Does Income Inequality Matter If There Is Social Equality?

As we have see in 2020 with the tragedies that have befallen Black America, we have neither social equality or income inequality. African Americans still earn much less than white Americans and have lower net worths. We must fight systemic racism.

Over the past 30 years, only the top 20% of household incomes have shown any relative progress according to the charts below. You will know from my top income earners chart that the income level for the top 20% is roughly $80,000 a year and higher.

What's most apparent is how well the top 1% have done. The chart below has the top 1% of income earners at roughly $1.8 million in 2007. This gels differently with the IRS study that puts the top 1% income level closer to $380,000. However, the point is that the top 1% has seen a doubling of their incomes in the past 20 years, while the rest have barely budged.

Does Income Inequality Matter Given We Have More Social Equality?

If you're making $50,000 a year in Chicago and your friend, who is the same age, with the same work ethic and the same college degree makes $90,000, who cares? With a $50,000 income, you'll still be able to afford a smartphone, drink the same beer at the local Irish Pub, rent the same one bedroom apartment on the Gold Coast, own the same LED TV, drive a similar car, go on the same two weeks vacation, and date the same women.

The life of a single man making 80% more is almost entirely the same. The only difference might be the accumulation of retirement savings if the higher income individual is disciplined. We know from many examples this is hardly a guarantee!

In fact, if you compare the top 20% income earner to even the bottom 20% income earner, how bad are things between individuals? Almost everyone has a working fridge, cell phone, TV, bed, shelter, access to public parks, libraries, running water, and clean air in North America, Europe, Australia, and Singapore. Pretty soon, everyone in America will also have access to basic free health care. Only the most destitute don't have all the basic necessities. These are the people we must help out.

Despite all the social equality that we have nowadays, there is an ever increasing undercurrent of dissatisfaction exploding to the surface. I want to understand why.

Income Inequality Is Highest In Hong Kong

We only need to look at present day Hong Kong to see what happens when income and wealth inequality go too far.

The Wall St. Journal recently highlighted mounting attacks against Hong Kong Tycoons who take in at least 23 cents for every dollar spent. Billionaires such as Li Ka-shing and Thomas Kwok own the property market, supermarkets, telecom providers, and the transportation system. If you are a Hong Kong citizen, chances are high you are helping the rich get richer.

The combined wealth of the city's billionaires is equivalent to more than 70% of Hong Kong's GDP. While the #2 and #3 ranked countries by such measure is Lebanon and Russia with ratios of 33% and 25% respectively according to Welch Consulting.

The newly inaugurated HK Chief Executive, Leung Chun-ying is cracking the whip and has already spearheaded the persecution of Raymond and Thomas Kwok who control Sun Hung Kai Properties, the world's second largest property developer. In an era where the rich and the politicians have worked so closely for so long, it is unprecedented that such billionaires are now being persecuted.

So what has happened to cause such a change in heart? For one, new leadership by Mr. Leung wants to change the status quo and make a name for himself. But, second and more importantly is the increasing wealth gap between the masses and the super rich.

Blood Nose Living Prices With Wages Not Keeping Pace

Hong Kong housing prices have risen 82% since late 2008, while incomes have stagnated for the past decade. At least here in the US, property prices have come off from its highs and real estate is more affordable than ever before. In Hong Kong, it takes US$1 million dollars to buy a decent 700 square foot one bedroom apartment in a high rise building in Central!

If you're living at home with your parents after college because you can't afford rent, can't find a decent job, don't have an adequate love life, and see the rich get richer, you are eventually going to revolt. You might decide to take to the streets and participate in a demonstration. Or, you might start a website publicly denouncing the rich and powerful.

Whatever the protest, you do so because you feel that life is unfair. Even though you aren't starving on the streets like so much of the world's population, you are unhappy. Its OK if the rich get richer if you too are getting richer. It's not OK if the rich get richer and you don't progress.

Tremendous income gains for the top 5% since the Vietnam War

Goodbye Mitt Romney

Mitt Romney could have the most sound economic policies that will create the most jobs ever. But who cares? Americans do not relate to Mega Millions Mitt. If Romney is elected, the public will be reminded of his wealth and success every single day. His success will make everyone miserable!

Instead, Obama will get re-elected because he's positioned himself to be more like the middle class. The middle class out number the wealthy more than 20 to 1. The middle class determines who is in power. Mitt Romney is just too out of touch with the majority and his image consultants and campaign managers should be fired for doing such a poor job. Obama is going to give the majority what they want, even if it is by stealing from one group to give to another.

