Alec MacGillis’s article on why hedge fund managers have turned fiercely against President Obama has deservedly gotten a lot of attention (especially this thoughtful commentary from Rich Yeselson, to whom the hat tip). I take MacGillis’ main point to be that hedge fund managers’ fury is based more on self-image than on self-interest. It’s not just that the hedge fundis resent being asked to pay more taxes, though they do. It’s that they think that they themselves are grand and wise people by virtue of having created vast fortunes from modest beginnings, and the President has made clear that he doesn’t.
The vanity of the super-wealthy is not a new point. But the nature of that vanity deserves more attention. I think most of us fail to realize the extent to which hedge fund managers reverse the causal reasoning that most of us use to justify capitalism. For most people, the vast wealth of entrepreneurs is justified (if at all, or conditionally, or partially, or whatever) because their wealth drives a productive economy: it creates jobs, lifts people out of poverty, erodes distasteful ascriptive hierarchies. The few billionaires at the top, however, see it to a great extent the other way around: the capitalist system is to be praised because it makes possible fortunes like theirs.
Adam Smith scholar Ryan Hanley, writing in the latest issue of Society (no paywall, AFIK, though that may change), makes a striking point about why academics don’t appreciate capitalists. It’s not that we professors uphold, as a group, any particular anti-capitalist ideology but that the language capitalists speak, the values by which they justify themselves, doesn’t impress the kind of people who choose to enter academe:
In defending capitalism businesspeople are thus prone to argue that it is ethically valuable insofar as [it] a) …affords everyone the opportunity to become wealthy; and b) allows individuals to remain wealthy insofar as it protects their right to use their wealth as they will. Now, however legitimate such arguments may or may not be, seen as a means of persuading professors they are deeply flawed, insofar as they appeal to a set of values simply not held by most academics. Put bluntly: few academics are rich, and even fewer, one suspects, chose to enter academia in the hopes of becoming so.
In this sense, self-selection serves to determine academics as a group that simply doesn’t much admire wealth. That itself is significant; if true, it may mean that the academic attitude to the pursuit of wealth is less due to moralistic sneering or even envy and resentment than to simple factors of group selection. … [A] degree of relative personal indifference to wealth seems to define academics rather broadly—and indeed pro-capitalist academics nearly as much as anti-capitalist academics—and … there exist legitimate explanations for this indifference that do not require recourse to some theory of academic attachment to rival ideologies.
What jumps out from MacGillis’ article is the dynamic that Hanley traces, though I’m much more explicitly critical of it than Hanley is. The hedge fundis think that capitalism is great because it gives rise to meritocratic success stories like them. Beyond this—and Hanley leaves this part out, perhaps because it’s so distasteful—they think that they are great because they themselves embody such success stories. And what might seem to us like imperceptible tax increases seem to them like direct insults. Their net worth proves, as it were, their net worth. And the President, in aiming at their bottom line, is threatening the personal quest that defines their lives.
Now, what’s true of academics is equally true of our president. As Yeselson points out, he could have chosen to make millions but preferred to work for peanuts as a community organizer, and later for walnuts (by hedge-fund standards) as a law school lecturer. Obama is hardly very “academic” if that means an attachment to abstract or impractical ideas. But he is very much an academic in dissenting from Ted Turner’s dictum, “life is a game and money is how we keep score.”
The hedge fundis are delusional if they think they can win this argument (except through buying the debate hall, indeed their plan). As MacGillis points out, they live in a very odd bubble in which everyone flatters them and nobody questions the superior worth of their opinions. But outside that bubble, most Americans neither know what such people think nor care. And most citizens’ attachment to capitalism—real enough, to hard-core progressives’ dismay—is based on the first kind of causal explanation I mentioned: wealth for the few is fine because it drives the larger system, not the other way around. Think of how difficult Romney’s defenders find it to explain why Bain Capital has been good for America. They’re not so much unable to make arguments based on efficiency and such—see this by Reihan Salam—as very, very unused to having to make such arguments. Where they come from, Romney’s wealth doesn’t need justification. It is the justification.
Obama is hated in hedge fund land not because he says anything particularly radical but because he speaks common sense to people who don’t commonly hear it. Literal meritocrats, who think their hard-earned wealth entitles them to dictate terms to the rest of us, hedge fundis erupt in existential rage when faced with a president whose relative indifference to wealth comes with a quiet, unremarkable attachment to democracy: who thinks each one of these capitalist titans is worth only one life, one voice, one vote.
paul says
Outside academia (thanks in large part to the longterm capitalist propaganda project) it’s become pretty much axiomatic that the value of an idea, person or object is measurable by how many customers, adherents, followers, page hits usw it can attract. “Marketplace of ideas” anyone?
