The aristocracy of the 1%

The basic lack of understanding between the 99% and the 1% is about money. For most of us money is what we use to pay the rent or mortgage, go to a movie, pay for health insurance, buy gas for the car. It’s function is simple, and if we have enough to do the daily things we need to do, and reasonable expectation that there will be enough to send the kids to college and ease our retirement than that takes care of it for us.

But that is not true for at least one category of the 1%. And yes, it makes sense to make this distinction. One subgroup of that population is the inventor/developer/ entrepreneur. That group brings something tangible and functional into the world: the computers, the internet connections, the franchise food outlets etc. We buy what they produce for a variety of reasons clustered around making our lives simpler and more efficient and more fun. Money for that group is what enables them to get their ideas into physical reality and into the hands of consumers. Think Steve Jobs, Bill Gates, and the gentleman who developed Costco.

The next sub-group are focused on understanding which of these creations will sell at a profit, what the next big thing is, or what the under valued old thing is. And how will other investors value it?  Will Coke maintain it’s dominance, will this builder choose the right design and location for an emerging market, and how long will this run up on commodities last before it’s time to move onto to something else. Where does it make sense to invest; not speculate, but invest. Think Warren Buffet, and George Soros.

The final group is the one that is so difficult for the rest of us to understand; they are nameless to me and to most of the main street crowd, because the only thing they make is money, and they are the ones who value it very differently from the rest of us. They do not create functional things that we can buy, they do not invest in companies to help them grow and develop their ideas into things we can use. They are concentrated on developing complex monetary trading strategies that almost no one really understands or can explain. They are the financiers, the hedge fund gurus that figured out how to hide worthless risky loans into buyable bundles with false promises of making more money. For them, money is what they need to make more money. That’s why any threat of tax increases threaten them almost at the level of identity loss.

Why? Because all their thoughts about money have to do with the ability to leverage a small percentage into a large profit. So when you take an extra 5% from them in taxes, they experience it as taking away the opportunity to make 20 or 30 times that amount. In their reasoning money is the opportunity to make more money. They must experience that threat in the same way a carpenter would when you told him that all you wanted to take from him is his hammer, and maybe a few of his nails.

That is why there is this failure to understand. Until we do understand the relationship of this group to it’s magical lever, to it’s tools for creating large personal wealth, not jobs, but personal wealth, they will use what money they have to in order to protect the rest of their resources, and the rest of their opportunities. Only rarely has an aristocracy willingly yielded it’s privilege and position, it’s manors and carriages, it’s hold on power and it’s claim to it’s own future. The revolution this aristocracy fears is the revolution of regulation, and they will call it any name they can think of, and fight it with everything they have.

 

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One comment

  1. I think you’re in the right on regarding the first two groups. But slightly off on: the third one.
    It’s not that the hedge fund guys and financiers are bad guys. There’s another piece to this that I think is far removed from their desire for personal wealth. (Most of them are wealthy enough not to need another billion). It really is depriving them not just of their tools (like the carpenter) but also of the basic validity of their work.

    I think the flip side of what you’re describing is that a bigger and bigger part of American investment has been funneled into these kinds of activity has no productive real-world consequence at all. If I invest in financial instruments that only generate profit by creating a multiplicity of other financial instruments, the cash value goes up — but there’s no corresponding increase of production or creations in the real world. As a friend once said, “It’s like a house of cards without the cards.” And that’s the truth these people don’t want to let themselves see. If they did, it would not only threaten their activity, it would seriously threaten their worldview about how they’ve invested all their energy and creativity. And that, I think (more than the loss of some money to taxes) comes much closer to threatening their identity.

    It would say that everything they’ve given themselves to is transitory and basically meaningless. (And, unfortunately for the rest of us, it’s come to play a progressively larger role in our late-stage capitalist economy).

    But ultimately it really is an “Emperor’s clothes” phenomenon. Once you get into creating and trading derivatives — which are bets on investment outcomes — you’re in that realm. (The outcomes of investments (primary bets) do reflect additions and subtractions in the real world of products and services. But the (secondary) bets on those outcomes have nothing real or substantial underpinning them. It’s really like betting on tomorrow’s weather. You may make or lose money but you haven’t added or subtracted anything from our stock of goods or services. I think that realization is far more threatening to most financiers and hedge-funders than the actual loss of some extra tax money.

    Given the fact that they can make and lose hundreds of thousands — even millions — of dollars in transacting these make-believe commodities, I’d love to know what they really — in their hearts — think and feel when they see a bricklayer struggling in the sleet to finish building a new chimney.

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