The American rich, who used to be the most stable slice of the personal economy, are now the most volatile, with escalating booms and busts.
During the past three recessions, the top 1% of earners (those making $380,000 or more in 2008) experienced the largest income shocks in percentage terms of any income group in the U.S., according to research from economists Jonathan A. Parker and Annette Vissing-Jorgensen at Northwestern University. When the economy grows, their incomes grow up to three times faster than the rest of the country's. When the economy falls, their incomes fall two or three times as much.
The super-high earners have the biggest crashes. The number of Americans making $1 million or more fell 40% between 2007 and 2009, to 236,883, while their combined incomes fell by nearly 50%—far greater than the less than 2% drop in total incomes of those making $50,000 or less, according to Internal Revenue Service figures.
Of course, the trauma of giving up a Gulfstream or a yacht can't compare with the millions of Americans who have lost their only job or home. The Siegels will make do in their current 26,000-square-foot mansion.
Yet the rise of the manic millionaire marks something new in the U.S. economy and will increasingly be felt by the rest of the country. With the wealthy now at the center of the political debate, from the Occupy Wall Street protesters in New York to the tax battles in Washington, portrayals of millionaires and billionaires are being shaped more by partisan ideologies than economic realities. The story of more volatile wealth may not fit neatly with either party's agenda, but it offers a clearer view of the rich—who they are, how they got there, and how they will drive our own economic futures.
Though often described as a permanent plutocracy, this elite actually moves through a revolving door of riches, with some of today's nouveau riche becoming tomorrow's fallen kings. Only 27% of America's 400 top earners have made the list more than one year since 1994, one study shows.
It wasn't always this way. For decades after World War II, the top-one-percenters were the most steady line on the income and wealth charts. They gained less during good times and lost less during contractions than the rest of America.
Rising debt plays a role. While the rich are often portrayed as thrifty "millionaires next door," the era of low interest rates and easy money has turned them into a leveraged elite. The household debt of the top 1% surged more than three-fold between 1989 and 2007, to $600 billion, and grew faster than their net worth.
Add to that the growing arms race in conspicuous consumption and you get big spenders who are only one crisis away from financial ruin. Edra Blixseth, the former co-owner of the Yellowstone Club in Big Sky, Mont., went from being a paper billionaire to filing for Chapter 7 bankruptcy—liquidation—in three years. She says that she and her husband, Tim, were "living on the financial edge" even as they had two yachts, three jets and a California estate with its own 19-hole golf course and staff of 110 people.
"I felt like we were always trying to project the image of success," she says.
The fallout from the "high betas" is likely to grow. As the wealthy gain a greater share of wealth and income, they account for a growing share of spending, taxes and investments. The top 5% of earners now account for 37% of consumer outlays, according to Moody's Analytics. The top 1% of earners pay 38% of federal income taxes. The richest 1% of Americans own more than half of the country's individually held stocks, according to the Federal Reserve.
As go the high-beta rich, so goes America.