Today’s level of income and wealth inequality is not sustainable and is creating a society that is increasingly divided between the haves and the have-nots.
In terms of the United States’ population, income levels are generally expressed as quintiles (fifths). A quintile is a term used in economics to describe an income that falls within one of five equal-sized groups, each with 20% of the population. The first quintile contains the lowest 20% of earners, while the fifth quintile contains the highest 20% of earners. Between 1975 and 2020, incomes for all quintiles rose on average, but most of this growth was driven by the extremely rapid increase in the top quintile of income. Between 1975 and 2019, annualized growth rates were 0.4% for the bottom quintile, 0.6% for the 2nd quintile, 0.7% for the 3rd quintile, 0.9% for the 4th quintile, and 1.5% for the top quintile.
The Gini index is a statistical measure of inequality that ranges from 0 (or perfect equality) to 1 (or perfect inequality). A value of 0 would indicate that everyone in the United States earned the same amount of money, while a value of 1 would mean that one person earned all the money and everyone else earned nothing. Between 1975 and 2020, the Gini index for income in the United States increased by 0.110 from 0.359 in 1975 to 0.469 in 2020, meaning that income inequality increased during this period. In 2020, the top quintile of earners captured 51% of all income, while the bottom quintile earned only 3.4%. In 1975, by comparison, the top quintile captured less than 42% of all income, while the bottom quintile earned 5.6%.
The Rapid Rise of the Top 1%
Income growth has been faster for people in the top fifth of the income distribution. But, even within that quintile, income gains have been further concentrated. Income shares of the top 1% peaked during the 1920s, fell and stabilized over the next 50 years, and then started climbing again in the early 1980s. Over the past five decades, the top 1% of American earners have nearly doubled their share of pre-tax national income. In 1975, the top 1% captured 10.4% of national income, while the bottom 50% captured 20.4% of national income. (https://wid.world/country/usa/) By 2020, the wealthiest 1% of Americans were taking in 19.1 percent of national income, while the least well-off half had fallen to 13.6%. Americans at this level of income now earn almost 196 times more than the bottom 90 percent.
At higher levels of wealth, in addition to income, it can be helpful to consider your net worth. This is the value of what you own minus what you owe. In 2020, the Federal Reserve estimated that the median net worth of American households was $97,300. The top 10% of households had a net worth of $1,070,000 or more, and the top 1% of households had a net worth of $11,040,000 or more. In contrast, the net worth of the bottom 10% was negative, meaning they owed more than they owned. Over the past three decades, America’s most affluent families have added to their net worth, while those on the bottom have dipped into “negative wealth,” meaning the value of their debts exceeds the value of their assets, according to National Bureau of Economic Research data.
The Emergence of the Ultra-Rich Class
Income and wealth inequality in the United States is not only growing, but some believe it has reached levels not seen since the early twentieth century. The term “ultra-rich” generally refers to those individuals with a net worth of $30 million or more. In 2018, there were an estimated 663,000 ultra-rich people in the world, and their combined net worth was $29.7 trillion. The United States is home to more ultra-rich people than any other country, with 155,000 ultra-rich individuals.
The ultra-wealthy not only have more money than everyone else, but they also have greater access to a variety of other assets. The Federal Reserve’s Distributional Financial Accounts data reveal that most of their wealth comes from different types of assets, which are more lucrative. The top 1% of American households hold more than half of the entire stock and mutual fund assets in the country. In comparison, the majority of the wealth in the bottom 90 percent of Americans comes from their homes—an asset class that suffered the most during the Great Recession. About three-quarters of America’s debt is also held by the bottom 90%.
The Ultra-Rich and the American Dream
The ultra-rich are often portrayed as self-made success stories, but the reality is that they inherited their wealth or had access to resources that most of us do not. This is not to say that they don’t work hard, but their hard work is often fueled by inherited wealth and privilege. For example, Elon Musk, the founder of Tesla, was born into a wealthy family. His father was an engineer and his mother was a model. He attended private schools and had access to resources that most of us can only dream of. This is not to say that he didn’t work hard to become successful, but it is important to recognize that he started with advantages that most of us do not have.
The Ultra-Rich Mystique and Its Downside
There is an air of mystery and reverence developing around the ultra-rich that masks the reality of their lives. This mystique is perpetuated by the media, which often portrays the ultra-rich as larger-than-life characters. This portrayal creates a distorted image of the ultra-rich that clouds their negative impact. It’s been said that with great power comes great responsibility. It’s also been said that absolute power corrupts absolutely. Both sayings are relevant to the ultra-rich.
Oligarchs can do a lot of good in certain areas, but they also have the potential to inflict significant damage on a massive scale. In 2002, the oligarchs at Enron—an American energy company—sold water contracts to California municipalities that were based on the false premise that a drought was looming. This resulted in California having to pay exorbitant prices for water, which caused major financial problems for the state. In 2008, the oligarchs on Wall Street created the subprime mortgage crisis. They did this by packaging bad mortgages into securities and selling them to investors. When the housing market collapsed, millions of Americans lost their homes and their life savings.
Oligarchs are frequently praised for their generosity, but they also often utilize charity organizations to promote their political aims. The Koch brothers, for example, run a vast network of more than 800 nonprofits that they employ to promote their libertarian beliefs, which advocate for a hands-off approach to government regulation of business. They also have a foundation that funds colleges and universities, which allows them to influence what is taught.
Often extolled as job creators, the ultra-rich often destroy jobs and crush small businesses. The examples are legion. Workers for a large eCommerce business are treated like robots. They are given unrealistic performance goals and are constantly monitored by electronic surveillance. If they can’t meet their goals, they are fired. Employees at a large retail chain likewise are treated like cogs in a machine. They are given few benefits and are paid low wages, and their attempts to unionize have been fought tooth and nail. A company owned by one of the wealthiest families in America pays its employees so little that many of them are forced to rely on government assistance programs, such as food stamps and Medicaid, to make ends meet.
While the ultra-wealthy have always been a part of American society, their power and ability to do good or harm have never been as significant as it is now. This level of inequality is not sustainable and it is creating a society that is increasingly divided between the haves and the have-nots. The current gilded age will only come to an end when we deal with the issues that have allowed it to flourish.