Boom Time for US Billionaires: How the Economic Structure Perpetuates Wealth Inequality

Among countless Americans, the economic climate over the recent five-year span has been challenging. Prices have escalated while pay remains stagnant. Elevated mortgage rates have made homeownership a bleak prospect. The unemployment rate has been slowly rising.

Many Americans have indicated they're postponing major life decisions, including starting a family or switching jobs, because of the instability. But for a select few of people, the last five years couldn't have been more prosperous.

Wealth Explosion

The wealth of the world's billionaires grew 54% in 2020, at the height of the pandemic. And even amid all the market volatility, the stock market has only kept rising. This growth has largely benefited just a limited group of Americans: 10% of the population controls 93% of stock market wealth.

As uneven as this allocation seems, it's the economic framework working as it is currently designed.

"The wealthy have purchased their jets, they've acquired their multiple houses and mansions, but now they're acquiring senators and media outlets," commented wealth disparity expert Chuck Collins. "We're now stepping into this other chapter of maximum resource removal 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 borrows a concept from journalist Robert Frank who, in a 2007 book on the rich, envisioned the different levels of wealth as "Richistan" villages: Wealth Borough, Lower Richistan, Middle Richistan, Upper Richistan and Billionaireville.

To modernize the concept, Collins categorizes these "affluence districts" based on income levels:

• At the foundation, Affluent Town, are the 10 million Americans who have a family earnings 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 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 flying in the coach section of a commercial plane," Collins noted. "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 collapses – you're set."

The Billionaireville Effect

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 well-off, let alone the ordinary person who doesn't reside in "Richistan" at all.

But Collins thinks the activist mantra "end extreme wealth" doesn't capture the real problem and has a "hint of elimination" to it.

"It's the distinction between private conduct and a framework of policies," Collins said. "We should be worried 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 breaks it down 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 limited sum of wealth through starting or running a successful business, which could get them membership in Affluent Town.

But getting to Billionaireville requires significant resources and planning in those next three steps. Collins describes what he calls the "fortune security field": 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 extensive selection of tools such as legal entities, foreign deposits, anonymous shell companies, charitable foundations and other vehicles to hold assets," he explains.

Political Influence and Hyper-Extraction

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

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

"Private equity is searching for those corners of the economy where they can extract value 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 stored in so few hands, and they can essentially pivot 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 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 substantial income improvement. And Collins said the pain and frustration of this kind of society can lead to serious unrest.

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

Policy Situation

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

The Path Forward

While political parties continue to argue that immigration and poor economic deals are the source of everyone's economic problems, "the issue remains: Will the alternative political group, which has also been captured by the billionaires and big money, be able to meaningfully address the underlying harms?" Collins said.

Left-leaning officials, he argues, know what policies are needed to "change wealth distribution", including deep changes to the tax system, increasing the minimum wage and strengthening unions.

"It was so, so close, and the bill really did represent the will of the majority of people who really want lawmakers to solve some of these pressing issues," Collins said. "Elite control is not about building so much as preventing. It's easier to block than it is to make something meaningful happen, but the muscle memory is there. We know what that looks like."

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

"It may be sooner than expected that the pendulum swings back, and then it really is about sustaining a ongoing grassroots effort to make progress on this profound imbalance we're living in," he said. "We can fix this. It is solvable."