America’s wealthiest citizens have never had it so good. But it’s a vastly different story for everyone else floating between broke and middle class.
As CNN Money recently reported, the Dow Jones Industrial Average has clocked nine consecutive record high days between late July and early August. Large multinational corporations and financiers like Goldman Sachs, Walmart, Apple, Amazon, and Facebook continue to post ever-larger earnings, enriching investors who are investing big in blue chip stocks. But analysts are sensing an end to the rally soon.
“The market is not as healthy as it looks,” Natixis Global Asset Management chief market strategist David Lafferty told CNN Money. “A rising tide is only lifting the biggest boats.”
Wall Street’s strong performance looks less impressive given that wages have been largely stagnant since the late 1970s. A 2015 study from the Economic Policy Institute analyzed the rate at which worker productivity was increasing and compared it to the rate at which workers’ wages increased. Up until the 1970s, productivity gains translated to higher wages.
However, once labor unions started declining as a result of globalization and neoliberal policies from both Republican and Democratic administrations, wage growth stalled while productivity continued to climb. It could be argued that the gains that normally went to workers have instead trickled upward to investors, given the stock market’s constant record-breaking highs.
Wealth inequality remains the most persistent problem in the American economy today. A recent Yahoo! Finance article by columnist Rick Newman analyzed the data and found that even though household wealth is $30 trillion higher today than it was prior to the Great Recession, a larger chunk of that wealth is being held by the richest Americans.
For example, the top 10 percent of earners hold roughly 63 percent of all financial wealth, according to data from Bank of America Merrill Lynch (BAML) Global Research. The top 10 percent only controlled 54 percent of financial wealth 25 years ago. Household wealth is even more concentrated among the top 10 percent, with America’s wealthiest controlling five percent more than they did in 1992.
The difference is even more starkly pronounced when looking at how much wealth the top tenth of the richest one percent of Americans control in comparison to everyday workers. A 2014 study by economists Emmanuel Saez of the University of California-Berkeley and Gabriel Zucman of the London School of Economics is often cited by Senator Bernie Sanders (I-Vermont) in his claim that the ultra-rich control just as much wealth as the bottom 90 percent of Americans.
In 2016, Politifact analyzed the study and found the claim to be mostly true, when taking into account the combined wealth of the 160,000 richest American families — each with an average net worth of nearly $73 million — and comparing it side by side with the poorest 144 million American families, each of which have roughly $84,000 in assets to their name. Both the top 0.1 percent and the bottom 90 percent control roughly 22 percent of the nation’s wealth, according to the study.
The reason why so few Americans control so much wealth is so worrisome is, according to Newman, the fact that wealthy people are more likely to spend less because they already have so much. This is why household wealth is so high while consumer spending is simultaneously low. Venture capitalist Nick Hanauer, who told former Labor Secretary Robert Reich in his 2013 documentary Inequality For All that his annual income was between $10 million and $30 million, explained that even though he is among the ranks of the top 0.1 percent, he doesn’t spend exponentially more on consumer goods than the average American.
“I personally hate fancy food,” Hanauer said. “I would infinitely rather have a great bowl of pho at the local Vietnamese place than a five-course $300 dinner at some fancy place. You know, we can only go out to eat several times a year. We can only get so many haircuts every year.”
“Three pairs of jeans will do you, you know? You don’t need like 300 pairs,” he added.
If this trend continues unabated, it could spell disaster for both the American, and, by default, the global economy as well. A 2014 report from the Organisation for Economic Co-Operation and Development (OECD) found that rising inequality seriously harmed economic growth in Mexico and New Zealand over the past two decades. Growth was also negatively impacted by inequality in the United States and the United Kingdom.
To further prove the point, Spain, France, and Ireland all saw their GDP grow as a result of a more equal distribution of wealth. The OECD’s paper also found that increasing funding for and access to social safety nets like higher education and universal healthcare did not significantly impact economic growth, and were the surest way to decrease economic inequality in the long run.
If the White House and Republican leaders in Congress are serious about reforming the tax code to improve economic opportunity for all Americans, it’s worth considering the model followed by European social democracies like Denmark, Sweden, Norway, and Finland, all of which tax their richest citizens at much higher rates than in the United States. They also simultaneously rank among Forbes’ top 10 best countries for business, and are considered the happiest countries on Earth.
The U.S., by comparison, ranks #23 for businesses and #14 for happiness.
Matthew P. Robbins is an economics reporter for Grit Post covering wages, budgets, and taxes. He lives in Chicago, Illinois with his husband and two cats.