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The Widening Gap between the Rich and the Rest of Us


Written By: A. Wilt

May 2015

The income gap between the wealthy and the not wealthy, in America, has been growing. That likely comes as no surprise to many, who know, intuitively, that there is a defined income gap in the United States. What might come as a surprise is how big that gap is. Marketwatch.com recently estimated that the average American would need to work 127.7 years to earn what some of the wealthiest CEOs in America earn in a single year.

That income gap, also leads to a wealth gap, which follows logic. If a person is making more income, they are likely spending more on consumable goods, but they are also more able to make investments, purchase assets, etc., that lead to greater lasting wealth. It is that wealth gap that is more permanent over generations.

Back in the USA News Story: The Widening Gap between the Rich and the Rest of Us. www.backintheusa.us

In a 2011 study, Harvard Professor Michael Norton asked survey respondents what they estimated the percentage of wealth owned by the wealthiest 20% of Americans was. They estimated that the wealthiest 20% of Americans held about 60% of the wealth, and that, in an ideal world, they would hold about a third. In fact, the wealthiest 20% of Americans hold 80% of the nation’s wealth.

Breaking that richest 20% population down further, the gap within that group makes the gap between the wealthiest and the middle class even more staggering. The Federal Reserve estimates that in 2013, the richest 3% owned 54% of the nation’s wealth.

This wealth gap, persists over generations, and in the last several decades, has become wider. Or, as the saying goes, the rich get richer. In 1989, the average net worth of the top 10% in wealth distribution was $702,200.  In 2013, that number rose to $1,130,700, increasing 61%. By contrast, the average wealth of the remaining 80% rose only 15.28%. Those families in the 20-50% group actually experienced negative wealth growth.

In other words, the numbers back up the assertion that the middle class is losing ground when it comes to wealth accumulation. Prior to this time period, the wealth of all groups tended to grow at roughly the same rate, so that each group’s wealth grew by the same percentage. Regardless of the dollar figures, the percentage width of the gap stayed the same.

Back in the USA News Story: The Widening Gap between the Rich and the Rest of Us. www.backintheusa.us

An average American would need to work 127.7 years to earn what some of the wealthiest CEOs in America earn in a single year.

There are lots of reasons that this change happened. One main factor is that the housing recession hit middle class families hardest. That group tends to have most of their wealth in home ownership rather than other investments, so when the home values burst, the wealth in that group dropped dramatically. The poorer group is made up of more renters than homeowners and so their wealth wasn’t affected as much.

Moving forward, it’s difficult to overcome that gap. The children born into the wealthiest group will have educational and other opportunity advantages that other children will not have, leading to a cycle where wealth breeds wealth, with the advantages that come with membership in that group.

It also becomes less realistic for someone born outside of the wealthy population to make it into that group. The very American philosophy that someone who works hard and plays by the rules will be successful and become wealthy isn’t necessarily true anymore.

Even if income rises, the wealth factor is more difficult to overcome. Many in the middle class are reliant on debt for purchasing power, which means that accumulation of true wealth is difficult. That ability to use debt also masks wealth inequality. For example, if my neighbors and I live in similar homes and drive similar cars, from the outside our wealth appears similar, even if one of us holds more debt.

Why Does This Matter?

At the same time that these gaps have been widening, the US political system has become increasingly dominated by money, giving the rich more ability than ever to influence political outcomes. In the landmark 2010 Citizens United v. Federal Election Commission, the Supreme Court ruled that corporations and unions can spend an unlimited amount to convince people to vote for or against a candidate.

That ruling overturned longstanding law forbidding corporations to use general funds for political advocacy and opened the door for a select minority of the population to have another way to access political influence.

Back in the USA News Story: The Widening Gap between the Rich and the Rest of Us. www.backintheusa.us

The same CEOs who are making 127.7 times what the average American makes, now, also have the means to use both that personal income and the income of the corporation to purchase political influence. Economic ownership concentrated with the wealthiest 3% becomes political power concentrated in that same group.

Like so many issues, the answers to this aren’t easy. After all, the accumulation of wealth is part and parcel of the American Dream. To redistribute that wealth goes against our national character. At the same time, there is a growing sense that the way things have shaken out, isn’t quite right either. Balancing the capitalist incentive of success with ensuring that the other members of our population aren’t shut out of economic and political opportunity is a delicate thing. But perhaps we are finally at a point where we can talk about inequality as an issue, instead of dismissing it as class warfare or petty jealousy of the rich.

~~~~~

Other Articles of Interest:

The Overall State of Well-Being: Who's Thriving and Who's Not

Winners and Losers—The Rich and Poor in America

The New Middle Class

Do You Listen to Economists? You Shouldn't

The American Dream: This Isn't Your Parent's America

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