Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (8 page)

Schwarzman’s friends evoked the same economic stimulus defense of the lavish celebration Martin’s supporters had voiced a century earlier. “This is good for the entire economy,” argued Julian Niccolini, a co-owner of the Four Seasons restaurant (where both Schwarzman and Peterson père keep a running tab) and a guest at Schwarzman’s party. “People spend money on champagne, they spend money on flowers, they spend money on music, and that creates jobs for all of us.”

As in 1897, public opinion didn’t buy it. Unlike the Martin ball, Schwarzman’s party took place in a generally roaring economy. But seven months later, the bubble began to burst with a freeze in the global credit markets, and within eighteen months America was suffering its worst financial and economic crisis since the Great Depression. Schwarzman didn’t leave the country for good—though he did move to Paris for six months in 2011—but he did admit that had he been able to foresee the consequences of his $3 million birthday extravaganza, he would have reconsidered.

TWO

CULTURE OF THE PLUTOCRATS

Somebody ought to sit down and think about this, because your corporate types are soon going to be a stateless superclass, people who live for deals and golf dates and care a lot more about where you got your MBA than the country you were raised in. It’s the Middle Ages all over again, these little unaffiliated duchies and fiefdoms, flying their own flags and ready to take in any vassal who will pledge his life to the manor. Everybody busy patting himself on the back because the Reds went in the dumper is going to be wondering who won when Coca-Cola applies for a seat in the U.N.

—Scott Turow,
Pleading Guilty

T
HE
M
OST
F
AMOUS
A
MERICAN
E
CONOMIST
Y
OU’VE
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EVER
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EARD
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F

Henry George is the most famous American popular economist you’ve never heard of, a nineteenth-century cross between Michael Lewis, Howard Dean, and Ron Paul.
Progress and Poverty
, George’s most important book, sold three million copies and was translated into German, French, Dutch, Swedish, Danish, Spanish, Russian, Hungarian, Hebrew, and Mandarin. During his lifetime, George was probably the third best-known American, eclipsed only by Thomas Edison and Mark Twain. He was admired by foreign luminaries of the age, too—Leo Tolstoy, Sun Yat-sen, and Albert Einstein, who wrote that “men like Henry George are rare, unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form and fervent love of justice.” George Bernard Shaw described his own thinking about the political economy as a continuation of the ideas of George, whom he had once heard deliver a speech.

In 1886, the year the Statue of Liberty was erected, George came second in the New York mayoral race, attracting an official tally of 68,110 votes and beating the Republican candidate, a rambunctious young patrician named Theodore Roosevelt. George’s supporters alleged that if it were not for vote rigging by the Tammany Hall machine—whose candidate, Abram Hewitt, was the winner—George would have been elected mayor. But even as runner-up, George is credited by many with ushering in the Progressive Era in American politics. Friedrich Engels called the vote “an epoch-making day” and St. Louis labor leaders predicted it would become “the battle cry for all the enslaved toilers from the Atlantic to the Pacific.” George’s unexpected effectiveness at creating a working-class electoral coalition both inspired progressive politicians—including the twenty-eight-year-old Roosevelt—and helped convince business elites of the prudence of compromise. Abram Hewitt, son-in-law of millionaire Peter Cooper and the successful Tammany Hall man, himself recognized “that 68,000 people have deliberately declared that they have grievances which ought to be redressed.” George ran for mayor of New York again in 1897, but died four days before election day. He was given a statesman’s send-off—his coffin lay in state at Grand Central Station, where more than one hundred thousand people came to pay their respects. It was the largest crowd of mourners in New York City since Abraham Lincoln’s funeral in 1865. The
New York Times
quoted one George fan who said, “Not even Lincoln had a more glorious death.”

