Inequality in modern America: A look at “Runaway Inequality”

Samantha Durham, Opinion Editor

Editor’s Note: Samantha Durham is a senior at UNCW studying sociology. She also serves as the Opinion Editor of The Seahawk. The opinions expressed in this article are solely those of the auhtor. Samantha can be found on Twitter @Durham_Sam. All suggestions and inquires may be sent via email to [email protected] 

In this day and age everyone knows the term inequality. It runs rampant through our country in a variety of forms, some quite obvious and others relatively undetected. Most people can recall experiences in which they felt they have been treated unequally whether that be in a case of gender, race, sexuality or a host of other reasons.

However, have you ever stopped to consider where the inequality stems from? Most people wonder how in 2017, people still feel that they are treated differently or unfairly compared to someone else. How in a country that claims to value differences, can inequality fester and thrive?

The sources of this issue are grand and vast. The solutions are not simple nor are they “quick fixes” to a deep-seeded problem. However, the path to change and betterment lies in understanding and that is what I hope to provide you with today: a sense of understanding, curiosity and maybe an urge to change how inequality affects all of us every day.

The form of inequality I want to address is the gap between income and wealth in the United States. I am currently completing my final year of my bachelor’s in sociology here at UNCW and this is something that comes up very frequently. How can you and I make the same amount of money and you be wealthier than me? The key to understanding this lies in the difference between income and wealth.

While wealth is “the net value of accumulated assets at a given point in time,” income is “money received, especially on a regular basis, for work or through investments.” In short, these terms are different, yet many find themselves using them interchangeably. They are not the same and understanding that is key to understanding why we face income and wealth inequality in our country.

In the book, Runaway Inequality: An Activist’s Guide to Economic Justice, author Les Leopold discusses exactly what we think about wealth and income currently. Leopold asked multiple people about how much an entry-level factory worker makes per year compared to how much a CEO of a large corporation makes per year in order to measure what Americans think we are earning compared to what we actually are.

The findings were disheartening, as most Americans felt that an entry-level factory worker was making $25,000 a year while a CEO made $900,000 per year. In actuality, those numbers were quite optimistic. According to Leopold, CEOs make roughly $30 million a year on average, meaning that for every dollar an average worker makes, a CEO would make $844, producing a ratio of 844 to 1 in 2014. In the 1970s, the income gap was 45 to 1 and since then the United States has only seen the rich get richer and the poor continue to struggle. How did this happen, how did we get to this point and how can we make a change?

Leopold points to “runaway inequality” as a thief from all aspects of social life. It robs from the education system, health care, income and other areas as well. How can we be missing something so big that is allowing some to buy private jets while others struggle to pay their monthly rent bill?

While Leopold discusses multiple reasons as to why Americans turn the other way when it comes to inequality, I can summarize it to one phrase: ignorance is bliss. A horrible phrase, but none-the-less true when it comes to inequality of this form. The United States is looked at as the “land of the free” or “the land of opportunity.” People come here from all over the world in search of the American Dream: money, happiness and an overall good life.

However, many are finding that this “land of opportunity” is glorious to some and unforgiving to others. We pride ourselves on fairness and opportunity for all, but it seems that we fall short on that promise. Leopold claims that we believe so strongly in those “all-American” beliefs and in the American Dream that when something is presented that threatens those beliefs, we turn a blind eye.

Leopold also credits the expectation set by the post-World War II economy. Our country’s working class was the envy of the world, with the highest standard of living along with increasing wages for the working man. Maybe we haven’t left those prides behind yet. Leopold calls this our “cultural hangover,” one that we must recover from if any changes are to be made.

While all of this a hard to swallow, the United States is struggling to fight inequality. Wage theft is another issue Americans face that other countries do not. Leopold explains in his book that in Denmark, fast food workers get paid $20 an hour including benefits while in the United States we argue over raising minimum wage. These same U.S. based companies (McDonald’s and Burger King) pay their U.S. employees less than $9 an hour with no benefits. Thinking about moving to Denmark?

What do you call this inequality? Wage theft happens to 95% of American wage earners, Leopold explains. How do these companies get away with this and how do you not even notice it? The answer is painful and simple: we let them. Companies can do this in the United States because we allow them to.

Think about it: if we all protested and refused to work, wouldn’t that hurt the company financially? They can afford to pay more; they just choose not to because we live in a capitalist society where you want to make as much for as little as you can.  I can flip burgers for $8 an hour when the company could be paying me more. The goal is to have the best, most efficient workers who make the most burgers to sell for as little as possible. You know what that means for them? More money in their pockets and more money for yachts and jets while you struggle to make ends meet.

Leopold also points to stock buyback as one of the many reasons CEOs continue to gain more wealth. Stock buyback, as explained by Leopold, has grown in popularity among corporations within the past few years. The process of stock buyback seems complicated, but in actuality, it is fairly simple and makes people a lot of money. The idea is that instead of putting money into a company by raising workers’ wages, improving development or better training opportunities, the value is found in taking money away from the company and putting in their pockets through buying shares.

This process has a few steps but by the end, money is finding its way into the hands of the already rich. It starts out with buying a company with borrowed money and using the earnings to pay off those loans. Then, these same “corporate raiders” use some of that borrowed money to pay themselves in fees. This means that they get a relatively quick return on the investment made but realistically help the company in no way.

The step that really makes a difference comes into play when these investors hire a CEO. This CEO gets paid in with similar schemes and stock options that link value to the company’s stock. Therefore, when the share price increases, so does the amount of money the CEO and the “corporate raiders” take home.

Once all of that is put in place, the company starts raising the stock prices by using corporate revenues to buy their own stock. Leopold explains that by reducing the number of shares available, the remaining shares increase in value. What is the best way to make that happen? The answer is to buy your own shares to increase the company’s stock.

At the end of the day, the CEO’s goal becomes more about raising the stock price than the company itself. Leopold explains that during the time of the 2008 Wall Street crash, CEOs relied on 75% of their companies’ revenues to simply buy back their own shares. These same CEOs also had a pile of loans used to buy more shares and once those loans were paid, very little was left to reinvest in the company. While that money could be used elsewhere to better the company and those that work for it, instead it is used to benefit those at the top rather than the average worker.

It seems very wrong and sneaky but it doesn’t have to be that way. If we all were to talk about this inequality and how it not only affects you but everyone you know, people would start to listen. If more people read Leopold’s book and understood where all the money was “disappearing” to, people would voice their frustrations. No movement for change is done in a small fashion. It might start out that way, but it takes people from all walks of life fighting for equality to actually achieve it.

I merely brushed the surface of this inequality but I urge you all to go read more about it. Grab a copy of Runaway Inequality: An Activist’s Guide to Economic Justice and talk about it. Think about how it affects you and how different things could be if we changed the way things work in our country when it comes to inequality of this sort.

Les Leopold will be at UNCW on September 20 to discuss these issues and how we can change them, not just for ourselves, but for those to follow. Take time to tackle these issues and discover how we can battle inequality, because we are a country of opportunity and freedom; we just have to uncover that once again.