I think the term “income inequality” is not exactly an accurate term.  I think that “wealth inequality” is probably a better term or statement.  First of all, according to the Bureau of Labor and Statistics, your level of education, for the most part, drives your level of income.

Wealth on the other hand has many limiting factors.  For instance, your wealth can fluctuate greatly by the movements of the housing market or the stock market provided that you have funds invested in 401(k) accounts or other type of retirement accounts.

Income taxes play a role in wealth creation as well.  This is a topic that has been at the forefront of our consciousness as of late, because emotional discussions about “who is paying their fair share” have been repeated relentlessly by the media.  The reality is, something like 40% of Americans pay zero income taxes.  For those within the middle class that are actually paying income taxes and are not part of the “one percent”, and assuming President Obama is reelected, your tax situation will not change and more than likely, your “wealth” situation will not change much either.  Why is this?

For starters, those that are gaining an “inequitable” amount of wealth are, generally speaking, not generating this massive wealth from their paycheck.  Sure it starts there, but remember what we talked about at the beginning of this blog, your level of education, more often than not, drives your paycheck.  So how is this large wealth disparity created?

One of  (I repeat, “One Of”) the root problems relating to wealth creation for the average person is quite simple.  The average person is not allowed to make the types of investments necessary to gain the kinds of returns that generate great wealth.  Wait!  What did I just say?  The average person is NOT ALLOWED to make the investments necessary to generate great wealth?

Basically the financial markets are rigged against the average investor in the name of “consumer protection”. Unless you are deemed an “accredited investor”, generally speaking, you are out of luck with getting in on the ground floor of the next Apple or Microsoft.  The basic idea is that unless you have gained a certain level of income or wealth, you are not capable of making investment decisions.  Well, that is unless it is a government sponsored investment like buying a house that you can’t afford.

Did you realize that nearly all of the appreciation in value of Microsoft stock happened after they completed their IPO?  This provided many investors the opportunity to gain and build wealth from their early risk based investment.  Conversely, 100% of the appreciation in the value of Facebook stock happened before their IPO.  What this means is that the only people who made any money from their Facebook investment, were the “accredited investors” that were ALLOWED to invest in the early stages of the company’s history.

Let’s illustrate this in another way. There is absolutely nothing stopping the average person from walking into a casino and spending every dime that they have on a poker game or slot machine.  Am I the only one that finds this a bit strange?  I can spend every dime I have on a slot machine, but “God forbid” that I invest my money into a business venture that can earn a potentially great return for myself in addition to potentially producing wider benefits to the economy as a whole.  How about charities?  Think about it.  Each year American citizens give almost $300 Billion to various charities.  No, I have nothing against giving to charities, but the same argument holds true.  I can give every penny I have to a charitable organization, but unless I am deemed an accredited investor, I am not able to put my hard-earned money into a business that might create jobs and help grow the economy.  So basically, the idea is that you are more than welcome to give away all of your money or gamble away all of your money, but unless you have already made a bunch of money, you are not able to invest it in businesses without some kind of restriction.  Well, of course you can always purchase the stock of the companies that the “accredited investors” are wanting to get out of.  So I guess that is something?

Our capital markets have been turned upside down in the past twenty years or so.  It used to be that an initial public offering or “IPO” was done to generate growth capital for an emerging business. Investors were able to invest early enough to earn a great return. These days, IPO’s have simply become an exit for “accredited investors”, allowing them to dump their shares into the hands of “unaccredited investors”.  We have gone from being an “Investing” society to a “Trading” society in a very short period of time and there is a tremendous need to reverse this trend.

I am very concerned about the growing wealth gap in America and the fast shrinking middle class. There are many important points that we can discuss, but if you really want to start taking a close look at wealth inequality in America, look no further than your ability to invest your own money.

I know that there are many solutions to these important issues; my colleagues and I discuss them often.  I can only hope that were are able to find and elect government officials that will be willing to unify the American people and actually address these issues rather than simply spin more of the same nonsense that they often use trying to get elected.

I am now part of The CEDI SocietyCEDI is a non-partisan organization that intends to address these issues and create opportunity for citizens across all socio-economic levels.  At CEDI, the belief is that the citizens of the United States must do just that, Unite.  We must educate our society to the value of our individual differences, so that we can find unifying solutions for our Nation’s most pressing problems. Image

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