Wealth Gap Burdens the Entire Economy
The increasing gap between the middle class and the wealthy has garnered a great deal of attention over the last several years. Even before Occupy Wall Street’s rally against the 1 percent was a whisper in the wind, there were significant moral outcries against a growing inequality in income. But beyond the ethical implications, economists believe this wealth disparity in itself is crippling the American economy as a whole.
It is widely agreed upon that the 1950s were one of the most economically prosperous periods in U.S. history. A booming middle class and a powerful manufacturing base distinguished the era, which was nearly two decades before the wealth gap truly began to widen. This is often viewed as a golden age for the United States, and the soaring economy was certainly responsible – at least in part – for the overall level of national satisfaction.
During the 1970s and 80s, however, U.S. manufacturing began to weaken, and the middle class began to lose some of its economic strength. According to Census Bureau data, roughly 5 percent of the annual national income has been transferred from the middle class to the rich since 1980. This amounted to a shift of $650 billion dollars in 2010 alone – money removed from the entire middle class and redistributed among the richest 5,934 households. Economists believe the sputtering economy has a direct correlation to this trend.
These massive gains in income for the rich are strikingly similar to that of the 1920s, during the years leading up to the Great Depression. Large disparities in wealth create financial instability and a general mistrust of investment firms – which we are already seeing in droves. If the parallels endure, Wall Street could lose out on decades of investments by jaded potential stockholders – the Dow Jones didn’t fully recover from the Depression until 1954. In general, economic expansions tend to last much longer in economies where wealth equality prevails. According to IMF economist Jonathan D. Ostry, a current American expansion might last only one-third as long as it would’ve in the 1960s.
The conflict between classes also fosters political uncertainty, another symptom that has already reared its ugly head. As the rich and poor move further apart, their ideologies become polarized, and each demographic clings to the contempt for its counterpart. This lack of stability deadlocks and ultimately immobilizes the entire nation. A division of this magnitude ties the hands of politicians, preventing progress on any level, be it economic or social. Sound familiar?
It is obvious that a growing disparity in wealth steered the U.S. in a disorderly direction. Many of the snags that made the Great Depression such a long-term catastrophe were brought about by decisions that led to this same inequality. Nations that are less divided economically are less divided politically and socially, as well, and this is when prosperity reigns supreme. If the people of the United States want to rebuild another “golden age” like the ‘50s, it would be prudent to start strengthening the middle class again, regardless of what percent you currently belong to.