Neoliberalism and the New Gilded Age: The Wealth Pyramid in the US

May 23, 2011

by Ramaa Vasudevan

An observer of US politics would be struck by the absurdity of the US Congress scuttling a proposal to let the Bush tax breaks expire for households with incomes over $250,000, as part of the deal for letting unemployment insurance be extended, at a time when most American people are still struggling with the disastrous impact of the most profound economic crisis since the Great Depression. Even more outrageous, is the unfolding farce of a potential budget crisis (which was definitely not eased by the tax breaks to the rich!) being cynically deployed to launch an aggressive assault not just on the earnings and benefits enjoyed by state employees (including teachers) but also on the hard worn rights of collectively bargaining across the country. Absurd or outrageous as these developments might be, they are not inexplicable. They reflect the stark reality of the structure of the US economic and political landscape – the growing concentration of power in the hands of an elite coterie and the widening chasm that separates this elite from the rest of the American people.

The growing inequality of income since the eighties is well documented[1]. About 24% of the national income of USA flows into the hands of the top one percent of American households. The neoliberal backlash, in the wake of the stagflationary crisis of the seventies, ushered in a period of the consolidation of the power of financial and corporate capital in the US alongside a concerted attack on labor. This “coup” fuelled the enrichment of the top elite at the expense of the working class. At the same time a new managerial revolution has reinforced the alliance between the executive-managerial class and financial and corporate capital[2]. While wages for the average worker have remained relatively stagnant compensation paid the upper end of the corporate hierarchy has grown over the past decades. The compensation paid to the average CEO increased from 40 times that paid to the average worker in 1980, to nearly 300 times in 2000, before declining slightly to 240 times in 2008[3].

The enrichment of the top 1%, however, is not simply through this skewed wage growth. A big chunk of the income earned by the top 1% of the income distribution in the US is earnings from financial capital – ownership of stocks, bonds and other financial assets. Figure 1 shows the composition of income as we go up the distribution within this group (the top 1%). The data for 2007 reveal that the share of capital income (rentier income including dividends and interest from ownership of financial claims) for this group increases from around 10% to 33% of total income, as we go up the income ladder within this group, while the share of salary income slides from 69% to 38%. The top 1% draws a lion’s share of its earnings from ownership of financial assets. The share of entrepreneurial income (profits from ownership or partnerships in enterprises) for this class varied from 20-32%, constituting another big chunk of its earnings. Thus the share of capital income – income from ownership of financial and productive assets – rises steeply from 30% to over 60% in the top 1% of the income distribution. The earnings of the rich derive in large part not from “working” but through ownership of assets. This class also monopolizes the lion’s share of capital earnings in the US. About 60% of capital income flows in recent years have been siphoned to this income class[4].


Figure 1: Composition of income earned by the Top 1% income earners .
Source: Piketty and Saez, Figure 4c (

Concentration of income is enabled by and perpetuates a concentration of wealth – the accumulation of financial and productive capital. Recent work, by Edward Wolff and Economic Policy Institute economist Sylvia Allegretto, present interesting analysis of the evolving pattern of wealth distribution in USA[5]. It is worthwhile going over the main findings of these studies on wealth distribution (using the Surveys of Consumer Finances brought out by the US Federal Reserve) if we want to understand not just the perverse political maneuverings we are witnessing in the US today, but also more importantly to throw more light on the class configuration at the core of the recent neoliberal period of US capitalism.

Concentration of Wealth

In 2007 the top 1% of wealth distribution controlled about 43% of financial wealth and about 35% of total wealth (including housing and real estate). The concentration of wealth is more extreme than that of income. It is this immense concentration of wealth that buttresses the power of the ruling elite. In contrast to the share of the top 1% the bottom 90% of the households controls only about 27% of total wealth and 17% of financial wealth[6].

What about the longer term picture? How has the distribution of wealth changed over time. Figure 2 shows the pattern at the top. The shares of the top 1%, 5%, 10% and 20% of the wealth distribution have risen over the period from 1983 to 2009. The shares of bottom quintiles in contrast have declined over this period (Figure 3). The rise in the share of the top classes comes at the expense of the rest of the population. Wealth flows to the more wealthy.

