Where’s the Money, America?

The “American Dream” is a term coined in 1931 by James Truslow Adams in The Epic of America, in which he described a “dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” Equality, in every sense of the word, is a founding principle of the American psyche; the idea that when you work, you will earn, and by working harder, you will earn more, is what keeps many going, even if they find themselves in the clutches of extreme poverty. Unfortunately, over the past half-century, the American Dream has become unattainable for many, and possibly even most, Americans. As noted by French economist Thomas Piketty, since the Second World War, America has been moving towards a new era of “patrimonial capitalism,” or, as he more frequently calls it, a second “Belle Époque.”1 By this he means that instead of the elite being constituted by various people of various origins, it is comprised of a relatively small, generationally pre-determined, group.

In his book Capital in the Twenty-First Century (2014), Piketty analyzes wealth inequality—using income and capital return rate statistics from both Europe and the United States—over the last couple of centuries, breaking down societies into deciles.2 He finds that the “upper class” is actually made up of two distinct subgroups: The top 1% of the population constitutes the “wealthy class,” but the top 0.1%, roughly 300,000 Americans, make up the “dominant class.”3

The former are the “well-to-do”; they have a substantial income and access to a luxurious lifestyle that secures their place—both financially and socially—above most others. These are largely the doctors, lawyers, and others in higher-income, specialized career paths. The “dominant class,” those who have a truly immense amount of wealth, is the focus of this essay. According to Piketty, those in the dominant class accumulated their wealth in two ways: 1) inheritance, and 2) the nation’s blind belief that we are living in a meritocracy. In addition to Capital in the Twenty-First Century, my essay will consider Jacob S. Hacker and Paul Pierson’s 2010 Winner-Take-All Politics, in which they discuss the misapprehension that most Americans have regarding income equality, and how that lack of understanding perpetuates that inequality. Finally, I will discuss Jamie Johnson’s 2003 documentary on the children of the hyper-elite, Born Rich, which reflects insider views of what having wealth means to the dominant class, with respect to meritocratic values.

In Capital in the Twenty-First Century, Piketty notes that even in a “meritocratic society . . . without fortune it [is] impossible to live a dignified life.” He argues that, in the modern American meritocratic society, it is far more difficult for a non-wealthy person to thrive because of the ethos that if you are productive, you are valuable, and therefore you will succeed; however, a lack of success signifies both a lack of productivity and value. This makes those who don’t succeed feel as if it is some fundamental aspect about themselves that has caused their failure, with no fault due to any other.

According to Piketty, a meritocracy seeks to justify success on the “grounds of justice, virtue, and merit, to say nothing of the insufficient productivity of those at the bottom.”4 In other words, the more people claim that the United States is a meritocracy, the more people claim that inequality within a meritocracy, and therefore within the United States, is “just.” Piketty argues that, “this kind of [reasoning] could well lay the groundwork for greater and more violent inequality . . . [It could cause the combination] of the worst of two historic worlds: Very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity.”5 Additionally, he cites several interviews of people in the upper-middle class, noting that they too attribute their having attained more wealth and status than others to their education, and their ability to “be better” than others.6

However, Piketty says that this perception of society, where merit earns reward, is misleading at best. He argues that, “in particular, it does not follow [because] the share of national income going to labor has [not] increased [substantially].” Even if it were true that education will lead to wealth, he states, “inequalities of training have to a large extent [been] translated upward, and there is no evidence that education has really increased intergenerational mobility.”7

Therefore, if you are not earning your extraordinary wealth from well-paid labor (and Piketty proposes that it is almost impossible for you to do so when you weigh the massive wealth that the dominant class possesses, against their collective incomes), then you are receiving it through inherited capital. Because there are “fewer large estates . . . but the total volume of inherited wealth has nearly [reached an all-time high], it follows that there are many more substantial, and even fairly large inheritances [to be had],” which means that there is a larger group—the 1%—benefitting from inherited wealth (even if, person-to-person, that inheritance is a somewhat inconsequential amount).8 There are today about 2.6 million people making up the same wealth bracket that at the beginning of the twentieth century consisted of roughly 400 people. 9 And, Piketty argues, when more people defend a meritocratic society, even in the lower wealth brackets, there is “a disturbing form of inequality . . . because it is a commonplace inequality opposing broad segments of the population rather than pitting a small elite against the rest of society.”10

