Wealth Disparities Essay

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Wealth disparities exist both within and across societies. The distribution of income and wealth within any given society is a reflection of its class structure. Individual wealth is the total accumulated value of people’s assets or property, commonly referred to as their “net worth.” Specifically, net worth is the value of all cash-convertible assets minus the value of all debts. Wealth is distinguished from income in that it includes assets that have a market value and that can generate income, such as dividends from stocks, bonds, or real estate. In contrast to income, which tends to be spent on living expenses, wealth generates more wealth via interest and dividends and is a phenomenon that endures  over generations. Thus, wealth allows the rich to get richer. Even though income and wealth are clearly related, the distribution of wealth reflects more inequality than that of income. In the United States, more so than in any other industrial democracy, wealth is concentrated in the hands of a very small segment of society. Statistics on wealth disparities show how much of the total wealth in a society accrues to each quintile of the population, ranked from highest to lowest wealth. Complete equality would exist if each population quintile owned 20 percent of wealth. According to recent U.S. government statistics, the wealthiest fifth of the population held about 85 percent of all wealth while the lowest fifth held -1.5 percent; in other words, the lowest fifth were in debt. The second richest quintile held 12 percent, the next lower one about 5 percent, and the one below that 1 percent of total wealth. The gap between the wealthiest segment of the population, measured as the top 1 percent, and everyone else has grown tremendously since the 1980s. Official statistics reflect that until 1972, the top 1 percent held about 24 percent of total U.S. wealth and that by 1998 that proportion had risen to 38 percent. The wealth gap appears to be increasing in times of economic growth, mainly because most of the benefits of a booming economy accrue to the top quintile of the wealth distribution.

The redistribution of income and wealth via the tax system is not as dramatic in the United States as it is in other advanced nations. The tax rates for both the highest and the lowest income group have declined in the past few decades, through a strategy intended to reduce poverty and increase investment from the top. Nevertheless, sales taxes are regressive, which means those with lower incomes spend relatively more of their income on necessities than do the rich. Overall trend data show that the average U.S. family is in increasingly large debt relative to their assets, mainly due to mortgage and credit card debt. The Federal Reserve reported the median net worth of U.S. families in 2004 at $93,100, that of white families at $140,700, that of nonwhite families at $24,800, and that of African American families at $20,400. Since 1995, white net worth has increased by 50 percent but nonwhite wealth, especially that of African Americans, has stagnated and remained at only about 14 to 18 percent of white wealth.

The United States currently has 269 billionaires, compared with the next highest of 29 in Japan and 28 in Germany. Five of the ten richest people in the world are U.S. citizens, and none are women. Among the top 20 billionaires, most are educated white men, who accumulated their wealth from technology, banking, and retailing. According to Forbes, in 2006 the top billionaires in the United States were Bill Gates ($50 billion, Microsoft), Warren Edward Buffett ($42 billion, investment banking), Paul Gardner Allen ($22 billion, Microsoft), followed by the five Waltons of Wal-Mart. The advantages of wealth clearly go beyond gaining economic leverage. Social scientists have documented that wealth also generates social status and political power. The wealthy are part of an elite able to convert wealth into political decision-making power via lobbying, campaign financing, funding of various causes, and gaining political office. In fact, a high proportion of U.S. senators and members of Congress come from wealthy families, and almost all presidents were born into wealth. In addition, wealth can buy other benefits associated with a privileged lifestyle, including living in a safe neighborhood and enjoying superior health care, leisure activities, and education for the children.

Social science theories explaining the persistence of wealth inequality in Western democracies focus mainly on social stratification systems and cultural processes legitimizing the unequal distribution of resources. Both the norms of distributive justice (fairness principles) and increasingly individualistic Western values, combined with global free enterprise economics, reinforce the perception that the wealth distribution is just—the rich have earned their wealth and the poor are to blame for their poverty.

The degree of wealth disparities within societies varies across nations. Cultural norms about what constitutes acceptable levels of inequality and poverty also vary among the nations. Compared with European countries, the gap between the richest segment and the rest of the population is much larger in the United States. The Scandinavian countries have the lowest wealth disparities, mainly due to their welfare states’ strong redistribution efforts. Inequality is greatest in the least economically developed regions of South America, South Asia, and sub-Saharan Africa.

In addition to varying cross-nationally within countries, wealth disparities also exist at the global level. The United Nations estimated that in 2001 the combined wealth of the three richest billionaires in the world exceeded the combined gross domestic product of the 48 least developed countries. When comparing countries according to their national wealth, the poorest nations are East Timor, Sierra Leone, and Somalia with a gross domestic product per capita of only $500 each; the richest nation is Luxembourg with $55,100, and Norway ties with the United States at $37,800. Although there is evidence that the globalization of industrial technology has helped the economic development of some Asian nations, transnational corporations, trade liberalization, and international debt relations often affect developing economies negatively. Depending on how globalization is defined and measured, social scientists conclude that globalization processes have had a mixed impact on global wealth inequalities.

Bibliography:

  1. Bucks, Bruce K., Arthur B. Kennickell, and Kevin B. Moore. 2006. “Recent Changes in U.S. Family Finances.” Federal Reserve Bulletin. Retrieved March 27, 2017 (https://www.federalreserve.gov/econres/files/2004_bull0206.pdf).
  2. Domhoff, William G. 2005. Who Rules America? Power, Politics, & Social Change. 5th ed. New York: McGraw-Hill.
  3. Keister, Lisa. 2000. Wealth in America: Trends in Wealth Inequality. Cambridge, England: Cambridge University Press.
  4. Marger, Martin N. 2007. Social Inequality: Patterns and Processes. 4th ed. New York: McGraw-Hill.

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