Throughout history, oligarchies have often been tyrannical, relying on public obedience or oppression to exist. Aristotle pioneered the use of the term as meaning rule by the rich, for which another term commonly used today is plutocracy. In the early 20th century Robert Michels developed the theory that democracies, like all large organizations, have a tendency to turn into oligarchies. In his "Iron law of oligarchy"
he suggests that the necessary division of labor in large organizations
leads to the establishment of a ruling class mostly concerned with
protecting their own power.
The modern United States has also been described as an oligarchy
because economic elites and organized groups representing special
interests have substantial independent impacts on U.S. government
policy, while average citizens and mass-based interest groups have
little or no independent influence.
Putative oligarchies
A business group might be defined as an oligarchy if it satisfies all of the following conditions:
Owners are the largest private owners in the country.
It possesses sufficient political power to promote its own interests.
Owners control multiple businesses, which intensively coordinate their activities.
Intellectual oligarchies
George Bernard Shaw defined in his play Major Barbara,
premiered in 1905 and first published in 1907, a new type of Oligarchy
namely the intellectual oligarchy that acts against the interests of the
common people: “I now want to give the common man weapons against the
intellectual man. I love the common people. I want to arm them against
the lawyer, the doctor, the priest, the literary man, the professor, the
artist, and the politician, who, once in authority, is the most
dangerous, disastrous, and tyrannical of all the fools, rascals, and
impostors. I want a democratic power strong enough to force the
intellectual oligarchy to use its genius for the general good or else
perish.”
Cases perceived as oligarchies
Russian Federation
Since the collapse of the Soviet Union and privatization
of the economy in December 1991, privately owned Russia-based
multinational corporations, including producers of petroleum, natural
gas, and metal have, in the view of many analysts, led to the rise of Russian oligarchs. Most of these are connected directly to the highest-ranked government officials, such as President.
Ukraine
The Ukrainian oligarchs are a group of business oligarchs that quickly appeared on the economic and political scene of Ukraine after its independence in 1991. Overall there are 35 oligarchic groups.
Some contemporary authors have characterized current conditions in the United States as oligarchic in nature. Simon Johnson
wrote that "the reemergence of an American financial oligarchy is quite
recent", a structure which he delineated as being the "most advanced"
in the world. Jeffrey A. Winters
wrote that "oligarchy and democracy operate within a single system, and
American politics is a daily display of their interplay." The top 1% of the U.S. population by wealth in 2007 had a larger share of total income than at any time since 1928. In 2011, according to PolitiFact and others, the top 400 wealthiest Americans "have more wealth than half of all Americans combined."
In 1998, Bob Herbert of The New York Times referred to modern American plutocrats as "The Donor Class" (list of top donors) and defined the class, for the first time,
as "a tiny group—just one-quarter of 1 percent of the population—and it
is not representative of the rest of the nation. But its money buys
plenty of access."
French economist Thomas Piketty states in his 2013 book, Capital in the Twenty-First Century,
that "the risk of a drift towards oligarchy is real and gives little
reason for optimism about where the United States is headed."
A 2014 study by political scientists Martin Gilens of Princeton University and Benjamin Page of Northwestern University stated that "majorities of the American public actually have little influence over the policies our government adopts."
The study analyzed nearly 1,800 policies enacted by the US government
between 1981 and 2002 and compared them to the expressed preferences of
the American public as opposed to wealthy Americans and large special
interest groups.
It found that wealthy individuals and organizations representing
business interests have substantial political influence, while average
citizens and mass-based interest groups have little to none. The study
did concede that "Americans do enjoy many features central to democratic
governance, such as regular elections, freedom of speech and Association, and a widespread (if still contested) franchise."
Gilens and Page do not characterize the US as an "oligarchy" per se;
however, they do apply the concept of "civil oligarchy" as used by Jeffrey Winters
with respect to the US. Winters has posited a comparative theory of
"oligarchy" in which the wealthiest citizens – even in a "civil
oligarchy" like the United States – dominate policy concerning crucial
issues of wealth- and income protection.
Gilens says that average citizens only get what they want if
wealthy Americans and business-oriented interest groups also want it;
and that when a policy favored by the majority of the American public is
implemented, it is usually because the economic elites did not oppose
it. Other studies have questioned the Page and Gilens study.
In a 2015 interview, former President Jimmy Carter stated that the United States is now "an oligarchy with unlimited political bribery" due to the Citizens United v. FEC ruling which effectively removed limits on donations to political candidates. Wall Street spent a record $2 billion trying to influence the 2016 United States presidential election.
Interpretations of the phrase vary, depending on personal
perspectives, political ideologies and the selective use of statistics.
It is frequently heard in politics, usually referring to perceived
redistributions from those who have more to those who have less.
Occasionally, however, it is used to describe laws or policies that
cause opposite redistributions that shift monetary burdens from wealthy
to low-income individuals.
The phrase is often coupled with the term "class warfare", with high income earners and the wealthy portrayed as victims of unfairness and discrimination.
Redistribution tax policy should not be confused with predistribution
policies. "Predistribution" is the idea that the state should try to
prevent inequalities occurring in the first place rather than through
the tax and benefits system once they have occurred. For example, a
government predistribution policy might require employers to pay all
employees a living wage, not just a minimum wage, as a "bottom-up" response to widespread income inequalities or high poverty rates.
Many alternate taxation proposals have been floated without the
political will to alter the status quo. One example is the proposed "Buffett Rule",
which is a hybrid taxation model composed of opposing systems, intended
to minimize the favoritism of the special interest tax design.
The effects of a redistribution system are actively debated on
ethical and economic grounds. The subject includes analysis of its
rationales, objectives, means, and policy effectiveness.
History
In ancient times, redistribution operated as a palace economy.
