By late October, the best grasp of America’s perilous economic situation was coming from GoFundMe, the internet’s largest donation platform. The website had already become a de facto large insurance company, as hundreds of thousands of patients struggling with exorbitant medical bills started fundraising campaigns every year. By 2019, one-third of all donations on GoFundMe went toward health care costs, according to former CEO Rob Solomon.
But the pandemic created a new kind of precarity in America. From March 1 to August 31, just 3.2 percent of all donation campaigns went toward medical bills. Demand grew so much for other needs that GoFundMe announced a new fundraising category: Rent, Food, and Monthly Bills.
GoFundMe’s October 22 Medium announcement about this read more like an earnest white paper from a liberal think tank: “According to the U.S. Census Bureau, about 10 percent of American adults reported they sometimes or often didn’t have enough to eat within the past week, and 179 million Americans are at risk of losing utilities services such as water, heat, and energy … Eight million more people have slipped into poverty since May. Millions of families across the country can’t pay rent and many are facing eviction.”
On the same day as this announcement, real estate appraiser Miller Samuel and brokerage Douglas Elliman Real Estate spoke for another part of the country. They released a report showing a new record for home transaction prices in the tony residential locale of the Hamptons. Average prices jumped to $1.2 million in the third quarter of 2020, the highest figure ever reached, up 40 percent from the year before. Overall sales rose by 51 percent, the biggest increase in six years. As Todd Bourgard of Douglas Elliman Real Estate told Bloomberg News, “At one point, everyone out here wanted to have a second home. Now their feeling is they need to have a second home.”
This is happening in the same country: desperate requests for food and shelter and multimillion-dollar mansion listings, sometimes within miles or blocks of one another. Runaway inequality has created a greater divergence between aristocrats and a seemingly permanent underclass than at any time in American history. It’s reached the point where under the current system, no event, no matter how cataclysmic, can halt the gravitational pull of the mega-rich away from everyone else.
The biggest challenge of the next four years remains what was the biggest challenge of the past four decades: how to harness and tame organized money.
Economic crisis typically hits the poor the hardest, and the pandemic is no different. But even in the 2008 financial crisis, the wealthy sustained some damage in stock and bond losses. By contrast, five months after the pandemic hit the U.S., high-wage employment had almost fully recovered, according to a data analysis from Opportunity Insights. At the same time, employment for those in the bottom quarter of wage earners fell by 20 percent. Key economic indicators correlated with wealthy people, like home sales and stock prices and even bidet sales, have skyrocketed. U.S. billionaires are nearly a trillion dollars richer than they were before the virus began. The self-protection has gone well beyond masks and face shields, as the elite retreated into opulent emergency shelters, for their families and their money.
Only ambitious policy buoyed by persistent organizing can begin to put the brakes on this runaway train. The biggest challenge of the next four years remains what was the biggest challenge of the past four decades: how to harness and tame organized money. During the campaign, Joe Biden put forward decent ideas to pull the wealthy back to Earth, but recent history indicates such policies struggle when they come in contact with the political system.
But we cannot be content with cynical despair. We’ve all watched post-pandemic outcomes in real time, with no economic relief delivered to ordinary people for months while the rich ignore the pain. This is a moment, just like certain discrete moments during the first Gilded Age, to identify the unequal Americas proceeding in parallel, and demand an end to the social and economic distancing that has threatened the pursuit of happiness for the broader public.
A FAMED ECONOMIC POLICY INSTITUTE chart shows that productivity and wages, which previously had a tight correlation, began to break away in 1979. Since then, productivity has grown six times more than pay. More-productive workers should be paid a wage that matches their increased value, but in this 40-year stretch, the lion’s share of the benefits have gone to corporate treasuries and owners of capital. An analysis by the RAND Corporation released in September found that the bottom 90 percent of American workers would be taking home $2.5 trillion more per year if economic inequality were at the same level it was in 1975. That’s about $50 trillion transferred from one class to another.
ROBERT BYE/UNSPLASH
When the coronavirus hit, high-end residential communities saw spiking sales of luxury bunkers.
To anyone paying attention, this has been obvious for some time. A research note written by Citigroup analysts in October 2005 begins: “The World is dividing into two blocs—the Plutonomy and the rest.” Plutonomy, a portmanteau of plutocracy and economy, refers to countries utterly dominated by the ultra-rich. The authors encouraged U.S. investors to seek out businesses selling luxury goods and products that cater to the wealthy. Because they took such a large share of national resources, they were the only consumers that mattered.
