17.

The New American Royalty

Most commentators missed the significance of Forbes’ 1999 issue reverently devoted to the 400 richest persons in the United States. Sure, many marveled that more than half (268) of the members were billionaires. And in 1999 it required at least $625 million to be admitted to the group—a $125 million jump over the previous year.

What most people didn’t stop to think about, however, were the other articles in the same Forbes issue. The “Families” article described all the families and heirs of millionaires who didn’t qualify as the richest 400 because their fortunes were distributed to more than one person. These family fortunes were worth from $1.3 to $13 billion each.

The “Near Misses” article poignantly described all those who came close to being on the richest 400 list, but not quite. They only had a piddling $580 to $620 million each.

The “Drop Outs” consisted of those who used to be on the 400 list but who died recently or suffered stock losses, or whose wealth didn’t increase fast enough for them to stay qualified.

Nowhere listed in this issue of Forbes were the thousands of persons in the lesser multimillionaire class who had achieved a somewhat less ostentatious, but still royal, lifestyle for generations of their descendants to come.

With monotonous repetition, The Wall Street Journal describes in its headlines the outlandish enrichment of corporate America’s lesser multimillionaires: “Chairman Receives Jump of 35% in Compensation” (to $2.1 million); “Paine Webber’s CEO Got Compensation Totaling About $11 Million Last Year”; “Cendant’s Silverman Got $27 Million in ’97 In Exercising Options”; “Paxson CEO Awards Himself $1,875,000 Cash Bonus”; “Ex-Bank of New York Chief Received $31.5 Million in Compensation”; “Allied Signal’s CEO Saw $23.1 Million Gain Due to Stock Options”—and on and on, day after day.

The real story of the 1999 Forbes’ richest-400-issue—and the Journal’s daily listing of world class greed—is: While the real wages for most working-class Americans are just beginning to go up relative to inflation, after more than 20 years of stagnation or decline, our country is creating a large number of royal dynasties of people who will never have to work, except for therapeutic reasons, in their entire lives.

The dark side of this uplifting scenario is that all these people will expect working-class Americans to support them—and to provide them with their continued wealth—for as long as they can keep their well-paid conservative politicians in power.

Look at Forbes’ description of the “Richest People in America,” the “Forbes 400”:

Our billionaire ranks swelled by 79 names, to 268, making this the first year that billionaires make up more than half the list. Together, the 400 have a net worth of $1 trillion—greater than the gross domestic product of China. The minimum needed to get on: $625 million, up from $500 million last year.

   Clearly, there’s no better time to be in the three-comma club.¹

In its previous annual 400 issue, Forbes included an article that contended that “anyone with talent and energy” can get the necessary backing to take a shot at making a fortune. Under the head “Land of Opportunity,” it claimed that

  

America has created a system in which anyone with talent and energy has access to the financial resources needed for success. That alone won’t lead to fortune, but it pretty much guarantees that talented people don’t fail for lack of capital.

   Today banks, venture capitalists, underwriters and stock brokers here don’t much care who your grandfather was or whether you went to prep school or dropped out of college. All they care about is: Can we make some bucks by backing this guy (or gal)?²

A billion dollars is one thousand million dollars. So how does one go about getting capital to become worth that much, or even half that much? No doubt “talent and energy” help a lot. But inheritance counts for a lot more.

To see the extent to which these kinds of people brought themselves up by their own bootstraps, researchers Paul Elwood, S.M. Miller, Marc Bayard, Tara Watson, Charles Collins and Chris Hartman analyzed the Forbes richest 400 members for 1996 and 1997.³

In “Born on Third Base,” they reported the results in baseball terms. They found that 43.35% of the richest 400 were actually born on home plate. They simply inherited their way onto the list.

Inheritances also appeared to help many people “work” their way onto the list: 6.85% were born on third base. In other words, they inherited over $50 million to begin their journey to wealth.

