The new issue of The Atlantic features an exceptionally good article by the impressive Chrystia Freeland called “The Rise of the New Global Elite.” The excellent article describes a new aristocracy whose power reaches across boundaries, whose ability to act in its own self-interest is probably impervious to national governments, and, perhaps most alarmingly, whose fortunes rise and fall separately from those of most of the rest of us. For them, the economy is improving; for the rest of us, not so much. The bottom line: the income disparity is widening.
Says Freeland, “This widening gap between the rich and non-rich has been evident for years. In a 2005 report to investors, for instance, three analysts at Citigroup advised that “the World is dividing into two blocs—the Plutonomy and the rest. 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.”
Continues Freeland, “Before the recession, it was relatively easy to ignore this concentration of wealth among an elite few. The wondrous inventions of the modern economy—Google, Amazon, the iPhone—broadly improved the lives of middle-class consumers, even as they made a tiny subset of entrepreneurs hugely wealthy. And the less-wondrous inventions—particularly the explosion of subprime credit—helped mask the rise of income inequality for many of those whose earnings were stagnant. But the financial crisis and its long, dismal aftermath have changed all that. A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble. . . .
“The rich of today are also different from the rich of yesterday. Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn’t succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.”
Freeland takes pains to note that these rich are quite hardworking and very philanthropic. But obviously, private philanthropy offers the world at large a very different benefit than tax-supported government services, and these rich often take pains to make sure that they and their corporations pay little or no taxes. Increasingly, the cost of government falls on the middle class, and the benefit that society is supposed to get from the success of these fortunate individuals is shrinking.
A perfect companion to this piece is Michael Powell‘s short feature on Robert Reich that ran in the New York Times on January 7th. Reich, the economist who was Bill Clinton‘s Secretary of Labor, says that he likes much of what President Obama has been doing, but “If you widen the lens, the public is being sold a big lie — that our problems owe to unions and the size of government and not to fraud and deregulation and vast concentration of wealth. Obama’s failure is that he won’t challenge this Republican narrative, and give people a story that helps them connect the dots and understand where we’re going. By freezing federal salaries, by talking about deficits, by extending the Bush tax cuts, he’s legitimizing a Republican narrative. Why won’t he tell the alternative story? For three decades we’ve cut taxes on the wealthy while real wages stood still.”
While critical of Republicans, Reich has harsh words for prosperous Democrats who have become alienated from the real middle class. Writes Powell, “The modern Democratic Party, Reich says, is removed from what he and [economist Paul] Krugman view as a better time: the decades stretching from World War II until about 1970. The typical high-income earner then paid more than 50 percent of income as taxes. The economic bargain was explicit: government encouraged industry, and working Americans shared in the fruits, buying houses and cars, with pensions to tide comfortable retirements. “We tend to think of the political center as static, but it’s become much more conservative over time,” Mr. Reich says. “What’s happened in the last 30 years is that the private sector worker has taken a shellacking.”