Welcome to Richistan, USA
by Paul Harris
"As the rest of the country struggles to get by, a huge
bubble of multi-millionaires lives almost in a parallel world."
This article originally appeared The Guardian, UK.
On the surface, Mark Cain works for a time-share company.
Members pay a one-off sum to join and an annual fee. They then get to book
holiday time in various destinations around the globe.
But Solstice clients are not ordinary people. They are America's
super-rich and a brief glance at its operations reveal the vast and still
widening gulf between them and the rest of America.
Solstice has only about 80 members. Platinum membership
costs them $875,000 to join and then a $42,000 annual fee. In return they get
access to 10 homes from London to California and a private yacht in the
Caribbean, all fully staffed with cooks, cleaners and "lifestyle managers"
ready to satisfy any whim from helicopter-skiing to audiences with local
celebrities. As the firm's marketing manager, Cain knows what Solstice's
clientele want. "We are trying to feed and manage this insatiable appetite for
luxury,'"Cain said with pride.
America's super-rich have returned to the days of the
Roaring Twenties. As the rest of the country struggles to get by, a huge bubble
of multi-millionaires lives almost in a parallel world. The rich now live in
their own world of private education, private health care and gated mansions.
They have their own schools and their own banks. They even travel apart -
creating a booming industry of private jets and yachts. Their world now has a
name, thanks to a new book by Wall Street Journal reporter Robert Frank
which has dubbed it "Richistan." There every dream can come true. But for the
American Dream itself - which promises everyone can join the elite - the
emergence of Richistan is a mixed blessing. "We in America are heading towards
'developing nation' levels of inequality. We would become like Brazil. What
does that say about us? What does that say about America?" Frank said.
"The rich now live in their own world of private
education, private health care and gated mansions."
In 1985 there were just 13 US billionaires. Now there are
more than 1,000. In 2005 the US saw 227,000 new millionaires being created. One
survey showed that the wealth of all US millionaires was $30 trillion, more
than the GDPs of China, Japan, Brazil, Russia and the EU combined.
The rich have now created their own economy for their
needs, at a time when the average worker's wage rises will merely match
inflation and where 36 million people live below the poverty line. In Richistan
sums of money are rendered almost meaningless because of their size. It also
has other names. There is the "Platinum Triangle" used to describe the slice of
Beverly Hills where many houses go for above $10m. Then there is the Jewel
Coast, used to describe the strip of Madison Avenue in Manhattan where boutique
jewelry stories have sprung up to cater for the new riches' needs. Or it exists
in the MetCircle society, a Manhattan club open only to those whose net worth
is at least $100m.
The reason behind the sudden wealth boom is, according to
some experts, the convergence of a new technology - the internet and other
computing advances - with fluid and speculative markets. It was the same in the
late 19th century when the original Gilded Age of conspicuous wealth and deep
poverty was spawned by railways and the industrial age. At the same time
government has helped by doling out corporate tax breaks. In the Fifties the
proportion of federal income from company taxes was 33 per cent, by 2003 it was
just 7.4 percent. Some 82 of America's largest companies paid no tax at all in
at least one of the first three years of the administration of President George
W. Bush.
But who are the new rich? Some of the names are familiar,
Microsoft tycoon Bill Gates and savvy stock investor Warren Buffett. But most
are unknown, often springing from the secretive world of financial hedge funds.
Men like James Simons, who took home compensation of $1.7bn last year. Last
year the 25 top earning hedge fund bankers in the US earned an average of $570m
each. The average US household income is $50,000.
"The
wealth of all US millionaires was $30 trillion, more than the GDPs of China,
Japan, Brazil, Russia and the EU combined."
It is such men - and they are usually men - who feed the
outlandish luxury goods economy of Richistan. It is they who are responsible
for the rebirth of the butler industry, which was all but dead in the Seventies
and is now facing a shortage of trained staff. So keen is the demand that many
can expect to earn a six-figure salary when they graduate from booming butler
schools.
Then there is the runaway feeder-industry of luxury
consumer items. The new ultra rich turn up their noses at Rolexes; the
sought-after brand is Franck Muller, which sells a high-end timepiece for
$736,000. Or try a Mont Blanc pen, encrusted in jewels, for $700,000. Louis
Vuitton's most exclusive handbag sells for $42,000. Only 24 were ever made and
none ever touched a shelf as all were pre-sold to Richistani clients.
In places such as Manhattan and Los Angeles, restaurants and
bars outdo themselves in excess. New York's Algonquin Hotel has a $10,000
'martini on a rock' (it comes with a diamond at the bottom of the glass). City
eateries sell burgers for more than $50. One offers a $1,000 omelette. In Los
Angeles there is a craze for Bling mineral water - at $90 a bottle.