What is noteworthy is that this pattern has been exacerbated both during the 1983-89 period and more recently from 2007 to 2009, with the share of the top 20% increasing by as much as 2.2 percentage points[7]. The share of the bottom 20% of the distribution is negative throughout the period, reflecting their net indebtedness. In 2009 this group owed as much as 1.4% of total wealth holdings. About 27% of households within this group face a high debt burden (with a debt to income ratio of greater than 40%). For the top 10% the share of such highly indebted households is only 3.8%[8].


Figure 2: At the Top of the Changing Distribution of Wealth


Figure 3: At the Bottom of the Changing Distribution of Wealth
Source Allegretto 2011, Table 2

Figure 4 presents changes in average wealth by wealth class over sub-periods. The average wealth holding of the top 1% rose more significantly (at the rate of about 4% annually), during the 1983-89 and the 2001-7 sub-periods. The eighties surge in wealth coincided with the Savings and Loans boom while the recent surge coincides with the housing boom. These periods also mark phases when the average wealth holding for the bottom 20% declined.


Figure 4: Changes in Average Wealth by Wealth Class (annualized growth rate in 2009 dollars)

Wealth holding for the bottom 20% declined drastically at the rate of around 29% annually, in the 1983-9 period. This reinforces the view that the 1983-9 recovery consolidated the position of the top echelons of the wealth classes- a process that was an integral to the neoliberal revolution. The push to financial deregulation, the easing the constraints on thrift institutions alongside the assault on private sector unions launched under Reagan enabled the concentration of wealth at the top. The structural transformations involved in the process of recovery further entrenched the economic clout of the top elite. More significant, this clout appears to strengthening in the wake of the current crisis.

The 2001-7 period saw a relatively more modest (though not insignificant) fall in the average wealth holding of the bottom one fifth of wealth distribution. The aftermath of the financial crisis has, however, had a disproportionate impact on this group. The updated estimates for 2009 (based on changes in asset prices) suggest that between 2007-9 the average wealth holding of this group fell at the rate of 33%. Of course in this period there were losses across the board, but the fall in average wealth for the top 1 % and top 20%, at around 16%, was less severe, so that these groups were able to increase their share of wealth (by 2.2 percentage points).

The growing polarization of wealth holdings can be seen clearly in Figure 5, which presents the ratio of the average wealth of the top 1% to the wealth of the median household. In 1962 this ratio was 125 – the wealthiest 1% averaged 125 times the wealth of the typical household. This gap has grown to the point where the top 1% holds 225 times the wealth of the typical household in 2009. Infact this gap swelled sharply after the recent financial meltdown.


Figure 5: Ratio of the Wealthiest 1% to median wealth
Source: Allegretto 2011, Figure C

Let us zoom in on this growing wealth gap. The average wealth holding for the “Forbes 400”- the richest of rich – rose by 633% from $509 million in 1982 to $3.7 billion in 2000, before dipping to $3.2 billion in 2009[9]. Collective wealth of this fortunate “400” was $1.3 trillion. The proportion of millionaires increased from around 3% in 1983 to more than 6 % of households in 2007 (Figure 6).


Figure 6: Growth of Millionaires: (% of Households)
Source: Wolff, 2010 Table 3


Figure 7: Growth of the Economically Vulnerable (% of all households)
*In constant 2008 dollars
Source: Allegretto 2011, Table 4

At the other end of the distribution, the share of the households with zero or negative net-worth rose from 15.5 % in 1983 to 24.8% in 2009. The share of households with net worth less than $12000 rose from 29.7 to 37.1%. The proportion of the population that is economically vulnerable has thus been rising. The spike in such households has been particularly steep after 2007. The crisis has lead to a swelling of the ranks of the financially distressed, aggravated by foreclosures, joblessness and the rising burden of debt. The poverty rate rose from around 12.3% before the collapse of the sub-prime mortgage market in 2007 to 14.3% in 2009.

Sources of Wealth, Roots of Power

What are the sources of wealth of the top 1%. As Figure 8 shows, a little more than half of wealth of this class is derived from businesses, corporate stocks and investment real estate. Another quarter is in the form of other financial securities. So more than three quarters of the income of this group is derived from ownership of capital in some form. Housing is only 10% of the wealth of this group and savings in the form of deposits or pension accounts another 10%.