From now until year-end, all the empty promises begin! Time to pump us up guys and buy our votes! Remember, the way for us to get rich is to predict the future, make bets based on the future, and hope our predictions are true! This section is not about who is a better candidate. This section is about reality!

Common Interests That Bind

Finally, I recently came back from a financial blogging conference. It was great to see everybody I've been interacting with for the past three years.

There were debt bloggers with negative net worths, student bloggers more than a decade younger, bloggers who were doctors and lawyers twenty years older, and bloggers who sold their sites for well over $5 million dollars. We completely straddled the wealth spectrum.

There was a balanced mix of women and men and good racial diversity between the Black, White, Asian, and Latino communities. We all stayed at the same Grand Hyatt Hotel, attended the same presentations, ate the same food, got wasted on the same alcohol, and danced at the same night spots. Rich or poor, we had the same opportunity to learn, mingle, and have a whole lot of fun! That's what I call social equality!

What binds us together is our love of writing and building online communities. Nobody cares about your income.

Related: Your Chance Of Becoming A Millionaire By Race

Income Inequality Or Social Inequality?

Given the US has the highest correlation between effort, education, and wealth, why are we complaining? If someone studies harder, works longer hours, and takes more risks it shouldn't come asa surprise if they make more money.

It would be more surprising if they made less than average! And even if they make lots more money, what does it matter if we have similar social equalities?

The reason why income inequality matters is because social equality has turned into a default setting where we all expect to ride the same bus, breathe the same air, access the same facilities, and have the same opportunities as our next brother and sister.

We've taken social equality for granted, as we probably should. I'm not going to treat you differently based on how much money you make. Are you? We now protest the different degrees of opportunity to get ahead.

As we learn from algebra, once we cancel out X on both sides, if what's left still doesn't equal then we've got to continue solving the problem. The real problem is, there will never be income equality so why bother trying?

Related posts:

Dear Minorities, Use Racism As Motivation To Achieve Financial Independence

U.S. Real Household Income By Race

Recommended Action For Increasing Your Wealth

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Finally, check out all the top financial products I've reviewed to help you achieve financial independence sooner. There's no rewind button in life. Best we make the most of it!

Regards,

Sam

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spyguy
spyguy
8 years ago

I think you’re missing the point on social equality.

There is a only a very tiny sprinkling of social equality near the top.

Very few people are professional bloggers, so you’re getting a very skewed understanding of the population.

There is no social equality for poor blacks, poor whites, poor asians, poor latinos, etc. People like us never see or interact with the lower classes. How could we? The conversations would be beyond disinteresting: we speak entirely different languages! Have you ever tried to listen to poor white or poor black southerners? They don’t speak English. People like us speak and write a language/dialect that is college-educated American. How many people are gonna read this blog that aren’t college-educated? How many people are gonna read this blog that aren’t high-school educated? Those are huge portions of America, and people like us are totally insulated from real contact with the lower classes.

Now, I agree with your observation that $50k and $90k college-educated Chicagans are the same social class, so who cares about the income differences.

But that example doesn’t illustrate the income inequality of the US. Your charts show the real income inequality, and it belies the total inequality of class or social status. It’s not the 1%, who are just doctors/lawyers/finance, basically professional-degreed employees. Those people are the exact same social class as engineers/doctors/lawyers/teachers/finance people who make $50k to $250k. They will marry each other, go to the same schools, and ride the same Ubers and buses and airlines.

Understand the upper class is something like .1%. This class is not employed, it is capitalists who employ other people and/or capital. They are not defined by their profession or education. They transcend profession, education, religion and race. They are filthy rich. They probably never ride buses. They fly in private jets (not business class, which is for the $50k – $1M / yr regular employed people and mid-upper level executives).

The lower class is like 2/3 of America. It’s people who aren’t college-educated, or are college-educated at state schools, trade schools, and community colleges. These people mix very little with the upper class, and not at all with the top .1% rich class. Yes, they have refrigerators and cell phones, but they have very little understanding of how to buy stocks, real estate, domain names, etc. They live within scripts/mental models that are much less accurate than the upper class, which are in turn much less accurate than the scripts/mental models of the truly wealthy top fraction of a percent.

I agree that income inequality isn’t bad. But I couldn’t disagree more strongly with your assertion that social inequality is very low in the US.

As a prime counterexample to the idea
“The reason why income inequality matters is because social equality has turned into a default setting where we all expect to ride the same bus, breathe the same air, access the same facilities, and have the same opportunities as our next brother and sister. We’ve taken social equality for granted, as we probably should.”

Look at Trump. He got started with what he calls a “small million-dollar loan” from his father.

If everyone had that same social opportunity to borrow $1M to get started, the world would be a better place, and much more fair.

