The Widening Wealth Gap In The United States

A recently released Pew Research Center study confirms what every thinking American has understood for quite some time: the wealth gap between rich and poor has widened considerably since the onset of the financial crisis in 2008.

The study’s statistics probably underestimate the plight of struggling families and individuals compared to upper-income groups, as the median wealth of upper-income families totaled $639,000 in 2013 – 6.6 times the median wealth of middle-income families of $96,000. This compares with 4.5 times the gap In 2007 between the two groups.

Along with the widening wealth gap, the overall outlook for the middle and lower classes is decidedly bleak as stated in the report:

“The latest data reinforce the larger story of America’s middle-class household wealth stagnation over the past three decades.” The study adds: “Middle- and lower-income families’ wealth levels in 2013 are comparable to where they were in the early 1990s.”

While the Pew study quantifies, to some extent, the declining financial status of the vast majority of Americans, it does not point to the actual cause of the widening gulf between upper and lower income groups.

The reason for the wealth gap and for the financial crisis in general has been the Federal Reserve’s expansionary monetary policy (inflation) which began in earnest with “quantitative easing” under former Fed Chairman, Ben Bernanke.

As estimated by John Williams of ShadowStats, the U.S. money supply has almost doubled since the start of the crisis and shows little sign of abatement under the stewardship of current Fed Chair, Janet Yellen.

Inflation is always redistributive. Like any petty counterfeiter, the new money allows its creator (the Fed) to receive “free goods” without having to produce or exchange. Moreover, by the time the new money filters out into the economy, its purchasing power has been reduced as prices have gone up.

Inflationary monetary policy is devastating to those who receive their income in wages or are on a fixed income. Since wages are paid in money, each monetary unit that is received by wage earners is diluted by the expansion of its supply. Although nominal wage rates may rise, their real purchasing power will decline. Real wages can only increase through savings and capital accumulation none of which is occurring in the era of quantitative easing.

Real wages, of course, have remained stagnant for decades. While the Pew study does not mention it, wages have not progressed since 1971 which, not surprisingly, coincides with President Nixon’s decision to abandon the last vestiges of the gold standard. Without the fiscal discipline of gold, politicians and central bankers have been unconstrained in their spending and money printing with the wealth gap expanding further and further.

Thus, when the Fed increases the money supply, the governing class and those financial elites and groups closely associated with it (Wall Street, banks, financial houses) benefit at the expense of everyone else. Those who are not directly connected with the Fed receive diluted or no new money at all. This is how America’s current financial and political oligarchy retains its status and power.

The Fed-induced wealth gap, will also lead to social antagonisms. As the disparity between rich and poor widens, blame will be indiscriminately thrown on all upper-income groups instead of those who are creating the problem. There will be calls for putative taxation and regulatory policies to punish the well off. This, of course, will burden the “productive rich” – those who honestly earn their wealth outside the banking/government sector.

It is quite simple to reverse the wealth gap: stop printing money. Or, better yet, return the monetary system to a gold and silver standard. The ultimate fix, which will not only lessen the wealth gap, but remedy a whole host of economic problems, is to completely de-politicize the money and banking industry.

For any of these recommendations to become a reality, however, there would first have to be a change in the prevailing ideology which glorifies central banking and fiat money. Until such a time when inflation is no longer tolerated and the monetary order consists of sound money (gold and silver), the wealth gap will continue to widen.

You can read more from Antonius Aquinas at his own blog, where this article first appeared. Twitter – Antonius Aquinas@AntoniusAquinas