First off, I have to I wonder- Is there really that significant of a difference between the lives of people making $2-$3 million and the lives of people making $20-$30 million? I can’t say that I’m speaking from personal experience, but I’m really inclined to think that there’s not. Sure, we’re always going to be shifting our definition of “super rich”- but for most periods of time this shift is a quantitative rather than a qualitative one. On the other hand, I think you can make a much stronger case that the middle class and, to a lesser degree, the lower class have had a qualitative increase in the past few decades (the recession notwithstanding). The internet age may have increased the salaries of the uber-rich exponentially, but it changed the lives of the rest of us even more dramatically.
(It should be said that this probably doesn’t apply to most developing countries where the floor generally remains stagnant (or even sometimes declines) while the ceiling rises. We’re mainly referring to the developed world- where any significant changes have a trickle-down effect.)
As an example, she described a conversation with a couple at a Manhattan dinner party: “They started saying, ‘If you’re going to buy all this stuff, life starts getting really expensive. If you’re going to do the NetJet thing’”—this is a service offering “fractional aircraft ownership” for those who do not wish to buy outright—“‘and if you’re going to have four houses, and you’re going to run the four houses, it’s like you start spending some 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.”
But while their excesses seem familiar, even archaic, today’s plutocrats represent a new phenomenon. The wealthy of F. Scott Fitzgerald’s era were shaped, he wrote, by the fact that they had been “born rich.” They knew what it was to “possess and enjoy early.”
That’s not the case for much of today’s super-elite. “Fat cats who owe it to their grandfathers are not getting all of the gains,” Peter Lindert told me. “A lot of it is going to innovators this time around. There is more meritocracy in Bill Gates being at the top than the Duke of Bedford.” Even Emmanuel Saez, who is deeply worried about the social and political consequences of rising income inequality, concurs that a defining quality of the current crop of plutocrats is that they are the “working rich.” He has found that in 1916, the richest 1 percent of Americans received only one-fifth of their income from paid work; in 2004, that figure had risen threefold, to 60 percent.
It strikes me as strange for a country that’s been defined from its inception as a land of bootstrappers to find novel the concept of single-generational prosperity. That said, the numbers don’t lie- there’s a clear shift occurring, at least in the past century or so. A jump from 20 percent to 60 percent is more than significant. The only possible alternative explanation would be that perhaps Americans have a particular defining quality that thrives in periods of opportunity and change. It’s certainly true that many among our nation’s first generations were, quite literally, people who chose the unknown world of possibility over the known world of a relatively static social stratification
. As Bruce Springsteen’s song, American Land
There’s diamonds in the sidewalk the’s gutters lined in song
Dear I hear that beer flows through the faucets all night long
There’s treasure for the taking, for any hard working man
Who will make his home in the American Land
In this case, 2004 could be considered a more dynamic environment than 1916- prompting the emergence of a new generation of individuals prone to seize opportunity. In essence, we could say that Americans have always had a pioneer mentality- but a pioneer today leads to a duke tomorrow (assuming there is no new opportunity for additional pioneers to emerge). With the coming of the internet age, we have seen the creation of a new “land of opportunity”- and by definition it must be pioneers (who generally do not come from an affluent background) who seize this opportunity.
It’s true that few of today’s plutocrats were born into the sort of abject poverty that can close off opportunity altogether— a strong early education is pretty much a precondition—but the bulk of their wealth is generally the fruit of hustle and intelligence (with, presumably, some luck thrown in). They are not aristocrats, by and large, but rather economic meritocrats, preoccupied not merely with consuming wealth but with creating it.
This is an important point related to the hypothesis of a “widening gap”. Again, it’s clear that the upper trajectory is increasing exponentially (which I maintain is largely a quantitative issue). But, the lower trajectory is increasing as well (in a way that I’d propose is much more qualitative). As the article notes here, there is a certain baseline below which nearly all the hustle, intelligence, and luck in the world prove lacking. This is highly related to Warren Buffet’s concept of the Ovarian Lottery
. Buffet, a prime example of a largely self-made man*, takes on the issue of nurturing the lower trajectory- even at the risk of harming the upper trajectory.
