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The U.S. Income Inequality Crisis: The American Dream Vanishing?

via ALEX DELUCE

In the United States, the proven route out of poverty has always been education. A higher level of education has been viewed to be the direct cause of a higher level of income. Surprising studies have revealed that this economic axiom may no longer hold true for everyone.

Despite wage growth, women and African-Americans still find themselves at a disadvantage. Last year, average salaries grew .2 percent overall, while the elite top 5 percent wage earners saw a pay increase of 1.5 percent. However, the wages of African-Americans declined on most economic levels, a trend that has held for 17 years. At the same time, men with a four-year degree earned more than female employees with graduate degrees. Education, the once much vaunted escape from poverty is unable to change race or gender, both of which still have a demonstrable effect on overall income.

The economic truth is that those in the highest earning bracket are seeing the highest increase in wages. While the wage gap between men and women exists on all levels, it diminishes at the top 5 percent income range.

For both high school and college graduates, wage growth remains slower than anticipated. Despite the positive employment numbers, the moderate increases in wages reflect a still struggling economy that presents uncertainties for all wage earners.

The democratic truism has always been that a prospering wealthy class will benefit society as a whole, rich and poor alike. Not so, according to one of the world’s greatest investors, Warren Buffet.

Between 1982 and 2017, the wealth of the 400 [richest people in America] increased 29-fold—from $93 billion to $2.7 trillion—while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn’t trickle down. It surged upward.

 

America’s income gap is widening, and the passage of the Tax Cuts and Jobs Act will almost certainly ensure that this gulf widens further. The corporate tax rate has been lowered from 35 percent to 21 percent to tremendous GOP cheering and fanfare. This tax gain is seen as a boon to employees more than corporations. However, without equal fanfare, $170.8 billion of these corporate tax savings have been used for stock buybacks, much to the enrichment and jubilation of already wealthy stockholders. The income inequality has not been affected.

According to the World Bank’s Gini Index, a global inequality measure, the United States is not the leader in income inequality. The survey determined that America’s top ten percent of earners earned close to 20 percent more than the bottom ten percent of earners. These numbers seem staggering when compared to Denmark, where the top wealthiest citizens earn around twice as much as the low-income workers, The American struggle of the middle and lowers classes in more evident than ever.

When viewing wealth distribution, the picture remains equally troublesome. In 1980, the top 1 percent wage earners owned 11 percent of the nation’s total income. By 2016, that number almost doubled to 20 percent.

While America enjoys a healthy economy, especially when compared to the rest of the developing world, it can also claim one of the highest poverty rates.

Older Americans view big government with suspicion, but generally don’t expect the government to provide more services. However, the current Millennial generation expects large government and increased services. While Boomers and the Silent Generation may have viewed government programs as a last-gasp safety net, Millennials consider equal health care for all and other federal programs as a right and the responsibility of the government. Frustration and distrust of the government spans across generational lines. Still, it’s the growing Millennial generation that wants greater government involvement and more services, as seen in the chart below.

Two-thirds of those under thirty feel that health care is the responsibility of the government. More than half of Millennials want more programs for lower income Americans, even if this results in a greater national debt. These beliefs hold true, even though the distrust of government is highest among Millennials and Generation X.

While 62 percent of all Americans believe the government favors the interest of the powerful and wealthy, two-third of Generation X and Millennials hold that view. Compared to the older, Silent Generation, a mere 50 percent see the government as favoring the rich. When will these generations wake up and realize the real problem is that central banks are serving wall street and not main street?

The increasing income equality is emerging as a threat to capitalism itself as 50% of American millennials support socialism and communism. Millennials no longer believe that inequality can be solved by economic growth. They are rethinking the very fundamentals of wealth distribution and wage disparity. Automation is putting jobs at risk, and Millennials are less willing than any prior generation to wait and slowly accumulate wealth over a lifetime.

The call for fundamental change is global. How and when it will happen is uncertain. But capitalism, the system of government that Millennials’ great-grandparents firmly embraced, may be in danger of extinction if income equality continues its present upward trend which is mainly due to central banks distorting price discovery and serving wall street and avoiding main street.