High caliber education should be available to all beginning at age 3 through four years of university or technical training.
- Constrain Wall Street. Strengthen and straighten the legal framework to stop banking abuses.
- Discrimination in wages by race and gender must be addressed. Time to open up more opportunities.
- Expand access to capital and encourage entrepreneurship. Extending micro-credit to poor Americans will enable them to start their own sustainable businesses and become self-sufficient.
- Raise federal minimum wage to $15 per/hr pegging it to inflation. Abolish the tipped minimum wage. And expand the Earned Income Tax Credit.
- Reinvigorate unions. Unionize lower-income workers. Lower wage Americans deserve more bargaining power.
- Invest in infrastructure. The country is falling apart from within. Investments in internet, power, water, roads, bridges, dams and reservoirs all need to be upgraded or rebuilt. The country needs to create an infrastructure representative of the wealthiest nation on earth.
- Raise taxes on the rich. There is no trickle down from rich to the poor. It is a lie and the only people trying to prop up that lie are the people benefiting from such tax favoritism.
- Make payroll tax progressive. 40% of government revenue comes from payroll taxes. Exempt first $15,000 of wages and remove the cap on the portion of income subject to Social Security payroll taxes.
- Re-instate the “death tax”. Allowing families to accumulate vast wealth that perpetuates itself over generations is a major factor in wealth inequality. And this reservoir should be taxed heavily. “We are moving to the oligarchy of inherited wealth and away from a meritocracy based on labor income”.
- Lastly, we must take big money out of politics. Those with great piles of money are threatening our democracy. We must move toward public financing of elections.
Conclusion
“We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent,” Robert Reich.
Look back at history. The Roman Empire was wealthy beyond belief, but Rome, like America had an imbalance of wealth. In Rome all the power and money was concentrated in the hands of a few elite and the rest of the population were extremely poor. Danger signs of economic inequality were disregarded and it led to civil war, which destroyed the empire. Americans must collectively work towards creating a fair and equitable society or history may repeat itself.
Reference Links:
https://www.equalitytrust.org.uk/how-economic-inequality-defined
https://inequality.org/facts/income-inequality/
https://www.cnbc.com/2018/07/19/income-inequality-continues-to-grow-in-the-united-states.html
https://inequality.org/facts/income-inequality/
https://inequality.stanford.edu/publications/20-facts-about-us-inequality-everyone-should-know
https://inequality.org/facts/wealth-inequality/
https://www.theatlantic.com/business/archive/2014/…/the-rise…rise…rise…/283793/
http://robertreich.org/post/85532751265 and 9789891366
http://fortune.com/2016/09/20/trump-clinton-income-inequality/
https://en.wikipedia.orgwiki/Wealth_inequality_in_the_United_States
