Which Americans are Benefitting from the COVID-19 Pandemic?

Updated June 5, 2020

There is one very select group of Americans that have become significantly wealthier thanks to the COVID-19 virus.  While tens of millions of American workers are no longer working thanks to the shuttering of the economy, the Institute for Policy Studies found that five American billionaires have seen their wealth increase by staggering amounts.

Let's start by looking at the growth in the number of unemployed Main Street Americans:

As you can see, the unemployment level in the United States has reached levels that have never been seen during any prior crisis.  Over the eight week period between March 18, 2020 and June 4,  2020, over 42.6 million American workers have filed fro unemployment benefits..

On March 18, U.S. billionaires had a combined net worth of $2.947 trillion according to Forbes annual list of the wealthiest earthlings.  As of June 4, 2020, these same billionaires saw their total wealth increase by $565 billion or 19.15 percent.  Here are some of the beneficiaries of the COVID-19 pandemic:

Jeff Bezos of Amazon - up $36.2 billion

Mark Zuckerberg of Facebook - up $30.1 billion

Elon Musk of Tesla et al - up $14.1 billion

Steve Ballmer of Microsoft - up $13.3 billion

Larry Page of Google - up $13.7 billion

Sergey Brin of Google - up $13.9 billion

MacKenzie Bezos of Amazon - up $12.6 billion

Michael Bloomberg of Bloomberg LLP - up $12.1 billion

The world's most loved amateur virologist and vaccinologist, Bill Gates, also saw his fortune rise by roughly $11.8 billion.  Poor fellow.

Not only did these gentlemen see their net worth increase, over the eight week period, 14 new billionaires joined the United States billionaire list, bringing the total number up from 614 to 628. 

Let's take a quick look at the world's wealthiest man and his business.  According to Policy Matters Ohio, Amazon has become one of Ohio's largest employers.  Back in 2018, Policy Matters found that 1,430 of Amazon's then 6,000 plus workers in Ohio were getting assistance under the Supplemental Nutrition Assistance Program (SNAP) as shown in this press release:

The United States' richest people have seen their wealth increase by an amount that we can't even fathom since the COVID-19 lockdown began.  That said, at least we can all be assured that we are subjects to an oligarchy that has our best interests in mind and that only a fraction (81.8 percent to be exact) of the CARES Act funding will go to 43,000 of America's wealthiest people as shown here:

The Growth of Income Inequality in America

While discussions about income inequality have pretty much faded from page one, a recent study entitled "Billionaire Bonanza" by the Institute for Policy Studies suggests that, if anything, inequality is getting worse in the United States.  Here are some highlights from the report authored by Chuck Collins and Josh Hoxie.

Let's start by looking at how the inequality and wealth situation has changed over the past three decades.  In 1982, to enter the Forbes 400 list of the most wealthy Americans, one needed to have $75 million in assets which equates to $189 million in 2017 dollars.  In 2017, an American needed to have assets worth a minimum of $2 billion.  As well, in 1982, the combined wealth of the 400 Americans on Forbes list was $92 billion or $231 billion in 2017 dollars.  The combined wealth of the entire Forbes 400 list in 2017 was $2.68 trillion or 12 times the total in 1982 (in 2017 dollars) which is the same wealth that is held by the bottom 64 percent of Americans or 80 million households.  

The wealthiest 25 individuals in the United States own assets worth a combined $1 trillion.  To put this number into perspective, these 25 people hold more wealth than the bottom 178 million or 56 percent of all Americans combined.  Here is a list of the 25 wealthiest Americans and their net worth:

You will notice that the combined wealth of the three richest Americans, Bill Gates, Jeff Bezos and Warren Buffett is $248.5 billion.  This is more wealth than 160 million Americans or 63 million American households, roughly half of the U.S. population.

Wealth in the United States is not evenly distributed when looking at ethnicity/race.  Here is a table showing how wealth varies for each of the four groups that represent the American melting pot:

As you can see, median and average wealth for white households is far higher than it is for black, Latino and other households.  A significant part of this disparity is explained by the difference in home ownership rates among the four groups; in June 2017, 71.8 percent of white Americans owned homes compared to 45.5 percent of Latinos and 42.3 percent of African-Americans.

