Contents
- Wealth Inequality Is Growing
- Wealth Inequality Differs By Race
- #1 In The Developed World
- What Does Rising Inequality Mean For The United States?
- Conclusion
Up until the COVID-19 crash of 2020, the U.S. economy had been doing very well in the ten-year aftermath of the Global Financial Crisis.
It enjoyed a record run of 110 months straight of employment growth, a first for the post-world War II era.
Just before COVID-19 struck the U.S. enjoyed an unemployment rate of 3.5% – a level last seen almost 60 years ago.
While things have been going well on the unemployment front, it hasn’t necessarily translated to household wealth and income.
Critically, wealth inequality continues to be a growing issue in the US.
Wealth Inequality Is Growing
According to the St. Louis Fed, since 1989 the share of total pre-tax income has changed considerably, with the top 10% of income earners now accounting for 50% of all income, up from 42%.
The middle 50%-90% of income earners were hardest hit, with their share dropping from 42% to 37%, while the bottom 50% of income earners dropped from 15% to 13%.
Income inequality exacerbates wealth inequality as the higher a household’s income, the more excess money they have to invest in assets that produce wealth.
Over time, this has been reflected in the share of wealth increasing for the top 10% at the expense of the bottom 90%.
30 years ago, the top 10% of Americans owned 67% of the wealth, with the next 40% of Americans owning 30% of the wealth and the bottom 50% owning 3% of the wealth.
Fast forward to today, and the top 10% of Americans now own a staggering 77% of the wealth, with the next 40% of Americans owning 22% of the wealth and the bottom 50% owning just 1% of the wealth.
Worse still, about 1 in 10 families in the bottom 50% actually had a negative net wealth.
Unfortunately, these trends are likely to continue, as demonstrated by the richest families being the only ones whose wealth increased in the years after the GFC.
The top 20% of households saw their net worth increase by 13%, while the lower tiers saw their wealth decrease by at least 20%.
It’s very clear that the rising economic tide has not, in fact, lifted all boats. Increasingly, the bottom 90% are being left behind with the bottom 50% at risk of having no wealth at all.
Wealth Inequality Differs By Race
When splitting the data by racial and ethnic groups, it shows that wealth gaps have remained essentially unchanged.
In 2016, the median white family had just over 7 times the wealth of the median Hispanic family and over 10 times the wealth of the median black family.
This gap has been consistent for the past 30 years, signifying that even though income inequality isn’t growing, the gap hasn’t narrowed either.
When breaking down total wealth, Hispanic/black families own only about 3% each of total wealth.
This is staggering considering that 25% of U.S. families are Hispanic/black.
#1 In The Developed World
According to the Organization for Economic Cooperation and Development (OECD), income inequality in the U.S. is the highest of all G7 nations.
The OECD uses the commonly used Gini coefficient to measure income inequality, which ranges from 0 (perfect equality) to 1 (complete inequality).
The U.S. has a Gini coefficient of 0.434, much higher than the other G7 nations such as France, Canada, Japan, and the UK who all ranged between 0.326 to 0.392.
What Does Rising Inequality Mean For The United States?
Rising inequality is leading to increasing social unrest and calls for politicians and corporations to be held to account.
Across income groups, the majority are calling on the government to raise taxes on the wealthiest of Americans.
It’s not only the lower-income groups asking for this change – amongst many wealthy Americans, there are calls for greater taxes and even pledges to donate all their wealth when they die.
Change is not restricted to taxes only, with more than two-thirds of Americans who agree with economic inequality believe that major changes to the economic system are required.
Worryingly, 14% believe the economic system needs to be rebuilt entirely, opting for Communism and Socialism to replace the current Capitalist system.
These factors are fueling the fire of populism, increasingly reflected in the staunch refusal for Democrats and Republicans to work together and the election of populist leaders such as Donald Trump.
Citizens are calling on universal health care for all Americans, further burdening an already heavily indebted and strained U.S. economy.
For corporations, it means facing increased union actions, demands for better pay, and scrutiny of management pay packets and bonuses.
Conclusion
Wealth inequality continues to be a growing and ongoing issue for the United States.
The past 30 years have seen the share of wealth drop for the bottom 90%, exacerbated by the recession following the GFC.
The bottom 50% of households share in only 1% of total wealth, leading to growing unrest and populism amongst the citizens of America.
The coalescence of a number of factors – higher taxes, populist leaders, divided government, calls for higher salaries, union action, and increasing demands on an already heavily indebted economy are presenting significant headwinds and challenges for the economy and the government.
The outcome of not addressing the factors contributing to a growing wealth gap could spell disaster for the United States.
Without addressing these factors in a fair and equitable manner, the United States risks falling into a quagmire of division and in-fighting at a time when economic growth is stagnating and rival superpowers are looking to take center stage.
There’s an old saying, “history doesn’t repeat, but it often rhymes.”
Given France experienced similar wealth inequality in the lead up to the French Revolution, it’s worth keeping that quote in mind.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
