Sometimes when I read the Wall Street Journal’s special section on real estate, aptly named “”Mansion”, where ostentatious multimillion dollar homes and their over-the-top owners are featured, I find myself muttering, somewhat in jest, “Next, the revolution.”
Economic inequality, in America, whether measured through the gaps in income or wealth between richer and poorer households, is widening and too many Americans are living on the edge.
If you want to see part of where America is headed, visit Manhattan’s 1,550-foot-tall 131-story Central Park Tower.
With 179 luxury residences on so-called Billionaires Row, it’s “Above All Else – The Tallest Residential Tower in the world,” its promoters say.
The condominium building contains an outdoor swimming pool with poolside food and beverage service, a cabana deck, ,a private park, a Living Room where residents can lounge with billiards, a dramatic movie screening room, a double-height windowed sports court, an indoor pool and spa, a high-tech fitness center, a beauty lounge, the highest Grand Ballroom and private restaurant ever built in New York (no stranger to excess on the 100th floor, with menus created by a coterie of Michelin-starred talent, including Chefs Alfred Portale, Laurent Tourondel and Gabriel Kreuther, all overseen by lifestyle director Colin Cowie, a corner sky lounge featuring a wine cellar (how do you get a wine cellar in a sky lounge?) and cigar humidor (a potential Bill Clinton hangout?). To top, or bottom, it all off, there’s a retail partnership with a seven-floor 320,000 sq. ft. flagship Nordstrom store that sits at the building’s base. Whew!
And all this , according to StreetEasy, can be had for an average price of $21,888,000, based on currently active sales as of June 2022. That’s $6,752 per sq ft.
The team creating the building crafted “an Iconic Building and an Unmatched Living Experience” says its marketing site.
From a slightly different perspective, the complex can also be a veritable cocoon for its super-wealthy clientele. They can, if they choose, exist almost entirely within the shimmering icicle-shaped supertall structure, avoiding rubbing against the masses, the hoi polloi, on the streets of New York.
In its self-contained exclusiveness, the Central Park Tower and Billionaires Row in general are much like an increasing number of other American geographies where the rich gather and mix only among their own kind.
Take Malibu, CA, for example.
I rode through the coastal town a few years ago on a bicycle ride from Oregon to Mexico. It was a uniquely beautiful place.
The Wall Street Journal recently wrote about the shift in Malibu, once a village with a bohemian character.
“About three decades ago, Beverly Hills native Andy Stern moved to the nearby beach city of Malibu to raise his young family.,” the story noted. “He quickly came to know all his neighbors, he said, recalling block parties with children pouring onto the streets to play together. Now Mr. Stern…said he barely sees his neighbors in the Broad Beach area, because they are rarely there. The families that once lived in the neighborhood have largely been replaced by celebrities and billionaires…”
So many rich people now own prime property in Malibu as just one of their many properties, but don’t really live there, that the town’s full-time population has actually fallen in recent years.
As for families with young children, forget it. Public school enrollment has declined by more than half in the past 20 years.
And if you want to stay at a local hotel and mingle with the Malibu rich, the old low-key Casa Malibu Inn on a private beach has become the Japanese-inspired Nobu Ryokan Hotel, where rates start at $2,000 a night (BTW, I’ve stayed in ryokans in Japan and this is a faux ryokan).
Then there are other high-end US communities that serve as sanctuaries for the wealthy, such as Atherton, CA; Greenwich, CT; Highland Park, TX (a Dallas suburb); Jackson Hole, WY; and Paradise Valley, AZ.
But it is an illusion to think that only the filthy rich are isolating themselves into enclaves. The well-off-but-not-filthy-rich (WONFR) folks do, too. They live in places like Highland Park, Il, (Median family income: $147,067), Bow Mar, CO, Chevy Chase, MD and well-off but still far down the average median income list, Lake Oswego, OR (Median family income: $114,444).
But beneath this sheen of wealth are an awful lot of struggling Americans.
With periodic interruptions due to business cycle peaks and troughs, the incomes of American households overall have trended up since 1970, according to Pew Research, but the overall trend masks how the gains were distributed.
Most of the increase in household income was achieved from 1970 to 2000. when median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of just 0.3%, Pew said. Not only that, the growth in income tilted to upper-income households while the U.S. middle class, which once comprised the clear majority of Americans, has been shrinking. In other words, a greater share of the nation’s aggregate income is now going to upper-income households while the share going to middle- and lower-income households is falling.
In recent years, the share of all income held by the top 1% has approached or surpassed historical highs. In 2015, The top 1% took home 21% of all the income in the United States. By 2021, the share held by the top 1%, about 1.3 million households, had risen to 27%
In 1980, households at the top had incomes about nine times the incomes of households at the bottom. The ratio increased in every decade since 1980, reaching 12.6 in 2018, an increase of 39%.
This isn’t exactly a new discovery.
In 2011, President Obama commented on the rise of inequality in a Osawatomie, KS speech. “…over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk,” he said.
In Jan. 2012, Alan B. Krueger, Chairman of the Council of Economic Advisers, expanded on Obama’s remark in a speech to the Center for American Progress (CAP). Using a graph showing the annualized growth rate of real income for families in each fifth of the income distribution over two periods, he explained that all quintiles (fifths) of the income distribution grew together from the end of World War II to the late 1970s, but since the 1970s income grew more for families at the top of the income distribution than in the middle, and shrank for those at the bottom.
“We were growing together for the first three decades after World War II, but for the last three decades we have been growing apart,” he said.
Krueger outlined what he called the Great Gatsby Curve, the connection between concentration of wealth in one generation and the ability of those in the next generation to move up the economic ladder compared to their parents.
