Income

US income gap has narrowed throughout pandemic, but inflation means it ‘may only be temporary’, says expert

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  • The lower half of the American population now holds $3.73 trillion of America’s wealth, more than it has for 20 years.

  • The increase is largely due to government payouts such as child tax credits and stimulus payments.

  • “Unfortunately, this improvement may only be fleeting,” an expert told Insider.

The income gap between the lower and upper halves of US households has narrowed significantly since the start of the pandemic – but the change may be short-lived.

Citing Federal Reserve estimates, Bloomberg reported that the poorest 50% of households held a net worth of $166,000 or less before the pandemic.

These 50% of households now collectively own $3.73 trillion of national wealth, nearly twice as much as in 2020 and more than 10 times as much as in 2011.

The number is the highest collective net worth held by the bottom half in over 20 years.

However, the data also doesn’t take into account regional differences in the cost of living — such as gasoline costs exceeding $8 in Los Angeles compared to the national average of $5 — or racial inequality among people. income. For example, Bloomberg added that at the start of 2022, black households accounted for just 4.4%, an increase of 0.4% since 2020.

Brian Marks, a professor in the economics department at the University of New Haven, told Insider that while it can be nice to discuss improvements, “there is an issue around disposable income, the cost of life and the impact of inflation”.

Inflation is at a 40-year high, Forbes said. A May Consumer Price Index report showed inflation rose 8.6% in 12 months.

Marks, who was appointed by President Ronald Reagan’s administration to the Commodity Futures Trading Commission, said inflation on key commodities such as housing, energy and food is a “stealth tax, but unfortunately in this environment, she’s not too stealthy.”

Madison Hoff/Inflation Insider Earnings Chart

Madison Hoff / Insider

“The pandemic enhanced the wealth of the bottom half, simply because of the nature of what was happening in the environment at the time,” Marks added. “But you know, again, we are entering this new phase of recovery coming out of the pandemic, but we are facing supply chain crises, which are putting upward pressure on prices due to the demand. And so those gains can be dissipated.”

The increase in wealth of the bottom half of U.S. households is largely due to pandemic government payouts such as the Child Tax Credit and stimulus payments. Bloomberg also added that an increase in demand for jobs requiring “minimum” qualifications has also driven up pay rates since January 2020.

But now that payments have stopped and the cost of goods is rising, Marks argues that the income inequality gap could widen further.

“As all of these programs come to an end, and we see what’s happening with prices, unfortunately, this improvement may only be temporary,” he said.

“Every time we go to the gas station, every time we go to the grocery store, and especially those in the lower half of the income scale, this is a progressive tax that will really hit strong as we move forward,” Marks told Insider. , adding that some people may even rely on the savings they have gained throughout the pandemic just to get by.

Thomas Piketty, a French economist, told Bloomberg that substantial policy changes are the only real way to help the bottom 50% gain and retain significant wealth.

“At the end of the day, the bottom 50% never owned anything substantial,” he said. “Some say we should just wait for growth to spread the wealth, but that makes little sense in light of the historical evidence. poorest has always been less than 5%. This is a huge injustice for the children of the bottom 50%, and it is also a great loss of economic initiative and mobility.”

Read the original article on Business Insider