Don't Worry, the Ultra-Rich Are Doing All Right
Stay up to date with the latest headlines via email.
While America holds its breath wondering if the new president will fix the economic crisis, we citizens have to keep the root causes in mind, like our raging wealth and income inequalities. As busy as the population is investing in canned goods and small arms ammunition, there is at least some awareness of the growing gap between the rich and everyone else. Without a better social awareness of this great divide, fighting to change it is impossible. The divide itself has been widening for 30 years, and so have the rich.
A very revealing report on this development was recently produced by the Organization for Economic Cooperation and Development, the group of developed nations that includes the United States, Canada, Western Europe and Japan. The report said, "Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States." In these parts, the wealthiest 10 percent was the richest in the entire OECD; and our poorest 10 percent was the poorest.
In another embarrassing American landmark, several U.S. cities have reached levels of inequality comparable to the massive slum-cities of the Third World. Cities of great wealth, like New York and Washington, approach Buenos Aires and Nairobi in their lopsided income distributions. In particular, New York City cracked the top 10 list of the world’s most unequal cities, unheard of for the developed world.
A recent study of American tax data over the 20th century concludes that the share of total U.S. income going to the top 10 percent of American households has gone from about a third in the 1970s, to half of pre-tax income today. And over the period 1993 to 2006, the income of the top 1 percent of households increased by an annual rate of 5.7 percent, while the income of the lower 99 percent grew by only 1.1 percent over the same period.
It’s not just numbers on paper -- the well-heeled are going to town, from $700 cigars to $15,000 face-lifts to $10 million personal helicopters. What an average American would make in a hundred years, the rich drop on a chopper to take from Long Island into Manhattan, so as to shop without sitting in New York traffic. And even as the retail chains for the working and middle classes decline (except for Wal-Mart), stores with upper-class clientele are another story. With the equity markets crashing, spending by individual wealthy families is somewhat down, and analysts have found "the idea that the high-end luxury market is immune to the economic cycle is a myth." But there is a silver lining: "luxury brands continue to benefit from a sustained increase in the number of wealthy consumers, particularly in countries like Brazil, Russia, India and China."
Indeed, the world now supports more wealthy families than ever before. According to a report compiled by financial analysts and described by the Financial Times, "The ranks of the world’s rich swelled to 8 million during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year." The report suggests that wealth concentration at the top "retained its strength through 2007 and is in rude health." The report concludes that 2007 saw a 4.5 percent increase in the number of the "truly rich," even as they "shrug off the credit crunch."
The rich have been affected by the credit crisis, of course, since their ownership of financial assets it so disproportionate. But the "smart money" avoided the worst of the crisis; back in June, well before the implosion of banks invested in property-backed instruments this fall, "the wealthy have responded to the turmoil in the markets by scaling back their exposure to property and hedge funds in favor of safer investments," according to a report prepared by Merrill Lynch. The wealthy cut back on property trusts and hedge funds and committed more to cash and other liquid deposits, big moves from the "more than 10 million people on the planet with financial assets worth more than $1 million." This is not to speak of the "ultra-rich -- those with $30 million or more to invest," who grew even more rapidly than the mere millionaires.