Five and three-quarter percent were born on second base, inheriting $150 million; 13.9% were born on first base, being merely upper class; and the remaining 30.1% started in the batter’s box, having parents who did not have “great wealth or business with more than a few employees.”

Uneducated, disadvantaged kids from the ghetto were mysteriously missing from the lineup of America’s richest. And is it really true that people in the banking industry really “don’t much care” who your relatives are? 

To get an idea of who gets financial and business backing, and how the rich keep getting richer, read how Business Week answered the question “Can Sam Walton’s Daughter Make It Big On Her Own?”:

Rivals claim her new investment firm, Llama, has an advantage.… Some of Alice Walton’s rivals charge that Llama is heavy-handed in using the family’s political and economic clout, especially to win public finance contracts. One competitor says the company implies to potential clients that the family or WalMart will reward them for hiring Llama. “It makes it a little tough to compete,” says another.… 

   Llama was recently selected to be the sole senior manager of a $33 million bond issue for Fayetteville.  Rivals grumble that Llama sold fewer than a third of the bonds and paid other firms less than the usual concession for their help.⁴

Evidently, being a billionaire gives you the right—and power—to do less work and still make better deals with your business associates than can less well-connected people. A cynic might also point out that, if you have six individual family members, including yourself, listed among America’s richest 400 persons to begin with, it’s difficult to fail. This is the same Alice Walton who, while intoxicated, careened her Toyota 4-Runner off a road and destroyed a gas meter and telephone box. She told a Springdale, Arkansas officer: “You know who I am, don’t you?  You know my last name?”

In its annual celebration of greed, Forbes often tries to demonstrate that inheritors of millions deserve to remain members of the world’s aristocracy—because they sweat a lot. Under the head “Young, moneyed and driven,” we learn how commendable, though demanding, it can be to inherit billions:

So Dad’s worth a billion—or more. What’s that like?  Some kids surely lead the jet set rich-kid life, a la Mohamed Khashoggi, but many billionaire kids appear to have business in the genes, sweating to persuade Dad and Mom that they are fit to fill their shoes. 

   The working rich kids share some common traits.  Many have been educated in the U.S. They’re comfortable with new technology and new management styles.⁵

Surely, working rich kids “share some common traits,” commendable ones at that. They get first rate educations at prestigious schools; they inherit a set of influential personal contacts (country clubs, alumni, industry associations, political acquaintances, family friends, parents’ business associates, and so on); they get personal role modeling in the areas of management, finance, investment, tax avoidance and, in general, in the whole area of wealth accumulation.

Add a few million bucks, and you get the best financing rates from banks, access to expert advice in technology, marketing, and finance and—even better—if you fail at your fling in business, you just rely on the rest of your investments to continue to live like royalty for the rest of your life.

And there’s the rub. America’s ridiculously wealthy, whether they work or not, are successful or not, are a new class of royalty, with the traditional benefits of royalty, and there is almost no way they can lose. For America’s new aristocracy, maintaining a royal status for their descendants—no matter what their talents, discipline, or effort—has become a science. In “Achieving Immortality via the Family Office,” Forbes warned its readers that “You made your money the hard way, but will your grandkids know how to hang on to it?”:

 

By establishing a family office, you hope to protect heirs yet unborn against economic misfortune long after you are dead.…  

   Six generations after Commodore Cornelius Vanderbilt made his fortune, it [half-billion dollars] continues to grow. By pooling their money and following an aggressive investment strategy, 43 of the descendants of the Commodore’s great-great-grandson William A.M. Burden…remain individually and collectively wealthy.…

   Though all the Burden heirs are wealthy, few are by themselves wealthy enough to hire the specialized talent that the Burden office provides. “The beauty of it is, I can cherry-pick products and hire world-class money managers unavailable to ordinary investors,” says Jeffrey A. Weber, the 33-year-old chief executive.⁶

Prior to ClintoReaganomics, workers made decent incomes, our country had a progressive tax system, unions had power, and everyone shared in the benefits of technology. It wasn’t quite so automatic that descendants without any special talents would hang on to their inherited wealth, or even increase it.

