Wealth Inequality Part 1

When it comes to inequality there are a lot of phrases that get thrown around: wealth inequality, Income inequality, gini coefficients, etc. Therefore I am going to define a few of these terms to help to clarify the discussion. Wealth inequality is the difference in the distribution of assets (wealth) within the population of a country/society. The measurement for this difference in distribution is called a gini coefficient/index and goes from 1 to 100. Income inequality is a term referring to the differences in the distribution of income income within a society/country and is similar to wealth inequality. These terms are often used interchangeably, but it is important to note that wealth can be obtained in ways other than high income.

The fact that wealth can be obtained through multiple means, leads to one of the reasons there is growing focus on it as a critical issue in the U.S. (and around the world) compared to even the issue of income inequality. A lot of this focus is on the rising number of billionaires and how a lot of their wealth comes from inheritance. As a video on the subject by the media company vox puts it, the problem of wealth inequality is that the inheritance of wealth does not create any new wealth or jobs unlike with the similar problem of income inequality. The fact that there are people in the U.S. worth over a billion dollars despite the fact that they did nothing to earn that money (and maybe neither did their parents), is seen by many as a serious problem.

This problem has brought together an interesting coalition of people, such as economists, politicians, and even billionaires. The issue of wealth inequality in the U.S. also comes at a time where we see a decrease in the percentage of Americans in the middle class (a bulwark of the economy) and an increasing issue of a racial wealth gap. As it stands, the important statistic for wealth inequality is that the top 1% of Americans hold about 40% of the nations wealth. The great problem with this wealth inequality is that it will continue to grow, as turning $50 into $500 can be a lot harder for many Americans than turning $50 million into $500 million. This is because, the very rich do not need to spend as much of their wealth on expenses relative to a person in a lower socioeconomic bracket. The other large issue, is that even if a billionaire is worth 10,000 times as much as a blue-collar worker, said billionaire does need 10,000 as many basic goods (like clothes, food, etc.) as the blue-collar worker. This means that wealth inequality leads to lower consumption, which is problem for any country’s economy. Wealth inequality is only growing more dramatic in scale as time goes on, but at the same time lots of people are trying to come up with interesting and novel ways to address it.



About Brennan

Brennan is a fourth year economics major at the University of Puget Sound.

2 Replies to “Wealth Inequality Part 1”

  1. Interesting. In historical perspective, massive wealth inequality was the norm prior to the industrial revolution and the rise of liberal democracies in the 18th and 19th centuries. It raises the question of which is the true steady state — wealth equality or inequality.

    This summer NPR: Planet Money discussed the possibility of a wealth tax, as proposed by presidential candidate Elizabeth Warren and others. https://www.npr.org/2019/07/24/744962126/episode-929-could-a-wealth-tax-work

  2. Great start. I think one of the interesting aspects of wealth inequality is the meritless manner in which many people receive wealth, through inheritance. As was once said about George W. Bush, “he was born on second base and thinks he hit a double.”

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