What's the first image that pops into your head when you think of the super-rich? Is it a mustachioed Monopoly card personage, a Thomas Nast cartoon fat cat, Bernie Madoff? Do you ponder on the dynastic blue bloods the Vanderbilts, DuPonts and Rockefellers, or recent Silicon Valley titans like Jobs and Ellison?
It turns out that the current reality is more complicated than that -- that economic mobility is alive and chaotic in the contemporary USA. "Shirtsleeves to shirtsleeves in three generations" is not only still true, but a new book suggests that the pace of rise-and-fall of great American fortunes has quickened dramatically.
Author Robert Frank, a Wall Street Journal scribe, has coined the term "The High-Beta Rich" as the title of his book, to describe both the phenomenon and its protagonists. "Beta," in the parlance of high finance, is a term that describes a stock's volatility how it has tended to move with broader market fluctuations. If a "beta" is around 1.0, the stock movements will mirror the ups-and-downs of the market. A high-beta factor, then, means that the shares will rise higher and fall farther than less volatile securities.
Applied to incomes and accumulated wealth, the "beta" term refers to how a person's fortunes will relate to the American economy's performance. The Rich have traditionally been thought-of as a low-beta bunch, with established fortunes well-protected against dips in the market. That this safety margin also meant that they tended to under-perform in prosperous times went relatively less-noticed their "blue-chip" incomes were ever ample.
That model worked to describe the 1%ers up through the end of the 1970s. Since then, however, there has been a steady sea-change in income volatility at the top end they have gone from being among the most stable to the least their collective "beta" has skyrocketed. Further, their uses of their accumulated good fortunes have changed dramatically. Their lifestyles have revolved around consumption to a degree previously unheard-of. Multiple mansions, jets and auxiliary yachts to fetch along their smaller toys have been conspicuous emblems of their prosperity.
Poster couple for the high-betas is an Orlando couple who have run out of money while building a ninety-(count-em)-thousand square foot home they modestly titled "Versailles" (If you hurry, you might be able to pick-up this unfinished tombstone to their excess for a mere $75 million). The trend has also spawned a new breed of repo-man, skilled in the more refined arts of reclaiming boats, aircraft and other baubles.
The reasons for this phenomenon are several, including the rapid scalability of newer enterprises, the accessibility of broad, global markets and the popularity of blush-worthy compensation schemes for the many senior execs and owners. Prime among those causes is the so-called "financialization" of wealth it is increasingly tied to the stock market, and tends to be made by moving money around, rather than creating "better things for better living." The tying stock market is itself dramatically more volatile than the economy, so we have piled one beta factor on another to create these wild swings.
The new and temporary 1%ers do not fit neatly into the models of wealth espoused by either liberal or conservative ideologies. They are not the idle coupon clippers of a former day, but neither are they stalwart Edisons of new prosperity and higher standards of living. To the extent they create jobs, they tend to do so in a perverse kind of Stimulus fashion Versailles needed construction workers to build its several layers of infrastructure, after all. But like the Stimulus-financed repaving of our local roads, those jobs are a temporary booster not a factory that will provide steady work to many, and for decades. (Of course, they also vary the stimulus model because I can drive on 680 every day I'm unlikely to be invited to sup at Versailles.)
From a public policy standpoint, does it matter who the 1% are, and how long they remain in the club? Coming from my own end of the spectrum, it seems to me that their existence more undermines the Republican argument for lightly taxing these fortunate citizens. That argument is founded on the notion that the 1%ers are plowing their well-gotten earnings back into the pie, and making it bigger. The apparent fact that it's not the pie, but the mansions and jets that are growing suggests that the public would be better-served if the wealthy either contributed more to the common fisc, or had better reasons to make better uses of their gains, as by tax-deductible donations.
The existence of the High-Beta Rich seems to demonstrate a very traditionally American, continuing mobility of wealth. The reasons for its mobility, and the uses of these fabulous fortunes, reflect rather less well on the current state of our culture.