Wealth inequality in the United States

Wealth inequality in the United States refers to the unequal distribution of financial assets among residents of the United States. Wealth includes the values of homes, automobiles, businesses, savings, and investments. ^[1] Those who acquire a great deal of financial wealth do so primarily through the appreciation of fiscal portfolios. For this reason, financial wealth involves only stocks and mutual funds, and other investments and is subject to much greater inequality than net worth alone. Various sociological statistics suggest the severity of wealth inequality "with the top 10% possessing 80% of all financial assets [and] the bottom 90% holding only 20% of all financial wealth."^[2]

Net worth is defined as the difference between total assets (includes both tangible assets such as homes and vehicles and intangible such as stocks and checking accounts) and total liabilities (debt, loans, etc.) ^[3]

While the standard of living of the working and middle classes is dependent upon income and wages, the rich tend to rely on wealth, distinguishing them from the vast majority of Americans.^[4] Melvin L. Oliver and Thomas M. Shapiro propose that wealth signifies the opportunity to “make it” in life; wealth is not used for daily expenditures or factored into a budget but when coupled with income it comprises the family’s total opportunity “to secure a desired stature and standard of living, or pass their class status along to one’s children”. ^[5] Moreover, “wealth provides for both short- and long-term financial security, bestows social prestige, and contributes to political power, and can be used to produce more wealth."^[6] Hence, wealth possesses a psychological element that awards people the feeling of agency, or the ability to act. The accumulation of wealth grants more options and eliminates restrictions about how one can live life.

Wealth and Income

There is an important distinction between income and wealth. Income refers to a flow of money over time in the form of a rate (per hour, per week, or per year); wealth is a collection of assets owned. In essence, income is specifically what people receive through work, retirement, or social welfare whereas wealth is what people own.^[7] While the two are seemingly related, income alone is insufficient for two reasons:

It does not accurately reflect an individual’s economic position
Income does not portray the severity of financial inequality in the United States.

The Bureau of the Census formally defines income as “received on a regular basis (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, social security, union dues, medicare deductions, etc.^[8] By this official measure, the wealthiest families have low income but the value of their assets earns enough money to support their lifestyle. Dividends from trusts or gains in the stock market do not fall under the definition of income but are the primary money flows for the wealthy. Retired people also have little income but usually have a higher net worth because of money saved over time.^[9]

Additionally, income does not capture the extent of wealth inequality. Wealth is derived over time from the collection of income earnings and growth of assets. The income of one year cannot encompass the accumulation over a lifetime. Income statistics view too narrow a time span for it to be an adequate indicator of financial inequality. For example, the Gini coefficient for wealth inequality increased from 0.80 in 1983 to 0.84 in 1989. In the same year, 1989, the Gini coefficient for income was only 0.52.^[9] The Gini coefficient is an economic tool on a scale from 0 to 1 that measures the level of inequality. 0 signifies perfect equality and 1 represents perfect inequality. From this data, it is evident that in 1989 there was a discrepancy about the level of economic disparity with the extent of wealth inequality significantly higher than income inequality.

Causes of Wealth Inequality

Two primary causes contribute to the creation and persistence of wealth inequality:

Financial Resources
Money Allocation

Essentially, the wealthy possess greater financial opportunities that allow their money to make more money. Earnings from the stock market or mutual funds are reinvested to produce a larger return. Over time, the sum that is invested becomes progressively more substantial. Those that are not wealthy, however, do not have the resources to enhance their opportunities and improve their economic position. Rather, “after debt payments, poor families are constrained to spend the remaining income on items that will not produce wealth and will depreciate over time."^[10] Scholar David B. Grusky notes that “62 percent of households headed by single parents are without savings or other financial assets”^[11]. Net indebtedness generally prevents the poor from having any opportunity to accumulate wealth and thereby better their conditions.

Notably, for both the wealthy and not-wealthy, the process of accumulation or debt is cyclical. The rich use their money to earn larger returns and the poor have no savings with which to produce returns or eliminate debt. Unlike income, both facets are generational. Wealthy families pass down their assets allowing future generations to develop even more wealth. The poor, on the other hand, “are less able to leave inheritances to their children leaving the latter with little or no wealth on which to build…This is another reason why wealth inequality is so important- its accumulation has direct implications for economic inequality among the children of today’s families."^[10]

Corresponding to financial resources, the wealthy strategically organize their money so that it will produce profit. Affluent people are more likely to allocate their money to financial assets such as stocks, bonds, and other investments which hold the possibility of capital appreciation. Those who are not wealthy are more likely to have their money in savings accounts and home ownership. ^[12] This difference comprises the largest reason for the continuation of wealth inequality in America: the rich are accumulating more assets while the middle and working classes are just getting by. Currently, the richest 1% hold about 38% of all privately held wealth in the United States.^[2] while the bottom 90% held 73% of all debt.^[10]

