The Distribution of Wealth - Research Paper Example

Research Paper The Distribution of Wealth Wealth is the total of all the assets an individual owns including houses, savedpension, and money in bank accounts, minus debts. It can be self-accumulated from one’s income and personal savings, or it can be inherited. National records, however, show the income of individuals, and not the real time wealth they own. For a long time, wealth distribution data was obtained from property taxes paid and the lists of wealthy people from sources like Forbes Magazine. Recently, economists Gabriel Zucman and Emmanuel Saez have devoted time and effort to compile and analyze income and wealth data, and their work is the source of most data on wealth inequality. Income inequality is the difference between the money individuals earn from work annually, and the amounts they put in their investments, and it has been rising steadily over the past four decades (Norton and Ariely 9-12). Wealth inequality, is a measure of the difference in money and assets individuals accumulate. Recent studies show that the gap in the amount of wealth different classes of Americans has amassed, is greater than at any other period since the Great Depression during the 1930s. Some individuals believe income is more important than wealth because an increase in income translates into greater wealth and also because wealth would only be significant to living standards if it can increase income. Others argue otherwise and state that wealth is more important because it reflects the economic well-being of individuals, their standards of living and ability to consume. Since economist pot a lot of attention on the rising levels of wealth inequality, there have been groups that take different sides of the matter. Politicians are using this as a basis for their campaigns, promising to work at making a difference that will reduce the gap in income inequality. Individuals categorized on the “wealthy” side, offer little assistance to make any difference on the issue because they believe hard work got them where they are. People on the “poor” side are advocating that measures be put to breach the wealth gap. They are of the opinion that their lives will improve when the gap in wealth accumulation between the rich and the poor reduces since the poor will have a better opportunity to increase their income (Norton and Ariely 9-12). The exclusive 1 percent at the top does not have much to say, but it leaves little doubt that they prefer more inequality since it puts them in a better position to become richer. Wolff (n.p) believes that, even with these opinions, a large number of Americans do not know how bad wealth inequality is and the implications it has on everyday life and in their ability to make more wealth in future. Results obtained by Zucman and Saez show that the total wealth owned by the upper 0.1 percent of families in America was 7 percent during the 1970s, and this wealth increased to 22 percent in 2012 (Saez and Zucman n.p). Much of this increase is due to an increase in the income that senior executives in companies and successful entrepreneurs earn. To make data on wealth accumulation more reliable, Zucman and Saez came up with a way of capitalizing records on income so they can estimate the distribution of wealth. They found that the curve of wealth inequality traced from the 1930s during the Great Depression to the 1970s had a U-shape since, during this period, there was a significant democratization of wealth. The trend reversed and started rising when the total wealth acquired by the upper 0.1 percent increased. This 0.1 percent consists of 160,000 families in the country, with their net assets adding up to a total of above $20 million towards the end of 2012. Their wealth is almost as much as what is owned by the lowliest 145 million households, showing that wealth distribution is almost ten times more uneven than income. Data on income inequality shows that the top 1 percent earn nearly 19 percent of the total national income while the bottom 60 percent earns 28.7 percent. The Survey of Consumer Finances done every three years in the last three decades by the Federal Reserve is the best official source of information on wealth distribution. The latest survey results carried out in 2013 shows that the wealth share of the nation’s top 3 percent families increased from 44.8 percent in 1989 to 51.8 percent in 2007, then to 54.4 percent by 2013 (Wolff n.p). The survey concludes that this 3 percent holds wealth that is above double of what 90 percent, which is the nation’s poorest families, hold. From the records of Forbes Magazine, there were only 13 billionaires in America in 1982. In 2014, the wealthy needed a fortune of at least $1.55 billion to have a chance of being included in the nation’s 400 richest individuals by Forbes. The main reason middle class families own less and less compared to their wealthy counterparts is their increasing debt. The debt could be in terms of high mortgages, student loans, and consumer credit, despite the fact that most of them own homes and have a pension (Lowrey n.p). Since the late 2000s when there was a financial and housing crisis, middle class, and poor families have had a hard time recovering wealth while the wealthy in the upper 1 percent have been increasing theirs. This difference is partly because real wages among the bottom 90 percent have seen little increase in the past three decades while real wages of the top 1 percent are growing at a fast rate. A different survey done by the Federal Reserve shows there has been an increase in the gap between ethnic and racial wealth divides in the United States. Towards the end of the 20th Century, a typical white family had a net value six times larger than that of a typical black family. This wealth gap has doubled over the years, and so has the gap between white and