Stock Ownership Disparity in America
The Wealth Gap and Stocks
JEC NASHVILLE — The gap between the richest and poorest in America is growing. Rapidly. This disparity is especially drastic with regard to American stock and equity ownership. According to the Financial Times, in the late 1990s the top 1% of American income earners owned 44% of the equities held by private households. Meanwhile, the bottom 90% of Americans in 1990 owned. In 2020, this gap was even more pervasive with the top 1% owning 56% of all private equities and the bottom 90% owning 12% (Times 2020).
While a small population of American citizens owns the majority of equities, a large segment of the American population struggles to afford household necessities and has no stock ownership at all. Such gaps in wealth have historically created social unrest and led to revolution. For example, the wealth disparity in France right before the French Revolution was similar to the current American disparity. Not only that but this dramatic difference in equity ownership leads to a deterioration of the “American dream” and the ideals of a meritocracy. Instead, generational wealth and connections allow the rich to get richer and the poor to only get poorer. In days gone by, the hope of a comfortable and stable future earned through hard work was a dream achievable by many, though not all, Americans. Now, with the ever-growing wealth gap, this is no longer possible for most. Without wealth, it is difficult to get a good education and without a good education, it is difficult to attain wealth. And the cycle continues and grows. This trend is particularly true for minorities: with the average African American family only owning approximately $3,000 in stock assets, while the average white family owns approximately $25,000 in stock assets (Choudhury).
The Effect of the Covid-19 Pandemic
During the recent international Covid-19 pandemic, this trend has accelerated. However, while Covid-19 has harmed humanity in a variety of ways, it has not, in and of itself, created this gap. Rather, the policy responses of the US government to the pandemic have spurred this widening asset inequality. The increasing use of tactics that were employed to deal with the 2008 recession, such as quantitative easing (the monetary policy of the Federal Reserve of increasing the amount of available cash by purchasing government bonds from private citizens and companies), lowering interest rates, and reducing the Federal Fund rates have benefited the wealthiest Americans and placed those who do not own assets at a disadvantage. Thus, government policies inflated stock prices which indirectly encouraged corporate policies of buying back their own stocks when they are made public, which is known as company buy-back. This made it more difficult for lower-wage earners to participate in the stock market, while giving those who already owned assets a boost to their wealth.
The Solutions
This issue of equity disparity has several viable solutions that could be explored by the government or private companies. One possible solution to this would be a policy of requiring companies to reinforce their employee 401Ks with shares of the stock acquired through company buy-back policies. Such a policy would allow for greater returns for employees, especially lower-paid workers with fewer assets. Another step would be giving more of these stocks to employees with historically disadvantaged racial and ethnic backgrounds. Finally, to supplement the financial literacy of citizens, financial advisors and stockbrokers could be required to give a certain amount of free consultation to people with less financial knowledge, much as lawyers now do pro bono work for underprivileged clients.
To solve the issues of disparity and inequality in our world, we need innovative and inclusive solutions promoted by both private companies and the federal government. Building a better and more equitable future is a challenge that must be solved by all.
Sources:
Times, Financial. “How America’s 1% Came to Dominate Stock Ownership.” Financialpost, Financial Post, 11 Feb. 2020, How America’s 1% came to dominate stock ownership | Financial Post
Choudhury, Sharmila. “Social Security Administration.” Social Security Administration Research, Statistics, and Policy Analysis, 1 June 2003, www.ssa.gov/policy/docs/ssb/v64n4/v64n4p1.html.
The Fed — Comparison: Compare Wealth Components across Groups (federalreserve.gov)
