Week 5 - Final Argumentative Essay (Wealth Disparity)

Wealth Disparity

GEN 499

Wealth Disparity

Introduction

Wealth disparity refers to the unequal distribution of the assets among the residents in the United States (Moran, 2008). Wealth consists of values of investments, homes, personal valuables, savings, automobiles and businesses among others. In the first quarter of 2017, the net worth of the US households and the non-profit organizations was said to be $94.7 trillion. If it is divided equally among the 124 households in the country, it would average to about $760,000 per family. However, 50% of the families in the United States which accounts to 62 million households have an average net worth of $11,000. Wealth disparity is a societal problem in that it increases the gap between the rich and the poor. To solve this problem, the government of United States should offer access to education and employment training among other social services to the poor and raise taxes on the wealthy individuals so that they can pay for these services.

Background information

Before President Obama State Union address in 2014, the media has made a report that the 1% of the top wealthiest individuals in the country owns 40% of the wealth in the nation and the bottom population that is 80% owns 7% of the wealth. Later after this announcement, the media gave a report that the richest 1% individuals in the US own more additional income that 90% at the bottom. The gap between that exists between the top 10% of the wealthiest people and the middle class is over 1000% and this increases by 1000% for the top 1%. This depicts that for an average employee to earn what a CEO earns in an hour, they need to work for more than a month. The wealth that is amassed by individuals is not factored in their household budgets or used for the daily expenditures but when it is combined with the income, it adds up to the total opportunity that a family has to secure of a certain standard of living. Wealth offers financial security to a family both in the short-term and in the long-term, bestows the social prestige, contributes to the political power and it can also be used in the creation of more wealth.

The primary cause of wealth disparity is financialization. This results when the leverage and asymmetry of information replaces innovation and the productive investments as the source of the wealth. When the profits that are derived from financializing of collateral and the leveraging of the bets exceeds the general wealth through the creation of products and services, the economy tends to be hallowed out and the perverse incentives of finacialization begins to drive all the business strategies and decisions. The rich people usually make the investments and if their returns exceeds the rate of economic growth, they continue getting richer and hence an increase in the wealth inequality (Moran, 2008). If for instance the economy is growing at a rate of 1% annually but on the other hand the investment returns at a rate of 5%, the wealthy individuals will only need to reinvest a fifth of their gains so that their fortunes can grow at the same rate as the economy and they can spend the rest for their sumptuous lifestyle. the rich do not consume 80% of their income and if they invest the returns which exceeds the rate of the economic growth as illustrated by Piketty’s model, they are able to reinvest the highest percentage of their annual gains this accumulates, it leads to the capital snowball and hence an increase in the wealth disparity.

One of the reasons why wealth disparity is a social problem is that it usually leads to the social problems. In this, we can argue that inequality usually lead to the social friction in that it can be a factor of precipitating high crime level where all members of the society tends to lose. This can have a more severe effect especially in the cases where inequality is perceived to arise from unfair allocation of resources and opportunities for instance in the case of monopoly power of wealth that is inherited. The other reason why wealth disparity is a societal problem is because it causes unemployment. Unemployment is the main cause of the relative poverty and it is considered to be a type of a market failure due to the fact that it represents inefficient allocation of resources in a free market. The other reason why wealth disparity is a societal problem is because health and social problems such as homicides, mental illness, alcohol abuse, imprisonment rates, teen pregnancy, over consumption of resources, low life expectancy and the lack of the social mobility are all strongly linked to it. Wealth inequality affects both the rich and the poor in a society. Living in unequal societies makes all people living in that society to be poor and as wealth inequality increases, the society becomes poorer. Wealth inequality contributes to lower educational attainment, increased crime rates, lower cooperation and trust of the government, poor health and lower spending of capital among others.

Solutions

Wealth refers to the ownership of the economic elements in a society that are productive such as corporations and land. It is the wealthy people in a country who control the direction of the economy and they own an increasing share of what is produced. As the influence of the wealthy people in the society increase, they usually avoid to be held at a similar level of accountability in the democratic politics while the poor people in the society find themselves vulnerable. The solution to the problem of wealth inequality is shifting the financial risk from the state to the individuals. In the finding a solution to the inequality, the Republicans argues in the favor of the ownership society whereby privatization of the social insurance, removal of the investor protections and the expansion of the home ownership is I line with the interests of the workers in the anti-regulatory interests of the wealthy people. On the other hand, the Democrats argue that wealth inequality can be solved by focusing on education and assisting the poor people in the building of the wealth through saving programs. These approaches require greater personal responsibility for the market failures and risks and discredit’s the role of the state in the regulation of the markets and in the provision of the public social insurance.

