Shift spotlight from income disparity to wealth inequality

In 2011, the Occupy Wall Street movement popularized the phrase, “We are the 99 percent,” referring to the income inequality between the top one percent of earners and everyone else in America, the 99 percent.

Since then, “income inequality” seems to be the catch-all phrase everyone is using to describe what’s wrong with the American economy. This is especially true when it comes to the Democratic Party’s economic policy agenda.

Americans should be talking about inequality. It’s a good way to explain why we should expand social programs and it highlights the injustice of American poverty. We should not, however, be so focused on income inequality. Wealth inequality is much more indicative of many economic injustices.

Income is the weekly, monthly or yearly flow of money into a household, normally involving salaries or wages. Wealth, on the other hand, is the accumulated amount of money that a person has saved. This includes financial assets like houses and inherited estates.

When using wealth as an economic marker instead of income, inequality becomes much more evident. Emmanuel Saez of the University of California, Berkeley and Gabriel Zucman of the London School of Economics state in their October 2014 seminal study on wealth inequality that, in 2012, 0.1 percent of the population controlled 22 percent of the country’s wealth.

Compare this to Saez’s 2012 income inequality figure in which the top one percent earn 22.5 percent of the pre-tax income. The income figure shows that roughly the same portion of money is held by a 10 times larger portion of the population, showing that wealth is distributed much more unequally than income.

Wealth is a more inclusive marker of an individual’s economic standing. It considers burdens like student loans, mortgages and various forms of debt. When looking at income, policymakers can’t accurately measure financial security, because income figures do not account for the weight of financial burdens that every American faces.

If the conversation shifted to wealth inequality, politicians might be more willing to address structural issues like skyrocketing student debt.

I’m not saying we should stop talking about income inequality all together. Citizens just need to be more aware of wealth inequality and the intricate link between the two markers. It is intuitive that income creates wealth, because common sense tells us that more dollars earned means more dollars saved in the bank. It is less intuitive, though still very true, that wealth can go on to create income.

As Vox.com’s Matthew Yglesias put it in a May 2014 story, “A billionaire who owns tons of stock is going to earn substantial dividends from his stock holdings. Some of that income will be saved and turns into further wealth. This tends to put the wealth of the wealthiest on an upward trajectory.”

The way that this plays out in numbers is that the top one percent of income earners save 35 percent of their income, while the bottom 90 percent of earners save basically nothing, as Saez and Zucman find. This means that because of wealth inequality, it is much harder for most American families to invest in the future for themselves and their children. It represents a lack of mobility that keeps families stuck in the same economic straits.

The policy conversation needs to be refocused to include wealth inequality. American economic policy centers on the idea of preserving the American dream for everyone. When I think about the American dream, I think about home ownership, about a stable retirement after years of hard work and about leaving an inheritance for my children.

The American dream is much more about wealth than it is about income, and our policy discussions should reflect that.

Annie Cappetta is a freshman majoring in political science.

April 8, 2015


Annie Cappetta

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