top at a time when unemployment is close to 9 percent and working-class families are being hammered. But within the 1 percent, the awareness of the different tiers of wealth is as keen as an Indian matchmaker’s sensitivity to the finer divisions of caste.
Holly Peterson, the daughter of Pete Peterson and herself a sly and eloquent chronicler of the 1 percent, tells a similar story of the tension at the very top.
“I think people making $5 million to $10 million definitely don’t think they are making enough money,” she told me. “‘Wouldn’t it be nice to fly private?’ There are so many things you can aspire to, even making $5 million a year. For the lower rung of this crowd, these people set up lives for themselves they can’t afford. These people are broke and maxed out on their credit cards in December, just like middle-class couples living on $100,000. I don’t think they feel that rich. They are trying to play with the high rollers and there are things they can’t do and they feel deprived, which is completely sick and absurd, but that’s the truth of the matter.”
One way to understand what is happening at the top of the income distribution is to look at the numbers. Brian Bell and John Van Reenen, two economists at the Centre for Economic Performance at the London School of Economics, have done a careful study of Britain’s super-rich. Peering inside the top 1 percent, they found a distribution almost as skewed as that within the economy as a whole—the top 2 percent of the 1 percent took 11 percent of the wage share of that cohort in 1998 and 13 percent in 2008. Among financiers, who are disproportionately represented within the British and American 1 percent, the tilt toward the very top is even more pronounced.
Winters, the U.S. political scientist, has devised another way to appreciate the difference between the merely rich and the super-rich. He has created a “material power index,” which measures the income of the top 10 percent of Americans as a multiple of the average income of the bottom 90 percent. His material power index shows that, like a mountain whose cliffs become steeper as you ascend to the peak, income polarization in America gets sharper the richer you are: the top 10 percent have an MPI of 4—meaning their average income is four times that of the bottom 90 percent—while the top 1 percent have an MPI of 15. But when you get to the top 0.1 percent, the MPI jumps to 124. That is the line, in Winters’s view, that separates the affluent from the oligarchs. “There were about 150,000 Americans whose average annual incomes were $4 million and above in 2007,” Winters writes of the 0.1 percent. “This is the threshold at which oligarchs dominate the landscape.”
Another peek into the dynamic within the 1 percent comes from inside one of America’s elite institutions. Claudia Goldin and Lawrence Katz, the Harvard economists, compiled a data set chronicling the family and career choices of twelve Harvard classes between 1969 and 1992. Their purpose was to understand the impact of gender on life and work, but their numbers turned out to tell a nuanced and unexpected story about the elite overall. One of the biggest surprises was how far, even among the gilded graduates of Harvard, the top had pulled away from everyone else—in 2005, median earnings for Harvard men were $162,000, comfortably in the top 10 percent of the national income distribution. But almost 8 percent of the men had labor market income above $1 million, putting them in the top 0.5 percent. An important driver of the gap was the split between the bankers and everyone else, with financiers earning 195 percent more than their classmates.
For the 1 percenters who didn’t switch majors from art history to economics and find themselves moored at the bottom of the top, the experience can be surprisingly hard to bear. One force at work is Carol Graham’s paradox of happy peasants and miserable millionaires. In international research that grew out of findings for Russia and Peru, Graham found that “very poor and destitute respondents report high or relatively high levels of well-being, while much wealthier ones with more mobility and opportunities report much lower levels of well-being and greater frustration with their economic and other situations.”
One source of that frustration, Dr. Graham told me, was when “the gains around them are much bigger than their own, and bigger than they can ever achieve in their lifetime.” Dr. Graham attributes this feeling of inadequacy vis-a-vis the 0.1 percent partly to greed. She points to work by economist Angus Deaton that shows the richer you are, the more covetous you become—the social science version of the biblical proverb about the eye of the needle. But she says crony capitalism is to blame, too. The middle-class achievers are the most frustrated in societies where getting to the top is seen as a function of connections rather than merit.
A more sympathetic rationale, advanced most prolifically by Cornell economist Robert Frank, is the problem of positional goods. These are products and services whose value is derived in part from their scarcity and how much everyone else wants them. If you have them, I don’t. A place in the Harvard first-year class or a home in a desirable public school district is a positional good. An iPhone or a Gmail account is not. An appetite for some positional goods is easy to dismiss as part of the greed effect—a reservation at the hottest new restaurant, or buying a limited-edition handbag. But what about an organ transplant? Or the positional good that causes some of the greatest angst in the foothills of the 1 percent, an elite education?
The gap between the 1 percent and the 0.1 percent could have serious political consequences. Even in America, there were just 412 billionaires in 2007, and 134,888 taxpayers in the 0.1 percent. The 1 percent is bigger—with 749,375 taxpayers—and, with an average annual income of $486,395, it is not that far away from the wider 10 percent, with its 7.5 million taxpayers earning an average $128,560. These people at the bottom of the top of the income distribution are financially essential to the country and politically essential to those at the very top. If the super-elite lose their loyalty, it could become very isolated indeed.
Historically, in America the merely rich have strongly identified with the very rich. The strivers at the bottom of the 1 percent were just one big idea or one big job away from the very top, and, anyway, everyone belonged to the same upper middle class. They might be struggling to support their middle-class lifestyles month to month, but the 1 percent have liked to think of themselves as “soon to be rich.” But there are a few signs that the nearly millionaires are starting to suspect the billionaires are getting an unfair deal. One sign is how “crony capitalism” has become the battle cry not just of Occupy Wall Street but also of Tea Party darling Sarah Palin and conservative intellectual Paul Ryan.
This nascent split between probusiness, promoney Americans of the bottom of the 1 percent and the 0.1 percent is in many ways more potentially incendiary than the antiestablishment idealism of Occupy Wall Street. We always knew the left was suspicious of high finance. What is surprising is that Wall Street’s yeomen have become suspicious of their bosses.
Here’s how Joshua Brown, a New York–based investment adviser to high-net-worth individuals, charitable foundations, and retirement plans responded to complaints by a number of Wall Street chiefs that they are being unjustly vilified in America today.
Brown’s tirade, which he posted on his blog,
In a democratic age, the super-elite can survive if every millionaire is convinced he has a billionaire’s baton in his knapsack. If that conviction breaks down, the battle of the millionaires versus the billionaires could move from Cairo and Kiev to London and New York.
WHERE ARE THE WOMEN?
For 47,745 of the 47,763 runners who competed in the New York Marathon in 2011, it was a co-ed race. Women ran alongside men, and as demanding sports such as endurance running have become socially acceptable for women, females formed an ever greater part of the pack. But for the first eighteen racers, the top 0.04 percent, the marathon is exactly as segregated as it was before 1971, when women were banned from racing more than ten miles on the theory that their delicate bodies weren’t up to the strain.
