Economics Society

Recent Read: “The 9.9 Percent Is the New American Aristocracy” by Matthew Stewart

Ask yourself a simple question: what’s a bigger problem in this country (and probably a few others): the 0.01% wealthiest sector or the 9.9% just below it? It’s an interesting question, and one that has not been debated very much until an article in the latest issue of the Atlantic written by Matthew Stewart. His piece, The Birth Of A New American Aristocracy, is a devastating critique of the 9.9%. For Stewart, this slice of American society (in which he places not just himself but most of his readers) is just as guilty of promoting and maintaining the economic inequality and — equality important — immobility that defines today’s America.

Stewart begins his extensive piece by explaining just who is in the 9.9%:

So what kind of characters are we, the 9.9 percent? We are mostly not like those flamboyant political manipulators from the 0.1 percent. We’re a well-behaved, flannel-suited crowd of lawyers, doctors, dentists, mid-level investment bankers, M.B.A.s with opaque job titles, and assorted other professionals—the kind of people you might invite to dinner. In fact, we’re so self-effacing, we deny our own existence. We keep insisting that we’re “middle class.”

As of 2016, it took $1.2 million in net worth to make it into the 9.9 percent; $2.4 million to reach the group’s median; and $10 million to get into the top 0.9 percent. (And if you’re not there yet, relax: Our club is open to people who are on the right track and have the right attitude.) “We are the 99 percent” sounds righteous, but it’s a slogan, not an analysis. The families at our end of the spectrum wouldn’t know what to do with a pitchfork.

We are also mostly, but not entirely, white. According to a Pew Research Center analysis, African Americans represent 1.9 percent of the top 10th of households in wealth; Hispanics, 2.4 percent; and all other minorities, including Asian and multiracial individuals, 8.8 percent—even though those groups together account for 35 percent of the total population.

Stewart coins a neat shorthand for the 9.9%: the 5Gs. For him, the 9.9% are people who have:

  1. Good family
  2. Good health
  3. Good schools
  4. Good neighborhoods, and
  5. Good jobs

5Gs are an aspirational sector, he thinks, looking up at the 0.01% with envy and awe, while catering to them and, in some cases, putting up with the 90% to the degree their jobs force them to do so (which is not that often in most cases). 5Gs are lawyers, management consultants, doctors, accountants, and other professionals whose education and access to the best jobs means that they live in a kind of economic shade thrown off by the richest branches of the 0.01%.

Are you a CXO in a large corporation? Then you’re a 5G. Are you a management consultants at a big-time firm? You’re a 5G. Are you a doctor at an elite private hospital?  You’re a 5G. Your job, school, church, and neighborhood are products of trickle-down wealth, which you try, says Stewart, to keep within 5G-world to the maximum extent possible.

After discussing just who is in the 9.9%, Stewart explains not just that this sector has much more wealth than the bottom 90% but that it’s increasingly harder to climb from the bottom 90% into 5G-world. He illustrated this difficulty by noting that in 1963 a person making the average national annual salary would have to multiply his income by 6X to get into the lowest level of the 9.9%. By 2016, the average income would have to be multiplied 12X to make the same jump. What’s  more, writes, Stewart: “If you boldly aspired to reach the middle of our group rather than its lower edge, you’d have needed to multiply your wealth by a factor of 25.” As he concludes, on this one measure, “the 2010s look much like the 1920s.”


Just how bad is this social immobility? Imagine, writes Stewart, that you were born with a rubber band connected to you on one end and to your parents on the other. This imaginary economic band hurts the 90% just as much as it helps the 10%:

The strength of the rubber determines how hard it is for you to escape the rung on which you were born. If your parents are high on the ladder, the band will pull you up should you fall; if they are low, it will drag you down when you start to rise. Economists represent this concept with a number they call “intergenerational earnings elasticity,” or IGE, which measures how much of a child’s deviation from average income can be accounted for by the parents’ income. An IGE of zero means that there’s no relationship at all between parents’ income and that of their offspring. An IGE of one says that the destiny of a child is to end up right where she came into the world.

According to Miles Corak, an economics professor at the City University of New York, half a century ago IGE in America was less than 0.3. Today, it is about 0.5. In America, the game is half over once you’ve selected your parents. IGE is now higher here than in almost every other developed economy. On this measure of economic mobility, the United States is more like Chile or Argentina than Japan or Germany.

So the bad news is doubly-so. The 5Gs have a huge slice of the pie, and they have managed to make it harder and harder for the 90% to join them. How so? By a multitude of stratagems, thinks Stewart. The live in neighborhoods whose great schools are funded by the high property taxes they are willing to pay. They create “cartels” that limit admission to professions like medicine, law and accounting to keep the number of practitioners artificially low. They lobby for tax breaks that allow mortgage interest, state taxes and college savings to be deducted from their national tax burden. They send their kids to schools made great by millions in federal research and education grants that never benefit the majority of Americans who don’t go to college. They marry within their own ranks, have small families, and in general protect their wealth in special tax-free accounts until it’s needed at retirement. Most importantly, they do whatever they can to pass their 5G status to their kids and keep it out of the hands of the 90%:

If the secrets of a nation’s soul may be read from its tax code, then our nation must be in love with the children of rich people. The 2017 tax law raises the amount of money that married couples can pass along to their heirs tax-free from a very generous $11 million to a magnificent $22 million. Correction: It’s not merely tax-free; it’s tax-subsidized. The unrealized tax liability on the appreciation of the house you bought 40 years ago, or on the stock portfolio that has been gathering moths—all of that disappears when you pass the gains along to the kids. Those foregone taxes cost the United States Treasury $43 billion in 2013 alone—about three times the amount spent on the Children’s Health Insurance Program.

