Wealth Disparity
The growing wealth inequality, especially in North America and other developed regions, continues to grow wider each year. This spread referred to as wealth disparity or inequality threatens to leave many behind in the global race toward a greater accumulation and concentration of wealth and income. This impact is being felt across all parts of the globe and is evident even in the poorest and least developed countries. Without some type of control or mitigation, the disparity in wealth will continue to grow at rates that threaten the social fabric of the world community. As a global societal problem, wealth disparity can be controlled or mitigated through increased investment in education, macro-savings rates, and economic development.
Development of the Disparity of Wealth
The development of wealth is the process of accumulating assets. These assets form the measured value of an individual’s net worth, and often have real value or generate yield. This process occurs over a given period of time, and it is the compounding effect of saved income that leads to a greater development of wealth and at a seemingly greater rate. The three primary tools for creating wealth are personal labor, yield producing assets, and changes in existing capital (Benhabib, Bisin, & Luo, 2017). Each of these tools, thus, can create income, and this income overtime accumulates to the benefit of the owner of the tool. Disparity develops when a great difference in the rate of development of some aspect between two seemingly similar market actors occurs. Disparity alone is not so much a bad thing as it is a representation of the efficiency of a given actor in navigating a market with their relative comparative advantage. The example of the furniture maker lends itself well, in this case, a given veteran furniture maker has a comparative advantage in making chairs than his novice counterpart whose craftmanship simply is not able to command similar economic rents of the veteran. In this scenario, the income of the tools available to the veteran will create economic rents to the disparity of the novice. Over time this may change; however the veteran through time will have a disproportionate opportunity to accumulate wealth and thus create a disparity between himself and his younger colleague. To this end, wealth disparity is partly a matter of initial comparative advantage, in terms of what demands of the market will yield, but also a matter of time. The more time that exists, the more an individual has available to concentrate wealth for himself relative to others around him (Fuchs & Thurner, 2014).
Wealth Disparity as a Global Societal Issue
As a societal concern, the disparity in income equality has received far more attention across all disciplines and the political spectrum (Bogliacino & Maestri, 2016), even being equated to the biggest challenge of the age requiring care and concern by thinking nation states to effectively combat (Atkinson, 2016). Income disparity, however, only considers one of the tools of wealth creation: personal labor. The reason for this narrow focus is because of the ease with which it can be studied, and the abundancy of available source data with which to review. In terms of wealth development, personal labor often plays a fractional part, yield producing assets and changes in capital, especially the latter have a far greater impact on the accumulation and concentration of wealth (Berman, Ben-Jacob, & Shapira, 2016). These two tools are also the least understood, least researched, most debated, and most difficult to measure and effectively analyze due to a comparative dearth of source data available. From a societal perspective, personal labor and the value commanded in the market is the tool most easily managed and controlled by the individual, further easing the ability to the owner to manipulate his skills to command higher economic rents for the use of his personal labor. Such as through the acquisition and honing of specialized knowledge, e.g. furniture making, or accounting, or plumbing.
This leads to why wealth disparity is a globalized social problem. The relationship between wealth and opportunity is circular, being that opportunities beget wealth, and wealth begets opportunities. As a social concern, how does an individual with less wealth get the chance to participate in wealth producing opportunities without already having wealth? This problem is further burdened by the time factor associated with wealth aggregation, historical social stratification and racially enforced impairment served as a long term effective retardation toward wealth accrual among those encumbered by a chance of birth. This historical reality is further evidenced by the fact that populations of people were exploited for their personal labor without remuneration or if compensated, were compensated at a severely disadvantaged rate. When race is removed as a concern, disparities still existed through historically enforced and socialized stratification. These realities still exist today albeit in visibly muted forms. In terms of wealth accumulation as a factor of time progression, these groups of people have remained comparatively disenfranchised due to their inability to participate in the wealth producing activities (Fuchs & Thurner, 2014; Gordon Nembhard, 2014; Maroto, 2015; and McKernan, Ratcliffe, Simms, & Zhang, 2014).