But that was before Republicans and conservative Democrats got control of Congress and the presidency. Now—as long as our new American royalty can take ruthless advantage of workers all across the globe—it has become an automatic right of birth to remain in the aristocracy.

With sophisticated investment management, generations of descendants will live like royalty long after today’s patriarch leaves his legacy. These are the same sanctimonious hypocrites who say that requiring a decent minimum wage for beginning workers, or giving reasonable unemployment compensation to people who have lost their jobs, will destroy the incentive to work hard among the common folk. Evidently, it’s a different story when conservatives give free, unearned millions—or billions—of dollars to their own descendants.

Two more observations: First, the Forbes article is another admission by the same people who want to privatize Social Security that good investment advice (“specialized talent”) is hard to come by, even for relatively wealthy persons.

Second, working-class Americans should be aware that an “aggressive investment strategy” means that investments will be made in those countries that take the most ruthless advantage of workers. The Wall Street Journal’s following description of “aggressive” investing leaves no doubt about the moral standards of today’s wealthy American investors. Under its appropriate headline, “The Haves,” the Journal gave its vision of the future for American workers:

If there’s one thing you can count on in the 21^st century, it’s that the rich aren’t going to just sit back and watch those fortunes dwindle away.… For a start, they’re going to get a lot more aggressive about the way they manage their money.…

   That means the rich will be shifting more of their funds to investments in rapidly developing nations where returns are likely to be highest, says Richard Marin, managing director at Bankers Trust Co.’s Private Bank in New York…. 

   Over the coming decades, this new group of rich people will be part of the greatest transfer of inherited wealth in American history as the parents of baby boomers—those born from 1946 to 1964—leave trillions of dollars to their children.⁷  

Mere wealth preservation is no longer the goal of America’s wealthiest. Neither is loyalty to this country, to its workers, to its communities, or to its environment. It’s all about maximizing the personal wealth of oneself and one’s descendants—no matter what injustices are perpetrated against others in the process.

When people invest in Third World countries with deplorable moral standards, they know full well that they are getting richer by betraying American workers and communities, and the environment. It’s reported daily in our conservative financial publications.

The transfer of wealth from one wealthy generation to another, although massive and significant, isn’t the most important transfer of wealth. Far more important is the preceding transfer of wealth from workers to investors. Investors have cashed in the value that workers built into this country prior to 1980 by selling out our industries, and using the funds to invest overseas where workers have no protections or bargaining power.

The full effects of this transfer of wealth are still to come, and the American public has yet to appreciate a simple fact: All these people are getting locked into lifestyles that will require huge amounts of money in the future, and that will be the subject of the next chapter.

  

Aside: Virtue and “Family Values”

To make themselves appear more virtuous, modern conservatives have attributed “sound family values” to themselves, and they cite divorce and the lack of marital fidelity as major causes of poverty. They’ve even made the single-mother-with-children the poster mom for the link between poverty and irresponsibility.

Note that of 1999’s richest 400 people, 72 were divorced once, 19 were divorced twice, 5 were divorced 3 times, one was divorced four times, and one was divorced 5 times. So much for the claim that wealth is the natural result of solid family values, and that poverty is the result of poor family values.

Of course, most of the 400 are married or remarried. Being filthy rich certainly makes one more desirable in the marriage market—even if divorced, ugly as sin, and with ten kids. On the other hand, even an attractive welfare mother, with just one kid, doesn’t exactly have people standing in line to get married.

No doubt solid family values contribute to financial well being, but they are not the most important consideration. Political power, inherited wealth, economic policy, education, opportunity, connections, and role models—not a responsible sex life—are the primary determinants of who gets rich.

As with all large-scale social injustices, when the economic system becomes too biased in favor of small groups of privileged people, bad things are going to happen.

The longer we continue to create large numbers of America’s new royal class, the more painful any corrections will be for everyone, predators and victims alike, when the economic system reaches its limit. And time is getting short.