The Occupy Wall Street protests that have popped up across the country may lack a uniform set of demands, but they undoubtedly possess a singular and powerful critique. High finance has been allowed to assume a disproportional role in our society and, as a result, we see widespread and debilitating inequality. The protesters have found creative ways to publicize a number of contributing factors, including skyrocketing CEO pay and corporate consolidation, flat wages for average Americans, and diminishing employment opportunities. While the financial sector’s share of GDP rose to 40%, with a set of practices that plunged the global economy into a deep recession, the prospects of the top 1% have materially diverged from those in the bottom 99%.
Perhaps the most visible indication of receding opportunity is the growing disparity in incomes. The story of income inequality has been playing out for decades and it features wage stagnation despite growing productivity, with almost all the income gains captured at the very top. New analysis from the nonpartisan Congressional Budget Office confirms that the top 1% saw their average real after-tax income grow by 275% between 1979 and 2007, over six times the gains of everybody else. Economist Paul Krugman calls this the Great Divergence, which corresponds to a 20-year period when more than 80% of the total increase in income went to the top 1%, despite productivity gains of around 20%. The recession has likely narrowed this gap a bit as incomes for the top 1% have come down from their highs. Yet this is just part of the tale.
The surge and persistence of inequality in the aftermath of the Great Recession is most apparent when we shine the spotlight on wealth rather than income. As with income, the gains in wealth which occurred during the aughts (the 2000s) largely flowed upward. Those in the top ten% saw their assets rise 24% between 2001 and 2007, far outpacing gains of everybody else. In 2007, the richest 1% of households owned 34.6% of the nation’s wealth; by 2009—after the recession took hold—this rose further to 35.6%. This degree of concentration has occurred at the expense of those in the middle. Economist Sylvia Allegretto estimates that top 1% of households by wealth had net worth 225 times greater than the median household in 2009. This is the highest ratio of wealth inequality on record and an increase of 24% since 2007.
The skewed distribution of wealth is perhaps more consequential that that of income. This is because one’s prospects for future growth and mobility are not just determined by what someone earns but importantly by how many resources they have at their disposal. Assets can be tapped to help families weather unexpected events, such as when incomes decline through job loss or a health problem, but they can also be strategically deployed to make investments that can pay off down the line. Without access to these resources, families will have a harder time navigating through economic uncertainty or seizing the opportunities offered by our economy.
The Great Recession has only further skewed the distribution of wealth. When the housing bubble burst and the stock market tumbled, the distribution of the nation’s wealth became more equal. But these losses have been short-lived since security prices have rebounded and wealth holdings at the very top have been largely recouped. This wasn’t the case for most families, where home equity was the largest item on the family balance sheet. Home values will remain low for the foreseeable future as foreclosures continue to spread. Many families will find it difficult to rebuild their portfolios.
The current divergence between housing values and security prices will be one of the mains drivers separating the lower, middle, and upper-middle from those at the very top. Without dramatic changes to the housing market and policy efforts designed to get families out from under the overhang of housing debt, such as large-scale loan modifications and principle reduction, significant wealth inequality will persist for years to come.