These economies were centrally based around the administration, so the
dictator or pharaoh had both the ability and the right to say who was
taxed and who got special treatment.
Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford. Bradford records in his diary that this "common course" bred confusion, discontent, distrust, and the colonists looked upon it as a form of slavery.
A closely related term, distributism
(also known as distributionism or distributivism), is an economic
ideology that developed in Europe in the late 19th and early 20th
century based upon the principles of Catholic social teaching, especially the teachings of Pope Leo XIII in his encyclical Rerum novarum and Pope Pius XI in Quadragesimo anno. More recently, Pope Francis in his Evangelii Gaudium, echoed the earlier Papal statements.
Role in economic systems
Different types of economic systems
feature varying degrees of interventionism aimed at redistributing
income, depending on how unequal their initial distributions of income
are. Free-market capitalist
economies tend to feature high degrees of income redistribution.
However, Japan's government engages in much less redistribution because
its initial wage distribution is much more equal than Western economies.
Likewise the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income
– Thus, interventions in the economy justified on the grounds that they
increase equality need to be treated with caution. To attain an
efficient allocation of resources with the desired distribution of
income, if the assumptions of the competitive model are satisfied by the
economy, the sole role of the government is to alter the initial
distribution of wealth
– the major drivers of income inequality in capitalist systems – was
virtually nonexistent; and because the wage rates were set by the
government in these economies.
A comparison between Socialist and Capitalist Systems in terms of
distribution of income is much easier as both these systems stand
practically implemented in a number of countries under compatible
political systems. In Islamic System,inequality in almost all the
Eastern European economies has increased after moving from socialist
controlled systems to market base economies,for the Islamic
distribution, in the following are the three key elements of Islamic
Economic System, markedly different from Capitalism and with significant
implications for distribution of income and wealth (if fully
implemented): The first one is the System of Ushr and Zakaat,Ushr is an
obligatory payment from agriculture output at the time of harvesting. If
agriculture land is irrigated by rain or some other natural freely
available water the producer is obliged to pay ten percent of the output
as Ushr. In case irrigation water is not free of cost then the
deduction would be five percent, while Zakat is a major instrument of
restricting excessive accumulation of wealth and helping the poor and
most vulnerable members of the society, Secondly the interest is
Prohibited, which is Elimination of interest from the economic system is
a revolutionary step with profound effects on all spheres of economic
activities, and finally, Inheritance Law Of Islam, it is the
distribution of property of a deceased person from closest family
members and moving towards farthest of family. Son(s), daughter(s),
wife, husband and parents are the prime recipients. This distribution is
explicitly illustrated in Qur’an and cannot be changed or modified.
Under varying conditions the share of relatives accordingly changes. The
important principle is that the owner at the time of his/her death
cannot change these shares.
How views on redistribution are formed
The context that a person is in can influence their views on redistributive policies.
For example, despite both being Western civilizations, typical
Americans and Europeans do not have the same views on redistribution
policies.
This phenomenon persists even among people who would benefit most from
redistributive policies, as poor Americans tend to favor redistributive
policy less than equally poor Europeans.
Research shows this is because when a society has a fundamental belief
that those who work hard will earn rewards from their work, the society
will favor lower redistributive policies.
However, when a society as a whole believes that some combination of
outside factors, such as luck or corruption, can contribute to
determining one's wealth, those in the society will tend to favor higher
redistributive policies.
This leads to fundamentally different ideas of what is ‘just’ or fair
in these countries and influences their overall views on redistribution.
Another context that can influence one's ideas of redistributive policies is the social class that one is born into. People tend to favor redistributive policy that will help the groups that they are a member of.
This is displayed in a study of Latin American lawmakers, where it is
shown that lawmakers born into a lower social class tend to favor more
redistributive policies than their counterparts born into a higher
social class.
Research has also found that women generally support redistribution
more than men do, though the strength of this preference varies across
countries.
While literature remains mixed on if monetary gain is the true
motivation behind favoring redistributive policies, most researchers
accept that social class plays some role in determining someone's views
towards redistributive policies. Nonetheless, the classic theory that individual preferences for
redistribution decrease with their income, leading to societal
preferences for redistribution that increase with income inequality has been disputed.Perhaps
the most important impact of government on the distribution of “wealth”
is in the sphere of education—in ensuring that everyone has a certain
amount of human capital. By providing all individuals, regardless of the
wealth of their parents, with a free basic education, government
reduces the degree of inequality that otherwise would exist.
Income inequality has many different connotations, three of which
are of particular importance: (1) The moral dimension, which leads into
the discussion of human rights. What kinds of reason should a society
accept for the emergence or existence of inequality and how much
inequality between its members is reconcilable
with the right of each individual to human dignity? (2) The second
dimension links inequality to political stability. How much inequality
can a society endure before a significant number of its members begin to
reject the existing pattern of distribution and demand fundamental
changes? In societies with very rigid forms of income distribution, this
may easily lead to pub lic protest, if not violence. Authorities are
then faced with the option of reacting to protests with repression or
reform. In societies with flexible tools of negotiation and bargaining
on income, smoother mechanisms of adaptation may be available. (3) The
third dimension – in many cases the dominant pattern in social debate –
links inequality to economic performance. Individuals who achieve more
and perform better deserve a higher income. If everybody is treated the
same, the overall willingness to work may decline. The argument includes
the scarcity of skills. Societies have to provide incentives to ensure
that talents and education are allocated to jobs where they are needed
most. Not many people doubt the general accuracy of these arguments –
but nobody has ever shown how to correctly measure performance and how
to find an objective way of linking it to the prevailing level of income
distribution. Inequality is needed – to some extent – but nobody knows
how much of it is good.
Inequality in developing countries [?]