As could be expected, much of Winner-Take-All Politics focuses on the 2008 financial crisis, or “The Great Recession,” and, seeing as during that time America was also electing a new president, the authors often quote Barack Obama’s words with regard to the economic climate of that time. They notably quoted a speech he gave months before his victory: “We’ve lost some of that sense of shared prosperity . . . because of decisions made in board-rooms, on trading floors and in Washington. [We] have failed to guard against practices that all too often regarded financial manipulation [and] we let the special interests put their thumbs on the economic scales.”11 Obama’s campaign slogan was “Change”; a simple word, perhaps the easiest theme to pick up on at the time, but still, it was one that captured the attention of the American populous.

The discussion of the 2008 financial crisis was a particularly apt example of why the permitting of such power and wealth to accumulate at the “top” is in all ways—both short term and long term—bad for society. To begin, it is important to draw attention to the aftermath of the crash: While millions of Americans saw their houses foreclose and their bank accounts plummet, those who were responsible for the fumble (i.e. the investment bankers) continued to receive larger-than-reasonable bonuses and were allowed to go on with the same actions that resulted in the “Great Recession” (i.e. risky trading).

The decision that the government made to bail out all of the banks following the crash was a double-edged sword, and one that would later stab Wall Street in the back, once the rest of the country learned of those expenditures—which amounted to tens of billions of dollars over the course of five years. First of all, many people saw the bailout as an anti-capitalist move: Why should those who are no longer successfully doing their job (or rather, those who are “weak”) get to continue to dominate the market?12 But to go further, the shady dealings that became apparent following the crash—e.g. both J.P. Morgan Chase and Goldman Sachs, two of the largest banks in the industry, bet against the very trades that ended up “bursting”—suggests that the people within the banking industry were both aware of their wrongdoings, and were actually exploiting their own and each other’s actions for personal gain (those that bet against the housing market made millions for both their businesses and their personal wealth). 13,14

The ability to control and alter the way that the economy performs, and thus the potential to predict and act before others with regard to the market, is a position that can only be held by those in direct contact with the industry. At all levels, every person in a bank’s employ can contribute to the actions that the firm takes, whether they are an analyst, associate, vice presidents or manager. However, it seems as though the result of this multi-level involvement is a misplaced focus on who the “wealthy” are. While it is true that even low-level analysts are making far more than the average low-level American worker, they are not those who are receiving the truly disproportionate amount of wealth. They can once again be characterized as the wealthy, as the 1%; but the 0.1%, the shareholders and senior partners of the firms that the former are acting for, are the ones who are benefitting from the greater rates of capital gains and the larger sums of inheritance.

In addition to expanding upon the misconception of who the wealthy are, Hacker and Pierson build on Piketty’s findings to document that Americans have a significant misconception of how wealthy, the wealthy are. They find that Americans, while being sensitive to the concept of inequality, are gravely ill-advised as to the extent of the inequality that they themselves are subject to.

In studies that asked average Americans, “What salaries [do] workers in different occupations [of various assumed income brackets] earn?” many were able to accurately estimate the earnings of mid-level income workers. However, when they were asked to estimate an executive’s pay, respondents’ estimates were extremely low, around 3% of the actual number ($500,000 vs. $14 million).15 This suggests that the public has been seriously misinformed as to the amount of money that is potentially attainable in their society, and that has been attained by a number of people already. A consequence of this lack of information is the public’s lack of awareness of the hyper-concentration of wealth has occurred over the past few decades.

Hacker and Pierson largely—although not entirely—blame these misconceptions on the power of the super wealthy to influence and even control government policy. They note that a significant factor in this ongoing lack of awareness is that the rise of corporate-owned broadcast media, which lobby to affect federal regulations, has led to an expansion of what they call “narrowcasting.” 16

Narrowcasting is the ability of a news source to give a biased, focused take on particular events, leave out information that does not suit their interests, but still maintain recognition as being a “credible” source. Rather than twentieth-century broadcasting, which through evening news and mass-based organizations was able to “foster and sustain social capital,” and generate popular opinion, Hacker and Pierson argue that narrowcasting has minimized the range of information that any one individual receives.17 Also, they argue, it has widened the range of possible opinions that the populace may have on a certain issue, weakening the strength of any one side, and potentially barring important conversations from occurring because of the lack of common information.

