From a long term trend perspective, despite a few recessions along the way, the American economy based on GDP data, has been growing consistently bigger.
Coupled with the stock market reaching new long term highs one may argue that America has found its groove again and that we are back on the yellow brick road to prosperity.
Sadly, this is not the case for most of us with only the top percentile of Americans really benefiting from the latest economic recovery. Here are 3 reasons why
1. Corporations and the wealthy are getting richer as income inequality grows.
The average Fortune 500 CEO’s pay is now around 350 times the average workers pay. Level’s not seen since the internet bubble era at the turn of the century.
This has resulted in the top five percent of Americans, who benefit the most from rising executive pay and business income, becoming significantly richer today than they were 5 years ago.
The income and wealth disparity is not new and many economic pundits have lamented the longer term impacts of this disparity on American society.
Despite many political attempts to change the tax code, raise corporate taxes and provide stimulus payments to the middle class, the income inequality gap keeps widening.
In 1982, the average CEO earned 42 times that of the average worker. Recently, the gap had reached 354 times. Put in current dollar terms, the CEO of a Standard & Poor’s 500 index company earned $12.3 million in total compensation last year, while the average rank-and-file worker earned $36,654.
Income inequality is also not only an American problem. It is a global problem. Yet despite its vast riches and ample resources America looks surprisingly, depressingly backward when it comes to income equality.
2. Economic growth and its benefits are only being driven from and seen in certain sectors.
There is little doubt that the American economy is growing on a real GDP basis. But digging into the numbers it is clear that the growth is not even across all sectors.
So unless you work in a booming sector and/or have invested correctly you would not have seen much upside from the latest recovery.
Those working in the services, healthcare or technology sectors have seen decent pay rises. While those working in manufacturing, government and retail have seen much smaller increases.
And with many Americans still recovering from the housing market crash or facing higher rents, net wealth for the low and middle class has barely budged over the last few years.
3. Inflationary headwinds can wreak havoc on salaried workers.
This is especially the case for lower income workers who are living paycheck to paycheck and would most feel the impacts of rising prices in everyday goods.
So as the broader economy starts improving at a more rapid pace and the federal reserve scales back on its supportive liquidity programs, inflation (i.e. rising prices) will rear its ugly head again.
The people who benefit from inflation the most are off course the rich and higher income earners who see their assets and earning power rise.
The rich get richer. The cycle repeats itself.
2 thoughts on “Economic Growth Driving Income Inequality – Are You Feeling The Prosperity?”
Borrowing from Pareto’s principle, 20% of the population will end up controlling 80% of the wealth. Is it right or fair, I don’t think so. Personally I think more should be done to close the gap somehow, what exactly am not sure.
My guess is that a majority aren’t feeling the coming back to prosperity of the nation.
I’ve see in argued in a couple of forums on the internet…as an individual there is little we can do about the wealth disparity, yes we can demonstrate, advocate and raise hell but that will not put food on our table. The individual can make a difference I have no doubt about that, it just might take some time. A more better option would be for each of us to improve our financial literacy and practice responsibility with money…live below our means and save…it may not make us millionaires but at least we won’t be living paycheck to paycheck.
Wow – I disagree with your conclusion that inflation benefits the rich. Inflation actually benefits those that have debt in a currency while penalizing those who have savings in that same currency. It basically makes your savings less valuable because you can buy less with them and your debts easier to pay off with inflated $$. I typically think of the “rich” as having more savings and fewer debts and thus they will be the bigger losers of inflation.