Perspectives on Wealth Disparity
Research into the disparities of wealth encompasses a broad-based set of related yet independent fields. In law, Ilan Benshalom (2014) goes beyond the argument of whether, as a global society, we should engage in wealth redistribution, to simply assuming a demand for such action exists, and if so, how such redistribution should be accomplished. She arrives at international taxation as the most direct redistribution method instead of direct foreign aid reliance. Further she examines the moral concern as only involving governments and private parties with commercial ties, yet acquiescing to the fact that something is better than nothing.
In political economy, Anthony Atkinson (2016) argues for the expansion of progressive taxation on personal income, broadening the wealth transfer taxation to encourage given wealth diffusion instead of concentration, and using the revenues of these activities to fund a universal inheritance for all at the age of 18 to promote equality of opportunity. Through the establishment of sovereign wealth funds, excess costs can be offset, and profits used for additional income distribution. In their analysis of the dynamics of wealth Yonatan Berman, Eshel Ben-Jacob, and Yoash Shapira (2016) provide an alternative to Aktinson, finding that increasing taxation rates reduces disposable income effectively reducing savings which can expand the wealth gap as it creates a barrier to wealth accumulation. This is especially evident for those whose wealth is derived primarily from personal labor. Progressive taxation has an impact on labor income, and this impact is generally not felt by the wealthiest people as their income is primarily acquired through capital gains.
In sociology, much of the research looks at racial barriers to wealth development. Jessica Gordon Nembhard (2014) examines the struggles of creating wealth, and considers how majority minority communities and socially integrated minority communities, should use community resources to support wealth growth through asset building. Michelle Maroto (2015) considered how incarceration acts as a long term impediment to wealth aggregation and evaluated how this state of being is further impacted by growing up in disadvantaged circumstances relative to others. She effectively makes the connection that scarcities beget disadvantage, and disadvantage begets scarcity. Matthew Painter and Zhenchao Qian (2016) track how immigration impacts the growth of wealth. They find that even when fully assimilated, racially minor immigrants experience a wealth inequality to white counterparts at strong and consistent rates, this research provides anecdotal evidence of socially normed racial discernment of the willingness to offer wealth accumulating opportunities.
Argument for Controlling or Mitigating Wealth Disparity
In consideration of methods to solve wealth disparity as a global societal problem, the first question that arises is if wealth disparity as an object can be solved. Based on the research reviewed and the fundamental nature of what disparity is, it is not possible to resolve it and operate a world free from disparity. At the core, disparity is about differences, and people are naturally dissimilar from one another. To ignore this fact is asinine, and while the masses may believe that tic-tacky boxes create equality, it is merely a façade. Therefore, to arrive at a resolution that best makes use of this information, the goal is to control or mitigate some facets of wealth disparity that would serve to limit the widest edges of the chasm while attempting to provide the broadest value to the most individuals. To be clear, this proposal assumes that equality does not and will never exist, but that by encouraging and creating as many opportunities for individuals, at similar rates, and over an extended period, wealth disparities can be lessened.
Educational Investment
The investment that we, as a society, make into education must be about lowering barriers to entry at the secondary level, providing increased assistance on how to make well informed financial decisions, how to stay engaged and on par with an individual’s educational cohort in terms of comparative matriculation. From the perspective of time having either a positive or negative impact on wealth accumulation, Su Jin Jez (2014; and 2017) has shown that other forms of capital accumulation converge to influence not only the decision of what college to attend, but whether college is even considered as a necessary. For the most impoverished, college as a means of social mobility is simply unconsidered, let alone considered and found to be inaccessible. Barriers to entry is an economic concept that alludes to costs acting as a means of deterrence. While some view university loans, which are widely available in the United States and are need based on income, as an investment in oneself, e.g. equity, others especially from lower socioeconomic households view the loans as an insurmountable debt best left alone. Barriers to entry can be overcome by encouraging the idea of equity over debt in the college consideration process. A key limiter that notably impacts minorities is the financial disenfranchisement by individuals who not only do not matriculate at the same rates as cohort peers of non-minorities, but are further stymied in wealth development by loan burdens without the benefits of a degree. As a society, we must be better at developing and implementing methods to more fully engage young people throughout the entirety of the college attendance period and also in explaining the costs and benefits of dropping out of college. While this will not in and of itself correct disparities, over two or three generations, the development of multi-generational college attainment will begin to work as an expander of wealth accumulation for those currently most disadvantaged by the accrual of economic rents received by a college education (Meschede, Taylor, Mann, & Shapiro, 2017).