Figure 8: Composition of Household Wealth of the Top 1% (2007)
Source: Wolff ( 2010) Table 7

How does this composition compare with that of a broadly defined middle class – the middle 60% of the wealth distribution? In contrast to the top bracket where wealth arose primarily from ownership of assets (both productive and financial), nearly two thirds of the wealth of this middle group is in the form of housing (Figure 9). The collapse of the housing bubble hit this group most severely. In fact between 2007 and 2009, the lower end of this group (the second lowest 20% of the population) saw their average wealth decline by 60%[10]. This was the sharpest fall for any quintile group in this period, and reflects the heightened vulnerability of households at the lower end of the wealth spectrum in the wake of the crisis. Only a little over 12% was invested in stocks, business and real estate, while about 20% was savings in deposits or pension accounts. Savings of these households were not being deployed in a significant way to accumulate claims on “capital”, though banks and pension funds were actively mobilizing these savings. Finally, the debt-equity ratio of this group was significantly higher than that of the top 1%, growing from 37.4 to 61 from 1983 to 2007, in contrast to a fall from 5.9 to 2.8 for the top 1%[11].


Figure 9: Composition of Wealth of the Middle 60% (2007)
Source: Wolff, 2010, Table 7

It is evident then that wealth is rooted in ownership of capital for the top echelons. This includes both productive capital and financial capital – capital constituted by claims on future flows of income from some underlying assets. Equally important the ownership of capital is concentrated at the top.

Figure 10 displays the share of different assets held by the different segments of the upper wealth classes. The top 1% directly or indirectly (through trusts and mutual funds) held nearly 50% of total common stock (excluding pensions) and of total non equity financial assets. For the top 10%, the share of common stock (excluding pensions) was nearly 90% and that of non-equity financial assets around 84%, while the top 20% held 95% of common stock (excluding pensions) and 91 % of non-equity financial assets. This means that the bottom 80% of the distribution held less than 5% of common stock and 9% of other financial assets.

Housing equity is less concentrated and the share of housing equity held by the upper wealth brackets was significantly lower than that of capital assets. Yet the bottom 80% owned only 34% of housing equity. As you go down the wealth distribution a smaller proportion of households are home owners. The ownership rate for the bottom quarter of the wealth distribution was 47% in 2007 in contrast to the top quarter of the distribution where the rate of home ownership is about 88% of households.

The long term picture is not very different. Figure 11 shows the share of different assets held by the top 10% of the wealth distribution over the period from 1983-2007. Share of total stocks and mutual funds held by the richest 10% was consistently over 85%. The share of financial securities increased from 83% to nearly 99%, while that of business equity rose slightly from 90 to 93%.


Figure 10 : Concentration of Asset Ownership (2007)
Source: Allegretto ( 2011) Table 6


Figure 11: Share of total assets held by the top 10%: 1983-2007
Source: Wolff (2010) Table 9.

A big factor driving the growth and concentration of wealth since the nineties has been the rapid growth of the stock market. The percentage of households who owned stocks either directly or indirectly rose from 31.7 % in 1989 to 49.1 % in 2007. However, the growth of ownership was disproportionately geared towards the top wealth classes. About 37% of the rise in overall value of stock holdings was garnered by the top of the top 1%, more than 80% by the top 10% , while as much as 90% went to the top 20%. The distribution of stock market gains to the bottom 40% in contrast was a meager 0.5%[12]. This lopsided distribution of the gains of the surge of stock market wealth is further evident in the concentration of stock ownership by wealth class (Figure 12). The percentage of households with no stock holdings in 2007 was 93% in the wealth class at the bottom 20%, falling to a little over 7% for the top 1%. The percentage of households with stocks worth $10,000 or more dropped from 88% of the households within in the top 1% of the wealth distribution to 2% of households in the bottom 20%. The obsessive focus on the gyrations of the stock market, an obsession that shapes policy and drives corporate decision-making is, in the final analysis, a preoccupation that is driven by the direct interests of the top wealth classes.


