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| Wealth Income and Power |
| 2010-03-01
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| Wealth, Income, and Power
by G. William Domhoff
September 2005 (updated February 2010)
This document presents details on the wealth and income distributions in the United States, and explains how we use these two distributions as power indicators.
Some of the information might be a surprise to many people. The most amazing numbers on income inequality come last, showing the change in the ratio of the average CEO's paycheck to that of the average factory worker over the past 40 years.
First, though, some definitions. Generally speaking, wealth is the value of everything a person or family owns, minus any debts. However, for purposes of studying the wealth distribution, economists define wealth in terms of marketable assets, such as real estate, stocks, and bonds, leaving aside consumer durables like cars and household items because they are not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale (see Wolff, 2004, p. 4, for a full discussion of these issues). Once the value of all marketable assets is determined, then all debts, such as home mortgages and credit card debts, are subtracted, which yields a person's net worth. In addition, economists use the concept of financial wealth -- also referred to in this document as "non-home wealth" -- which is defined as net worth minus net equity in owner-occupied housing. As Wolff (2004, p. 5) explains, "Financial wealth is a more 'liquid' concept than marketable wealth, since one's home is difficult to convert into cash in the short term. It thus reflects the resources that may be immediately available for consumption or various forms of investments."
We also need to distinguish wealth from income. Income is what people earn from wages, dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income.
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