Countries trend to plutonomy for several reasons, the Citi analysts said. They include financial innovations that engineer profits and extract wealth from the working and middle class; oligopolies dominating the tech sector and other industries that shift wealth upward; and laissez-faire, low-tax governments that were too unconcerned (or captured) to build a more equitable society. All of those elements were present in America by 2005, and we now have 15 more years, an entrenched financial sector despite the 2008 crisis, the dominance of Big Tech and big business, and multiple rounds of tax cuts to deepen the picture.
Ajay Kapur, one of the authors of that research note, amusingly said last year that the age of plutonomy was coming to an end, amid antagonism from left-leaning politicians and public. He underrated the sheer political power of the rich. And like most of us, he obviously never saw the coronavirus coming.
When the spread became uncontrollable, the primary instinct among plutocrats was to use their power and resources to separate themselves from the outside world. As early as March, media reports announced spiking sales of luxury bunkers in wealthy enclaves, complete with special air filtration systems, steel encasements, movie theaters, swimming pools, bowling alleys, panic rooms, and even shooting ranges. One company estimated that bunker sales increased fourfold.
Others retreated to private islands in the Caribbean, or luxury yachts. New Zealand, practically the only English-speaking nation to crush the virus, became an elite destination. For those required to remain near global financial centers, the aforementioned Hamptons swelled to its normal summer size by March. If they needed to pop in to Manhattan, they could always charter a chopper for a quick commute. Those who could afford it filled freezers with months of provisions and hunkered down. The essential workers producing the food they hoarded, stocking the shelves they ransacked, cleaning the rooms they retreated to never had a chance.
The rich also built their own education systems. “Learning pods” with private tutors teaching small groups of children became a growing trend. This has further exacerbated existing inequities in education. Hiring teachers for private learning siphons them away from public schools. And the digital divide makes it impossible for low-income students without the benefit of in-person instruction to thrive.
Mega-rich physical distancing was immediate; economic distancing was not far behind. On March 23, the Federal Reserve announced that it would engage in direct purchases of corporate bonds for the first time in history, and that night Congress agreed on a deal, the CARES Act, that would support this bond-buying with $454 billion in loss-absorbing capital. The Fed promptly used that cash to support up to $4.5 trillion in lending, creating the largest private bank in the world, parked just offshore of Wall Street to let investors know they mean business.
Just the pre-positioning of these resources has been enough to reinflate capital markets, despite little actual spending. While the substantive benefits for ordinary Americans in the CARES Act—enhanced unemployment benefits, one-time $1,200 stimulus checks, forgivable loans for small business—all expired by the end of July, the benefits for corporations and the investor class endured, with stocks near record highs, corporate borrowing at a frenzied pitch, and the cost of that borrowing increasingly affordable.
Whatever you think about the importance of the Fed to keep markets stable, the effect of Congress’s actions have been a widening gap in distribution of economic benefits. “If you judge America by the stock market, everything’s fine,” said Stephen Lerner, a fellow at Georgetown University’s Kalmanovitz Initiative for Labor and the Working Poor. “There’s a crisis for most of America and not for them. If you don’t confront them, nothing will change.”
This dichotomy has not been hidden. The Institute for Policy Studies (IPS) has been tracking the wealth of the nation’s 644 billionaires since March 18, roughly the beginning of the pandemic, using data gleaned from Forbes. As of mid-October, those billionaires have seen an increase of wealth of $931 billion, a gain of 31 percent. Amazon CEO Jeff Bezos made $90 billion during the period; Tesla’s Elon Musk saw a $68 billion gain; for Daniel Gilbert of Quicken Loans it was $42 billion. Most of the money came from stock gains.
Economic concentration, which has accelerated in the pandemic, is likely to make things worse. The tech sector now accounts for 40 percent of the value of the S&P 500, their greatest market share ever. The top four platforms (Amazon, Apple, Facebook, and Google) raked in $38 billion in profits in just the third quarter of 2020 alone. Except for Amazon, with its legions of low-paid warehouse pickers, these companies do not employ large numbers of workers in the U.S.
