Same Story, Different Chapter: The Rich Get Richer, Much Richer
The wealthy are becoming wealthier. A new census of billionaires performed by Wealth-X (“the definitive source of intelligence on the ultra wealthy,” according to its website) and UBS AG (NYSE:UBS) (a Swiss bank with a robust wealth management division) finds that as of June, there were 2,170 billionaires in the world, up 0.5 percent on the year.
Between them, these billionaires command $6.1 trillion — “enough to fund the United States budget deficit until 2024, and greater than the GDP of every country except the United States and China” — up 5.3 percent on the year. The census finds that between 2009 and 2013, the net worth of the world’s billionaire population more than doubled from $3.1 trillion to the $6.5 trillion recorded in June.
Although the census provides some new data points, the basic idea isn’t new. “The rich get richer” is a long-standing anecdote (we’ll get to the second part of the anecdote later). A report published by the University of California, Berkeley in September showed that between 2009 and 2012, the incomes of the top 1 percent of earners in the United States increased 31.4 percent. In 2012 alone, incomes at the top 1 percent increased 19.6 percent.
Observers have pointed at a number of factors that contributed to the rapid increase in the wealth of the top 1 percent. To begin, as with everybody else, the incomes and net worth of the ultra-wealthy did take a beating during the Great Recession of 2007-2009.
According to the UC Berkley report, average real income per family declined by 17.4 percent between 2007 and 2009, the largest two-year drop in income since the Great Depression of the 1930s. This average decline among all households is a product of a 36.3 percent decline for the top 1 percent and an 11.6 percent decline for the bottom 99 percent.
Recovering from a setback can produce some artificially impressive numbers. The data suggest that even though the wealth gains of the top 1 percent have been enormous in the past few years, the gains put the demographic back to about where it was before the Great Recession.
One thing that has helped the wealthy restore their wealth is the recovery the equity markets — and this, to a large degree, can be attributed to the Federal Reserve’s easy money policy. Pew data show that just 15 percent of those with family income of less than $30,000 per year are invested in the stock market, while 80 percent of those who earn $75,000 or more are. Keep in mind that those who earn more than $114,000 qualify for the top 10 percent of earners. The top 1 percent earn more than $394,000.
This means that the vast majority of the new wealth created by the recovery of the stock market has gone to those at the higher end of the income scale, allowing the people at the top to regain their pre-crisis status. As much as 95 percent of the new wealth created between 2009 and 2012 has gone to the wealthiest 1 percent.
Meanwhile, there’s, well, everyone else. Incomes at the bottom 99 percent grew just 0.4 percent between 2009 and 2012. Between 2007 and 2011, the share of working families considered low income, meaning their earnings are 200 percent of the official poverty threshold, increased from 28 percent to 32 percent nationally.
The UC Berkley report finds that while the wealthy have largely recovered what was lost during the recession, the rest of America has hardly even begun to recover. The income of the bottom 99 percent has grown only 6.8 percent between 2002 to 2007, according to the report.
“The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains,” according to the UC Berkeley report. “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II — such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.
“We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”