Now that we've looked at America's wealthiest, let's look at the other side of the coin with data from the Federal Reserve's Survey of Consumer Finances.  A median American family has a net worth of $80,000 (excluding the value of their family car).  Over 19 percent of American households have zero or negative net worth and are classified as "underwater".   The "underwater" designation is not evenly distributed across the United States and varies significantly by ethnicity/race:

African -Americans - 30 percent underwater

Latino - 27 percent underwater

Other - 24 percent underwater

White - 14 percent underwater.

These households face significant problems since they are unable to even survive a short-term unemployment situation.  

While we often hear about the "top one percent", who are the "worst of the worst" or the bottom one percent?  To be included in the 1st percentile, a household must have a negative net worth of more than $101,000.  In combination, these households have a combined negative net worth of $196 billion compared to the $33.4 trillion in wealth held by the top one percent of households.

A great deal of this wealth inequity can be attributed to the tax system in the United States.  Since many of the wealthiest Americans gained their wealth through the founding of publicly traded companies, the current tax policies that favour capital income (i.e. capital gains on stock transactions) over wage income work in their favour.  In contrast, here is what has happened to median real wages for wage and salary earners since 1989:

Here is the same data showing the year-over-year percentage change in real wages:

As you can see, for much of the nearly four decade-long period, real wages actually declined meaning that workers did not stay ahead of inflation.

Let's close this posting with this quote from French economist Thomas Piketty, author of "Capital in the Twenty-First Century":

"All large fortunes, whether inherited or entrepreneurial in origin, grow at extremely high rates, regardless of whether the owner of the fortune works or not. To be sure, one should be careful not to overestimate the precision of the conclusions one can draw from these data, which are based on a small number of observations and collected in a somewhat careless and piecemeal fashion. The fact is nevertheless interesting.

Take a particularly clear example at the very top of the global wealth hierarchy. Between 1990 and 2010, the fortune of Bill Gates -- the founder of Microsoft, the world leader in operating systems, and the very incarnation of entrepreneurial wealth and number one in the Forbes rankings for more than ten years -- increased from $4 billion to $50 billion. At the same time, the fortune of Liliane Bettencourt -- the heiress of L'Oréal, the world leader in cosmetics, founded by her father Eugène Schueller, who in 1907 invented a range of hair dyes that were destined to do well in a way reminiscent of César Birotteau's success with perfume a century earlier -- increased from $2 billion to $25 billion, again according to Forbes.

In other words, Liliane Bettencourt, who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working. Once a fortune is established, the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size. Note, in particular, that once a fortune passes a certain threshold, size effects due to economies of scale in the management of the portfolio and opportunities for risk are reinforced by the fact that nearly all the income on this capital can be plowed back into investment. An individual with this level of wealth can easily live magnificently on an amount equivalent to only a few tenths of percent of his capital each year, and he can therefore reinvest nearly all of his income. This is a basic but important economic mechanism, with dramatic consequences for the long-term dynamics of accumulation and distribution of wealth. Money tends to reproduce itself." (my bold)

Extreme Wealth Inequality in America and How It Can Be Fixed

We've all heard about the growing inequality in American society and a report by Chuck Collins and Josh Hoxie at the Institute for Policy Studies takes a unique look at just how unbalanced the United States has become along with offering two policy interventions that can be used to reduce the nation's extreme wealth inequality.  Let's look at some statistics followed by the solutions.

1.) The total wealth of the members of Forbes 400 wealthiest individuals in the United States adds up to a record $2.34 trillion, more than the GDP of India, a nation of over a billion people.  All 400 of these people have fortunes that are worth at least $1.7 billion.

2.) An estimated 115,000 U.S. households (the top one-thousandth of America's population) owns more than 20 percent of U.S. household wealth, up from 7 percent in 1970.

3.) The wealthiest 400 people in the United States have more wealth than the bottom 61 percent of the U.S. population which is comprised of 70 million households or 194 million people.

