Nearly 500 people have become billionaires over the course of the pandemic. Stock markets have risen inexorably while unemployment has increased and real wages have stagnated. Somehow property prices, which many believed would finally start to fall as economic activity slowed, have remained stable.
On the surface, the ebullience of asset markets makes little sense. Asset prices are supposed to reflect expectations of future returns, whether in the form of dividends, imputed rents, interest or capital gains. The slowdown in economic activity combined with rising consumer prices should have led investors to adjust their expectations about variables like future profits. The reason this adjustment didn’t take place was that central banks didn’t let it.
They responded to the initial panic in financial markets by creating trillions of dollars worth of new money and using it to purchase assets from the private sector. These interventions left investors flush with cash and short of safe assets in which to invest – naturally, they went searching for higher returns by ploughing this money into riskier assets like tech and healthcare stocks, dodgy corporate bonds, and even cryptocurrencies and NFTs.
The resulting boom in asset markets throughout the world has made those who hold these assets extremely rich, providing a huge boon to the super-wealthy, and some respite to middle-class homeowners with pension funds. In the UK, the financial wealth held by the wealthiest 1% of households is greater than that held by the bottom 80% of the population. In the US, the wealthiest 1% own 80% of the nation’s shares.
Nevertheless, the impact of these interventions is difficult to ascertain because wealth inequality is notoriously hard to measure. In the UK, we use the Office for National Statistics (ONS) Wealth and Assets Survey (WAS), which relies on self-reported survey data.
The survey takes a long time to put together so the data is relatively infrequent and comes with a substantial lag (the data released today relates to a survey undertaken between April 2018 to March 2020, making it useless for understanding the impact of the pandemic on wealth inequality). The use of survey data also makes the data less reliable – the wealthiest consistently understate the extent of their wealth, at least in part because wealthy individuals have a greater incentive and capacity to hide their wealth to avoid tax.
Contrasting data from the WAS with that from sources like the Sunday Times Rich List or the Forbes Billionaire List provides much deeper insights into the wealth of the top 1% – perhaps because the wealthy are more honest with sources that aren’t connected with the state; or perhaps simply out of a vain desire to be as close to the top of the list as possible. Either way, social scientists have used these data sources to conclude that official surveys understate the wealth of the top 1% by at least 6 percentage points. Even this probably understates the extent of wealth inequality in the UK.
We must always remember when consulting these statistics that the dramatic increase in the wealth of those at the top is by no means the ‘natural’ result of the operation of the free market. It has been engineered by policymakers.
Rising wealth inequality is now wired into the operation of the UK economy, with contradictory results. If asset prices were to drop precipitously, the millions of people relying on the value of their home or pension pot to fund their retirement would be left relying on the UK’s state pension – the least generous in the advanced world. In response, they’d stop spending and perhaps even start selling their assets, exacerbating the problem.
The issue is, of course, that unless asset prices are allowed to fall the economy can’t ‘reset’ as it ordinarily might after a crisis of the pandemic’s proportions. New homeowners won’t get on the property ladder, and many will end up spending huge portions of their income paying rent to retirees, pushing them into debt and constraining consumer spending. Defunct companies won’t be subjected to Schumpeterian forces of creative destruction. Instead, the largest and most powerful will be able to take advantage of easy money to buy up their competitors and consolidate their market power.
The wealthy, meanwhile, will have more money than they know what to do with. So they’ll continue to plough their excess cash into financial markets so that it can be recycled into debt for powerful corporations and the less well-off. The end result is an economy that resembles a system of debt peonage – only on a planetary scale. A study from the US has shown that the rich have now ‘accumulated substantial financial assets that are direct claims on US government and household debt’. Most of what we owe, we owe to the top 1%.
The scale of inequality we must confront defies reformism. The forces sucking wealth up to the top of the economy are now so powerful that they seem almost unstoppable. But, as David Graeber once wrote, ‘the ultimate, hidden truth of the world is that it is something that we make, and could just as easily make differently’. This point is clearer than ever in the wake of a pandemic that has been defined not by the abstract economic forces of ‘the free market’ but by political interventions undertaken by states, powerful corporations and financial institutions.
These interventions have made it clearer than ever that wealth inequality is not a discrete economic problem to be fixed with technocratic policy tweaks. It is a question of power and politics. Whoever controls the institutions that distribute wealth in the world economy controls who gets what.