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Falling Between Classes: The Wealth Gap in America

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Why Should You Care?

The wealth gap may be much worse than you think…or want.

(Politizane)

So How Did We Get Here?

Colonial Inequality

The problem of a wealth gap began from the very first time European colonizers set foot on American soil. A majority of immigrants going to the English colonies, for instance, were indentured servants who signed contracts giving up their labor and freedom for four to seven years in exchange for passage and possible land in the New World. These servants were subject to harsh conditions for no pay, while the landowning class benefited from their labor; thereby creating a notable wealth gap. However, the wealth gap would only worsen when indentured servants were largely replaced by an even more oppressed labor force: slaves (Ekirch).

Slavery and the Creation of the Racial Wealth Gap

Similar to indentured servants, slaves were unpaid; however, unlike indentured servants, their term was for life. This benefited an elite class of planters, the one percent of the population who owned large numbers of slaves and land. So, when the southern economy boomed in the 19th century, with the wealthiest 12 counties all in the slave south; the planters reaped all the benefits while the slaves were left with nothing (Quigley). Even after the abolition of slavery, the wealth gap between ex-slaves and planters was substantial. Sharecropping had largely replaced slavery as the South’s major economic institution after the Civil War and left freedmen economically stagnant.  Landowners would give freedmen land to farm on in exchange for a majority of their crop as rent; the portion the freedmen received was often meager and left them in crushing debt. Again, ex-slaves were left with nothing while the landowners, often the planter class who had enslaved them before, made off with a majority of their crop and subsequent earnings (“Free But Not Equal”). Meanwhile, America was about to begin an age of unprecedented industrialization and, with it, unprecedented economic inequality.

The Gilded Age: Workers’ Exploitation behind a Thin Gilding

Millionaire Cornelius Vanderbilt II, heir to the Vanderbilt legacy and riches, lived in a mansion with over 130 rooms and even a personal ballroom; the other two-thirds of New York lived in tenement housing, which was cramped, unsafe, and filled with disease.

The Gilded Age, spanning from the 1870s to 1900, saw striking growth in railroad, steel, oil, and banking industries, just to name a few (US History 10 Notes). However, this growth came on the back of the laborer: by 1900, the average worker went unemployed for three to four months and made only four or five hundred dollars a year (“Labor Strikes and Riots”). Meanwhile, company heads made exorbitant amounts of money. John D Rockefeller, for example, ran the Standard Oil Trust monopoly and amassed a net worth that once reached 900 million dollars (Trolander). Overall, the Rockefellers of the age, the one percent, earned every one out five dollars produced by the economy (Porter). Clearly this wealth gap was quite extreme; however, working people were finally able to gain some economic equality with the resulting Progressive Era.

The Progressive Era: Economic Change for the Little Man

The Progressive Era, running from the 1890s to the 1920s, was a time of great economic, political, and social change in America. Luckily, such changes favored the working lower and middle classes. Minimum wage legislations were passed for the first time, with 14 states setting minimum wages for women and children in just 11 years (Prasch). The National Child Labor Committee and the Child’s Bureau were founded to stop child labor, which was often extremely exploitative and dangerous (Derickson). Even workers’ compensation was enacted for the first time, with legislation ensuring workers would be paid after workplace accidents (Fishback). Despite such reforms, wealth inequality came roaring back as strong as ever with the culmination of the era in the 1920s.

The Roaring 20s and the Great Depression: Credit to Bust

(“The Roaring 20’s”)
The lower classes didn’t have enough wealth to buy up all the mass production; advertisements such as these pushed them to buy it on credit instead. Eventually, such credit buying led to an economic crash and the Great Depression.

During the 1920s, dubbed the “Roaring Twenties”, the 0.1 percent earned the same amount as 42 percent of the country (“The Great Depression”). This inequality eventually led to mass debt; or as Louis Hyman puts it “an industrial economy based on mass production requires mass consumption. Either credit or wages must be provided to keep the wheels of industry turning. When wages stagnant and inequality widens, debt gains nearly unstoppable momentum” (Hyman). In other words, because of wealth inequality the middle and lower class didn’t have enough money to buy up everything the economy was producing. So instead, they borrowed debt. So much debt, in fact, that sales for mortgage bonds increased by more than a thousand percent from 1920 to 1925 (Hyman). Sadly, when the whole economy is running off money that is yet to be earned, an economic downturn is almost inevitable. In this case, the stock market crashed in 1929 and dropped by almost 40 percent (Hyman). The crash unleashed a terrible economic depression: in just a decade, over 15 million Americans were left unemployed, poverty and homeless increased, and industrial production fell by 47 percent (Pells).

FDR and Economic Reform

Following the depression, the government took preventative steps to reform America’s economy and insure we would never again see pre-depression levels of economic inequality. As part of Franklin Roosevelt’s “New Deal”,  the first national labor standards law, the Fair Labor Standards Act of 1938, was passed. It gave workers the right to a minimum wage, a maximum hours of work, social insurance, and the right to organize (Mettler). However, the results were a mixed bag: in the fifty years following the Great Depression economic inequality never reached the ominous levels of the 1920s, but the one percent still took in more than a quarter of all wealth in 48 out of these years.

How Bad is it Now?

