Out of every single developed nation on Earth, the United States has the widest gap between those who are rich and those who are poor. Wealth can be described as the net worth of a person, or the value of their assets minus their liabilities (“Wealth Inequality”). In the United States, the net worth of the top twenty Americans is worth more than half of the United States population (Kristof). If this sounds concerning, consider the very real scenario of the wealthiest one percent controlling half of the nation’s income (Porter). What is to be said of the land of the free when the land is actually controlled by the elite few? Many have come forward offering solutions to wealth inequality, but few have made such a mark as Thomas Piketty, the author of “Capital in the Twenty-First Century” (Hubbard). Piketty suggests a progressive wealth tax with the purpose of closing the gap between returns on capital and rates of economic growth. The reason this is necessary is because returns on capital are growing at a much faster rate than the overall economy (Porter). Despite opposition from venture capitalists, stockholders, and republicans, the facts remain. Wealth disparity will continue widening until a handful of people control the entire United States economy andin order to close the gap, the United States needs to approach the problem from a wealth redistribution point of view (Porter). It’s important to be clear on what “wealth” means in this context. According to the Oxford English Dictionary, the first definition is, “The condition of being happy and prosperous; well-being” (“Wealth, n”). This describes wealth as an emotional state rather than a concrete value. However, in this paper we will use Investopedia’s definition for wealth because they are most well known and reputable investment education website.“A measure of the value of all the assets of worth owned by a person, community, company or country. Wealth is found by taking the total market value of all the physical and intangible assets of the entity and then subtracting all debts”(Investopedia). Leaving emotional context out of the paper is important since this discussion is based on economic laws and happiness is a subjective measure.
It is additionally important to differentiatebetween wealth inequality and income inequality. Income inequality refers only to a person’s yearly net income while wealth inequality includes income along with all of a person’s assets.Wealth inequality is a much more severe problem than income inequality because wealth grows faster due to the returns on capital. According to “r>g,” the law developed by Thomas Piketty, wealth grows faster than economic growth (Economist).In a study by Kaja Fredriksen, an economist at the Organization for Economic Co-operation and Development(OECD),
they found that assets have more of an effect on wealth inequality than debt (Fredriksen). This suggests that debt caused by insufficient income is not a main indicator of wealth inequality and the focus should instead be on the inability to invest.
Nicholas Kristof, a two-time Pulitzer Prize winner and contributor to The New York Times, argues that wealth inequality results from a “rigged” economy and political system: “It seems to me to make more sense to target solutions than scapegoats, but sense is often in short supply in politics” (Kristof). Kristof is talking about the tendency of American politicians to point fingers instead of proposing solutions for wealth inequality. An avid democrat, in his efforts toward equality for all, Kristof,rejects the“blame-game” and advocatesa solutions-based approach instead: “So may the insurrection gain ground but be channeled not by punishing scapegoats, but by pursuing reforms that make the system work better for ordinary Americans” (Kristof).Blaming the powerful elites of society lights a fire, but doesn’t plant anything to grow. While not explicitly mentioning Thomas Piketty, Kristof seems to support his ideals.
Piketty possesses a large following, but with recognition comes opposition. Anne Vandermey, a reporter for the conservative Fortune magazine, interviewed economic socialist Joseph Blasi. A critic of Piketty, Blasi says he has a more feasible solution to wealth inequality. He believes that letting employees take capital ownership in the company they work for will smooth over the wealth inequality by bringing everyone into the mix. His ideas come from the Homestead Act of 1862, which gave each U.S. citizen 160 acres of land. He believes the right to own capital is rooted in the values of this nation and that’s where equality will come from (Vandermey). However, what Blasi fails to consider is that our current fiscal institutions are badly skewed in favor of the wealthy and not the working class (Porter). Blasi does admit that corporations aren’t in favor of employee ownership since it “hurts the bottom line,” but he believes that tax incentives could change the corporate world’s mind (Vandermey). Blasi’s argument is not very convincing because he does not present proof for why tax incentives are what it will take for corporations to hop on board. It is difficult to credit a poorly backed solution presented by someone who doesn’t actually believe in the problem. Tax incentives perpetuateconditions in which corporations do not pay taxes. It changesthe direct cause inequality without actually reducing inequality. Lowering income taxes on the richest Americans over the last century has contributed to the current wealth inequality.Corporate tax incentives may similarly contribute—but on an even greater scale.
