The Super-Rich and The New Gilded Age
The New York Times has an interesting piece on the New Gilded Age, with many a multi-millionaire interviewed. Below is a rather unbalanced clipping of some of the more interesting (and progressive) parts of the article:
â€œI donâ€™t see a relationship between the extremes of income now and the performance of the economy,â€ Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.
The great fortunes today are largely a result of the long bull market in stocks, Mr. Volcker said. Without rising stock prices, stock options would not have become a major source of riches for financiers and chief executives. Stock prices rise for a lot of reasons, Mr. Volcker said, including ones that have nothing to do with the actions of these people.
â€œThe market did not go up because businessmen got so much smarter,â€ he said, adding that the 1950s and 1960s, which the new tycoons denigrate as bureaucratic and uninspiring, â€œwere very good economic times and no one was making what they are making now.â€
James D. Sinegal, chief executive of Costco, the discount retailer, echoes that sentiment. â€œObscene salaries send the wrong message through a company,â€ he said. â€œThe message is that all brilliance emanates from the top; that the worker on the floor of the store or the factory is insignificant.â€
A legendary chief executive from an earlier era is similarly critical. He is Robert L. Crandall, 71, who as president and then chairman and chief executive, led American Airlines through the early years of deregulation and pioneered the development of the hub-and-spoke system for managing airline routes. He retired in 1997, never having made more than $5 million a year, in the days before upper-end incomes really took off.
He is speaking out now, he said, because he no longer has to worry that his â€œradical viewsâ€ might damage the reputation of American or that of the companies he served until recently as a director. The nationâ€™s corporate chiefs would be living far less affluent lives, Mr. Crandall said, if fate had put them in, say, Uzbekistan instead of the United States, â€œwhere they are the beneficiaries of a market system that rewards a few people in extraordinary ways and leaves others behind.â€
â€œThe way our society equalizes incomes,â€ he argued, â€œis through much higher taxes than we have today. There is no other way.â€
… Individual fortunes nearly a century ago were so large that just 30 tycoons â€” Rockefeller was by far the wealthiest â€” had accumulated net worth equal to 5 percent of the national income. Their wealth flowed mainly from the empires they built in manufacturing, railroads, oil, coal, urban transit and mass retailing as the United States grew into the worldâ€™s largest industrial economy.
Today the fortunes of the very wealthiest are spread more widely. In addition to stock and stock options, low-interest credit has brought wealth to more families â€” by, for example, facilitating the sale of individual businesses for much greater sums than in the past. The fortunes amassed in hedge funds and in private equity often stem from deals involving huge amounts of easy credit and vast pools of capital available for investment.
The high-tech boom and the Internet unfolded against this backdrop. The rising stock market multiplied the wealth of Bill Gates as his software became the industry standard. It did the same for numerous others who financed start-ups on a shoestring and then went public at enormous gain.
Over a longer period, the market lifted the value of Mr. Buffettâ€™s judicious investments and timely acquisitions, and he emerged as the extraordinarily wealthy Sage of Omaha, in effect, a baron of the new Gilded Age whose views are strikingly similar to those of Carnegie and Mr. Weill.
Like them, Mr. Buffett, 78, sees himself as lucky, having had the good fortune, as he put it, to have been born in America, white and male, and â€œwired for asset allocationâ€ just when all four really paid off. He dwelt on his good fortune in a recent appearance at a fund-raiser for Hillary Rodham Clinton, who is vying for Mr. Buffettâ€™s support of her presidential candidacy.
â€œThis is a significantly richer country than 10, 20, 30, 40, 50 years ago,â€ he declared, backing his assertion with a favorite statistic. The national income, divided by the population, is a very abundant $45,000 per capita, he said, a number that reflects an affluent nation but also obscures the lopsided income distribution intertwined with the prosperity.
â€œSociety should place an initial emphasis on abundance,â€ Mr. Buffett argued, but â€œthen should continuously striveâ€ to redistribute the abundance more equitably.
… Not that money is the only goal. Mr. Hindery, the cable television entrepreneur, said he would have worked just as hard for a much smaller payoff, and others among the very wealthy agreed. â€œI worked because I loved what I was doing,â€ Mr. Weill said, insisting that not until he retired did â€œI have a chance to sit back and count up what was on the table.â€ And Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared: â€œThe money is a byproduct of a passionate endeavor.â€
Mr. Griffin, 38, argued that those who focus on the money â€” and there is always a get-rich crowd â€” â€œsoon discover that wealth is not a particularly satisfying outcome.â€ His own team at Citadel, he said, â€œloves the problems they work on and the challenges inherent to their business.â€
Mr. Griffin maintained that he has created wealth not just for himself but for many others. â€œWe have helped to create real social value in the U.S. economy,â€ he said. â€œWe have invested money in countless companies over the years and they have helped countless people.â€
… In contrast to many of his peers in corporate America, Mr. Sinegal, 70, the Costco chief executive, argues that the nationâ€™s business leaders would exercise their â€œunique skillsâ€ just as vigorously for â€œ$10 million instead of $200 million, if that were the standard.â€
As a co-founder of Costco, which now has 132,000 employees, Mr. Sinegal still holds $150 million in company stock. He is certainly wealthy. But he distinguishes between a founderâ€™s wealth and the current practice of paying a chief executiveâ€™s salary in stock options that balloon into enormous amounts. His own salary as chief executive was $349,000 last year, incredibly modest by current standards.
â€œI think that most of the people running companies today are motivated and pay is a small portion of the motivation,â€ Mr. Sinegal said. So why so much pressure for ever higher pay?
â€œBecause everyone else is getting it,â€ he said. â€œIt is as simple as that. If somehow a proclamation were made that C.E.O.â€™s could only make a maximum of $300,000 a year, you would not have any shortage of very qualified men and women seeking the jobs.â€
Looking back, none of the nationâ€™s legendary tycoons was more aware of his good luck than Andrew Carnegie.
â€œCarnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,â€ said David Nasaw, a historian at City University of New York and the author of â€œAndrew Carnegieâ€ (Penguin Press). â€œThe creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.â€
Repaying the community did not mean for Carnegie raising the wages of his steelworkers. Quite the contrary, he sometimes cut wages and, in doing so, presided over violent antiunion actions.
Carnegie did not concern himself with income inequality. His whole focus was philanthropy. He favored a confiscatory estate tax for those who failed to arrange to return, before their deaths, the fortunes the community had made possible. And today dozens of libraries, cultural centers, museums and foundations bear Carnegieâ€™s name.