For some time now we have been hearing about the gargantuan fortunes rapidly accumulated by tech superstars. Admittedly, the thought of people like Bill Gates, Larry Ellison, and Michael Dell having a net worth that exceeds the gross national product of small countries is staggering — and, to some, alarming. It took Rockefeller and Carnegie a lifetime to become billionaires; Joe Ricketts of Ameritrade, Pierre Omidyar of eBay, and Steve Case of America Online did it in less than five years.
When Rockefeller became a billionaire in 1913, his net worth was approximately 2 percent of America’s gross domestic product. Gate’s net worth is considerably less than 1 percent of the current U.S. GDP. Moreover, the “starter castles” of today’s tycoons cannot compare with William Randolph Hearst’s San Simeon, let alone the royal palaces of Blenheim or Versailles. In the past, though, wealthy people were a tiny minority, both in Europe and America.
What is new is neither affluence nor extravagance, but the sheer number of rich people in America today. The ranks of the rich have swelled so greatly that it is necessary to establish a new category, the super rich, to distinguish between people who can afford to live very well and those whose spending is limited only by their imagination.
In 1980, anyone with a net worth of $ 1 million was considered wealthy. The concept of the millionaire continues to wield its talismanic power: A show like Who Wants To Be A Millionaire assumes that a million dollars makes you rich. But recall that the term millionaire became synonymous with wealth and acquired its mystique at a time when the average American was making $ 10,000-$ 12,000 a year. Today to qualify as rich you need $ 1 million in annual income, or $ 10 million in net worth. According to the Federal Reserve Board, some 250,000 households, with around 1 million people, meet this criterion.
Being rich means that you can live very comfortably, but you cannot do whatever you want. If you want multiple residences and domestic staff to manage them, if you insist on your own Gulfstream V, if you are determined to own a sports team, then you need to join the ranks of the super rich. That takes $ 100 million in net worth, or $ 10 million in annual income. I estimate that 5,000 American households, and perhaps 10,000 households worldwide, fall into the super-rich category.
But the big story is not the growth of this group. It is the explosion in the ranks of the affluent class, the people who make over $ 100,000 a year and have a net worth in excess of $ 1 million. In 1980, fewer than one million American families had this kind of money. Today approximately 5 million do, or more than 15 million people. Some analysts predict that in the next decade these numbers will quadruple. Many Americans have reached a standard of living that, in the words of novelist Tom Wolfe, “would make the Sun King blink.”
Let’s put this development into perspective. Historically, the great achievement of the modern West was the creation of a middle class, allowing the common man to escape poverty and live in relative comfort. Now the United States has performed an equally dazzling feat: It has created the first mass affluent class in world history. This country has extended to millions of people avenues for personal fulfillment previously open only to the very few. A mass affluent class is starting to emerge in European countries as well.
Call it the Overclass. These are the new equivalents of the lords and barons of the Middle Ages — only today’s Overclass is so big, and growing so fast, that perhaps one day it will outnumber the peasants.
All this new wealth has generated some interesting conflicts. Recently the Wall Street Journal published an article under the headline “Even Leftists Have Servants Now.” It profiled people, including some professors, who for the first time are making six-figure incomes. These people have hired gardeners, pool men, cooks, and nannies, most of them blacks and Mexicans. The contortions the academics go through to justify their behavior make for amusing reading. Political scientist Mark Petracca, who teaches at the University of California at Irvine, says he finally agreed to get a nanny, but he absolutely refuses to hire a gardener, even though everybody else in his neighborhood has one. Explaining his scruples, Petracca says, “It reeks of a kind of imperial colonialism one can imagine present in Shanghai in 1920.”
What this behavior suggests is that the baby boomers, who grew up in the 1960s, have finally embraced capitalism and are eager to enjoy its rewards, but they are also anxious to show by their consumption patterns that they have not given up their values. In his recent book Bobos in Paradise, David Brooks describes well-off Americans who live in “latte towns” where the style is bohemian — Jim Morrison on the radio, Colombian throw rugs and African masks for sale, Left Bank-style cafes — but the talk, even among pony-tailed men with beards, is of start-ups and stock prices.
Meanwhile, successful entrepreneurs and business executives are also acting “against type.” Many who have seen an explosion in their net worth have consciously rejected the social style of the old rich; rather, they are eager to present themselves in public as middle class. Tech CEOs, in particular, like to be seen in jeans, black T-shirts, and baseball caps worn back-to-front, to show the adjustostrap to advantage. A Lexus or a Porsche is socially acceptable in Menlo Park, California, or Medina, Washington; a Rolls Royce is not. Affluent people today are not likely to go in for the diamond-studded Rolex; some will not hesitate to wear a cheap Swatch, and others will sport a Patek Philippe with a crumpled shirt and faded jeans.
Somewhat comically, today’s tech tycoons who have made enormous fortunes chant in unison, “We’re not doing this for the money.” Bill Gates says that, and so do Tim Koogle of Yahoo, Steve Jobs of Apple, Mary Meeker of Morgan Stanley, investment guru Charles Schwab, and Larry Ellison of Oracle. Apparently the largest wealth-creation scheme on the planet is being driven by non-profit motives.
Equally strange, many rich people have announced that they are not going to leave the bulk of their estate to their children. “Leaving children wealth is like leaving them a case of psychological cancer,” says broadcasting magnate Jim Rogers. The new rich are terrified of raising a generation of lazy, arrogant, spoiled brats. Some rich people who speak of the need to “give back to society” or to “find meaning in work” are even beginning to sound like social activists or spiritual gurus.