Macro-Savings Rate
While income is in many respects directly correlated with higher educational attainment, the rate of capital spending to live versus what is saved, directly impacts the viability and real term potential of income from capital gains. On a microeconomic level saving is a personal facet of how individuals choose to manage their money, and what they value. Mathematically, poor people spend more of their capital just to exist than wealthier people do, while the wealthier spend more in shear terms. As a percentage of available capital, poor people must spend more of what they earn in personal income to live. This leads to the macroeconomic level of saving. The macro-savings rate has the statistically most direct ability to narrow disparities in wealth (Berman, Ben-Jacob, & Shapira, 2016). Increasing the rate at which most people save helps to increase their net worth. Because of access to debt services, wealth can be a negative sum, and while increased saving will reduce the aggregate amount, for this proposal the assumption is made that saving associated interest does not accrue until debts are satisfied. This again alludes to the need for time to overcome.
Economic Development
In addressing the defining characteristics of the disparity in wealth, it was addressed that time is a major contributing factor in an individual’s ability to accumulate wealth at any given rate. Another contributing characteristic of wealth is its circuitous relationship with opportunity. Economic development is as much about creating opportunities as it is about providing opportunities. The willingness of others to provide opportunities to participate in wealth producing opportunities for minorities or immigrants is lower than that of non-minorities and is also lower among the impoverished than the wealthy (Bogliacino & Maestri, 2016). This circular factor can be overcome to some extent by a societal focus on encouraging interrelated and interconnected communities to support entrepreneurship, and to invest within the bounds of where individuals find social and moral attachments. This sort of economic development through a somewhat arbitrarily self-centered investment strategy will not materially impact macroeconomic development in the near term, but can serve as a means of strengthening ties that could be used to better facilitate wealth producing opportunities (Gordon Nembhard, 2014).
Validity, Reliability, Biases, and Limitations of Current Research
The quantitative material sourced is valid across a wide swath of disciplines, through the consistent focus on empirical research and analysis. Frank discussions on the considerations of aggregate regressions, as opposed to structural and segmented variates, adds to the reliability of the material (McKernan, Ratcliffe, Steuerle, Zhang, 2014; Berman, Ben-Jacob, & Shapira, 2016; and Benhabib, Bisin, & Luo, 2017). On the surface, the only bias is the desire to address the topic at hand. Upon closer look, some of the sociologically based research might be somewhat self-fulfilling, however well written and objectively researched the article (Maroto, 2015). The main limitation on current research is the lack of usable data where wealth exists when compared to the richness of data available on income disparities (Bogliacino & Maestri, 2016).
Positive Ethical Outcomes
The primary positive ethical outcome that can result from this proposed solution is the reduction in wealth disparity between those who have very high levels of wealth and those on the opposite extreme. As a related outcome, educational attainments rates may increase, leading to a cascading effect whereby stronger intra-community relationship are effected which may imbue wealth accumulation as a byproduct of increased wealth producing opportunities.
Ethically, these are positives as they work to mitigate the negative social aspects of inequality, while working to create broad-based equalization in an area with great personal impact on society. While egalitarianism is not expected to result, a sort of perceived fairness of mobility is.
Negative Ethical Outcome
The primary negative ethical outcome is failure to follow through with the solution over time. Because time is one of the largest contributors in the equalization of wealth accumulation factors, time is also the biggest concern that cannot be controlled. The solution requires an abundance of time to work properly, this creates an ethical risk. Is it ok to knowingly sacrifice today in hopes for the potential greater social good in the future? From a human perspective is it even possible for individuals to persevere on a societal level for the several generations needed to show the greatest positive impact of this solution? These questions lead to related negative impacts such as an astronomical rise in debt, coupled with decreased college matriculation rates. The second impact could be the erosion of social fabric of communities and increased tensions among dissimilar social and racial communities finding themselves incapable of overcoming differences.
