How Is the Distribution of Wealth in the United States Changing?
I look at the surprising facts surrounding the recent debate over the haves and the have-nots. I researched the changes in wealth, how it is earned, who gets it, who gets to keep it, and who gets left out. This is what I found. Remy
In order to discuss how the distribution of wealth has changed in the United States, both the statistics of “how” as in “how much” and the mechanics of “how” as in “how did this happen” need to be addressed to see how America has become less equal than most citizens think. Additionally, what is included in the term “wealth” must be examined, for this also has an impact on the changes in wealth distribution in the United States.
When talking about wealth distribution, it is important to distinguish between wage distribution and wealth distribution. Wages are what is paid for work done, a product produced, whether that product is a tangible product, service, or idea. Wealth is accumulated wages beyond what is spent, when “income exceeds consumption” (Lorenzi, 2009, para. 5). This is an important distinction because without excess income, there can be no wealth accumulation. Most Americans think wealth distribution in the United States is far more equal than it is (Bennett, 2010). In a survey by Dan Ariely of Duke University and Michael L. Norton of Harvard Business School, the average respondent thought the wealthiest 20 percent of Americans owned 59 percent of national wealth, when in fact they own 84 percent (Bennett, 2010). Both economic benchmarks, wages and wealth, have seen dramatic shifts in distribution.
Wage inequality has changed dramatically in the last forty years. At the end of World War II, and for three decades after, wages grew proportionally with productivity, and the American middle class was born (Alperovitz, 2009; Noblet, 2006). But since the late 1970s, wages have lost ground for the average worker while executive compensation has soared (Noblet, 2006). In 1979, the top one percent of Americans earned 33.1 times what the bottom 20 percent earned, but by 2000, this multiplier had more than doubled to 88.5 (Hogan, 2005). Wealth distribution is even more skewed, with the top 20 percent of Americans owning 84 percent of all national wealth, while the bottom 20 percent own a mere 0.1 percent (Bennett, 2010). The United States has not seen this level of wealth inequality since the Roaring Twenties (Noblet, 2006; Tyson, 2004).
The Dutch economist Jan Pen invented a stunning graphic to demonstrate income inequality. Writing about Britain in the early 1970s, Pen imagined a parade of workers that took an hour to pass and was ranked from the lowest to the highest earners, to create a graphic example of income distribution (Crook, 2006). Each worker was as high as their relative earnings, with those of average earnings being of average height (Crook, 2006). The first marchers in the parade are literally underground, as are their earnings, followed by people only a few inches high but growing slowly until nearly three-fourths of the way through the hour-long parade, when the marchers finally reach average height (Crook, 2006). Toward the end of the parade, marchers are 500+ feet high, and in the last few seconds, the shoes of British marchers with the highest incomes towered above everyone (Crook, 2006). At the time, America’s income distribution was more skewed that Britain’s and in the thirty-five years since Jan Pen’s parade, American income distribution has gotten even worse, with the incomes of those marching in the last thirty-six seconds rising by 121 percent.
How has the change in wealth distribution happened? In the decades after World War II, the wealthiest Americans were heavily taxed, with marginal rates over 90 percent on income above $400,000 (Bennett, 2010). Massive government investments in infrastructure, education, technology, and knowledge-based enterprises spread those tax dollars around, redistributing the nation’s wealth and creating “social value” (Alperovitz, 2009, p. 88) that was available to all citizens. With the tax cuts for the wealthy implemented under Presidents Ronald Reagan and George W. Bush, little excess government revenue was available to continue those social investments, and in fact much of America’s infrastructure has suffered from neglect since the 1970s (Alperovitz, 2009). Additionally, while gains from increased productivity matched increased wages for the first three decades after World War II, post-tax cut economic gains from productivity have been skewed in favor of the wealthiest earners. Alperovitz states:
…virtually all of the economic gains in this period were captured by a small minority of households at the top. As of 2004, the top 5 percent of households controlled more than 50 percent of the entire net worth of the country, while the bottom half controlled less than 3 percent. The share of national income going to the richest one percent has more than doubled over the last three decades (2009).
Further, the “Solow residual” (Alperovitz, 2009, p. 90), or increased productivity due to accumulated technical knowledge, went primarily to increased earnings for the highest corporate executives and was not distributed evenly among all workers (Alperovitz, 2009). Put simply, this meant that the wealthiest earners benefitted more from accumulated social value than their individual productive contributions alone would account for (Alperovitz, 2009).
The Reagan and Bush tax cuts created increases in income and wealth for a small fraction of Americans, coupled with increased executive wages, or unearned surplus, that were in excess of their individual economic contribution (Alperovitz, 2009; Lorenzi, 2009). The shift in income distribution and lower tax rates reduced public investment in maintaining post-World War II social wealth, to the detriment of the nation’s schools, infrastructure, and knowledge base (Alperovitz, 2009; Crook, 2009).
The salary gap, or income gap, has further unfortunate consequences. The salary gap usually precedes a benefits gap, with high income earners receivig more non-taxed benefits such as expensive (and inclusive) health care coverage, club memberships, free day care, and so on (Noblet, 2006). The benefits gap usually results in a health care gap, with a higher proportion of low wage earners’ income having to go towards health care expenses (Berliner 2002). With proportionately more of their incomes going to health care costs and other essential expenses, many Americans now find themselves in a credit gap, a debt gap, an equity gap, and increasingly, an income mobility gap (Alperovitz, 2009; Bennett, 2010; Berliner 2002; Noblet, 2006). There is no excess income with which to build wealth.
Few Americans are aware of the depth of income and wealth disparity in the United States; on average, they imagine a wealth distribution more similar to Sweden’s than their own (Bennett, 2010). This ignorance is further exacerbated by the popular cry of “no new taxes” and a trend towards more libertarian politics (Bennett, 2010). At the same time, decades of neglect of the social goods paid for by the World War II generation has become more evident in the nation’s educational system, roads and infrastructure, and investment in research and development, further eroding individual wealth of all but the highest paid, wealthiest Americans (Alperovitz, 2009; Hogan, 2005).
Groups such as “The Other 98%” have got it exactly right. Wealth distribution in the most affluent country in the world has, since the 1970s, disproportionately benefitted the wealthiest among us, reduced economic mobility for the rest, and condemned millions to a hopeless position at the bottom of the pile.
References
Alperovitz, G., & Daley, L. (2009). Who Is Really ‘Deserving’?. Dissent (00123846), 56(4), 88-91. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=44211942&site=ehost-live>
Bennett, D. (2010). The Inequality Delusion. Bloomberg Businessweek, (4201), 8-11. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=54591591&site=ehost-live>
Berliner, H. S. (2002). Public Health and Social Justice. Society, 39(4), 25-27. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=18673569&site=ehost-live>
Crook, C. (2006). The Height of Inequality. Atlantic Monthly (10727825), 298(2), 36-37. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=21796159&site=ehost-live>
Hogan, J. (2005). There’s one rule for the rich.. New Scientist, 185(2490), 6-7. . <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=16616822&site=ehost-live>
Lorenzi, P., & Hilton, F. (2009). Spreading the Wealth. Society, 46(4), 304-307. doi:10.1007/s12115-009-9222-9. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=40926272&site=ehost-live>
Noblet, K. (2006). Probing the Shifting Ground of Wage and Benefit Gaps. Nieman Reports, 60(1), 16-18. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=20410986&site=ehost-live>
Tyson, L. (2004). How Bush Widened The Wealth Gap. BusinessWeek, (3906), 32. <http://ezproxy.metrostate.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=14796855&site=ehost-live>
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