Figure 12: Concentration of Stock Ownership
Source: E. Wolff

The Long View

The extreme concentration of wealth witnessed in the recent decades marks a return to the extreme polarizations witnessed in during the Gilded Age of the Twenties. Figure 13 presents the historical trends in the share of the top 1% in of wealth and income in the US. During the Twenties the top 1% controlled about 44 % of wealth. After the stock market crash of 1929 and the Great Depression this inequality eroded sporadically till the seventies. This erosion was spurred by the strengthening of the labor movement in the thirties and the strong popular upsurge against the power of finance. With the turn to neo-liberalism and the reinvigoration of financial markets in the eighties this class launched an offensive and began grabbing a greater and greater share of wealth, to peak in 1998 at around 38% of total wealth.

While income inequality follows the same broad trend as wealth inequality, the concentration of wealth is more extreme. It is not simply that rising income shares enable greater accumulation of wealth. As we have seen, the wealth of the upper echelons is constituted primarily of ownership of capital – productive and financial assets. Accumulation of wealth also allows the wealthy to capture a bigger chunk of income earnings.

Wealth is an instrument of power. The wealthy plutocracy have consistently wielded this power to further enrich itself – to push through laws and policies that give this class a freer rein in the pursuit of accumulation of wealth And so we have the grant of tax breaks, the obstacles to any efforts at regulation and initiatives that seek to protect capital income and the earnings of the wealthy. At the same time there is the steady attempt to dismantle worker protection and bargaining power, and the tightening predatory grip on poorer households through debt. The US state is caught up in the need to bail-out large banks and balks at touching the earnings of the executives, but the contracts guaranteeing pensions and benefits to ordinary workers or the recourse to personal bankruptcy to shake off the yoke of debt is not viewed as favorably. With the recent Supreme Court ruling in the Citizen’s United versus the Federal Election Commission case over-throwing the ban on corporate spending during elections, the stage is being set to exercise this power even more blatantly and pervasively.


Figure 13: Concentration of Wealth and Income
Source: Piketty and Saez 2008, Wolff 2002[13] , Wolff 2010.


[1] T. Pikketty and E. Saez. 2008 Income Inequality in the United States, 1913-1998, in A. B Atkinson and T Piketty, ed , Oxford University Press. ( Back to article

[2] For an elaboration of this argument and a rigorous account of this process see G. Dumenil and D. Levy, 2010, The Crisis of Neoliberalism, Harvard University Press. Back to article

[3] Economic Policy Institute. 2011. Economic Landscape. The State of Working America. Washington, D.C.: Economic Policy Institute. ( Back to article

[4] Economic Policy Institute. 2011. Income Inequality.The State of Working America. Washington, D.C.: Economic Policy Institute ( Back to article

[5] E. Wolff 2010, Recent Trends in Household wealth in the United States: Rising debt and the Middle Class Squeeze – an update to 2007, Levy Economics Institute of Bard College Working Paper 589, Annandale on Hudson; S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens, Economic Policy Institute, Washington. Back to article

[6] S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens, Economic Policy Institute, Washington. Back to article

[7] Note that the 2009 estimates are based on updates of the 2007 data on the basis the change in asset prices between 2007-9. Back to article

[8] S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens, Economic Policy Institute, Washington. Table 13. Back to article

[9] S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens, Economic Policy Institute, Washington. Back to article

[10] S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens, Economic Policy Institute, Washington, Table 3. Back to article

[11] E. Wolff 2010, Recent Trends in Household wealth in the United States: Rising debt and the Middle Class Squeeze – an update to 2007, Levy Economics Institute of Bard College Working Paper 589, Annandale on Hudson. Back to article

[12] S. Allegretto, 2011, The State of Working America’s Wealth: Through volatility and turmoil, the gap widens,  Economic Policy Institute, Washington. Back to article

[13] E. Wolff 2002, Top Heavy: The Increasing Inequality of wealth in America and what can be done about it, The Century Foundation. Back to article


4 Responses to “Neoliberalism and the New Gilded Age: The Wealth Pyramid in the US”

  1. Jesse Knutson Says:
    May 25th, 2011 at 6:12 pm

    Fantastic piece!

  2. Gogol Says:
    June 3rd, 2011 at 8:32 am

    Brilliant work!

  3. Lynne Thermann Says:
    June 29th, 2012 at 10:55 am

    Elegantly written. Thank you.

  4. Raúl Ravanal Says:
    February 22nd, 2013 at 6:39 pm

    Congratulaions !! this article is Very complete.

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