In Capital in the Twenty First Century, Thomas Piketty argued that the very richest in society are accumulating greater and greater wealth. As more wealth is handed down from rich parents to their heirs, as governments do less to tax this wealth, an increasing proportion of society’s resources become concentrated in the hands of the few, the 0.1% of the very richest.
Mainstream economists have criticised this idea, but now a study of wealth in the USA has suggested that, if anything, Piketty has underestimated the degree to which the wealth of the US’s ruling class is growing.
Wealth is hard to measure, not least because the rich endeavour to keep their private world private in order to avoid paying tax. In a new study of income tax data since 1913, economists Gabriel Saez of Berkeley and Emanuel Zucman of the London School of Economics estimate how the wealth of the richest in the USA has changed over the last 100 years.
This is about wealth, not income, so the data does not include the wealth-free half of the population who throughout the period had net wealth of approximately nothing. In many cases they have net debt, negative wealth.
The study is about the shifts in wealth between what might be called the middle class and the ruling class (although Saez and Zucman avoid talking about class).
The middle class are those who have some wealth. it is predominantly in the form of the houses they live in, pension funds and some savings. It is not wealth that can be used for conspicuous consumption, but assets that bring a limited buffer of security.
The very richest have their mansions and yachts but their main form of wealth is the ownership of means of production, distribution and exchange: the factories, lands, banks, shops along with the increasingly thick slice of privatised public services.
The most telling points about Saez and Zucman’s study is that its shows not only how wealth has shifted from the ordinary middle class (roughly those in the top 50% but not the top 10%), and how wealth has shifted within the top 1% in US society.
Prior to the stock market crash of 1929, the top 10% in US society owned a big bulk of the wealth, around 85%. That crash wiped out much of their wealth, but stopped the expansion of the middle-class. After some government redistribution (particularly through inheritance tax) took effect, the top ten per cent’s share fell to around 64% in the 1980s. Since then, the share of wealth of this group has creeped back up to nearly three-quarters of all wealth.
However, wealth distribution within the group is not even. Those in the 90%-99% group who did well in the economic boom the USA experienced in and after the Second World War, holding about 45% of the wealth by the 1970s, have seen their share reduced to 35%. A proportion of their wealth has shifted to the top 1%.
Picture now a set of Russian dolls. With each smaller percentage group, each smaller doll, the rate at which the wealth is increasing becomes greater.
The bottom nine-tenths of those in the 1% (that is those in the 1% of the 0.1% wealthiest) held over a quarter of all wealth before the 1929 crash, but by the 1970s only 15%. Since then their wealth has recovered to 20% of wealth.
The wealth of the top 0.1% was a quarter of the total before 1929 fell, but fell to only 6% by the 1970s. They have now recovered to 22% of total wealth (the same proportion as the entire bottom 90%).
Even within the top 0.1% there is no equality, the top 0.01% have the lion’s share. This group consists of the 16,000 wealthiest families in the USA. They have seen their share of wealth increase from less than 1% at the start of the 1980s to over 11% now. They have over half the wealth of the top 0.1%.
Imagine if there were 10,000 people in the USA. The bottom 5,000 would have no wealth. The next 4,000 would have an average of average wealth of about $190,000 each (probably in the form of a house), about a fifth of the total.
The next richest 900 would have an average wealth of $1.3 million, about a third of the total.
The next ninety would have wealth of $7.3 million each, collectively holding about a fifth of the total.
It is not until the next nine are reached that we enter the world of the “Ultra-high net worth individuals” with luxury yachts, and perhaps at the very top end the odd private jet. This group would hold on average wealth of $40 million each, which would add up a little under 11% of all the wealth.
The richest person, indicative of the very richest group that which might well be called the Croesus Fraction, would have $321 million, more than 11% of the total. These inequalities are increasing.