Wealth Inequality in America exists - Let’s talk about it.

America has long been known as the land of opportunity. A rich nation where anyone who works hard has the chance to make it to the top. However in recent times this reputation has been replaced by stories of foreclosure, child poverty and un-liveable wages. Against this grim backdrop a tiny group of elite have amassed incredible fortunes. How has this wealth inequality developed?

Social Mobility.

Over the last thirty years America has become a less socially mobile country. Those born at the bottom of society now have very little chance of rising to the top.

What else has changed?

America’s structure used to be that of a vast middle class, some poor and some rich. Now there is little difference between the poor and the middle class. Essentially the middle class are disappearing. Within the rich category there has also developed a subset of people who have become known as the 1%.

Over the past thirty years what has happened is that the share of America’s wealth going to a small group of people at the very top has increased astronomically.

Income inequality has not been so pronounced since the Great Depression. So what are some of the causes of this shift in the distribution of wealth?

Moral hazard.

When government sponsored the mortgage lending agencies Fannie Mae and Freddie Mac they created “moral hazard”. These agencies could take on risky loans because if the clients defaulted the government guaranteed the loans. Not only does this mean that less qualified buyers are given loans but also the cost increases. The same thing occurred with college debts, once the government guarantee the money there is no incentive for Universities to control costs. These entities no longer care if the student or the home buyer can pay back the money as someone else will pick up the bill.

The greater cost is that of families and young people sinking under enormous sums of debt. The cost of the missed opportunities and the damage in the lives of so many people is incalculable but it is reflected in the small share of wealth that goes to America’s shrinking middle class.

Rather than a student leaving college highly qualified to have their pick of good jobs and with small debts they face working in the service industry on part time hours. In this situation they must focus on paying off debt, rather than perhaps taking on an internship or starting a business. They may be unable to afford rent and must live with their families, creating additional financial strain on the boomer generation.

The low paid college graduate or the family in foreclosure cannot afford to take any risks whatsoever. They are already in such a precarious position that any small mistake could see them pushed into bankruptcy. It is clear that this is a huge cause of wealth inequality in America, the risks taken on by those at the top are being passed down to those beneath them. The explosive income divide is the inevitable result.

The government wish to say “anyone can go to college and anyone can get a mortgage”. However the process of guaranteeing debt be it for mortgages or college loans is now almost universally understood to be a major cause of the inequality of wealth in America.

Wages.

Another contributing factor to wealth inequality and income inequality in America is some of the huge wages and bonuses paid out to those in the hierarchy of powerful companies.

Does a hard working, talented and knowledgeable CEO deserve to take home a bigger wage than his secretary? Most people would not have any problem with that being the case. However when the CEO takes home three hundred times the pay of his secretary it begs the question, is the CEO really making that much of a contribution? Most people would struggle to see how that was possible.

The game is rigged.

Corporations have embraced the practice of lobbying the government and donating to individuals within congress and in office. The changes they were essentially able to buy by this practice have allowed them to make more money and in turn to then repeat the process on a larger scale. A government which is owned and operated by corporate America is clearly skewed to the interests of those corporations and eventually to the detriment of everyone else.

The power has been taken away from the interests of most working people. Decisions made in favor of the elite in the areas of taxes, labor, trade, education and financial regulation have had a knock on effect for the rest of society. For example, the lack of investment in roads, infrastructure and schools.

Even public outrage has so far not been able to conquer this vested interest. When President Obama set his sights on increasing tax for carried interest, Main Street was behind him. However the political machine did not allow the task to be completed, many speculate that hefty donations from Wall Street tycoons was the reason behind it.

How much of your wage you manage to hold on to is a vital component of wealth creation. If the poor and middle classes must pay taxes on their small incomes and the super rich don’t pay taxes on their large incomes then the huge wealth inequality we see today can’t come as a surprise.

Environment.

The environment is a resource that belongs to everybody. Clean air, clean water and healthy, uncontaminated food are a basic right that all people enjoy and use to further themselves in life. There is a wealth in the environment that all Americans take an equal share in. Or do they?

Classical economic models see the environment in this way; something of value which must be preserved and shared. The currently prevailing Neoclassical economic model sees the environment as a resource to be liquidated into financial wealth. This means that large companies save costs by polluting the air and water around them.

Their huge profits allow them to sequester themselves away from the damage they have caused. They have the mobility to live anywhere, to afford the best food and to drink clean water. The resident of a polluted area cannot move without severe disruption to their home, work or other aspects of their life. They may lose these things anyway if their health deteriorates due to exposure to pollutants.

Once again those at the top are keeping the profits and passing the consequences downwards.

Wealth and inequality in America is becoming a hotly debated topic. When individuals and corporations control government and pass the consequences of the risks they take to others it creates a society where many people are slipping into poverty. It order to restore balance to American society and bring back the social mobility that made the American dream universally famous changes must be made.