Did you hear about Jeff Bezos and the bridge? The Amazon
billionaire’s new superyacht, under construction in Rotterdam, the Netherlands,
is so big that the city might have to partially take down a historic bridge so
that it can reach open water.
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The story has quickly become a metaphor for soaring
inequality, and it feeds the perception that billionaires have done very well
during the COVID-19 pandemic while ordinary people have suffered.
But is this perception accurate? It is actually a bit
complicated. Obviously we do not need to shed any tears for Bezos, and who
among us is immune to schadenfreude over Mark Zuckerberg’s recent losses?
Furthermore, I still believe that substantial increases in taxes on the rich
would be a very good idea.
When you ask how different groups have done during the
pandemic, however, it is important to distinguish between wealth — which is
strongly affected by, among other things, fluctuations in the stock market —
and income.
I have written about this before, but can now say quite a
bit more thanks to a terrific new statistical tool — Realtime Inequality —
developed by economists at Berkeley. It lets us track changes in the
distribution of both wealth and income in, well, real time, and it is hugely
illuminating.
Let us start by talking about wealth.
The rich have, in fact, got considerably richer over the
past two years; so, actually, have most Americans, but the gains have been
especially big at the top.
Underlying these gains have been rising asset prices. Faster
growth at the top probably reflects especially large gains in the stock market;
stocks are held disproportionately by the wealthy, while much middle-class
wealth is in housing.
But here is the thing about asset prices: While they are
driven in part by the income people receive from the assets they own —
dividends, rent and so on — they are also affected by the returns investors expect
on alternatives. As I tried to explain in a newsletter a few months ago, a lot
of the rise in asset prices actually reflects bad news, a decline in the
expected rate of return on new investments.
And if, say, the value of your stocks has gone up because of
low interest rates, but the dividends you receive have stagnated or gone down,
have you really come out ahead? It is not that easy of a question to answer.
So what has been happening to the income of the very
wealthy? It is up, but not nearly as much as their wealth — and in fact, their
gains have lagged behind those of the bottom half of the population.
Why have lower-income Americans seen relatively large income
gains (from a low base; we’re still an incredibly unequal society)? Part of the
answer is government aid during the pandemic. The spikes in income when
stimulus checks went out and from other programs like the expanded child tax
credit — which I still hope can be brought back — made a big difference.
But that is not the whole story. Lately we have been
experiencing a tight labor market, which has led to rising wages — with wages
increasing much faster for lower-paid workers.
Yes, inflation has eroded these gains in real terms,
although gains for workers at the bottom appear to have outpaced price
increases. The point for now, however, is that a tight labor market seems to be
reducing pay inequality.
So the simple story that the pandemic has been great for the
wealthy and bad for the working class does not hold up. There are, of course,
other ways in which the pandemic has had a hugely unequal impact; the past two
years have been very different for those Americans — mostly highly educated and
well paid — who could work from home than for those who could not. But that is
another story.
Is there a policy moral in all this? It is pretty much a
given that the US Federal Reserve will be raising interest rates in the months
ahead, in an effort to cool inflation. And it will be right to do so. Some
people will, however, also be cheering on interest hikes because they tend to
reduce stock prices, which makes the wealthy less wealthy — and this, they
imagine, reduces economic inequality.
Well, that is a bad take, confusing wealth and income
inequality. And if you care about the incomes of working-class Americans, you
should want the Fed to be cautious about rate hikes, lest they hurt the job
market. Full employment, it turns out, is a very good thing for less-well-paid
workers, and we do not want to endanger that good thing merely because we’d
like to reduce the paper wealth of billionaires.
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