Are billionaires making out like bandits?
By Paul Krugman
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. 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’s actually a bit complicated. Obviously we don’t 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’s important to distinguish between wealth — which is strongly affected by, among other things, fluctuations in the stock market — and income. I’ve 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’s hugely illuminating.
Let’s start by talking about wealth.
The rich have, in fact, gotten 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’s the thing about asset prices: While they’re driven in part by the income people receive from the assets they own — dividends, rent and so on — they’re 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’s not that easy of a question to answer.
So what has been happening to the income of the very wealthy? It’s 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’s not the whole story. Lately we’ve 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 doesn’t 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 couldn’t. But that’s another story.
Is there a policy moral in all this? It’s pretty much a given that the 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’s 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 don’t want to endanger that good thing merely because we’d like to reduce the paper wealth of billionaires.