The existence of high inequality within many developing countries,
side-by-side with persistent poverty, started to attract attention in
the early 1970s. Nonetheless, through the 1980s and well into the 1990s,
the mainstream view in development economics was still that high and/or
rising inequality in poor countries was a far less important concern
than assuring sufficient growth, which was the key to poverty reduction.
The policy message for the developing world was clear: you can’t expect
to have both lower poverty and less inequality
Modern forms of redistribution
The
redistribution of wealth and its practical application are bound to
change with the continuous evolution of social norms, politics, and
culture. Within developed countries income inequality has become a
widely popular issue that has dominated the debate stage for the past
few years. The importance of a nation's ability to redistribute wealth
in order to implement social welfare programs, maintain public goods,
and drive economic development has brought various conversations to the
political arena. A country's means of redistributing wealth comes from
the implementation of a carefully thought out well described system of
taxation. The implementation of such a system would aid in achieving the
desired social and economic objective of diminishing social inequality
and maximizing social welfare. There are various ways to impose a tax
system that will help create a more efficient allocation of resources,
in particular, many democratic, even socialist governments utilize a
progressive system of taxation to achieve a certain level of income
redistribution. In addition to the creation and implementation of these
tax systems, "globalization of the world economy [has] provided
incentives for reforming the tax systems" across the globe.
Along with utilizing a system of taxation to achieve the redistribution
of wealth, the same socio-economic benefit could be achieved if there
are appropriate policies enacted within current political infrastructure
that addresses these issues. Modern thinking towards the topic of the
redistribution of wealth, focuses on the concept that economic
development increases the standard of living across an entire society.
Today, income redistribution occurs in some form in most democratic
countries through economic policies. Some redistributive policies
attempt to take wealth, income, and other resources from the "haves" and
give them to the "have-nots", but many redistributions go elsewhere.
In a progressive income tax
system, a high income earner will pay a higher tax rate (a larger
percentage of their income) than a low income earner; and therefore,
will pay more total dollars per person.
Other taxation-based methods of redistributing income are the negative income tax for very low income earners and tax loopholes (tax avoidance) for the better-off.
Two other common types of governmental redistribution of income are subsidies and vouchers (such as food stamps). These transfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations.
While the persons receiving transfers from such programs may prefer to
be directly given cash, these programs may be more palatable to society
than cash assistance, as they give society some measure of control over
how the funds are spent.
Despite having a regressive tax rate, the U.S. Social Security systems results in a net redistribution of wealth to the poor due to its highly progressive benefit formula.
Governmental redistribution of income may include a direct
benefit program involving either cash transfers or the purchase of
specific services for an individual. Medicare is one example.
Medicare is a government-run health insurance program that covers
people age 65 or older, certain younger people with disabilities, and
people with end-stage renal disease
(permanent kidney failure requiring dialysis or a transplant, sometimes
called ESRD). This is a direct benefit program because the government
is directly providing health insurance for those who qualify.
The difference between the Gini index for the income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
Wealth redistribution can be implemented through land reform that transfers ownership of land from one category of people to another, or through inheritance taxes or direct wealth taxes. Before-and-after Gini coefficients for the distribution of wealth can be compared.
Interventions like rent control can impose large costs. Some
alternative forms of interventions, such as housing subsidies, may
achieve comparable distributional objectives at less cost. If government
cannot costlessly
redistribute, it should look for efficient ways of redistributing—that
is, ways that reduce the costs as much as possible. This is one of the
main concerns of the branch of economics called the economics of the
public sector
Class analysis
One study
suggests that "the middle class faces a paradoxical status" in that
they tend to vote against income redistribution, even though they would
benefit economically from it.
Objectives
The
objectives of income redistribution are to increase economic stability
and opportunity for the less wealthy members of society and thus usually
include the funding of public services.
One basis for redistribution is the concept of distributive justice, whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just, and possibly more financially egalitarian, society. Another argument is that a larger middle class benefits an economy by enabling more people to be consumers, while providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work of John Rawls,
another argument is that a truly fair society would be organized in a
manner benefiting the least advantaged, and any inequality would be
permissible only to the extent that it benefits the least advantaged.
Some proponents of redistribution argue that capitalism results in an externality that creates unequal wealth distribution.
Many economists have argued that wealth and income inequality are a cause of economic crises,
and that reducing these inequalities is one way to prevent or
ameliorate economic crises, with redistribution thus benefiting the
economy overall. This view was associated with the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics; it has also been advanced, for different reasons, by Marxian economics. It was particularly advanced in the US in the 1920s by Waddill Catchings and William Trufant Foster. More recently, the so-called "Rajan hypothesis" posited that income inequality was at the basis of the explosion of the 2008 financial crisis.
The reason is that rising inequality caused people on low and middle
incomes, particularly in the US, to increase their debt to keep up their
consumption levels with that of richer people. Borrowing was
particularly high in the housing market and deregulation in the financial sector made it possible to extend lending in sub-prime mortgages. The downturn in the housing market in 2007 halted this process and triggered the financial crisis. Nobel Prize laureate Joseph Stiglitz, along with many others, supports this view.
There is currently a debate concerning the extent to which the world's extremely rich have become richer over recent decades. Thomas Piketty's Capital in the Twenty-First Century is at the forefront of the debate, mainly focusing on within-country concentration of income and wealth. Branko Milanovic provided evidence of increasing inequality at the global level, showing how the group of so-called "global plutocrats", i.e. the richest 1% in the world income distribution, were the main beneficiaries of economic growth in the period 1988–2008.
More recent analysis supports this claim, as 27% of total economic
growth worldwide accrued to the top 1% of the world income distribution
in the period 1980–2016. The approach underpinning these analyses has been somehow critiqued in certain publications such as The Economist.
Moral obligation
Peter Singer's argument contrasts to Thomas Pogge's in that he states we have an individual moral obligation to help the poor.
