Prosperous Period for American Billionaires: How the System Perpetuates Income Disparity

Among countless individuals in the United States, the economy over the recent five-year span has been challenging. Prices have escalated while pay remains flat. Elevated mortgage rates have made purchasing property a bleak prospect. The jobless rate has been gradually increasing.

Most people have indicated they're putting off major life decisions, including starting a family or changing careers, because of economic uncertainty. But for a very small group of people, the recent half-decade couldn't have been more prosperous.

Wealth Explosion

The wealth of the world's billionaires grew 54% in 2020, at the peak of the pandemic. And even during all the economic instability, the stock market has only continued to grow. This growth has primarily advantaged just a limited group of Americans: 10% of the population controls 93% of stock market wealth.

Despite the imbalance as this division seems, it's the economic framework working as it is existing today.

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

Understanding Wealth Tiers

To help others grasp what exactly it means to be "affluent" in the US, Collins utilizes 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 modernize the concept, Collins organizes these "wealth villages" 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 total assets 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 traveling in the coach section of a commercial plane," Collins said. "Whereas in Upper Richistan, you're traveling via a private jet. That's a really distinct lifestyle. 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."

Extreme Affluence Consequences

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 affluent, let alone the average American who doesn't reside in "Richistan" at all.

But Collins thinks the political catchphrase "abolish billionaires" fails to address the core issue and has a "suggestion of eradication" to it.

"It's the distinction between personal actions and a framework of policies," Collins said. "We should be worried about an economic system that funnels so much wealth upward to the billionaires."

Fortune Building Strategies

To understand how wealth at the billionaire level works, Collins divides it into four parts: getting the wealth, securing fortune, political capture and maximum resource extraction.

When many Americans think about wealth, they usually think only about the first step, Collins said. People can create a modest amount of wealth through creating or operating a successful business, which could get them admission in Affluent Town.

But getting to Billionaireville requires serious investment 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 expertise to ensure that the super rich are being strategic about their taxes.

"Wealth defense professionals use a extensive selection of tools such as trusts, offshore bank accounts, secret corporations, charitable foundations and other methods to hold assets," he explains.

Government Power and Extreme Wealth Removal

To enhance a wealth defense strategy, a family needs government backing. 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 "hyper extraction" to describe how the wealthy have come to influence nearly every single part of an Americans' daily existence largely through capital management, which allows wealthy individuals to support private companies.

"Private equity is looking for those corners 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 stored in so few hands, and they can kind of turn around 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 increase their costs."

Tangible Effects

The effects of this inequality go beyond the wealth getting wealthier. It's about people paying more 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 profound dissatisfaction.

"The most powerful oligarchs understand people are being excluded [and] are financially struggling," Collins said, adding that Republicans have been good at connecting with a potent "false common-man appeal".

Political Reality

The contradiction, Collins points out in his book, is that political leaders have appointed a series of billionaires to cabinet positions. Along with tech billionaires who had brief but powerful 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 major tax legislation, which will make enduring decreases for the wealthy and corporations.

Potential Changes

While government groups continue to argue that immigration and unfavorable commercial treaties are the source of everyone's economic problems, "the question becomes: Will the other major party, which has also been captured by the billionaires and big money, be able to effectively tackle the underlying harms?" Collins said.

Progressive politicians, he argues, know what policies are needed to "change wealth distribution", including significant reforms to the tax system, raising the minimum wage and strengthening unions.

"It was so, so close, and the bill really did reflect the will of the majority of people who really want lawmakers to solve some of these pressing issues," Collins said. "Wealthy influence is not about building so much as blocking. It's easier to block than it is to make something significant occur, but the historical precedent is there. We know what that looks like."

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

"It may be quickly that the pendulum swings back, and then it really is about sustaining a continuous public campaign to make progress on this severe disparity we're living in," he said. "We can address this. It is fixable."