Mr. Reuter
Economics -- B2
9/22/2014
Inequality From Rich to Poor
We’ve all heard about the great spread of wealth across the U.S. and how the wealth inequality, or distribution of wealth, is large between the rich and poor in America. This inequality between rich and poor has been cause for many reasons the largest of which is the marginal benefit versus marginal cost of the different economic classes. It boils down to the simple fact of the rich have more ‘liquid’ money and with the stock market as it is the more you put into it the more you get out of it or lose in it. “Putting a dollar into the popular S&P 500 index that tracks the largest companies traded on U.S. stock exchanges in March 2009 would leave you with $3 today. That's a nice 200% return, but obviously if you had invested $1 million in the market over the same time period, you would now have $3 million (Long).” The rich just have more to gain by taking the risk the market presents and being able to put more money in than the other economic ‘classes’ as shown below.
Stock market investment by the rich isn’t all bad right? When “Overall, the amount of wealth held by American households increased 14 percent between 2009 and 2011, going from $298,000 to $339,000 in inflation-adjusted dollars, the report said (What).” I mean after all, them getting richer makes the average wealth of America greater that isn’t bad is it? Just because the average wealth of American citizens does get larger as the rich get richer you have to remember where they get their money from and that that margin of inequality keeps getting larger “Yet the study also revealed that only the 13 percent of households with a networth of $500,000 or more saw their wealth increase. Every other income group in the US saw their net worth decline (What).” Even though the average American household’s income has increased only the rich get richer and everyone else gets poorer as the graph below shows.
Yet another source of inequality comes from stocks because if stocks drop in one area and you are diversified your overall status has barely dropped while if you have all your eggs in one basket and the basket tips you stand to lose allot of money. As you get lower and lower down the economic pyramid you are forced to have more and more eggs in one basket because there is no other basket to put them into. A house is one of these forced baskets and is an achilles heel to middle and lower class citizens. “The main difference between the richest Americans and other economic groups, Pew reported, is that the top 7 percent have their wealth diversified in stocks, mutual funds and other financial schemes. For the remainder of the population, household wealth is locked into the value of their homes, the sector that took the greatest hit when the bottom fell out of the US economy in late 2008 (What).” When the house market bubbled and popped the rich had the means to diversify because there wealth wasn’t all sunk into their house and was locked away in other areas of the market. They didn’t lose as much and have recovered faster because they had the ability to expand their wealth on a scale which is simply not usable for most middle and lower class americans, the stock market.
The stock market is not a problem though. The problem is the inequality. If more people were on the same playing field then the game is more equal however only a few have the means to efficiently make use of the better playing field and therefore have an advantage over the rest of the population. The richest of the rich even have an advantage over the rich on this playing field “The greatest demonstration of inequality is most evident in the income generated by not the top one percent, though, but by the sliver of the US population that makes more than 99.9 percent of the country. According to the firm’s research, the top 0.1 percent of Americans earned around $6,373,782 during that same 12-month span — or around 206 times what the average family in the US earned (Inequality).” When the rich are only “reaping in around $1,264,065 in 2012 — or around 41-times as much as the average income for all wage-earners (Inequality).”
In conclusion economic inequality in America is a major issue even if it is not known to be a totally bad or a totally good thing at this time.
Bibliography
"Inequality Gap between Super Rich and Poor Continues to Widen." RT USA. N.p., n.d. Web. 21Sept. 2014. <http://rt.com/usa/sadoffinequalityrichpoor685/>.
Long, Heather. "Who's Getting Rich off the Stock Market?" CNNMoney. Cable News Network, 18
Sept. 2014. Web. 21 Sept. 2014.
<http://money.cnn.com/2014/09/18/investing/stockmarketinvestorsgetrich/index.html?iid=HP
_River>.
"What Recovery? US Rich Get Richer, Middleclass Treading Water." RT USA. N.p., 24 Apr. 2013.
Web. 21 Sept. 2014. <http://rt.com/usa/usfinancialcrisiswealthoccupywallstreet307/>.
I think overall it is shocking how this world is changing to this day. Not only through techbology, but the enormous gap between rich and poor. Not only that but it seems so easy for the rich to get even more rich by the stock market. But then it is almost impossible to get out of poverty. Its also amazing how the 7 percent of people have almost all of the U.S's money while the "midde class" and Lower Class have almost nothing. I think that money is starting to become a scaricty that the higher class will suck up
ReplyDeleteAshton,
ReplyDeleteThe topic of your post came at the perfect time! After the video we watched last class, I think many of us were wondering some of the reasons as to why the wealth is so unevenly distributed. Your post provided us with some insight to this! I never would have thought about relating this distribution to the stock market but what you were saying does make sense! Those who don't have a lot of money aren't able to take risks in the market, like you said, to make money which is unfortunate when there is a breadth of opportunity there.
I think that the amount of wealth given to the upper class of people in this country is ridiculous because nobody needs that much money. Your post shows good examples of this and it has two good visuals that help he reader in-vision how the wealth of the country is spread. I would be interested if you had provided how the stock market investments affected the lower classes because I know that people who don't have money don't want to risk losing it but that part could have gone a little more in depth.
ReplyDeleteI was shocked as well, but I also learned a lot too while I was reading your piece. You used a nice graph to show the size stock market investments and a nice bar graph to describe the lower 93% and the wealthy 7%. Used a lot of details and from reading the piece, you used a lot of sources which is good cause you really know what you're talking about. Overall this is a really good piece and I enjoyed reading it.
ReplyDeleteIt is interesting to think that the stock market appears to only benefit the rich. Because they have more money than the poor, they are able to take larger risks, and with larger risks come larger potential gain. This makes more sense because the marginal cost and marginal benefit is different from rich to poor. This would explain part of the wealth inequality mystery, however, what are all the factors that contribute to this issue?
ReplyDeleteReading your post really opened my eyes to the reality of the situation in America today. This piece combined with the video we watched showed how even though we are in a state of recovery, in reality we are not. Only the top 10% of households are increasing their wealth, while the rest of America continue to lose money. You really backed up your argument with your effective use of graphs and charts. Good job overall proving and providing evidence for your argument. Your piece was really eye opening.
ReplyDeleteThis is truly horrible that the majority of the money in the US belongs to the smallest group of people. It really makes no sense to me. What was most interesting to me though was how the rich have much less risk but a much higher reward when it comes to buying and selling stock. Personally I think that the IRS should target the rich more for taxes to somewhat even the income between classes but it is what it is.
ReplyDelete