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

For many US citizens, the economy over the last half-decade has been tough. Costs have skyrocketed while wages remains flat. Elevated mortgage rates have made buying a home a bleak prospect. The jobless rate has been gradually increasing.

Many Americans have stated they're postponing major life decisions, including having kids or changing careers, because of economic uncertainty. But for a select few of people, the recent half-decade couldn't have been more successful.

Fortune Expansion

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

As uneven as this distribution seems, it's the economic framework working as it is currently designed.

"Rich elites have bought their jets, they've bought their multiple houses and mansions, but now they're buying senators and media outlets," explained economic inequality analyst Chuck Collins. "We're now stepping into this other chapter of maximum resource removal where the wealthy are taking advantage of the system of inequality."

Analyzing Income Brackets

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

To modernize the concept, Collins classifies these "wealth villages" based on income levels:

• At the lowest tier, Affluent Town, are the 10 million Americans who have a annual salary of at least $110,000 and an total assets 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 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 noted. "Whereas in Upper Richistan, you're using a private jet. That's a really distinct lifestyle. You fly private, you have no investment in the commercial aviation system. You don't care if the whole system shuts down – 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 most affluent. The influence that this group has greatly exceeds those who are simply wealthy, let alone the average American who doesn't reside in "Richistan" at all.

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

"It's the separation between individual behaviors and a system of rules," Collins said. "We should be focused on 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 breaks it down into four parts: acquiring fortune, protecting assets, political capture and hyper-extraction.

When many Americans think about wealth, they usually think solely 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 residency in Affluent Town.

But getting to Billionaireville requires significant resources and planning 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 strategic about their taxes.

"Wealth defense professionals use a extensive selection of tools such as financial instruments, international accounts, undisclosed businesses, charitable foundations and other mechanisms to hold assets," he details.

Political Influence and Hyper-Extraction

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

The last stage is a different kind of wealth accumulation, one that Collins calls "maximum taking" to describe how the wealthy have come to touch nearly every single part of an Americans' everyday life largely through investment firms, which allows wealthy individuals to support private companies.

"Private equity is seeking those corners 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 accumulated in so few hands, and they can basically shift 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 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 significant salary growth. And Collins said the pain and frustration of this kind of society can lead to deep discontent.

"The most powerful oligarchs understand people are being marginalized [and] are monetarily hurting," Collins said, adding that right-leaning leaders have been good at tapping into a potent "phony populism".

Political Reality

The paradox, Collins points out in his book, is that government officials have appointed a string of billionaires to government roles. Along with wealthy entrepreneurs who had temporary but significant 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 huge tax bills, which will make lasting reductions for the wealthy and corporations.

Potential Changes

While political parties continue to argue that immigration and unfavorable commercial treaties are the source of everyone's economic problems, "the challenge is: Will the other major party, which has also been controlled by the billionaires and big money, be able to meaningfully address the underlying harms?" Collins said.

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

"It was so, so close, and the bill really did reflect the will of the most of people who really want lawmakers to address some of these critical challenges," Collins said. "Oligarchic power is not about developing so much as stopping. It's easier to block than it is to make something substantial take place, 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 continuous government action.

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