How the rich get richer: inside our growing income inequality gap
Filed under: Entrepreneurship, Retire, Career, Wealth, Recession, Investing, Stimulate US
Emmanuel Saez, a professor of Economics at UC Berkeley has raised concern about income inequality in the United States. In his recent article, he stated that the income gap is at an all time high; exceeding levels during the Great Depression. His research provides us with a candid look at a telling issue. Professor Saez states that 2007 was a good year for both the rich and the bottom 99%, who experienced a rise in income by 2.8%. But since the 2001 recession, the top 1% captured two thirds of overall income growth. Thus, the main question is why the rich thrive in any economy, while income for the rest of us grows at a snail's pace?
The article mentions that the growth of the upper class does not derive from previous wealth handed down through family, but from highly paid employees and entrepreneurs. "Hyper compensation" in highly competitive industries began in the 1980s with Wall Street and grew into a culture we've seen get out of control. In 2003, for instance, New York Stock Exchange chief executive Richard Grasso's $140 million pay package made headlines. And this trend continues, despite the recession. I personally see nothing wrong with the "working rich", but I do worry about the effects of income inequality for the poor and middle class. The poor are left to bare the brunt of survival. Their income can't keep up with the rate of inflation, and with the rising price of commodities, even grocery shopping taxes the budget. The long term effect is a growing income gap.
Why do the rich continue to get richer, at an accelerated rate? Well, history helps to explain this. In the years leading up to the Great Depression, most of the newly rich acquired their income from equity. Now of course, we all know that came crashing down, but the ones who survived or returned to the game had a sophisticated financial mindset.
The modern rich, and the ones who are destined to thrive from this economic mess, are mainly speculators who understand the fundamentals. If you pay attention to the markets, follow what the government is doing, you can profit. Of course a small percentage of us actually devote careers, let alone some time, to figuring this out and how it works. The level of sophistication is not for the average Joe, which is why the rich are growing richer at a pace that far exceeds the income growth for the rest of us. If you want to break away from the status quo, you have to figure out how to make your money work for you. Now that's a study I wouldn't mind reading.
For more on what makes the rich richer, listen to Walletpop's Big News Podcast: Who's afraid of our growing income inequality gap?
Reader Comments (Page 1 of 1)
8-21-2009 @ 9:00PM
Tony said...
It shows that ignorance is not bliss and wealth requires effort, at minimal effort first to learn.
So don't rely on the government for anything, and focus on self improvement and self reliance!
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8-22-2009 @ 12:52PM
followyourcareer said...
There are a few determinants to this. The super rich understand how to leverage their capital and aren't afraid of risk. The capitalistic corporations and their senior management teams use leverage at the expense of employees and the customer. They each know how to manipulate the tax code to get around the government and avert paying taxes. The moralistic laws of fairness have been thrown out the window.
To confront this the rich need to be taxed heavily and the the government needs to put in place new laws and regulations that protect the employee and the customer from further exploitation. The government in their role has to incentivize the wealthy and corporations into new areas of adjustment that benefits all parties on a more balanced platform. The current system is headed into a greater crash than the stock market or mortgage market melt down. Capitalism in its rawest form will collaspe the employee, customer, and eventually the government.
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8-23-2009 @ 6:56PM
m w huff said...
We got to be very careful of this selected one he is creating his own select group we need to be a lot smarter then Obama next election we need to make sure the democrats don't have control whether it be republican or third party we need to band together and take our country back I saw this coming it doesn't bother what you want to call me , the end to our country is near unless we by legal means elect people who will put the country first honest people in charge that will see the politicans follow the tax code and have someone in charge who knows the code . all payment to members of congress needs to end when terms ends former presidents benefits needs to be lowered if politicans and citizens cared far the country they would not take advantage and vote in all these higher wages and extra benifits .if we had people in charge that really cared they would not waste so much taxpayers money and take advantage of every situation
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8-25-2009 @ 11:02AM
Lyberty Belle said...
My paternal grandparents came to America from Italy with nothing but the shirts on their backs. They ran a small grocery store in Philadelphia. They lived frugally which is what most people did. Their children and grandchildren were the beneficiares of their hard work. I've made my own way in this world. I have an average job but I've bought my home, new cars, home furnishings and various toys and trips with stock market profits. I've made a lot of money in the stock market. I'm not a millionaire, and last year lost half of my wealth, but I'm quite content with what I have. I've chosen not to incur enormous credit card debt. I use available cash for purchases and if I don't have the cash I don't buy it.
The average person can make a fortune in the stock market. I highly recommend dividend reinvestment programs which require small initial investments and small monthly outlay. If you start young the return on equity will be huge.
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