Wealth Divide : Growing Gap in the United States

Americans are often heard to say that they are lucky to live in the most wealthy nation in the world. Our duly elected politicians are especially fond of pointing out this questionable fact as they take credit for somehow generating the wealth created by the hard work of millions of average Americans. The hard evidence is that politicians don’t create wealth, they consume and destroy it.

Since real estate and stock values account for the much of the wealth in America the recent declines in those values may mean that the statement “America is the wealthiest nation on earth” is no longer true. It is hard to reconcile the fact that America is the largest debtor nation on the face of the earth with the premise that it somehow continues to also be the wealthiest. In the past few years economic conditions have badly deteriorated in the USA so many facts that were true only five or ten years ago should now be questioned.

One item that is beyond being open to question, however, is the sad fact that there is a large and growing wealth divide in the United States. That is, the rich are getting richer and that the poor, including former middle class families that have slipped into the poor classification, are getting poorer. The USA now ranks dead last among developed industrialized nations in income inequality between the top and bottom layers of working families.

You may wonder how do economists measure levels of equality and inequality?

Edward Wolff is a professor of economics at New York University. He is the author of Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It, as well as many other books and articles on economic and tax policy. He is managing editor of the Review of Income and Wealth. He attempts to answer this question.

“The most common measure used, and the most understandable is: what share of total wealth is owned by the richest households, typically the top 1 percent. In the United States, in the last survey year, 1998, the richest 1 percent of households owned 38 percent of all wealth.

This is the most easily understood measure.

There is also another measure called the Gini coefficient. It measures the concentration of wealth at different percentile levels, and does an overall computation. It is an index that goes from zero to one, one being the most unequal. Wealth inequality in the United States has a Gini coefficient of .82, which is pretty close to the maximum level of inequality you can have.”

With the economic decline since 2006 and 2007, and its drastic effect on middle class and poorer families one can reasonably assume that the wealth gap has only grown worse since Edward Wolff made his observations.

Since the 1998 survey referenced by Mr. Wolff was published the top one percent of the population control even more wealth. The following update is taken from Who Rules America?.

“In the United States, wealth is highly concentrated in a relatively few hands. As of 2004, the top 1% of households (the upper class) owned 34.3% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.3%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households had an even greater share: 42.2%.”

The wealth gap is one of the great dangers facing the USA today. When your nation is already near the maximum level of inequality possible and economic conditions worsen those increasing numbers of citizens who are confronted with increasingly unpleasant living conditions are not going to be happy campers.

If the economic long crisis deepens as wealth gap trends continue to widen the demand among the elite for highly secure gated communities, security forces, and armoured vehicles will surely be robust.