The wealth gap creates a surprising twist

By Dexter Hall

OK, I know I have written on the wealth gap that exists in America and indeed in our Greater Waco community before. But give me some grace as I begin to ponder this subject from a different view.

A question began to permeate my mind recently as I spent time reviewing several new reports on the wealth gap — where it is, its causes, and some solutions.

Yes, information that I had seen before with similar solutions that need to be moved from discussion to implementation in our community. The data showed updated numbers and you know the rest — the Black/White wealth gap in America is continuing to widen.

In 2019, the median white family had a net worth of $188,000 almost eight times the net worth of the median Black family of $24,000, according to the Brookings Institute. They also reported an even more staggering number when reviewing the difference in mean wealth, which showed the average White family has about $841,000 more wealth than the average Black family.

While this data is alarming, I must admit I am not surprised it showed these increases as we languish with the implementation of solutions to address wealth gaps in our communities. Further, let’s be clear, while I am sharing gaps in wealth, this foundation of lack also leads to gaps in health and education.

I finally read one statistic that the Federal Reserve Board’s Distributional Financial Accounts reported. The top 1% of Americans held 31% of all wealth in America in 2019, which was up from 24% in 1989. Contrasted by Middle Class Monitor, which showed median middle-class wealth was about $156,000 in 2019 compared to its 2007 level of $176,000. WOW!

This increased my thoughts around my question. Oh, what’s my question?

Hmm – Is the growing wealth gap bad only for our Black citizens? Isn't it bad for ALL citizens within America and our local communities?

I believe this to be true – that the growing wealth gap is bad for everyone. And, as with any hypothesis, it sent me on a journey for facts.

An analysis by Christopher Ingraham in the Washington Post illustrates the effect the wealth gap is having on everyone.

“Over the past 40 or so years, the American economy has been funneling wealth and income, reverse Robin Hood-style, from the pockets of the bottom 99 percent to the coffers of the top 1 percent,” Ingraham wrote. “The total transfer, to the richest from everyone else, amounts to 10 percent of national income and 15 percent of national wealth.”

He makes two primary points. First, he says, “Inequality hurts economic growth, especially high inequality (like ours) in rich nations (like ours).”

“The Organization for Economic Co-operation and Development, a collective of the world's 35 wealthiest countries, including the United States, found that rising inequality in the United States from 1990 to 2010 knocked about five percentage points off cumulative GDP per capita over that period.”

Ingraham referenced an OECD report that said new evidence indicates “the main mechanism through which inequality affects growth is by undermining education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development.”

“Children from the bottom 40 percent of households (a huge chunk of the population),” Ingraham wrote, “are missing out on pricey educational opportunities. That makes them less productive employees, which means lower wages, which means lower overall participation in the economy.

“While that's obviously bad news for poor families, it also hurts those at the top. If you're a billionaire owner of a retail or manufacturing company, you want people to be able to afford the stuff you're selling. Henry Ford offered his workers high wages not out of any altruistic impulse but because he wanted them to buy his cars.”

Ingraham’s second key point is that inequality breeds crime.

This, he said, is “somewhat obvious, but it's worth highlighting a few key studies: If you have a society sharply divided between winners and losers, some of those losers are going to conclude that the game is rigged and that it's not in their interest to play by the rules.

“A 2016 London School of Economics study, for instance, found that greater income gaps between neighboring U.S. neighborhoods led to more property crime in the richer neighborhoods.”

Economic theory indicates “income inequality should lead to property crime as income differences create an incentive for those relatively poor to steal from richer households,” Neil Metz and Mariya Burdina state in the report.

Surprisingly, links between inequality and violent crime are even clearer. “A 2002 World Bank paper found strong correlations between inequality and rates of violent crime, both within countries and between them,” Ingraham said. Authors of that report say the “relationship appears to be causal, even after controlling for a number of other known determinants of crime. The implication is that high levels of inequality create a permanent underclass forced to compete, sometimes violently, either with itself or with other classes for scarce resources.”

Ingraham said, “It's worth pointing out that inequality isn't the sole driver of crime. In the United States, for instance, the violent crime rate has fallen since the early 1990s even as inequality has increased. There are a lot of factors at play there: policing, overall economic growth, even environmental lead levels. What the studies above suggest is that, if the rise of inequality had been less severe, American crime rates would have fallen even more.”

I have shared only a little of the evidence I found that supports my hypothesis that the growing wealth gap in our country and local communities is having a detrimental impact on everyone and not just on one racial/ethnic group.

There are solutions within our community to help close these growing gaps that impact not only financial security but educational and health outcomes.

One solution is the recently announced Prosper Waco initiative around “Tangled Titles,” which focuses on closing the wealth gap and increasing generational wealth in our low-to-moderate-income (LMI) communities.

Dr. Martin Luther King, Jr. stated, “We are confronted with the fierce urgency of now.”

H. Jackson Brown added: “You must take action now that will move you towards your goals. Develop a sense of urgency in your life.”

It is in all of our interest to decrease the overarching wealth gap. However, it can only be done if we work together. Join us in the fight to decrease the wealth gap

As always, Prosper Waco continues to solicit your support as we work to ensure the financial security of all Wacoans. My thanks to those who have reached out with their financial support of this work, as well as their support through their areas of professional expertise. You may reach me at Dexter@prosperwaco.org and share your thoughts and gifts to ensure the financial security of all Wacoans.

Dexter Hall is chief of staff and senior specialist for financial security with Prosper Waco.