Ever heard of the roaring twenties? It was a period of prosperity where most middle class Americans benefited. The highlight of lives like Rockefeller and Carnegie. Advantages such as being able to extensively manufacture and sell goods as well as technological innovations and the government being in favor of the industry brought the US to a steady economy. This outstanding growth rate during the 1920s was mostly led by the automobile industry. The number of cars owned nearly tripled between 1920 through 1929. Not only that but new household appliances and housing became widely spread. Moreover, the electricity during the 1920s extremely thrived leading to an instant expansion in the stock market. But what if I told you that this prosperity was only shared to ⅕ of America? African Americans along with white farmers and immigrants had a contradictory experience with the 1920s. The agricultural economy of the 1920s suffered as farm incomes fell by 55%. Agricultural overproduction only led to large superfluity while prices were falling and farmers were in big debt. Consequently, 1 in 4 farms were sold between 1920 through 1932 due to financial obligations. In addition, restrictive immigration laws because of nativism in the US during the 1920s led immigrants to be treated aggressively. This includes acts like The Emergency Quota Act of 1921 and The National Origins Act of 1924. In 1929, the top 0.1% of Americans had the same income as the bottom 42% of Americans. That same 0.1% controlled 34% of all savings while the other 80% had no savings at all. What was the consequence of all this income inequality? The Great Depression.
How does this relate to us now? Well, we are repeating the same mistakes all over again. The large wealth gap between the rich and poor is increasing and it’s harmful globally. As of 2021, people with high income are 13.53 times richer than people with low income. Moreover, the ratio of inequality between the middle and bottom distribution increased by 4% from 2020 to 2021. From 1983 to 2001, high income families had an 85% growth in their income while low income families only had a 65% growth. Then, from 2001 to 2016, upper income families were the only ones who were able to prosper as their wealth grew by 33%. Conversely, low income families experienced a 45% wealth loss. This suggests income growth seems to favor families in the top 5%. This is due to the fact that higher income families depend a lot on their home equity while low income families can’t afford to buy a house. To put it in simpler terms, the wealth gap between America’s richest families and poorest families has more than doubled between 1989 through 2016. Moreover, African Americans and immigrants were the groups that struggled most with poverty in the 1920’s. Similarly, of the low income group right now, 58% are minorities.
The effects of income inequality range far more than for the individual. Like I said, Income inequality brings negative effects globally. First, there are higher crime rates, lower average education levels and poorer public health. These are 3 obvious effects. People who are low income tend to lack basic necessities such as food and water or a decent education and health care. Since people in this tier don’t have good job opportunities they rely on other sources to get what they need. Most of the time, these sources are or require criminal activities. Since minorities make up most of the low income group, these effects are directed heavily towards minority groups. Additionally, income inequality lowers long term GDP growth rates. When low income levels increase, human capital becomes more important than physical capital. Inequality prevents economic growth because it affects human capital accumulation. Lastly, income inequality increases political inequality. The wealthy have more political power which leads to their interests to be pursued while the interests of the low income are ignored.
Now, although income inequality brings many negative effects, there are still procedures that can help the low income tier. One method is to expand organizations that already prioritize the issue. Both the CTC and the EITC are perfect examples. The CTC helps balance the cost of raising kids while the EITC helps low income families get a tax break. Moreover, shifting taxes away from labor and toward capital will encourage hiring more workers. Somewhat similar to the previous example, we can create a wealth tax that charges taxes based on wealth.
The large wealth gap between the rich and poor is increasing and will only lead to detrimental effects. These are only some examples that will shorten income inequality. However, In order to address this issue, the first step is to bring awareness.
Jairy Felix – University of Chicago Laboratory School – DMSF Class of 2027