Here’s a political mystery for you: Why do America’s superrich feel so victimized? And what does their sense of being unjustly maligned tell us about their relationship with the rest of us?
The anger is real enough. It has become almost commonplace among the wealthiest and most powerful capitalists in the United States to compare themselves to an oppressed ethnic minority, and to equate the President, their oppressor-in-chief, with Hitler.
Dan Loeb, an activist investor who came to the fore with his shake-up of Yahoo, sent an e-mail to friends in late 2010 with the subject heading “battered wives.” In the tongue-in-cheek text, he accused the President of treating his supporters on Wall Street the way abusive husbands punish their wives: “I mean he really loves us and when he beats us, he doesn’t mean it; he just gets a little angry.” Private-equity titan Stephen Schwarzman has likened this administration’s criticism of the special tax treatment of carried interest to Hitler’s invasion of Poland.
These are examples of hostility toward Barack Obama. But the anger doesn’t stop there. There is also a conviction among the plutocracy – not just the 1 per cent, but the 0.01 per cent who make at least $7-million dollars a year – that much of America is unfairly gaming the political economy.
This was the sentiment Mitt Romney expressed in his now infamous dismissal of the country’s 47 per cent – a gaffe, but only in journalist Michael Kinsley’s definition. “A gaffe is when a politician tells the truth,” he writes, “some obvious truth he isn’t supposed to say.”
Indeed, while the former governor eventually repudiated his comments, they are conventional wisdom among the superrich. In 2002, an editorial in The Wall Street Journal coined a term for Americans too poor to pay federal income tax – “lucky duckies.” The piece went on to offer a Romney-esque warning about the dangers posed by this underclass: “As fewer and fewer people are responsible for paying more and more of all taxes, the constituency for tax cutting, much less for tax reform, is eroding. Workers who pay little or no taxes can hardly be expected to care about tax relief for everybody else. They are also that much more detached from recognizing the costs of government.”
At a Thomson Reuters event I moderated last fall, billionaire and hedge-fund manager Leon Cooperman made the same point. “Our problem, frankly, is, as long as the President remains anti-wealth, anti-business, anti-energy, anti-private aviation, he will never get the business community behind him. And the problem and the complication is 40 or 50 per cent of the country are on the dole that support him.”
I found the plutocrats’ attitude to the 47 per cent – call it disdain, or hostility, or simply distance – to be particularly striking when I spoke to U.S. bankers about the financial crisis. I expected an apologetic tone, or at the very least humility. Instead, I learned that the crisis had been “caused” by those lower down in the income distribution.
One of Wall Street’s most successful investment-bank chief executive officers told me that he did not feel guilty about the crisis: The real culprit 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 nearly identical case, 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 favourite golf caddy in Arizona, who had bought three condos as investment properties at the height of the bubble.
There’s one obvious reason the superrich feel so hostile toward the President, whom they see as the champion of those lucky duckies: self-interest. Mr. Obama has put a vow to raise taxes on “millionaires and billionaires” at the centre of his re-election campaign (although a similar pledge made in 2008 has not materialized). And it turns out that billionaires are just as averse to higher tax bills as the rest of us.
Certainly, those at the very top have a lot at stake. The past three decades have seen the rise of a super-elite, an international trend – true of both most Western, developed countries as well as emerging markets – with a particular spike in the United States.
And these plutocrats have done more than all right under the Obama administration. The $700-billion Troubled Asset Relief Program bailout, while certainly necessary for the country as a whole, was first and foremost a rescue of Wall Street, where compensation has rebounded nearly to pre-crisis levels. The stock market, too, has bounced back to within spitting distance of its earlier highs and corporate balance sheets are groaning with cash.
Indeed, although the U.S. economy as a whole is still rather frail, the healing we have seen so far has been what you might call a 1-per-cent recovery. According to economists Emmanuel Saez and Thomas Piketty, in the 2009-2010 return to growth, 93 per cent of the increase in incomes went to the top 1 per cent. The top 0.01 per cent enjoyed 37 per cent of the total rebound in income, with an increase of $4.2-million per household.
But material self-interest is not the only force stoking he plutocrats’ ire with Mr. Obama and his supporters. Part of what is going on is the contradictory consequence of meritocracy.
Mr. Saez describes today’s 1 per cent as “the working rich” – a contrast to the inherited wealth of the plutocrats of the Gilded Age. F. Scott Fitzgerald memorably pointed out in that era that the very rich “are different from you and me.” That is still the case. But the second, less cited, part of his observation was that root of this difference was that they are “born rich” and therefore “they possess and enjoy early, and it does something to them.”
That’s not true of today’s superrich, many of whom started out in the middle class. These are people whose identity is built around the conviction that they did it themselves – even if an affluent upbringing gave them a head start.
Not surprisingly, the Russian oligarchs express this sentiment most vividly. In 1998, when he was the richest man in Russia, oil baron Mikhail Khodorkovsky told me, “If a man is not an oligarch, something is not right with him. Everyone had the same starting conditions, everyone could have done it.” Likewise, American Tony Hsieh, co-founder of the Zappos empire, insists: “I could start off anywhere in America with $100 and by the end of the year I’d be a millionaire.”
What most defines today’s plutocracy, though, is how globalization and technology have changed the relationship between every nation’s rich and its middle class.
For most of the 20th century, those at the top needed everyone else. This is the Henry Ford paradigm: His workers needed to earn enough to buy his cars. Today, that connection has become more fragile: capitalists can – indeed, they must – find labour and markets wherever in the world they are cheapest and most profitable.
The results are not always negative. The U.S.-based CEO of one of the world’s largest fund managers 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 did not 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 one American drops out of the middle class, that’s not such a bad trade.”
I heard a similar sentiment from the Taiwanese-born, thirtysomething chief financial officer of a U.S. technology company. A gentle, unpretentious man who went from public school to Harvard, he is nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheque than the rest of the world,” he said. “So if you’re going to demand 10 times the paycheque, 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.”
If some of some business elites speak bluntly on this subject, though, others are profoundly uncomfortable. They came of age in a culture that, at the level of the lizard brain, bought into the idea of trickle-down economics. The success of those at the top, Americans believed, translated into greater prosperity for everyone else – specifically, prosperity for fellow Americans. Challenging that connection, as the Democrats have done during this election campaign, most notably with their attacks on the job-creating credentials of Bain Capital, is not just an economic threat, it is a moral one.
“[The 1 per cent] need to believe that the carried-interest tax exemption is moral, that it is good for the country,” says Nick Hanauer, an early investor in Amazon, technology entrepreneur and himself a plutocrat. “That is what makes them moral and not villainous.
“I feel their pain, because I remember how fun it was to believe that stuff. If this is true, then I don’t have to feel bad about driving past the guy standing next to the freeway exit with a sign that says, ‘Please help me, I have no food.’ ”
This essay has been adapted from Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else.