Do You Know the Role Education Plays in Wealth Inequality?

There’s any number of figures out there that paint a grotesque picture of wealth inequality: The top 5% owns some 62% of all the wealth (maybe you’ve seen it higher), the top 1% holds four-fifths of all stock market capitalization… the list goes on.

Our current stock and economic bubble doesn’t help the situation. When we’re in a “fall” economic season like we’re in today — and like we saw peak in 1929 — the top 1% can hold over 50% of the net worth for all financial assets.

That can fall to as low as 26% in the late spring and summer seasons, such as in 1965 to 1978. When new technologies become mainstream, the middle class sees a rise in wages and net worth. Of course, none of that will happen until this damn bubble bursts.

Our current demographic and technology trends peaked in late 2007. But in today’s unprecedented boom, the Fed and central banks around the world have pulled out all the stops to keep this bubble going. The end result? The rich keep getting richer.

We’re undoubtedly an unequal society, but it’s a lot more complicated than that.

It’s not just the ongoing bubble boom that is driving inequality across society, where the top 1% has over 20% of the income and the top 20% over 50%. There’s another unique factor in today’s extremely unequal situation…


Consider this…

The average income of a high school dropout is $40,000. For someone with a professional degree, like a doctor or lawyer, it’s $193,000! That’s almost five times more.

To just be in the top 20% — not 10% or 1%, but 20% — you have to make around $120,000. That’s primarily the people with the top three degrees, from masters to professional.

The top 1%? They make about $450,000. Those are the upper professionals, who include top executives, medical surgeons, entrepreneurs, and specialists.

Take a look at the chart below just to see what that looks like.

income levels based on education

Note that people who get those higher-level degrees peak the latest, around age 55 to 64. Most, including master’s degrees, peak in the 45 to 54 age range. That’s because people who are more affluent generally go to school longer… and so do their kids.

That extends their consumer spending cycle, since a huge chunk of cash in middle age has to go toward getting Susie or Johnny through school. We’ve conducted detailed research on this that shows the most affluent peak in income around age 53 and the everyday household at age 46.

It obviously shouldn’t surprise you that higher education creates higher incomes… but the degree of difference is what’s so important here.

And there is a key trend driving that difference: the unprecedented inflation in higher education.

Since 1983, education has experienced the highest rate of inflation of any other sector — much more than even health care.

Instead of subsidizing higher education, like in Europe, local governrnment policies encourage student loans, wherein they actually make substantial profits — as do the universities!

The rate of inflation locks out all those kids who don’t already have rich parents. If these kids do get student loans, it weighs them down and reduces their ability to get married, buy a house, and live a decent life.

If your grown kids are still living with you because they’re repaying student loans, you’ll understand this well.

For years, the U.S. was the top immigration magnet and entrepreneurial country for high social mobility in the world.

Not anymore, thanks to the explosion in education costs.

What we need is a revolution in education. Everything about the Internrnet and this age of information points to the fact that this is going to happen. Why should the cost of an information-intensive industry like education continue to increase when the costs of information and communications are falling dramatically?

Teachers’ unions, tenure, the high costs of large campuses and rising student loans all feed into our current inflationary bubble… making the problem of income inequality worse.

Eventually, this bubble will burst… and probably just in a matter of years.

When it does, expect campuses to face substantial cuts. Expect professors to lose their jobs — maybe even the ones with “tenure.” Expect universities who can no longer afford their facilities to lease them out to the private sector or research and development companies. And expect a spike in online education.

In fact, I wouldn’t be surprised if the bulk of online classes get taught by the best experts in the world, not just your run-of-the-mill local professor.

As long as special interest groups fight this, and they will, that revolution won’t take place, and disparaging income gaps will continue to hold. It’ll only happen when our economy melts down and educational facilities no longer have parents and students by the jugular. Then educational institutions will be forced to either change… or fail.

At that point we could see the cost of education fall dramatically. After all, it’s the biggest of all the inflationary bubbles. And the bigger the bubble, the bigger the burst.

This and falling costs of health care and housing will give a shot in the arm to the growth of the middle class again and restore upward mobility. The same thing happened in the mid-1930s into the mid-1970s, and it’ll happen again.

The wisdom of our governrnments and present leaders in education will not break this inequality paradigm. It’s the economic winter season that will make the change… and I welcome it.

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