SamChevre says
The reaction seems to be quite common among meritocrats in all areas; see, for comparison, professors, lawyers, and regulators in their responses to democratic rather than meritocratic decisionmaking.
Ebenezer Scrooge says
Fair hit for professors and regulators; less so for lawyers. True, the legal profession contains its share of anti-democrats. However, the jury system ensures that many lawyers are fierce democrats, especially civil plaintiff’s lawyers. And successful civil plaintiff’s lawyers are probably the most highly compensated of the profession, so envy of the meritocrats really isn’t explanatory.
H says
IMHO, wrong on the compensation of lawyers. With a very few exceptions the most highly compensated on average are big firm corporate lawyer lackies (mostly smart and very well paid, but still lackies). Since the big firms don’t like to reveal their payouts to lawyers it is difficult to gather any definitive info, but with starting salaries at the “top” firms in the area of $150,000 and way up with an additional annual bonus the corporate firms are on different plant from most of the plaintiff’s lawyers I know about. Partners at a big firm can make way, way over a million bucks a year.
In fact, personal injury law from the plaintiff’s side is, overall, a rapidly declining industry due to improvements in car safety equipment, less drunk driving, etc. and so less accidents and way less lawsuits. Not to mention restrictions on recoveries via tort “reform.”
A very few had bucked the overall trend in, e.g. the consumer protection class action area-but, that has recently also become a declining field due to recent U.S. Supreme Court decisions on class action law and the landslide of removal of cases from litigation via corporate mandatory arbitration.
Ebenezer Scrooge says
H,
We’re not disagreeing on the facts you raised. The average corporate lawyer does quite a bit better than the average plaintiff’s lawyer; I agree. That’s why risk-averse lackeys go for corporate law.
But I was talking about something else. The princes of the plaintiff’s bar (who are democrats) have far higher incomes than top rainmakers at big law firms (generally big-D Democrats of the meritocratic persuasion.) There is a charming story once about a plaintiff’s security lawyer dropping by Cravath one day with rolls of $100 bills, full of faux commiseration for the “underpaid” Cravath associates.
Barry says
“The princes of the plaintiff’s bar (who are democrats) have far higher incomes than top rainmakers at big law firms (generally big-D Democrats of the meritocratic persuasion.) There is a charming story once about a plaintiff’s security lawyer dropping by Cravath one day with rolls of $100 bills, full of faux commiseration for the “underpaid” Cravath associates.”
I’d like to see proof - there’s got to be plenty of money available to people who can get multi-billion dollar deals done.
Ebenezer Scrooge says
Barry, fair ’nuff.
If you want profits per biglaw partner, see http://www.law.com/special/professionals/amlaw/amlaw200/amlaw200_ppp.html. A piddly million or so at most places, although Wachtell is about 3.5 million per. If you want to look at some plaintiff’s royalty, try http://en.wikipedia.org/wiki/Joe_Jamail, http://en.wikipedia.org/wiki/Peter_Angelos, http://en.wikipedia.org/wiki/John_Edwards.
H says
Yes, we are disagreeing. There is much, much more money in corporate law than in personal injury work with a very, very few exceptions. Many formerly potentially profitable areas on the plaintiff’s side are dying or dead,e.g., medical malpractice-just try to get a med mal lawyer to take your case in say, California where the recovery cap is $250,000 and has not been raised in twenty years. And, twenty years ago it was too low to allow lawyers to make money on med mal cases-which was the whole idea.
As for your “charming story,” it sounds just a bit faux. I know a lot of folks who worked at Cravath and the like and they made what they thought (correctly) were big bucks.
Keep in mind, that partner compensation at the big corporate firms includes access to lots of insider investments and plenty of stock options, IPO stuff, etc. Also keep in mind that the publicly available info on partners compensation at big firms is almost certain to be incorrect. Remember, these are not stock companies bound by any rules of public disclosure.
Andrew Sabl says
Fair enough for many professors. In my own field of political theory I’ve written a bit (and am about to write more for a conference paper) on how what political theorists call “democratic theory” is often the opposite of that: an elaborate explanation of why decisions arrived at by democratically responsible officials, not to mention positions popular in opinion polls, ought to be systematically set aside by those who know better (though when it comes to who that would be, democratic theorists’ favorite candidates, namely Supreme Court justices, have lost some of their luster now that they’ve turned center-Right).
But frankly, it matters less in the case of academics because while we specialize in the delusion of power and political relevance, we have very little. Hedge fund managers are a different story.
Ebenezer Scrooge says
Center-right Supreme Court justices?
Oh, you’re referring to Ginsberg, Sotomayor & Breyer. But that isn’t a representative sample. The median (Kennedy) is hard conservative, and the plurality (Alito, Roberts, Scalia, Thomas) is downright Maistreene.