It’s not that this is bad. It is good that papa Trump lent baby Trump $1M to start out.

What is bad is that papa Trump and Uncle Sam DON’T loan $1M to every American to start out.

People with your morality will often claim that people don’t like to see others getting the loan — which is false. We don’t like that everyone isn’t getting the loan. Trump isn’t bad for getting this loan. America is bad for creating and perpetuating structural inequality that deprives EVERYONE of getting this loan. It’s like when teachers ask if you brought enough cookies for everyone in the class. If you didn’t, then it’s wrong to eat the cookie. Eating the cookie isn’t wrong, what’s wrong is that you didn’t share with everyone.

People like us do not have the same opportunities as Trump.

We do not expect to ride the same bus as CEOs.

We do not access the same facilities. Have you ever worked out at a gym or ate/drank with a super-wealthy person? The only times I have are at elite private universities, arts institutions, weddings, expensive clubs/restaurants. No poor uneducated people were allowed/present, except maybe to serve hors d’oeuvres and drinks.

We clearly have massive inequality in social status, especially opportunities. You are blind to these inequalities, because you’re part of the tiny bubbles of pretty good equality near the top. Look at inequalities in conviction rates and incarceration rates between class and race that exist inside the US but not in other countries with fairer laws and more social equality.

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[…] grown in value. But I do wonder whether income inequality really matters as much given there is much more social equality nowadays. I do hope my children and my nieces and nephews grow up where they have a level playing […]

cantaloupe
12 years ago

Can I ask where you got your stats about Hong Kong’s wealth being in the hands of the billionaires? The one that mentions Lebanon and Russia too. I’m curious because I’m living in the UAE right now and I’m wondering if they’re included in the stats. I’d be surprised if they let anyone know how much inequality there is. I know there’s definitely no Gini coefficient for the UAE, haha.

Part of why there is so much inequality though, is that there is a huge amount of foreigners living here. And there is also huge upward mobility for everybody. But an American like me moving upward is way different than a Sri Lankan moving upward. And a Emirati moving upward is ridiculously different from me moving upward, let alone the Sri Lankan. And if anyone did a chart of the inequality over the past ten years, it would look absolutely ridiculous.

I think if someone did a chart of the world’s wealth inequality, it would also look ridiculous.

And I think that since 1979, the economy has become far more transparent and fluid and global. Which is going to cause some weird looking charts.

Nobody is going to revolt against wealth inequality because the reality of it is not comparable to the chart of it or the stats of it. Can really you imagine hearing a story about revolts in Hong Kong against the billionaires?

Shilpan
Shilpan
12 years ago

I think Romney did an excellent job tonight with the debate. I can’t fathom that, with mounting national debt, and pathetic job market, this President has any qualification to remain in the Oval office.

But, then again, I have a friend who is out of work for last 8 months yet he loves our President because he feels good about the promises. Too sad!

charles@gettingarichlife.com
charles@gettingarichlife.com
12 years ago

Hong Kong has 0% tax on capital gains and no natural resources but per capita is very wealthy. The rich get wealthy due to having their money in several buckets (real estate, stocks, bonds, commodities, cash etc.) that doesn’t correlate, although 2009 was a rare event.
If you look at the biggest gains in the wealth for the rich in America it coincides with the stock market boom that started in the 80s. By having more wealth spread around the top earners are able to capture the gains in various investment vehicles. The middle class tend to rush in late then get slaughtered. Look at this stock market rally, the quietest in history as the average investor has sat out of it.
My friend and his wife in the bay area is middle class making 200K a year with some equity in a condo, they are trying to buy a house in the $1.1 million dollar range in a neighborhood with good schools and are facing 20+ offers and outbid by more than a 100K. He’s frustrated as hell, makes Hawaii look as cheap as Idaho.

AverageJoe
AverageJoe
12 years ago

Per usual, the comments here are nearly as good as the piece.

A friend and I were having this discussion at lunch yesterday. I believe that feeling uncomfortable about the state of equality/inequality is a good thing. We have discussions that fuel change. The yelling/screaming/demonizing end of the political spectrum (Washington) is where nothing gets done.

Interesting facts about Hong Kong. I’d read about some of the inequality there, but never knew that the top had a 70% strangle-hold on the wealth in the city!

Rich In The Heart
12 years ago

By that same token, States can more easily manage themselves for most of their needs as opposed to the larger Federal gov’t, no?

