How to deal with the plutocrats

By Felix Salmon
January 4, 2011
Chrystia Freeland has a long essay on the new global elite in the Atlantic, which will eventually become her next book. It's well timed to coincide with the self-congratulatory plutocratic gabfest that is Davos, which kicks off in three weeks' time, and with which Chrystia is very familiar.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Chrystia Freeland has a long essay in the Atlantic on the new global elite, which will eventually become her next book. It’s well timed to coincide with the self-congratulatory plutocratic gabfest that is Davos, which kicks off in three weeks’ time, and with which Chrystia is very familiar.

The difference between the new global elite and the old global elite is that today the world is owned and run largely by first- or second-generation money: people who tend to think that they’ve earned it, somehow, especially if they came to their wealth from a background in the lower-middle classes:

While you might imagine that such backgrounds would make plutocrats especially sympathetic to those who are struggling, the opposite is often true. For the super-elite, a sense of meritocratic achievement can inspire high self-regard, and that self-regard—especially when compounded by their isolation among like-minded peers—can lead to obliviousness and indifference to the suffering of others…

When I asked one of Wall Street’s most successful investment-bank CEOs if he felt guilty for his firm’s role in creating the financial crisis, he told me with evident sincerity that he did not. The real culprit, he explained, was his feckless cousin, who owned three cars and a home he could not afford. One of America’s top hedge-fund managers made a near-identical case to me—though this time the offenders were his in-laws and their subprime mortgage. And a private-equity baron who divides his time between New York and Palm Beach pinned blame for the collapse on a favorite golf caddy in Arizona, who had bought three condos as investment properties at the height of the bubble.

It’s not that these people are utterly bereft of noblesse oblige: Chrystia points out that “in this age of elites who delight in such phrases as outside the box and killer app, arguably the most coveted status symbol isn’t a yacht, a racehorse, or a knighthood; it’s a philanthropic foundation.” But those philanthropies don’t benefit the left-behind middle classes: they tend to follow a barbell distribution, with the money going either to the world’s poorest or else to well-endowed universities and cultural institutions. The US middle class is sneered at for being fat and lazy and unworthy of their wealth:

The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”

This mindset is dangerous, but it’s not clear how dangerous it is.

The real threat facing the super-elite, at home and abroad, isn’t modestly higher taxes, but rather the possibility that inchoate public rage could cohere into a more concrete populist agenda—that, for instance, middle-class Americans could conclude that the world economy isn’t working for them and decide that protectionism or truly punitive taxation is preferable to incremental measures such as the eventual repeal of the upper-bracket Bush tax cuts.

Mohamed El-Erian, the Pimco CEO, is a model member of the super-elite. But he is also a man whose father grew up in rural Egypt, and he has studied nations where the gaps between the rich and the poor have had violent resolutions. “For successful people to say the challenges faced by the lower end of the income distribution aren’t relevant to them is shortsighted,” he told me. Noting that “global labor and capital are doing better than their strictly national counterparts” in most Western industrialized nations, ElErian added, “I think this will lead to increasingly inward-looking social and political conditions. I worry that we risk ending up with very insular policies that will not do well in a global world. One of the big surprises of 2010 is that the protectionist dog didn’t bark. But that will come under pressure.”

If this is true, then the members of the super-elite should be falling over each other to pay more in taxes out of simple enlightened self-interest—rather than saying that a perfectly sensible tax hike is “like when Hitler invaded Poland in 1939.”

But it seems to me that the inchoate anger of the masses shows no sign of cohering into anything at all, let alone protectionism, which seems to have been dying a slow death ever since the protests against Nafta. The Tea Party, which is the closest thing we have to a populist revolt, is bought and paid for by plutocrats and shows no protectionist tendencies whatsoever. If they keep on going on their present trajectory, they’re just as likely to continue unimpeded as they are to run into some kind of atavistic class warfare.

