New Gilded Age

Louis Uchitelle profiles the voices of the new guilded age. Some, like Sanford Weill, aren't just richer than hell, they fully intend to be jerks about it. "We didn’t rely on somebody else to build what we built," he says at one point "and we shouldn’t rely on somebody else to provide all the services our society needs." Or there's Leo Hindrey who observes that Jerek "Deter makes an unbelievable amount of money, but you look at him and you say, 'Wow, I cannot find another ballplayer with that same set of skills." Others have their doubts:

A handful of critics among the new elite, or close to it, are scornful of such self-appraisal. “I don’t see a relationship between the extremes of income now and the performance of the economy,” 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.

Right. The economy grew at a perfectly rapid clip in a broad-based manner in the 1950s and 60s.

Comments

And the article managed to several thousand words without ever mentioning that Sanford Weill is a corrupt scumbag who should have been charged with white collar crimes but was spared because Eliot Spitzer was running for governor.

http://www.commondreams.org/views05/0224-21.htm

Posted by Adam | July 15, 2007 9:23 AM

It's fortunate that your own newfound riches aren't spoiling you, Matt.

Posted by otto | July 15, 2007 9:32 AM

who is "Jerek Deter"?

Posted by pj | July 15, 2007 9:34 AM

The article also seemed to me to be rather unfair to Warren Buffett, who is portrayed as having the same arrogant views as Weill, although everything Buffett is quoted as actually saying in the article suggests quite the contrary.

Posted by rea | July 15, 2007 9:35 AM

who is "Jerek Deter"?

About the 4th or 5th best shortstop in major league baseball; somebody who's made a lot of money out of athleticism, good looks, luck, and a highly artifical market structure. He plays in NYC, so he has a high profile.

Posted by rea | July 15, 2007 9:46 AM

rea, that was a joke referencing MY's chronic laziness regarding spelling (it's Derek Jeter, obv). Might as well pile on while I'm at it: it would actually be a good thing if this were a 'guilded' age, as that would mean that skilled tradesmen were the ones doing well by historical standards.

Pro athletes really are as singular as the claim of a meritocracy would have it, as are a few other isolated lines of work: violin virtuoso, physicist. But certainly no one on Wall Street should kid himself that he is as irreplaceable as Jeter or Tom Brady or Yao Ming.

Posted by kth | July 15, 2007 10:06 AM

Left unstated is that the growth of the 50's and 60's was during a highly artificial time. Every other advanced economy had been reduced to ashes during WWII, and they sent the next couple of decades recovering. It would have been nearly impossible for the US not to have a roaring economy at that time.

Those conditions don't exist anymore, and are highly unlikely to exist again.

Posted by James Robertson | July 15, 2007 10:24 AM

James Robertson, your point seems pretty bogus. WWI left many economies in ruins, and guess what? They became anaemically better, and then they plunged into ruin again in the 30s. It doesn't make much sense, actually, to think that American prosperity would come about because other nations were in financial ruin. There is this thing called international trade. That prosperity came about because the developed nations recovered. They recovered because the superstitious notion that the government shouldn't 'interfere' in the economy was trashed. Governments all expanded, dramatically increasing their shares of the GDP, and the results were, of course, brilliant. The thirty glorious years, as the French named them, after 1945 not only saw the best economic growth of the century, but also the most economically egalitarian growth. Today's gilded age American CEOs would never have had a chance to get the positions they did in the companies they did if the post-New Deal structure of using the government as either a guarantor (as, for instance, in the housing market) or as a generator (as in the GI education bill, and the vast increase in public investment in education and research) had not occurred. Of course, that generation has concentrated since on pulling up the ladder and paralyzing social mobility, and has had considerable success in the U.S. and U.K.

Posted by roger | July 15, 2007 11:06 AM

"Left unstated is that the growth of the 50's and 60's was during a highly artificial time. Every other advanced economy had been reduced to ashes during WWII, and they sent the next couple of decades recovering. It would have been nearly impossible for the US not to have a roaring economy at that time."

What other advanced economies since the 1970's have seen stagnant real median wages? Does anyone have those stats on hand? If we're pretty much the only ones experiencing this, it's likely to be the result of public policy.

Posted by Reality Man | July 15, 2007 11:08 AM

james robertson's remark is just like sandy weill's: somehow, the results just happen, undoubtedly because weill, for example, is just such a sterling fellow and brilliant capitalist.

this is, of course, a typical form of self-justification among the wealthy, and not at all unconnected to the young georgetown slimeballs matthew wrote about yesterday (or was it friday?).