A particular example of this is the 2016 Presidential election. In the months leading up to it, polls and popular (credible) websites were presenting predictions and making claims that often ended up being baseless, and even more often, they were incredibly wrong. Specifically, the trust that many Democratic voters had in the media (and the polls) reflects the disproportionate amount of reliance that we as a voting populace have in the media, both in garnering our opinions, and for influencing our subsequent actions. The Guardian’s Dan Roberts calls it, “a broken industry. Reaching a vast audience no longer using landlines, or even mobile voice calls much, with a 20th-century modeling of statistical sampling has produced dangerously misleading results in elections around the world of late.”18

For many who may read this, it probably comes as no surprise to hear that the low- and middle-income members of society have been hoodwinked by American society at large. As noted, in this technological age, the Media (which is often owned and run by those who fall into the category of the corporate elite) plays a large role in misguiding those who depend upon it for the news and latest information regarding the state of their country—and the inequalities that permeate throughout it. However, what may be interesting to learn is that certain members of the elite, too, find the current state of inequality to be as disturbing, and inequitable, as their lower-income counterparts.

In 2011, Warren Buffett (who at the time was estimated to be worth around $47 billion) “called on Congress to commit to ‘shared sacrifice’ and raise taxes on people earning more than $1 million. Buffett said the rich are ‘coddled’ by Congress ‘as if we were spotted owls or some other endangered species.’”19 In 2012, according to the IRS returns, paid labor only accounted for 15% of the income of those making over $10 million a year, whereas they accounted for over 75% of the income for those making $500,000 or less.20 For the former, the majority of their wealth comes from capital gains, and in an interview earlier this year, Bill Gates (who is currently estimated to be worth over $80 billion) told CNBC that, “investment gains should be taxed at the same level as ordinary income,” since the former is “the largest source of income for the richest Americans.”21 Both Buffett and Gates have ranked in the top three richest men in the world, according to Forbes 400, for more than a decade.22 The importance of what they have proposed, of questioning their responsibilities of equal citizens in the country, cannot be overlooked.

It might be said that Buffett and Gates have “won” the prize that the American Dream promises. They are self-made men, who worked for every dime that they have, the former through investment and the latter through both investment and technological innovation. Their condemnation that the nation’s policies have allowed for an excess wealth accumulation, reflects what others in some of America’s richest families have declared.

Knowing of the power and influence one inherits as an heir to a great fortune, the children of the super-wealthy are raised “outside of the American Dream.”23 Often, they are aware that they will never need to work—sometimes they are even encouraged not to do so—but they, too, are influenced by the country’s meritocratic values. Jamie Johnson, producer and director of Born Rich, said that, “I was always told that the American Dream was about getting a bigger and better life than the one that your parents had, but [for me] that dream was accomplished by my great-grandfather.” 24 Others in the documentary also conveyed that this dilemma was present for them as well.

S.I. Newhouse, heir to the Condé Nast fortune (which in Born Rich he estimated to be around $20 billion in attainable assets), says that, “rich people don’t know how they are supposed to feel about themselves because they have been getting so many different images that make [being rich] look cool, but then [they] see on TV that the middle-class family is the ‘real thing’ . . . where the happiness is, so you never know if you are being held back from discovering your passions, or what makes [you] feel good in life.”25 However, he follows this by saying that he is, “terrified of losing [his] money, because in [his] family that’s all you have to show your worth.”26

The desire and need to determine one’s self-worth, as well as one’s value in society, is a common theme of discussion among all of these sources. What is more, it appears that where one fits into one’s surroundings, how one appears to do so, and how one’s status is maintained, tends to be closely connected to one’s bank account (as S.I. Newhouse clearly states). Paying attention to the environment in which people find themselves can be as basic as the quality of the infrastructure, and the evident differences between, for instance, the roads in a wealthy versus a poor neighborhood. Government services are meant to be equally distributed throughout society, on a need-by-need basis. However, looking at the obviously skewed resources that tend to benefit the wealthy long before they benefit the poor, offers both outsiders and insiders a way to weigh their worth in the eyes of the government.

