Does Income Inequality Matter If There Is Social Equality?
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 REALLY MATTER NOWADAYS?
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.
WELCOME TO 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.
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.
WHAT ARE WE REALLY COMPLAINING ABOUT?
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?
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