Shocking and Ominous Statistics on Economic Inequality

© Josh Sager – July 2015

This week, Alternet released an amazing compilation of 35 inequality statistics that paint a truly dire picture about the future for a majority of the world population. It illustrates just how extreme income and wealth inequality have become in recent decades and points to several of the mechanisms that could help explain this inequality.

wealthgapmap

Here are a few key facts about income and wealth inequality paraphrased from the Alternet article:

  • World Wealth: The wealthiest 1% of the human race controls 46% of the total wealth, while the bottom 50% controls only 1% of the wealth—within the top 1%, the 85 richest individuals (0.000001% of the population) have more wealth than the poorest 3,500,000,000 (47.8% of the population)
  • Stagnating Wages: In the last 25 years, American workers have been more productive than ever, the economy has grown by 83% and corporate profits have doubled—conversely, the inflation-adjusted value of average wages have actually dropped during this time period, indicating that the money is being syphoned off at the top.
  • The US Income Disparity: The top 1% of American earners capture 20% of wages/compensation—within this top income demographic, the top .01% of earners capture 6% of total wages.
  • The US Wealth Disparity: The bottom 50% of the US population owns 2.5% of the country’s wealth while the top 1% owns 35% of wealth.
  • Recovery for the Rich Only: After the crash of 2008, the top 1% of Americans lost 16% of their wealth, while the bottom 99% lost 47% of their wealth—since the crash, the rich have taken more than 100% of total recovery gains, as their wealth has grown by over 28% while the average family has lost over 4% of its wealth.
  • The Increasing Racial Wealth Gap: The wage gap is particularly extreme when it is looked at in terms of race. An average white family has a net wealth of $113,000, while the average Hispanic family has an average wealth of only $6,300 and an black family has a net wealth of a mere $5,600.

Put simply, this type of inequality is unsustainable in the long-term and a wide-range of consequences will be unavoidable if it keeps increasing.

First and foremost, excessive inequality destabilizes the economy by reducing the total demand for goods (and thus jobs), forcing ever larger-numbers of people onto public welfare programs while reducing the tax base, and eroding the economic stability of a large majority of households. Excessive inequality is strongly correlated with economic crashes and there is no reason to believe that our economy has developed some new method of stabilizing itself that will allow it to survive the current levels of inequality.

Today, our society is the most unequal it has been since the year before the Great Depression, making our current level of inequality the economic equivalent of looking over the edge of a cliff and trying to decide whether to jump or walk away from the edge.

If you look at the above graph (from a study by Thomas Pikitty), you will notice how spikes in our nation’s income inequality occur shortly before the Great Depression in 1929, Black Monday in 1987, the 2000 recession and the Great Recession of 2008, illustrating this pattern. With inequality still on the rise (this graph only goes up to 2012), the danger of a crash will only get worse until something is done to fix the situation or our economy implodes like it did in 1929 or 2008.

In addition to harming the economy as a whole, inequality harms individuals and families. Over the last several decades, the rich have established a system that allows them to reap most of the rewards from private production while opting out of paying for the social safety net (tax cuts)—conversely, the poor and middle classes are forced to compete for a shrinking portion of the pie while taking out even more debt. This means that the rich are able to build their mansions in gated communities, while everybody else works until their late 60s (if not later) at jobs that never translate productivity to fair compensation.

In particular, the next generation bears the brunt of this inequality. Students today are taking out thousands of dollars in debt to go to school, only to graduate and face crushing competition for jobs with low wages, benefits and security—gone are the days when recent graduates can easily get well-paying jobs and quickly pay back the costs of their education.

Many of these students have become the indentured serfs of the modern era. They go into debt so that they can work in a chose field (like how serfs would rent equipment) and they will be scraping to pay back this debt for the bulk of their lives. This constant need to service their debt will force them to live in fear of losing their job (giving their employers greater leverage over them for wages) while putting off buying a house or raising a family in comfort.

Solutions

While the problems of income and wealth inequality are massive and political difficult to address, they are actually not that hard to solve from a purely policy perspective. We know exactly what must be done to address inequality, but are largely unable to do so because the wealthy have been allowed to literally buy power over our political system.

First, we need to implement massive tax reform: Increase the marginal tax rates on the rich, force corporations to stop offshoring and start paying their share, equalize taxation on investment and labor income (capital gains and income taxes), and remove the bulk of the high-income loopholes.

Second, we need to enforce stronger worker protections: Promote unionization and force corporations to pay a living wage rather than offloading the costs of employing Americans onto social safety net programs (ex. Walmart relying on food stamps for employees to eat)

Third, we need to repurpose money that our government is currently wasting to more efficient purposes: Significantly cut our military and end corporate welfare (ex. oil/gas/corn subsidies) in order to pass for massive infrastructure investments, establish universal and free public higher education, start a single-payer healthcare system, and properly fund programs that primarily benefit the middle class.

7 thoughts on “Shocking and Ominous Statistics on Economic Inequality

  1. In other words…Socialism! ..and what the taxation on the rich should be: 40~50~70%..? And how you define “rich”? Why you liberals keep insisting with stuff that has failed everywhere ? What about a real libertarian approach? We need to fight corporatism not capitalism, which is the only system that ha created wealth, ever!!

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    • Yes, a mixture of socialism and capitalism are necessary for a functional economic system. Libertarianism is a great way to delude yourself into thinking that the government isn’t necessary, but it cannot actually build a society nor sustain one for long (name me one libertarian state that has actually succeeded). Personally, I would support a 70% top marginal tax rate, slightly below what it was during the era of American expansion–this would only affect those who make $100 million or more, and would include both investment and labor income.

      Capitalism can only create wealth after socialism has created the mean by which commerce is facilitated (ex. education, transportation infrastructure, communication infrastructure, regulations, etc.). Read some Adam Smith.

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  2. Fascinating isn’t it, how those who scream about Socialism do not understand the framework of a functioning society, functioning economy or in fact how this nation grew successfully prior to Reagan beginning to dismantle it.

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  3. It would be impossible to implement what you propose unless our political system is changed to not only take money out of that system, but to put power back in the hands of ordinary citizens. Anything short of that means the Corporations continue to buy laws that favor them over everyone else. In order to do that, I would propose a constitutional amendment to replace congress with a Wisdom Council form of government. Of course, congress is not going to vote itself out of power, nor would the Corporations allow it, so it would have to be done by the States with a Constitutional Convention – something that has never happened before.

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    • While I agree wholeheartedly that we need to get money out of politics, the technocratic idea of a wisdom council hasn’t ever been applied in a way that doesn’t result in disaster. I would direct you to Orwell’s Animal Farm for an fun commentary on why this type of government is dangerous–those who are given some power eventually accrue more and are corrupted by it.

      I would much prefer a representative democracy with a more parliamentary system of representation and extremely strong anti-corruption laws.

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      • I agree with you in the sense that the WC concept needs to be designed, vetted, tested and proven effective on the local scale before it could ever hope to be feasible on a State or National level. This is the challenge I have chosen to pursue since I firmly believe that representative government has spent itself and is becoming increasingly ineffective in terms of meeting the needs of the greatest number of citizens, especially in this transitional period in human history. Having said that, it’s hard for me to claim that the WC would be better than what we have now, but at the same time, it can’t be any worse than our present situation and would at least put power directly back in the hands of the citizens where it belongs. Also, I have a problem with creating more laws that can be side-stepped by high paid attorneys and political-motivated judges under a “justice system” where the guy with the most money, gets the most justice.

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