Top 20% of Americans Own 83% of National Wealth

Economic booms always end up with severer inequalities of wealth.

The Federal Reserve Board (FRB) announced on Jan.22 its report on consumers’ financial state, saying that the US economic booms during the 1990s widened the gap between the rich and the poor.

The Federal Reserve conducted an extensive survey on 4,000 households at the end of 2001. The result was that net worth of the mid-households from 1998 to 2001 reached $86,100 (130 million won), up 10.4%. The mid-households are those in the middle of the household distribution.

During this period, the net worth of the top 10% of the mid-households jumped to $833,600, 69% up from $492,400, while that of the bottom 20% of the mid-households jumped from $6,300 to $7,900, only 24% increase for three years.

The Atlantic Monthly, a magazine with the longest history in the United States, reported in the January/February, 2003 double issue that the top 20% of Americans own 83% of the nation’s wealth. According to the magazine, the gap between the rich and the poor has exacerbated more than at any time in history.

At the end of the economic booms, the United States has been trying to address the deepened inequalities of wealth during the booms, thereby maintaining the sound US capitalism and preparing for another prosperity.

“The Gilded Age of the late nineteenth century gave way to the Populist and Progressive reforms of the early twentieth century, the Roaring Twenties to the New Deal, and the Eisenhower-Kennedy Nifty-Fifty bull market to the Great Society and the War on Poverty,” reported the magazine.

Ray Boshara, director of the Asset Building Program at the New America Foundation, proposed a solution of $6,000 (7.2 million won) through the magazine, arguing “The Bush administration tries to tackle the problem with $674 billion of tax cut, but it mainly applies to stock investments. Therefore, the policy will exacerbate the wealth gap.”

Here`s how it might work. Every one of the babies born in America each year would receive an endowment of $6,000 in an American Stakeholder Account. If invested in a relatively safe portfolio that yielded a seven percent annual return, this sum would grow to more money than that. Funds in the American Stakeholder Account would be restricted to such asset-building uses as paying for the cost of higher education or buying a first home.

This is an idea stemmed from the fact that $6,000 would grow to more than $20,000 by the time the child graduated from high school, and to $45,000 by the time he or she reached thirty, because the price earnings ratio of stock investment is around 7%.

He claimed that since four million babies are born in the US annually, about $24 billion a year will help resolve the education and housing problems that Americans face.

The United States had offered free aids, such as the Homestead Act of 1862 that offered 160 acres of land to every American who was willing to occupy and cultivate it for five years and the GI Bill of 1994, that helped millions of Americans get a college education.

Eun-Taek Hong euntack@donga.com