Inequality is, undeniably, increasing in the United States. Wealth concentration is high and rising. The richest 1% of households in the U.S. have 29% of total wealth and the richest 20% have 77% of total wealth. Another way to frame this situation is that the top 1% have more wealth than the middle 60% of U.S. households. The trends in income show that we should expect to see the concentration of wealth continue.
Nobel-winning economist Robert Shiller has explored the topic of narrative economics, how stories impact our beliefs and perceptions in economics. Stories and heuristics determine how we frame economics and many other elements of life. Narratives about wealth and inequality are particularly powerful in the United States. As a society, we greatly admire the self-made millionaire and the entrepreneurs who create wealth out of new ideas and hard work. One might argue that this is a central narrative of our society. We are also a society that values fairness and civic mindedness. Our narratives on wealth and inequality in the United States reflect how we balance the ideals of self-reliance, merit, and competition with the ideals of a level playing field and the idea that everyone should have the resources to succeed. I see the mainstream narrative being that we, in the United States, aspire to equality of opportunity but not (necessarily) equality of outcomes.
Another powerful narrative in the United States is that parents aspire for their children to be better-off than they are. Families save up to provide their children with good educations and growth experiences. This has significant economic implications. As economist Juliet Schor writes, “Within the middle class-and even the upper middle class-many families experience an almost threatening pressure to keep up, both for themselves and their children. They are deeply concerned about the rigors of the global economy, and the need to have their children attend “good” schools. This means living in a community with relatively high housing costs. For some households this also means providing their children with advantages purchased on the private market (computers, lessons, extra-curriculars, private schooling).” This, in turn, leads to what Richard Reeves describes as opportunity hoarding which necessarily amplifies inequality.
As wealth becomes more concentrated, nobody wants to fall into the vast and growing population of Americans who are struggling to afford the basics. To this end, those in the top 20% are building a bastion of wealth and opportunity for themselves and their children. I am one of these people and I know that I am part of the problem. I don’t want my children to start at the same rung of the economic ladder as I did. I spent the first days of every college term running around between various offices at Georgia Tech to make sure that I got my loans and scholarships in place so that I could pay my tuition on time. Then I spent years paying off my loans. I made many choices due to the primacy of financial concerns. This is not what I wanted for my kids and I have worked to give them a better path.
In a free market economy, it may be that increased inequality is almost inevitable. Families with resources provide their children with greater opportunity, and these children grow up and transmit these benefits to their children. There are, however, ways that such a society can provide more opportunities for those who are less fortunate. The most obvious ways that we can level the playing field are providing free early childhood education programs, bolstering K-12 public schools, and providing higher levels of funding for community colleges and public universities. Public education also benefits society, providing a more capable workforce.
Without major policy interventions, I see a future in which inequality becomes even more extreme. Over the past forty years, we have been living off of the social investments made by previous generations. Many of the innovations that we enjoy were created by people who were helped along by access to great universities and a society that provided an array of opportunities. The challenge for the next forty years is to re-affirm our belief in the level playing field of opportunity and social mobility, and to extend these benefits to a more diverse population.
Geoff Considine on Finance and Economics 