4.) The wealthiest 20 people in the United States have as much wealth as 152 million people who live in the 57 million households that make up the bottom half of the United States population.  These people include the following:

Their combined wealth totals $732 billion.  It is interesting to see that six of the top twenty are in the tech sector and nine have inherited their wealth from the previous generation.

5.) A typical U.S. household has $81,000 in total wealth.  The Forbes 400 have more wealth than 36 million American households, equal to the number of households that own cats!

6.) The Forbes 400 have as much wealth as all of America's African-American households plus one-third of America's Latino population combined.  The wealthiest 100 members of the Forbes 400 have as much wealth as the entire African-American population of 42 million people.  The wealthiest 186 members of the Forbes 400 have as much wealth as the entire Latino population of over 55 million people.

7.) African-Americans make up 13.2 percent of the United States population but have only 2.5 percent of the nation's total wealth.  Latinos make up 17 percent of the United States population but have only 2.9 percent of the nation's total wealth.  Here is a table showing the inequality in wealth by race:

I think that's enough statistics for this posting.  Why does inequality matter?  Here are four reasons:

1.) Inequality disenfranchises less wealthy voters largely because wealthy Americans dominate the campaign financing business.  

2.) Inequality undermines the public health system and leads to higher rates of illness.  Communities with less wealth inequality have stronger social cohesion and greater networks of mutual aid and caring.

3.) Extreme levels of inequality undermines the values of equal opportunity and social mobility.

4.) Less equal societies are more vulnerable to financial crises and political instability.

How can we reverse this extreme level of wealth concentration?  Here are two mechanisms that could be used to change wealth inequality:

1.) Close the Wealth Escape Problem:  The very wealthy have access to both offshore tax havens and private trusts to hide wealth and avoid taxation.  Estimates by Gabriel Zucman suggest that the United States loses about $200 billion annually in tax revenue from wealthy individuals as a result of their use of tax havens.  As well, the Grantor Retained Annuity Trust (GRAT) enables very wealthy families to pay little estate and gift taxes, sheltering wealth from the taxman for up to a century.  Casino mogul Sheldon Adelson, one of the wealthiest men in the United States, has used the GRAT scheme to transfer $8 billion to his heirs, avoiding $2.8 billion in estate taxes.  If these two wealth escape mechanisms were closed, trillions of dollars of hidden wealth would be exposed to taxation.

2.) Reduce the Concentration of Wealth:  A direct tax on wealth does not exist in the United States.  This could be implemented relatively simply by adding a tax of one percent on America's most wealthy.  A one percent tax on the top one percent of Americans who control $26 trillion in wealth would generate $260 billion in tax revenue annually.  A one percent tax on the Forbes 400 would raise $234 billion over a ten year period.   Currently, capital gains through the sale of stocks and other financial assets are taxed at 23.8 percent compared to a rate of up to 39.6 percent for earned income.  Since the wealthy are more likely to benefit from capital gains than the sweaty masses, ending this preferential treatment for wealthy owners of capital would raise more than $600 billion over ten years.  As well, by implementing a progressive income tax system (i.e. taxing highest income households at higher tax rates), if America's top one percent paid federal taxes at an effective rate of 40 percent of their income instead of the current 33 percent, the federal government would collect an additional $157 billion in personal tax revenue in the first year alone.

In his book "Capital in the 21st Century", French economist Thomas Piketty has noted that there is a significant difference between inequality in income and the level of extreme inequality in capital where a handful of people control a growing and very significant portion of the economy.  He has warned that the United States is rapidly becoming a hereditary aristocracy of wealth and power.  By protecting inherited wealth, the United States has compounded the problem of wealth inequality and created a situation where a few individuals control a disproportionate amount of both monetary and political power.

Let's close with this quote from Piketty:

"The world to come may well combine the worts of two past worlds: both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity, claims with very little factual basis..."

Welcome to America's new reality. 

Wealth and the 2016 Presidential Election

It should be obvious by now that there is a great deal of discontent in the "American Heartland".  A very substantial portion of middle America has made it quite clear that they are dissatisfied with the political status quo, rejecting a mainstream candidate for president.  Looking at a brief paper by  Michael Norton and Dan Iriely entitled "Building a Better America - One Wealth Quintile at a Time" provides us with a look at why this happened in 2016.