(Moore)

Sadly, today the wealth gap yet again rivals that of the pre depression era. Inequality has been trending upwards for decades; in 1970, for example, the one percent took home 9 percent of all income, in 2017 they took in a whopping 21 percent (“Income Inequality”). In under five decades, the one percent has doubled their share of the national income. Consequently, income concentration is reaching historically dangerous levels. In 1928, a year before the stock market crash that would dawn the Great Depression, the 0.1 percent accounted for 12 percent of income. It took until 2007 until the 0.1 would again hold 12 percent of the income (“Income Inequality”). The Great Recession followed just a year later. History had repeated itself. Again, income inequality caused middle class and lower class consumers to accumulate debt and create a credit bust (Yamarik). Moreover, the Great Recession ultimately led to bank collapses, decreased income, and stagnated economc growth just like the Great Depression some eighty years earlier (Auerbach).

(“Income Inequality”)
Research has shown that wealth inequality spiked to similar pre depression levels right before the great recession.

Terribly, the racial wealth gap has also survived due to centuries of racism and discrimination. During the Great Recession, for example, African Americans lost 71 percent of their stock investments compared to only 9 percent for whites (Herring). Inheritance, the process that often creates the one percent, also skews white: for every dollar inherited by a white child, a black child receives only 8 cents. One study even found that the average wealth for whites was 325,125 dollars higher than the wealth for African Americans (Herring).

What Should We Do?

Start with the Man In the Mirror: Change Your Beliefs

If we are to finally eradicate these long lasting gaps, we will need a complete upheaval of the way we view wealth in America. Just a month ago, Ivanka Trump lashed out against the Green New Deal by saying “people want to work for what they get” (Smith). This outdated idea of social darwinism, that people are poor because of their own doing, plagues not only presidential advisers but all classes of American society. Masses of American people have been brainwashed to believe that it is not the government’s responsibility to help the poor and support their laziness. In reality, our government was built on the ideals of human rights: “life, liberty, and the pursuit of happiness”. In order to pursue happiness, an individual needs access to necessities such as housing, food, water, and education. These are basic human rights agreed upon all around the world; all but two countries have agreed to the Universal Human Rights Declaration that states “everyone has the right” to “food, clothing, housing and medical care and necessary social services” (Universal Declaration of Human Rights).  Yet in our society, one must pay for their housing, meals, water, health insurance, and sometimes even their education. Considering, then, that one needs wealth to obtain both American and internationally declared human rights: wealth becomes a right unto itself.

Your Vote Matters: How the Government Should Tackle the Problem

Beyond each individual then believing wealth is a right, we also need a government that will step in and protect this right. Since there is only a finite amount of money in the economy, if the government were to insure everyone has a basic income it would require taxing the wealthiest people in our society much more. As money flows from the rich through our government to the poor and working class, the wealth gap would be shortened. To these ends, I propose that the government provide an allowance of 1,000 dollars a month to lower and middle class citizens. If such an allowance was granted to the bottom 75 percent of earners, a total of 246 million people, the total cost would come to around 3 trillion dollars a year (“U.S. Population”). This is a large sum, however it is not impossible. We could tax the rich more: specifically, raising the income tax on all millionaires, raising the inheritance tax, taxes on corporations, and even adding an 100 percent tax on all wealth of anyone making more than 10 million dollars. Moreover, we could cut spending on our military and prison systems. On top of this added revenue, I believe this project would benefit the economy by giving the lower class money to spend on consumer products and the incentive to accumulate wealth (while today’s welfare has cut offs that encourage people to make less money in order to keep receiving benefits). Eventually, it might even pay for itself. Further, if the government were to follow these plans, each US citizen would make at least 12,000 dollars a year and no person would have more than 10 million dollars. Not only would this completely slash our wealth gap, but it would also protect the basic human rights and dignities of every American citizen;  and ultimately, that is priceless.

Thanks for reading. I would appreciate any feedback or constructive criticism on the google form below; I am very excited to hear what you all have to say.

Also, if you are curious or want to know more about why I’m interested, the history of the problem, the current day state of the problem, the solutions I proposed, or my sources just click on links above for more in depth papers and essays.

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COMMENTS: 3
  1. April 26, 2019 by Arun Parwani

    Cooper, this was super great! The image of the Vanderbilt mansion and the tenement housing really got to me. It was a shocking image, and really got to the point. Great job!

  2. May 02, 2019 by Francis.Davis

    Cooper, I really enjoyed the history lesson on income inequality – and then the parallels to modern day. Wow! I think that we can all agree in a perfect society, the government should not need to step in with matters such as personal wealth – but society will never be perfect will it! My question is: how do you think government initiatives can straddle the fine line between giving financial help where it’s needed but also trying to respect the autonomy of individuals? Lastly, I think the original phrase in the Declaration of Independence was “life, liberty, and the pursuit of property”. This country, at least at the outset, was founded for and by white males to make money. I think we all have the power to change that narrative today, however, it is important to accept the ideals of our founding father’s as imperfect.

  3. May 02, 2019 by Taichi Kakitani

    Your informative video in the beginning really helps highlight the problem of wealth inequality especially since it compares expectations to reality. I also really like how you connect this problem to the history of the US. By explaining the development of the issue through changes in history, it is easier to understand the roots of the problems.

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