What we are seeing in America is the moral conundrum of success. In times of poverty the problem of wealth creation is in the forefront. In an era of prosperity, however, the issue becomes the use of wealth. When a person, or the country, becomes rich, new questions arise: Do I really deserve all this? How do I use my money to find happiness? How can I raise my children well in an atmosphere of plenty? What can I do to extend opportunity to others in society? How do I deal with envy? Questions like these are on the minds of the Overclass.
Inequality, a topic that seemed to have disappeared with the collapse of socialism, is suddenly a big issue again in America. Studs Terkel, the author of Working, gripes it is not right that millions of Americans are struggling to make ends meet, and millions around the world are starving, while “some guys have more money than God.”
Social critic Michael Walzer points out that while CEOs of public companies as late as 1990 made an average salary of $ 2 million a year, today’s average is $ 11 million. And if you factor in stock options, it is not uncommon for top CEOs to take in $ 100 million a year. Perhaps their companies have done well, Walzer admits, but have the employees seen their salaries go up fivefold or tenfold?
These are the complaints of journalists and academics, but many in the tech world have expressed similar concern about the “digital divide.” As physicist and tech visionary Freeman Dyson puts it, “People who are not wired are in danger of becoming the new servant class. The gulf between the wired and the unwired is wide and growing wider.”
I raised these concerns with Rich Karlgaard, a new-economy enthusiast who is also the publisher of Forbes. With a look of dismissive amusement, Karlgaard replied, “I’ve heard the entire greed, sin, red-in-tooth-and-claw, orphan’s-empty-porridge-bowl dreary lecture. You know what is really galling these intellectuals? The fact that they have lost power. The fact that no one cares what they have to say. And you know why? Because people are all at the mall, shopping. Because America’s doing too damn well, that’s why. Inequality is only a problem in the minds of intellectuals.”
I told Karlgaard that while I agreed with him about the broad reach of affluence, I did not agree that inequality was a non-issue. To illustrate my point, I recounted an experience at a recent conference sponsored by his own magazine. During a session devoted to executive salaries, CEO after CEO had stood up to complain about having been personally criticized for making too much money. Finally one corporate titan said, “I don’t understand the American people at all. They don’t begrudge Jerry Seinfeld and Michael Jordan their millions. What do they care about what I earn?” To this, one of his colleagues retorted, “When the average Joe turns on his TV, he sees Jerry Seinfeld do his comedy routine and Michael Jordan hit those baskets, and he says, ‘I can’t do that.’ But he thinks he can do what you do.”
Karlgaard laughed. “And maybe he’s right. I don’t begrudge him his arrogance. But he’s got to go out and prove it. Don’t tell me how smart you are. Go out and start a company. Stop whining about the wealth gap, because when you think about it, the wealth gap is a good thing.”
A good thing? “I know how we could have solved the problem of inequality in America,” Karlgaard says. “Maybe Steve Jobs shouldn’t have popularized the personal computer. If only Jeff Bezos had stayed in his hedge fund job instead of starting Amazon. Too bad Michael Dell didn’t obey his parents and become a doctor. Wouldn’t it be great if Ted Waitt had taken up cattle ranching instead of starting Gateway? Unfortunately these things didn’t happen, because, if they had, America’s wealth gap would be a trifle instead of a cancer.”
So what now? Karlgaard says there’s only one viable solution to inequality: a 98 percent capital gains tax. That, he says, would pretty much take care of the wealth gap.
Karlgaard’s point is that inequality is necessary for markets to flourish efficiently; it is the natural outcome of a growing economy. And in one sense he’s right. In 1980, the vast majority of people in America earned between $ 12,000 and $ 55,000. If you made more than $ 55,000, you were in the top 5 percent of wage earners. Today six-figure incomes are commonplace, and to be in the top 5 percent you need an annual income of at least $ 150,000.
In other words, many people who were previously in the lower ranks have ascended rapidly. As they have become well-off, they have increased the gap between themselves and the rest of the population. Karlgaard’s point is that a narrow concern with inequality carries the implication that this expansion in the ranks of the affluent is a social tragedy, when in fact it is a magnificent social achievement.
So what about the digital divide? It’s true that whites and Asian Americans are more likely to use the Internet than blacks and Hispanics. The gap is even more pronounced along class lines: The rich are online in vastly greater numbers than the poor. These are social realities, but do they reflect a problem of “access”? Internet access in this country seems about as serious a problem as telephone access or automobile access. Today a secondhand computer costs no more than a TV set, and prices are likely to plummet even further. Internet use ranges in cost from $ 20 a month to free. Just about anyone who wants access can have it.
There is, to be sure, a digital divide, but it does not separate those with access to computers and the web from those without it. The real digital divide is between those who know how to use these tools to acquire knowledge and those who don’t. To close the divide would require teaching people the value of knowledge, how to obtain it, and what to do with it.
Members of the Overclass are concerned with these issues because they aspire not only to get rich but also to lead meaningful lives and to integrate their personal success with the improvement of society. The newly affluent don’t want to be envied, and they don’t want to leave their fellow citizens behind. So even as they enjoy their prosperity, they demonstrate an egalitarian social style and an eagerness to see knowledge, skills, and opportunity extended to as many people as possible. Whether the Overclass will succeed in implementing its ideals remains to be seen. But if it does, it will prove that the age-old animus against the rich is no longer justified, and that there can be virtue in prosperity.
Dinesh D’Souza, a research scholar at the American Enterprise Institute, is the author of The Virtue of Prosperity: Finding Values in an Age of Techno-Affluence, just published by the Free Press.
