In These Times - November 9, 2021
Wealth inequality is worse than it has been in a century – and it has contributed to a vicious political-economic cycle in which taxes are cut on the top, resulting in even more concentration of wealth there – while everyone else lives under the cruelest form of capitalism in the world.
lon Musk’s wealth has surpassed $200 billion. It would take the median U.S. worker over 4 million years to make that much.
Wealth inequality is eating this country alive. We’re now in America’s second Gilded Age, just like the late 19th century when a handful of robber barons monopolized the economy, kept wages down, and bribed lawmakers.
While today’s robber barons take joy rides into space, the distance between their gargantuan wealth and the financial struggles of working Americans has never been clearer. During the first 19 months of the pandemic, U.S. billionaires added $2.1 trillion dollars to their collective wealth and that number continues to rise.
And the rich have enough political power to cut their taxes to almost nothing — sometimes literally nothing. In fact, Jeff Bezos paid no federal income taxes in 2007 or in 2011. By 2018, the 400 richest Americans paid a lower overall tax rate than almost anyone else.
But we can not solve this problem unless we know how it was created in the first place.
Let’s start with the basics.
I. The Basics
Income is what you earn each week or month or year. Wealth refers to the sum total of your assets — your car, your stocks and bonds, your home, art — anything else you own that’s valuable.Valuable not only because there’s a market for it — a price other people are willing to pay to buy it — but because wealth itself grows.
As the population expands and the nation becomes more productive, the overall economy continues to expand. This expansion pushes up the values of stocks, bonds, rental property, homes, and most other assets. Of course recessions and occasional depressions can reduce the value of such assets. But over the long haul, the value of almost all wealth increases.
Lesson: Wealth compounds over time.
Next: personal wealth comes from two sources.The first source is the income you earn but don’t spend. That’s your savings. When you invest those savings in stocks, bonds, or real property or other assets, you create your personal wealth — which, as we’ve seen, grows over time.
The second source of personal wealth is whatever is handed down to you from your parents, grandparents, and maybe even generations before them — in other words, what you inherit.
Lesson: Personal wealth comes from your savings and/or your inheritance.
II. Why the wealth gap is exploding
The wealth gap between the richest Americans and everyone else is staggering.
In the 1970s, the wealthiest 1 percent owned about 20 percent of the nation’s total household wealth. Now, they own over 35 percent.
Much of their gains over the last 40 years have come from a dramatic increase in the value of shares of stock.
Who has benefited from this surge? The richest 1 percent, who now own half of the entire stock market. But the typical worker’s wages have barely grown.