Wealth Inequality in America

 

The Federal Reserve Board recently released its figures on wealth distribution in the United States as of the end of March. The wealthiest 1% are presumably quite happy.  Their wealth increased from $2.01 trillion to $41.52 trillion in the first three months of 2021, an increase of more than 5%. In 2020 alone, the Credit Suisse Research Institute revealed last month, the U.S. cohort of “ultra-high net worth individuals” — deep pockets worth at least $30 million — increased by 21,313. No other nation last year gained as many as 10,000 new ultra-rich.

If we divide, for instance, total wealth in the United States by the number of U.S. adults, the “average” American ends up sitting on a $505,420 personal fortune. Only one other nation in the world, Switzerland, has a higher average personal net worth. But “averages” can be incredibly deceiving, especially where wealth concentrates intensely. In a 10-person society where one person holds $5 million in wealth and everyone else holds zilch, the “average” wealth of the 10 people will be $500,000. We do, fortunately, have an arithmetic alternative.

We can calculate the wealth of America’s most typical adult, that adult who holds more wealth than half our nation’s adult population and less wealth than the other half. Last year, notes the Credit Suisse Research Institute, the most typical — the median — American adult had a net worth of just $79,274, a far cry from America’s $505,420 adult “average.” In more equal developed nations, the contrast between “average” and “most typical” personal wealth runs nowhere nearly as stark. Belgium, for instance, has an “average” adult net worth of $351,330, far below the $505,420 U.S. average. But the most “typical” Belgian holds $230,550 in net worth, nearly triple the net.

Concentrated America’s wealth has left rich people-friendly politicians scrambling for distractions to keep people of modest means from focusing on that concentration.

Economist Steve Roth teased out of these historic data points an economic measure he calls the “velocity of wealth,” and he’s developed a model that riffs off this measure. America’s poorest 80 percent of households, this model posits, turn over their “wealth in annual spending three or four times as fast” as the top 20 percent. The significance of these differing rates? A “more broadly distributed wealth,” Roth notes, will mean more spending, “the very stuff of economic activity” and “itself the ultimate source of wealth accumulation.”

Roth has tested his model against the last three decades of actual U.S. economic experience, starting with the actual wealth of the U.S. top 20 and bottom 80 percent in 1989 and extrapolating forward to predict “levels of wealth, spending, and shares of wealth and spending” 30 years later. His model’s predictions for 2019 turned out to match up closely with what actually took place. Roth’s model predicted a total U.S. wealth of $114 trillion for the end of the 30-year period. The actual, real-life wealth total for the end of the period: $118 trillion, giving his model a modest 4 percent miss after three decades.

Roth takes one further step in his research. He uses his model to play out a counterfactual: What would have happened over the past three decades if some percentage of top 20 percent wealth had been “transferred, redistributed” to the bottom 80 percent every year over those decades?

An annual downward transfer of 1.5 percent of top 20 percent wealth, Roth’s model finds, would have left “everyone quite a lot wealthier, faster.” The greater spending resulting from that transfer downward would have generated a 549 percent increase in U.S. overall wealth. In real life, overall wealth over the course of those 30 years increased 421 percent.

Most of that extra wealth growth, Roth calculates, would have gone to the bottom 80 percent, but the wealth of the top 20 percent would have increased as well. What would not have increased — in Roth’s 1.5-percent counterfactual — would have been the top 20 percent’s share of society’s total wealth.

In life as actually lived over the past 30 years — life under rich people-friendly trickle-down policies — the wealth share of America’s top 20 percent increased from 61 to 71 percent.

Former U.S. labor secretary Robert Reich reminds us.

“Years ago, Marriner Eccles, chairman of the Federal Reserve from 1934 to 1948, explained that the Great Depression occurred because the buying power of Americans fell far short of what the economy could produce,” Reich points out. “He blamed the increasing concentration of wealth at the top.”

Presumably, a disproportionate share of the increase has gone to those at the very top of the 1%. In 2020, according to the Federal Reserve figures, the wealth held by the 1% increased 14.88%.  

However, using the Bloomberg Billionaires Index figures, in 2020, the wealthiest ten U.S. citizens, as of the end of the year, saw their wealth rise 47.9% bringing their total to $1.0685 trillion from $730.29 billion at the beginning of the year. 

The total holdings of the wealthiest ten as of the end of 2020, according to the Bloomberg Billionaires Index, represents 2.69% of the total holdings of the wealthiest 1% using the Federal Reserve figures of their holdings then. This is up from 2.12% at the beginning of 2020. These figures signify that among the wealthiest 1%, inequality is widening between the wealthiest of the wealthy and the rest of the 1%.

