Democratic capitalism, for all its shortcomings, remains the greatest engine of widely-shared prosperity the world has ever known. History rendered judgment on this question in the momentous year of 1989, when communist regimes in Europe began to fall. Yet today both democracy and capitalism are under siege from populists of the left and right, around the world, and in the country whose economic and political model seemed vindicated by the Cold War’s result: the United States.

Sharing the Wealth

A major reason for democratic capitalism’s legitimacy crisis: the gap between this country’s rich and all others grew significantly in the three decades after the fall of the Berlin Wall. Addressing the wealth gap — especially that part which reflects long-standing racial disparities — could help improve opportunity and social mobility for Americans and bolster the political standing of U.S. institutions, at home and globally. We will take on the issue in a series of editorials, beginning with this one.

First, the data: The combined wealth of all households in the United States added up to $129.5 trillion in the first quarter of this year. The wealthiest 1 percent held 32.1 percent of the total, up from 23.4 percent in 1989. The top 10 percent of households owned $70 of every $100 in household wealth, up from $61 in 1989. The bottom half, whose share never exceeded 5 percent, now holds just 2 percent of household wealth in the United States.

Though wealth inequality has grown in other industrialized democracies too, the U.S. figures mark this country as an outlier. A 2018 study of 28 countries in the Organization of Economic Cooperation and Development found that, on average, the top 10 percent of households owns 52 percent of wealth, while the bottom 60 percent owns 12 percent. But in the United States the top 10 percent held 79.5 percent and the bottom 60 percent held 2.4 percent.

We focus on wealth inequality rather than income inequality because, while both are important, wealth is a better measure of an individual or family’s long-term economic success and of their stake in society. Real property, securities, cash savings and other assets accumulate over time and can be handed down from generation to generation. A secure middle class that can afford to educate its children and has savings available for retirement as well as the proverbial “rainy day” forms the foundation of a stable, politically moderate community. Conversely, millions who have nothing to lose are comparatively susceptible to demagogues, especially if there is some basis for believing that the system is “rigged” in favor of a hereditary overclass. The United States is not a plutocracy, but billionaires — from the Koch brothers on the right to George Soros on the left — can and do punch far above their weight in U.S. politics.

The pursuit of individual wealth is not only natural; it is laudable, as a reward for risk-taking, innovation, artistic creativity and efficient production, whose benefits spill over to society as a whole. Throughout history, societies that arbitrarily confiscated property failed while those that lawfully protected it flourished. The United States may have far more wealth inequality than Japan and Western Europe; but no country in the industrialized world seeks zero wealth inequality, or anything close.

But the current U.S. wealth gap is far larger than needed to reward initiative or to sustain rapid economic growth. To the contrary, over the past three decades, economic growth rates have slowed even as more and more wealth has been concentrated at the top. Much contemporary wealth accumulation seems to be of the least defensible kind: that which results from financial windfalls, speculation — or inherited privilege. Certainly the yawning wealth gap between White people and Black people, the legacy of deliberate racist policies, presents a special moral challenge, deserving of especially urgent policy attention.

It is probably no coincidence the rich began getting so much richer as globalization exerted downward pressure on wages and deregulated financial innovation increased opportunities for capital gains. A side effect of low interest rates, engineered by the Federal Reserve with the goal of stimulating the broader economy, has been to reduce the costs and raise the benefits of speculation. Absent Fed action, workers and low-income people could have suffered even more from both the Great Recession and the pandemic. It is still remarkable — and concerning — that wealth inequality grew, during the pandemic, mainly due to soaring house and stock prices. Of $13.5 trillion in new household wealth added during 2020, more than 70 percent accrued to the top fifth of income earners, and about a third to the top 1 percent, according to the Wall Street Journal.

The wealth gap did not develop overnight. It neither can, nor should, be entirely eliminated; but the United States could aim for a more equitable distribution similar to that of our peer nations today — and, indeed, that which prevailed in the country during the era of its greatest international prestige. Policy reforms, starting now, could make it happen.