#TBT: A View on Income Inequality in the US
Those who do not live in American cities may not be fully aware of the fact that the inequality gap keeps widening by the day. Of course, we've known for years that the income gap in the US is wide, and that it exists, but it really is worth taking a look at how the widening in income inequality has come about.
A recent article from Business Insider took a look at why the income gap has been broadening since the turn of the Millennium. The answer is quite clear and makes a lot of sense: the biggest wealth generators in recent decades have been real estate and stocks -- wealthy individuals who invested in these have expanded their net worth, while those who are impoverished and not in either market have gotten poorer.
According to Byron Wien of Blackstone Advisory Partners noted that "wealthy people own the expensive real estate where they live, and may have other expensive properties as well. They are also more likely to own common stocks. Both the real estate and the equities have appreciated...the less affluent tend to be renters with limited equity holdings. Many live paycheck to paycheck and their personal wealth has not appreciated significantly."
It may not be an obvious in the political sphere given how politicians in the US and abroad have reacted to the issues impacting the poor. Back in November, an economist at Deutsche Bank noted that the top 0.1% of US households now hold about the same amount of wealth as the bottom 90%.
If that wasn't shocking enough, the Gini coefficient is a measurement of the income distribution within a country that aims to show the gap between the rich and the poor: the higher the coefficient, the greater the inequality. Developed-market economies such as those in Germany, France, and Sweden tend to have a higher GDP per capita and lower Gini coefficients. On the flip side, emerging-market economies in countries like Russia, Brazil, and South Africa tend to have a lower GDP per capita but a higher Gini coefficient. The US on the other hand is a major outlier: its GDP per capita is on par with many rich European nations, but its Gini coefficient is on par with those of Russia and China...i.e. the US is like most emerging markets when it comes to wealth equality.
Additionally, a report from Goldman Sachs showed another shocking inequality measurement: a handful of rich individuals can skew the income mean much higher while the median doesn't move. In an ideal world, the two lines should be the same, but a widening of the two lines demonstrates an even greater level of inequality. In any economy, the gain of a handful at the expense of many is just not right -- and we should all be seeking ways to bring up our fellow citizens rather than bogging them down further with legislation that harms their interests and well-being.
(This article was originally published on GradMoney on May 31, 2017)