ILLUSTRATION BY RYAN INZANA
The combination of new habits (like working from home, or transitioning to online shopping), greater reserves to weather economic uncertainty, and government policies favoring large companies that can secure borrowing from capital markets, while smaller businesses get wiped out, have all increased the market share of tech companies and other large businesses. And it’s poised to get worse: Goldman Sachs president John Waldron told a conference in October to expect more job loss as a result of corporate takeovers. Typically, mergers create “efficiencies,” a pretty word that really means layoffs.
These accumulations of wealth have done very little for anyone outside the investor class. Only 1 in 6 employees work for a firm in the S&P 500. There’s almost an inverse relationship between corporate hiring and its stock price; investors prefer “lean and mean” companies that keep labor costs low. The Fed did not tie its lifeline of corporate bond purchases to employee retention; dozens of companies whose bonds the Fed has purchased subsequently laid off workers and paid out dividends.
“I think we’re moving toward a classic oligarchy,” said Chuck Collins, the heir to the Oscar Mayer fortune who gave away his inheritance and now studies inequality for IPS. (He’s also a Prospect board member.) “You not only have wealth but the power to defend your wealth, and the conditions to set rules around it. It’s a heads-I-win, tails-you-lose economy.”
One incredible demonstration of what has been termed the K-shaped recovery—the rich go up, everyone else goes down—is the statistic of total employee compensation. It took 14 months for this aggregate of all salaries and benefits to increase on a year-over-year basis after the Great Recession. But in September, total compensation rose 0.5 percent. This is extremely counterintuitive, because there are at least seven million more people out of work since the pandemic began, with millions of others enduring pay cuts.
But those still working—especially those at the top—are making more, and those who’ve been laid off weren’t making very much. The low-wage industries most dramatically affected by the crisis include retail—a sector that saw more brick-and-mortar store closures in the first half of the year than ever before—restaurants, entertainment venues, and hotels. Eight times as many low-wage jobs have been eliminated, relative to higher-wage ones, according to a Washington Post study. Younger workers, the last into the workforce, were the first ones out; they are usually paid less as well.
By contrast, higher-wage industries and more established workers have barely felt the virus’s impact. Regular promotions and pay increases and bonuses have overtaken the compensation loss from millions of low-wage workers. Those who can work from home, who tend to be more educated workers, correlate with higher wages as well.
Women, young people, and people of color disproportionately hold the low-wage jobs that have vanished in the pandemic shock. Lack of child care options has stunted the labor participation of women even further. The plutonomy that has resulted, consequently, plays out along race and gender lines alongside class.
Vincenzo Izzo Sipa USA via AP
The coronavirus-fueled economic crisis has led to a doubling of food insecurity, as food banks struggle to pick up the slack.
“I live in the ZIP code that had the peak infection rate here in Arizona,” said Rep. Raul Grijalva (D-AZ), who represents mostly poor and Latino sections of Yuma, Nogales, and Tucson. “I think the inequity issue has been educational for the American people in general. Because of the portal the COVID crisis opened up for everybody to see, you can’t deny that anymore.”
Perfunctory economic statistics now teach a lesson in what it means to live in an unequal society. Home sales have surged, particularly for second homes, a side effect of the flight of the wealthy to protected enclaves. Mortgage demand spiked 25 percent year over year in September. The stock market has hovered around record highs; the “bear market” induced by the recession was the shortest in history. Home remodeling has seen serious growth; one-time purchases like cars and dishwashers have been strong. The workers who stay employed from more sustained consumer spending have been left on the sidelines.
An economy with strong sales in homes and durable goods is usually strong overall. It does not usually coincide with 26 straight weeks of jobless claims above any previously recorded postdepression level. It does not coincide with the biggest increase in long-term unemployment in history, and a doubling in food insecurity, and an expected burst of evictions after a makeshift (and possibly ineffective) moratorium expires. It does not coincide with a rising consumer debt bubble threatening to collapse in a wave of defaults.
Suicidal thoughts, overdoses from opioids, and other signs of despair are all rising. The levels of stress, fear of loss of power or heat, and feelings of hopelessness are all pinning red while the macroeconomic statistics look fine at a glance—net worth is at a record high, for example. This places little pressure on policymakers to act.
“While the working class struggles with job and income loss, the rich have by and large kept their incomes and are piling up wealth they cannot spend,” explained Emmanuel Saez, a professor at the University of California, Berkeley and a key researcher into inequality. Saez’s colleague Gabriel Zucman estimated that the ratio of household wealth to national income reached a new high in 2020, a level not seen since 1933. As this wealth gets stored and not circulated, the economy sags and those on the wrong side of the divide fall further behind.
