Boom Time for American Billionaires: Why the System Sustains Income Disparity

For many US citizens, the economic climate over the past five years has been difficult. Expenses have skyrocketed while pay remains unchanged. Steep mortgage rates have made buying a home a dismal prospect. The rate of unemployment has been creeping up.

Many Americans have indicated they're postponing major life decisions, including starting a family or changing careers, because of financial volatility. But for a tiny fraction of people, the past five-year period couldn't have been more prosperous.

Fortune Expansion

The wealth of the world's billionaires increased 54% in 2020, at the peak of the pandemic. And even during all the financial uncertainty, the stock market has only kept rising. This growth has largely benefited just a tiny percentage of Americans: 10% of the population holds 93% of stock market wealth.

As uneven as this division seems, it's the financial structure working as it is presently configured.

"Rich elites have bought their jets, they've purchased their multiple houses and mansions, but now they're securing senators and media outlets," stated inequality researcher Chuck Collins. "We're now stepping into this other chapter of extreme wealth extraction where the wealthy are exploiting the system of inequality."

Analyzing Income Brackets

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, imagined the different levels of wealth as "Richistan" villages: Affluent Town, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To contemporize the concept, Collins categorizes 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 net worth 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.

Collectively, the residents of these villages comprise the top 10% of the wealth income distribution, about 14 million Americans altogether, though their circumstances 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 different cultural experience. You fly private, you have no stakes 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 wealthiest. The power that this group has far surpasses those who are simply well-off, let alone the average American who doesn't inhabit "Richistan" at all.

But Collins thinks the progressive slogan "billionaires shouldn't exist" fails to address the core issue and has a "whiff of exterminism" to it.

"It's the distinction between personal actions and a structure of regulations," Collins explained. "We should be focused on an economic system that channels so much wealth upward to the billionaires."

Wealth Accumulation Mechanisms

To understand how wealth at the billionaire level works, Collins breaks it down into four parts: getting the wealth, securing fortune, political capture and extreme wealth removal.

When many Americans think about wealth, they usually think solely 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 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 expertise to ensure that the super rich are being calculated about their taxes.

"Wealth defense professionals use a broad range of tools such as financial instruments, international accounts, anonymous shell companies, non-profit organizations and other methods to hold assets," he details.

Political Influence and Hyper-Extraction

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

The ultimate step is a different kind of wealth accumulation, one that Collins calls "maximum taking" to describe how the wealthy have come to influence nearly every single part of an Americans' routine activities largely through capital management, which allows wealthy individuals to fund private companies.

"Private equity is searching for those sectors 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 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 boost their expenses."

Tangible Effects

The consequences 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 pain and frustration of this kind of society can lead to profound dissatisfaction.

"The most powerful affluent rulers understand people are being excluded [and] are monetarily hurting," Collins said, adding that Republicans have been good at accessing a potent "phony populism".

Policy Situation

The irony, Collins points out in his book, is that government officials have appointed a series of billionaires to government roles. Along with tech billionaires who had brief but powerful roles overseeing massive cuts to the federal workforce, other crucial appointments for commerce, treasury, education and the interior are also all billionaires.

This political landscape, along with help from legislative supporters, helped pass huge tax bills, which will make permanent tax cuts for the wealthy and corporations.

The Path Forward

While government groups continue to argue that foreign entry and unfavorable commercial treaties are the source of everyone's economic problems, "the issue remains: Will the alternative political group, which has also been influenced by the billionaires and big money, be able to effectively tackle 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, boosting the minimum wage and supporting labor organizations.

"It was so, so close, and the bill really did embody the will of the majority of people who really want lawmakers to address some of these urgent problems," Collins said. "Elite control is not about building so much as stopping. It's easier to block than it is to make something meaningful happen, but the muscle memory is there. We know what that looks like."

Collins is optimistic that there can be change, but said it would require ongoing legislative effort.

"It may be sooner than expected that the balance shifts, and then it really is about preserving a continuous public campaign to make progress on this profound imbalance we're living in," he said. "We can solve this. It is addressable."