When all is said and done, notes Stewart, the 9.9% use the same strategies and tactics used by the 0.01% to keep the 99.9% from joining their ranks. By doing so, Stewart believes, 5Gs have become America’s new aristocracy:

Rising inequality does not follow from a hidden law of economics, as the otherwise insightful Thomas Piketty suggested when he claimed that the historical rate of return on capital exceeds the historical rate of growth in the economy. Inequality necessarily entrenches itself through other, nonfinancial, intrinsically invidious forms of wealth and power. We use these other forms of capital to project our advantages into life itself. We look down from our higher virtues in the same way the English upper class looked down from its taller bodies, as if the distinction between superior and inferior were an artifact of nature. That’s what aristocrats do.

For the author, most of the 9.9% deserves to be called out, but one group really stands out for its special economic status: the financial services industry. As Stewart notes, Americans turn over $1 of every $12 in GDP to the banks. How bad is that amount? Back in the 1950s, that ratio was $1 in $40. There was nothing inevitable out this situation, writes, Stewart, the financial system we have today “has been engineered, over decades, by powerful bankers, for their own benefit and for that of their posterity.”

The 2016 elections, writes Stewart, were the final proof that the world the top 10% have engineered has run out of runway. The 90%, who don’t exactly know what is going on but  only that it’s a bad deal for them, finally revolted. Economic and social resentment, he notes, is not an intellectual phenomenon. It does not need PowerPoints or Excel sheets to work out the reasons and impact down to the last decimal point. Resentment only knows that someone else has the good stuff and I don’t, and so what have I got to lose by voting for anyone the 5Gs so obviously detest?

As Stewart also points out, it’s the 0.01% who have most of the money, but its the 9.9% who is enabled this evolution:

We are the staff that runs the machine that funnels resources from the 90 percent to the 0.1 percent. We’ve been happy to take our cut of the spoils. We’ve looked on with smug disdain as our labors have brought forth a population prone to resentment and ripe for manipulation. We should be prepared to embrace the consequences.

The consequences, he thinks, are slowly attacking the world the 5Gs created from both above and below. After all, the 90% don’t often see too many billionaires but they see the 9.9% all the time. To the 90%, 5Gs seem have everything and but and that’s where the problem lies. (There are no “self-made” McKinsey consultants or Goldman Partners in their view). The 90%, says Stewart, will not hesitate to take what they can from the 9.9% if that’s the only choice left to them. And what about the 0.01%? Won’t they protect the 9.9%? Hardly, thinks Stewart. The 0.01% will be all too ready to throw a lot of 5Gs overboard, if that’s the price of staying at the top. That’s exactly what happened, notes the author, when the current Administration decided to reduce state and local tax deductions in last year’s tax legislation, a 5G-damaging move if ever there was one.

Lats year’s tax legislation for Stewart, only reinforces his belief that the 0.01% will never change. They are what they have always been: the hidden holders of the nation’s concentrated wealth. For the author, only the 9.9% can change our national destiny. As he writes:

That which creates monopoly power can also destroy it; that which allows money into politics can also take it out; that which has transferred power from labor to capital can transfer it back. Change also needs to happen at the state and local levels. How else are we going to open up our neighborhoods and restore the public character of education?

It’s going to take something from each of us, too, and perhaps especially from those who happen to be the momentary winners of this cycle in the game. We need to peel our eyes away from the mirror of our own success and think about what we can do in our everyday lives for the people who aren’t our neighbors.

Failure to course-correct, Stewart believes, means more, not less, resentment and division and more populist leaders all to willing to use the 90%’s resentment to fan the flames of social hatred and unrest. Throughout all of history, he notes, such distortions have resulted in only one outcome:

In The Great Leveler, the historian Walter Scheidel makes a disturbingly good case that inequality has reliably ended only in catastrophic violence: wars, revolutions, the collapse of states, or plagues and other disasters. It’s a depressing theory. Now that a third wave of American inequality appears to be cresting, how much do we want to bet that it’s not true?

So here is the 5Gs brutal choice, believes Stewart: change your outlook, change your society, and think more about the 90% below you than the 0.1% above. Most importantly, he says, “We should be fighting for opportunities for other people’s children as if the future of our own children depended on it.” Because, he predicts in his brutal essay’s final words, “It probably does.”

For any member of the 9.9%, it’s impossible to read Stewart’s words without reflecting on my own career, life and position in society. Clearly, Stewart is writing with a  serious case to make, and he makes it with a great deal of emotion and anger. Some of his rhetoric is indeed inflammatory, but I suspect that’s on purpose. His aim is to reach the consultants, lawyers and executives living in his own strata of society. His essay is a hand-grenade thrown at “good” people who are content knowing that their lot in life is not as great as those at the top but it’s still much — much — better than those below them.  Perhaps Stewart is exaggerating, but something tells me he’s not. Moreover, he’s right to think the 0.1% won’t change this society, for they have the firewall of the 9.9% still left to protect them. The only ones who can change things are the 9.9% — or at least the part of it that prefers to give something up to save a nation that is increasingly segmented in ways that are quickly becoming irreversible.

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