Poverty & Inequality in USA

“The distribution of wealth in the United States today is terribly unequal. The richest Americans, the top 1 percent, own almost half of the financial assets in our country. The affluent members of the upper middle class who make up the next 9 percent of the population own slightly more than one third of the wealth. That leaves only about one sixth to be divided among everyone else. A rich person, on average, has about 230 times more wealth than a member of the huge majority of Americans, the 90 percent who own very little at all. The pie is divided up like this.

The only momentous economic growth in the United States in the mid-1990s was in the stock market, which was fed by a long-term speculative binge that primarily benefited very rich investors, Wall Street traders, and the largest businesses. The profits of giant corporations jumped 58 percent from 1992 to 1997, but this increase was not accompanied by any gains in wages and salaries for ordinary workers. The number of decently paying corporate jobs was on the decline, even at the middle-management levels.”

“There is a third way of looking at accumulated wealth that reveals even greater inequality. When we focus on the ownership of our economic system itself – the stocks and bonds of corporations, the privately held business assets, and the large trust funds and investment profits that are arranged by banks – we find that total control is in the hands of the richest 1 percent.

This kind of wealth, which gives real economic power to a tiny fraction of our population, also reveals the truly undemocratic side of our society. Some scholars who carefully follow the patterns of ownership and financial control have found that the real wealth that translates into social and political power is held by a fraction of the very rich. In 1978 Maurice Zeitlin identified a group of 55,400 households, just 1/20th of 1 percent of all corporate stock, 66 percent of all state and local bonds, and 40 percent of all other bonds and notes. In the mid-1980s economist Lester Thurow reviewed the survey data for the richest four hundred individuals in the United States and eighty-two additional family groups who held extraordinary wealth. He estimated that through their ties to corporate ownership this tiny band of people had direct and indirect control over business assets amounting to more than $2 trillion, or ‘40% of all fixed non-residential capital in the United States’. With this kind of wealth, said Thurow, “it is hard to maintain the equality of influence that is the backbone of democracy.”

G.William Domhoff has argued convincingly that there is a core of wealthy people ‘who rule America,’ that they form a true upper class from which a minority gravitates towards prominent positions in business and government. But this class is not stagnant. New people are always moving up to join the ranks of the very rich; occasionally an aggressive millionaire financier or entrepreneur attains billionaire status. Within the elite ranks are the people who manage the big corporations, those who hold high positions in the banks and law firms that simultaneously serve Wall Street and Washington, and those passively rich families who collect the dividends from the largest personal fortunes. All in all, these families not only control the majority of corporate wealth, but they also self-consciously nurture upper-class tastes and elite private education, as well as the next generation of financiers and presidential cabinet members.

“What about the Lower Classes?

It is true that the poor will always be with us, then it is also true that societies can radically reduce poverty. Other nations have many fewer people living in poverty than the United States; according to one study of the early 1990s, the contrast in the percentage of children living in poverty was particularly stark:

An even more important comparison involves what countries do once they take notice of their poor citizens. When countries invest heavily in counteracting the effects of poverty, it becomes possible for people to escape the condition more quickly. A study that followed the experience of poor families with children over a period of three years showed that the transition rate out of poverty can be very fast.

“The analysis of Edward N.Wolff, professor of economics at New York University and the editor of the Review of Income and Wealth, demonstrated that the richest 1 percent gained control of 5.4 percent of the nation’s financial assets in just six years, from 1983 to 1989; this transfer of wealth was worth approximately $2.5 trillion. This sudden shift was especially unsettling because it came at the expense of the bottom 90 percent of the population. Particularly hard-hit, according to Wolff, were the poorest 40 percent of Americans more than 100 million people – who suffered ‘an absolute decline in their average wealth holdings.’  They lost about $300 billion in assets, which meant their already meager net worth was rapidly approaching zero.

The richest 1 percent of Americans pigged out throughout the 1980s, accumulating 61.6 percent of all wealth created in that period. After a deep recession followed by very slow growth from 1989 to 1995, the U.S. economy began to grow again, but at a modest rate. Wealth was once again created in ways that benefited the rich, most spectacularly in the huge run-up in stock prices between the middle of 1994 and the middle of 1997. Since the richest 1 percent of Americans owned nearly half of the stock, they only had to sit back and watch the market. The overall value of publicly traded stocks increased from approximately $3 trillion in 1988 to $5 trillion in 1992 to well over $10 trillion in 1997.

One way to exemplify the astounding multiplication of the biggest fortunes is to look at the annual incomes they can generate. Andrew Hacker, in his book Money: Who Has How Much and Why, examined the people who reported incomes of over $1 million per year to the IRS. Their number, even after adjusting for inflation, had increased dramatically in fifteen years, from 13,505 in 1979 to 68,064 in 1994.

The degree of inequality in the United States is now so extreme that we have returned to the ignominious levels of the 1920s.

Source: Contemporary Economic Challenges and Islam, Khurshid Ahmed. Republished with permission.