Conclusion
Disparity, as has been discussed is just a measure of difference. People are inherently different, and this paper has maintained an assumption that while differences will continue, a resolution to the societal problem of wealth disparity must focus on managed mitigation not conclusion of the notion of difference. This managed mitigation would occur through a long term structural change in reasoning that would support additional educational investment and view it as personal equity development, would support macro-savings rate increases as a method of narrowing the widest disparities in wealth, and finally, would support economic development sufficient to allow the expansion of wealth producing opportunities. The prime insight that should remain with the reader is that time is a large factor in this solution. A readiness to endorse this process would require a somewhat unwavering commitment, at a societal level, to change. Without which this solution will not have the fortitude to make headway. Through the progress time and a concerted effort to narrow differences in opportunities created at birth, we as a society, can make real and lasting positive impacts throughout the socioeconomic spectrum leading to wide gains in wealth harmony.
References
Atkinson, A. B. (2016). How to spread the wealth: practical policies for reducing inequality. Foreign Affairs, 95(1), 29-33.
Benhabib, J., Bisin, A., & Luo, M. (2017). Earnings inequality and other determinants of wealth inequality. 107(5), 593-597. doi:10.1257/aer.p20171005
Benshalom, I. (2014). How to redistribute? A critical examination of mechanisms to promote global wealth redistribution. University of Toronto Law Journal, 64(3), 317-358. doi:10.3138/utlj.0717
Berman, Y., Ben-Jacob, E., & Shapira, Y. (2016). The dynamics of wealth inequality and the effect of income distribution. Plos ONE, 11(4), 1-19. doi:10.1371/journal.pone.0154196
Bogliacino, F., & Maestri, V. (2016). Wealth inequality and the great recession. Intereconomics/Review of European Economic Policy, 51(2), 61-66. doi:http://dx.doi.org.proxy-library.ashford.edu/10.1007/s10272-016-0578-y
Fuchs, B., & Thurner, S. (2014). Behavioral and network origins of wealth inequality: insights from a virtual world. Plos One, 9(8), e103503. doi:10.1371/journal.pone.0103503
Gordon Nembhard, J. (2014). Community-based asset building and community wealth. Review of Black Political Economy, 41(2), 101-117. doi:http://dx.doi.org.proxy-library.ashford.edu/10.1007/s12114-014-9184-z
Jez, S. (2014). The differential impact of wealth versus income in the college-going process. Research in Higher Education, 55(7), 710-734. doi:10.1007/s11162-014-9332-0
Jez, S. (2017). Not all college is equal when it comes to wealth and race. Federal Reserve Bank of St. Louis Review, 99(1), 45-51.
Maroto, M. (2015). The Absorbing Status of Incarceration and its Relationship with Wealth Accumulation. Journal of Quantitative Criminology, 31(2), 207-236. doi:10.1007/s10940-014-9231-8
McKernan, S., Ratcliffe, C., Simms, M., & Zhang, S. (2014). Do racial disparities in private transfers help explain the racial wealth gap? New evidence from longitudinal data. Demography, 51(3), 949-974. doi:10.1007/s13524-014-0296-7
McKernan, S., Ratcliffe, C., Steuerle, E., Zhang, S., (2014). Disparities in wealth accumulation and loss from the great recession and beyond. The American Economic Review, (5), 240. doi:10.1257/aer.104.5.240
Meschede, T., Taylor, J., Mann, A., & Shapiro, T. (2017). ‘Family achievements?’: How a college degree accumulates wealth for whites and not for blacks. Federal Reserve Bank of St. Louis Review, 99(1), 121-137.
Painter, M. I., & Qian, Z. (2016). Wealth inequality among immigrants: consistent racial/ethnic inequality in the united states. Population Research and Policy Review, 35(2), 147-175. doi:http://dx.doi.org.proxy-library.ashford.edu/10.1007/s11113-016-9385-1