Shed a tear for the end of the Super-Rich
Image via CrunchBase
The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.
via After a 30-Year Run, Rise of the Super-Rich Hits a Wall – NYTimes.com.
In today’s New York Times, David Leonhardt and Geraldine Fabrikant demonstrate that they have failed to learn the most basic lessons from the global financial disaster, primarily that a rising tide cannot lift the poor, particularly if they don’t even have boats. The article is based on new data collected by CapGemini and Merrill Lynch Wealth Management which shows that the rich have become “poorer” over the last two years.
Of course, the rich’s idea of “poor” isn’t your idea of “poor.” The Times offers the heartbreaking example of John McAfee, the man who figured out how to overcharge you for computer protection after another multi-billionaire, Bill Gates, invented an omnipresent virus magnet that sometimes functions as a software operating system. McAfee is also a victim of hard times, and is currently trying to make sense of a world in which he is only a multi-millionaire instead of the man who used to be worth $100 million.
The entire article may seem like a giant “fuck you” to the single mom working two jobs to pay for her kid’s asthma medication, but the Times quickly rushes forth with an explanation for why we should all care about the uber-rich that would make Ronald Reagan proud. The rich provide for us, you guys. We need them. “Any major shift in the financial status of the rich could have big implications,” Leonhardt and Fabrikant explain. “A drop in their income and wealth would complicate life for elite universities, museums and other institutions that received lavish donations in recent decades. Governments — federal and state — could struggle, too, because they rely heavily on the taxes paid by the affluent.”
The initial weak explanation is depleted further by the article’s own subsequent paragraphs (following a weird digressional journey through McAfee’s pink hair and affinity for yoga). How, exactly, do the rich raise the tide for everyone else? The Times dodges the sticky details in favor of summarizing the market bubble disasters of the past few decades. One is left with the impression that the rich raise the tide by providing the temporary illusion of overall wealth long enough to line their own pockets, and then sprint away as the bubbles explode behind them like minefields.
But we need them. I know this because the article tells me this is true. And anyway, CEOs have learned to behave themselves because they ran out of money to steal. “Without a financial bubble, there will simply be less money available for Wall Street to pay itself or for corporate chief executives to pay themselves,” Leonhardt and Fabrikant state, offering Goldman Sachs and JPMorgan as two (apparently serious) examples. The Times fails to report that Goldman Sachs announced in July that it would set aside nearly $11.4 billion from its profits to pay more bonuses.
(On behalf of the Times, I’ll offer some full disclosure: Early this month, the Times confirmed it hired Goldman Sachs to help sell its Boston Globe and Worcester Telegram & Gazette newspapers, as well as their websites, in response to a heavy advertising downturn and the migration of readers to the internet.)
If Goldman continues to earn these levels of profits, its employees could each earn, on average, close to $770,000 this year, with senior executives and bankers being paid much more. That average compensation rivals incomes during the boom in 2007. Matt Taibbi reports in Rolling Stone that Goldman paid out $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. The bank also raised $5 billion by issuing new shares almost immediately after releasing its firstquarter results meaning Goldman essentially “borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using halfbaked accounting to reel in investors, just months after receiving billions in a taxpayer bailout,” writes Taibbi.
Yet, the Times seems to seriously believe that without the cover of a market bubble, these huge financial institutions will stop paying lavish bonuses to the employees and CEOs responsible for the Wall Street collapse on their own. So when can we expect this market-enforced fiscal meekness to kick in? No such deadline or “goal date” is provided.
The Times does make reference to a study done by two economists, Thomas Piketty and Emmanuel Saez, that shows the concentration of income among the highest-earning Americans increased in 2007 as the nation headed toward recession. Curiously, the Times doesn’t attempt to explain this disparity until page three (paragraph 50) of the article. “Since 1980, tax rates on the affluent have fallen more than rates on any other group; this year, the top marginal rate is 35 percent.” The second-to-last and very last paragraph of the article explain that in 2007, the “top one ten-thousandth of households took home 6 percent of the nation’s income, up from 0.9 percent in 1977. It was the highest such level since at least 1913, the first year for which the I.R.S. has data. The top 1 percent of earners took home 23.5 percent of income, up from 9 percent three decades earlier.”
In other words, the rich somehow raise all the boats with their mighty tide even though they get to keep all the boats, and all the water. It’s difficult for all of that fantastic wealth to trickle down when it’s being spent on bonuses for a small coterie of Wall Street CEOs, and around $700 billion of it sits in offshore tax havens.
