Wealth Gap

The income and wealth gap is something that is all over the world, and even in the world’s biggest economy (USA) there is still a huge gap between the richest 1% and everyone else. First of all there is a big difference between wealth and income, one can have very little income but however be extremely wealthy and visa versa. Income is how much you earn per week/month/year. However wealth is measured in assets you have, for example houses, shares, antiques etc. (Pettinger, 2008). In my paper I am going to be discussing what has caused this gap from the 1850’s and also to compare and contrast this with the wealth gap in Europe. Overall I am going to be looking at how Capitalism has had a part to play in this as well as the establishment of wealth

and how this is carried through families. People have many solutions to this ongoing problem which basically plagues the world and not just the USA. Some believe that socialism is the answer, Bernie Sanders is a perfect example of that. I however do not agree. People need to be better educated as well as there being more jobs in the tertiary sector so people can accumulate more income and be better educated to not waste that income but however turn it into wealth. On top of education I am going to be looking at how higher tax rates can combat this, as well as subsidised living in certain areas. It is no good cutting taxes for the lower income to have more money, if this money is just going straight into the pocket of wealthy landlords who capitalise on huge rent, that not everyone can afford, and pushes people to live in other areas. I will also be looking at Friedman and Rands book commented on inequality as well as capitalism. All together I hope to look at some of the obvious causes of the great income and wealth gap, and what we can use to combat it, and have a fairer, and more equal society.
I’m going to start during 1850 and beyond, arguably where the great income and wealth gap in America began. There were gaps during this time between four and twenty times of wealth not only in America, but also in Australia and the UK. This is not something that has recently popped up in the USA and neither in other ‘western’ countries. The main cause of the disparagement of this time was of course that workplaces were not regulated really at all. Minimum wage was a joke, and people like Ford, Rockefeller and Astor basically ran the country. Undercutting many people and paying very little for work. This caused many working class, blue collar men and women the inability to earn and good wage and thus would have no wealth to pass down. However the most powerful of USA would pass down hundreds of millions of wealth down to their children, which at the time was even more ludicrous than today, especially when you realize the richest man in the UK at the time was believed to be Sir John Ellerman, who was ‘only’ believed to be worth just over $20 million (Rubinstein, 1983). This obviously is nothing new however, in a capitalistic society there are always going to be those who flourish and earn way above those who work some dead end job. This is nothing new. However the distribution of income right now is something that is catastrophic. Ghettos are caused in cities all over the country, where crime basically rules the streets as citizens of the USA try and figure out ways of making extra cash as not everyone can afford the necessities to live. However as of 2014 the GDP Per Capita was $54,600 (The World Factbook, 2015). This obviously is clearly enough to support everyone comfortably. However due to huge gaps in income many people are living below the poverty line in cities like Philadelphia, Chicago and LA. Also as wealth is accumulated among the 1% this is not being reinvested into the economy, it is just sitting there. For an economy to do well, money needs to be spent, and this is not happening if those with higher wages are just letting their money sit.
For this paper I also read Rands book Anthem which basically gave an experience of Soviet Russia, which obviously is far away from the capitalist model we use here in the USA. Rand’s experience belief in Soviet Russia was the same as many, when trying to help all you actually end up hurting all. Not everyone can have the same. In theory it is a great idea, despite wealth, income or profession everyone has the same, but it just doesn’t work that way (Rand, 1961). Friedman also believed that capitalism was the way to go. Sure inequality is everywhere, it’s all over the world. But going communist, or socialist is not something he believed would solve this. Friedman basically believed that capitalism gives everyone the opportunity to make something of themselves. This is of course true, you can come from nothing and make something of yourself, and in theory this is the same for everyone (Friedman, 1962). However in reality this is not how it works. Not everyone is born into the same scenario with the same opportunity. Unfortunately this is something that cannot be changed for everyone. Granted it can be changed a little, but will never be fully eliminated. Obviously inequality is something we do not want to fully eliminate, there is always going to be inequality, it is in reality a good thing, something that drives people. If we do not have inequality we are not living in a capitalistic society but in a communist society. We have to just be able to keep inequality at a level which pleases all, and not one that causes people to live in ‘ghettos’ and have to revert to crime just to feed their family. Also if inequality is put at a good level for everyone other things will be effected. For example crime would see a dramatic drop, due to the fact there would not be so much need for it. As well as other things dropping like depression as well as addiction to substances. “There has been a collapse in intergenerational mobility: in contrast to their parents and grandparents, children today in the UK as in the US have very little expectation of improving upon the condition into which they were born. The poor stay poor. Economic disadvantage for the overwhelming majority translates into ill health, missed educational opportunity, and—increasingly—the familiar symptoms of depression: alcoholism, obesity, gambling, and minor criminality.” (Matthews, 2014). This backs up my idea. In theory, sure everyone can go from being poor, to being rich. But when you look at the statistics of it all, it just does not match up. If it was true that in capitalism everyone has equal opportunity, the poor would not stay poor, They would not have less opportunity educationally as well as many health problems, that are a consequences of being at the bottom of the wealth and income gap. “America now has more wealth and income inequality than any major developed country on earth, and the gap between the very rich and everyone else is wider than at any time since the 1920s.” (Sanders, 2016). This shows that the USA is even behind many economically developed countries like the UK and Australia. This is the one thing that Sanders is dedicated to get rid of, inequality. This is also the reason he has seen such an influx of followers recently around the election. Many other politicians have their focus elsewhere which in no way is going to help this epidemic. You have politicians like Trump who have no intent in tackling this, and would rather spend $12 billion on a wall on the south border, than give anyone money towards education, or to help those less fortunate in having the same opportunities. Socialism of course is not a complete fix, and maybe it would cause more problems than it would solve, but something has to be done with the increasing inequalities that has been hurting America’s country, for so long and will continue if no steps will be put in place to stop or at least stunt this recent and ongoing growth in inequality.
Many believe that the income gap can be narrowed through the use of higher income taxes for those who are earning more. This is again what I stated earlier what Berny Sanders is trying to do and is one of his most looked at policies. This of course would hugely help the income gap and targets in directly, however this is only a solution to salary and not wealth. Also there are many other problems that come with raising taxes for those who earn more. Taxes are already relatively high, high enough for highly paid executives and even athletes to declare their homes in tax havens like Switzerland, Monaco and Bermuda. Raising taxes higher is just something that will increase cases of this and essentially push business out of the USA, and could have far greater unintended consequences than just helping the wage gap. Many also do not believe in this socialistic way. This is America ‘The Land of the Free and Home of the Brave’. It’s the home of the American dream where someone can come with just $1 and become a millionaire, this is why so many people are against socialism. America is a capitalistic society and many believe it should stay that way and taxing people way more just because they are more successful will not help this.
However I do believe that more education for the masses is the solution to both of these problems.

