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The Ladder

A Blog from New America's Asset Building Program

Future Inequality will be Driven by the Wealth Gap

Published:  February 22, 2012
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Last week, Mother Jones ran an article I wrote on the growing wealth gap. It opens with a closer look at the Romney’s tax return, which shows not that they “make” a lot of money but that they “have” a lot of wealth.  Those at the very top have done quite well. Recent estimates indicate that the while the top 1 percent earn 21 percent of the nation's income, they possess 36 percent of total wealth.

I argue that, in the future, the wealth gap will be larger and more consequential than the income gap.

What's the primary cause of our current and growing wealth gap? Home values, the largest item on most families' balance sheet, remain depressed, while stock prices, the largest item on the balance sheet for those at the top, have rebounded. In short, Wall Street has recovered, Main Street has not. Consequently, in the last three years, the concentration of wealth has occurred at the expense of those in the middle…Without drastic changes in the market or in policy, the divergence between housing values and securities prices will be the main driver of wealth inequality for the foreseeable future.

On top of this, the growing racial wealth gap is one of the most dramatic and disputing trends that has taken hold since the recession.

Prior to the recession, the average African American and nonwhite Hispanic families owned 10 percent of the wealth of the average white families. But the recession has hit hard. Not only do minority families have larger shares of their assets held as housing equity, they are also more likely to live in communities hard hit by foreclosures and housing price drops. New findings from Pew Charitable Trusts estimate that this figure has been cut in half: Minority families now own a nickel for every dollar of their white counterparts.

There are many policy implications to consider and the article and our other work proposes some solutions. But let’s be clear, even if the income gap has slowed with declines at the very top, the wealth gap has undoubtedly widened.

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