In this paper, the authors asked "regular" Americans (no doubt, including some of Hillary Clinton's deplorables) to estimate the current distribution of wealth in the United States and then asking them to construct wealth distributions with what they felt was the ideal level of wealth inequality.  The authors used an online sample of 5,522 respondents from a panel of more than 1 million Americans.  The 5,522 respondents were from 47 states, had a mean age of 44.1 years, were 51 percent female and had a median household income of $45,000.  As well, in the 2004 election, 50.6 percent of respondents voted for George W. Bush and 46 percent voted for John Kerry, very similar to the actual popular vote in the 2004 election.  To ensure consistency, the authors provided a working definition of wealth as follows:

"Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.’’

For the first part of the study, the authors provided the respondents with three unlabelled pie charts of wealth distributions which included the following:

1.) a perfectly equal distribution of wealth.

2.) a distribution which reflected the actual wealth distribution in the United States.

3.) a distribution which fell between these two wealth distributions which actually reflected the real wealth distribution of Sweden.

Here is what the pie charts looked like (for the purposes of the study, the countries were not provided to the respondents) along with the preferences as percentages:

The respondents were then  asked which nation they would rather join given a "Rawls constraint" for determining a just society as follows:

‘‘In considering this question, imagine that if you joined this nation, you would be randomly assigned to a place in the distribution, so you could end up anywhere in this distribution, from the very richest to the very poorest.’’

Here are the results:

1.) 92.7 percent of females and 90.6 percent of males preferred the Swedish wealth distribution to that of the United States.

2.) 90.2 percent of Bush voters and 93.5 percent of Kerry voters preferred the Swedish wealth 

distribution to that of the United States.

3.) 92.1 percent of those with household incomes less than $50,000, 91.7 percent of those with household incomes between $50,001 and $100,000 and 89.1 percent of those with household incomes more than $100,000 preferred the Swedish wealth distribution to that of the United States.

I was rather surprised that the Swedish wealth distribution was preferred given the distaste for all things "socialist" by most right-leaning Americans.

In the next part of the study, the authors asked respondents to indicate their estimates for the actual distribution of wealth in the United States (i.e. what percentage of total wealth was owned by each quintile (20 percent grouping) and then indicate what distribution they felt was most ideal.  Here are the results showing the actual, estimated and ideal wealth distributions:

It is amazing to see how, despite the reporting by the mainstream media about wealth inequality in the United States, Americans significantly underestimate the degree of wealth inequality in the United States.  For example, respondents estimated that the wealthiest 20 percent of Americans control 59 percent of the nation's wealth when, in fact, they control 84 percent.  When the respondents were asked to provide their ideal wealth distribution, they assigned 37 percent of the wealth for the top 20 percent, just under one-third of what they currently hold.

What is fascinating about this study is that even the wealthiest of respondents felt that a more equitable distribution of wealth in the United States was desirable. 

Here are the conclusions of the study:

1.) Americans significantly underestimate the wealth disparity in the United States, suggesting that they are simply unaware of the gap.

2.) Americans hold overly optimistic views about social mobility in the United States which may be driving support for unequal wealth distribution since people feel that they have the chance to move up to a wealthier quintile.

3.) Disagreements about the causes of inequality prevent action being taken to reduce the problem.

This study clearly demonstrates why there is such disenchantment in America's Heartland.  With the gutting of the manufacturing sector and the oil industry and the hangover remaining from the Great Recession, the odds of "movin' on up, to the east side" (thanks to The Jeffersons) are becoming increasingly remote, leading directly to dissatisfaction with the political status quo.  Sadly, what seems so obvious now, completely escaped the consciousness of the elite/literati in Washington (and, for that matter, the nation's centre of commerce in the State of New York).  This became apparent with Hillary Clinton's comments about "the deplorables" who, in fact, have only one vote to cast just like all of America's wealthiest and they cast those votes against Ms. Clinton.