Hispanic families. An increase in income inequality is what has fueled the increase in wealth inequality since families are having a hard time saving and investing, and income taxes are higher than property taxes. The upper 1 percent families are currently saving nearly 35 percent of their total income while the poor 90 percent families are saving close to zero percent. Economists predict that if income inequality remains high and the saving rate of the poor maintains low levels, wealth inequality will continue increasing. Piketty (283-286) warns that in the 21st Century, inherited wealth will be the determining line between those who have and those who do not. The rich will be amassing more wealth and more wealth, even as ordinary families own very few or no assets, which will be made insignificant by increasing debt. Wealth inequality is believed to have a negative effect on businesses if it increases because a large portion of the population will get poorer, and, therefore, spend less and save less. This effect will cause the businesses that do not cater to the “rich” market very little growth. Another effect of wealth inequality is that it will offer children of the bottom 90 percent very little opportunity of changing the living standards in which they were born. It will then cause an inequality in society since these children will have lower quality education and healthcare, and there will be social divides on the basis of an individual’s wealth (Reich n.p). Criminal levels will increase among the poor in society, and many of them will suffer from depression and alcoholism. From an economist’s view, there is a level of wealth inequality that is desirable for the nation. This level will give the bottom section of the population enough motivation to make life better while giving a substantial level of hope that this is possible. It will also increase competition in the market and at the same time, allow individuals at the top to improve the whole society by investing resources in advanced systems. In the current state of affairs, however, one out of every five Americans on the poor side think the country’s economy is good while higher earning individuals are saying positive things about the economy. The wealthy families are therefore gaining back what they lost during the Great Recession while low income families see no difference in their level of wealth. The stock market in America ended the year 2013 on a high note, which gave stockholders the greatest annual gain in almost 20 years (Reich n.p). A large number of Americans did not celebrate this good news because they have very little in savings to be able to invest it in stock markets. Data shows that the top 1 percent of Americans own 35 percent of American-owned shares, and the top 10 percent own over 80 percent. Means of outsourcing are becoming better, and with technology replacing manpower, workers are losing grounds for a good bargaining power to ensure they have adequate pay. Employers are therefore at liberty to set their terms, which are without doubt going to favor them and take advantage of workers. It is one of the reasons the income of ordinary individuals is reducing while that of the rich is increasing. Economists have suggested some ways that might help to reduce the levels of unequal levels of wealth distribution. The government would have to introduce policies that encourage saving for the middle class and poor families, reduce the concentration of wealth among the rich and prevent the transformation of self-amassed wealth into inherited riches (Saez and Zucman n.p). The reduction of inequality can be done when the government increases the amount of taxes paid on the property, and introduce tax scales that will ensure high income individuals pay more tax. There could also be tax incentives that encourage firms to hire more people, therefore increasing the income levels of ordinary Americans. The bottom 90 percent can be encouraged to save by ensuring their wages are increased so they can afford to save. Their children should have a better education because educated workers are more resourceful and have a better bargaining power with more opportunities to climb the employment ladder. The United States Treasure can collect more data on wealth distribution so that inequalities can be dealt with appropriately. It is important to maintain the hope that individuals have an equal chance to make their lives better so that the poor do not feel disadvantaged and riot for equality among all people despite their wealth. Unequal distribution of wealth only has a positive impact on the select few in society. The rest of the population are left feeling disadvantaged and discriminated because they do not have the same opportunities to make a change. Even though a significant portion of society would favor equal distribution of wealth in the country, this cannot happen when it is left to chance. The government, being the regulatory body, should ensure wealth inequality levels do not threaten the wealth accumulating power of any group citizens. Works Cited Lowrey, Annie. "The Wealth Gap in America is Growing, Too." The New York Times 2 April 2014: Business Day. Norton, Mike I and D Ariely. "Building a Better America - One Wealth Quantile at a Time." Perspectives on Psychological Science, 6 (2011): 9-12. Piketty, Thomas. Capital in the 21st Century; translated by Arthur Goldhammer. Havard University Press, 2014: 283-286. Reich, Robert. "2013 Was a Banner Year for the Upward Redistribution of Americas Wealth." 6 January 2014. Moyers & Company. . Saez, Emmanuel and Gabriel Zucman. "Exploding Wealth Inequality in the United States." 20 October 2014. Washington Center for Equitable Growth. . Wolff, Edward N. Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze-an Update to 2007. Working Paper No. 589. New York: Levy Economics Institute of Bard College, 2010. Read More