Holidays offer chance to flaunt wealth and alarming reminder of inequality

While the countrys richest are mulling over gifts like safaris and submarines, they are missing the threat that the wealth gap poses for the US as a whole

Its that season again. You know, the one when Americas wealthiest citizens flip eagerly through the pages of the December issue of the Robb Reports annual Ultimate Gift Guide.

What to buy for the millionaire who has everything? This year, its editors are suggesting a deluxe whiskey distillery trip ($2.5m), a his-and-hers two-person submarine ($1.5m), or, if youre feeling a wee bit cash strapped, a $250,000 safari experience.

While most of us are scratching our heads and wondering just how much extra strain our credit cards will stand this holiday season (a tablet computer? Can we get away with gifting a refurbished model without looking too cheap?), Americas wealthiest citizens are going from strength to strength. Welcome to the era of the wealth chasm.

The rich, like the poor, are always with us. They are even growing in number, according to the just-released 2015 World Wealth Report by Capgemini. In 2014, the number of high net-worth investors in the United States reached 4.4 million; the assets under their control hit a whopping $15.2tn, with $1tn in new wealth created in the 12 largest metropolitan areas (notably in California and Texas) in that year alone.

Capgemini provides the hordes of financial advisers eager to cater to these individuals who range from the likes of Mark Zuckerberg down to the newest partners at Goldman Sachs with tips on what they are looking for. While most of us would happily settle for a bank account that didnt levy hefty fees, or a credit card that did likewise, the younger members of this elite group of our wealthiest fellow citizens turn out to be particularly demanding, insisting on sophisticated financial products and concierge-level service. Almost the only fact most of us will have in common with them is that none of us have much trust or confidence in the financial institutions serving us.

But while private bankers and luxury goods manufacturers will do whatever it takes to solve the problems confronting these rich clients and customers or what they define as problems the rest of us are left, increasingly, to sort it out for ourselves. And the problem is that while the ranks of the rich continue to grow, and the rich grow steadily richer, what once was a wealth gap risks becoming an unbridgeable gulf, with serious economic, social and political consequences.

Indeed, there may be an eerie parallel with global warming. A wealth gap particularly the immense one that we see in the United States today risks approaching a tipping point where it will become toxic to the entire nation; inequity becomes unsustainable. It will stifle economic life, since only a small handful of individuals will ever manage to climb out of the economic class into which they were born.

Today, even if the level of opportunity hasnt declined as much as critics argue anecdotally, neither has it improved: an American born today isnt any more likely to escape his economic class at birth than was one born 20 years ago. Studies have shown that about 8% of those born into the poorest 20% of American families in the early 1980s had managed to make it into the top 20% by the time the research was done recently.

The United States is offering greater economic mobility opportunities to foreign-born citizens, given that many of them start from a lower base. But thats a different demographic group and it remains to be seen whether the children and grandchildren of those immigrants will have better-than-average economic mobility, or whether their experience will mirror the American average.

When some among the countrys wealthiest announce plans to do something different, its a rare enough event to cause widespread comment, as when Zuckerberg and his wife, Priscilla Chan, announced that they will give away 99% of the shares Zuckerberg owns in his company during their lifetimes a gift that has a market value in the neighborhood of $45bn today and that the couple are making in honor of the birth of their daughter, Max.

Good for them, but its not enough. And the wealth chasm has now grown so wide that few of the most-often proposed solutions will bridge it now. Extending new tax credits to those earning low wages, or even mandating a $15 minimum wage? Its a drop in the ocean. Wages generally are pretty much stagnant anyway: real incomes (after accounting for inflation) have roughly the same purchasing power they did in 1979. On a nominal basis before inflation median household income has grown 26% since 2003, but household expenses (except for apparel, recreation and transportation) have outpaced that growth, climbing 29%, according to a just-released study by NerdWallet. Medical care costs have soared 51%, while food and beverage expenses are 37% higher than they were in 2003.

That, argue the NerdWallet researchers, explains why the average consumer debt load is rising, and the average household pays as much as 9% of median income on financing that debt. It is becoming more expensive to be an American, the study concludes.

What is particularly startling is how much the perception of what Americans think is the actual wealth distribution and what would be a fair wealth distribution strays from the current reality. And, given that the gap between that ideal and reality is widening rather than narrowing, and that a vast majority of survey respondents, Republican and Democratic alike, agreed on the definition of what was fair, its worth pondering on the results of this 2010 survey by two notable figures in behavioral finance.

Survey respondents decided that the actual pattern of American wealth distribution was one in which the richest 20% had 60% of the wealth, while the poorest 40% had between 8% and 10%. The ideal distribution, Republicans and Democrats agreed, would be one in which the richest 20% of Americans had 30% to 40% of all private wealth, and the poorest 40% had 25% to 30%. The actual figures? Well, the richest 20% had 85% of the countrys wealth, and the poorest 40% had a mere 0.3%.

The chasm widens and deepens almost daily. As the Institute for Policy Studies reported last week, the individuals on the Forbes 400 list now have $2.34tn in wealth, more than ever before. The 20 people topping the list, Zuckerberg amongst them, now boast more wealth than the least affluent half of the US population, or a whopping 152 million people.

Its in the interests of the ultra-wealthy to think about more than what toys to buy for the holidays, or how to grab a larger share of the economic pie for themselves. Indeed, they need to go beyond thinking about how to increase the size of that pie overall, to finding ways to distribute more generous slivers to those who are barely getting to taste the crumbs today. To the extent that the bottom 15% dont begin participating in economic growth, and dont feel they have an economic stake in society, the dangers are real. Imagine, for a moment, what will happen when a generation with inadequate savings and no source of income is forced into retirement.

Nick Hanauer can. The entrepreneur and startup investor has been involved in creating more than 30 companies, and describes himself as a proud and unapologetic capitalist. And last year, he warned people like him that the United States was morphing from a capitalist society into a feudal society and that the pitchforks were coming for people like them. Without something more than politicians promises and philanthropy, he could just be right.

Read more: http://www.theguardian.com/us-news/us-money-blog/2015/dec/10/holidays-gifts-income-inequality-wealth-gap