Posted by howard | July 15, 2007 11:47 AM

"If we're pretty much the only ones experiencing this, it's likely to be the result of public policy."

I don't have the stats on hand, but the US is not a complete outlier, it is part of a advanced nation trend. But that does not exclude the probability that the trend is at least partly due to public policy. Bretton Woods and inflation-targeting were/are int'l public policies, expicitly or implicitly.

Posted by bob mcmanus | July 15, 2007 11:52 AM

Roger
WWI is entirely different than WWII as far as infrastructure damage is concerned. Only a few areas were involved in fighting on the Euro continent, and while those areas were totally devestated, there is no contest with the amount of area with damage done in WWII.

Posted by shah8 | July 15, 2007 1:46 PM

After WWI, a relatively small area of Europe was devastated. After WWII, Japan, China, Russia, and nearly all of Europe had suffered catastrophic damage. US manufacturers were competing against an empty lineup for a long time afterwards.

Posted by James Robertson | July 15, 2007 2:45 PM

Interesting. These comments about the smallness of WWI are simply wrong. I especially like this comment by James Robertson: "After WWI, a relatively small area of Europe was devastated. After WWII, Japan, China, Russia, and nearly all of Europe had suffered catastrophic damage." Say what? After world war I, one of the top five powers in Europe - Russia - essentially vanished from the capitalist world order. Remember from your history books? That thing called the Soviet Union? China, after WWI, broke up into warring factions that fought with each other continually during the 1920s. Germany, the world's second biggest manufacturer after the U.S., suffered devastating inflation. The idea, of course, is absurd to begin with - the world economy isn't a zero sum game in which American manufacturing can triumph because the developed economies are devastated. Like, who is going to buy American goods? A good question, especially when, as after WWI, America's great export was agricultural. The developed economies got off the ground because of concentrated international state activity at the end of WWII, and Keynesian policy, in contrast to WWI. It is simply absurd to attribute the economic growth of the U.S. in the post WWII period to the lack of competition. That's funny. The difference with the earlier period is that after WWII, the U.S. wisely kept to the New Deal path in building up social democratic structures, placating the right (and developing the third World sunbelt) by the building up of a tremendous and unnecessary war economy. After 1980, as Reagonomics set in, the economy as a whole has done worse, in terms of growth. And of course it is a disaster in terms of inequality. Social democracy devolved into an odd credit card democracy - to keep up, families put two bread winners on line and basically borrowed the wage increases that used to be guaranteed, in the 50s and 60s, by the growth of the economy.

Posted by roger | July 15, 2007 4:58 PM

roger wrote:

It is simply absurd to attribute the economic growth of the U.S. in the post WWII period to the lack of competition.

I don't think that's James Robertson's argument. Instead, he is attempting to attribute the broad distribution of gains from the economic growth of the U.S. in the post WWII period to the lack of competition. (Not that I agree with this argument.)

edit: Apparently I was wrong; Roger's quote IS James's argument.

Posted by Guy | July 15, 2007 5:46 PM

Today, unions are much less powerful than they were earlier in the century. This certainly plays some role in economic polarization.

Posted by b | July 15, 2007 6:05 PM

Stagnant wages in US since the 70s?

Median inflation-adjusted household income
1967 ~$35K
2005 ~$46K

household size decline from avg of 3.3 people to 2.5 people, hmm. people must be making a whole lot more (Yes, these are median figures. Averages are even more strikingly UP.)

Anyone who thinks the average American is no better off since the 70s is either insanely dishonest or honestly insane.

Posted by Jozef | July 15, 2007 6:19 PM

Shorter NY Times: I, for one, welcome our new plutocratic overlords.

Posted by Dramatic Groundhog | July 15, 2007 6:34 PM

Jozef wrote:

Stagnant wages in US since the 70s?

Median inflation-adjusted household income
1967 ~$35K
2005 ~$46K

1) There is a difference between wages and income. Wages may have remained stagnant (or even fallen) while income went up due to an increase in hours worked.

2) 1973 is usually quoted as the end year of the post-WW2 boom.

(Yes, these are median figures. Averages are even more strikingly UP.)

3) It's common convention when discussing income distributions to look at medians rather than means/averages. Averages tend to give a misleading impression of income distributions due to high values on the right tail.

Posted by Guy | July 15, 2007 6:34 PM

I wrote:

1) There is a difference between wages and income. Wages may have remained stagnant (or even fallen) while income went up due to an increase in hours worked.

Another possibility is an increase in non-wage income.

