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Wealth Gap Woes

Jerry Kloby is the Coordinator of the Institute for Community Studies at Montclair State University in New Jersey, and the author of Inequality, Power and Development: The Task of Political Sociology (Prometheus Books, 1998). He can be reached via e-mail at .

Shifting Fortunes is a concise and valuable reference to the state of inequality in the United States today. It avoids complicating the issue with detailed discussions of methodology, and speculative analysis. In just sixty-eight pages (plus a glossary and eight tables in the appendix) the reader will find a great deal of useful information ready for quick reference. Unlike other books on inequality Shifting Fortunesfocuses its aim nearly exclusively on wealth. Wealth, compared to income, is not as extensively studied in the United States and the methods for collecting data on wealth have changed substantially over the course of the past hundred years. For the most part, a consistent methodology was not developed until the 1980s (or more loosely, the 1960s).

But writing a book on wealth distribution in a time of rapidly growing inequality is a bit like taking a snapshot of a fast moving target—by the time one gets the photo back from the developer and shows it to an interested person, one can hardly say “this is what it looks like.” Everything today seems to be happening at a much faster pace then ever before, whether one is describing the melting polar ice cap or the concentration of economic holdings. Try keeping pace with Bill Gates’ fortune, for example. In 1996 Forbesmagazine reported Gates’ net worth at $18.5 billion, by 1997 it had more than doubled to $39.8 billion. In 1999 Forbes estimated Bill Gates’ net worth at $85 billion.

In order to keep up to date with inequality statistics one needs an equivalent of Douglas Adams’ Hitchhiker’s Guide to the Galaxy that can be revised with the latest figures at anytime and anyplace. Lacking this sort of progressive’s Palm Pilot a short book like Shifting Fortunes combined with occasional visits to United for a Fair Economy’s web site is about the best we can do. Other excellent resources are the AFL-CIO’s executive pay watch site, and the extensive site run by the Economic Policy Institute Not to mention the sites of Forbes and Business Week magazines which can also help fill in the picture.

One of the strong points of Shifting Fortunes is in documenting the growth of wealth inequality over the past few decades. Thus one learns that since the 1970s the top 1 percent of households have doubled their share of the national wealth, while the average net worth of the bottom 40 percent went from $4,000 to a terribly meager $900 between 1983 and 1995 (adjusting for inflation, both numbers are in 1995 dollars). Likewise, the percent with zero or negative net wealth increased during the same period from 15.5 percent to 18.5 percent.

In spite of the glowing economic picture painted by the press and certain other interests most Americans have actually lost wealth in the 1990s and by and large the rich have gotten richer as a result of stock market gains—from 1983 to 1998 the stock market grew 1,336 percent. But one can’t explain inequality fully while focusing solely on wealth. Why has the net wealth of lower and middle America been shrinking? The answer to this question cannot be understood without looking at what has been happening to wages over the past few decades. Fortunately, Collins et al., do make a brief excursion into a discussion of wages, pointing out for instance, that wages for many occupations have been lagging way behind productivity growth. For example, if wages grew at the same rate as productivity they would have been 33 percent higher in 1998 compared to 1973—$18.10 instead of $12.77. And that is enough to make a big difference in the comfort level of many Americans.

It is also enough to make a big difference in the need to borrow. Household debt as a proportion of personal disposable income rose from 68 percent in 1980 to over 100 percent today. Credit cards have become a routine way of financing everything from household appliances to college educations. Total credit card debt soared from $243 billion in 1990 to $560 billion in 1997. And, much like the 1970s and 1980s when the World Bank and IMF encouraged much of the third world to borrow heavily, the lenders must share a portion of the responsibility for the domestic credit card-fueled debt that has grown astronomically in recent years. In 1997, for example, credit card companies mailed out over three billion solicitations, about thirty for every American household (and who knows how many phone calls they made!). As a consequence of stagnating wages and increasing consumer debt the number of individuals who filed for bankruptcy roughly doubled in the 1990s.

One of the strong suits of Shifting Fortunes is the authors’ discussion of the wealth gap between black and white Americans. Citing the work of Edward Wolf, Collins et al. state that the median black household had a net worth of just $7,400 in 1995 compared to $61,000 in median wealth for whites. If the value of one’s home is excluded from the equation, median black financial wealth falls to just $200, compared to $18,000 for whites. Hispanic households have even less wealth than blacks. Some of the discriminatory practices that have contributed to this situation are discussed, particularly in the housing industry, as well as some of the consequences regarding opportunity for attaining a decent college education.

Shifting Fortunescloses with a brief synopsis of various proposals to reduce the wealth gap. These include both asset-building policies as well as suggestions for a wealth tax. While not detailed the proposals certainly provide some good starting points for discussing a problem that has been largely ignored.

Jerry Kloby (klobyg [at] is the Coordinator of the Institute for Community Studies at Montclair State University in New Jersey, and the author of Inequality, Power and Development: The Task of Political Sociology (Prometheus Books, 1998).

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