Daniel
Daniel
12 years ago

I suppose I shouldn’t be surprised by this blog post, maybe a little dismayed though. Though it is not the only work on the subject, I highly recommend the book “The Spirit Level” by Wilkinson and Pickett

It doesn’t really matter if we’re all getting richer, the damage is done when one group soars impossibly high over the other groups (i.e. the US, UK, Singapore etc.). The book I’ve mentioned does an excellent job outlining the effects and it’s pretty ugly.

We all have an amazing amount of comfort in our modern lives, even those who live on 20k a year. However, you’ve ignored some simple psychology here, status anxiety is ever prevalent in modern society (Alain de Botton outlines this in an excellent book called, you guessed it, “Status Anxiety”.

You have some keen observations in your blog, I suggest testing those observations now and then by holding them up to the scrutiny of other people’s work and ideas.

Daniel
Daniel
12 years ago

You bring dishonour to your Prefecture with that response.

Seriously, read something that may not match your views. Maybe you’ll grow.

Darwin's Money
Darwin's Money
12 years ago

I don’t think there’s social equality without some rough income equality. i.e. at the extremes, people with low income, never, ever socialize with high income earners. They live in different towns and parts of the city, their kids don’t go to the same schools, and they don’t have the same social patterns.
On the flipside, income inequality is a good thing. It motivates people to want to better themselves which is what made America great. By going too far down the road of redistribution, Obama’s turning too many millions of Americans into takers instead of doers.

Darwin's Money
Darwin's Money
12 years ago

Why not talk about extremes when your article is in absolute terms? You stated an absolute which I refute. And on “The real problem is, there will never be income equality so why bother trying?”… The reason income inequality matters is throughout history, when the equation becomes too lopsided, it has resulted in violent revolution – dozens and dozens of times. This is just human nature. What do you think the Arab Spring was? There’s no reason to believe it couldn’t happen here. While I don’t think Obama’s taking the right approach by flat-out redistributionism, I would also agree if we took it to the other extreme and say, lowered taxes on the rich even more while leaving the same tax burden on the rest of the country, we could certainly see violent unrest. The Occupy movement started to go in that direction, but the country wasn’t fully behind them (yet). Give it a few more years of 16% real unemployment, youth unemployment over 25% and who knows?

Mat
Mat
12 years ago

I think it would surprise a lot of people how many business owners do not have a college education, and some not even high school education. You do not need a college education to earn wealth, but as a child you are told that if you do not go to college you can not be successful in the business world.

Hiro
Hiro
12 years ago

College education is a privilege, not a right. I think we take it for granted. I’m pretty sure there are many hardworking Americans out there with a vocational degree, with little student loan, make more money than ‘a college graduate’.

Rob
Rob
12 years ago

Agree again the paradox of choice, simply too many options for any reasonable person to be able to understand. I even wrote a short blog post about

Jason Clayton | frugal habits
Jason Clayton | frugal habits
12 years ago

Interesting discussion and graph… In 1973 the US Government decoupled the US dollar (federal reserve note) to Gold. Since then the FED has been free to print as much money as desired.

I see from the graph, that this is also when income equality began to deteriorate. I believe this is because money created by the Federal Reserve goes into the pockets of the top 1% (less than 1%). Everyone else gets a nice dose of inflation and keeps them stuck in their current class since inflation eats up any wealth increase in their savings.

In my opinion, this is the real issue facing our country. It is not Democrat or Republican, but the engine behind both parties. The Federal Reserve.

Mike
Mike
12 years ago

Honestly, I think a large part of it is that people seem to think wealth=happiness, when they really just need the bare minimum.

Mike Hunt
Mike Hunt
12 years ago

Sam, so what do you think will happen with the fiscal cliff coming up on Jan 1st? Kick the can on all aspects?

-Mike

Kim@Eyesonthedollar
Kim@Eyesonthedollar
12 years ago

You’re right that inequalities in pay don’t matter that much if you have what you need. It is cheap to live in our area, but if I made the same money in San Francisco, I’d live in a tiny house without much stuff. It’s all a trade off. If you want to feel richer, find a job you can do anywhere and move to the boonies.

Untemplater
12 years ago

Wow and I thought property was expensive in San Francisco. That’s crazy that the property prices in HK have risen that much. I can’t imagine the impact that has had on families.

The US certainly would be a different place if the middle class disappeared and we were left with only the super rich and the very poor. Hopefully there will continue to be more jobs to strengthen the middle class and keep more families out of foreclosure and bankruptcy.

