Same As It Ever Was

Matt Miller anticipates "class warfare" between the haves and the have-mores:

For several years I've predicted that a new wild card in American life -- the presence of economic resentment at the bottom of the top 1 percent of our income distribution -- would become a powerful force for reform. The SEC's fraud case against Goldman Sachs may be the first shot in what I think of as the revolt of the "lower upper class."

Lower Uppers are doctors, accountants, engineers and lawyers. At companies they're mostly people above the rank of vice president and below the CEO. Their comrades include well-fed members of the media (and even part-time Post columnists who earn their livings as consultants). They include government officials -- and, yes, SEC lawyers -- who didn't make or inherit fortunes before entering public service. Lower Uppers are professionals who by dint of education, hard work and good luck are living better than 99 percent of anyone who has ever walked the planet. They're also people who can't help but notice how many people with credentials much like their own seem to be living in the kind of Gatsby-like splendor they'll never enjoy.

This stings. If people no smarter or better than you are making $10 million or $50 million or $100 million in a single year, while you're working yourself ragged to scrape by on a million or two -- or, God forbid, $300,000 -- then something must be wrong.

Especially when it's clear that many of the Ultrarich are not simply reaping the rewards of the "free market" but of rigged systems that are as likely to reward failure as success.

Miller anticipates that this could rear its head in a "big skirmish" over taxes, leading to a "nightmare" scenario for the "Ultras":

First they're trying to close down our derivatives casino, the Ultras fret. Next they'll turn private equity's dubious capital gains into (more highly taxed) ordinary income. Before you know it, they'll claim the economy will hum along fine even if we raise marginal tax rates on income above $5 million a year to 50 percent! The revenge of the Lower Uppers may have only just begun. . . .

You know, just the other day I was noting that if I had a seven figure income, I could deal with a 50% tax rate. But as part of a discussion about how when you are making big money, taxes hurt a lot less than they do when you're struggling. I did concede that to a Donald Trump type, who "must" have six or seven fully staffed mansions at his disposal, along with at least one private jet for travel between them, such a tax increase may require an "unacceptable" level of sacrifice. But for the rest of us, living on $500,000+ per year, after taxes, wouldn't be much of a trauma.

But I digress.

I don't find any great insight in the idea that these "class warfare" issues may ultimately be resolved among the upper / ruling classes because that's the way they've been resolved pretty much since the dawn of time. Most of the population isn't attuned to politics. A relatively small subset of people who follow politics are sufficiently wealthy or connected to have the ear of politicians. And that's the level at which policy gets made.

Yes, if enough people in the top five percent of the population become offended by a policy, even if it's favored by the top 1%, they have the necessary access and clout to press for change. Whatever is (or is not) going on in the streets, the bulk of the transformative moments in our nation's history have been driven by the attitudes of the top 5%. Agitation on the streets may be what inspires the elite to examine an issue, but save for those exceptionally rare occasions when it appears that revolution may follow, mass movements can be placated, ignored or, if necessary, suppressed. Or, if the elites decide that it's time for change, the agitation can be useful.

Perhaps Mr. Miller saw Capitalism: A Love Story, or otherwise came across Citigroup's theory of "plutonomy". Or perhaps it simply occurred to him that if you create a system that's overtly skewed toward showering riches on plutocrats, you will eventually generate significant resentment. The difference between his perspective (the rich will turn on the ultra-rich) and Citgroup's ("labor will fight back against the rising profit share of the rich") is that, in my opinion, he more accurately identifies the segment of the society from which pressure for change would have to come.

As a society, as long as we can convince the guy making $10 per hour that, as long as he works hard every day, he can become rich, we don't have to worry about a mass movement. It's when the people who know better decide to stop defending that myth that the ultra-rich have a problem. Turning to Reihan Salam,

There is at least one structural change that is undeniable: namely that there's been a delinkage between corporate profits and the health of the U.S. labor market. U.S.-based multinationals now look to emerging market economies as engines of growth. At home, these firms continue to aggressively cut costs and produce more with fewer workers. This has meant robust productivity increases, a sign of good things to come. But hiring and expansion is happening where the breakneck growth is happening, and that is not in the United States.

The real danger for Citigroup and other proponents of "plutonomy" is that the top 5% of wage earners will respond not only to the concerns of the middle and upper middle class that their economic future is threatened - that, even with college educations, their children won't do as well as they have done - but that the to 5% of earners will recognize that their own futures, and their children's futures, are being plundered to feed the anti-meritocracy of the "Ultras".