Ideology Will Not Solve Inequality

“America is about guaranteeing equality of opportunity but not results,” so many have said in pushback since the onset of communism. This idea manifested itself in “supply-side economics,” in which, essentially, an economy’s most wealthy are given the reins to coordinate the economy, with the expectation that they distribute their wealth — as pay to many for work and personal purchases — and provide society with beneficial innovations as a result of their investments in research and development.

Though it may be theoretically debated, supply-side economics falls apart when compared with data.

According to 2012 data used in Stanford University’s 2016 Poverty and Inequality Report, the wealthiest one percent of Americans today control upwards of 41.8% of the country’s wealth (which is indeed more that the 32.8% controlled by the bottom 90%). That top share was 25% in 1970s.

This trend shows distinctly that the American public has lost control of its economy. While the average American may once have had a foot in the door to financial improvement, that door has long since shut.

Many still argue that, with such great variance in the structures and practices of American companies, it would be an unfair generalization even to claim that most major companies have exerted economic leverage and collectively changed the rules of business and finance.

Once again, data shows otherwise. Practices such as stock buybacks — a purchase by a company of its own stocks to drive up shareholder value — and paying dividends — payments to stockholders to reassure them of the company’s health and promise — have come to dominate the allocations of top companies’ revenues in place of innovation and spending in the real economy.

In the early 1980s, the percentage of S&P500 revenue spent on dividends first hit 50%, a rise that had accompanied the upper class’s beginning to “pull away” from the the lower and middle classes. Stock buybacks were still a rarity.

By the mid 2000s, buybacks had grown to account for 54% of company spending, while 37% was spent on dividends. That left only 9% (as opposed to 50% towards the beginning of the trend) of company earnings to be invested in workers’ training, pay, and benefits; new products and services; and job creation.

Why is this now the case? In 2012, an average of 83% of compensation for the 500 highest-paid executives at public companies was directly tied to each company’s stock price. Additionally, buybacks can provide short-term growth to avoid missing quarterly earnings per share targets and thus discouraging investors.

Built to rely on the direction of the most wealthy, the American economy — as well as political system most markedly with the creation of major loopholes in campaign finance limits — is today at the discretion of those who have seen their salaries increase two and even threefold just in the past two decades. Simultaneously, growth in the lower and middle classes has stagnated and even fallen. And “job makers” are still asking for more money.

So as the terms “wealth gap” and “one-percenter” correctly proliferate in the American political vocabulary, we as a nation must move past debating the source of economic inequality when that debate has already been won.

This post was written by a Civitas student as part of the Urban Go-Team Blog. Click here to see more posts like this.