INEQUALITY correlates with a wide variety of social ills: greater sickness and mental illness, increases in violent crime and drug abuse and imprisonment. These aftereffects raise costs on law enforcement, hospitals, jails, and the judiciary. Even seemingly disparate statistics like infant mortality, obesity, literacy, and teenage pregnancies are tied to rises in inequality.
Perhaps most of all, inequality correlates with breakdowns in social cohesion. When people are born into what amounts to a caste system, with little or no opportunity for advancement, frustration, dejection, and class anger simmers. It makes people susceptible to easy demagoguery, finding a channel for this resentment. And the pandemic breaks these community bonds even further. “My motivation is understanding unequal sacrifice in this moment,” said Chuck Collins. “It undermines the solidarity we need to get through this.”
Perfunctory economic statistics now teach a lesson in what it means to live in an unequal society.
The next four years must tackle this corrosive social problem. That became a far more difficult task after Election Day, with Joe Biden’s opportunity for a Democratic Congress now reliant on a bank shot of two Senate special-election victories in Georgia in January. Even if that’s successful, a 50-50 Senate is unlikely to bring about sweeping changes on much of anything, as literally every senator in the Democratic caucus can fashion themselves as an obstacle.
Quietly, Biden had a few impactful ideas for addressing inequality, mostly by fiddling with the tax code. His tax plan would raise $2.5 trillion over a ten-year period, entirely on corporations and individuals making over $400,000 a year. The proposals included increasing the corporate tax rate to 28 percent, raising marginal tax rates and limiting deductions for the rich, taxing capital gains and dividends as ordinary income for millionaires, and eliminating the “step-up in basis,” an insidious facilitator of dynasty that allows unrealized capital gains to go untaxed when the asset holder dies. Attacking capital income, the money people make by having money, as the real source of wealth inequality in American society made the Biden plan significantly more egalitarian than his Democratic predecessors’.
Carolyn Kaster/AP Photo
Joe Biden campaigned on addressing inequality through the tax code. With little hope for legislative progress, he’ll have to use executive authority to rein in the mega-rich.
“The policy required both for justice and faster macroeconomic recovery is to support incomes of the struggling working class and middle class,” said Emmanuel Saez. “As a government, you can do this by borrowing from the rich, what we’ve done so far, or by taxing the rich. Sooner or later though, taxes on the rich will have to increase. Because of the rise in inequality and the risk of further plutocratic drift, I think we should not delay taxing the rich more.”
Before the election, the mega-rich reacted by once again finding luxury bunkers, this time for their own money. They packed their fortunes into trusts, sold off family businesses, and accelerated the bestowing of giant financial gifts to their children. “There’s more money moving to the shadows,” said Collins. “The restaurant bill is coming due and people are slipping out the back door.”
But then the election appeared to create divided government, and the rich were positively exultant. Stock prices went on a roll right after Election Day, with investors satisfied that changes to the tax code would be hard to come by, and the benefits of the Trump tax cuts would remain in place. Gridlock is good for the elite class.
Just because the legislative picture is bleak, however, doesn’t mean that the wealthy are off the hook. Or at least, it shouldn’t. A President Biden would have many tools at his disposal to at least slow down if not reverse America’s staggering inequality. And those are opportunities he must take.
First of all, the Trump IRS has been completely taken off the field of ensuring compliance with the tax laws. As journalist David Cay Johnston has reported, of the 23,400 richest households in America, in 2018 the IRS audited seven. Part of this is due to the systematic gutting of the IRS budget, but it’s also indicative of a shift in priorities; IRS Commissioner Charles Rettig responded to questions from Congress about why it audits the working poor at a rate of nine times the wealthy by admitting that it’s cheaper and easier to go after the poor. By targeting whatever resources at where the money actually is, a Biden administration can make sure the rich at least pay their fair share of an unbalanced tax code, if it cannot balance it. Biden’s IRS can also use its authority as interpreters of the tax laws to make the system more fair.