Posted by Guy | July 15, 2007 6:41 PM

The very rich often in the US became that way through finance, think JP Morgan. Plenty however got that way through building large modern corporations which actually made things, including millions of jobs.

Virtually all the uber wealthy today make their money by financial means either on or though Wall Street and create few if any jobs and stupendous mountains of debt and debt derivative paper.

Being smart about finance has been the key to wealth for two centuries but such smarts are peculiar thing and the rewards have always outstripped the actual worth of the talent.

There is a certain amount of truth to the self serving meme that we must favor them with tax advantages, non or absent regulation and have a Fed and Treasury to work directly with them to support the markets to keep their financial assets inflated. The truth in that is that finance now IS the economy. If for some reason there was a widespread financial panic, a liquidity crisis, the results for most Americans would be worse than the Great Depression. The next time however the political solution will not come from the 'left'.

Posted by rapier | July 15, 2007 8:25 PM

The nomenclature for Sandy Weill and his ilk is Pigman. The men for who there never is enough. The world is awash in pigmen because never before has so much 'wealth' been created in so short a time. Namely the last 25 years or so while financial assets and real estate have inflated so astoudingly. The rewards of course have been skewed overwhelmingly to the top, to the pigmen.

In a sense the wealth created is illusory because the measuring stick, current prices for assets, are wildly inflated. The entire economic system, the monetary and credit systems and the markets for financial assets has been designed firstly, secondly and thirdly for that matter, to keep the prices of assets rising while damping the price of labor.

In theory it is possible that asset prices can continue to inflate, or at least not deflate, for a long long time. Now free market theology says prices will swing up and down around a mean over time and on some geologic scale that is surely correct. However in simple generational terms it's possible that the system as designed by, for want of a better term our plutocrats, may persist for the forseeable future.

If the system would falter it remains to be seen if the current winners, the pigmen, will be able to retain their relative wealth advantage. We have just passed the income inequality of the late 20's it has been reported. Perhaps not coincidently the last time asset distribution became so skewed a depression followed. If another financial panic occurred another depression of some sort might follow. The main political question those loitering here might ask is what would be the political repercussions.

My vote is for the authoritarians nest time. Just a guess of course.

Posted by rapier | July 15, 2007 8:49 PM

eh, roger, you really want to go with that Chewbaca contraption?

Let's make this reeeeeeaaaaal simple, even for a shallow thinker like you.

Revolution /= firebombings, nuking, general all around genocidal behavior.

Russia was a geopolitical power, not an economic one.

And oh, you profitably ignore the impact of american loan practices after both wars.

The losses in physical and human capital aren't remotely the same.

In any event, your reasoning has a secondary broken windows fallacy. The lack of competition is important in the sense that none of the other countries could lock the US out from a particular market. None of the other countries could get high margins like the US could. They could buy our shit because we were vendor financing them. They also grew fast and had economic miracles because they were starting off of a very low base. The late 40s and the 50s were very very hard years for almost everyone outside of the New World.

Posted by shah8 | July 15, 2007 8:50 PM

Guy - yes, I cited MEDIAN income going up, and average has gone up even faster
Certainly income could go up because people are working longer hours - EXCEPT THEY AREN'T = 33hrs a week for nonsupervisory workers

Again, it is nonsense to assume incomes (wages yes, and total comp) have not risen in the past 25-35 years (also, there are more bonuses, profit-sharing, stock, etc) I grant that pensions are now lame but all the various NONWAGE forms of compensation that exist now barely existed in the 70s and they amount to huge dollars

Lefties will never concede the incredible economic and social advances that have and are happening in the US especially in the past 4 years

Posted by Jozef | July 15, 2007 9:30 PM

Re: The truth in that is that finance now IS the economy.

Hmm, sounds like "the business of America is business". By the way I've never understood the taxargument being made. If I was told that by swinging a set of high finance deals I could make ten million dollars I would certainly do so, even if I had to pay half that ten million out in taxes.

Re: If for some reason there was a widespread financial panic, a liquidity crisis, the results for most Americans would be worse than the Great Depression.

Given that we have a number of "circuit breakers" (like the FDIC) in place as well ameliorative programs like unemployment and Medicaid, the above statement is luducrous. And indeed, we've had a number of meltdowns like the market crash of 1987, which burned people who lost a lot of money, but did not sink the economy nor leave the mass of people in destitution.

Re: The late 40s and the 50s were very very hard years for almost everyone outside of the New World.

Really? Then why is that era called in German the Wirtschaftswunder, instead of the Wirtschaftsleid.

