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The Rich, They’re Not Like You And Me

Chrystia Freeland has what will apparently be the basis of a new book on the “new global elite,” the new class of wealthy who caused the crisis across the world over the past few years, but who have shown almost no remorse or even self-awareness about it. The story is chock full of great quotes, though I urge you to read the whole thing:

Holly Peterson and I spoke several times about how the super-affluence of recent years has changed the meaning of wealth. “There’s so much money on the Upper East Side right now,” she said. “If you look at the original movie Wall Street, it was a phenomenon where there were men in their 30s and 40s making $2 and $3 million a year, and that was disgusting. But then you had the Internet age, and then globalization, and you had people in their 30s, through hedge funds and Goldman Sachs partner jobs, who were making $20, $30, $40 million a year. And there were a lot of them doing it. I think people making $5 million to $10 million definitely don’t think they are making enough money.” […]

The clincher, Peterson says, came from the wife: “She turns to me and she goes, ‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.”

This outsized extravagance is common, but a few other things in Freeland’s well-informed article stand out. First is the degree to which the global elite today consists of so-called “self-made men,” and how this actually REDUCES their accountability to their roots and the average man in the street. Some new research from the London School of Economics shows that “People who were made to think about luxury prior to a decision-making task have a higher tendency to endorse self-interested decisions that might potentially harm others.” Just the exposure to the world of luxury does two things: 1) it naturally makes them more self-interested, and 2) when confronted with the plight of those less fortunate, it causes them to believe something must be wrong with them, because they came from the same humble roots. This is nonsensical, but has a powerful pull. People like to think that everyone has the same opportunities, and their relative success means that they just rose on the virtue of their talents and skills. As Freeland shows, the global elite blame the deficiencies of the recent past on acquaintances who aren’t Randian overlords like them:

While you might imagine that such backgrounds would make plutocrats especially sympathetic to those who are struggling, the opposite is often true. For the super-elite, a sense of meritocratic achievement can inspire high self-regard, and that self-regard—especially when compounded by their isolation among like-minded peers—can lead to obliviousness and indifference to the suffering of others […]

Unsurprisingly, Russian oligarchs have been among the most fearless in expressing this attitude. A little more than a decade ago, for instance, I spoke to Mikhail Khodorkovsky, at that moment the richest man in Russia. “If a man is not an oligarch, something is not right with him,” Khodorkovsky told me. “Everyone had the same starting conditions, everyone could have done it.” […]

When I asked one of Wall Street’s most successful investment-bank CEOs if he felt guilty for his firm’s role in creating the financial crisis, he told me with evident sincerity that he did not. The real culprit, he explained, was his feckless cousin, who owned three cars and a home he could not afford. One of America’s top hedge-fund managers made a near-identical case to me—though this time the offenders were his in-laws and their subprime mortgage. And a private-equity baron who divides his time between New York and Palm Beach pinned blame for the collapse on a favorite golf caddy in Arizona, who had bought three condos as investment properties at the height of the bubble.

There’s no sense here of the inequality of opportunity that exists in America, the degree of chance that goes into successful entrepreneurship, and the closing of the door on entire classes of people, historically and up to this day. We can look merely at the recent statistics on how the bulk of Americans are currently living to know the differences of opportunity. If you can’t get adequate health insurance for you or your children, if you can’t secure a home, if you’re skipping meals because you cannot afford food, you simply aren’t going to be able to provide a better life for your progeny. When new poverty statistics that better reflect reality get implemented, the results will show themselves to be even worse.

The worst part of all this is how a globalized economy makes the global elite believe that they can merely lift living standards from abject poverty to near-poverty in some part of the world and equalize outcomes, even as inequality rises globally as these elites take whatever they can get:

In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie […]

The good news—and the bad news—for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”

At last summer’s Aspen Ideas Festival, Michael Splinter, CEO of the Silicon Valley green-tech firm Applied Materials, said that if he were starting from scratch, only 20 percent of his workforce would be domestic. “This year, almost 90 percent of our sales will be outside the U.S.,” he explained. “The pull to be close to the customers—most of them in Asia—is enormous.” Speaking at the same conference, Thomas Wilson, CEO of Allstate, also lamented this global reality: “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business … American businesses will adapt.”

What does this mean for the disappearing middle class, not just in America, but in practically every industrialized nation? Nothing hopeful. Freeland tries to talk of a “backlash” against this rapacious elite, but I agree with Felix Salmon. The rich have basically parried all efforts at a populist backlash, as well as they have at any other time in history. They’ve been fighting the class war for many decades, and they’ve been winning. Salmon concludes:

The Silicon Valley mega-wealthy are good for the US economy, but they’re not going anywhere: Silicon Valley hasn’t managed to reproduce itself elsewhere in the US, let alone anywhere else in the world. When it comes to US plutocrats, however, most of them are very similar to the Russian oligarchs who seized their country’s natural resources — they’re bankers and hedge-fund managers who seized their country’s financial resources. They produced no goods, and they created no jobs — quite the opposite. And so it makes sense for Americans who have lost their jobs and their hope to reclaim those financial resources, through mechanisms like a wealth tax or a financial transactions tax. The Silicon Valley elite would happily pay such things. And if the angry bankers went off to destabilize some other financial system, they wouldn’t actually be missed.

The problem comes in allowing them to go, and take their hold off the national government and the national wealth in the exchange.

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David Dayen

David Dayen