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Rich get richer, everyone else not so much in record U.S. expansion

EconomyJul 02, 2019 06:57AM ET
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© Reuters. FILE PHOTO: Monet painting part of "Les Meules" is displayed at Sotheby's during a press preview of their upcoming impressionist and modern art sale in New York

By Trevor Hunnicutt

NEW YORK (Reuters) - Last month Pink Floyd frontman David Gilmour sold his guitar collection for $21.5 million, including one piece - his famed "Black Strat" Fender Stratocaster - that went for nearly $4 million to the owner of the U.S. National Football League's Indianapolis Colts.

The "Money" singer set a musical instrument sales record in the charity auction, marking yet another milestone for a booming market just weeks after New York-based art dealer Sotheby's Holdings (N:BID), auctioned Claude Monet's "Meules" for $110.7 million, the most ever for an Impressionist painting.

And it is not just instruments or paintings in high demand among the world's billionaire set. Auction houses themselves now appear to be prized vanity purchases: Just a few days before the Pink Floyd auction, Franco-Israeli cable magnate Patrick Drahi, whose firm Altice earned significant money in the United States, made a $3.7 billion bid for Sotheby's, which had just hosted the Monet sale.

Welcome to the longest U.S. economic expansion in history, one perhaps best characterized by the excesses of extreme wealth and an ever-widening chasm between the unfathomably rich and everyone else.

Indeed, as the expansion entered its record-setting 121st month on Monday, signs of a new Gilded Age are all over.

Big-money deals are getting bigger, from corporate mergers and acquisitions, to individuals buying luxury penthouses, sports teams, yachts and all-frills pilgrimages to the ends of the earth. And while these deals grab headlines, there is a deeper trend at work. The number of billionaires in the United States has more than doubled in the last decade, from 267 in 2008 to 607 last year, according to UBS.

"The rich have gotten richer and they've gotten richer faster," said John Mathews, Head of Private Wealth Management and Ultra High Net Worth at UBS (S:UBSG) Global Wealth Management. "The drive or the desire for consumption has just gone upscale."

But there are also signs of struggle and stagnation at lower-income levels. The wealthiest fifth of Americans hold 88% of the country's wealth, a share that has grown since before the crisis, Federal Reserve data through 2016 shows. Meanwhile, the number of people receiving federal food stamps tops 39 million, below the peak in 2013 but still up 40% from 2008 even though the country's population has only grown about 8%.

Still, a decade ago, this kind of growth was not thought possible. The U.S. financial system was in a shambles and people feared bank failures could permanently undermine capitalism. Policymakers scrambled to stabilize markets and boost asset prices when U.S. housing markets unraveled. They did less to tackle income and wealth inequality.

Now, many of the signs of mega-wealth that preceded that financial crisis are once again on display.

WEALTH EFFECT

The examples are big and small.

The cost of a dinner at the French Laundry, the chic California restaurant, is up 35% to $325 per person, from $240 10 years ago, beating inflation by nearly 20%.

Undergraduate tuition at Ivy League mainstay Columbia University is a hair under $60,000 a year, up by half from $39,000 in the 2008 school year.

The U.S. stock market, measured by the S&P 500 (SPX), has tripled in the last decade.

Hedge fund boss Ken Griffin set a record for a U.S. home sale when he bought a $238 million penthouse condominium on "Billionaires' Row" just off New York City's Central Park.

Yet rents in New York have risen twice as fast as wages, according to StreetEasy data from 2010-2017, squeezing lower-income residents. U.S. home prices were near their lowest levels of affordability since 2008, research by ATTOM Data Solutions shows. And the number of homeless people sleeping in the city's shelters is 70% higher than a decade ago, according to the Coalition for the Homeless, an advocacy group.

"Under-resourced areas are not getting any better; the housing opportunity for them is not getting any better," said Carolyn Valli, CEO at Central Berkshire Habitat For Humanity, in Pittsfield, Massachusetts, at a recent economic policy event. She said high healthcare costs and a lack of large employers mean fewer jobs in some areas. Food, utilities and housing costs, meanwhile, remain high. "It doesn't feel like a boom yet."

Anger over what some see as the unfairness of the economy has bubbled into the country's politics, with Democratic presidential candidates promising to lower healthcare costs, guarantee jobs and tax the rich.

Economic policymakers think the expansion could dim as stimulus from tax cuts and low interest rates fades while a U.S.-China trade skirmish brews. They worry that even the underwhelming gains made by low-income people in the last decade are fragile and that people only recently brought into the workforce could be the first fired when a recession hits.

"The benefits of this long recovery are now reaching these communities to a degree that has not been felt for many years," Federal Reserve Chairman Jerome Powell said last week. "Many people who in the past struggled to stay in the workforce are now getting an opportunity to add new and better chapters to their life stories. All of this underscores how important it is to sustain this expansion."

Rich get richer, everyone else not so much in record U.S. expansion
 

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Comments (2)
Lucas Atilano
Lucas Atilano Jul 02, 2019 7:18AM ET
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You can see how the propaganda against the interest of the middle class has worked in the previous comment. They will keep voting for politicians who favor the billionaires
Lynn McCord
the907man Jul 02, 2019 5:44AM ET
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I blame our ridiculous public education system. A teacher told me a few years ago that they don't teach cursive or even how to sign one's signature because "pretty soon we'll have retina scanners and it won't matter". So many laws, regulations, tax issues, and various other flaming hoops leave young people without the will to start businesses. With the "gimme olympics" in full swing for 2020, maybe living with the parents or in a tent next to the interstate is a better gamble than getting your act together and working as hard as your parents and grandparents did. Maybe that's just too much work. ;)
Lucas Atilano
Lucas Atilano Jul 02, 2019 5:44AM ET
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A bit hard for me or anyone i know to start a business or even a family with $90k in debt just to pay for my bachelors... the real blame is the elections of polititians who have destroyed the middle class, those teachers make $35/year if they have a masters, for that money you can teach your own kid cursive
Lynn McCord
the907man Jul 02, 2019 5:44AM ET
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Lucas Atilano  Maybe tax payers would support higher wages for teachers if we thought they were, on average, worth it. Public school staff are consistently condescending, inconsiderate, and self appointed moral superiors to the people who pay their wage. I find the most effective teachers in community colleges and trade schools, and most of those teachers would love to make $35K a year. Public employee unions are a huge problem for most cities. I don't understand how a person racks up $90K in college debt. Did you go to a school you couldn't afford? Did you not take semesters off to work and save? Did you not ask any of the millions of people from working class families who finished in their twenties with little or no debt how they did it? If a person can't afford expensive colleges, cars, vacations, food and non-stop fun, maybe they should take a closer look at caste from whence they came. Wealth redistribution can't save us all.
 
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