Argument

The Ultra-Rich

The Ultra-Rich

See Tyler Cowen on how cheapskates, pessimists, and food trucks won the recession.

Forget about the recession — there has never been a better time in human history to be a member of that most exclusive of clubs: the world’s ultra-rich.

Yes, it’s true, the top 1 percent in the United States was initially hit hard by the global economic crisis, accounting for 50 percent of the income loss. Their share of income in the United States plunged from 23.5 percent to 18.1 percent. In the sluggish recovery, however, top incomes have also rebounded much more strongly. In 2010, economist Emmanuel Saez concludes, "the top 1% captured 93% of the income gains in the first year of recovery."

Two factors explain the vastly different recoveries of the rich and the rest. First, mass unemployment has devastated millions who rely on wages for all or most of their income, but has not directly affected the minority who live from their investments. Most of the wealth of the superrich takes the form of stocks, bonds, and other financial assets. Second, for the average American the most important element of wealth is the family home. And though the stock market has rebounded, as of June 30, 31 percent of American homeowners were still "underwater," owing more to mortgage lenders than their homes are worth.

The bursting of the housing bubble is the chief reason the median net worth of the typical American family plummeted almost 40 percent from 2007 to 2010. And while the Federal Reserve and other government agencies have successfully stabilized and revived the financial sector and the stock market through means like low interest rates that have allowed profits to grow, political gridlock has blocked progress in writing off or restructuring the huge debt overhang in the middle-class housing market. The result? The wealth of average American families remains below its pre-recession high.

What about the rest of the world? Data about the global rich are hard to come by. Russian oligarchs, Mexican tycoons, and Chinese communist "princelings" aren’t in the habit of fully disclosing all their assets. The information that is available, however, suggests a global pattern similar to that in the United States.

At the beginning of the recovery in 2009, the overall wealth of the world’s 10 million millionaires and billionaires grew 18.9 percent, according to a report by Merrill Lynch and Paris-based consultancy Capgemini. Following a 20 percent plunge in 2008, the total wealth of this group had already approached its 2007 peak by the end of 2010. The top 1 percent on the planet held 44 percent of global wealth in 2010, according to Credit Suisse. The percentage grew slightly from 2000, when the top 1 percent owned 40 percent of global assets, according to a 2008 report by the World Institute for Development Economics Research. At the same time, the poorest half of the world’s population — some 3.5 billion people — today hold just under 1 percent of global wealth, and many are now staggering under the weight of rising food prices.

So perhaps it’s no surprise that, even during a period of mass unemployment and popular despair in much of the industrialized world and slowing growth in China and other emerging economies, the world’s wealthy are feeling great. Fewer than a quarter of the world’s high-net-worth individuals are pessimistic about their future wealth prospects, according to a survey this year by Knight Frank consultancy and Citi Private Bank. In 2012, respondents in Fidelity Investments’ Millionaire Outlook report were more optimistic about their financial future than in the previous five years. Note well, however, that one-quarter of the millionaires consulted by Fidelity said that they do not feel rich — but would if they only had $5 million more.

The rich really are different from the rest of us. They recover much more quickly from global economic catastrophes.

See Frederick Kaufman on how McDonald’s won the recession.