Instead of increasing the purchasing power of the people, the US should focus on removing the basic needs in the market. In the case that the social security was replaced with the private savings account, many people would have more wealth bit in real sense, their actual security would decline. This would thus make some time such as the elderly to struggle in accessing the services and that’s why social-wealth programs such as Social Security plays a very imperative role in the fighting of wealth inequality than other privatized solutions (Konczal, & Covert, 2014). Public programs such as free education and universal education also serve the same function where they offer social wealth to people rather than boosting their savings. For wealth equality to be achieved, wealth should be brought under democratic accountability.

Interpret statistical data

The journal article, “The Dynamics of Wealth Inequality and the Effect of Income Distribution,” by Berman, Ben-Jacob and Shapira, (2016)), focuses on the rapid increase of wealth inequality and effects on income distribution. It perceives that controlling the income distribution using income tax and other macroeconomic policy instruments is effective in the regulation of the wealth distribution. The information from the study is valid and reliable in that it uses historical values in the estimation of the model parameters so that it can produce the historical behavior of the wealth inequality in the US in the period 1930-2010. The model offers a valuable tool for estimating the effect of the income tax and personal savings on the wealth inequality. The limitation of the research is economic mobility as it has a small effect on wealth inequality in the country. The second resource, “On the Evolution of Income Inequality in the United by Bryan & Martinez, (2008), looks into the rise in the income and wealth inequality in the United States. The source is valid and reliable in that it looks at the trend of inequality among individuals and this can be repeated under the same conditions to generate similar results. Increase in inequality in the article is explained by an increase in inequality at the top of the income distribution.

Thirdly, the article, “Wealth, Income and Power” by Damhoff, (2017), depicts the distribution of income and wealth in the US and how the two can be used as power indicators. Wealth is considered to be a very powerful resource in the exercising of power. It can also be used in the shaping of the social environment in general for the benefit of the wealthy. The limitation of the research is that it does not look into the consequences of wealth in relation to power on the poor people and the middle class. One of the positive ethical outcomes that will arise from my solution is that equality will be achieved in the society as all people will be in a position to offer the social services offered through various programs such as social security and free education. The negative ethical outcome that will arise from my solution is that legal issues are likely to arise as the rich do not want to be taxed more so that the money can be used to deliver services to the poor. The ethical issues related to the outcomes are confidentiality. The researcher is supposed to keep the information given by the respondents in the research private.

Ton sum it up all, it is clear that the problem of wealth inequality can only be solved through the provision of social services to the poor people in the society such as free education and social security and health programs and taxing more on the rich to pay for these services. The main cause of wealth disparity is financialization whereby the wealthy individuals invests their resources and if their returns exceeds the rate of economic growth, they continue getting richer and this is what increases the gap between the rich and the poor in the society. The wealthy people do not spend much of their incomes and they thus reinvest the returns that are greater than the rate of the economic growth thus resulting to the capital snowball. Adoption of the democratic approach where the government focuses on the delivery of services to the people such as education and health rather than assisting them to boost their savings is the best way to solve the problem of wealth inequality.

References

Berman, Y., Ben-Jacob, E., & Shapira, Y., (2016). The Dynamics of Wealth Inequality and the Effect of Income Distribution. Retrieved from http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0154196

Bryan, K, & Martinez, L., (2008). On the Evolution of Income Inequality in the United States. Economic Quarterly. Retrieved from http://kevinbryanecon.com/BryanMartinez.pdf

Domhoff, W, (2017). Wealth, Income, and Power. Who Rules America? University of California at Santa Cruz. Retrieved from http://www2.ucsc.edu/whorulesamerica/power/wealth.html .

Konczal, M., & Covert, B., (2014). The Real Solution to Wealth Inequality. Retrieved from https://www.thenation.com/article/why-its-time-take-our-basic-needs-market/

Moran, B. (2008). Race and wealth disparities : a multidisciplinary discourse. Lanham, Md: University Press of America.