Prosperous Period for US Billionaires: How the Economic Structure Perpetuates Income Disparity

For many Americans, the economy over the last half-decade has been difficult. Expenses have soared while pay remains unchanged. Steep mortgage rates have made purchasing property a grim prospect. The unemployment rate has been gradually increasing.

Many Americans have stated they're putting off major life decisions, including starting a family or moving to new employment, because of economic uncertainty. But for a tiny fraction of people, the past five-year period couldn't have been more successful.

Fortune Expansion

The fortune of the world's billionaires increased 54% in 2020, at the peak of the pandemic. And even throughout all the financial uncertainty, the stock market has only persisted in expanding. This increase has mostly helped just a tiny percentage 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 existing today.

"The wealthy have acquired their jets, they've bought their multiple houses and mansions, but now they're acquiring senators and media outlets," stated wealth disparity expert Chuck Collins. "We're now stepping 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 adopts a concept from journalist Robert Frank who, in a 2007 book on the rich, envisioned the different levels of wealth as "Richistan" 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 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 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.

In total, 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 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."

Extreme Affluence Consequences

The summit in "Richistan" is Billionaireville, which is made up of about 800 American billionaires who are some of the world's wealthiest. The influence that this group has far surpasses those who are simply well-off, let alone the ordinary person who doesn't live in "Richistan" at all.

But Collins thinks the political catchphrase "abolish billionaires" misses the point and has a "suggestion of eradication" to it.

"It's the distinction between private conduct and a framework of policies," Collins explained. "We should be focused on an economic system that directs so much wealth upward to the billionaires."

Wealth Accumulation Mechanisms

To understand how wealth at the billionaire level works, Collins divides it into four parts: acquiring fortune, protecting assets, 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 limited sum of wealth through establishing or managing a successful business, which could get them admission in Affluent Town.

But getting to Billionaireville requires serious investment and strategy in those next three steps. Collins describes what he calls the "wealth defense industry": 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 wide variety of tools such as trusts, international accounts, secret corporations, non-profit organizations and other mechanisms to hold assets," he details.

Political Influence and Hyper-Extraction

To further a wealth defense strategy, a family needs government backing. Wealth of over $40m becomes political power, Collins says, and can be used to defend wealth and maintain expansion.

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

"Private equity is looking for those corners of the economy where they can extract value 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 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 raise their rents."

The Real Consequences

The results 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 suffering and anger of this kind of society can lead to profound dissatisfaction.

"The most powerful oligarchs understand people are being left behind [and] are monetarily hurting," Collins said, adding that conservative politicians have been good at accessing a potent "fake grassroots movement".

Policy Situation

The paradox, Collins points out in his book, is that elected representatives have appointed a string of billionaires to government roles. Along with affluent innovators who had temporary but significant roles overseeing substantial reductions 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 congressional allies, helped pass major tax legislation, which will make lasting reductions for the wealthy and corporations.

Potential Changes

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 alternative political group, which has also been controlled 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, boosting the minimum wage and supporting labor organizations.

"It was so, so close, and the legislation really did reflect the will of the bulk of people who really want lawmakers to address some of these critical challenges," Collins said. "Wealthy influence is not about building so much as stopping. It's easier to block than it is to make something substantial take place, 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 balance shifts, and then it really is about preserving a ongoing grassroots effort to make progress on this severe disparity we're living in," he said. "We can solve this. It is addressable."