Then there are the boats. The private yacht industry in
America has been caught in an arms race of size and luxuriousness. So far,
there has been a clear winner: Oracle-founder Larry Ellison's 450ft water
palace, the Rising Sun. More than 80 rooms on five storeys and a landing craft
that carries a Jeep, a basketball court doubling as a helipad and a
fully-equipped cinema.
Now an Oregon-based company is taking things further:
private submarines. An estimated 100 or so private subs are now drifting around
the world's oceans. Then there are the rockets - several notable billionaires
are now leading the way in private exploration of space. One of them is Robert
Bigelow who has ploughed $500m into trying to build an inflatable space hotel.
A miniature prototype model was successfully launched and tested last month. In
a scene that perhaps James Bond would find familiar, armed guards now patrol
the fences of Bigelow Aerospace's headquarters wearing badges decorated with an
alien as their corporate logo.
But this is not just a world of riches gone mad that the
rest of America can ignore. The growth of such a large super-rich class,
coupled with a deepening poverty in many communities, is starting to tear at
the fabric of society. Even some of the most wealthy - like Gates and Buffett -
have spoken openly of the need to address the massive "inequality gap" that
they have come to exemplify. In effect, some of the very richest Americans are
calling for themselves to be taxed. In a speech last month Buffett - the third
richest man in the world - pointed out that his tax rate was 17.7 per cent of
his income while his secretary was taxed at 30 per cent. "Many of the new
super-rich are looking long term at the world and they see a collapsing US
education system and health-care system and the disappearance of the middle
class and they realize: this is bad for everybody," said Frank.
"The severely poor - those living at half the poverty
level - are at a 32-year high."
Defenders of low tax for the very rich point to the theory
of trickledown economics - the spending power of the rich benefiting the poor.
But while the super-rich have boomed, the earning power of the average and poor
citizen has not nearly matched the performance of the elite. In 2005 the top
one per cent of earners in the US gained 14 per cent in income in real terms, while
the rest of the country gained less than one per cent. The situation is
especially bad for the severely poor - those living at half the poverty level -
whose numbers are at a 32-year high. The rich are getting richer but are not
bringing everyone else with them. "If you look at the impact of the last 20
years it seems pretty clear that trickledown just does not work," said Paul
Buchheit, economics professor at Chicago's Harold Washington College.
There are some signs of a change in attitude. Recent huge
Wall Street flotations such as the listing of private equity giants like
Blackstone have created a push in Congress for taxes on the instant
billionaires they have created. Scandals of excess such as Enron and WorldCom
and the trial of Conrad Black have been high-profile. But few politicians,
needing campaign cash from new millionaires, will get far preaching higher tax.
Calls for more equality tend to have come from men like Buffett and Gates whose
fortunes are so enormous that a little extra tax would make no difference. Bush
has pushed to phase out taxes like the estate tax, which benefit only the rich.
"I don't see it changing. No matter what administration is in power," said
Buchheit.
But many think it must change. To a large degree, the debate
over the booming lives of the super-rich is an argument about the American
soul. It is a country that has always worshipped wealth, where the creation of
a fortune was seen as virtuous and a source of pride.
"Few politicians, needing campaign cash from new millionaires,
will get far preaching higher tax."
But now that huge wealth has started to squeeze the "middle
class" out of existence, leaving the haves and have-nots in very separate
worlds. It is possible that political will may develop to address the problem
or that the problem will correct itself. The notorious end of the Gilded Age
came in the panic of 1893 that sank America into depression.
Frank believes the signs of a coming storm are there. "The
trick is to spot when prosperity turns to excess," he said. "When a large
amount of people make a lot money very quickly it's a sign you are near the top
of the market."
In a world of mega-yachts, private submarines and space
hotels, that peak might be close at hand. And it's a long way down.
Billionaire's row
* There are 7.5 million households in America worth up
to $10m. A further two million are worth $10m-$100m and thousands are worth
more than $100m.
* There is now a two-year waiting list for 200ft
yachts. If put end to end, the boats on that list, which cost $50m each, would
be 15 miles long.
* Sebonack Golf Club in the Hamptons, Long Island,
charges $650,000 for membership. That doesn't include the $12,000 annual dues,
or tips for caddies.
* Google founders Sergey Brin and Larry Page have a
private Boeing 767.
* John D. Rockefeller was America's first billionaire.
Adjusted for inflation, he had $14bn - less than the net worth of each of Sam
Walton's five children today. There were 13 US billionaires in 1985. Now there
are more than 1,000. There are as many millionaires in North Carolina as in
India.
* "Affluent" is Richistani for "not really rich." According to Frank, you need
about $10m to be considered entry-level rich.