WASHINGTON, D.C. - A snapshot of wealth in America circa 2012-13: The 400 households in the Forbes 400 list of richest Americans control 3 percent of total wealth in the United States, a country of 316 million people.
This reflects not just a gap between the rich and the poor, but between the very, very rich and every one else, including the giant middle and the upper classes.
The distribution of wealth in America is more unequal than at any point since the before the Great Depression. And generations of increases gained by the middle class in the 20th century have been wiped out, partly swallowed by the top 1.0 percent, the top .01 and even the top .001 percent.
Much of what we know about economic inequality, and a big part of why the “The 1%” became a rallying cry of the Occupy Wall St. movement at the beginning of the Great Recession, came from the work of two economists, Emmanuel Saez and Thomas Piketty. They focused on inequality of incomes. Piketty went on to write a treatise called, “Capital in the Twenty-first Century.” The unlikely bestseller predicted inequality will continue to grow and that wealth will be inherited and concentrated even more in the decades ahead.
More recently, the Federal Reserve has gotten into the act. In October, Chair Janet Yellen gave a big speech unveiling a new Fed report on inequality.
“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” she said. “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.”
There’s important new ammunition in the debate courtesy of Piketty’s partner, Emmanuel Saez, working with Gabriel Zucman. The paper they published in October, “Wealth Inequality in the United States Since 1913: Evidence from Capitalized Income Tax Data” (published by the National Bureau of Economic Research) uses data from income taxes, the Federal Reserve and other sources to draw a more accurate portrait of wealth in America than we’ve had before. (A very clear and useful summary of the research for the “broader public” – like me – is available from the Washington Center for Equitable Growth. Quotes here come from that article.)
The tip top
The report says that from the Great Depression to the 1970s “there was a substantial democratization of wealth.” But it was reversed quickly. The share of national household wealth held by the top 0.1 percent (not just the top 1 percent) went from 7 percent in the late 1970s to 22 percent in 2012. Here’s what that looks like on a graph:
To get a sense of what this return to the Gilded Age looks like, consider that the top 0.1 percent consists of 160,000 households worth more than $20 million. The wealth of the rest of the famous “1 %” -- the 0.9 between the 0.1 and the 1.0 percent, actually decreased a little in those 40 years.
The top 0.01 percent, 16,000 households each worth an average of $371 million, controls 11.2 percent of total wealth.
The sum of the hyper-mega-wealthy, the study says, may actually be underestimated because of tax avoidance techniques, off-funds and trusts.
The other 90 percent
“The flip side of these trends at the top of the wealth ladder is the erosion of wealth among the middle class and the poor,” according to the report. “There is a widespread public view across American society that a key structural change in the U.S. economy since the 1920s is the rise of middle-class wealth, in particular because of the development of pensions and the rise in home ownership rates.”
The bottom 90 percent held just 15 percent of total wealth in the 1920s. That rose to a peak of 36 percent in the mid-1980s but then plummeted to 23 percent in 2012. Here’s the chart:
The report says the main causes of the loss of wealth among the middle class (and upper?) are slow wage growth, the decline of savings and the increase of debt. “Today, the top 1 percent families save about 35 percent of their income, while bottom 90 percent families save about zero,” the report says.
The wealth gap
So what does the wealth gap between the middle and top look like, leaving aside the very tip-top of the 0.1 percent? The average household wealth of the bottom 90 percent of Americans in 2012 was $80,000, the same as in 1986 when Ronald Reagan was president. The top 1 percent’s average wealth tripled in that time to about $14 million. The wealth gap is larger than ever.
The extent of economic inequality in America is now so deep and entrenched that it is almost beyond being an “issue.” It is more like an unalterable reality. Candidates might argue over how to help the middle class, but they don’t discuss the overall distribution of wealth and income in America as something that can be repaired or influenced. Such talk, when it comes from the likes of Democratic Senator Elizabeth Warren, is dismissed as “class warfare” and essentially un-American.
The authors cite several policy changes that would address economic inequality and ensure that America doesn’t become more like an old world society divided into rigid castes by inherited wealth. These policies include measures to stop practices that give special benefits to the wealthy such as the preferential tax on capital gains. They also call for more progressive income and estate taxes. But policies to increase the middle class’ capacity to earn and then save are even more important.
These seem far away from what Washington is concerned about – and capable of addressing. New research and the prominent speech by Yellen have caused a mini-stir in some wonkish subdivisions. But perhaps there is a surprise political best seller in the making.