I know I write about the widening wealth gap a lot. But I keep coming back to it because I feel like a sleuth who has found a loose string that I *know *eventually leads to cracking the case. I feel like Morpheus describes to Neo in the Matrix, when he first meets him and explains his pull toward the Matrix. Maybe you feel the same.
“Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me.”
— Morpheus to Neo, The Matrix
With the wealth gap, and its current and past trajectory, every time I pull on it, every time another piece of economic data comes out, and every time somebody asks why the economy feels so profoundly different depending on which side of the wealth divide you sit, I wind up in exactly the same place.
And that place is I think I think I can see, with increasing clarity, what is fundamentally wrong with the American economy. And I think the longer we refuse to deal with it, the greater the chances that the eventual resolution comes through some combination of economic crisis, political upheaval, civil unrest or a wholesale rejection of the system that created it.
The latest evidence comes from a Wall Street Journal analysis of new Federal Reserve wealth data, and the numbers are astonishing.
The top 0.1% of American households have more than doubled their wealth since the end of 2019. Read that again…more than doubled…in six years.
Roughly 137,000 households now control about $28 trillion, representing around 15% of the roughly $186 trillion in total American wealth. Average wealth for a household in this tiny group now exceeds $200 million.
Since 2019, these households have accumulated another $14.5 trillion in wealth, with roughly $10 trillion of that coming from stocks and mutual funds. In the 12 months through June 30 alone, while the S&P 500 gained 21%, the top 0.1% collected nearly $4 trillion in additional wealth from the market.
And this isn’t simply the familiar story of the rich pulling away from the poor. The ultra rich are now pulling away from the merely rich.
The rest of the top 10% gained $38.2 trillion over the same period, but those gains were divided among nearly 100 times as many households. Meanwhile, the entire bottom half of America collectively owns only about $4 trillion, or 2.3% of the country’s wealth.
And these people generally aren’t getting rich from salaries. According to an analysis cited by the Journal, 37% of households in the top 0.1% receive most of their income from businesses and another 26% from capital gains. Only 10% receive most of their income from wages and salaries. This is, overwhelmingly, an ownership class.
Which brings me back to something I have been harping on for years.
Inflation is the price the rest of us pay for the ultra rich getting ultra richer.
Obviously, I don’t mean that every dollar a billionaire makes causes your grocery bill to increase. Inflation has many causes. Energy, fiscal policy, supply constraints, labor costs, housing shortages and wars all matter.
My argument is about the monetary architecture underneath all of it. It’s an architecture that absolutely, in my opinion, must coming to a breaking point at some time and an architecture blessed by both political parties:
It’s really simple, but I’ll lay it out again:
For decades, whenever the economy or financial markets have run into trouble, policymakers have responded with some combination of lower rates, liquidity, quantitative easing and financial support.
These policies are not distributionally neutral.
When money becomes cheap and capital is pushed outward on the risk curve, financial and scarce assets tend to benefit. Stocks rise. Real estate rises. Businesses rise.
Frauds flourish.And because ownership of those assets is concentrated among people who already have substantial wealth, the biggest dollar gains flow directly to them.
The people who already have money receive enormous gains, giving them still more capital with which to purchase assets. Asset prices rise further. Housing becomes more expensive. The price of entering the ownership class rises. And somebody trying to accumulate his first $100,000 winds up competing against people whose portfolios can increase by millions while they sleep.
Meanwhile, prices throughout the real economy rise too. If you own $100 million in appreciating assets, inflation is manageable when your portfolio is compounding faster than your cost of living. You don’t particularly care that dinner costs 30% more when your net worth just increased by $20 million.
If you’re making $70,000 and your salary rises to $75,000 while housing, food, insurance, cars and other necessities have repriced dramatically higher, you have a very different problem. You are stuck with the inflation without the appreciating balance sheet.
Ergo, the rich get way richer, and yet you are unable to buy the same size
Fruit Loopscereal box you’re used to at the food store every week. If you have money, asset inflation can make you richer faster than rising living costs make you poorer. If you don’t have money, you predominantly experience the other side of the equation, until you get to some kind of breaking point.
**End of story. **And eventually something has to give.
This isn’t a Republican creation or a Democratic creation. The monetary regime that helped produce this environment has been blessed and extended under both parties.
Every time something breaks, Washington’s institutional response is to stabilize it. And for understandable reasons, policymakers would rather provide too much liquidity than risk watching the financial system implode. This is happening more and more nowadays. Sometimes we don’t even need an excuse other than an economist shitting himself on live television to lower rates that are then connected to trillions of dollars in capital flows which eventually widen this inequality gap.
And there is a cumulative cost to repeatedly supporting financial assets while telling people without meaningful financial assets that the system is working for them too.
That cost is sitting right in front of us, both in the hideous wealth data and in the rise of an entire class of Dunning-Kruger politicians, armed with some of the worst possible ideas about economics and finance, smiling like buffoons, seemingly smart enough to believe they are smart, but still one or two IQ points short of understanding just how toxic their ideas actually are:
I don’t view wealth inequality as an excuse to hate rich people. I’m a capitalist. I want people to become extraordinarily wealthy by building things, taking risks, employing people and allocating capital intelligently. Wealth creation is one of the great engines of human progress.
But capitalism requires enough people to believe the game is worth playing.
When the stock market goes parabolic while housing becomes increasingly unaffordable, when people with assets become richer because those assets continually reprice higher, and when younger workers increasingly believe they will never be able to purchase what their parents accumulated, eventually they stop viewing the system as an opportunity and start viewing it as a racket. After all, how many smaller do they plan on making the fucking Coca-Cola cans while trying to charge us the same amount?
That is where economic inequality becomes political instability.
I’ve written before that this is the economic environment that produces dickheads like Zohran Mamdani. You don’t have to agree with his prescriptions to understand why his message finds an audience. When people conclude that homeownership is disappearing over the horizon, raising a family is prohibitively expensive and financial markets primarily enrich people who already own everything, they eventually start questioning the legitimacy of the arrangement itself.
More wealth at the top. More pressure on labor. Higher barriers to asset ownership. More people watching financial markets create extraordinary fortunes while wondering exactly what they’re supposed to do to catch up. There is a point where that becomes socially and politically combustible.
And that is why I think these numbers matter so much. They aren’t simply another chart about inequality. **These numbers are the splinters in our mind…the things we can feel but don’t know how to describe. The inequality gap widening at an accelerating pace is the train out of control waiting to fly off the tracks. The nerve center of what is wrong with our economic “Matrix”. **
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You are on your own. Do not make decisions based on my blog. I exist on the fringe. Again, I get shit wrong a lot, both in the market and in life, but am trying my best. If you see numbers and calculations of any sort, assume they are wrong and double check them. I failed Algebra in 8th grade and topped off my high school math accolades by getting a D- in remedial Calculus my senior year, before becoming an English major in college so I could bullshit my way through things easier. Hence, I am a writer. I write these posts after a couple beers sometimes. Many times I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Thanks, you’ve been a great crowd and don’t forget to tip your servers.