So I’m unconvinced that the plutocrats have any real incentive to restrain themselves, or to stop moaning around an Upper East Side dinner table that $20 million a year isn’t all that much—it’s really only $10 million a year, after taxes.

And I’m also unconvinced that we actually need the plutocrats as much as Chrystia says we do:

Not all plutocrats, of course, are created equal. Apple’s visionary Steve Jobs is neither the moral nor the economic equivalent of the Russian oligarchs who made their fortunes by brazenly seizing their country’s natural resources. And while the benefits of the past decade’s financial “innovations” are, as Volcker noted, very much in question, many plutocratic fortunes—especially in the technology sector—have been built on advances that have broadly benefited the nation and the world. That is why, even as the TARP-recipient bankers have become objects of widespread anger, figures such as Jobs, Bill Gates, and Warren Buffett remain heroes.

And, ultimately, that is the dilemma: America really does need many of its plutocrats. We benefit from the goods they produce and the jobs they create. And even if a growing portion of those jobs are overseas, it is better to be the home of these innovators—native and immigrant alike—than not. In today’s hypercompetitive global environment, we need a creative, dynamic super-elite more than ever.

I would put this another way. The Silicon Valley mega-wealthy are good for the US economy, but they’re not going anywhere: Silicon Valley hasn’t managed to reproduce itself elsewhere in the US, let alone anywhere else in the world. When it comes to US plutocrats, however, most of them are very similar to the Russian oligarchs who seized their country’s natural resources — they’re bankers and hedge-fund managers who seized their country’s financial resources. They produced no goods, and they created no jobs — quite the opposite. And so it makes sense for Americans who have lost their jobs and their hope to reclaim those financial resources, through mechanisms like a wealth tax or a financial transactions tax. The Silicon Valley elite would happily pay such things. And if the angry bankers went off to destabilize some other financial system, they wouldn’t actually be missed.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see


This article makes me want to scream. Internet start up moguls who think the middle class needs to take a pay cut, PLEASE OUT THEM. You owe that to your readers so we can know who to boycott.

Satellite and digital technology are responsible for increased telecommunication opportunities, and for the decrease in jobs for main street.

Internet start up companies get rich by reducing jobs, for them to be smug about this is sickening.

Posted by SWARMtheBANKS | Report as abusive

Reform, change, etc takes time. For example the Populist Movement in the U.S. that began in the early 1890′s was the impetus for the Progressive Era reforms implemented during the first 20 years of the 20th century.

Posted by david3 | Report as abusive

“the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade”

A more accurate sentence has never been written. This is exactly what has happened for the last 10 years and will continue to happen for at least the next 20.

Assets and resources do not appear by magic, they are created from energy, natural resources, and work. If you plot the price of OPEC oil or Florida orange juice over time you’ll see the same trend. Global demand for assets is rising faster than global production.

Assets will flow to the people who produce the most value. Twenty somethings in South Korea will work 50 hours a week and beat the bejesus out of Americans in math and science… I wonder why Samsung is kicking Motorola’s but?

Learn, adapt, invest… or lower your expecations!

Good luck!

Posted by y2kurtus | Report as abusive

As quoted by William D Cohan in NYT article “Big Profits, Big Questions”, NYT 4/14/2009 .. There is a reason Bill Gates once said Microsoft’s biggest competitor was Goldman Sachs. “It’s all about I.Q.,” Mr. Gates said. “You win with I.Q. Our only competition for I.Q. is the top investment banks.” .. Or you can trust Blankfein’s interpretation that they are doing “God’s work”. I’d say Gates’ opinion of the most important qualification of the modern global employee no matter the job field, is closest to the truth ..,

Posted by Woltmann | Report as abusive

Most US plutocrats “are very similar to the Russian oligarchs who seized their country’s natural resources — they’re bankers and hedge-fund managers who seized their country’s financial resources”??