Josh says
Assuming that the lawyers who have populated the Court over the years actually do “know better” (and doesn’t Gorgias teach us otherwise, Andy?), the problem with placing things in the hands of Supreme Court justices is not the political composition of any given Court, but rather the fact that the Court is itself a political (if not democratic) composition.
NCG says
Well, to my mind the problem, or at least one of them, is that when the Supreme Court makes a mistake, it is very hard to fix. Sometimes, in the short term, impossible.
Josh says
Indeed.
“We are not final because we are infallible, but we are infallible only because we are final.” - Robert H. Jackson
Ken Rhodes says
“…most citizens’ attachment to capitalism … is based on the first kind of causal explanation I mentioned: wealth for the few is fine because it drives the larger system, not the other way around.”
I would go a step farther in the same general direction: most citizens’ attachment to capitalism, I’d say, is not based on a causal relationship with wealth (in *either* direction), but rather a causal relationship to the overall economic health of all of us. Capitalism is a system that enables the “American Dream” in the sense that it was commonly dreamed in days gone by-work hard, be sensible, do the right thing, and you can have a fine and rewarding life. Prior to the takeover by financial manipulators who contribute little to production of goods and services, the wealth of the most successful entrepreneurs and capitalists was a BYPRODUCT of the system which worked pretty well for most of us. And I suspect that most of us, back in the day, were not particularly aggrieved that Charlie Wilson spoke accurately at his confirmation hearing when he said (not as he’s been misquoted) “What’s good for America is good for GM, and vice versa.”
MikeM says
I remember reading Walt Rostow’s book, “The Stages of Economic Growth” some fifty years ago and wondering, since we had achieved the fifth and last stage, The Age of High Mass Consumption, “… is that it? What comes next?” We’re at the stage where not everyone needs to work, so instead of having half the residual workforce dig a hole and the other half fill it in, we incarcerate the darker half of the workforce (see Michelle Alexander’s book) and hire the lighter half to keep them in their place. I’m still wondering what the next stage is, after capitalism has played out.
Betsy says
We’re in the stage where some people are permanently underemployed, down and out, and resorting to pathologies of crime, addiction, and “religion.”
And the lucky few among the hardworking (and fewer and fewer) do pretty well, but their weal is endangered by the scary disorder of the down and out, so those lucky few and fewer get busy erecting costly barriers to insulate themselves from the risks.
By “risks” I mean — not just break-ins and scams by meth addicts and the chronically underemployed, but also the costly costs of pricing health insurance for the few and fewer in a world where more and more have the medical pathologies of the down and out … the costs of insulating the few-and-fewer schoolchildren from the schoolchildren of the down and out … etc.
As the lucky few get fewer, the value of spreading risk and social insurance gets less for them, and the cost gets higher, and they consequently have more investment in privatization and insulation schemes, and less in community-wide well-being and broad prosperity. Then the feedback mechanism kicks in where the Republican Party can exploit this differential, to convert the fearful middle class to its machinations for oppressing those who didn’t get lucky.
That’s the stage we’re in.
NCG says
Ditto, mostly.
If the New Deal supposedly saved capitalism last time, I wonder what will do it this time, if anything. Though OTOH, Americans are generally sleepy, so maybe the structure will last a bit longer. It’s a real caper.
Doug Moffat says
There used to be the “Divine Right of the King”. I.e. that fact that he is the King signifies God’s favor on him and the fact he has God’s favor gives him the right to rule.
You could argue that a lot of current right-wing philosophy/theology is based on “Divine Right of the Wealthy”.
Having lots of money is a sign of God’s favor and thus a sign that you are a better, superior person who should rule.
Byomtov says
If the arguments Hanley cites are not persuasive to academics, then the mote is in their eye.
Giving lots of people the chance to become wealthy is indeed a considerable virtue of capitalism. Of course this depends on the meaning of “wealthy.” I’d say someone with a secure six-figure income is wealthy, or rich if you prefer. Yet this describes, I believe, a fair numbered tenured academics. For such people to be disdainful of capitalism because it allows other paths to the same economic status is, pardon me, a liitle rich.
Andrew Sabl says
Byomtov,
I think that Ryan in context was talking about much greater levels of wealth than that. Otherwise his argument wouldn’t make sense. The idea that academics self-selected into a profession that doesn’t care about wealth only parses if we’re assuming that what they earn doesn’t count as wealth in the sense he means it. And with respect to the comparison group that all these articles is talking about—high-achieving students at elite, mostly private universities—a secure six figures indeed counts as relative lack of wealth. I don’t mean to sound callous or casual. I realize that most people live on far less than that. I’m making a point about character. Everybody likes money, as I do too, and I hope I’m duly grateful for my salary. But the fact remains that high-flying Ivy Leaguers have the opportunity to make much more than academics do. An academic salary in comparison is very comfortable but doesn’t reflect a very high level of wealth, nor a preference function that places a great emphasis on wealth.