Re: I grant that pensions are now lame but all the various NONWAGE forms of compensation that exist now barely existed in the 70s and they amount to huge dollars

The modern benefits package certainly existed in the 70s. Good grief. And yet in many cases these benefits were better then than they are now: they cost more now but are worth less, in quality.

Re: Lefties will never concede the incredible economic and social advances that have and are happening in the US especially in the past 4 years

Oh, I see you are posting from some alternate reality! Well, here in this reality we haven't had "incredible advances" since the late 90s. In fact it was pointed out by (I think) James galbraith that even entrepreneurial incomes have done poorly in this decade, and the only geographic area to show a significant increase in income has been the counties around Washington DC-- meaning the imaginary "Bush boom" is based on nothing more than government spending and a very narrow patronage of certain special interests. As others have said before me, give me the economy of the late 90s and I'll happily take the tax rates of that era too.

Posted by JonF | July 15, 2007 9:55 PM

Jozef wrote:
Certainly income could go up because people are working longer hours - EXCEPT THEY AREN'T = 33hrs a week for nonsupervisory workers

Hasn't female participation in the labor force increased since 1967? If so, that would increase the number of hours worked.

Posted by Guy | July 15, 2007 10:46 PM

The FDIC! Pretty funny. Who has any savings? Savings are soooooo 20th century. At least if your talking about cash savings. Most everyones 'savings' are in financial or real estate assets.

Apropos of nothing, perhaps: There are five non financial corporations in the S&P 500 that have a AAA credit rating which in total represents about $25 billion in debt. There are 37000 structured financial products rated AAA representing tens of trillions of dollars, if not more.

Interestingly many of the sub prime mortgage pools are still rated AAA and held on the books by banks, pension funds and and even the poor sucker Chineese who now own $500 billion or more of GSE paper. Held on the books at full value mind you, and you may wonder why that is.......

No, best not to think about all that. The world has only incrementally changed from the old days, like the 30's or the 70's even. Everything is totally under control by our betters who understand such things.

Posted by rapier | July 16, 2007 12:05 AM

Re: The FDIC! Pretty funny. Who has any savings? Savings are soooooo 20th century. At least if your talking about cash savings

Quit a few people have IRAs, not to mention checking accounts. Deposit banks have not gone out of business you know.

Posted by JonF | July 16, 2007 6:36 AM

Don't forget about the high tax rate/high govt regulation 1930s and 1970s. Those were really prosperous decades. Lots of income equality, too.

Posted by Ralph L | July 16, 2007 7:49 AM

"And yet in many cases these benefits were better then than they are now: they cost more now but are worth less, in quality."

In the 1970's did health coverage (a major non-wage cost) cover arthroscopic surgery? MRIs?

Health care is certainly more expensive today, but it provides significant reductions in mortality.

Murphy and Topel find that reductions in mortality from 1970 to 2000 had an economic value to the 2000 U.S. population of about $3.2 trillion per year:

http://www.nber.org/digest/dec05/w11405.html

Of course, these non-wage benefits would probably cost less if they were actually delivered in a less-regulated mechanism, such one that removes the link between health care and employers through distortive tax policies as well as removing state-by-state regulaiton of health insurance (which reduces economies of scale).

Posted by Mr. Econotarian | July 16, 2007 10:22 AM

What struck me about the Times article was the lameness of the current robber barons in this new guilded age -- only Gates and Buffett in the top 20? We have a long way to go to repeat the glory years of the Gay Nineties.

Also, I am not sure I understand Matt's comment about Weill's being a "jerk about it." Last I checked being a non-jerk was not mandated in the Constitution, nor is being a jerk illegal (or even necessarily immoral). In fact, if there were not jerks there would be no one for the Matt's of the world to feel superior to.

I, for one, would not want to live in a jerk-free country for those and many more reasons!

Posted by dcpi | July 16, 2007 12:14 PM

Stagnant wages in US since the 70s?

Median inflation-adjusted household income
1967 ~$35K
2005 ~$46K

household size decline from avg of 3.3 people to 2.5 people, hmm. people must be making a whole lot more

Household income doesn't accurately account for individual wage/salary increases or hours worked. Two adults earning $23K = $46K in 2005. The number of households with two breadwinners has multiplied dramatically since the early 70s. I believe real wages are effectively stagnant since the mid-70s and the increase in household income is due to two parents working. Also, the number of people in a household says nothing about "people making a whole lot more" Household size includes children. The average dropping from 3.3 to 2.5 may be attributed to mothers entering the workforce and not being able to raise multiple children.

Posted by Seamus | July 19, 2007 2:37 PM