Golden Era for American Billionaires: Why the Economic Structure Perpetuates Wealth Inequality

To numerous Americans, the economy over the last half-decade has been difficult. Prices have skyrocketed while pay remains unchanged. Steep mortgage rates have made homeownership a grim prospect. The unemployment rate has been gradually increasing.

Many Americans have stated they're postponing major life decisions, including starting a family or moving to new employment, 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 fortune of the world's billionaires grew 54% in 2020, at the climax of the pandemic. And even amid all the economic instability, the stock market has only kept rising. This growth has mostly helped just a tiny percentage of Americans: 10% of the population holds 93% of stock market wealth.

However unequal as this distribution seems, it's the system working as it is currently designed.

"Rich elites have bought their jets, they've acquired their multiple houses and mansions, but now they're acquiring senators and media outlets," stated economic inequality analyst Chuck Collins. "We're now stepping into this other chapter of hyper-extraction where the wealthy are preying on the system of inequality."

Understanding Wealth Tiers

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

To contemporize the concept, Collins organizes these "affluence districts" based on income levels:

• At the base level, 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.

Altogether, the residents of these villages make up 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 said. "Whereas in Upper Richistan, you're using a private jet. That's a really separate reality. You fly private, you have no stakes in the commercial aviation system. You don't care if the whole system fails – you're set."

The Billionaireville Effect

The highest hill in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's most affluent. The control that this group has greatly exceeds those who are simply wealthy, let alone the typical citizen who doesn't reside in "Richistan" at all.

But Collins thinks the progressive slogan "end extreme wealth" doesn't capture the real problem and has a "suggestion of eradication" to it.

"It's the difference between individual behaviors and a framework of policies," Collins commented. "We should be concerned about an economic system that funnels so much wealth upward to the billionaires."

Wealth Accumulation Mechanisms

To understand how wealth at the billionaire level works, Collins separates it into four parts: acquiring fortune, defending the wealth, policy control and maximum resource extraction.

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

But getting to Billionaireville requires substantial commitment 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 deliberate about their taxes.

"Wealth defense professionals use a extensive selection of tools such as financial instruments, international accounts, secret corporations, non-profit organizations and other vehicles to hold assets," he writes.

Government Power and Extreme Wealth Removal

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 last stage is a different kind of wealth accumulation, one that Collins calls "extreme removal" to describe how the wealthy have come to touch nearly every single part of an Americans' daily existence largely through private equity, which allows wealthy individuals to fund private companies.

"Private equity is looking for those areas of the economy where they can increase profits a little bit harder," Collins said. "One thing I don't think people comprehend is these billionaire private-equity funds are what happens when so much wealth is parked in so few hands, and they can kind of turn around 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 increase their costs."

The Real Consequences

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 meaningful wage increases. And Collins said the suffering and anger of this kind of society can lead to serious unrest.

"The most powerful affluent rulers understand people are being excluded [and] are monetarily hurting," Collins said, adding that right-leaning leaders have been good at connecting with a potent "fake grassroots movement".

Political Reality

The paradox, Collins points out in his book, is that government officials have appointed a series of billionaires to cabinet positions. Along with affluent innovators 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 government structure, along with help from legislative supporters, helped pass significant fiscal policies, which will make enduring decreases for the wealthy and corporations.

Future Solutions

While political parties continue to argue that foreign entry and bad trade agreements are the source of everyone's economic problems, "the question becomes: 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 "change wealth distribution", including significant reforms to the tax system, raising the minimum wage and supporting labor organizations.

"It was so, so close, and the law really did represent the will of the most of people who really want lawmakers to solve some of these critical challenges," Collins said. "Wealthy influence is not about creating so much as stopping. 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 hopeful that there can be change, but said it would require continuous government action.

"It may be before we know it that the pendulum swings back, and then it really is about sustaining a ongoing grassroots effort to make progress on this severe disparity we're living in," he said. "We can solve this. It is fixable."