If your point is that academics’ salaries are only possible because a market economy generates so much wealth, I couldn’t agree more. And if I ever meet an academic under seventy who supports socialism (other than John Roemer), that person will be a hypocrite.
NCG says
Sorry to quibble, but at least in theory, why couldn’t there be a rich socialized economy that could support higher learning? Say one with oil, maybe?
For the record, I am *not* a socialist. I’m just saying.
paul says
A couple of questions here: first, of course, what do you mean by “socialism”? The eastbloc version or the scandinavian?
Second, academics the past 20 years or so has been much more of a crapshoot than, say, hedge funds or corporate law. Plenty of formerly high-flying ivy leaguers have found themselves stuck in junior-faculty and adjunct positions. Sure, a couple of them together will probably exceed the household median, but it’s the idea that they’re doing something intellectually and personally rewarding that leads to the envy and charges of elitism.
Dennis says
Andrew,
The only quibble I’d have is with your description of the Masters of the Universe (MotU) as literal meritocrats. My dictionary describes a meritocracy as rule by persons selected on the basis of their ability. The MotU may believe themselves to be meritocrats, but that’s true only if the figure of merit is wealth. I’d describe them as self-deluded plutocrats, with the delusion being that they are where they are by dint of superior acumen.
Andrew Sabl says
Fair enough in some sense. By “literal meritocrats” I meant more the “crat” part than the “merit” part: the hedge fund managers literally think they deserve to rule, not just to prosper. I won’t quarrel with “plutocrats,” though.
However, I do think that one of the strengths of the original article I linked to is that it stressed—accurately, I’ll assume, though I’m open to contrary evidence—that many hedge fund managers come, like the president, from relatively modest backgrounds and disdain the classic, clubby way of getting ahead in finance or business through insider connections. Though I won’t claim either that intelligence or ability in generally has a high correlation with wealth in this country, or that hedge fund managers embody “ability” in some absolute or metaphysical sense, it does seem the case that hedge fundis made a great deal of money through their own brainwork rather than through inherited wealth or status. That’s one reason they’re so eager to keep what they earned and so resistant to the claim that noblesse oblige.
Gray Woodland says
Yes. Speaking as a libertarian who considers gross inequality to be, as a practical rule, grossly corrosive of actually existing liberties:
They think the system’s merit lies in their merit,
But I think the system’s crassness lies in their -cracy.
Even if we posit that the stratospherically rich are necessary for high levels of wealth creation, and that their fortunes are freely and honestly acquired, the wealth remains the feature, and the colossal wealth differentials are still the bug.
NCG says
I still think you’re giving these people too much credit. It is like getting all excited about someone because they are the CEO of a big corp. Of course, odds are that someone in that position is generally intelligent and hardworking and may even be a reasonably good person. But the reason they’re rich is that they’re at the top of a big company that someone else probably built, which is supported by consumers born and raised by others, and so forth. The fact that hedgie people are able to find a nice little corner of our huge economy and chisel off of it is nice for them but not particularly productive or admirable, imho. I don’t say they are necessarily bad, and they probably are no worse than average, but I’m also not sure they produce *anything.* Farmers produce food. I think these guys just gamble. I’ve met people who gamble for a living before. Who cares?
It seems to me the purpose of an economy is to be a vehicle by which we all provide for ourselves and others. Our problem is, ours isn’t working well anymore and our government isn’t either.
Gray Woodland says
I can’t give them credit for it. This would involve a rosier view of Big Money as we know it than I currently consider plausible. However, if for the sake of argument we give J Random Hedge Guy credit for creating wealth rather than shuffling it about or flushing great scads of it down the toilet, then that still doesn’t make the wedge they cut off the measure of their worth. Their creation of great absolute wealth is a claim of a good thing: their acquisition of great relative wealth is, to me, the fact of a bad thing, or at least the root from which many bad things will and do grow.
I wish I disagreed with you more about the present prospect. Interesting times on all fronts, I’m afraid.
NCG says
Unless they risk the overall economy, I don’t have time to focus negative energy on hedgie people.
But they should pay at least the same rate as on income, and maybe more, since this is after all gambling, isn’t it? Don’t lotto winners have to cough up half? How is that fair?
Betsy says
This is a great post. And this is why I will always love England: because “everything,” there, is not simply reducible to “all a matter of money.”
Barry says
Andrew, the simplest explanation is that these guys are whining sociopaths. They supported Obama in ’08, because they figured that McCain would crash the economy, which would hurt them.
They’re mad a Obama because he’s trimming their toenails (not even stepping on their toes), and doesn’t give them a BJ. That’s all. They wouldn’t recognize fairness if it bit them.
Frankly, in the next crash I’d vote for literal pitchforks and torches. The survivors might learn a lesson.