Real nice. That’s the talk of proletariat revolutions. I’ll be the first one to agree that banking and finance have been full of crooks. That is why it is so disgraceful that there have been so few prosecutions.

Still, lets not throw out the baby with the bath water. Good money allocation by hedge funds and good banking work by the Goldmans of the world helps make us all prosperous. When hedgies foresee oil shortages and start stockpiling and then sell when prices get high, it helps ensure our dear Felix Salmon is not stranded on one of his many flights. When capital-destroying companies are taken behind the woodshed and shot by short sellers that is good thing for prosperity. And when successful small companies are granted the capital to multiply and go global we all benefit. When a well-capitalized pharma company is enabled to merge with a tiny diamond in the rough and bring a new medicine to *the entire world* it is quite a good thing.

Posted by DanHess | Report as abusive

y2kurtus, you seen the debt load on South Koreans? They may attend the office for 50 hours a week but most don’t WORK that long. Throw in that virtually all Koreans don’t actually start working until their mid to late 20s, alot of the women drop out after marriage and that they are expected to support their parents who spent most of their spare cash paying for their kids…. It is a country already undergoing some painful social change.

PS How is Samsung doing against say Apple?

Posted by Danny_Black | Report as abusive

SWARMtheBANKS, yeah because countries with low technology penetration have much better standards of life. They is why people are queuing up to move to the Democratic Republic of Congo….

Posted by Danny_Black | Report as abusive

“And, ultimately, that is the dilemma: America really does need many of its plutocrats. We benefit from the goods they produce and the jobs they create.”
I have no trouble accepting that there are people who lead companies, but why can’t they do so at 1960s-era reward levels? That is, it seems to me that the writer of the atlantic piece is presenting us with a bit of a false dichotomy here.
Anyway, fascinating to read a description by a cognitively captured journalist of the way these people think about their self-worth; it’s a shame that they’ve been taught wrong, though. Wonder if we can reeducate them to be more grateful members of society.

Posted by Foppe | Report as abusive

Also Bill Gates not being evil personified is recent. In the 90s he was the very epitome of evil monopolist…

Foppe, can they pay their workers 1960s salaries too? Or buy goods at 1960s levels?

Posted by Danny_Black | Report as abusive

DannyBlack has a good point about Apple vs Samsung. “American” companies (mostly now truely global) can still compete on innovation and branding.

My point though about the rise of the rest vs the west is still a valid one I think. YahooFinance has a pretty decent charting feature. If you compare the 10 year performance for the South Korean Ishares (EWY) with our S&P500 (SPY) The Euro350 (VGK) and EWJ for Japan you’ll see the difference I’m describing. In 10 years their market has trippled while the more mature western markets are all fighting to get back to where they started.

Dispite whatever your local business leaders, elected officials, or union bosses promise, global living standards will tend to moderate. That’s a scary thing for many Americans who got use to the idea that a highschool education and living clean added up to the good life.

Today the mills are closing after production was outsourced to the developing world and it’s tough to find work as a secetary because e-mail, voicemail, and smart phones have replaced that skillset.

It’s not all bleak… I hear that in New Hampshire kids will soon be getting highschool deplomas at 16. After that they spend the next two years earning college credits that will transfer to public university or high value added vocational training. Sounds pretty smart to me!

Posted by y2kurtus | Report as abusive

Another tiresome class-warfare rant from Mr. Salmon. It’s not clear to me how today’s elites differ in any material way form past elites – what was that bit about ‘let them eat cake’? And apparently they’re all a bunch of a**holes, too – this is news? Please, Mr. Salmon, stick with your clever – and oftimes witty – analysis of finance and markets and leave the class-warfare stuff to the aging lefties out there.

Posted by Gotthardbahn | Report as abusive

>Good money allocation by hedge funds and good banking work by the Goldmans of the world helps make us all prosperous

Where have you been for the last twenty years? That comment just evidences no understanding of past history. Your “markets are more efficient at allocating capital” theory started blowing up when the Goldmans of the world threw money at useless dot-com startups so they could goose momentum plays. And its only gotten worse.

