Prosperous Period for American Billionaires: Why the System Perpetuates Income Disparity

To numerous individuals in the United States, the financial landscape over the last half-decade has been tough. Expenses have skyrocketed while pay remains stagnant. High mortgage rates have made buying a home a dismal prospect. The rate of unemployment has been creeping up.

Many Americans have reported they're putting off major life decisions, including raising children or moving to new employment, because of the instability. But for a select few of people, the past five-year period couldn't have been more successful.

Wealth Explosion

The wealth of the world's billionaires expanded 54% in 2020, at the climax of the pandemic. And even throughout all the market volatility, the stock market has only kept rising. This expansion has largely benefited just a limited group of Americans: 10% of the population owns 93% of stock market wealth.

However unequal as this division seems, it's the economic framework working as it is presently configured.

"The wealthy have bought their jets, they've acquired their multiple houses and mansions, but now they're buying senators and media outlets," commented economic inequality analyst Chuck Collins. "We're now stepping into this other chapter of extreme wealth extraction where the wealthy are preying on the system of inequality."

Understanding Wealth Tiers

To help others understand what exactly it means to be "affluent" in the US, Collins adopts a concept from journalist Robert Frank who, in a 2007 book on the rich, envisioned the different levels of wealth as "Affluencia" villages: Wealth Borough, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To contemporize the concept, Collins classifies these "economic communities" based on income levels:

• At the foundation, Affluent Town, are the 10 million Americans who have a household income of at least $110,000 and an overall wealth of over $1.5m.
• The villages get more select as wealth goes up: Lower Richistan has 2.6 million households who have wealth between $6m and $13m.
• Middle Richistan has 1.3 million households who have assets worth an average of $37m.
• Upper Richistan, made up of 130,000 Americans (roughly the size of a small city) has between $60m to $1bn in wealth.

In total, the residents of these villages make up the top 10% of the wealth income distribution, about 14 million Americans altogether, though their circumstances vary dramatically.

"You could be in Lower Richistan, and you're still flying in the coach section of a commercial plane," Collins noted. "Whereas in Upper Richistan, you're flying in a private jet. That's a really different cultural experience. You fly private, you have no interest in the commercial aviation system. You don't care if the whole system collapses – you're set."

Extreme Affluence Consequences

The summit in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's most affluent. The power that this group has greatly exceeds those who are simply affluent, let alone the average American who doesn't live in "Richistan" at all.

But Collins thinks the activist mantra "end extreme wealth" misses the point and has a "whiff of exterminism" to it.

"It's the separation between individual behaviors and a structure of regulations," Collins explained. "We should be worried about an economic system that directs so much wealth upward to the billionaires."

Wealth Accumulation Mechanisms

To understand how wealth at the billionaire level works, Collins breaks it down into four parts: getting the wealth, securing fortune, policy control and extreme wealth removal.

When many Americans think about wealth, they usually think exclusively about the first step, Collins said. People can create a reasonable quantity of wealth through creating or operating a successful business, which could get them membership in Affluent Town.

But getting to Billionaireville requires serious investment and planning in those next three steps. Collins describes what he calls the "wealth defense industry": the tax lawyers, accountants and wealth managers who use their expertise to ensure that the super rich are being deliberate about their taxes.

"Wealth defense professionals use a extensive selection of tools such as legal entities, foreign deposits, secret corporations, non-profit organizations and other mechanisms to hold assets," he explains.

Government Power and Extreme Wealth Removal

To further a wealth defense strategy, a family needs political support. Wealth of over $40m translates to political power, Collins says, and can be used to defend wealth and ensure continued growth.

The last stage is a different kind of wealth accumulation, one that Collins calls "hyper extraction" to describe how the wealthy have come to affect nearly every single part of an Americans' routine activities largely through investment firms, which allows wealthy individuals to invest in private companies.

"Private equity is searching for those sectors of the economy where they can extract value a little bit harder," Collins said. "One thing I don't think people realize is these billionaire private-equity funds are what happens when so much wealth is parked in so few hands, and they can kind of turn around and say, 'Where else can we extract profits out of the economy?' Healthcare? Great. Mobile home parks? These people can't go anywhere, [so] you can increase their costs."

The Real Consequences

The results of this inequality go beyond the wealth getting wealthier. It's about people facing higher costs for their healthcare, rent and vet bills without seeing any meaningful wage increases. And Collins said the pain and frustration of this kind of society can lead to serious unrest.

"The most powerful affluent rulers understand people are being excluded [and] are economically suffering," Collins said, adding that Republicans have been good at accessing a potent "fake grassroots movement".

Government Truth

The paradox, Collins points out in his book, is that political leaders have appointed a string of billionaires to government roles. Along with tech billionaires who had brief but powerful roles overseeing substantial reductions to the federal workforce, other important roles for commerce, treasury, education and the interior are also all billionaires.

This political landscape, along with help from political partners, helped pass major tax legislation, which will make permanent tax cuts for the wealthy and corporations.

Future Solutions

While legislative bodies continue to argue that foreign entry and unfavorable commercial treaties are the source of everyone's economic problems, "the issue remains: Will the other major party, which has also been captured by the billionaires and big money, be able to seriously confront the underlying harms?" Collins said.

Left-leaning officials, he argues, know what policies are needed to "change wealth distribution", including significant reforms to the tax system, boosting the minimum wage and empowering worker groups.

"It was so, so close, and the legislation really did represent the will of the most of people who really want lawmakers to fix some of these critical challenges," Collins said. "Wealthy influence is not about building so much as stopping. It's easier to block than it is to make something substantial take place, but the historical precedent is there. We know what that looks like."

Collins is positive that there can be change, but said it would require sustained political momentum.

"It may be quickly that the tide turns, and then it really is about preserving a ongoing grassroots effort to make progress on this severe disparity we're living in," he said. "We can solve this. It is addressable."