Goldman Sachs and the revolt of the lower upper class
The Washington Post, April 21, 2010
A few years ago, a Goldman Sachs banker, still shy of his 40th birthday and worth, I was reliably told, some $80 million, told me that he wasn't in his line of work for the money. "If I was doing this for the money," he said, with no trace of irony, "I'd be at a hedge fund."
What to say? Though such a statement is perhaps only fathomable on a small plot of real estate in Lower Manhattan at the dawn of the 21st century, it suggests how insular and debauched our ruling class has become.
For several years I've predicted that a new wild card in American lifethe presence of economic resentment at the bottom of the top 1 percent of our income distributionwould 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 officialsand, yes, SEC lawyerswho 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 twoor, God forbid, $300,000then 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. CEOs who preside over years of tumbling stock prices routinely walk away with tens of millions for their trouble; hedge fund managers who barely beat the S&P commonly earn such princely sums in a year.
And now the spotlight turns to Goldman and similar firms, whose executives might have enriched themselves through behavior that was (1) fraudulent, (2) repulsive, (3) of no apparent value to societyor all of the above. These are the same folks driving up the prices of coveted real estate and private schools to levels that Lower Uppers increasingly can't afford.
There's only so much of this indignity a smart, vocal elite can take. It's only a matter of time before the dam breaks and the new class war beginsnot some retro showdown between proletarians and capitalists, but between the Lower Uppers and the Ultrarich.
Think of SEC vs. Goldman, then, as the Lower Uppers' Lexington and Concord. As Lower Uppers lash out, the public will cheer. Eliot Spitzer's crusade against Wall Street when he was attorney general was hugely popular. Voters who distrust government tell pollsters they still want greedy bankers brought to heel. There's a political opening for a "comeuppance" agenda that starts with the financial regulatory reform President Obama is pressing this week.
But it hardly ends there. The next big skirmish will be taxes. And it brings out the beast in even rumpled Lower Uppers.
One well-known and otherwise mild-mannered, free market-oriented Ivy League economics professor, for example, told me not long ago that "we should tax the [bleep] out of these guys," meaning CEOs, private equity honchos and other banking types. He said the pay scams they'd cooked up left them earning classic economic "rents"much more than would be needed to keep them engaged in the same activity. Since reducing rents doesn't affect what people actually choose to do, economists say they can be taxed without hurting the real economy.
You can see where this is headed. It's the Ultras' ultimate nightmare.
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. . . .