The parallels have long been obvious to anyone paying attention. It's 2018, and young people with tens of thousands in debt are flocking to cities they can't afford because it feels impossible to launch their adult lives elsewhere. Meanwhile, the rich don't have to actually confront How the Other Half Lives: When they're not vacationing away from the masses in places like Newport, Rhode Island—as the Vanderbilts did—the 21st century version of robber barons like Elon Musk and Peter Thiel deign to use their deep pockets to plot escapes into space or design floating Libertarian paradises. Everyone else is stuck on Earth and in failing economies and thus increasingly turning toward populism or socialism.
Now a new paper from the left-leaning Economic Policy Institute (EPI) has provided fresh evidence for what we all suspected: We really are living in a new Gilded Age.
"The top income thresholds are headed back to what they were at the last peak we had, which was 1928," Mark Price, the paper's co-author, told me after it was published on Thursday. But right after the ensuing Great Depression began what some historians call the Great Compression, which included a great amount of income growth for America's poor in the 1940s and onward. There was a rapid rise in union density, for one, which meant workers had bargaining power to make sure the money their firms were generating showed up in their paycheck and not just CEO's pockets. Wage growth was also tied to productivity growth, and as auto companies became more efficient, better wages were paid out to to the people making the cars, as well as the steel workers providing the raw materials. And World War II led to higher taxes on the rich. The result was, well, a compression of incomes at the top of the food chain.
"That doesn't mean it was terrible to be a CEO in this time period," Price explained. "You would still trade anything in the world to be the CEO and not the janitor. But it does mean that income growth was pretty broadly shared."
A lot of that started unwinding in the 70s. There was a fall in the purchasing power of the minimum wage and a decline among private-sector unions. As a CEO, it became socially acceptable to saddle a company with debt and take a big payout. "And since 2000 there's been a shift in the income source of the top 1 percent. From 1973 to 2000, the story of top 1 percent was the story of the working rich, like the CEO. But after 2000, what [a scholar named] Piketty [and colleagues] noticed was a shift occurred in which their money starting increasingly coming from capital gains."
Basically, what Price is describing is a phenomenon in which wealthy people make more money just by virtue of being wealthy—and no longer have to live anywhere near where they originally made it. His new report shows what that looks like and what it means for American cities, and it's not pretty.
Five years ago, according to his data, based on tax numbers reported to the Internal Revenue Service, the top 1 percent received a little more than 25 times as much as the rest of US households in income; as of 2015, that top-to-bottom ratio had increased to more than 26 to 1. That meant that as of 2015, in five states and 30 cities, income inequality was higher than it had been in 1928, with many other areas approaching the same level of disparity. In New York, Florida, and Connecticut, the top 1 percent earned average incomes greater than 35 times those of everyone else combined.
Even more disturbing ratios exist at the level of counties and metropolitan areas. Take, for example, Teton County, Wyoming. It's a resort area that's home to the likes of Walmart heiress Christy Walton, and it's where Kanye West recorded his last album. In 2015, the top 1 percent of residents there earned, on average, more than 140 times the average income of the bottom 99 percent of families. Then there's the Naples-Immokalee-Marco Island metro area in Florida, where rich retirees live adjacent to impossibly poor migrant workers, and where the top-to-bottom ratio is 90 to 1. The gap actually seems to have actually widened since the end of the Great Recession: According to the study, the top 1 percent in nine different states has gained more than half of all income growth since 2009.
Meanwhile, as the report notes, the Trump administration has taken several measures that are certain to exacerbate the gap. First off, they've hinted at axing an Obama-era rule that made millions of workers automatically eligible for overtime pay before it was blocked by a federal judge. They also delayed the implementation of the fiduciary rule, which requires investment advisers to act in their clients's best interests. The giant tax cut that passed late last year is expected to distribute almost all of its benefits to that top 1 percent. Another blow came recently in the form of a Supreme Court decision that will further eviscerate unions—those social institutions that were so crucial in pulling us out of the first Gilded Age.
When we spoke, Price seemed optimistic that this won't get to a point of no return, however. He hoped that by publishing this paper he and his colleagues were illuminating the path we're on, which might allow Americans to reverse the tide by, among other things, voting. But if that doesn't happen, he acknowledged, the future looks a little grim—like a return to a time when the landed aristocracy controlled an army of servants who controlled literally nothing at all.
"Certainly that would be my concern, and if trends continue we're going to reach a level of inequality we haven't seen before," Price told me. "We haven't totally returned to the dark ages, but in 50 years if we continue on the path we are on, we will get there."
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