Next, Biden can go after the heart of corporate power simply by having his lead antitrust agencies take a more skeptical eye toward mergers and acquisitions. We know that these deals are bad for workers, farmers, startup firms, and pretty much everyone except for investors and executives. Better competition policy would not only slow the pipeline for mergers, but also prevent things like noncompete clauses that prevent workers from migrating within their industries to different rivals, or “pay-for-delay” deals where prescription drug companies pay off generic manufacturers to not make competing versions of their products. The weakening of corporate dominance should lead to a more vibrant economy and channel into a compression of wages and increase of jobs.
Ordinary people obtain most of their income through wages, and raising them should be a primary priority. Statewide ballot measures to increase the minimum wage are undefeated since 1998, a string of 23 in a row. More statewide efforts along with pressuring private businesses to increase wages, as Bernie Sanders did with Amazon in 2018, could help millions get a raise. Better rulings from the National Labor Relations Board would give workers more power to share in the fruits of their productivity by making it easier to join a union. One critical administrative measure would turn more independent contractors in gig work and other jobs into employees.
Economist Dean Baker likes to talk about “predistribution,” the changes in institutional rules that push national wealth upward. Patent and copyright monopolies allow holders to enjoy greater rewards without challenge; the government can seize drug patents (with just compensation) and issue them to manufacturers that agree to sell them at reasonable prices, distributing wealth through the pharmaceutical supply chain. Corporate governance rules enable runaway CEO compensation, and could be changed internally at the Securities and Exchange Commission and other regulators. Cracking down on financialization through proper regulations would be another area to reduce the extraction of wealth upward.
Younger people cannot build wealth when they’re burdened by student loans; the Education Department can cancel substantially all of that debt on its own authority. States like California offer retirement savings accounts for people who don’t have that option at work; that concept should be exported across the country.
Finally, local governments can act where the federal government refuses. The states, facing tremendous revenue shortfalls from the coronavirus economic collapse, cannot fill those gaps through borrowing, due to balanced-budget requirements. That makes taxation of the super-rich even more urgent, and some state lawmakers have made such proposals: a billionaire tax in New York and an extreme wealth tax in California, for example. Arizonans just approved a surtax on wealthy residents to fund education, and New Jersey approved a millionaire tax in October.
Of course, the rich will fight these measures at every step. They will lobby regulators and lawmakers. They will threaten to pull up stakes and leave states, depriving them of their taxes and spending. They will dangle campaign contributions or dark-money independent expenditure groups over the heads of politicians. They will claim that attacking inequality is just “punishing success.”
Stephen Lerner, the architect of SEIU’s Justice for Janitors campaign that made gains for some of the most powerless people in our society, believes the key lies in confronting the rich directly. “One part is to start to bring the crisis to their doorstep,” he said, describing caravans he helped organize to homes in Greenwich, Connecticut; Long Island, New York; and other high-end areas, sometimes literally with pitchforks, demanding progressive taxation and greater equity. Lerner’s group also has a capital strategy, pressuring pension funds to divest from the type of investments, like hedge funds and private equity, that bolster the ultra-rich. But the real work is to build a movement of jobless people, of those at risk in the pandemic, of union members and state employees, to force the political system to rein in the rich.
“We can’t let them live in self-isolation anymore,” Lerner said. “People say it’s not fair to go to their homes, where else should we go? Our side needs to get comfortable with going where the bad guys are. The point of direct action is that it’s direct.”
Joe Biden, who hails from the corporate-heavy, banking-heavy state of Delaware and had hundreds of wealthy bundlers raising mounds of money for his campaign, may be made uncomfortable by such open warfare. But Biden has a choice to make, for himself and his party, about using the powers of the presidency to tangibly improve the lives of his constituents, even if it takes those high-dollar contributors down a peg. If he shies away from this, Biden sets the stage for more right-wing faux populism, which purports to rescue forgotten working-class Americans, but in practice just shovels more largesse to plutocrats.
Biden’s decision will bear heavily on the question of whom government works for. We had another time in American history characterized by close elections and rabid partisanship. It was the only other period that had two presidential elections where the winner did not win the popular vote. That was the first Gilded Age, and while the political parties closely contested and jostled for power, the nation knew they weren’t actually in charge. Behind the scenes, the robber barons and tycoons controlled America, and their puppets in government put on shadow plays for entertainment. Do we have the same dynamic today? Are the mountains of ink spilled on politics and polls and who will occupy the White House just cover for the moneyed aristocracy’s rule? The next four years will answer these questions, one way or the other.
