Golden Era for American Billionaires: How the Economic Structure Perpetuates Income Disparity

For many Americans, the economic climate over the last half-decade has been challenging. Costs have soared while pay remains flat. Elevated mortgage rates have made buying a home a grim prospect. The unemployment rate has been slowly rising.

Many Americans have reported they're postponing major life decisions, including raising children or switching jobs, because of financial volatility. But for a select few of people, the past five-year period couldn't have been any better.

Fortune Expansion

The assets of the world's billionaires grew 54% in 2020, at the climax of the pandemic. And even during all the market volatility, the stock market has only persisted in expanding. This expansion has largely benefited just a limited group of Americans: 10% of the population owns 93% of stock market wealth.

Despite the imbalance as this allocation 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 buying senators and media outlets," commented inequality researcher Chuck Collins. "We're now moving into this other chapter of extreme wealth extraction where the wealthy are preying on the system of inequality."

Understanding Wealth Tiers

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, envisioned the different levels of wealth as "Wealthville" villages: Prosperity Village, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

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

• At the foundation, Affluent Town, are the 10 million Americans who have a household income of at least $110,000 and an net worth 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 constitute 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 traveling 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 separate reality. You fly private, you have no investment 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 richest. The power that this group has greatly exceeds those who are simply well-off, let alone the average American who doesn't inhabit "Richistan" at all.

But Collins thinks the activist mantra "billionaires shouldn't exist" misses the point and has a "whiff of exterminism" to it.

"It's the difference between personal actions and a structure of regulations," Collins explained. "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 divides it into four parts: accumulating assets, defending the wealth, government influence and extreme wealth removal.

When many Americans think about wealth, they usually think only about the first step, Collins said. People can create a limited sum of wealth through establishing or managing a successful business, which could get them residency in Affluent Town.

But getting to Billionaireville requires serious investment and strategy 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 financial instruments, offshore bank accounts, anonymous shell companies, non-profit organizations and other vehicles to hold assets," he writes.

Government Power and Extreme Wealth Removal

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

The final phase is a different kind of wealth accumulation, one that Collins calls "hyper extraction" 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 support private companies.

"Private equity is seeking those corners of the economy where they can squeeze things 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."

Tangible Effects

The results 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 substantial income improvement. 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 left behind [and] are financially struggling," Collins said, adding that right-leaning leaders have been good at tapping into a potent "phony populism".

Political Reality

The contradiction, Collins points out in his book, is that political leaders have appointed a succession of billionaires to administrative posts. Along with tech billionaires who had short yet influential roles overseeing massive cuts to the federal workforce, other crucial appointments for commerce, treasury, education and the interior are also all billionaires.

This administrative framework, along with help from political partners, helped pass significant fiscal policies, which will make permanent tax cuts for the wealthy and corporations.

The Path Forward

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

Progressive politicians, he argues, know what policies are needed to "alter economic flow", including deep changes to the tax system, raising the minimum wage and supporting labor organizations.

"It was so, so close, and the bill really did reflect the will of the bulk of people who really want lawmakers to fix some of these pressing issues," Collins said. "Oligarchic power is not about building so much as blocking. It's easier to block than it is to make something meaningful happen, but the institutional knowledge is there. We know what that looks like."

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

"It may be sooner than expected that the tide turns, and then it really is about preserving a continuous public campaign to make progress on this extreme inequality we're living in," he said. "We can fix this. It is addressable."