Wealth gap continues to be a problem

A hedge fund manager is not the person one would expect to be talking about the growing divide between the rich and the poor, yet that’s what the chairman and chief investment officer of Bridgewater Associates is doing.

In October, Ray Dalio wrote a post on LinkedIn, “Our Biggest Economic, Social, and Political Issue.” The subject of the post was the growing wealth gap in the United States.

The share of the nation’s total income that goes to the top 10% of the population is at the highest point in more than a century. After peaking at just less than 50% on the eve of the Great Depression, the figure then fell as a result of Franklin D. Roosevelt’s New Deal, which introduced social safety nets for low-income individuals.

Income inequality then began to climb again in the 1970s. It’s a trend that has continued, breaching the 50% threshold in 2015, according to data from the World Wealth and Income Database. This is problematic for a number of reasons. Extreme inequality can trigger political turmoil. We’re already seeing this with the growth of populism.

Inequality can also lead to lower economic growth. Wealthy people spend less of their income than poor people. So if the former account for a majority of a country’s income, less of that money will be recycled back into the economy to power further growth.

The implication for investors? Buy gold, Dalio says.

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