In my feeble attempt to represent this concept using Paint, we can see that there is an “opportunity threshold” (the red/black line) below which it’s nearly impossible for anyone to be genuinely successful- no matter what their innate capacity may be. The factors that put one below this line are things like income, standard of living, education, etc. Once above this line, however, anyone with enough talent, effort, and / or luck finds it possible to “break out”. While we see that the green line (the “upper trajectory” or upper class) has experienced and continues to experience a period of exponential growth, the blue line (the “lower trajectory”- which is essentially the middle class and below) has undergone an even more critical change as it has been making the shift from below to above the opportunity threshold- despite it’s largely linear growth pattern. Obviously, the portrayal of everyone in the “lower trajectory” as a single line is a misrepresentation. In reality, we are really talking about higher and higher percentages of these groups getting their “head above water”, so to speak. But the effect is the same.
To put that in perspective somewhat, we can’t deny that that there are other significant thresholds on the graph. Daniel Kaneman has proposed
a few “happiness threshold’s”- where measures of happiness increase as income rises until at a certain point they plateau. According to a recent study by Kahneman and economist Angus Deaton, “beyond $75,000, money is important for life evaluation, but does nothing for happiness, enjoyment, sadness, or stress. Both factors are important; it is good to have high emotional wellbeing, but it is also good to think your life is going well.” You can see their graph below.
It seems necessary to explore further whether we can commit to the idea that economic opportunity trumps the pursuit of happiness (not that we’re necessarily forced to make that choice). I think the critical distinction is that all other thresholds (including potential happiness) can be reached through individual initiative (as evidenced by the new elite), whereas the “opportunity threshold” generally requires assistance to cross.
To summarize some of the distinctions Freeland makes between the “old elite” and the “new elite”…
• Social gathering used to mean debutante balls and regattas. Now this primarily occurs on the international conference circuit (including one you’ll frequently find mentioned here: TED
• In the old model, ties to one’s nation were central. Today, however, the elite prefer a global community- which necessarily means a decreased sense of nationalism. As investor Glenn Hutchins states, “The circles we move in are defined by ‘interests’ and ‘activities’ rather than ‘geography’”.
• Though their reasons are different, both groups surprisingly share contempt for those on the lower trajectory (at least, for those above the threshold). While the old elite may have felt entitled to their higher status by birth, the new elite’s attitude is “if I did it, so could you”- which ultimately leads to a similar effect.
• The new model is more critical- even of itself. There is no “live and let live” approach now. Poor decisions on the part of a fellow elite calls for reprimand.
The main theme here is a shift in currency. While the currency used to be luxury and status- it is becoming more and more about the value of ideas.
Freeland goes on to describe one of the more popular annual conferences of the elite- Google’s Zeitgeist conference…
For all its luxury, the mood of the Zeitgeist conference is hardly sybaritic. Rather, it has the intense, earnest atmosphere of a gathering of college summa cum laudes. This is not a group that plays hooky: the conference room is full from 9 a.m. to 6 p.m., and during coffee breaks the lawns are crowded with executives checking their BlackBerrys and iPads… This geeky enthusiasm for innovation and ideas is evident at more-intimate gatherings of the global elite as well.
So what does this mean for the future? Will our current rate of innovation flat-line, leading the new pioneers to return to the old model of elites? If not, what are the implications of a global, idea-oriented elite class? Even more interesting… what long-term effect will the internet age (and all it entails, now and in the future) have on the balance between the upper and lower trajectories? Will it shrink or grow further apart?
*Buffet’s father was a congressman, but was by no means in the upper strata of wealth. Furthermore, I’d argue that his father’s social status had little to do with the opportunities he had and seized to become the world’s most famous investor. Buffet’s gift, his hard work, and the chance relationships he formed (such as his childhood hero and later mentor Benjamin Graham, or the random meeting of a young Bill Gates at a party) were what propelled him to his seat on the throne of the Berkshire Hathaway empire.