Via Wolf Street

Over 30 million people lost their jobs while the wealth of America’s 600-plus billionaires ballooned by $434 billion, to $3.4 trillion. Why did this happen?

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube, and you can find it on Apple Podcasts, Spotify, Stitcher, Google Podcasts,  iHeart Radio, and others.

The examples are all over the place. The wealth of Amazon’s Jeff Bezos soared by $74 billion so far this year, according to Bloomberg. Mark Zuckerberg’s wealth jumped by $20 billion so far this year. Elon Musk’s wealth soared by around $50 billion. The wealth of Microsoft founder Bill Gates jumped by $8 billion. Rob Walton, Jim Walton, and Alice Walton, of the Walmart family, saw their combined wealth jump by $14 billion. Chairman and CEO of mutual fund company Fidelity Investments, Abby Johnson, who owns nearly a quarter of the company, saw her wealth soar by $11 billion. The wealth of Google founders Larry Page and Sergey Brin soared by $7 billion a piece, and Oracle founder Larry Ellison’s by $5 billion.

These are the wealth gains just this year.

Between mid-March and mid-May, during the lockdowns, the wealth of America’s 600-plus billionaires ballooned by $434 billion, according to a report by Americans for Tax Fairness,  pushing the wealth of those 600 Americans to a combined $3.4 trillion.

And there is another layer of people who are not billionaires, but have a wealth of $50 million or $200 million, or $600 million, and they saw their enormous wealth balloon too during the pandemic. And there are millions of people of lesser wealth that also rode on their coattails up the boom of the financial markets.

The richest 10% of American households own 84% of the value of stocks owned by all households, according to Federal Reserve data. The remaining 90% of the households own 16% of the value of stocks. And the bottom half own nearly none.

And that boom in the stock market, the bond market, and other financial markets since mid-March happened because the Fed threw about $3 trillion at them in a short time, with the specific purpose of raising asset prices and making those folks whole so that they don’t have any skin in this pandemic.

Fed Chair Jerome Powell was asked directly at the FOMC press conference on July 29 about the Fed’s monetary policies’ effect on wealth inequality.

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The funny thing is, Powell denied that the Fed’s monetary policies were responsible for this wholesale bailout of the wealthiest Americans causing an explosion of wealth inequality, but admitted out of the other side of his mouth, that the Fed’s monetary policies have caused asset prices to surge, and that was part of the goal of those purchases.

When Powell admitted that the Fed’s nearly $3 trillion in asset purchases caused asset prices to increase, he said the goal was to “restore functioning markets,” which means markets where prices are rising, and markets where price discovery is not allowed to happen, and markets were investors are spared any losses.

What he admitted was, as he put it: “We understand, accept, and are fine with the fact that those asset purchases are also fostering a more accommodative stance of monetary policy,” in other words, that they inflate asset prices as well as “support macroeconomic outcomes.” “So it’s doing both,” he said, “and we’ve understood that for some time.”

He said that inequality is “a serious economic problem for the United States.” And I agree with him on that. Then he pointed his finger at some of the other guilty parties in that wealth and income inequality, including and specifically “globalization.” And I agree with him on that too.

He said that wealth inequality has, and I quote, “underlying causes that are not related to monetary policy and to our response to the pandemic.” That’s what he said. And with sort of a straight face too.

The federal government sent out stimulus checks to nearly everyone, and it sent out extra unemployment benefits of $600 a week, and for the first time ever, it provided unemployment insurance for gig workers. Hundreds of billions of dollars went to these people, and this money was highly welcome.

And then what did these people do with this money? Of course, they spent it. That was the purpose. And they spent it at Amazon, and they spent it at Walmart, and they bought computer equipment with it to get online from home, and they spent it on groceries. And they paid rent and made mortgage payments. And this money was recycled and ended up in the pockets of the rich, from Bezos to landlords.

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Take the purchases at grocery stores. They boomed during the pandemic. Last week, Albertsons Companies, which owns Albertsons, Safeway, and a number of other supermarket chains, reported a 53% increase in revenues in the quarter ended June 30.

In prior updates, the company had pointed at the surge in grocery sales. And the enthusiasm in the stock market, driven by the Fed’s $3 trillion in asset purchases, and the surge in sales, allowed the company to pull off its IPO in June, after having had to scuttle it several times in prior years.

The big beneficiaries of this IPO were the wealthy – namely folks at the consortium of private equity firms, led by Cerberus Capital Management, that own the company, and the investors in those funds. The company now has a market value of $7 billion. The pandemic was one of the best things that ever happened to Cerberus and the members of its consortium.

And the stimulus and unemployment money spent at these stores, and at Walmart, and at Amazon, and elsewhere, just drove up the wealth of the wealthiest, after if left the hands of the little people.

In addition, there is the effect that people with high incomes were mostly able to hang on to their jobs, and were working from home, while many people in the lower-paid service jobs lost their work.

The poor lost their work and got poorer, the rich got richer and the high-income earners kept their jobs, and their wealth was bailed out by the Fed.

Inequality is a huge problem for an economy. The wealthy are already spending all the money they spend. The 600-plus American billionaires would have continued to spend roughly the same even if markets were allowed to go their way without the $3-trillion bailout from the Fed.

If the Fed had allowed asset prices to find their natural bottom, wherever that may have been, and they were already on their way in March, and say, across the board, these American billionaires would have lost half of their wealth, then wealth inequality would have been cut in half.

But what happened instead is this: the guy with a low-paying job, who lost the job, got the stimulus money and unemployment benefits, and then he handed this money over to the rich. This money didn’t stay with him. It flowed to the asset holders, to capital.

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That’s how the money flows. And it helped produce the corporate results that helped drive up asset prices. Bezos was the biggest beneficiary of them all.

This inequality is a huge handicap for the economy going forward. An economy based on ballooning inequality cannot perform well. Inequality will get in the way of the recovery and has a negative impact on future economic growth.

This type of rampant wealth inequality, where the richest asset holders get bailed out the most, can and does contribute to social resentment over those systematic inequalities. But this social resentment rarely looks at the real causes of that inequality – a system that includes the Fed at its core.

The Fed is depicted as savior and hero. And most Americans know nearly nothing about the Fed, other than that it exists in some mysterious form.

This system has become socialism for the rich, socializing the losses to the rest of the people, and concentrating the gains – huge gains even during the pandemic – with a relatively small number of people. This is not the way to have a thriving economy. This is a way to run an economy into the ground.

What needs to happen is a return to an environment where the rich can lose the most because they have the most at stake – and when there is a pandemic or a financial panic that strikes the economy, the rich will lose the most. They’ll still have plenty left over afterwards. And it needs to be allowed to happen without bailouts and market support. Anything else is socialism for the rich, and it’s causing a lot of dysfunction in this economy.

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