Plutocracy is a serious problem. Pretending “we all benefit,” even in marginal ways like iPads and higher commodity prices and wickedly variable 401k statements is losing the forest for the trees. It is plain-and-simple a form of feudalism, and it is always countered with the same violence and extremism that were historically used to keep in line the merchant princes and their third-generation heirs who inevitably assume power is granted by god.

So sure: yeah iPads. Yeah hedging. But show some historical sense, people. There’s absolutely nothing in human nature that differentiates us from the angry peasants and plutocratic knighthood of the middle ages, and those groups *killed* each other. Maybe we should learn from history and act to prevent it from happening again?

Posted by yowsa | Report as abusive

We can bitch at the bankers all we want, but the day is going to come when we realize we’ve got things backwards. High finance has been a tremendous boon to American living standards. They suck the cash out of the rest of the world and bring it to our shores. The day will come–give it two or three decades–when the kleptocrats in Saudi, Russia, China, and India will invest their wealth in places like Shanghai and Mumbai. As Carly Simon said, these are the good old days.

Posted by kevinsd | Report as abusive


I would assume that Foppe was referring to 60′s level CEO to worker pay ratio. In 1965, the average CEO made about 25 time what a worker made. Today that ratio is about 300:1. Do you honestly believe that today’s CEOs are 12 times as valuable as those of the 60′s?

Posted by orogeny | Report as abusive

DannyBlack: Adjusted for inflation, most of us would LOVE to have ’60s paychecks.

Posted by Kevin_Ray | Report as abusive

I’ve seen a number of studies comparing household income today with household income in the ’60s and ’70s. They are uniformly shallow analysis, however, leaving so much unanswered…

Part of the problem is that we are living much grander lifestyles than was the norm 50 years ago. Larger houses, more cars. The houses and cars themselves are nicer and more reliable. A plethora of home electronics, most of which didn’t even EXIST in 1970.

Try pricing out your grandfather’s lifestyle. If he was among the upper middle class of his day, it might cost you as much as $40k or $50k a year to live the way he did. Think you can manage that?

Posted by TFF | Report as abusive

Part of the reason for the huge pay discrepancies was discussed in a great article in the NY Times on Christmas:

“Income Inequality and the Superstar Effect” also titled
“How Superstars’ Pay Stifles Everyone Else” ss/26excerpt.html

The gist is that in a globalized world, a few incredible talents can get the business of everybody.

For example Christina Aguilera can take music spending away from other musicians from Springfield to Timbuktu. Via an ETF, I (and anybody with pocket money lying around) can have Gross/El Erian manage my money, taking that business away from not only from my neighborhood financial advisor but even minor Wall St geniuses.

Nothing sinister there, just competition. I don’t have to invest with Pimco, I just happen to think they are worth it.

Lots of illegal stuff going on in finance, I agree. Tons of folks ought to be in jail, including some from Goldman (high-frequency front-running for instance). But much of that wealth is just what happens when you compete with some success on the world stage.

If we are to question the rich-poor gap, we must look at globalization itself. The winners in globalization win very very big, taking business away from very many.

Tom Friedman’s flat world? Not by a long shot.

Posted by DanHess | Report as abusive

the quote “the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade” misses a very critical point.

The U.S. has it’s infrastructure of roads, phone lines, buildings, water treatment, sewage, roadways and buildings already in place. It should not take the same level of work to maintain as it took to build up.

Several problems as I see it include people who had debt have not been given a fair chance to reduce their debt through interest rate relief on both their credit card debt and their mortgage rates. 0/11/2010-after-election-4-point-economi c.html

Also, the U.S. government has chosen to put most of its investment in preserving unencumbered access to the worlds resources through enhanced military spending, and not enough into being more self reliant and more efficient in the use of resources.

