INCOME INEQUALITY IN THE U.S

Income inequality in the U.S has been on the increase over the years based on numerous factors and indicators. Surprisingly, most U.S citizens do not actually know the extent of the inequality in their society or perhaps they highly underestimate it. Fitz was right in asserting that if the poor really know how rich the rich are, there would be riots in the streets. Even President Obama said that economic inequality is the defining challenge of our time. The question is: does this apparent income inequality existing in the U.S pose a problem? And what are the problems posed?

A Measure of the U.S Income Inequality

Income inequality is measured by the Gini Coefficient which is a measure of the dispersion between zero and one representing perfect equality and inequality, respectively. There has been an increase in the distribution of income in the United States. The Gini index of income dispersion for U.S households reached as high as 0.44 in 2009, and it keeps rising. 

What exactly is the extent of this inequality? According to Fitz, the average American believes that the wealthiest fifth own 59% of the wealth and that the lowest 40% owns 9%. However, in reality, the wealthiest 20% has more than 84% of the wealth and the lowest 40% totals for 0.3% of the wealth. He also cited a recent survey in which median Americans were asked to estimate how much CEOs and workers earn and should earn. They estimated a CEO-to-worker pay ratio of 30:1 that should be ideally 7:1 but unlikely, it is 354:1, respectively. This shows that we do not actually know our level of existing income inequality.

Income inequality has widened since the 1970s following a reduction in economic growth. The Census family income data reveals that the period of shared prosperity ended in the 1970s and from this time onwards income inequality sets in. Income inequality dramatically increased from 1979 to 2007 before the Great Recession and financial crisis with the net income of the top 1% quadrupling. A peak in the average level of after-tax income of the top 1% was achieved in 2007 and has remained lower than that over the years but the percentage increase during 1979-2013 which is five times higher than the middle 60% and four times higher than the bottom fifth. Moreover, out of the $153.2 trillion world personal wealth recorded by Allianz’s new Global Wealth Report 2015 and the U.S alone has $63.5 trillion total private wealth. In fact, the U.S has the 4^th highest income Gini Coefficient of 0.4 after Turkey, Chile, and Mexico.

Problem of Income Inequality in the U.S

Republicans argue that income inequality is necessary in the United States for economic growth, but evidence has shown that America does not actually need inequality to achieve economic growth. As a matter of fact, income inequality has impeded economic growth over the years in America. Many economists and recognized world leaders have cited income inequality as the greatest existing problem of America. Interestingly, most Americans do not even recognize income inequality as a problem because perhaps they do not know the extent of the inequality in the system and how it affects them.

Due to income inequality, the top rich people have enough money to lavish and save. The middle class and low-income earners do not have enough money to live and are burdened by debt and in fact, they cannot build up wealth. Resultantly, a kind of self-perpetuating cycle is created in the system between the rich and the poor. Moreover, the wealthy have wealth stocked up for 10 to 15 generations and even more whereas the poor barely have enough to feed upon. The result is because of the poor working for the rich in order to earn a living. According to Fitz, the U.S is now the most unequal of all Western nations and the level of income inequality in the United States has considerably hampered social mobility.

CNBC reported a survey by Harvard Business School which pointed out that America would have better leverage to compete globally if it fixes its worsening wealth gap than boosting the overall economic growth. According to the report, the growing inequality in the U.S has posed increasing threat to American companies and largely limited their leverage to compete on the world stage. This income inequality can be easily addressed, and higher taxes on income and wealth would be the most effective way to address income inequality.

Work Cited

Fitz, Nicholas. "Economic Inequality: It’s Far Worse than You Think". Scientific American. N.p., 2015. Web. 23 Oct. 2016. < https://www.scientificamerican.com/article/economic-inequality-it-s-far-worse-than-you-think/>