The Front

Wealth for the Few

 The trend towards rising income inequality in the United States has been well- documented. According to a 1992 report released by the Congressional Budget Office, the top 1 percent of income recipients in the United States accounted for 77 percent of the before-tax income growth of U.S. families between 1977 and 1989 and 60 percent of the after-tax income gains. The author of the EPI report, economist Edward Wolff, finds that a similar trend occurred in household wealth.

 Wolff's report, The Rich Get Increasingly Richer, shows a dramatic growth in wealth inequality over the past decade based on a comparison of the federal reserve board's 1983 and 1989 survey of consumer finances (SCF). According to Wolff, the 1989 SCF data, which is the most recent available, provides the first opportunity for a comprehensive examination of trends in household wealth from the beginning to the end of the economic recovery during the 1980s. The study presents a number of significant findings:

• The average wealth of the lower-middle and bottom wealth classes declined from $10,000 to $7,000 for the lower-middle wealth class and from -$2,000 to -$14,000 (taking debts into account) for the bottom wealth class, accounting for a loss of $256 billion of wealth by the poorest two-fifths of the U.S. population.

• The indebtedness of U.S. households surged during the 1980s economic "boom" so that the number of U.S. households with more debts than assets actually increased, from 25 percent in 1985 to 29 percent in 1989. In 1989, therefore, a substantial proportion of U.S. households found themselves extremely vulnerable to hard economic times. "Growing indebtedness has been a primary factor in the increased financial stress for U.S. families that has been accentuated over the last decade," says Wolff. "As income has fallen, families have attempted to maintain their standard of living and therefore have [fallen] deeper in debt. No savings are available. Last year, one million personal bankruptcies were declared in the United States. If a temporary set-back is suffered by the family, like a lay-off or an illness, no funds are there for the proverbial rainy day. The U. S. population has become very fragile and unstable financially."

• The relative wealth holdings of people of color deteriorated significantly over the decade, with holdings averaging only 19 percent that of white families in 1989 compared to 24 percent in 1983. "The deteriorating economic position of black families is one factor underlying the Los Angeles riots," asserts Wolff. "Race plays a role over and above class in the decreasing wealth of black people in the United States. First of all because blacks have a harder time than whites getting bank loans, particularly for home mortgages. Secondly, because wealth accumulation, unlike income, depends to a large extent on inheritance and bequests. So although income parity has been for the most part achieved by blacks since 1979, lower wealth holding reflect previous generations of unequal pay for black workers."

• U.S. wealth concentration in 1989 was more extreme than in any other time since 1929. Between 1983 and 1989, the share of wealth held by the top half of 1 percent of the richest families increased by an almost unprecedented 4.6 percentage points, reversing a trend toward greater equality between 1962 and 1976.

• During the 1983 to 1989 period, 70 percent of growth in wealth was attributable to the appreciation of existing wealth and 30 percent to personal savings. The report finds that "most of the increase of wealth is not due to the thriftiness of the wealthy, but to the capital gains of their assets." Wolff reports that capital gains increases were led by rapid gains in stocks, financial securities and liquid assets. Wolff finds that owner-occupied housing is the main asset of the middle class, whereas stocks are owned almost exclusively by the rich. As a result, an increase in stock prices will increase the concentration of household wealth and an increase in housing prices will cause wealth to be more equally distributed.

 The ramifications of these findings for the lower and middle classes in the United States are not only financial but political. The Rich Get Increasingly Richer concludes with the observation that the tremendous wealth increase among the "super- rich" may portend an even more unbalanced polity in the future. "Because financial wealth can confer enormous political power on a family," says the report, "the tremendous wealth holdings of the super rich and the very rich may exacerbate the tilt of political power toward these groups. The increasing shift of wealth toward the upper wealth groups may further disenfranchise the middle and lower classes from the political process."

"The influence of lobbying groups has increased over the past 15 or 20 years," says Wolff. "Ross Perot was an extreme example of how wealth can be translated into political power. Fairly severe campaign reforms are needed to make the political system more democratic."

 -Julie Gozan