The wealth gap between the rich and poor has always been an issue in America, with the top 1 percent now owning more than the entire middle class. There has never been an era with as much differentiation between the top and bottom as the Gilded Age, a period of major materialism and social and political criticism between 1870-1900. People tend to focus on the glamorous side of the Gilded Age and the never before seen wealth of the “robber barons” such as Rockefeller, Carnegie, and Morgan. Unfortunately, the Gilded Age to a working-class American was a period of grinding poverty, racial hatred, labor strikes, and corrupt politics (Bacon). The Gilded Age was the starting point in American history where income inequality went from a negligible gap to a major issue that still affects American workers today. Many economic experts and historians fear that America is entering a second Gilded Age (Bacon). Due to the decline in unionized jobs with benefits, the real value of minimum wage lowering, and the growth of low paying service sector jobs (Britannica), this fear is understandable. Action must be taken to increase the net worth of the bottom half of America’s population and to prevent the top one percent from taking advantage of laborers.
I am personally interested in researching the wealth gap because it has been relevant for hundreds of years, and income inequality has greatly affected the population of Oakland. With Bay Area prices skyrocketing over the last decade, gentrification has affected the lower class greatly, changing the feel of Oakland significantly. I have always been interested in economics, and this topic has links to a research project I did last year, which was on the American government’s relation to monopoly power. I want to discover how and why the wealth gap has changed over time, as well as to identify possible remedies.
See my full interest essay here.
History of the Wealth Gap:
Around the turn of the 20th century when the Gilded Age was in full swing, the stark differences in income and lifestyles between the top and bottom started to increase rapidly. Due to mass immigration to America at the time, the racialization of new citizens was “such that some newly arrived immigrant groups were slotted into positions of relative social inferiority in a sequential manner that related to their time of arrival and their perceived cultural attributes, collective skill, educational levels, and supposed innate intelligence”(Orsner). This created a social hierarchy where upper-class white Americans were always on top of the pyramid, thus setting in place an economic system where wealthy business owners or robber barons exploited lower class and immigrant laborers for profit. On the other side of the poverty, unemployment, and anguish that over half of American’s were experiencing, “18 (business) firms of only 180 members … controll[ed] total resources or capitalization of $25,325,000,000”(ProQuest). Our modern economy was born in the Gilded Age when the industrialization era was at its peak, but during this time the working class was pushed into poverty and trapped at the bottom of society for the benefit of the very rich.
Wealth inequality started to plateau after the Gilded Age, but when the Great Depression hit in the early 30s, the wealth gap also fell significantly. Most countries including the United States saw a rise in the bottom half ‘s share of wealth. While less difference between the rich and poor is always beneficial in a capitalist economy, the balancing of wealth was mainly due to economic recession: “Wars and other macro-shocks destroyed financial wealth and shifted the political balance toward the left. The labor force grew more slowly and automation was less rapid, improving the incomes of the less skilled. Rising trade barriers lowered the import of labor-intensive products and the export of skill-intensive products, favoring the less skilled in the lower and middle ranks”(Lindert and Williamson). Despite the positive progress in income distribution, the Great Depression caused too much turmoil and hardship for America to be considered progress towards reducing the wealth gap. However, the solutions and reforms that ended the Great Depression and got the American economy on its feet again were a breakthrough in lessening the wealth gap.
The wealth gap remained tolerable for roughly half a century after the Great Depression due to extra cautions taken including “tight financial regulation, which held down the incomes of those employed in the financial sector and the net returns reaped by rich investors”(Lindert and Williamson). This regulation limited the growth of the economy, but it fixed the wealth gap without harming any demographic or the market. Unfortunately, over the last generation inequality has spiraled out of control. Being dubbed the Gilded Age 2.0 by many, only “this time the key transformative product has been the silicon chip —and the digital economy it powers”(O’Donnell). In the last two decades, the tech industry has not stopped competing and rising, once again causing unimaginable wealth for few while leaving workers struggling to get by. The parallels between the Gilded Age and modern-day are concerningly similar, and if we continue trending the way history has, a major economic crash is in our near future.
If you would like to check out my full historical background essay, here it is:
Our Current Problem:
While the nation’s wealth gap is a prominent issue, it is a larger problem in urban metropolises, such as the Bay Area. According to the U.S. Census Bureau, the median household income in San Francisco rose from $55,761 in 2000 to $104,552 in 2018, which is 1.73 times more than the national median household income average. With this influx of wealth in an already expensive area came a large increase in living costs in the Bay. Lower and middle-class citizens who have lived in the Bay their whole life can no longer keep up economically with gentrification, the housing crisis, and the surge of Silicon Valley. Vast income inequality has caused major harm to my hometown and all of America, so I explored what could be done to fix this problem.
