We know how bad income inequality has gotten in the past few years in America, thanks largely to the work of economist Emmanuel Saez and his colleagues at University of California at Berkeley’s Center for Equitable Growth. But Saez’s latest paper finds that the share of the nation’s wealth going to the bottom 90 percent of Americans has declined to where it was in the 1940s, erasing decades of hard-won gains due to pro-worker, pro-middle-class economic policies.
Meanwhile, the top 0.1 percent of Americans – the 160,000 families with net assets in excess of $20 million in 2012 – now hold 22 percent of the nation’s wealth, up from 7 percent in 1978. That monopolization of a large share of national wealth by an elite few hasn’t been seen since the late 1920s.
The bottom 90 percent, by contrast, saw their wealth share fall from 35 percent in the mid-1980s to about 23 percent in 2012, the paper said. It was about 20 percent in the 1920s, it said.
The paper, “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” focuses not just on wages and income but on the accumulation of overall wealth, including the value of real estate, stocks and certain other assets. It explicitly refutes the view that while nearly all of the gains in national income since the 2008 recession have gone to the top 1 percent, that hasn’t translated into a substantial increase in the concentration of overall wealth at the top. To the contrary, the paper said, “we find that wealth inequality has considerably increased at the top over the last three decades.”
“Wealth concentration has increased particularly strongly during the Great Recession of 2008-2009 and in its aftermath,” the paper said. Largely because of the decline in housing prices, the share of wealth held by the bottom 90 percent fell more than 10 percent from the middle of 2007 to mid-2008. Afterward, real wealth continued declining at a rate of 0.6 percent a year on average through 2012, while it increased at a rate of almost 6 percent a year for the top 1 percent and almost 8 percent a year for the top 0.1 percent.
The bottom line: “Wealth is getting more concentrated in the United States,” and is in fact “ten times more concentrated than income today.”
How did this happen? “The share of wealth owned by the middle class has followed an inverted-U shape evolution,” the paper said. Middle-class households reached the apex of the upside-down “U” in the mid-1980s, driven by the accumulation of housing wealth and, more significantly, pensions. Since then, housing values for the bottom 90 percent as a share of total household wealth has fallen by as much as two-thirds, and most workers have IRAs or 401(k) defined contribution plans instead of pensions. And these households have significantly higher debt than they did in the 1980s.
What can we do about it? The paper points out that it was New Deal policies of the 1930s that began reversing the effects of Gilded Age inequality in the 1930s, particularly “very progressive income and estate taxation” that made it difficult for the wealthy to accumulate large fortunes and pass them to their heirs. “The historical experience of the United States and other rich countries suggests that progressive taxation can powerfully affect income and wealth concentration,” the paper said.
Other steps that can help include “access to quality and affordable education, health benefit cost controls, minimum wage policies, or, more generally, policies shifting bargaining power away from shareholders and management toward workers.” Finally, the paper suggests policies that “nudge” workers toward sound investment and savings vehicles and offer alternatives to short-term debt at high interest rates.
The fact that a group of people equal to the population of Salem, Oregon controls as much of the nation’s wealth as 90 percent of the rest of the country speaks to the fundamental unfairness of our economy. It is a level of imbalance that is as unsustainable today as it was before the crashes of 1929 and 2008. It also stands as a dire warning that we cannot afford to elect more politicians whose policies of giving more relief to the wealthy and more pain to the working class would only make wealth inequality and, and economic inequity, even worse.