Much Despair About Wealth Disparity

Are you and your family more or less wealthy than the average families in your community? Does your family have enough money to safely handle unexpected emergencies or disruptions in your lives, or weather long term unemployment? Do you believe that you can significantly increase your material wealth by working hard? The answers to these sorts of questions are very important to living life as an adult, and are inextricably tied to income and wealth inequality.

Everyone knows that within a society, different people have different levels of material wealth and comfort. These differences are defined by the terms "income inequality" and "wealth inequality". These terms are increasingly used in politics, news, and academics, and have inspired controversy, debate -- even public protest, such as Occupy Wall Street and We Are the 99%. Let's explore why...

What do income inequality and wealth inequality mean?

Income inequality: the extent to which different people in a population have unequal income, which is the amount of money received, usually via earnings, in a given period of time. Wealth inequality: the extent to which people in a population have unequal net worth, which is the total value of everything one owns, minus debt.

Why is wealth important?

Wealth is very important because people rely on it to carry them through financial emergencies, fund retirement, provide an education for their children, or to start a new business. Wealth translates into opportunity and quality of life. Income is important because it's the primary source for starting to build wealth.

What's all the controversy about?

Wealth and income disparity have existed as long as societies have existed. After all, people have different occupations with different values and are paid at different levels. People live in different circumstances. There will always be gaps between the "haves" and the "have nots." Over the past few years, however, the levels of wealth and income inequality in the United States have increased dramatically, making these major political and social issues. In 1976 the top one percent of households received 8.9 percent of all U.S. pre-tax income. By 2012, the top one percent received 22.46 percent of all U.S. income and that number continues to grow.

The statistics for wealth inequality are even more staggering: 84% of American wealth is owned by the wealthiest top 10% of people. The average net worth (that means the average total wealth) of upper income families is nearly 70 times that of average lower-income family. Those are some pretty dramatic numbers! In the last 30 years, rich Americans have gotten a lot richer, while poor and middle class Americans have increased their wealth by very little - if at all.

How do wealth and income inequality impact commerce and the economy?

There's a lot of controversy about the effects of wealth and income inequality on commerce and the economy. Some economists and politicians think that rising income and wealth inequality is a natural effect of changes in the U.S. economy. In this view, rising inequality isn't all bad, because the people who benefit most use their wealth by reinvesting in commerce and the economy to create new jobs, technologies, and opportunities which are available to everyone.

Other economists and politicians think that wealth inequality is an unnatural burden on the U.S. economy. They argue that government policies favoring the wealthy over the poor and middle class harm the economy by limiting the ability of most people to contribute to economic growth and gain access to wealth. This has a detrimental impact on commerce. It slows economic growth by reducing the purchasing power of the middle class, and forces many people into credit card and other debt in order to make ends meet. Wealth inequality also inhibits social mobility (the ability better to one's living circumstances), and may contribute to a less-educated workforce impacting America's ability to compete in the global economy. Economist Thomas Picketty, author of "Capital in the Twenty-First Century" believes this situation is a direct threat to cherished American ideals of meritocracy and opportunity.

What can be done to reverse the trend and narrow the gap?

According to experts, closing the gap will take a concerted, coordinated effort of U.S. �government and American corporate policies. For top-down reforms, some experts recommend a redistribution of wealth via tax reforms, and capping the pay of the wealthiest corporate earners. Bottom up proposals include better education about debt avoidance and savings, increased public assistance for lifting the poorest out of poverty, promoting participation in savings and retirement programs, and expanding home ownership since it is a key wealth-building tool. Also proposed is boosting wages so that ordinary families can afford to save.

Learn more about these important issues!

Wealth inequality is sure to be a major political and economic issue in your lifetime. It's important to know about the existence of this trend as well as some of the different opinions so you are able to make up your own mind about this controversy. Here are some go-to resources for learning more:

A good place to start is French economist Thomas Piketty's influential 2014 book Capital in the Twenty-First Century. An excellent, interactive and easy to read publication Growing Apart, A Political History of American Inequality by Colin Gordon. For a short, informative but controversial video with some great gap graphics see "Wealth Inequality in America" http://inequality.org/wealth-inequality-america/ Economists Emmanuel Saez and Gabriel Zucman published an excellent summary of the extent of the problem, including proposed solutions in Exploding Wealth Inequality in the United States. For voices in opposition, read "Dispelling Myths About Income Inequality", by Jeffrey Dorfman of Forbes, and Chris Matthew's "The Myth of the 1% and the 99%" also of Forbes.

Issues and effects of wealth and income inequality are sure to have major political and economic repercussions in your lifetime. To be financially and politically literate it's important to know about the existence of U.S. wealth and income trends, as well as some of the different opinions, so you can decide for yourself about this controversy. The more you know about the causes and effects of wealth disparity, the better you will be able to plan your education, career, and wealth-building to avoid a bleak financial future. The 21st Century Student's Guide to Commerce & Innovation teaches grades 8-12 about global commerce, business, and innovation.

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