Posts Tagged "middle class"

Bars of gold

Billionaires Got Much Richer in Pandemic

In the COVID-19 downturn, this blog has had a steady supply of stories and statistics about the damage being done to low-income and middle-class families.

That’s one perspective on the pandemic. The growing billionaire class is another one.

Top 10 US billionairesSince last March, the nation’s 660 billionaires have added more than $1 trillion to their wealth – a 39 percent increase. Their combined net worth is now $4 trillion, which is nearly double the $2 trillion held by the 165 million Americans in the bottom half, according to the Institute for Policy Studies’ new report.

“It’s a troubling sign that too much of society’s wealth and income is flowing upwards to that small group of people,” Chuck Collins of the Institute for Policy Studies said during an interview on NPR’s Fresh Air.

The institute’s report is based on Forbes magazine’s annual estimates of the net worth of the world’s richest people.

Inequality has always been with us, but economists say it has grown as billionaires’ wealth has hit stratospheric levels.

To be sure, inequality would’ve been worse without the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $500 billion in direct assistance to families last spring prevented a surge in poverty, and the relief bill passed in late December is sending more aid to unemployed and under-employed people who need it.

The billionaires are getting richer for a couple reasons, starting with a surprisingly strong stock market in 2020. Despite the worst public health crisis in a century and a struggling economy, the Standard & Poor’s 500 stock index shot up 18 percent.

But some billionaires were also in the right place at the right time – a pandemic. …Learn More

inequality art

COVID-19 Could Increase US Inequality

A growing number of Americans can’t pay their rent, and the queues forming outside food banks hint at human need on the scale of the Depression. For Americans who were already living paycheck to paycheck prior to the pandemic, the $1,200 relief checks the government has deposited into their bank accounts are too little and came too late.

Few are being spared the financial fallout from the COVID-19 economic contraction. But economists predict the damage being done to working and middle class people will cause another surge in U.S. inequality, just as the previous recession did.

The big unknown is whether this downturn, which is unfolding more violently than the previous one, will do even more damage to livelihoods and produce an even bigger increase in inequality. Some economists say the unemployment rate is approaching 20 percent – double the peak reached in 2009.

New York University’s Edward N. Wolff, who has studied inequality for decades, predicts wealth inequality will spike again within the next two years. In the last recession, wealthy people lost money in the stock market, but the middle class did much worse.

The typical U.S. household’s net worth – their assets minus their debts – plunged by 44 percent between 2007 and 2010. This ended a 15-year period of stability relative to wealthier households, pushing inequality to historic highs.

The vulnerability in middle America’s finances back then remains a vulnerability today: debt. The Federal Reserve Bank of New York was already reporting early signs of growing financial distress among credit card borrowers prior to the current contraction, and Wolff said that the ratio of debt to net worth in the middle class is currently higher than it is for other groups. This debt, when combined with a fall in investment portfolios and an expected decline in house prices, will push up wealth inequality, he said.

Another form of inequality – the disparity in incomes – widened after the last recession and Boston College economist Geoffrey Sanzenbacher worries that it will increase again. Between 2008 and 2018, the top 1 percent of U.S. families received nearly half of the increase in incomes for all U.S. families, adjusted for inflation. …Learn More

balancing scales

US Inequality is Feeding on Itself

The fact that the richest Americans are grabbing such a big slice of the pie isn’t exactly breaking news.

What is news is that Wall Street is getting nervous about it. Moody’s Investors Service, a private watchdog for the federal government’s fiscal soundness, has concluded that inequality has reached the point that it threatens a system already being strained by increases in the federal debt. But Moody’s also noted that inequality is contributing to slower economic growth, which further aggravates inequality.

The high level of U.S. inequality today “sets us apart” from Canada, Australia, and several European countries, Moody’s said in an October report, “Widening Income Inequality Will Weigh on U.S. Credit Profile.”

Moody’s central concern is how inequality will affect the federal budget. When the economy slows in periods of high inequality, there are more lower-income households requiring support from costly programs like Medicaid.  Federal tax revenues also decline during any downturn, leaving less money to pay for these means-tested programs and for social insurance programs like Social Security and Medicare.

The firm’s second concern is that inequality is a drag on the economy. When the middle-class is squeezed, for example, they have less money to buy consumer goods. And when the economy slows down, inequality can increase, as it did in the years after the 2008-2009 recession.

This has played out in a widening wealth gap, Moody’s said.  The typical lower and middle-income worker’s net worth – assets minus liabilities – has shrunk since the recession, while net worth rose sharply for the people at the top.

One big reason for widening inequality is the stock market. Even though the market declined sharply this month, the post-recession bull market has beefed up investment portfolios – but only for the 50 percent of Americans who own company shares or stock mutual funds.

A second contribution to a widening wealth gap, post-recession, has been housing. A home is often the most valuable asset people own, so the steep drop in house prices and the spike in foreclosures were big setbacks for people who aspired to build wealth through homeownership. …Learn More