The rich people who are living in the states with more redistribution,
are more in favor of immigrants than poorer people, because this can
make them pay less wages.
Economic effects of inequality
Number of high-net-worth individuals in the world in 2011
A 2011 report by the International Monetary Fund
by Andrew G. Berg and Jonathan D. Ostry found a strong association
between lower levels of inequality and sustained periods of economic
growth. Developing countries (such as Brazil, Cameroon, Jordan) with
high inequality have "succeeded in initiating growth at high rates for a
few years" but "longer growth spells are robustly associated with more
equality in the income distribution."
The Industrial Revolution led to increasing inequality among nations. Some economies took off, whereas others, like
many of those in Africa or Asia, remained close to a subsistence standard of living. General calculations show that
the 17 countries of the world with the most-developed economies had, on average, 2.4 times the GDP per capita of
the world’s poorest economies in 1870. By 1960, the most developed economies had 4.2 times the GDP per capita of
the poorest economies.
Regarding to GDP indicator, GDP has nothing to say about the level of
inequality in society. GDP per capita is only an average. When GDP per
capita rises by 5%, it could mean that GDP for everyone in the society
has risen by 5%, or that GDP of some groups has risen by more while that
of others has risen by less—or even declined.
Criticism
Public choice
theory states that redistribution tends to benefit those with political
clout to set spending priorities more than those in need, who lack real
influence on government.
The socialist economists John Roemer and Pranab Bardhan criticize redistribution via taxation in the context of Nordic-stylesocial democracy, reportedly highlighting its limited success at promoting relative egalitarianism
and its lack of sustainability. They point out that social democracy
requires a strong labor movement to sustain its heavy redistribution,
and that it is unrealistic to expect such redistribution to be feasible
in countries with weaker labor movements. They point out that, even in
the Scandinavian countries, social democracy has been in decline since
the labor movement weakened. Instead, Roemer and Bardhan argue that changing the patterns of enterprise ownership and market socialism, obviating the need for redistribution, would be more sustainable and effective at promoting egalitarianism.
Marxian economists
argue that social democratic reforms – including policies to
redistribute income – such as unemployment benefits and high taxes on
profits and the wealthy create more contradictions in capitalism by
further limiting the efficiency of the capitalist system via reducing
incentives for capitalists to invest in further production.
In the Marxist view, redistribution cannot resolve the fundamental
issues of capitalism – only a transition to a socialist economy can.
Income redistribution will lower poverty by reducing inequality, if done
properly. But it may not accelerate growth in any major way, except
perhaps by reducing social tensions arising from inequality and allowing
poor people to devote more resources to human and physical asset
accumulation. Directly investing in opportunities for poor people is
essential.
The distribution of income that emerges from competitive markets
may be very unequal. However, under the
conditions of the basic competitive model, a redistribution of wealth
can move the economy to a more equal allocation that is also Pareto
efficient.
CBO
Chart, U.S. Holdings of Family Wealth 1989 to 2013. The top 10% of
families held 76% of the wealth in 2013, while the bottom 50% of
families held 1%. Inequality worsened from 1989 to 2013.
Wealth inequality in the United States, also known as the wealth gap, is the unequal distribution of assets among residents of the United States. Wealth commonly includes the values of any homes, automobiles, personal valuables, businesses, savings, and investments, as well as any associated debts.
The net worth of U.S. households and non-profit organizations was $107
trillion in the third quarter of 2019, a record level both in nominal
terms and purchasing power parity.
As of Q3 2019, the bottom 50% of households had $1.67 trillion, or 1.6%
of the net worth, versus $74.5 trillion, or 70% for the top 10%. From an international perspective, the difference in US median and mean wealth per adult is over 600%.
Wealth distribution by percentile
U.S. Federal Reserve data indicates that from 1989 to 2020, U.S. net
worth became increasingly concentrated with the top 1% (roughly 11.1
million and above) and top 10% wealthiest (roughly 1.2 million and
above), due in large part to corporate stock ownership concentration in
those segments of the population; the bottom 50% have little if any
corporate stock. Just prior to President Barack Obama's 2014 State of the Union Address, media reported that the wealthiest 1% of Americans possess 40% of the nation's wealth; the bottom 80% own 7%.
The gap between the wealth of the top 10% and that of the middle class
is over 1,000%; that increases another 1,000% for the top 1%. The
average employee "needs to work more than a month to earn what the CEO earns in one hour."
Although different from income inequality, the two are related. In Inequality for All—a
2013 documentary, narrated by Robert Reich, in which he argues that
income inequality is the defining issue of the United States—Reich
states that 95% of economic gains following the economic recovery which
began in 2009 went to the top 1% of Americans (by net worth) (HNWI). More recently, in 2017, an Oxfam study found that only eight people, six of them Americans, own as much combined wealth as half the human race.
A 2011 study found that US citizens across the political spectrum dramatically underestimate the current level of wealth inequality in the US, and would prefer a far more egalitarian distribution of wealth.
Wealth is usually not used for daily expenditures or factored
into household budgets, but combined with income, it represents a
family's total opportunity to secure stature and a meaningful standard
of living, or to pass their class status down to their children. Moreover, wealth provides for both short- and long-term financial security, bestows social prestige, contributes to political power, and can be leveraged to obtain more wealth.
Hence, wealth provides mobility and agency—the ability to act. The
accumulation of wealth enables a variety of freedoms, and removes limits
on life that one might otherwise face. Dennis Gilbert
asserts that the standard of living of the working and middle classes
is dependent primarily upon income and wages, while the rich tend to
rely on wealth, distinguishing them from the vast majority of Americans. A September 2014 study by Harvard Business School declared that the growing disparity between the very wealthy and the lower and middle classes is no longer sustainable.
Statistics
In 2007, the top 20% wealthiest Americans possessed 80% of all financial assets.
