Plutocrats

rentier rich, the landowners who profited hugely from industrialization and urbanization but did not contribute to it.

George had such tremendous popular appeal because he addressed the obvious inequity of nineteenth- century American capitalism without disavowing capitalism itself. George wasn’t trying to build a communist utopia. His campaign promise was to rescue America from the clutches of the robber barons and to return it to “the democracy of Thomas Jefferson.” That ideal—as much Tea Party as Occupy Wall Street—not only won support among working-class voters and their leaders, like Samuel Gompers, but also resonated with many small-business owners. Robert Ingersoll, a Republican orator, attorney, and intellectual, was a George supporter. He urged his fellow Republicans to back his man and thereby “show that their sympathies are not given to bankers, corporations and millionaires.”

THE WORKING RICH

George’s popularity is an example of the appeal of the rentier critique—a vision of capitalism without the cronies. That’s something we can all subscribe to. It is also one reason coming to terms with today’s super-elite is trickier than it was in the age of the robber barons. The crony class is, of course, still alive and well. But one of the striking characteristics of modern-day plutocrats is that, in contrast with their nineteenth-century predecessors, they are largely the working rich. Even today’s rent-seeking plutocrats work for a living—Carlos Slim or the Russian oligarchs owe their fortunes to rents they captured themselves, not to estates conquered by distant ancestors.

We are mesmerized by the extravagance of the super-elite: the personal jet owned by hedge funder Ken Griffin, which is large enough to include its own nursery; or Microsoft cofounder Paul Allen’s 414-foot yacht, The Octopus, which is home to two helicopters, a submarine, and a swimming pool. But if their excesses seem familiar, even archaic, in other ways 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.” These were the great-grandchildren of the rentier elite John Stuart Mill had described half a century earlier: “The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing.”

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, the economic historian, 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 Saez, the pioneering economic data jock 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. “As a consequence, top executives (the ‘working rich’) have replaced top capital owners (the ‘rentiers’) at the top of the income hierarchy during the twentieth century,” Saez and Piketty write in their seminal paper on the subject.

Michael Lindsay, a professor at Rice University who has interviewed more than five hundred American leaders as part of the multiyear Platinum Study of the background and behavior of the nation’s bosses, has reached the same conclusion. Speaking at a Columbia University conference on elites in the fall of 2010, Lindsay said that nowadays most of America’s business, nonprofit, and academic chiefs hadn’t inherited their money or come from privileged backgrounds.

An October 2011 study of income inequality in the United States by the Congressional Budget Office, the nonpartisan government research unit, tells the same story of a shift at the top from income earned on capital— getting rich in your sleep—to income earned through wages. The contrast isn’t just between today’s super-elite and those of the Gilded Age; there has been a marked switch to wages since the end of the 1970s. As the gap between the top and everyone else has grown, so has the reliance of the 1 percent on wage income, rather than capital. Here’s how the CBO describes the transition:

Capital income excluding capital gains—in other words, interest, dividends and rents—has generally been a declining source of income among the highest-income households. Its share dropped from 42 percent of market income excluding capital gains in 1979 to 21 percent in 2002…. The changing composition of income for the highest-income households reflects a much longer trend. Over the entire twentieth century, capital income declined sharply in importance for high-income taxpayers. The labor share of income for the top income groups was higher in 2007 than before World War II, as highly compensated workers have replaced people whose income is from property or securities at the top of the income distribution.

This is true even at the very, very top. When three economists, one of whom works in the Office of Tax Analysis at the U.S. Treasury, crunched the numbers for 2005, they found that even among the top 0.01 percent— true plutocrats who earn at least $10 million a year—wages are far more important than rents. Salary income and business income accounted for 80 percent of their income excluding capital gains and 64 percent including capital gains. And, as with the 1 percent, the shift toward wages has coincided with the emergence of the winner-take-all economy. These figures were a quarter lower in 1979: 61 percent and 46 percent.

You can see that change in the life stories of today’s plutocrats. Pete Peterson, for example, is the son of a Greek immigrant who arrived in America at age seventeen and worked his way up to owning a diner in Nebraska; his Blackstone cofounder, Steve Schwarzman, is the son of a Philadelphia-area retailer. Leon Cooperman, a Goldman Sachs veteran and hedge fund billionaire who has become an outspoken critic of the White House, made a point of his own humble background in an open letter to the president that he circulated in the autumn of 2011: “While I have been richly rewarded by a life of hard work (and a great deal of luck), I was not to-the-manor-born. My father was a plumber who practiced his trade in the South Bronx after he and my mother emigrated from Poland. I was the first member of my family to earn a college degree. I benefited from both a good public education system (P.S. 75, Morris High School and Hunter College, all in the Bronx) and my parents’ constant prodding.”

Forbes classifies 840 of the 1,226 people on its 2012 billionaire ranking as self- made. 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, and it is very useful to have a father who is an affluent professional—but the bulk of their wealth is generally the fruit of hustle, intelligence, and a lot of luck. They are not aristocrats, by and large, but rather economic meritocrats, preoccupied not only with consuming wealth but also with creating it.

Nor is this true only in America, with its national faith in the Horatio Alger story. The global capitalist boom has allowed some people at the bottom of even the most traditionally stratified societies to rise to the top. Consider the small but growing community of plutocratic Dalits, the Indian caste once known as the untouchables. In some parts of rural India, Dalits are still not allowed to drink from the village well, and Dalit children are segregated in a special corner of their schoolrooms, lest their spiritual taint contaminate their higher-caste classmates. But India now has Dalit multimillionaires, like Ashok Khade, owner of a company that builds and refurbishes offshore drilling rigs, and subject of a recent front-page profile in the New York Times. As one Dalit businessman told a reporter, “We are fighting the caste system with capitalism.”

Being self-made is central to the self-image of today’s global plutocrats. It is how they justify their luxuries, status, and influence. One way to eavesdrop on the way plutocrats talk to each other is to read the glossy limited- edition magazines written just for them. An example is the rather unimaginatively titled Luxos, which calls itself “Your local guide to global luxury” and can be found in the rooms of very fancy European hotels. One recent issue included an interview with Torsten Muller-Otvos, the CEO of Rolls- Royce. Here is what he had to say about his buyers: “We have witnessed substantial changes over the last years. The Rolls-Royce generation of today has become much younger. Our youngest Rolls-Royce customer for example is a twenty-eight-year-old entrepreneur from India. We find that many of our customers have earned their success through their own work, and they want to reward themselves with a Rolls-Royce.”

Indeed, if you are looking to define the archetypal member of the super-elite, he isn’t Jane Austen’s Mr.