Resentment of the crazy rich isn’t just envy
When human beings are upset by the scene of a few individuals amassing unseemly amounts of wealth, it’s a problem that needs solving
In the forthcoming movie Crazy Rich Asians, an American woman discovers that her boyfriend belongs to Singapore’s secretive, obnoxious jet set. It’s fun to laugh at the ultra-rich when they’re just a caricature on a screen. But it’s possible that the increasing visibility of crazy-rich Americans is fuelling rising anger about inequality.
In the past few decades, the US has greatly improved its social safety net. And the country’s middle class has seen real income gains. But a 2015 The New York Times/CBS poll found broad concern about inequality.
Meanwhile, books such as economist Thomas Piketty’s Capital In The Twenty-First Century, which documents the rise of inequality and predicts that it will continue inexorably, have achieved huge and unexpected popularity. And for the first time in many decades, “socialist” is no longer a dirty word in American politics.
Some people believe that Americans are upset about the division of the middle class into a downwardly mobile working class and a thriving, educated upper-middle class. That anger may be real, but it doesn’t seem to fit with the actual changes happening in the income distribution. Since 1980, income gains for the top 20% of US earners—except for top 1%—have been barely larger, in percentage terms, than gains for the middle 60% or the bottom 20%. Meanwhile, the top 1%’s income has soared.
But even within the top 1%, there are vast disparities.
The top 0.01% of earners—those making more than $7.5 million a year as of 2015—had much bigger gains than the rest of the 1%. And the phenomenon is more pronounced in the US, which is home to more than a third of the world’s billionaires despite representing less than a quarter of the global economy. Chief executives in the US are paid about 345 times as much as the average worker—a figure more than twice as high as in any other country.
In other words, it’s not the upper-middle class that has pulled away since 1980, or even the moderately rich—it’s the crazy rich. These include the famous rich people we see on television—tech billionaires like Elon Musk and Peter Thiel, titans of finance like Warren Buffett, and captains of industry like Charles Koch. It also includes the current president.
It also includes an assortment of hedge-fund managers, heirs and heiresses, and other jet-setters who aren’t household names. But the visibility of a few famous billionaires, and the respect—bordering on adulation—that is afforded to them by some segments of the press and society, has only served to highlight the humble nature of the hard-won income gains that have accrued to everybody else. Although economic growth has slowed and upward mobility stagnated, a few very visible winners are living the high life in palatial dwellings, flying around the world and being the toast of exclusive parties.
The difference in lifestyles probably seems even more galling when expressed in terms of relative toil. A highly paid chief executive officer can make enough to buy a new car in just a few hours, while for a low-wage worker it takes years of diligent saving and monotonous labour.
That surely sits uneasily with many. Some may sneer at those who are bothered by such disparities, deriding their sense of unfairness as mere envy or jealousy. But it’s a natural human emotion nonetheless. Any human desire can be dismissed with a derogatory word—gluttony, lust, pride and the rest of the seven deadly sins are just disparaging names for everyday human impulses. Economists tend to be utilitarians—they treat human desires as things worth satisfying. And when human beings are upset by the scene of a few individuals amassing unseemly amounts of wealth, it’s a problem that needs solving.
But resentment of the super-rich is probably not simply envy. It likely has to do with notions of fairness. As economist N. Gregory Mankiw conjectured in a 2013 essay, people are more likely to begrudge vast fortunes if they feel the wealth wasn’t earned.
Technology company founders may be rich, but they mostly got that way by creating new products or services that benefit many people’s lives—think PayPal or iPhones or Facebook. Similarly, rich athletes or entertainers used their talents to make life more enjoyable for millions of Americans.
But about 38% of American billionaires inherited at least a substantial part of their fortunes. These heirs and heiresses tend to be less in the public eye, but they hold vast sums nonetheless. Taxing these unearned billions seems like a great way to allay public concerns about the super-rich.
Economics provides both empirical and theoretical support for the idea of taxing inheritances at much higher rates, and making the tax much harder to avoid. Surveys find that informing people about wealth inequality makes them much more likely to support higher estate taxes, but only slightly more likely to support other forms of taxation. And economic theory suggests that taxing wealthy inheritors can increase economic efficiency if many of them are bad investors.
So one idea to address popular anger over the dramatic success of a few super-rich individuals is to stop them from passing most of those fortunes on to their children. That won’t take the Elon Musks and the Mark Zuckerbergs out of the news, but it will reassure Americans that most of their crazy-rich countrymen made their own money through hard work and talent, not just the luck of having rich parents. Bloomberg View
Noah Smith is a Bloomberg View columnist.
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