Golden Era for American Billionaires: Why the System Perpetuates Income Disparity

For many Americans, the financial landscape over the past five years has been tough. Costs have skyrocketed while salaries remains stagnant. Steep mortgage rates have made buying a home a bleak prospect. The rate of unemployment has been slowly rising.

Many Americans have reported they're postponing major life decisions, including raising children or switching jobs, because of financial volatility. But for a select few of people, the recent half-decade couldn't have been more prosperous.

Wealth Explosion

The fortune of the world's billionaires grew 54% in 2020, at the climax of the pandemic. And even throughout all the market volatility, the stock market has only persisted in expanding. This expansion has mostly helped just a tiny percentage of Americans: 10% of the population holds 93% of stock market wealth.

However unequal as this distribution seems, it's the financial structure working as it is currently designed.

"The wealthy have acquired their jets, they've purchased their multiple houses and mansions, but now they're acquiring senators and media outlets," stated inequality researcher Chuck Collins. "We're now entering this other chapter of maximum resource removal where the wealthy are taking advantage of the system of inequality."

Understanding Wealth Tiers

To help others comprehend what exactly it means to be "wealthy" 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 "Richistan" villages: Wealth Borough, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

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

• At the lowest tier, Affluent Town, are the 10 million Americans who have a family earnings of at least $110,000 and an overall wealth of over $1.5m.
• The villages get more exclusive 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.

Collectively, the residents of these villages constitute the top 10% of the wealth income distribution, about 14 million Americans altogether, though their experiences vary dramatically.

"You could be in Lower Richistan, and you're still sitting in the coach section of a commercial plane," Collins explained. "Whereas in Upper Richistan, you're flying in a private jet. That's a really distinct lifestyle. You fly private, you have no interest in the commercial aviation system. You don't care if the whole system shuts down – you're set."

Ultra-Wealth Impact

The peak in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's wealthiest. The control that this group has substantially outweighs those who are simply well-off, let alone the ordinary person who doesn't reside in "Richistan" at all.

But Collins thinks the political catchphrase "end extreme wealth" doesn't capture the real problem and has a "hint of elimination" to it.

"It's the distinction between individual behaviors and a framework of policies," Collins said. "We should be concerned about an economic system that channels 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: accumulating assets, securing fortune, policy control and maximum resource extraction.

When many Americans think about wealth, they usually think only about the first step, Collins said. People can create a modest amount of wealth through starting or running a successful business, which could get them residency in Affluent Town.

But getting to Billionaireville requires significant resources and strategy in those next three steps. Collins describes what he calls the "fortune security field": the tax lawyers, accountants and wealth managers who use their skills to ensure that the super rich are being deliberate about their taxes.

"Wealth defense professionals use a broad range of tools such as financial instruments, offshore bank accounts, anonymous shell companies, philanthropic entities and other vehicles to hold assets," he explains.

Political Influence and Hyper-Extraction

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

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

"Private equity is seeking 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 stored in so few hands, and they can essentially pivot 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 raise their rents."

Actual Impacts

The results of this inequality go beyond the wealth getting wealthier. It's about people spending additional funds for their healthcare, rent and vet bills without seeing any substantial income improvement. And Collins said the suffering and anger of this kind of society can lead to serious unrest.

"The most powerful oligarchs understand people are being left behind [and] are monetarily hurting," Collins said, adding that conservative politicians have been good at accessing a potent "false common-man appeal".

Policy Situation

The irony, Collins points out in his book, is that elected representatives have appointed a string of billionaires to government roles. Along with affluent innovators who had short yet influential roles overseeing significant decreases 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 lasting reductions for the wealthy and corporations.

Potential Changes

While legislative bodies continue to argue that border policies and unfavorable commercial treaties are the source of everyone's economic problems, "the challenge is: Will the alternative political group, which has also been captured by the billionaires and big money, be able to effectively tackle the underlying harms?" Collins said.

Liberal leaders, he argues, know what policies are needed to "reverse the updraft of wealth", including substantial modifications to the tax system, raising the minimum wage and supporting labor organizations.

"It was so, so close, and the bill really did embody the will of the most of people who really want lawmakers to solve some of these critical challenges," Collins said. "Wealthy influence is not about building so much as preventing. It's easier to block than it is to make something significant occur, but the institutional knowledge is there. We know what that looks like."

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

"It may be before we know it that the tide turns, and then it really is about preserving a sustained really popular movement to make progress on this severe disparity we're living in," he said. "We can address this. It is addressable."