With more education not only would the wage gap be solved in my opinion, but also the wealth gap. With more education, more people would be able to acquire jobs which pay more. However to give education to the masses it would obviously cost a lot of money, but would be worth it as it would solve a huge problem in the USA. Anyway compared to the spending this country has on defence, the money needed for free or subsidized college education would be a drop in the ocean. You may be thinking, how would this solve the wealth gap? Well with better educated citizens, who are also getting paid more than they were before would know how to invest and spend their money. It takes money to make money, and with people earning more, along with a better education to know what to do with it, over time wealth would be accumulated, and past down to future generations, and so on, and so on. Something needs to be done soon. This is something that is not getting better, it’s only getting worse. “There is no dispute that income inequality has been on the rise in the United States for the past four decades. The share of total income earned by the top 1 percent of families was less than 10 percent in the late 1970s but now exceeds 20 percent as of the end of 2012. A large portion of this increase is due to an upsurge in the labor incomes earned by senior company executives and successful entrepreneurs.” (Matthews, 2014). This shows that even in this day and age in America poverty and huge gaps are still experienced all over the country. However when you look on the grand scheme of things worldwide, the people below the poverty line in the USA are still among the richest

worldwide.
Other things can also be done to change this gap. Many houses in financial hubs (where most of the money can be made) is just too extortionate for the average person to pay. One thing that could be used to combat this would be government owned housing which is lease to the less wealthy for less wealth. We have these ‘council houses’ in London. Granted it does cause for places or extreme wealth to have poverty right next door, and increase crime in places which would usually have very little. This does how ever give equal opportunities to those who were not born into wealth, and allows them essentially earn more money in the long run as more jobs are in reach, as well as being close to better schools. Obviously this would mean more money again would have to be put into education, but not just college education but also high school. Just because one is wealthier, should they be entitled to a better education? Cutbacks in education has made it way harder for the average person to make it through higher education. Many families have experienced huge debt from education, and has been a huge cause in the widening gap in inequality. Outstanding student has quadrupled from 2004 to 2015 from $260 billion to over $1.1 trillion (Cragg & Ghayad, 2015). This is due to the fact that many people just cannot afford to go into higher education, and are paying it for even decades after going to college. This is creating huge inequalities and giving people many obstacles to creating wealth. It doesn’t matter if you are earning the mean income if you still can’t afford the rent of somewhere to live along with the fact you have tens of thousands, sometimes even over $100,000 to still pay off in student debt.
There is no one thing that is going to overnight change the inequality in wealth and income. It is one of the great struggles that the U.S has been trying to deal with for decades. Many things are going to have to change for any attempts to stand a chance. First of all the tax system right now does have to be looked at, as there does need to be a redistribution of income. I’m sure someone earning over $1 million a year has an extra 3-4% taxable income that would greatly benefit others. As well as this education is something that kills not only minorities chances, but the working class’ chances of receiving better employment through education. Anyone that truly believes that everyone is born with the same opportunities has obviously not seen the education in lower income towns. Personally I come from a lower income town, but was lucky enough to go to a good high school. What I can confirm however is the fact that from the many people I know from the area, only a handful have gone to university. But from my high school which was in the town down and slightly better economically, I can only think of a handful that have not gone to college. This is obviously different as it is in the UK, but I cannot imagine that the problem is much better here in the United States. The final thing I think that needs to be done, is an increase in wages for the lower and middle classes. I understand that the more valuable you are to a company the more you are going to receive. I cannot imagine that this means that a builder should be earning $30,000 a year, and a banker $750,000. All in all I do believe something can be done about the gap, something like this will indeed be an uphill battle, and something you will not see the benefits from for years to come.