Those of us with a moderate to progressive worldview have many things in our modern world to be concerned about. Possibly the one thing that tops the list is the disturbing trend the last thirty years of seeing all the fruits of an expanding economy go to a select few, while the bulk of America’s citizens are falling behind. This doesn’t only offend our sense of fairness and justice (especially for honest readers of the Book of Mormon). Utah’s native son Marriner Eccles (and his modern disciples Paul Krugman, Robert Reich and others) teaches us that it’s this very economic imbalance that causes the type of severe financial crises we saw in 1929 and 2008.
If you want to understand the causes of this New Gilded Age in the developed world, I heartily recommend the recently published book by respected international affairs author Chrystia Freeland, which carries the title of this blog post.
It would be impossible to convey the depth of analysis that Ms. Freeland accomplishes in a short blog post, but hopefully a few highlights will pique your interest.
One intriguing insight is this: A big difference between the first Gilded Age of the late 19th Century in America and the New Gilded Age is the difference in who the super-rich are. It is no longer the owners of capital that are capturing all the wealth. Today’s super-rich are the highly educated, Ivy League knowledge workers. If you look at those pulling in the bulk of the nation’s annual wealth, it’s not owners of capital, but hedge fund managers, investment bankers, corporate CEO’s, highly compensated top tier entertainers, and high-tech entrepreneurs. This is a fundamentally new phenomenon in human history. And with globalization, it has become a world-wide phenomenon.
An important and new characteristic of these modern super-rich is that they are true citizens of the world, rather than of any individual nation. Regardless of their ethnic background or place of birth, they identify with the fellow members of their class and their work much more than with their country. Gov. Romney was criticized during the presidential campaign for all his overseas financial interests, but that is a characteristic of his class. Globalization has not just affected normal trade, but has created this new global elite, where American sports teams are just as likely to be owned by a Russian oligarch as an American. An interesting example is Chrysler/Fiat CEO Sergio Marchionne. He was born of an Italian father and Croatian mother, spent his teenage years and early professional career in Canada, and later worked as an accountant in several European countries before taking the reins of Fiat. He currently holds dual Italian and Canadian citizenship.
Another important principle Ms. Freeland highlights is the difference between “rent-seeking” and wealth creation. Some of the super-rich, like Steve Jobs, clearly earned their riches by creating things. This type of wealth-creating activity is beneficial to society (as long as there are no damaging side effects). However, Freeland argues that many of today’s highly educated super-rich earn their money through “rent –seeking”, which is the opposite of creativity; you are using your education and skills to take money out of someone else’s pocket and transferring it to your own. The most obvious example of this is modern investment banking, which has been transformed from being the servant of productive business to its master the last thirty years. Much of the economic angst in the world today results from an economic system that has been too generous to rent-seekers in contrast with those who actually create.
Here is the personal epiphany I gained from this book: The world’s economy is in uncharted waters; many authors beside Chrystia Freeland have commented we are in an economic revolution at least as great as that which occurred during the Gilded Age. And as leaders like both Roosevelts did during the original Gilded Age, we must come up with solutions to the excesses created by the New Gilded Age, but without stifling the benefits of the new economy. Like the previous Gilded Age, not every American will be able to be a plutocrat. We will still need checkers at the grocery store, mechanics to fix our cars, people to cut our hair and serve us at restaurants. Like that earlier era, we need to find a way that average Americans can share in the American dream. And since we are in completely unchartered territory, it is crazy to think that old, hidebound political ideologies grounded in the mid-20th century will have the answers to the future. Dealing with the modern economic world will take creativity and the willingness to be influenced by facts and data.