Category Archives: Inequality

The Problem of Wealth Inequality

My first post on the Productivity-Wages Dilemma seemed to create a bit of a stir, and I am fairly satisfied with the start to the blog. With this post, I’d like to talk about another problem related to economics.

First, take a look at this chart.

Source: Edward N. Wolff, Working Paper No. 589: “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007”, Levy Economics Institute of Bard College, pp. 44, March 2010.
Web source: http://www.levyinstitute.org/pubs/wp_589.pdf

I doubt this will come as a shock to anyone, but there is massive inequality in the distribution of wealth in the United States. Just looking at this handy chart, which is a pretty non-controversial representation of wealth distribution, you can see a few things.

1) The top 1% control more than a third of the wealth in this country (hence the Occupy Movement’s “99%” buzzword).

2) All together, the top 20% control roughly 85% of the country’s wealth.

3) The bottom 40% control a measly 0.2 percent of the country’s wealth.

Is this a problem?

I think it is important to know why wealth inequality is a problem if we are going to spend a huge amount of time and effort arguing about it. If the only consequences of wealth inequality are simply that a few people have really really big houses, and most everyone else has a reasonably sized house, then wealth inequality simply becomes an issue of luxury. Beyond being jealous of people that have more, this would not seem to be a huge problem.

However, Richard Wilkinson, a social epidemiologist (someone who studies social determinants of health and disease), points out that wealth inequality is a direct cause of some big society level problems that are worth worrying about. His TED talk on the matter is below (don’t worry, it’s only 17 minutes long).

If you trust Wilkinson’s data, you can draw two basic conclusions

1) Having an overall wealthy country does very little to impact health and well-being in a country.

2) More income inequality in a country has all kinds of impacts on health and wellbeing, such as – Worse Life Expectancy, More Murder, More Obesity, More Mental Illness, and Less Trust

I hope it is easy to agree that income inequality is a problematic phenomenon in the US, if for no other reason than it breaks down trust and erodes the general well-being of individuals living in our society.

Wilkinson points out that there are numerous ways to diminish wealth inequality. Some do it through welfare programs, and some through economic policies that reinforce more even distribution of income before taxes.

How should the US deal with income inequality?

Should we leave it alone? Should we use taxes to redistribute wealth? Should we do something to reduce income inequality before taxes?

These are important issues that sociologists, economists, and the general public as a whole are wrestling with.

So what do you think?

What should the US do (if anything) to address the wealth inequality issue?

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Filed under Economics, Inequality, Work