The Rich Get Richer While the Poor Have Children

Among western industrialized countries, only in Switzerland is a larger share of the national wealth concentrated in the hands of a relatively few than in the United States . By the end of 2001, it was estimated that 38% of all private wealth in the U.S. was held by only one percent of the population, while the bottom 40% accounted for less than one percent.

The concentration of wealth in the U.S. is not a 20^th century phenomenon; in the 19^th century, for instance, 40 to 50% of the nation's wealth in the major cities was held by the top one percent of the population.

A discussion of the concentration of wealth must start with a definition of wealth . This is the value of assets minus debts, and must be distinguished from income. In fact, in 2008, only 19% of the income reported for taxes by those making more than $10 million per year came from wages. While there is often a high correlation between wealth and income, the two are vastly different factors, and there is no direct causal relationship.

Following is a breakdown of income groups in the United States as of 2010:

Super Rich - 2 percent

Wealthy (those making more than $200K/year) - 20 percent

Middle Class ($35K - $100K/year) - 51 percent

Near Poor ($15K - $30K/year) - 13 percent

Those in Poverty (less than $8K/year) - 14 percent

It must be kept in mind that these figures are estimates based on averaging breakdowns from multiple sources. Different sources use different criteria, but for the purpose of a discussion on the wealth concentration these will do.

Historical Background

The U.S. economy from 1910 to 1935 was completely unregulated. Wealthy industrialists exploited this lack of regulation to amass great fortunes. Until 1913, there was no income tax and thus, nothing to reduce the wealth of the top richest. The period from 1913 until the the 1980s saw a slight decrease in the percentage of wealth held by the top 1%.. Tax cuts for the rich, once again saw increases in the percentage of wealth in the hands of the richest.

Financial Wealth by Income Group

1910-1935 1936-1961 1962-1987 1988-2010

Super Rich 40% - 35% 34%

Wealthy

Middle Class - - - 50%

Near Poor - - - -

In Poverty - - - -

(Note: These are rough estimates based on averaging of many different data sources. Where percentages are not given, either the data was not available, or it varied too widely to allow coming up with a rational average.)

Despite the lack of hard figures, from the data that is available it's clear that the wealthiest have a larger share of the country's wealth than those at the bottom. Many at the bottom of the socio-economic ladder have a negative net worth, as the total of their liabilities in greater than their assets and income.

Factors affecting Distribution of Wealth

There are a number of factors contribution to such an unequal distribution of wealth, and while the percentage of the nation's wealth held by the top 2% has shifted up or down over the past 100 years, overall, it has remained relatively stable, with the that group holding between 30 to 40 percent. In 2007, for instance, 1% of families in the U.S. owned 34.6% of all private wealth, while 80% owned a mere 15%. The percentages are further affected by education, race, and rates of home ownership. Dips in the stock market in the 1970s, with falling stock prices, eroded some of the wealth held by the richest, but by the late 1980s, the percentage of wealth in their possession was back to 1929 levels. Technological developments and increased international trade also impacted on income levels, shifting the job market in the U.S. away from less-educated workers with lower skills to those with higher education and special skills. This earnings gap boosted the percentage of wealth held by those in the middle class and those making more than $200K per year. Immigration, which increased dramatically starting in 1980, also put higher pressure on low income workers, as a high percentage of the new immigrants had low education levels, and competed for the lower paying jobs.

The pattern of home ownership in the U.S. has also contributed to the disparity in wealth and net worth. For many, especially middle and low income families, a home represents a substantial portion of net worth. Difficulties faced by many in owning a home (housing patterns, interest rates, discrimination) means that for many in the lower middle and lower income brackets, they are trapped in a cycle making accumulation of wealth impossible.

Implications for the Future

The Trickle Down Theory that was espoused by the Reagan administration to justify tax cuts for the wealthy has been proven false. The very wealthy did not invest their windfall in ways that benefited those at the bottom of the ladder; instead, they merely used it to increase their own wealth.

In order to effectively address the problem of unequal distribution of wealth, in the U.S. or in the developing world, the root causes of this inequality must be grappled with. Government subsidies or welfare programs are not the answer. Most of the programs are non-monetary, and do not provide the economic cushion for a family to be able to generate wealth. Governments must instead look at better systems of home and property ownership, institute more equitable taxation systems so that the wealthy pay a fairer share of their earnings, and ensure adequate education for all to enable workers to compete effectively in the globalized economy.