For the average person, even the very concept of the wealth to income ratio can be hard to understand. This is because wealth, as defined in formal financial terms, refers to a financial commodity that few average Joe workers even possess, such as stocks and other forms of investment. In other words, the total economic status of the very richest has increased as regular wages have remained stagnant. Historically this has often preceded financial catastrophe, and we would be prudent to consider that this indeed may be the case for us now.
The wealth to income ratio becoming abnormally high is concerning for many reasons. First, it can be mainly driven by the stock market's unrelenting upward momentum. While the majority of outstanding stock shares are controlled by the ultra wealthy, the typical person does not receive much benefit from this upward valuation. The typical person would also not benefit as their income would remain the same, while the folks who own the majority of stocks would benefit. Historically, a wealth to income ratio being extremely high is a warning sign of an impending financial crisis.
As the wealth to income ratio become increasingly higher, we will see backlash from those with radical politics who advocate redistribution. If our county becomes even more steeped with inequality, more and more things will happen to create unease and a lack of peace. We should work to balance the ration or prepare to face the consequences.
Yes we should worry because when this type of wealth to income ratio becomes abnormally high it signals a potential recession or depression. In fact, that's exactly what's happened in the past when the ratio becomes abnormally high right before the great depression, the bubble burst of 1999, and the housing market crash in 2007.
Higher ratios don't cause recessions.
Ok, you tell me, why does the ratio spike right before a recession, then?
Lets consider a stock market bubble.
There's a bubble. Stock doubles in value. Rich people own all the stock, so they double their wealth. Average joe gains zilch. The ratio shoots up.
There's a crash. Stock plummets. Rich people incur all the losses- they own all the stock. The ratio goes back down.
This is where that spike comes from. But a high ratio doesn't cause anything on its own. If you think it does, consider this:
If the ratio has been going up over time (it has,) why aren't we in permanent recession?