For years, Democrats have told us that inequality is the most pressing problem facing our nation. National media outlets have regularly echoed this point, often blaming Republican policies as major contributing factors. But you might have noticed that it has been a while since anyone mentioned any actual, recent facts about inequality. That is because we have learned when inequality statistics are not worth mentioning: when those statistics show Republican policies reducing inequality.
To be sure, inequality itself is still mentioned all the time. In recent testimony before the Senate Finance Committee, Treasury secretary Janet Yellen suggested that the administration’s unprecedented spending spree — along with the deficits and higher tax burden proposed to fund these plans — is necessary to address the “destructive forces” of our time, inequality chief among them.
But if this is the paramount concern, Democratic policymakers should be considerably more curious about a glaring fact: In the four years through 2020, real wealth inequality among American households declined, according to the Federal Reserve’s Distributional Financial Accounts.
Despite this period ending with the worst macroeconomic shock since the Great Depression, real wealth held by the bottom half of households grew faster — over three times faster — than wealth held by the top half of households in the 2017-20 period, and almost three times faster than for the top 1 percent. This reduction in wealth inequality — made possible by broad-based and non-inflationary growth — was realized amid the implementation of tax and regulatory reforms that critics erroneously claimed would result in surging inequality.
The pattern of wealth growth over the 2017-20 period is best described in two phases: that before the pandemic and that during the pandemic. From the end of 2016 through the end of 2019, real wealth for the bottom half of households grew at an annual rate of 17.2 percent, while real wealth for the top 1 percent of households grew at a 5.2 percent pace. Following landmark tax reform in 2017, real wealth for the bottom half of households grew at almost four times the pace of that of the top 1 percent.
In the previous expansion period — post-Great Recession but pre-2017 — real wealth grew at annual rates of 8.2 percent and 6.5 percent, respectively, for the bottom half and top 1 percent of households. But pre-2017 growth for the bottom 50 percent merely constituted slow, painful, and partial recovery from a steep contraction during 2007-09, and followed a pre-Great Recession period in which real wealth for the top 1 percent of households rose substantially while that of the bottom half declined. Only after the 2017 tax reforms did real wealth for the bottom 50 percent of households finally regain and then surpass its 2007 level.
The pandemic and the attendant recession introduced a number of historical anomalies. One was the preservation — and even growth — of the aggregate wealth accumulated by American households. In fact, the rate of growth of aggregate real wealth for the bottom half of households exceeded that of the top 1 percent of households. By the end of 2020, aggregate real wealth held by the bottom half of households was 21.9 percent above its pre-pandemic level, while aggregate real wealth among the top 1 percent of households was up 10.3 percent.
For wealth to grow at all — let alone grow 21.9 percent — during a recession is unprecedented. During the 2008-09 recession, real wealth held by the bottom half of households fell by a staggering annualized rate of 36.9 percent. While the top 1 percent of households also faced substantial wealth losses, in percentage terms they faced a much smaller contraction of 13.7 percent. Whereas real wealth of the top 1 percent had regained its pre-2008 peak by 2013, it took more than a decade, and the 2017 tax cuts, for real wealth of the bottom half of households to recoup the steep losses of 2008-09. Aggregate data can of course mask considerable variation and hardship among households, but the fact that overall real net worth held by the bottom half of households rose in 2020, and rose by more than double the rate of the top 1 percent, is a testament to the unprecedented response of the Trump administration to the worst macroeconomic shock to hit the U.S. economy since the Great Depression.
The policies implemented in the 2017-2020 period have frequently been mislabeled as inequality amplifying. Even today, perhaps out of political expediency, some critics maintain that these policies resulted in greater inequality. The data contradict such claims. With a better understanding of the patterns of wealth inequality in recent years, it might be hoped (if not optimistically) that these critics would not be so quick to dismiss the growth-enhancing policies of the 2017-2020 period and that they might even stop short of calling for their reversal.
Finally, the Biden administration should perhaps consider the effects that its fiscal proposals could have on inflation. With real wages already declining in 2021 amid higher inflation, real wealth growth — especially for households at the lower end of the distribution — may be at risk of slowing substantially this year. Having successfully mitigated what would have constituted the largest adverse hit to household wealth since the Great Depression, now is the time to start returning to the set of policies that were delivering sustainable gains to household wealth at the lower end of the distribution on the eve of the pandemic.
If Democrats were serious about addressing inequality, they would at least have a modicum of curiosity as to why the bottom half of the wealth distribution experienced the biggest gains in wealth-share on record during President Trump’s term. That they do not have such curiosity reveals that inequality in fact matters little to them. Instead, their willingness to disregard data evinces political rather than economic goals — to peddle a narrative of helping those at the bottom while reversing the policies that delivered the biggest real economic gains to those households in decades.
Cale Clingenpeel is the Chief Economist at the America First Policy Institute and served in the Trump Administration as Senior Adviser to the Chairman of the White House Council of Economic Advisers. Tyler Goodspeed, Ph.D., is the Kleinheinz Fellow at the Hoover Institution at Stanford University and U.S. Director at Greenmantle LLC, a macroeconomic and geopolitical advisory firm. He was acting Chairman of the White House Council of Economic Advisers from 2020 to 2021.