The wealth gap between younger and older Americans has stretched to the widest on record, worsened by a prolonged economic downturn that has wiped out job opportunities for young adults and saddled them with housing and college debt. Households headed by someone under age 35 had their median net worth reduced by 27 percent in 2009 as a result of unsecured liabilities, mostly a combination of credit card debt and student loans. No other age group had anywhere near that level of unsecured liability acting as a drag on net worth; the next closest was the 35-44 age group, at 10 percent.Keep in mind that wealth is different than income. A storehouse of resources, wealth is what families own. It means a command over financial resources that when combined with income can produce the opportunity to secure the “good life” in whatever form is needed— education, business, training, justice, health, comfort, and so on. In this sense wealth is a special form of money not usually used to purchase milk and shoes or other life necessities. More often it is used to create opportunities, secure a desired stature and standard of living, or pass class status along to one's children. It is obvious that the positions of two families with the same income but widely different wealth assets are not identical, and it is time for us to take this into account in public policy.
What are the causes? Some primary causes contributing to the creation and persistence of wealth inequality include:
1- Financial Resources, 2- Money Allocation, 3- Higher rate of savings and hence asset accumulation by the wealthy, 4- Higher net rate of return to assets owned by the rich (the wealthy may have special knowledge, and the level of fees and other charges on their savings will be less than those with small investments), 5- Lower credit costs and credit constraints for the wealthy. 6- Access to credit at lower rates enhaces the level of profits and scope of investment opportunities, 7- Inflation.
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."
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. 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.
Now, let's take a look at some ideas (some better, some worse), which explore possible solutions:
1- The so-called "family net," i.e, helping a family not to fall into poverty is a good investment and it is the government's responsibility. 2- John Rawls's idea that social and economic inequalities can benefit the least advantaged of society if we create the right distribution, i.e., the rich should pay more taxes than the poor (you see how politically contentious this idea has become). 3- We are not that poor because there are poorer in the world. 4- Marx's motto: "From each according to his abilities, to each according to his needs." 5- Protect the poor with a minimum standard of living, not out of charity, but to protect the better-of-the-poor. 6- The well-to-do take care of the poor voluntarily. What economists call "market-distributive justice."
So where do we stand right now?
Wealth inequality is increasing within all age groups. Among the younger-age households, those living in debt have grown the fastest while the share of households with net worth of at least $250,000 edged up slightly to 2 percent. Among the older-age households, the share of households worth at least $250,000 rose to 20 percent from 8 percent in 1984; those living in debt were largely unchanged at 8 percent.So, what is your idea?
I'm closing this post next Monday, Nov. 14 at 11 pm.