Income inequality has always been tethered to race, and because America was built on racial oppression and discrimination, it is unlikely that this gap will ever close completely. Disappointingly, the burden put on minorities is shockingly large: “Pew Research Center reported that the median wealth of white households is 20 times that of black households and 18 times that of Latino households. From 2005 to 2009, wealth fell by 66 percent among Latino households and 53 percent among black households, compared with just 16 percent among white households”(Poblet). The problem is exemplified due to America’s hierarchical capitalist economy because our society was designed to benefit those on top it is already difficult to climb out of the lower class. The whole concept of wealth trickling down the class pyramid has failed greatly, and minorities are feeling the pain the most.
The Bay Area possesses numerous causes for wealth inequality that are not applicable to less urban places. The most widespread problem is housing, which has emerged as a crisis in San Francisco and Oakland, with homelessness rising unbearable amounts recently. The main reason affordable housing is so hard to come by or create is rather simple; homeowners will always want the value of their home or homes in their area to increase(Glaeser). Furthermore, people do not like new housing being built, because it will increase crowds and bring in people from different socioeconomic groups. Once again, America’s economy was made to benefit those on top, and in this case, homeowners are unlikely to push for affordable housing if it affects them negatively. Renting is not any better, for the median rent for a two-bedroom apartment in San Francisco is nearly triple the national average. This would not be an issue if wages were adjusted to account for high rent, but minimum wage is far too low when compared to the cost of living in the Bay. California and the Bay Area are so much more expensive due to high taxes and the extreme popularity of the state.
Finding long term solutions to the wealth gap has proven to be challenging for the government and other private organizations. One of the most debated and controversial potential solutions to inequality in the Bay Area is Prop 13, which was passed in 1978. The bill was designed to prevent taxes from increasing too quickly, but loopholes and unexpected consequences in Prop 13 “have allowed big corporations to escape paying their fair share in taxes. Long term, we want to reform commercial property tax and establish a majority vote on taxes”(Poblet). Obviously, some businesses rely on not paying as many taxes as they should to get by, but far more are exploiting these loopholes to generate profit. If Prop 13 was repealed, it would balance out unfair privileges that wealthy companies have, and therefore lower the wealth gap because less money would flow into the pockets of those in charge. Just last year, California assembly members authorized bill AB 857. This bill allows the development of a public banking system in California, which is much more community-friendly. LA City Council President Herb Wesson stated that Californians “reject the belief that there is no alternative to the current system of for-profit banking that enriches a small portion of society while those who are kept out of it stagnate economically. A public banking system in our state will finally give power back to the people who’ve been hurt most by the banking industry’s predatory practices”(US Fed). Personally, I am skeptical of the effectiveness of this bill because of how rooted the current banking system is in our lives. If the public could transfer to public banking, the bottom 90% of citizens would get much more money reinvested back into their communities. Time will tell if these recent changes will create positive trends in income inequality.
What can you do?
Fortunately, there are endless ways for an individual to help fight the wealth gap, due to how widespread the issue is. Once it is safe to do so, I plan to take part in a strike with an organization called Fight for $15, a prominent action group in the Bay Area, and I encourage you to join me. Raising the minimum wage to $15 dollars an hour and promoting unions throughout California guarantees that unskilled laborers have enough to get by financially. Encouraging fair pay to workers is one of the easiest, simplest, and most accessible ways to get involved in fighting inequality.
Macro solutions are the far more difficult side of decreasing the wealth gap. When the poor benefit, it generally translates to the wealthy giving up something, but because the wealthy hold almost all of the power in government, lower-class citizens are normally hung out to dry. A solid start in attacking the wealth gap would be a combination of increasing the minimum wage, creating more affordable housing, and forcing large companies to help the lower classes or distribute wealth among their employees more evenly. While these solutions vary in difficulty, they all involve the wealthier giving up something. Raising the minimum wage and building affordable housing would allow lower and middle-class citizens to keep up with the always increasing living costs in the Bay Area. Requiring large corporations, especially tech companies in Silicon Valley, who are making profits similar to oil companies a century ago, to give back to their employees and surrounding communities would also decrease income inequality. This is just a minor start to further fixing the wealth gap, and everyone will have to compromise and make sacrifices to fight the wealth gap together.
Here is my complete Current Problems and Solutions essay.
Thank you for taking the time to read my project! Please comment below and continue the discussion, I will try to answer any further questions.
Here are some questions to think about:
- How has income inequality affected you or the people and places surrounding you?
- There are so many way to get involved in lowering the wealth gap, is there something you plan to do or would encourage others to participate in to fix this issue?