Also, the internet has changed the economy as well. 0/12/internet-has-changed-capitalism-for ever.html

Posted by SWARMtheBANKS | Report as abusive

Agreed, DanHess. It isn’t merely globalization, though. Technology (both communication and data management) allows small numbers of individuals to reach large numbers of clients.

Nor is this confined to the “superstars”. Anybody with skills and initiative can establish a small services business on a shoestring budget. These businesses squeeze compensation for those who prefer to work “in-house” for larger corporations, because they offer superior talent and superior flexibility *and* their cost structure doesn’t have nearly as much overhead baked in.

You read about people in their 50s who were laid off from professional careers and have trouble finding new positions at their old compensation. Did you learn anything during those 30 years of corporate employment? Then market those skills! Be creative and invent a niche for yourself.

Thus we’re seeing immense wealth for the people at the top of the corporate ladder. We’re also seeing a rapidly expanding “entrepreneur” class, making far more money than those with similar skills and a corporate job.

What we aren’t seeing is a market for those with generic low-level skills and no initiative.

Posted by TFF | Report as abusive

y2kurtus, the Nikkei has been mostly stagnant since the early 90s when it was mostly controlled by what was then the largest money manager in the world – a psyhic ceramic frog in Madame Nui’s restaurant. The Kospi runs off a mix of ajumma day traders, lazy incompetent fund managers doing fake trades to bump up the market to market NAV on their closet index tracking funds and a few hedgies and international IBs skimming the froth off the local noise traders.

So far the US has been written off in the 70s, the 80s, the noughties and now this decade. If Mr Salmon was sharper he’d be writting vague warnings about China so in a couple of years after that ponzi scheme comes crashing down he can cash in by pretending he predicted it.

Posted by Danny_Black | Report as abusive

sorry that should be a pyschic ceramic toad

Posted by Danny_Black | Report as abusive

I don’t for a minute want to write the U.S. off… I think our economy will grow… just not as fast as the economies where average age is lower, average education is higher, and average work week is higher… South Korea fits that bill but I doubt their the only ones.

TFF said it best “we aren’t seeing a market for those with generic low-level skills and no initiative.”

The problem is that seems to be a fast growing demographic in this country.

Posted by y2kurtus | Report as abusive

y2kurtus, I think we are in better shape than that. Despite recent evidence to the contrary, America has a long history of adaptability. In talking to people I hear some anger at Wall Street and Washington (seemingly in bed with each other), but also a willingness to accept things as they are and make the necessary steps to move forward.

The anger makes better politics (and far better talk radio), but the acceptance is more central to our national character. I’m *not* hearing denial, bitterness, or entitlement in the vast majority of my daily conversations (and I don’t hang in such high falutin’ circles as some on this blog).

Posted by TFF | Report as abusive

y2kurtus, South Korea in particular and Asia in general have an issue in that the general social model is that the parents kill themselves supporting their kids, the kids then support them in old age and family bails out anyone who is not working or struggling. The problem is that model is increasingly not working. The population as a whole is aging, they are having less kids – the korean gov is trying to give bonuses for babies, Singapore runs articles on how to date – the cost of living is jumping relative to wages and people are entering the job market later and later with a corresponding increasing burden on parents and decreased ability to support them when the parents retire. As a result the shortfall is being made up by debt which is piling up at a pretty sharp clip.

PS you see Samsung results today?

TFF, alot of that anger is manufactured by our friends in the press and also in the government. I also think the US has a long proven history of rising to challenges and overcoming them. If you want to see a country that is completely and utterly screwed one only has to look at the UK.

Posted by Danny_Black | Report as abusive

Since the thread has drifted to decline 11/01/02/think_again_american_decline

and Brit bashing, 33SI20110104

the latter item is the serious issue.

Posted by ARJTurgot2 | Report as abusive

ARJTurgot2, if Rachman says it then it is probably wrong.

Posted by Danny_Black | Report as abusive