Income Inequality and Wealth Disparity

This guy named Plutarch said, “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” We’ve all seen or heard the statistics, the richest 20 percent of Americans account for 50.4 percent of America’s annual income, a little more than what it was just prior to the stock market crash of 1929. The poorest 20 percent account for only 4.2 percent of the nation’s income. It is interesting to note that 80 percent of political contributions come from the richest 1 percent of society. It seems no wonder that congress, Republicans and Democrats alike, favor increasing the wealth disparity in the United States. Money can’t buy you love but it sure can buy you political power. What happened to campaign finance reform? And why does congress spend more time debating their own annual pay raises and the repeal of the estate tax, a tax that only touches those with multi-millions of dollars in assets, instead of debating critical infrastructure shortfalls and the rapid increase in numbers of Americans without health insurance.

Another item worthy of note: Between 1947 and 1973, median family income grew by 104 percent (2.8 percent/year). Since that time, the median American family income has increased at an average rate of .35 percent/year. At this rate it would take 198 years for that income level to double again. Since 1977, the top 20 percent of income earners has increased their after taxes income by 43 percent. The middle 20 percent of income earners increased their after taxes income by 8 percent, while the bottom 20 percent of income earners made a net increase after taxes of -9 percent in income earned. Just as a side note, the top 1 percent of income earners made 115 percent more after taxes than they did in 1977. Corporate CEOs in 1988 earned 93 times what their average employees earned and by 1999 those same CEOs were earning 419 times what their employees made.

Not only is income inequality a problem in the United States but accumulation of assets poses a tremendous problem for the bottom 50 percent of Americans. The median (the point at which half are higher and half are lower, i.e. if there are 100 million units, this is number 50 million) home price in the United States rose to $227,000 as of the end of the second quarter 2006. At the same time the median household income in America was $46,326/year. On this income and with monthly debt payments of $300.00/month (car payment, credit card payments, student loans, etc.), $20,000 cash at closing, an interest rate of 5.625% and terms of 30 year fixed rate, a person would qualify for a home valued at $153,483. Where I’m from that will buy you a 3 bed/2 bath condo built in 1980 with 1,200 square feet.

In the 1980s in Japan there was a real estate boom where home/property values just kept going up. If a person owned property prior to that boom, they were financially set afterward. If someone didn’t own property prior to that boom, they were financially hosed afterward. The same thing is happening here and now, although not quite as rapidly. If a person owns property they put themselves in a good position. What about our children and grandchildren? What if they can’t afford a home because the median household income is increasing at a rate of .35 percent per year while the median price of a home is increasing at a rate of 5-10 percent per year? Will they be stuck in ghetto housing if I'm not able to pass on to them a thick portfolio?

“Plato told Aristotle no one should make more than five times the pay of the lowest member of society. J.P. Morgan said 20 times. Jesus advocated a negative differential – that’s why they killed him.” – Graef Crystal, 1998