Prosperous Period for American Billionaires: How the System Sustains Income Disparity

To numerous individuals in the United States, the economic climate over the past five years has been difficult. Costs have skyrocketed while pay remains unchanged. High mortgage rates have made buying a home a bleak prospect. The rate of unemployment has been creeping up.

The majority of individuals have indicated they're delaying major life decisions, including raising children or moving to new employment, because of economic uncertainty. But for a very small group of people, the recent half-decade couldn't have been any better.

The Billionaire Boom

The assets of the world's billionaires increased 54% in 2020, at the climax of the pandemic. And even throughout all the financial uncertainty, the stock market has only continued to grow. This expansion has largely benefited just a tiny percentage of Americans: 10% of the population controls 93% of stock market wealth.

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

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

Analyzing Income Brackets

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, conceptualized the different levels of wealth as "Affluencia" villages: Wealth Borough, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To update the concept, Collins categorizes these "affluence districts" based on income levels:

• At the foundation, 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.

Altogether, the residents of these villages comprise 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 flying in the coach section of a commercial plane," Collins explained. "Whereas in Upper Richistan, you're traveling via a private jet. That's a really separate reality. You fly private, you have no stakes in the commercial aviation system. You don't care if the whole system collapses – you're set."

The Billionaireville Effect

The peak in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's wealthiest. The power that this group has substantially outweighs those who are simply wealthy, let alone the average American who doesn't inhabit "Richistan" at all.

But Collins thinks the political catchphrase "abolish billionaires" doesn't capture the real problem and has a "whiff of exterminism" to it.

"It's the distinction between private conduct and a framework of policies," Collins commented. "We should be worried about an economic system that channels so much wealth upward to the billionaires."

Fortune Building Strategies

To understand how wealth at the billionaire level works, Collins separates it into four parts: acquiring fortune, securing fortune, political capture and maximum resource extraction.

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

But getting to Billionaireville requires serious investment and strategy 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 broad range of tools such as financial instruments, offshore bank accounts, secret corporations, philanthropic entities and other vehicles to hold assets," he explains.

Government Power and Extreme Wealth Removal

To enhance a wealth defense strategy, a family needs policy assistance. Wealth of over $40m converts to political power, Collins says, and can be used to secure fortune and ensure continued growth.

The final phase is a different kind of wealth accumulation, one that Collins calls "extreme removal" to describe how the wealthy have come to influence nearly every single part of an Americans' routine activities largely through private equity, which allows wealthy individuals to invest in private companies.

"Private equity is searching for those areas of the economy where they can increase profits a little bit harder," Collins said. "One thing I don't think people understand 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 squeeze money out of the economy?' Healthcare? Great. Mobile home parks? These people can't go anywhere, [so] you can boost their expenses."

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 suffering and anger of this kind of society can lead to serious unrest.

"The most powerful affluent rulers understand people are being left behind [and] are monetarily hurting," Collins said, adding that right-leaning leaders have been good at connecting with a potent "fake grassroots movement".

Government Truth

The paradox, Collins points out in his book, is that elected representatives have appointed a succession of billionaires to administrative posts. Along with affluent innovators who had temporary but significant roles overseeing massive cuts to the federal workforce, other important roles for commerce, treasury, education and the interior are also all billionaires.

This administrative framework, along with help from congressional allies, helped pass significant fiscal policies, which will make enduring decreases for the wealthy and corporations.

The Path Forward

While government groups continue to argue that foreign entry and poor economic deals are the source of everyone's economic problems, "the question becomes: Will the opposing party, which has also been captured by the billionaires and big money, be able to seriously confront the underlying harms?" Collins said.

Progressive politicians, he argues, know what policies are needed to "change wealth distribution", including deep changes to the tax system, increasing the minimum wage and supporting labor organizations.

"It was so, so close, and the legislation really did reflect the will of the majority of people who really want lawmakers to solve some of these critical challenges," Collins said. "Wealthy influence is not about developing so much as blocking. It's easier to block than it is to make something meaningful happen, but the historical precedent is there. We know what that looks like."

Collins is hopeful 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 maintaining a ongoing grassroots effort to make progress on this profound imbalance we're living in," he said. "We can fix this. It is fixable."