Prosperous Period for US Billionaires: How the Economic Structure Sustains Wealth Inequality

For many US citizens, the financial landscape over the past five years has been tough. Expenses have escalated while salaries remains stagnant. Steep mortgage rates have made homeownership a dismal prospect. The jobless rate has been slowly rising.

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

Fortune Expansion

The assets of the world's billionaires increased 54% in 2020, at the height of the pandemic. And even during all the economic instability, the stock market has only kept rising. This growth has mostly helped just a small number of Americans: 10% of the population holds 93% of stock market wealth.

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

"The wealthy have bought their jets, they've acquired their multiple houses and mansions, but now they're acquiring senators and media outlets," explained wealth disparity expert Chuck Collins. "We're now moving into this other chapter of hyper-extraction where the wealthy are taking advantage of the system of inequality."

Mapping Economic Classes

To help others grasp 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 "Richistan" villages: Affluent Town, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To update the concept, Collins classifies these "economic communities" based on income levels:

• At the base level, Affluent Town, are the 10 million Americans who have a annual salary of at least $110,000 and an overall wealth of over $1.5m.
• The villages get more restricted 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 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 sitting 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 different cultural experience. You fly private, you have no stakes in the commercial aviation system. You don't care if the whole system collapses – 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 most affluent. The influence that this group has far surpasses those who are simply affluent, let alone the typical citizen who doesn't live in "Richistan" at all.

But Collins thinks the progressive slogan "abolish billionaires" misses the point and has a "hint of elimination" to it.

"It's the difference between personal actions and a system of rules," Collins commented. "We should be concerned about an economic system that channels so much wealth upward to the billionaires."

The Four Pillars of Billionaire Wealth

To understand how wealth at the billionaire level works, Collins separates it into four parts: acquiring fortune, protecting assets, political capture and maximum resource 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 establishing or managing a successful business, which could get them membership in Affluent Town.

But getting to Billionaireville requires significant resources and planning in those next three steps. Collins describes what he calls the "asset protection sector": the tax lawyers, accountants and wealth managers who use their knowledge to ensure that the super rich are being calculated about their taxes.

"Wealth defense professionals use a extensive selection of tools such as trusts, foreign deposits, anonymous shell companies, non-profit organizations and other mechanisms to hold assets," he writes.

Political Influence and Hyper-Extraction

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 protect assets and ensure continued growth.

The final phase 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 private equity, which allows wealthy individuals to fund private companies.

"Private equity is looking for those sectors of the economy where they can squeeze things 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 parked in so few hands, and they can basically shift and say, 'Where else can we generate returns out of the economy?' Healthcare? Great. Mobile home parks? These people can't go anywhere, [so] you can raise their rents."

The Real Consequences

The effects 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 meaningful wage increases. And Collins said the hardship and discontent of this kind of society can lead to profound dissatisfaction.

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

Political Reality

The contradiction, Collins points out in his book, is that elected representatives have appointed a series of billionaires to cabinet positions. Along with tech billionaires 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 legislative supporters, helped pass huge tax bills, which will make lasting reductions for the wealthy and corporations.

Future Solutions

While legislative bodies continue to argue that immigration and bad trade agreements are the source of everyone's economic problems, "the issue remains: Will the other major party, which has also been captured by the billionaires and big money, be able to seriously confront the underlying harms?" Collins said.

Left-leaning officials, he argues, know what policies are needed to "reverse the updraft of wealth", including significant reforms to the tax system, increasing the minimum wage and strengthening unions.

"It was so, so close, and the law really did embody the will of the most of people who really want lawmakers to fix 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 significant occur, but the muscle memory is there. We know what that looks like."

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

"It may be quickly that the balance shifts, 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 address this. It is solvable."