Why There’s No Excuse for Economic Inequality

Article was originally posted here

Last year I wrote a series of columns about why “economic inequality” in the U.S. is a bogus issue.

Some readers were outraged, especially the ones who chose to deliberately distort my views.

I made it clear that poverty is a serious issue – and so is social mobility, the ability of every man and woman to rise in our society.

And I wasn’t talking about countries outside the U.S., where the lack of democracy, capitalism, human rights and/or the rule of law stifles freedom, prosperity and even hope.

I was talking about inequality right here, the fact that people like Jeff Bezos and Oprah Winfrey have a lot more money than you and me.

For most Americans, that problem exists only in their minds.

Notice I said “most Americans” not “all Americans.”

Some people are born with severe mental and physical disabilities, have far-below-average IQs, are raised in terrible circumstances or suffer from atrocious luck.

These people deserve our compassion and a helping hand. I support a robust social safety net for the folks Ronald Reagan often referred to as “the truly needy.”

That is not the majority of us.

Yet polls show that nearly half of Americans say they could not find $400 for an emergency without selling something or taking out a loan.

Why? Because they never save.

At this point, some readers will tell me it simply isn’t possible to earn the median income today and still save money.

Baloney. I know plenty of folks who do just that.

As a young man I lived on far less than the median income and saved money every month. (I might add that those were some of the best years of my life.)

It’s still possible today. But not for folks with modest incomes who must have a McMansion, late model cars, designer clothes, and the latest and greatest big-screen flat-panel HDTV.

To put things in perspective, the median income in China today is $2,756.

Yet that nation’s savings rate at 46% of GDP is among the highest in the world.

Clearly, it is possible – if the will exists – to earn a modest income and still save regularly.

Of course, saving is just the beginning. Even though the Fed has raised interest rates nine times in the last few years, yields are still quite low.

To generate wealth, you need to earn a higher rate of return.

One of the biggest causes of economic inequality in the U.S., in fact, is the stock market.

Those who invest in equities see their net worths climb much faster than those who don’t.

Yet most Americans aren’t in on the game. According to a Gallup survey, 45% of Americans don’t own equities either directly or indirectly through mutual funds.

In fact, polls show the majority of us don’t even know the stock market has gone up over the last decade.

(For the record, the Dow has more than tripled, even after the recent correction.)

I regularly run into people with no stocks or stock funds who claim that high minimums and investment costs keep those investments out of reach.

They don’t have a clue.

Investment minimums, management fees, commissions and spreads have all been coming down for decades.

Discount brokerage firms routinely charge commissions of $5 or less.

Small investors can put their money to work at Vanguard with minimums as low as $1,000. And if that’s too high, there are even cheaper alternatives.

Fidelity Investments, for example, now has no minimum to open an account, no minimums on its mutual funds, zero expense index funds and zero account fees.

I’m tempted to ask these folks, “Is zero still too high?”

There is no excuse for not taking advantage of the many opportunities available to earn higher returns.

Yes, some people have nothing because life truly dealt them a lousy hand.

But most of the “haves” and “have-nots” in this country are the “wills” and “will-nots.”

What the “have-nots” will not do is work, save, invest and compound their money.

Yes, economic inequality exists, but it is not because “the economy is rigged,” “the little guy doesn’t have a chance” or “the rich don’t pay their fair share.”

More often than not that attitude stems from ignorance, lack of self-control or envy.

In a society where everyone has a sufficiency, there’s no legitimate argument against economic inequality.

And in the U.S. today, even those who live under the poverty line live longer, healthier, safer and – in many ways – “richer” lives than royalty did a couple centuries ago.

(If you doubt it, I have one word for you: dentistry.)

The trouble with living in a golden age is people tend to walk around talking about how yellow everything looks.

Good investing,


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