The Gap Between the Poor and the Super Rich

There has always been a large gap between the poor and the super rich. In the USA today that gap is really between the super rich (let's say for the sake of argument the top 1%) and everybody else. In 1990 the richest 1% in the US owned 40% of the countries wealth. This figure comes from the Federal Reserve a corporation not known for spreading liberal conspiracy theories. This inequality in wealth distribution is nothing new to the US it is the inevitable result when the financial oligarchs have too large a say in the political process in particular in the laws that govern taxes and corporate governance.

Just as bad as the inequality in wealth distribution in the US is the inequality in the income distribution. This level of inequality, which is still growing, has not been seen since the years just before the Great Depression. How do we know this? There is a very simple mathematical means to measure the inequality in wealth distribution it is called the Gini coefficient or index.

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Understanding the Gini index is not that complicated. It is a number that has a range of zero to one. Where zero means perfectly egalitarian wealth distribution and one means perfectly unequal wealth distribution. For example if there was a country with a population of 100 and that country had a 'national wealth' of $100. If everybody owned one of those dollars then the Gini index for that country would be 0. If a single person owned the entire $100 and 99 people had nothing then the Gini index for that country would be 1. So how do you calculate a Gini index? For that you need to do a little math and it is based on something called Lorenz integration.

The graph above shows a very alarming trend of a growing Gini index (inequality) in the US. However I found the plot of the Gini index of over 100 countries plotted against GDP even more alarming. You can find it here.

The more interesting question (unless you just love math) is what does a high Gini index mean? Well it means that to afford the house, food, cloths, healthcare to raise a family that one wage earner could pay for many decades ago now requires two jobs for two members of the family while still slowly sinking into debt

Once you look up from the pile of debt and realize that it wasn't always like this (just look at the Gini index over time) the very next question that you should be asking is; how did this come to be?

The transfer of wealth turns out to be a complex discussion. It happened through a confluence of events and people all working towards the same goal. It would be easy to try to read into the previous statement the notion of a conspiracy theory, however no conspiracy could have been as efficient at the transfer of wealth that has taken place. What is more efficient than a conspiracy (besides a dictatorship) it is the magic hand of greed coupled with corporate influence of government under a free market system gone berserk.

It was an unplanned, uncontrolled, unregulated move that; suppressed real wages, increased the cost of living, move from a manufacturing economy to a service industry economy (meaning lower wage service jobs for the many and huge bonuses for the financial services industry few) and here is the crucial part, funding the entire transformation with a tsunami of credit (which helped the financial services industry grow from 8% of the GDP in the 70's to over 40% of the GDP today).

Of course, credit is just a euphemism for debt. The drive to suppress real wages meant that people had no choice but to acquire debt to pay for living expenses. At the same time, new laws were enacted to grant greatly increased protection to credit card companies against bankruptcy, plus the caps on interest rates and various fees was raised. The common right wing rant that it was all due to people living beyond their means and buying luxury and frivolous items on credit is nonsense. It is a fallacy in two regards. The first is that a large number of people are putting mortgage payments, utility payments and food expenses on their credit cards. In other words, basic necessities. The second is that the US economy is 70% consumer spending. In order for corporations to make money, they needed Americans to be spending money. This led to the financial services industry to making it as easy as possible for people to continue to buy products using credit. Even with the decline of sub-prime mortgages, new methods have sprung up to take advantage of people. Lay-away is becoming increasingly popular, allowing corporations to simply put the product back on the shelf when the payment plan is defaulted on. Rent-to-own and payday loan companies charge up to a 100% interest rate, plus fees. No credit and low credit loans become the only things available to people without substantial financial security. Without real wages this is the only way for the economy (GDP) to grow. The financial services industry grows, and consumers dig themselves into a hole with debt designed to never let them out. But hey, two out of three isn't bad right?

[ 1 ] Chart constructed with data from