Wealth in the United States is very unequally distributed and has been growing more so for the last 40 years. During the same 40 years that wealth inequality has been growing, investment intermediaries have also grown. Investment intermediaries manage the wealth of U.S. households. This Article argues that the simultaneous growth of wealth inequality and investment intermediaries is not coincidental. Rather, wealth inequality feeds the growth of investment intermediaries and investment intermediaries, in turn, feed the growth of wealth inequality.
The growth of wealth inequality in the last 40 years is not unique to the United States, though the inequality of the distribution of wealth in the United States has long been greater than that in other advanced economies, including Germany and Japan. Comparing corporate finance policy preferences in Germany and Japan to those in the United States sheds light on how the growth of investment intermediaries in the United States relates to the distribution of wealth.
Unlike their counterparts in Germany and Japan, U.S. policymakers have long favored capital market financing for U.S. businesses. Regulation has focused on supporting the markets while protecting investors. One unforeseen result of this policy focus has been the development of a unique ecosystem of public market intermediaries—mutual funds and hedge funds—that are unequally available to investors depending on the investor’s wealth. The unequal availability of investment intermediaries ties the capital markets to the distribution of wealth.