The only people really suffering in the financial ruins of Wall Street are 99% of the populace, the poor and “middle class,” the ones that got suckered into a system where only a handful of business executives actually prosper, and ultimately everyone else gets buried underneath the rubble of market bubbles as they continually burst. Call it Chronic Bubble Syndrome.
The newest numbers show that 38.8 million Americans are now living in poverty (a 1.5 million increase from last year,) and millions more could follow if one medical emergency sends them falling into the abyss of bankruptcy. These real, hardworking Americans don’t grieve the loss of a yacht, or summer home. They fight for their very survival, so you’ll have to excuse me if I really can’t shed tears for bonus-less CEOs or John McAfee.
McAfee explained his descent into the multi-millionaire club when he woke up one day and realized, “Whoa, my cash is gone.” Join the club, dude.
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I’ve shed a few tears over the years.
Consider just a moment, my family growing up. A single mom working two jobs, two boys working full time at giving her gray hair. We ate out of Grandma’s garden. We got clothes from Goodwill. Funny thing: those were some of the happiest days of my life. We weren’t alone, in the small Indiana cornfield town; there were many families that lived a simple, happy, community-based existence of unlocked doors, children playing in neighbor’s yards and walking to school in groups.
Those incidentally, were the nascent days of Reganomics. When, as a 7 year old kid, I probably first heard of the concept of “trickle down” economy. It meant nothing to me at the time. Million dollar bonuses were as fantastical an idea to me (and Mom) as unicorns and dragons. We just wanted to live a simple life, work hard to provide for ourselves, and be able to have some hope for the future. I know, what losers.
So tell me. Which is a greater embodiment of what is beautiful about America? For what did so many patriots give their lives courageously to form and sustain this country over the past couple hundred years? Was it the millions of families working hard (and having no loftier ambition other than) to build and participate in humble communities, or, an elite group of oligarchs forever obsessively chasing their $100 million golden calves?
I know, it would be foolish of me to blame Reganomics on the state of those idyllic small Midwestern towns now. Steel and automotive factories are closed. Schools are like pens of wild animals, with metal detectors and police surveillance. So many kids are strung out on meth and ‘hillbilly heroin’ because there are simply no bootstraps with which they can pull them selves up. Don’t for a second consider leaving the door unlocked.
No, I won’t blame Reganomics, but I will Spit on David Leonhardt and Geraldine Fabrikant, which is why we should all be glad I’m not in NYC.
I had been working with the the Jazz Foundation of America in their Jazz in the Schools program, taking jazz to the public schools to expose the students to an American institution. They ran out of funding earlier this year, and have cut back on the program. I wonder what happened to all the benevolence these rich folks say they have?
I’m sorry to hear that. Music is a critical part of a child’s education. People forget that sometimes.
In response to another comment. See in context »Well done, Allison.
The frog and the scorpion. While your point is valid, your are simply describing capitalism U.S.-style. Scorpions sting and we all know it. Why is anyone so repetitively surprised their sting is (so) lethal?
As David Sirota comments:
and:
David Sirota is one of the only columnists left who seriously writes about the class divide, and he should be applauded for his work. He’s a great writer and a very important voice.
In response to another comment. See in context »The question for the Times becomes: On what planet do you spend most of your time?
well Jasong I would say that they reside on planet Ochs-Sulzberger because that’s the newspaper dynasty who owns them and since that family owns about 88% of the shares of the New York Times its what they say goes.
And Alison, Great article. Its amazing how some people act as though the world around them doesn’t exist.
Fabulous post. I suppose I would in fact shed a tear for the rich IF they were getting less wealth, but as your post points out, they’re taking an even bigger slice of the (shrinking) pie than ever. If only the rich and powerful could have learned to live by the words of the wisest philosopher of all time, Mary Poppins, to know that “enough is as good as a feast.” Then they could have really given their excess millions away and floated a few of our boats in the process.
Thanks, Laurie. Your Poppins shout-out reminds me of a great story (that may or may not be true). Supposedly, it goes like this:
In response to another comment. See in context »Kurt Vonnegut and Joseph Heller attend this really lavish party at a millionaire’s estate. There are tables overflowing with food, crystal chandeliers in every room, every opulent detail you can imagine. Vonnegut turns to Heller and says, “I have one thing this guy will never have.”
“What’s that?” asks Heller.
Vonnegut responds, “Enough.”