Senator Bernie Sanders is currently running for the 2016 Democratic nomination. Quite possibly the biggest advocate for wealth equality, Sanders has brought the issues into the spotlight where policy makers can take a hard look at the facts. He sums up his opinion on wealth inequality this way: “There is something profoundly wrong when one family owns more wealth than the bottom 130 million Americans” (Income and Wealth Inequality).The Sanders campaign serves as proof of a societal rift that has reached its limit. Unites States citizens do not want inequality. Despite conservatives saying that it’s good for society and capitalism (Pennington),human nature does not supportinequality. A study by Michael Norton and Dan Ariely, two business school professors, showed that 92 percent of Americans would rather a completely equal society than an unequal one (Kristof). If disgust for wealth inequality goes beyond a campaign message and into statistical analysis with the same conclusion reached, then why is the reality still being questioned?
Sanders echoes the cause of Thomas Piketty. His campaign promises that, “He will create a progressive estate tax on the top 0.3 percent of Americans who inherit more than $3.5 million” (Income and Wealth Inequality). Sanders’ plan takes Piketty’s solution and turns it into a realistic policy that can be written into law. It has been proven that corporations hold an overwhelming amount of power in the U.S. Robert Monks, the founder of a law firm specializing in corporate governance, believes corporations are largely to be blamed for the current economic disparity. Monks writes, “Fiduciary institutions own 80 percent of the outstanding shares of corporate America and thus bear at least 80 percent of the responsibility for present circumstances as well as 80 percent of the onus for saving the system itself”(Monks).This is why the Sanders movement is essential to making policy changes. The current fiscal systems will not work towards a more equal nation so these institutions must be changed. (Income and Wealth Inequality).
Opponents of Piketty and Sanders will use terms like “dreaded socialism” when describing solutions to wealth inequality in order to discredit the movement (Pennington). However, by political definition,Sanders is not a socialist. He is a democratic socialist. Democratic Socialism, as defined by the Oxford English Dictionary, is “A form of socialism pursued by democratic rather than autocratic or revolutionary means, esp. by respecting a democratically elected legislature as the source of political change; (also more generally) moderate or centrist socialism.” (“democratic socialism, n.”). Sanders’ democratic socialism is consistent with the democratic principles Americans agree are central to our nation. Sanders said in 1990 after being elected into the House of Representatives, “Understand that my kind of democratic socialism has nothing to do with authoritarian communism” (Bump). It’s easy to use scary words like “socialism” and “communism” to circulate fear of a new idea while ignoring the actual purpose of the movement.
Maura Pennington, a contributor to Forbes online magazine, attacks redistribution of wealth by saying, “Poverty and social dysfunction are what plague us” and refers to those at the top as “a free class of people that continuously shifts and grows,”claiming that this top tier is accessible to anyone who wants to get there (Pennington). However, Pennington’s“free class of people” comprisesthe same wealthy demographic that perpetuates the current inequality (Isaac). Alan G Isaac of the Department of Economics at American University conducted a study on “intergenerational propagation of wealth inequality,” or in other words, what groups of people are causing and/or perpetuating wealth inequality. Isaac found that “class mating” between the wealthy sustains inequality in the long run. This suggests that, “bequest and mating practices can be a key determinant of economic inequality” (Isaac). His study directly addresses the “ceiling,”a variety of factors that combine to prevent the average American from becoming wealthy. Pennington may be right to say poverty plagues us, but she misses the point. Her “free class of people” create and perpetuate poverty.
It’s clear that political influence and corporate power plays a large part in deciding whether the wealth gap will narrow or widen. It appears that the corporations only see the interests of their stockholders, while politicians see the interests of the corporations who fund them (Monks). Real change can only come from people who look at the problems without ulterior motives and influences. These people agree thatthat the wealth gap is a problem demanding a solution—that wealth redistribution is a necessary change. It’s written in the laws of economics (Hubbard) and supported by studies on wealth in family demographics (Isaac). Piketty brought the idea into the spotlight, but it’s the citizens of the United States who can put it into motion, largely through the campaign of Bernie Sanders who directly supports the cause (Income and Wealth Inequality).