In 2007 the richest 1% of the American population owned 35% of the
country's total wealth, and the next 19% owned 51%. The top 20% of
Americans owned 86% of the country's wealth and the bottom 80% of the
population owned 14%. In 2011, financial inequality was greater than
inequality in total wealth, with the top 1% of the population owning
43%, the next 19% of Americans owning 50%, and the bottom 80% owning 7%. However, after the Great Recession,
which began in 2007, the share of total wealth owned by the top 1% of
the population grew from 35% to 37%, and that owned by the top 20% of
Americans grew from 86% to 88%. The Great Recession also caused a drop
of 36% in median household wealth, but a drop of only 11% for the top
1%, further widening the gap between the top 1% and the bottom 99%.
According to PolitiFact and other sources, in 2011, the 400 wealthiest Americans had more wealth than half of all Americans combined. Inherited wealth may help explain why many Americans who have become rich may have had a substantial head start. In September 2012, according to the Institute for Policy Studies, over 60 percent of the Forbes richest 400 Americans grew up in substantial privilege.
Distribution
of household wealth for the Top 1% and Bottom 50% in the U.S. since
1989, from the Federal Reserve (Wealth by wealth percentile group
(Shares (%))). Colored regions indicate the presidencies of Bill
Clinton, George W. Bush, Barack Obama, and Donald Trump, respectively.
In 2013, wealth inequality in the U.S. was greater than in most developed countries, other than Switzerland and Denmark.
In the United States, the use of offshore holdings is exceptionally
small compared to Europe, where much of the wealth of the top
percentiles is kept in offshore holdings. According to a 2014 Credit Suisse study, the ratio of wealth to household income is the highest it has been since the Great Depression.
According to a paper published by the Federal Reserve in 1997, "For most households, pensions and Social Security
are the most important sources of income during retirement, and the
promised benefit stream constitutes a sizable fraction of household
wealth" and "including pensions and Social Security in net worth makes
the distribution more even".
A September 2017 study by the Federal Reserve reported that the top 1% owned 38.5% of the country's wealth in 2016.
According to a June 2017 report by the Boston Consulting Group, around 70% of the nation's wealth will be in the hands of millionaires and billionaires by 2021.
A 2019 study by economists Emmanuel Saez and Gabriel Zucman
found that the average effective tax rate paid by the richest 400
families (0.003%) in the US was 23 percent, more than a percentage point
lower than the 24.2 percent paid by the bottom half of American
households.
The Urban-Brookings Tax Policy Center found that the bottom 20 percent
of earners pay an average 2.9 percent effective income tax rate
federally, while the richest 1 percent paid an effective 29.6 percent
tax rate and the top 0.01 percent paid an effective 30.6 percent tax
rate.
In 2019, the Institute on Taxation and Economic Policy found that when
state and federal taxes are taken into account, however, the poorest 20
percent pay an effective 20.2 percent rate while the top 1 percent pay
an effective 33.7 percent rate.
Using Federal Reserve data, the Washington Center for Equitable Growth
reported in August 2019 that: "Looking at the cumulative growth of
wealth disaggregated by group, we see that the bottom 50 percent of
wealth owners experienced no net wealth growth since 1989. At the other
end of the spectrum, the top 1 percent have seen their wealth grow by
almost 300 percent since 1989. Although cumulative wealth growth was
relatively similar among all wealth groups through the 1990s, the top 1
percent and bottom 50 percent diverged around 2000."
Simon Kuznets,
using income tax records and his own research-based estimates, showed a
reduction of about 10% in the movement of national income toward the
top 10% of wealth-owners, a reduction from about 45–50% in 1913 to about
30–35% in 1948. This period spans both The Great Depression and World War II, events with significant economic consequences. This is called the Great Compression.
1989 to 2020
Effect of stock market gains
The
Federal Reserve publishes information on the distribution of household
assets, debt and equity (net worth) by quarter going back to 1989. The
tables below summarize the net worth data, in real terms (adjusted for
inflation), for 1989 to 2020, and 2016 to 2020. Journalist Matthew Yglesias
explained in June 2019 how the ownership of stock has driven wealth
inequality, as the bottom 50% has minimal stock ownership: "...[T]he
bottom half of the income distribution had a huge share of its wealth
tied up in real estate while owning essentially no shares of corporate
stock. The top 1 percent, by contrast, wasn't just rich — it was
specifically rich in terms of owning companies, both stock in publicly
traded ones ("corporate equities") and shares of closely held ones
("private businesses")...So the value of those specific assets — assets
that people in the bottom half of the distribution never had a chance to
own in the first place — soared."
NPR also reported in 2017 that the bottom 50% of U.S. households
(by net worth) have little stock market exposure (neither directly nor
indirectly through 401k plans), writing: "That means the stock market
rally can only directly benefit around half of all Americans — and
substantially fewer than it would have a decade ago, when nearly
two-thirds of families owned stock."
Household Net Worth
Top 1%
90th to 99th
50th to 90th
Bottom 50%
Total
Q3 1989 ($ trillions)
10.03
15.86
15.11
1.58
42.58
Q2 2020 ($ trillions)
34.68
43.67
33.08
2.11
113.54
Increase ($ trillions)
24.65
27.81
17.97
0.53
70.96
% Increase
246%
175%
119%
34%
167%
Share of Increase (Increase/Total Increase)
34.7%
39.2%
25.3%
0.7%
100%
(Intentionally left blank)
Share of Net Worth Q3 1989
23.6%
37.2%
35.5%
3.7%
100%
Share of Net Worth Q2 2020
30.5%
38.5%
29.1%
1.9%
100%
Change in Share
+7.0%
+1.2%
-6.4%
-1.9%
0.0%
The table below shows changes from Q4 2016 (the end of the Obama Administration) to Q2 2020.