The curve shows that children from poor families are less likely to improve their economic status as adults in countries where income inequality was higher – meaning wealth was concentrated in fewer hands – around the time those children were growing up,” a White House post explained later.
Not only that, but the largest shares of adults in upper-income households are congregating in certain areas of the country, particularly metropolitan coastal areas of the Northeast and California. They tend to be in high-tech corridors, or in financial and commercial centers, such as Boston-Cambridge-Newton, MA-NH, Hartford-West Hartford-East Hartford, CT and San Jose-Sunnyvale-Santa Clara, CA.
The New York Times recently reported that residents are increasingly being buffeted by economic tides that push them into neighborhoods that are either much richer or much poorer than the regional norm. In other words, a smaller share of families are living in middle-class neighborhoods.
“In some ways, the pattern reflects how wealthy Americans are choosing to live near other wealthy people, and how poorer Americans are struggling to get by,” the paper reported. “But the pattern also indicates a broader trend of income inequality in the economy, as the population of families making more than $100,000 has grown much faster than other groups, even after adjusting for inflation, and the number of families earning less than $40,000 has increased at twice the rate as families in the middle.”
In Portland, OR, for example, the share of families living in middle-income neighborhoods changed from 70% to 56% from 1990 to 2020.
Even during the pandemic, when most Americans fared well financially, the rich saw most of the gain. According to the Federal Reserve, while American households overall saw about $13.5 trillion added to their wealth, the top 1% got a third of that and the top 20% 70% of it.
Meanwhile, some states are becoming pockets of poverty. According to the U.S. Census Bureau, states and territories with the highest percentages of poverty in the country in 2020 were: Mississippi, Louisiana, New Mexico, Kentucky, Arkansas, West Virginia, Alabama, the District of Columbia, South Carolina, and Georgia.
The new economic reality of reduced income – and even poverty – for many Americans is all too familiar in many parts of the United States. For decades, small towns and cities across the country have been devastated by deindustrialization and job losses. In these places, incomes are generally low, poverty rates are high, and many residents depend on government assistance, like SNAP (food stamps), to afford basic necessities.
A particular challenge facing well-off areas of the country is that the people who provide all the services can’t afford to live there.
I still remember a time early in my career, when I was working for a community development firm. A builder was planning a large-scale new town development in a largely rural area in the south, with shopping centers, restaurants and other amenities. When I noticed it included only high-end homes, I asked him where all the service workers were going to live. He’d never thought about that.
We are seeing the emergence of this problem in Bend, OR, which has seen skyrocketing growth in recent years. That has translated into skyrocketing home prices and rent increases, squeezing out those with modest incomes.
“Central Oregon’s housing affordability and availability crisis is comprehensive in scope and impact,” said a May 2019 Central Oregon Regional Housing Needs Assessment. And the situation has continued to deteriorate.
HUD defines affordable housing as total housing costs that are no more than 30% of a household’s total gross income. For rental housing, total housing costs include rent plus any tenant-paid utility costs. For homeowners, they include mortgage payments, utilities, property taxes, homeowners insurance, and any homeowners’ association fees.
The 2019 Needs Assessment showed that more than half of renters in Deschutes County spent more than 30% of their income on housing and just over a quarter spent more than 50%.
Meanwhile, young working families are finding it ever harder to buy a home in Central Oregon. “Central Oregon has seen significant in- migration of people from the Bay area, Seattle, Portland and elsewhere, who sell their house and are able to buy a house here with money left over, said Jon Stark, Senior Director of Redmond Economic Development, Inc. “However, younger people who are starting out earlier in their careers are having a harder time. The wages people earn and the price to buy a home or rent is out of balance.”
But why fret, say some. We’ve always had inequality in the United States, such as in the Gilded Age, in the late 1800s and early 1900s and we’ve always had people who flaunt their wealth in many ways.
“Back then, it was about masquerading as European nobility at lavish balls in elegant hotels like New York’s Waldorf-Astoria, locked down to forestall any unpleasantness from the street (where ordinary folk were in a surly mood trying to survive the savage depression of the 1890s),” Steve Fraser wrote in Salon. “Today’s “leisure class” is holed up in gated communities or houseoleums as gargantuan as the imported castles of their Gilded Age forerunners, ready to fly off — should the natives grow restless — to private islands aboard their private jets.”
But economist Gabriel Zucman, whose doctoral advisor was the historical economist Thomas Piketty, author of “Capital in the Twenty-First Century,” released data in 2021 arguing that things are worse today.
In 1913, at the end of the Gilded Age, the Rockefeller, Frick, Carnegie, and Baker families – names all tied to monopolistic power – held 0.85% of the country’s total wealth, Zucman said.
As of mid-2021, the top 0.00001% richest people in the U.S., composed of just 18 families, held 1.35% of the country’s total wealth. Wealth concentration at the very top exceeded the peak of the Gilded Age, he said.
The richest 0.01% — around 18,000 U.S. families — have also surpassed the wealth levels reached in the Gilded Age. These families hold 10% of the country’s wealth today, Zucman wrote. By comparison, in 1913, the top 0.01% held 9% of U.S. wealth, and a mere 2% in the late 1970s.
It’s too simplistic to say that the increasing share of income and wealth among the richest Americans is a threat to capitalism, but as David Autor, a professor at MIT put it in response to an Initiative on Global Markets survey, the widening split is a symptom of dysfunction. “It’s a threat to people’s belief in capitalism as an institution of economic governance. Absent shared belief, we are in trouble.”
Even moreso if the next generation of highly civilized, excessively woke philanthropy activists are hostile to capitalism itself when they take charge and forget that the money they are so gladly using came from capitalists.