As the “Prosperity” Tide Recedes, the Ugly Reality of Wealth Inequality Is Exposed

A rising tide raises all boats, from rowboats to yachts–this is the narrative of “prosperity.”

A rising tide is also the political cover for rising inequality: if the guy in the rowboat makes $100 more a month, he feels like he’s participating in the prosperity.

Meanwhile, the guy in the speedboat is making $1,000 more a month and the guy in the yacht is making $1 million more a month.

But this doesn’t bother the guy in the rowboat, for two reasons:

1. He thinks of himself as a guy who is currently in a rowboat on his way to buying a speedboat

2. Studies have found that our sense of wealth and “falling behind” is not defined by our actual increases in income or wealth, but by how we’re doing relative to our peer group. If everyone else in rowboats is making $200 more a month in the rising tide of prosperity, the guy making only $100 more feels like he’s falling behind–even if his absolute income and wealth is rising.

Conversely, if his peers are all suffering declines in income while his income is holding steady, he feels like he’s doing pretty well for himself, even though his income is stagnant.

The fact that the wealthy are gaining far more in “prosperity” in both absolute and relative terms doesn’t bother him as long as he’s doing as well or better as his peers and feels he has a chance to eventually move up from a rowboat to a speedboat.

But when the tide of “prosperity” (i.e. the fake prosperity of financialization and phony statistics) recedes, the ugly realities of massive wealth/income inequality are exposed for all to see. The guy in the rowboat starts wondering if he can ever move up to a speedboat, and then he starts noticing the guy with the yacht just moved up to a much grander yacht while the paint is flaking off his rowboat.

Let’s look at some charts for context.

Wealth/income inequality is significantly higher in the U.S. than in other developed nations.

This chart shows the number of people earning each bracket of income. Half of all households in the U.S. earn less than $53,000 annually, and 75% earn less than $85,000. (These numbers are from 2010; 2012/2013 numbers are slightly higher.)

You can identify your own relative status with this interactive link: What Percent Are You?

This chart of mean (average) household income shows the income of each segment to scale.

This chart of median household income illustrates why so many of us feel poorer– we are poorer in terms of the purchasing power of our income.

The acceptance of the multitude in rowboats for the few buying new yachts wears thin when the many sense their declining mobility and purchasing power.The illusion that the tide of “prosperity” is lifting all boats is dissipating into a mist that no longer offers cover to obscenely wealthy politicos disclaiming the ugly reality of rising wealth/income inequality.

The question for the chattering classes is this: will the bread and circuses of sports, random shootings, Trump and the rest of the churn in the media arena be enough to distract those stuck in leaky rowboats from the political fund-raising parties on the grandiose yachts?

 How to forge a career in a rising-inequality economy:
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  • JoeThePimpernel

    “Wealth inequality?”

    That sounds like something straight out of Karl Marx’s Communist Manifesto, yet you people shriek like banshees when someone calls you Communists.

    Why is is that? Why aren’t you proud of being Communist if it’s so wonderful?

    Because Communist regimes murdered more than 100,000,000 of their own citizens in the 20th century alone?

    • cettel

      Communism is dead, just like JoeThePimpernel’s understanding of American political reality is. Too bad he can’t deal with relevancies, and read this article and understand it so as to be able to come up with comments that are germane to the data it presents.

      • JoeThePimpernel

        “Wealth redistribution” by any other name…

        • You still have missed the mark, but this article will enlighten you!

          March 12th, 2015 Fascism: Humanity’s Scourge

          It gave us Hitler and Mussolini. Today it’s headquartered in Washington – with global client states run by puppets serving US interests. Subservient Western countries recklessly support America’s imperial agenda. Fascist regimes combine perpetual wars with corporate empowerment, massive corruption and police state harshness.

          • JoeThePimpernel

            You know everything! If only you were king of the world!

  • Clif Brown

    This comment area appears to be filled with the same anonymous people hurling insults that are heavily represented on other comment boards. Is there anyone out there who would care to use their real name and a picture so that an accompanying comment can be taken seriously? Washington’s Blog publishes plenty of good material that is ripe for rational discussion. Broadly directed categorical denunciations have no information content; they are noise. How about rising above the noise?

  • diogenes

    This is excellent in general tendency but the statistics seriously understate the nature of the problem. Using statistics on distribution of income to describe distribution of wealth creates serious distortions everywhere. The first graph (from JP Morgan — not exactly a trustworthy source) says that the top 10% of Americans receive 48% of income, but as a matter of fact the concentration at the top is FAR more drastic: the top 1% of Americans own over 50% of all wealth, the top 0.1% own over 25% of it, and the top 0.01% own over 13% of it. Similarly at the lower end, the mean income of the bottom 50%, $24+ thousand, is about one twelfth of the $300+ thousand mean income of the top 2%, but the bottom 50% of Americans own about 2% of all wealth and the top 2% own about 60%, a factor of 30. Also, the statistic given by JP Morgan, that the top 10% of Americans own 74% of the wealth, is seriously distorted by the fact that it considers people’s equity in primary residences as “wealth” (“capital”) which is like considering the cost of your shoes and pants as “wealth” but creates the statistical illusion that the so called “middle class” holds a substantially larger “share” (as it is derisively called) than it really does. In fact right now the top 10% of Americans hold well over 80% of all wealth and the top 20% hold well over 90%. Moreover, it is important to realize that the controling interest, held at the top of the top by the 0.1% and especially the 12,000 families (among over 300 million of us) of the 0.01% is overwhelming inherited. Most of it goes back to the 19th century, some goes back to before the Civil War (like JP Morgan’s). Some goes back to before the Revolution (like the Roosevelt’s). In short, what these statistics really conceal is the nature and character of the oligarchy that has subverted and supplanted constitutional government in our country.

    • nick quinlan

      Excellent comment, thank you!