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The belief that the wealthy are worthy is waning

With financial crisis and scandal as backdrop, Americans are questioning whether plutocrats are either indispensable or deserving.

March 19, 2009|MICHAEL HILTZIK

The notion that the poor always will be with us has been ingrained in our culture ever since the sermons of Moses were set down by the anonymous author of Deuteronomy.

The financial crisis of the present day raises a rather different issue, however: What should we do about the rich?

That the point is even open for discussion suggests that a sea change is taking place on the American political scene. For decades, the wealthy have been held up as people to be admired, victors in the Darwinian economic struggle by virtue of their personal ingenuity and hard work.

Americans consistently supported fiscal policies that undermined middle- and working-class interests partially because they saw themselves as rich-people-in-waiting: Given time, toil and the magic of compound interest, anyone could retire a millionaire.

That mind-set has all but been eradicated by the damage sustained by the average worker's nest egg, combined with the spectacle of bankers and financial engineers maintaining their lifestyles with multimillion-dollar bonuses while the submerged 99% struggle for oxygen.

(The price of admission to the top 1% income-earning club last year was roughly $400,000.) That may account for the near-total absence of public outcry over President Obama's proposal to raise tax rates on the wealthiest Americans -- except of course from the wealthiest Americans.

One factor fueling the public fury over the AIG bonuses, so inescapably in the news this week, is the recognition that so many huge fortunes landed in the hands of the undeserving rich. Some of them added little value to the economy but merely moved money around in novel, excessively clever and ultimately destructive ways; others are corporate executives who were ridiculously overpaid whether they succeeded or failed at their jobs.

It won't be long now, moreover, before Americans again wise up to the role of dumb luck in building wealth. By my count, roughly one-quarter of the names on the Forbes list of the 400 richest Americans got there by inheritance (and by no means have all of them enhanced the family fortune with their own toil or brainpower). A few years ago, it was common to think of the rich as a special breed. We may soon come around to George Orwell's view that the only difference between rich and poor is income -- "The average millionaire," as he put it, "is only the average dishwasher dressed in a new suit."

The shift in sentiment should surprise no one. As the management sage Peter Drucker once predicted, "In the next economic downturn there will be an outbreak of bitterness and contempt for the super-corporate chieftains who pay themselves millions. In every major economic downturn in U.S. history the 'villains' have been the 'heroes' during the preceding boom." Drucker was speaking in 1997, two downturns ago.

This brings us to a couple of questions certain to become more pressing as we stagger through the fiscal and economic hangover from the Roaring Oughty-Oughts: How much does our economy depend on the rich, anyway, and why shouldn't we soak them good?

A bit of history will be useful here. The original case for a progressive income tax -- that is, one levied disproportionately on larger incomes -- was based less on raising revenue for the state than breaking up concentrations of wealth, inherited and otherwise. The nation's Founding Fathers considered these to be undemocratic -- markers of "an aristocratic society, not a free and virtuous republic," as the tax-law expert Dennis Ventry has written.

Recent events validate the Founders' instincts. The craze for financial deregulation in Washington was fomented in part by Wall Street plutocrats brandishing lavish political donations, gifts, offers of employment and other trappings of economic power. Would Wall Street have gotten so far out of control if it had had less power to wield? No one can know for sure, but it's a question worth pondering.

There's also a social value in suppressing income inequality. In a country with only a slightly less ingrained tradition of civility than the United States, the AIG affair would provoke rioting in the streets.

"We live in a country with tranquillity and good feelings toward each other, and that's precious," says Robert Shiller, a Yale University economist and coauthor of "Animal Spirits," a new book about the psychology of economics. In the current crisis, "there's anger and a sense of injustice taking hold, and it's not in the interest of wealthy people -- you don't want people on the poor side of town to be angry with you."

By the way, maintaining the civic institutions, police forces and public infrastructure that enable great fortunes to be made and kept costs money. Wealthy taxpayers should keep that in mind the next time they're inclined to bellyache about not getting anything from government.

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