New academic research published this summer offers empirical proof that the growing wealth inequality problem in the United States is serious, and, most importantly, could not have happened if financial markets were truly fair. The study therefore provides factual proof for what many have long suspected: U.S. financial markets are “broken” in the sense the rules are subtly designed/interpreted to allow for exploitation by the wealthy.
To be accurate, the illuminating new statistical research does not “prove” that the massive and growing wealth gap seen in the U.S. today is due to the rich exploiting a “rigged” system, but it does show the levels of inequality seen now could not have happened if the economic system was operating according to prevailing models.
Understanding the scale of US wealth inequality
In the U.S., the top 1% take home about 20% of all income. That figure is up from less than 7% in 1980. The reasons for this huge rise in income and wealth inequality are not obvious. Some have suggested that the dramatic expansion of the finance sector, three decades of tax reductions or new technologies have enabled the rich to get so much richer. A number of conservatives have even argued that this huge swing of resources to the wealthy is “normal” and just a part of the operations of a capitalist economy.
Moreover, both history and statistics argue it is “normal” for a large fraction of income/wealth to be owned by a relatively small number of people. In fact, random chance guarantees that some will have larger investment returns than others, and then can invest more than those with less money and therefore grow even more wealthy. Ultimately, a handful will be fortunate enough and/or skilled enough to boost their wealth to extreme levels.
In other words, the simple fact of inequality alone doesn’t mean that the wealthy have any built-in advantage or the system is rigged.
U.S. wealth inequality too fast, too extreme to be “natural”
A paper published earlier this summer by a team of American and French economists and mathematicians finds that gigantic growth in wealth inequality in the U.S. doesn’t fit with current economic models.
It boils down to the fact that inequality has increased much too rapidly over the last few decades. Based on the traditional factors considered in economic models such as tax levels or investment income, this degree of change in wealth inequality should have taken a few centuries. The statistics make it clear that something outside of the normal operations of the economic system is empowering the rich to take an increasingly large share of the pie.
The academics suggest two possible reasons for the rapid increase in income inequality over the last couple of decades: the emergence of “superstar entrepreneurs or managers” who have unique skills or connections or hold key positions, or “superstar shocks,” for example, better access to information or investment advice that helps the rich in getting richer.
This new research offers strong proof that the growing wealth inequality is clearly related to “something” new and different in the workings of capitalism. Furthermore, it makes it crystal clear that the wealthy have, simply by virtue of their status as rich, the ability to make more money off their money than ever before in history.
In the interest of fairness, the U.S. Bill of Rights and the American Dream, it’s time we fix our broken economic system and stop the greedy rich pigs from overstuffing themselves at the public trough.
The researchers also note that their study confirms the conclusions of controversial economist Thomas Piketty. That is, wealth inequality has grown rapidly in the last few years because the rate at which wealth generates more wealth far outstrips the overall rate of economic growth.
See the academic research paper below.