Racial Disparities

When it comes to identifying issues that create and contribute to ongoing wealth inequality in the United States, it is also important to observe issues that surround the disparity in wealth between different racial groups. Upon observation of wealth inequality in the United States it is obvious that there remains to this day a large wealth gap between whites and African Americans. This gap could be from a variety of things however the most important when evaluating this topic is inheritance. Inheritance refers to the amount of unused material possessions and assets that can be transferred from previous generations to future generations. Inheritance therefore takes on a special meaning when considering the wealth gap between blacks and whites in today’s world because it can directly link the disadvantaged economic position and prospects of today's blacks to the disadvantaged positions of their parents' and grandparents' generations. According to a report done by Robert B. Avery and Michael S. Rendall, one in three white households will receive a substantial inheritance during their lifetime compared to only one in ten black households. ^[13] This lack of inheritance that has been observed among African Americans could be caused by a number of reasons. Racial differences in family background could be a potentially important cause in disparities of inheritance. It has been observed that there are clear differences in the family structure between whites and minorities. Specifically it has been found that there is increased fertility and family size among African Americans compared to whites. ^[14] This could possibly explain the disparity in inheritance because an increase in family size would statistically result in a greater strain on the family’s resources. Since more resources are required to meet the family’s needs in the present there would be fewer resources allocated to each family member in future periods. Furthermore since minorities typically have larger families any left over resources would be divided between a larger group of people and would result in a diminished inheritance. ^[14]

The overall trend of diminishing inheritances between whites and African Americans is important in explaining the increasing wealth gap. Inheritances provide a starting point for families and also allow them to purchase certain assets that greatly improve their financial standing, or transformative assets. Any direct transfer of resources from the parent to the child will provide a base for starting wealth accumulation. Children who receive fewer assets from their parents will have a different starting point in terms of debts as well as assets. The use of inherited wealth could be used for the down payment on a home or to erase debts incurred by college. Those who receive an inheritance are much more likely to own a home and this allows them to accumulate wealth much more quickly. ^[14] Since it has been observed that there is a continual disparity in inheritances between white and African American families and it is important for establishing wealth, this could possibly explain why the wealth inequality between whites and blacks is on the rise.

History

Slaveholding

Slaveholding in the United States, a measure of wealth, was unevenly distributed:^[15]

As of the 1860 census, enumerating slave schedules by County, 393,975 named persons held 3,950,546 unnamed slaves, for an average of about ten slaves per holder. As some large holders held slaves in multiple counties and are thus multiply counted, this slightly overestimates the number of slaveholders.
Excluding slaves, the 1860 U.S. population was 27,167,529, yielding about 1 in 70 free persons (1.5%) being slaveholders.
The distribution of slaveholders was very unequal: holders of 200 or more slaves, constituting less than 1% of all US slaveholders (fewer than 4,000 persons, 1 in 7,000 free persons, or 0.015% of the population) held an estimated 20–30% of all slaves (800,000 to 1,200,000 slaves).

References

^ Hurst, Charles E. Social Inequality: Forms, Causes, and Consequences, page 31. Pearson Education, Inc., 2007
^ ^a ^b Hurst, page 34
^ Keister, Lisa A. and Stephanie Moller: “Wealth Inequality in the United States”, page 64. Annual Review of Sociology, 2000
^ Gilbert, D. (1998). The American Class Structure: In an Age of the Growing Inequality. Belmont, CA: Wadsworth.
^ Grusky, David B. ‘’Social Stratification- in Sociological Perspective’’, page 637. Westview Press, 2001
^ Keister, page 64
^ Grusky, page 637
^ U.S. Census Bureau, Housing and Household Economic Statistics Division (December 20, 2005). ‘’Income Overview’’. Retrieved December 2, 2007, from http://www.census.gov/hhes/www/income/overview.html
^ ^a ^b Keister, page 65
^ ^a ^b ^c Hurst, page 36
^ Grusky, page 640
^ Hurst, page 34-35
^ Avery, Robert B.; Rendall, Michael S. (2002), Lifetime Inheritances of Three Generations of Whites and Blacks, vol. 107, The University of Chicago Press
^ ^a ^b ^c Keister, Lisa A. (2004), Race, Family Structure, and Wealth: The Effect of Childhood Family on Adult Asset Ownership, vol. 47, University of California Press
^ Large Slaveholders of 1860 and African American Surname Matches from 1870, by Tom Blake, 2001–2005

[1] Hurst, Charles E. Social Inequality: Forms, Causes, and Consequences, page 31. Pearson Education, Inc., 2007

[Hurst,_page_34-2] Hurst, page 34

[3] Keister, Lisa A. and Stephanie Moller: “Wealth Inequality in the United States”, page 64. Annual Review of Sociology, 2000

[Gilbert-4] Gilbert, D. (1998). The American Class Structure: In an Age of the Growing Inequality. Belmont, CA: Wadsworth.

[5] Grusky, David B. ‘’Social Stratification- in Sociological Perspective’’, page 637. Westview Press, 2001

[6] Keister, page 64

[7] Grusky, page 637

[8] U.S. Census Bureau, Housing and Household Economic Statistics Division (December 20, 2005). ‘’Income Overview’’. Retrieved December 2, 2007, from http://www.census.gov/hhes/www/income/overview.html

[Keister,_page_65-9] Keister, page 65

[Hurst,_page_36-10] Hurst, page 36

[11] Grusky, page 640

[12] Hurst, page 34-35

[13] Avery, Robert B.; Rendall, Michael S. (2002), Lifetime Inheritances of Three Generations of Whites and Blacks, vol. 107, The University of Chicago Press

[race-14] Keister, Lisa A. (2004), Race, Family Structure, and Wealth: The Effect of Childhood Family on Adult Asset Ownership, vol. 47, University of California Press

[15] Large Slaveholders of 1860 and African American Surname Matches from 1870, by Tom Blake, 2001–2005

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