George’s personal journey to the public arena was typical of the hard and adventurous lives of nineteenth-century Americans. Born in Philadelphia in 1839, the second in a family of ten, he left school at fourteen and took a job as a seaman on the
Hindoo
, a full-rigged ship of 586-ton register with a crew of twenty men and a cargo of five hundred thousand feet of lumber. The ship sailed to India, where he was struck by the poverty rather than the exotica that beguiled many of his contemporaries, and to Australia, where he discovered, and eventually imported back to America, the secret ballot. When George came home, he apprenticed as a printer, then worked his way to gold rush–frenzied San Francisco on the
Shubrick
, which sailed to the West Coast by way of Cape Horn. George didn’t find gold, so he supported himself and what soon grew to be a family of six by setting type, writing editorials, and—his cushiest job—working as a gas meter inspector. The family’s fortunes were often precarious. Here is how George described the day his second son, who grew up to become a New York State congressman, was born: “I stopped a man [on the street]—a stranger—and told him I wanted five dollars. He asked what I wanted it for. I told him that my wife was confined and that I had nothing to give her to eat. He gave me the money. If he had not, I think I was desperate enough to have killed him.”

For all his peripatetic and odd-jobbing early years, intellectually George turned out to be what Isaiah Berlin would have called a hedgehog, a thinker focused intensely on a single question. For George, that question was what he saw as the central and troubling paradox of the Gilded Age, the puzzling coexistence of, as he put it in the title of his bestseller, progress and poverty.

As he said during the 1886 mayoral campaign, the two key questions were “Why should there be such abject poverty in this city?” and “What do we propose to do about it?”

Like most Americans of his era—a time when the industrial revolution was coming into full flower and the American frontier was being settled—George thrilled to the self-evident progress of the times. “The present century has been marked by a prodigious increase in wealth-producing power,” he writes in the opening of
Progress and Poverty
. “The utilization of steam and electricity, the introduction of improved processes and labor-saving machinery, the greater subdivision and grander scale of production, the wonderful facilitation of exchanges, have multiplied enormously the effectiveness of labor.” George goes on to list some of the amazing transformations of his age: “the steamship taking the place of the sailing vessel, the railroad train of the wagon, the reaping machine of the scythe, the threshing machine of the flail . . . the great workshops where boots and shoes are turned out by the case with less labor than the old-fashioned cobbler could have put on a sole, the factories where, under the eye of a girl, cotton becomes cloth faster than hundreds of stalwart weavers could have turned it out with their hand looms.”

Today, “the wealth-producing power” of those inventions is indisputable. Even at a time of weak economic growth, and after decades of stagnant wages, middle-class Americans enjoy a standard of living beyond the reach of the robber barons of George’s day—electricity, plumbing, hot running water, cars, jet travel, and a life expectancy that has increased by nearly thirty years for white men (and much more for blacks and women). But in March 1879, when
Progress and Poverty
was published, the Long Depression, a sixty-five-month-long period of economic contraction that afflicted both the United States and Europe, was just whimpering to an end. From that perspective, the perplexing reality was that the industrial revolution wasn’t delivering: “We are coming into collision with facts which there can be no mistaking. From all parts of the civilized world come complaints of industrial depression; of labor condemned to involuntary idleness; of capital massed and wasting; of pecuniary distress among businessmen; of want and suffering and anxiety among the working classes.”

What George found most mysterious about the economic consequences of the industrial revolution was that its failure to deliver economic prosperity was not uniform; instead it had created a winner-take-all society. “Some get an infinitely better and easier living,” he wrote, “but others find it hard to get a living at all. The ‘tramp’ comes with the locomotives, and almshouses and prisons are as surely the marks of ‘material progress’ as are costly dwellings, rich warehouses and magnificent churches. Upon streets lighted with gas and patrolled by uniformed policemen, beggars wait for the passer-by, and in the shadow of college, and library, and museum, are gathering the more hideous Huns and fiercer Vandals of whom Macaulay prophesied.”

George’s diagnosis was beguilingly simple: the fruits of innovation weren’t widely shared because they were going to the landlords. This was a very American indictment of industrial capitalism. At a time when Marx was responding to Europe’s version of progress and poverty with a wholesale denunciation of private property, George was an enthusiastic supporter of industry, free trade, and a limited role for government. His culprits were the 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.”

T
HE
W
ORKING
R
ICH

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.