Wealth Inequality in America: Causes and Consequences

Introduction: Wealth Concentration in America

The United States often characterizes itself — in political rhetoric and public displays of patriotism — as the wealthiest and greatest nation in the world. Unfortunately, the wide variance in living standards represented across this country suggests that such wealth is an experience reserved only for those with the means to access it. Quite to the point, the poverty that a substantial percentage of Americans live with every day indicates that this apparent enormity of wealth is not accessible to all. The discussion here centers on the understanding that 50% of all of America's vast wealth is possessed by no more than 1% of Americans. This means that the wealthiest individuals in America alone control more wealth than entire communities and regions combined.

As the discussion below will show, this is a trend with serious and negative consequences for the people of the United States and, increasingly under the terms of globalization, the people of the world. That such a substantial amount of wealth is controlled by so few is responsible for the array of economic crises faced by Americans today, suggesting that a failure to distribute wealth effectively — to broad swaths of the consuming public, to infrastructural maintenance, to small business development, and to public administration and aid — has contributed to a collective decline in the American standard of living.

Economic Growth and Its Limits in Reducing Poverty

At the center of this discussion is the understanding that economic growth is wasted when not properly paired with effective mechanisms for equitable wealth distribution. Certain entrenched inequalities permeating domestic and global culture tend to reinforce the intolerable conditions facing the poor. Among them, the orientation of our nation and, increasingly, the global community toward market capitalism has had the tendency of reinforcing some of its most problematic normative realities. Socioeconomic inequality and the persistence of poverty among demographics distinguished by features such as race, ethnicity, and geography are a natural byproduct of this system. This accounts for the relative failure of "economic growth" alone to address the issues of poverty.

As Rodrik (2000) remarks, understanding the correlation between growth and poverty is complicated: "to the extent that measures of income distribution vary, the changes do not seem to bear any systematic relationship to economic growth. In some countries (such as Taiwan, Bangladesh, and Egypt) growth has been accompanied with an improvement in Gini coefficients; in others (such as Chile, China, and Poland), Gini coefficients have gone the other way" (Rodrik, p. 1). This challenge is underscored by a detectably modest, if not inverse, relationship across the global community between the proliferation of private growth strategies and the continued and deepened plight of the poor. These strategies help to transfer already meager wealth from the hands of the world's poor to the hands of the wealthiest few.

Certain measures do suggest that economic growth has the effect of reducing poverty, but studies also tend to indicate that this correlation is not as strong as it was historically. Evidence abounds that economic growth as an initial strategy in developing contexts did have a detectable improvement on the distribution of wealth. The globalization of free-market capitalism appears less sensitive to domestic realities, however, taking a universal approach to market systems. According to Stevans and Sessions (2005), "the effect of economic growth on changes in poverty has either diminished or remained unchanged over time, e.g., the 1980s economic expansion in the U.S. had no effect on poverty. Using a formal error-correction model, we find that increases in economic growth are significantly related to reductions in the poverty rate for all families. However, growth was found to have a more pronounced effect on poverty during the expansionary periods of the 1960s, 1970s, 1980s, and 1990s" (Stevans & Sessions, p. 1).

Theories of Poverty and the Persistence of Inequality

This may suggest that certain elements of "economic growth" have changed in recent decades such that the wealth thereby created is less effectively distributed. As further research tends to suggest, this is because growth may be increasingly shaped by a policy orientation that disregards the public agencies designed to level that distribution.

Galbraith (1998) argues that, as an insular crisis, poverty is primarily informed by the collective isolation of a population from the opportunities available in other parts of the community. According to this categorization of the majority of the poor, the problem is almost entirely a demographic one. However, this logic falls short of accounting for a reality in which very specific social conditions — omnipresent across a diversity of regional and structural settings — present a wide array of explanations for the persistence of suffering.

There is more explanatory power in what Galbraith calls "case poverty," in which the condition can be attributed to "some quality peculiar to the individual or family involved" (Galbraith, p. 236). Galbraith describes these as any number of variable factors, such as mental deficiency, alcoholism, working-class immobility, or discrimination. In this explanation, it becomes clear that poverty is a problem that, whether caused by internal or societal conditions, cannot be traced to a single origin. Instead, the explanations for poverty are numerous and nuanced. This complexity alone is sufficient to make the case that a single solution — such as an emphasis on broader economic growth — roundly misconstrues the depth of the problem.

We may be capable of recognizing a tangled web of causes for poverty that are unique to every individual or family. A common factor for all, however, should be the potential to earn a living wage. And it is precisely in this area that so many demographic groups are inherently disadvantaged, regardless of the scale of economic growth precipitated by government policy or market behavior.

Conclusion

The federal approach to contending with this condition has been detrimentally misdirected, failing to address the root causes of problematic class stratification. With so many families falling below acceptable living standards, the budget deficit, tax breaks for the wealthy, and massive bailout spending programs have made it harder for the government to muster the resources needed to improve lives across the socioeconomic spectrum.

This suggests that, beyond a reasonable doubt, a small population of wealthy Americans is today living in excess at the expense of countless working-poor and middle-class Americans. Until wealth distribution is addressed as a structural policy priority — supported by robust public investment and a reconsideration of supply-side orthodoxy — the systemic decline in the American standard of living is likely to continue.

Cutter, W. B. IV, Federman, M., Garner, T. I., Kiely, J., & Levine, D., et al. (1996). What does it mean to be poor in America? Monthly Labor Review, 119.

Galbraith, J. K. (1998). The affluent society (40th anniversary ed.). Mariner Books.

Rodrik, D. (2000). Growth and poverty reduction: What are the real questions? Finance & Development.

Stevans, L. K., & Sessions, D. N. (2005). The relationship between poverty, economic growth, and inequality revisited. IDEAS.