According to the Bloomberg Billionaires Index, as of June 23, 2021, the ten wealthiest U.S. citizens had experienced an increase in their wealth since the start of the year of $166.79 billion for a gain of 15.7%.

During 2020, Musk’s wealth increased $142 billion and Bezos by $75.4 billion. The biggest winners so far this year have been Larry Page whose gain in wealth is $29.7 billion and Sergey Brin at $28.5 billion, both connected to Google, with Facebook’s Mark Zuckerberg coming in a distant third with a gain of $23.3 billion. However, Zuckerberg’s total holdings still remain ahead of Page and Brin at $127 billion compared to their amounts of $112 billion and $108 billion.

Still leading the pack of multi-billionaires and having broken the $200 billion barrier is Jeff Bezos at $202 billion followed by Elon Musk at $180 billion and Bill Gates at $145 billion. Luckily for Gates, even if his divorce forces him to give up half of his wealth, at this point, both he and his soon to be ex would remain in the top 10 among U.S. citizens.

Internationally, the biggest winners so far in 2021 are Bernard Arnault from France whose wealth has shot up to $58.5 billion to $173 billion and Gautam Adani, described as an industrialist from India. His wealth has almost doubled by increasing $32.5 billion to a total of $66.3 billion.  As the pandemic raged in the U.S. in 2020, many of the wealthiest Americans experienced huge windfalls. Adani may be having the same experience. His wealth grew rapidly as India experienced a spike in the pandemic although his wealth increased by $22.5 billion in 2020 to $33.8 billion by the end of the year.

Reported in an April 21 New York Times article  with the headline:  C.E.O. Pay Remains Stratospheric, Even at Companies Battered by Pandemic

“Chief executives of big companies now make, on average, 320 times as much as their typical worker, according to the Economic Policy Institute. In 1989, that ratio was 61 to 1. From 1978 to 2019, compensation grew 14 percent for typical workers. It rose 1,167 percent for C.E.O.s.”

 General Electric’s Larry Culp at the top of the list, earning $72,728,233 last year, a 208% increase. Nike’s John Donahoe II came in second with $53,499,980, the same amount as 2019. Microsoft’s Satya Nadella made $44,321,788. And Thomas Rutledge of Charter Communications saw his compensation soar 353% to $38,670,620.

Factor in the other parts of the package, though, and the numbers get a lot bigger – and the order of who earned the most differs wildly. Here’s what the Times study found:

* Chad Richison (Paycom) – $211.13 million
* Amir Dan Rubin (1Life Healthcare) – $199.05 million
* John Legere (T-Mobile) – $137.2 million
* Larry Culp (General Electric) – $73.19 million
* Chris Nassetta (Hilton) – $55.87 million

One might conclude that the poorest 50% have recently made progress in that their wealth holdings quadrupled since Obama took office. The difference in the wealth of the 1% in comparison to the poorest 50% shows signs of declining.  The net wealth of the 1% was more than 23 times greater than that of the poorest 50% at both the beginning and end of Obama’s presidency.  In the first quarter of 2021, the wealth of the wealthiest 1% is less than 16 times greater than that held by the poorest 50%.

According to the Federal Reserve figures, when Obama became president in 2009, the real estate holdings of the poorest 50% were valued at $3.28 trillion. They carried home mortgages of $3.5 trillion meaning they were underwater. Had they sold all of their real estate to pay off their mortgages, they would still owe money.

In the first quarter of 2021, the poorest 50% real estate value stood at $3.87 trillion with a mortgage total of $2.45 trillion meaning that the net worth of their real estate was $1.42 trillion or $1.64 trillion more than in the first quarter of 2009 when it was negative $.22 trillion.  $1.42 trillion accounts for over 54% of their total wealth as of the first quarter in 2021 which, for most, presumably stands for the value of a basic need, the roof under which they live.

Take out the net value of the poorest 50%’s real estate, and their net wealth comes to $1.2 trillion compared to $.88 trillion in 2008 when Obama took office during the great recession.  Removing the net value of real estate results in the value of the wealth of the poorest 50% increasing just 36% since Obama became president.  That increase is much lower than the 400% increase when the net value of their real estate holdings are included as of the first quarter of 2021.

Take out the net value of the real estate for the richest 1% and the poorest 50%, and the remaining wealth of the 1% as of the first quarter of 2021 is over 30 times greater than the holdings of the poorest 50%. When Obama took office, it was about 15 times greater.

The above suggests that any significant improvement in the wealth of the poorest 50% compared to the 1% is an illusion.

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