Following the Second World War, the American citizenry enjoyed a substantial period of general prosperity. However, the economic period during and after Ronald Reagan’s tenure as president included the implementation of methods and ideas that would come to be known as “Reaganomics.” Some say that these methods ensured that the kind of economic disparity that we see today would be substantiated by the government through deregulating the practices of industries (like the financial industry) and once again eliminating or decreasing a plethora of taxes that had previously kept individuals from attaining immense wealth without supporting their country. Hacker and Pierson, as well as countless other economists, historians, and anthropologists, have researched and published their findings and thoughts on how the government has played a particularly important role in the decisions that have led us to our current economic and social state. However, it is important to recognize that it is not accurate to blame the hyper-wealthy for all of the poor’s problems, and it is equally as incorrect to blame the latter for their own issues. As already stated, those who lose out on social mobility, or wealth in general, must be expected to have a negative view of the society that keeps them oppressed. But the fact that those on the other end of the spectrum also feel this way suggests that it is not they who are to blame for the country’s continual state of inequality. And if they are not to blame, then who is? Could it be those in the “wealthy class,”—those whose wealth is far above the majority of the nation, but is small enough that any serious rise in taxation could affect their status significantly? This is perhaps the oldest, and most complicated question that has pervaded throughout society. However, as America’s income disparity increases, and as the nation’s poverty rate rises, the need to find the answer has never appeared as dire as it is today.

  1. Thomas Piketty, Capital in the Twenty-first Century, (Cambridge and London: The Belknap Press of Harvard University Press, 2014), 345.
  2. Ibid., 281.
  3. Ibid., 252.
  4. Ibid., 416.
  5. Ibid., 417.
  6. Ibid., 419.
  7. Ibid., 420.
  8. Ibid.
  9. Ibid., 253.
  10. Ibid., 421.
  11. Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics, (New York: Simon & Schuster, 2010), 256.
  12. Mike Collins, “The Big Bank Bailout,” Forbes, Published July 14, 2015. http://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/#1a45af1c3723
  13. Gretchen Morgenson and Louise Story, “Banks Bundled Bad Debt, Bet Against It and Won,” The New York Times, Published December 23, 2009.
  14. Stephen Gandel, “Financial Crisis Payback: JP Morgan Pays Second Largest Housing Bust Related Fine,” Time Magazine, Published June 21, 2011. http://business.time.com/2011/06/21/financial-crisis-payback-jp-morgan-pays-second-largest-housing-bust-related-fine/
  15. Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics, 154.
  16. Ibid., 158.
  17. Ibid.
  18. Dan Roberts, “Why Hillary Clinton lost the election: the economy, trust and a weak message,” The Guardian, Published November 9, 2016. Accessed December 17, 2016. https://www.theguardian.com/us-news/2016/nov/09/hillary-clinton-election-president-loss
  19. Amy Bingham, “Warren Buffett Tells Congress To Raise Taxes On Wealthy,” ABC News, Published August 15, 2011. Accessed December 16, 2016. http://abcnews.go.com/Politics/warren-buffett-raise-taxes-wealthy-friends/story?id=14307993
  20. Robert Frank, “Bill Gates calls for higher capital gains taxes,” CNBC, Published May 2, 2016.
  21. Ibid.
  22. Forbes Corporate Communications, “Forbes Releases 35th Annual Forbes 400 Ranking Of The Richest Americans,” Forbes, Published October 4, 2016. Accessed December 17, 2016. http://www.forbes.com/sites/forbespr/2016/10/04/forbes-releases-35th-annual-forbes-400-ranking-of-the-richest-americans/#4dd18320594a
  23. Jamie Johnson, Born Rich, Film, directed by Jamie Johnson (2003; New York: Wise & Good Film, LLC.), 1:05:16.
  24. Ibid.
  25. Ibid., 58:56.
  26. Ibid., 59:10.