Household Net Worth
Top 1%
90th to 99th
50th to 90th
Bottom 50%
Total
Q4 2016 ($ trillions)
30.26
37.10
28.67
1.23
97.26
Q2 2020 ($ trillions)
34.68
43.67
33.08
2.11
113.54
Increase ($ trillions)
4.42
6.57
4.41
0.88
16.28
% Increase
14.6%
17.7%
15.4%
71.5%
16.7%
Share of Increase (Increase/Total Increase)
27.1%
40.4%
27.1%
5.4%
100%
(Intentionally left blank)
Share of Net Worth Q4 2016
31.1%
38.1%
29.5%
1.3%
100%
Share of Net Worth Q2 2020
30.5%
38.5%
29.1%
1.9%
100%
Change in Share
-0.6%
+0.3%
-0.3%
+0.6%
0.0%
Wealth and income
There is an important distinction between income and wealth.
Income refers to a flow of money over time, commonly in the form of a
wage or salary; wealth is a collection of assets owned, minus
liabilities. In essence, income is what people receive through work,
retirement, or social welfare whereas wealth is what people own. While the two are related, income inequality alone is insufficient for understanding economic inequality for two reasons:
It does not accurately reflect an individual's economic position
Income does not portray the severity of financial inequality in the United States.
The United States Census Bureau
formally defines income as money received on a regular basis (exclusive
of certain money receipts such as capital gains) before payments on
personal income taxes, social security, union dues, medicare deductions,
etc.
By this official measure, the wealthiest families may have low income,
but the value of their assets may be enough money to support their
lifestyle. Dividends from trusts or gains in the stock market do not
fall under the aforementioned definition of income, but are commonly the
primary source of capital for the ultra-wealthy. Retired people also
have little income, but may have a high net worth, because of money
saved over time.
Additionally, income does not capture the extent of wealth
inequality. Wealth is most commonly obtained over time, through the
steady investing of income, and the growth of assets. The income of one
year does not typically encompass the accumulation over a lifetime.
Income statistics cover too narrow a time span for it to be an adequate
indicator of financial inequality. For example, the Gini coefficient
for wealth inequality increased from 0.80 in 1983 to 0.84 in 1989. In
the same year, 1989, the Gini coefficient for income was only 0.52.
The Gini coefficient is an economic tool on a scale from 0 to 1 that
measures the level of inequality. 1 signifies perfect inequality and 0
represents perfect equality. From this data, it is evident that in 1989
there was a discrepancy in the level of economic disparity; the extent
of wealth inequality was significantly higher than income inequality.
Recent research shows that many households, in particular, those headed
by young parents (younger than 35), minorities, and individuals with low
educational attainment, display very little accumulation. Many have no
financial assets and their total net worth is also low.
According to the Congressional Budget Office, between 1979 and 2007, incomes of the top 1% of Americans grew by an average of 275%.
(Note: The IRS insists that comparisons of adjusted gross income
pre-1987 and post-1987 are complicated by large changes in the
definition of AGI, which led to households within the top income
quintile reporting more of their income on their individual income tax
form's AGI, rather than reporting their business income in separate
corporate tax returns, or not reporting certain non-taxable income in
their AGI at all, such as municipal bond income. In addition, IRS
studies consistently show that a majority of households in the top
income quintile have moved to a lower quintile within one decade. There
are even more changes to households in the top 1%. Without including
those data here, a reader is likely to assume households in the top 1%
are almost the same from year to year. In 2009, people in the top 1% of taxpayers made $343,927 or more. According to US economist Joseph Stiglitz the richest 1% of Americans gained 93% of the additional income created in 2010.
A study by Emmanuel Saez and Piketty showed that the top 10
percent of earners took more than half of the country's total income in
2012, the highest level recorded since the government began collecting
the relevant data a century ago.
People in the top one percent were three times more likely to work more
than 50 hours a week, were more likely to be self-employed, and earned a
fifth of their income as capital income. The top one percent was composed of many professions and had an annual turnover rate of more than 25%. The five most common professions were managers, physicians, administrators, lawyers, and teachers.
U.S. stock market ownership distribution
Stock owned by richest 10%.
2016
84%
2013
81%
2001
71%
U.S. family pre-tax income and net worth distribution for 2013 and 2016, from the Federal Reserve Survey of Consumer Finances.
In March 2017, NPR summarized the distribution of U.S. stock market ownership (direct and indirect through mutual funds) in the U.S., which is highly concentrated among the wealthiest families:
52% of U.S. adults owned stock in 2016. Ownership peaked at 65% in 2007 and fell significantly due to the Great Recession.
As of 2013, the top 1% of households owned 38% of stock market wealth.
As of 2013, the top 10% own 81% of stock wealth, the next 10% (80th to 90th percentile) own 11% and the bottom 80% own 8%.
The Federal Reserve reported the median value of stock ownership by income group for 2016:
Bottom 20% own $5,800.
20th-40th percentile own $10,000.
40th to 60th percentile own $15,500.
60th to 80th percentile own $31,700.
80th to 89th percentile own $82,000.
Top 10% own $365,000.
NPR reported that when politicians reference the stock market as a
measure of economic success, that success is not relevant to nearly half
of Americans. Further, more than one-third of Americans who work
full-time have no access to pensions or retirement accounts such as 401(k)s that derive their value from financial assets like stocks and bonds.
The NYT reported that the percentage of workers covered by generous
defined-benefit pension plans has declined from 62% in 1983 to 17% by
2016.
While some economists consider an increase in the stock market to have a
"wealth effect" that increases economic growth, economists like Former
Dallas Federal Reserve Bank President Richard Fisher believe those
effects are limited.
