Covid a boon for US super-rich but inequality at 1940s levels

The richest people in the US have become dramatically richer during Covid-19, leaving inequality at the highest level since the 1940s.

He’s in the money … Tesla founder Elon Musk has seen his wealth increase by $US138bn since the pandemic began. Picture: AFP.

The richest people in the US have become dramatically richer during the Covid-19 pandemic as asset prices and private savings soar, leaving inequality at the highest level since the 1940s.

US household net worth increased by $US19 trillion ($25.8 trillion), or 16 per cent, between the end of 2019, before the pandemic emerged, and March 2021, during which time the US experienced its sharpest economic downturn on record.

“The increase was the largest 15-month wealth boost since 2004 – a remarkable gain as it occurred during a global pandemic and deep recession,” said Nancy Vanden Houten, an economist at Oxford Economics.

The National Bureau of Economics Research, which determines the duration of recessions in the US, declared last week the US coronavirus-induced recession lasted only two months, from February to April 2020, the shortest ever.

The top 1 per cent of US earners by income saw their wealth increase 23 per cent since the end of 2019, compared to a 2.5 per cent rise for the bottom 20 per cent.

“Households in the top income quintile benefited most from gains in the value of equities and mutual funds, while gains in holdings of real estate and retirement accounts have been less lopsided,” Ms Vanden Housten said.

Wealth inequality in the US, as measured by the share owned by the top 1 per cent, has increased steadily since the early 1980s.

Policies to ameliorate the impact of the pandemic and restrictions, including unprecedented US government stimulus payments and ultra low interest rates, have fuelled the latest lopsided wealth boom.

The S&P 500, a benchmark share price index of the 500 largest US firms, has increased 36 per cent to a record high of 4401.

Over the year to May, US house prices rose 18 per cent, the Federal Housing Finance Agency said on Tuesday.

“More than 90 per cent of the gain in households’ holdings of real estate, equities, and mutual funds since the end of 2019 reflect price appreciation,” Ms Vanden Houten said.

The combined wealth of US billionaires, who numbered more than 700 in July, has surged by $1.8 trillion, a gain of almost 60 per cent, since the pandemic began, according to American for Tax Fairness.

Amazon founder Jeff Bezos and Tesla founder Elon Musk saw their personal fortunes increase by $US99bn and $US138bn, respectively.

The typical interest rate on a 30-year home loan has fallen from 3.7 per cent to 2.9 per cent since the end of 2019, according Freddie Mac, a US home lender.

“Based on the distribution of excess savings among households, we estimate that 14 per cent will be used to finance spending over the next six quarters, supporting 9 per cent growth in consumer spending in 2021 and a solid 5 per cent increase in 2022,” the Oxford Economics analysts said.

The pandemic and measures to contain it also directly had disparate impact on the highest earners, who largely kept their jobs and could benefit from working from home, and lower income earners, typically in leisure and hospitality, who bore the brunt of job losses.

The Biden administration has promised to reduce wealth inequality. Congressional Democrats are planning a range of tax increases, including lifting the corporate tax rate from 21 to 25 per cent, and increasing inheritance and personal income tax, as part of an infrastructure bill worth at least $US3.5 trillion.