Fed up and unsubscribed
Fed up and unsubscribed
12 years ago

I’m going to take issue with the fact that you think people will not vote for Mr. Romney simply because he is rich. Maybe you’ve been hanging out with PF people for too long because from my point of view, Mr. Romney’s character has more to be desired than that of Mr. Obama. Why is Mr. Obama not running on the successes of his administration? Because he can’t. Mr. Obama has done more to trash our economy than any outsider could have ever done. About 12000 pages of new regulations are published every month since the start of his administration, strangling small businesses and stopping would-be entrepreneurs. That’s why he has attacked Romney’s wealth, an alleged “bullying” incident from the 1950s and the dog on the roof of the car; he has nothing else.

As for why the rich get richer, the cronyism of Mr. Obama’s administration has been breathtaking, literally and figuratively. Billions of tax dollars have been funneled to so-called “green” companies only to have them default on those loans, leaving the American people hanging. “But he saved GM!” The hell he did. GM still went bankrupt. The bailout only changed who got paid (the unions) and who was hung out to dry (the bond holders).

So I identify with the man who gives to his church, gives to those who don’t have as much, and doesn’t brag about it. I do not identify with the political opportunist who doesn’t even take care of his own family members, specifically his half-brother George Obama.

Rich In The Heart
12 years ago

I just love how the CBPP can put out the chart that you have posted on this article (the income-gains.jpg?fit=1456,9999 one in the middle).
Let’s compare 1947 to now using 1973 dollars? Why not compare it to 2000 dollars instead, since that is one of the most recent wars?

And in all honesty, if the middle class does get to determine who is in power as you postulate (and I concur, since it’s the largest portion of the US population), then they’d be better off voting for neither Democrat nor Republican. But that’s just IMHO.

If there is no inequality with earnings, then what would there be to strive for (that’s not coming from a “Republican” standpoint, that’s coming from having lived in the trenches … literally). We would then be a nation that would become lazy enough for the rest of the world to overtake in a decade or two.

Rich In The Heart
12 years ago

Actually, I don’t truly know who’s worse with the overspending. Granted if you look at the fact that Congress and the Senate make the spending decisions primarily, it looks like the Democrats follow the spend, spend, spend to redistribute wealth comment image).

Granted unless Congressional makeup changes, the presidential position will be almost irrelevant at this point.

Virginia
Virginia
12 years ago

Here in the DC area, $50k vs. $90k could get you significantly different housing. I’d estimate a person making $50k could probably afford a home around $150k and a person making $90k could afford a home of approximately $270k. This would translate in either a significantly longer commute for the person making less money, or living in an area with more crime and poor schools. Both of these things could hurt the chances of upward mobility for their children (not spending time with their parents and poor education). I’m not concerned about income inequality so much as I am concerned about people’s ability to climb upwards economically.

Miss T @ Prairie Eco-Thrifter

I am from Canada and I think it is insane what Americans have to pay for education. It is almost criminal. No wonder people are in so much debt.

TB at BlueCollarWorkman

Well here’s something cool — usually when a blog post is a little long, I skim it. But dang it, I read this whole thing! It was really interesting! You know, income equality won’t happen, and I”m not asking for that. Everyone having the exact same possessions wont’ happen (unless some people get into massive debt), and I’m not asking for that either. What I am asking is that a dude who works full time doing a needed job and service to people make enough money that he can adequately feed and clothe his wife and girls. Some months are pretty tight, not because we’re busy eating out or getting wasted, but because I just don’t always get paid enough. We’re not as unequal as that crazy Hong Kong example you mentioned or Russia or anything, so that’s good. And most AMericans actually do have food, clothes, and cable TV…so we should maybe lay off complaining a bit and get to work and get to voting on good people in office…but it would be nice if my wife and I didn’t have to worry about making ends meet sometimes even though I work full-time plus have sidejobs.

JimL
JimL
12 years ago

Beyond providing a safety net, no one should be favored. Our current system feeds the extremes on both sides. You can’t have huge tax breaks and also have massive social programs that can’t be supported in the long run. Romney is not the answer, but Obama is worse as spending is an even greater problem.

We as American’s have created this problem. We all want the other guy to pay, but are not willing to sacrifice what is important to us.

David M
David M
12 years ago
Reply to  JimL

“We all want the other guy to pay, but are not willing to sacrifice what is important to us.”

That is the American Way!!

retirebyforty
12 years ago

I think income inequity matters much more to a family than a single male. You’re right that being a single guy is easy and most guys can afford a similar lifestyle. A family with kids need much more income to be secure. College cost keep increasing and we need to save for that too.
Hong Kong sounds like they have some problems to solve. Property price is still rising that much? It’s already super expensive, right?

Hugo B
Hugo B
12 years ago

But you’re assuming that both people continue to work after marriage. What if the couple decides to have children, and then what if one parent needs to stay home to take care of them?

And yes I agree HK is freakin crazy expensive!! I would know, I’ve lived there haha