Causes of wealth inequality
The income growth of the typical American family closely matched that of economic productivity until some time in the 1970s. While it began to stagnate, productivity has continued to climb. According to the 2014 Global Wage Report by the International Labour Organization,
the widening disparity between wages and productivity is evidence that
there has been a significant shift of GDP share going from labor to
capital, and this trend is playing a significant role in growing
inequality.
Selected economic variables related to wealth and income equality, comparing 1979, 2007, and 2015.
The
image contains several charts related to U.S. wealth inequality. While
U.S. net worth roughly doubled from 2000 to 2016, the gains went
primarily to the wealthy.
U.S.
median family net worth peaked in 2007, declined due to the Great
Recession until 2013, and only partially recovered by 2016.
Essentially, the wealthy possess greater financial opportunities that allow their money to make more money.
Earnings from the stock market or mutual funds are reinvested to
produce a larger return. Over time, the sum that is invested becomes
progressively more substantial. Those who are not wealthy, however, do
not have the resources to enhance their opportunities and improve their
economic position. Rather, "after debt payments, poor families are
constrained to spend the remaining income on items that will not produce
wealth and will depreciate over time."
Scholar David B. Grusky notes that "62 percent of households headed by
single parents are without savings or other financial assets."
Net indebtedness generally prevents the poor from having any
opportunity to accumulate wealth and thereby better their conditions.
Economic inequality is a result of difference in income. Factors that contribute to this gap in wages are things such as level of education, labor market
demand and supply, gender differences, growth in technology, and
personal abilities. The quality and level of education that a person has
often corresponds to their skill level, which is justified by their
income. Wages are also determined by the "market price of a skill" at
that current time. Although gender inequality
is a separate social issue, it plays a role in economic inequality.
According to the U.S. Census Report, in America the median full-time
salary for women is 77 percent of that for men. Also contributing to the
wealth inequality in the U.S., both unskilled and skilled workers are
being replaced by machinery. The Seven Pillars Institute for Global Finance and Ethics argues that because of this "technological advance", the income gap between workers and owners has widened.
Income inequality contributes to wealth inequality. For example, economist Emmanuel Saez
wrote in June 2016 that the top 1% of families captured 52% of the
total real income (GDP) growth per family from 2009 to 2015. From 2009
to 2012, the top 1% captured 91% of the income gains.
Notably, for both the wealthy and not-wealthy, the process of
accumulation or debt is cyclical. The rich use their money to earn
larger returns and the poor have no savings with which to produce
returns or eliminate debt. Unlike income, both facets are generational.
Wealthy families pass down their assets allowing future generations to
develop even more wealth. The poor, on the other hand, are less able to
leave inheritances to their children leaving the latter with little or
no wealth on which to build...This is another reason why wealth
inequality is so important. Its accumulation has direct implications for
economic inequality among the children of today's families.
Corresponding to financial resources, the wealthy strategically
organize their money so that it will produce profit. Affluent people are
more likely to allocate their money to financial assets such as stocks,
bonds, and other investments which hold the possibility of capital
appreciation. Those who are not wealthy are more likely to have their
money in savings accounts and home ownership.
This difference comprises the largest reason for the continuation of
wealth inequality in America: the rich are accumulating more assets
while the middle and working classes are just getting by. As of 2007,
the richest 1% held about 38% of all privately held wealth in the United
States. while the bottom 90% held 73.2% of all debt. According to The New York Times, the richest 1 percent in the United States now own more wealth than the bottom 90 percent.
However, other studies argue that higher average savings rate
will contribute to the reduction of the share of wealth owned by the
rich. The reason is that the rich in wealth are not necessarily the
individuals with the highest income. Therefore, the relative wealth
share of poorer quintiles of the population would increase if the
savings rate of income is very large, although the absolute difference
from the wealthiest will increase.
The nature of tax policies in America has been suggested by economists and politicians such as Emmanuel Saez, Thomas Piketty, and Barack Obama
to perpetuate economic inequality in America by steering large sums of
wealth into the hands of the wealthiest Americans. The mechanism for
this is that when the wealthy avoid paying taxes, wealth concentrates to
their coffers and the poor go into debt.
The economist Joseph Stiglitz
argues that "Strong unions have helped to reduce inequality, whereas
weaker unions have made it easier for CEOs, sometimes working with
market forces that they have helped shape, to increase it." The long
fall in unionization in the U.S. since WWII has seen a corresponding rise in the inequality of wealth and income.
A Brandeis University Institute on Assets and Social Policy paper
cites the number of years of homeownership, household income,
unemployment, education, and inheritance as leading causes for the
growth of the gap, concluding homeownership to be the most important.
Inheritance can directly link the disadvantaged economic position and
prospects of today's blacks to the disadvantaged positions of their
parents' and grandparents' generations, according to a report done by
Robert B. Avery and Michael S. Rendall that pointed out "one in three
white households will receive a substantial inheritance during their
lifetime compared to only one in ten black households." In the journal Sociological Perspectives,
Lisa Keister reports that family size and structure during childhood
"are related to racial differences in adult wealth accumulation
trajectories, allowing whites to begin accumulating high-yield assets
earlier in life."
The article "America's Financial Divide" added context to racial wealth inequality, stating:
... nearly 96.1 percent of the 1.2
million households in the top one percent by income were white, a total
of about 1,150,000 households. In addition, these families were found to
have a median net asset worth of $8.3 million. In stark contrast, in
the same piece, black households were shown as a mere 1.4 percent of the
top one percent by income, that's only 16,800 homes. In addition, their
median net asset worth was just $1.2 million. Using this data as an
indicator only several thousand of the over 14 million African American
households have more than $1.2 million in net assets ...
If you're white and have a net
worth of about $356,000, that's good enough to put you in the 72nd
percentile of white families. If you're black, it's good enough to
catapult you into the 95th percentile." This means 28 percent of the
total 83 million white homes, or over 23 million white households, have
more than $356,000 in net assets. While only 700,000 of the 14 million
black homes have more than $356,000 in total net worth.
