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Economic Inequality: An Introduction

Economic Inequality: An Introduction 

by Steve Greenlaw, University of Mary Washington 

 

Brought up on the Declaration of Independence and the idea that all people are created equal, Americans have traditionally described themselves as living in a classless society. This classless society meant that individual effort and talent contributed to one’s place in society. The vast majority of Americans, it has been believed, are middle class.graph showing how much was earned by the wealthy in U.S.[View Image]
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The highest-earning 20% of families made more than half of all U.S. income in 2018
Pew Research Center

Looking at the data, however, it’s clear that economic inequality exists. But what is it? Economic inequality is the unequal distribution of income (earnings) or wealth (net worth or savings) in a society.  For example, in the United States, the top 20% of citizens earn more than 20% of the nation’s income, while the bottom 20% earn less than 20% of that income. 

There are two perspectives on economic inequality.  The first states that income derives from skills and abilities, and from effort.  Thus, people with valuable skills and those who work hard earn more income than people who don’t.  From this perspective, one’s income is based on decisions one makes, including one’s own efforts.  Since anyone can choose to work hard, what one earns is just.

The second perspective on economic inequality points out that skills and abilities may be due to chance, rather than choice.  If one is born with extraordinary athletic ability, or a genius IQ, one is likely destined to earn a higher income than one who is not born with those talents.  Where is the fairness in that?  Even with the same effort, with an uneven playing field, the outcomes are likely to be different.

Few Americans argue for equality of outcomes—that is, everyone earning the same income, regardless of effort.  Surveys indicate that Americans are satisfied with some economic inequality, but most prefer less inequality than we have today.  The vast majority argue for equality of opportunity—a level playing field—but that is not what we have today.  A child of a rich person is more likely to have access to better quality education than a child of a poor person, who may not even have enough to eat on a regular basis or access to basic healthcare.  These are things that most Americans take for granted or at least consider a baseline.

As a result, many Americans believe that access to food, housing and perhaps healthcare should be supported by the government through taxes.  This is the social safety net or “welfare system,” which includes Aid to Families with Dependent Children, Food Stamps (SNAP), the Earned Income Tax Credit, and Medicaid, for example.  The higher one’s income, the more one pays for the social safety net through taxes, both due to the higher tax rates of our progressive tax system, and also in terms of the proportion of tax revenues paid.  Thus, the top 20% pays more than 20% of the nation’s tax revenues, but how much more is appropriate?  That is the bone of contention.chart of rising ratio of income inequality rising in the U.S.A.[View Image]
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Income inequality in the U.S. is rising…
Pew Research Center. Social & Demographic Trends

Since 1980, economic inequality has become greater in the U.S.  The reasons for this are not entirely clear, but they include business replacing lesser-skilled workers with technology requiring higher skilled workers.  People without a college degree have been particularly at risk of losing income and jobs. Globalization has also contributed to greater inequality as lower skilled jobs have been outsourced. Structural racism has limited Black citizens’ incomes and their ability to accumulate wealth. 

The Covid-19 pandemic has  both highlighted and exacerbated economic inequality. As millions of Americans lost their jobs, U. S. billionaires’ wealth increased by 31.6%. Relatively low-income people have had to continue to work in the workplace, exposing them more to infection, while higher income people are more likely to be able to work from home.  The economic recession which began in early 2020 has most strongly affected people at the lower income levels, costing them jobs and income. 

Growing economic inequality serves to fragment the sense of who we are as Americans.  People increasingly think of society as consisting of “us” and “them.” In addition, to the extent that economic power buys political power through greater access to elected officials, inequality seems to compromise the legitimacy of government.  

 A certain degree of economic inequality is probably built into the capitalist economic system, but this inequality can be tempered by appropriate government policies.  

 

 

 

Robert Reich. Inequality For All (trailer; 2013)

For further reading: 

Gaudiano, P. (2020 July 29) A Board game that brings racial inequities to life. Forbes.

Hanks, A., Solomon, D., and Weller, C. E. (2018 February 21). Systemic inequality. How America’s structural racism helped create the Black-White wealth gap. Center for American Progress.

Inequality.org Topics. Inequality.

Lessig, Lawrence (2013). We the People, and the Republic we must reclaim. TED Talk.

Thorbecke, C. and Mitropoulos, A. (2020 June 28). ‘Extreme inequality was the preexisting condition’: How COVID-19 widened America’s wealth gap. ABCNews

Zakaria, Fareed (2020 May 14). Experts Have Jobs. They need to understand those who don’t. The Washington Post 

Poor People’s Campaign The Martin Luther King, Jr. Research and Education Institute. Stanford University.

Thompson, D. E. (2019 June 21). Economic equality: Martin Luther King Jr.’s other dream. The Washington Post.

Boghosian, B.M. (2019 November). The Inescapable casino. Scientific American, 321(5), 70-77.

How to Cite this Article (APA Format): Greenwood, S. (2020). Economic inequality: An introduction.
Social Welfare History Project.

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