Prosperous Period for US Billionaires: How the System Perpetuates Wealth Inequality

Among countless Americans, the economy over the recent five-year span has been difficult. Costs have escalated while wages remains flat. High mortgage rates have made homeownership a dismal prospect. The rate of unemployment has been creeping up.

The majority of individuals have indicated they're postponing major life decisions, including having kids or switching jobs, because of financial volatility. But for a select few of people, the last five years couldn't have been any better.

Fortune Expansion

The wealth of the world's billionaires grew 54% in 2020, at the height of the pandemic. And even throughout all the financial uncertainty, the stock market has only persisted in expanding. This growth has primarily advantaged just a small number of Americans: 10% of the population holds 93% of stock market wealth.

However unequal as this division seems, it's the system working as it is existing today.

"Rich elites have purchased their jets, they've purchased their multiple houses and mansions, but now they're acquiring senators and media outlets," explained wealth disparity expert Chuck Collins. "We're now moving into this other chapter of hyper-extraction where the wealthy are preying on the system of inequality."

Mapping Economic Classes

To help others comprehend what exactly it means to be "wealthy" in the US, Collins utilizes a concept from journalist Robert Frank who, in a 2007 book on the rich, imagined the different levels of wealth as "Richistan" villages: Prosperity Village, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To contemporize the concept, Collins organizes these "wealth villages" based on income levels:

• At the lowest tier, Affluent Town, are the 10 million Americans who have a household income of at least $110,000 and an overall wealth 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 lifestyles 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 interest in the commercial aviation system. You don't care if the whole system fails – 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 richest. The influence that this group has substantially outweighs those who are simply affluent, let alone the typical citizen who doesn't reside in "Richistan" at all.

But Collins thinks the progressive slogan "end extreme wealth" fails to address the core issue and has a "suggestion of eradication" to it.

"It's the distinction 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."

The Four Pillars of Billionaire Wealth

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

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

But getting to Billionaireville requires serious investment and tactics in those next three steps. Collins describes what he calls the "asset protection sector": the tax lawyers, accountants and wealth managers who use their knowledge to ensure that the super rich are being strategic about their taxes.

"Wealth defense professionals use a broad range of tools such as financial instruments, foreign deposits, undisclosed businesses, non-profit organizations and other mechanisms to hold assets," he details.

Government Power and Extreme Wealth Removal

To further 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 protect its accumulation.

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 areas 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 stored in so few hands, and they can basically shift and say, 'Where else can we squeeze money 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 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 significant salary growth. And Collins said the suffering and anger of this kind of society can lead to deep discontent.

"The most powerful wealthy elites understand people are being left behind [and] are financially struggling," Collins said, adding that right-leaning leaders have been good at connecting with a potent "fake grassroots movement".

Political Reality

The irony, Collins points out in his book, is that government officials have appointed a string of billionaires to administrative posts. Along with wealthy entrepreneurs 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 political partners, helped pass huge tax bills, 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 issue remains: Will the other major party, which has also been controlled by the billionaires and big money, be able to effectively tackle the underlying harms?" Collins said.

Liberal leaders, he argues, know what policies are needed to "alter economic flow", including substantial modifications to the tax system, raising the minimum wage and strengthening unions.

"It was so, so close, and the legislation really did reflect the will of the majority of people who really want lawmakers to solve some of these critical challenges," Collins said. "Elite control is not about building so much as stopping. It's easier to block than it is to make something significant occur, but the institutional knowledge is there. We know what that looks like."

Collins is optimistic that there can be change, but said it would require continuous government action.

"It may be quickly that the tide turns, and then it really is about sustaining a sustained really popular movement to make progress on this profound imbalance we're living in," he said. "We can address this. It is fixable."