According to Inequality.org, the median black family is only worth $1,700 when durables are deducted. In contrast, the median white family holds $116,800 of wealth using the same accounting methods. Today, using Wolff's analysis, the median African American family holds
a mere 1.5 percent of median white American family wealth.
A recent piece on Eurweb/Electronic Urban Report, "Black Wealth
Hardly Exists, Even When You Include NBA, NFL and Rap Stars", stated
this about the difference between black middle class families and white
middle class families:
Going even further into the data, a
recent study by the Institute for Policy Studies (IPS) and the
Corporation For Economic Development (CFED) found that it would take 228
years for the average black family to amass the same level of wealth
the average white family holds today in 2016. All while white families
create even more wealth over those same two hundred years. In fact, this
is a gap that will never close if America stays on its current economic
path. According to the Institute on Assets and Social Policy, for each
dollar of increase in average income an African American household saw
from 1984 to 2009 just $0.69 in additional wealth was generated,
compared with the same dollar in increased income creating an additional
$5.19 in wealth for a similarly situated white household.
Author Lilian Singh wrote on why the perceptions about black life created by media are misleading in the American Prospect article "Black Wealth On TV: Realities Don't Match Perceptions":
Black programming features TV shows
that collectively create false perceptions of wealth for
African-American families. The images displayed are in stark contrast to
the economic conditions the average black family is battling each day.
In an article on Huffington Post
by Antonio Moore, "The Decadent Veil: Black America's Wealth Illusion",
Moore investigates how celebrity is masking massive inequality:
The decadent veil looks at black
Americans through a lens of group theory and seeks to explain an
illusion that has taken form over a 30-year span of financial
deregulation and new found access to unsecured credit. This veil is
trimmed with million-dollar sports contracts, Roc Nation
tour deals and designer labels made for heads of state. As black
celebrity invited us into their homes through shows like MTV cribs, we
forgot the condition of overall African American financial affairs.
Despite a large section of the 14 million black households drowning in
poverty and debt the stories of a few are told as if they represent
those of millions, not thousands. It is this new veil of economics that
has allowed for a broad swath of America to become not just desensitized
to black poverty, but also hypnotized by black celebrity ... The
decadent veil not only warps the black community's vision outward to a
larger economic world, but it also distorts outside community's view of
Black America's actual financial reality.
According to an article by the Pew Research Center, the median wealth of non-Hispanic black households fell nearly 38% from 2010 to 2013.
During that time, the median wealth of those households fell from
$16,600 to $13,700. The median wealth of Hispanic families fell 14.3 %
as well, from $16,000 to $14,000. Despite the median net worth of all
households in the United States decreasing with time, as of 2013, white
households had a median net worth of $141,900 while black house
households had a median net worth of just $11,000. Hispanic households had a median net worth of just $13,700 over that time as well.
Effect on democracy
As of 2021, Jeff Bezos is the richest person in the world.
A 2014 study by researchers at Princeton and Northwestern
concludes that government policies reflect the desires of the wealthy,
and that the vast majority of American citizens have "minuscule,
near-zero, statistically non-significant impact upon public policy ...
when a majority of citizens disagrees with economic elites and/or with
organized interests, they generally lose." When Fed chair Janet Yellen was questioned by Bernie Sanders
about the study at a congressional hearing in May 2014, she responded
"There's no question that we've had a trend toward growing inequality"
and that this trend "can shape [and] determine the ability of different
groups to participate equally in a democracy and have grave effects on
social stability over time."
In Capital in the Twenty-First Century, French economist Thomas Piketty
argues that "extremely high levels" of wealth inequality are
"incompatible with the meritocratic values and principles of social
justice fundamental to modern democratic societies" and that "the risk
of a drift towards oligarchy is real and gives little reason for optimism about where the United States is headed."
According to Jedediah Purdy, a researcher at the Duke School of
Law, the inequality of wealth in the United States has constantly opened
the eyes of the many problems and shortcomings of its financial system
over at least the last fifty years of the debate. For years, people
believed that distributive justice
would produce a sustainable level of wealth inequality. It was also
thought that a certain state would be able to effectively diminish the
amount of inequality that would occur. Something that was for the most
part not expected is the fact that the inequality levels created by the
growing markets would lessen the power of that state and prevent the
majority of the political community from actually being able to deliver
on its plans of distributive justice, however it has just lately come to
attention of the mass majority.
Trends in share of wealth held by various wealth groups 1989-2019
Taxation of wealth
Senator Bernie Sanders pitched the idea of a wealth tax in the US in 2014. Later, Senator Elizabeth Warren
proposed an annual tax on wealth in January 2019, specifically a 2% tax
for wealth over $50 million and another 1% surcharge on wealth over $1
billion. Wealth is defined as including all asset classes, including
financial assets and real estate. Economists Emmanuel Saez and Gabriel Zucman
estimated that about 75,000 households (less than 0.1%) would pay the
tax. The tax would raise around $2.75 trillion over 10 years, roughly 1%
GDP on average per year. This would raise the total tax burden for
those subject to the wealth tax from 3.2% relative to their wealth under
current law to about 4.3% on average, versus the 7.2% for the bottom
99% families. For scale, the federal budget deficit in 2018 was 3.9% GDP and is expected to rise towards 5% GDP over the next decade.
The plan received both praise and criticism. Two billionaires, Michael Bloomberg and Howard Schultz, criticized the proposal as "unconstitutional" and "ridiculous," respectively. Economist Paul Krugman wrote in January 2019 that polls indicate the idea of taxing the rich more is very popular. In 2021, officials in the state of Washington considered proposals to tax wealthy residents within the state.
