The United States economy increasingly resembles a high-stakes casino, characterised by frothy financial markets, bizarre asset manias, and a significant surge in online betting. However, beneath this surface frenzy lies a more profound and troubling puzzle: why are American citizens shunning intelligent risks that build long-term stability, while simultaneously embracing reckless gambles that could magnify the severity of the next economic crash?
The American Wealth Paradox
The good news is a simple, powerful fact: Americans have never been richer. The last half-century has witnessed tremendous growth in both income and wealth, a trend that has benefited even poorer and middle-class households. The bad news is a pervasive feeling: most Americans do not feel this increased prosperity. Despite tangible gains, a significant portion of the population believes the economy is not working for them, a sentiment rooted in the nature of that growth and the changing structure of the US economic system.
A key shift has been the transformation of the middle class. In the 1960s, the US household income distribution formed a classic bell curve with a very thick middle. Today, that middle class is shrinking, but largely because many have ascended to the upper-middle class. In 1967, just over 5% of Americans had incomes exceeding $150,000 (in 2024 dollars). Today, that figure has skyrocketed to more than 30%. Progress is also evident at the lower end: in 1967, over 38% earned less than $50,000, compared to just 21% now.
The Rise of Inequality and Superstar Earnings
This upward mobility, however, has occurred alongside a significant increase in income inequality. The top 5%, and especially the top 1%, have become vastly richer than everyone else. The income distribution curve has flattened as more people move into the upper part, but the upper tail has pulled away dramatically. The result is a society where more people are affluent than ever before, yet a widespread sense of economic malaise persists.
This income growth stems from several factors. Neoliberal economic policies delivered on their promises, leading to big increases in productivity, solid GDP growth, and, since the 1980s, low and predictable inflation. A decline in unionization decompressed wages, allowing higher earners to pull further ahead. More Americans now attend college, incurring debt but boosting lifetime earnings, particularly in a technology-driven economy that favours degree holders. An aging population also contributes, as people typically earn more later in their careers. At the lower end, income figures now include welfare benefits and tax credits, which bolster the numbers.
Despite higher incomes, many households feel poorer for legitimate reasons. They struggle with soaring prices in critical, regulated sectors like healthcare, education, and housing. There is also justified anxiety that the prosperity of the last 60 years—the Era of the Baby Boomers—may not continue. The college premium, while still existent, has stopped growing and comes at a higher cost.
The Superstar Economy and Political Fallout
Technology and trade have made the overall population richer, but they have created a 'superstar economy' that rewards a small group disproportionately. It is not just a handful of ultra-rich individuals; there are hundreds of Americans worth more than a billion dollars. This concentration stems from a few dominant firms earning and paying more, high earnings in specific industries, and a system that lavishly rewards top performers, be it Taylor Swift or a talented corporate manager.
This system, while driving economic growth that benefits everyone, creates a sense of a zero-sum competition within the top tier of earners. This intra-top-quartile resentment influences politics, explaining why many politicians advocate for higher taxes on the super-rich but not the upper-middle class. Taxes are increasingly seen not just as fiscal tools, but as a form of economic retribution.
This dynamic poses a fundamental challenge. There is a tradeoff between growth and equality. The growth at the top is partly linked to productivity gains from innovative companies, often led by the very wealthy, which enrich the economy and stock portfolios. While there may be room to increase taxes on the rich, punitive measures can harm growth. The pervasive idea that the economy is rigged fuels populism in both major parties, potentially leading to less trade and more price controls. This would result in a slower-growing, or even shrinking, economy.
Ultimately, Americans may soon learn a harsh economic lesson: the only thing worse than rising inequality is flat or declining income.
