Biglaw, Money

Attack of the Lower Upper Class

There are a lot of media outlets falling over themselves to capture a new angle to the Goldman Sachs lawsuit. But the Washington Post’s Matt Miller (gavel bang: ABA Journal) brilliantly used the Goldman lawsuit to address a potentially much bigger issue. S.E.C. v. Goldman could be the first shot of a new kind of class warfare:

A few years ago, a Goldman Sachs banker, still shy of his 40th birthday and worth, I was reliably told, some $80 million, told me that he wasn’t in his line of work for the money. “If I was doing this for the money,” he said, with no trace of irony, “I’d be at a hedge fund.”

What to say? Though such a statement is perhaps only fathomable on a small plot of real estate in Lower Manhattan at the dawn of the 21st century, it suggests how insular and debauched our ruling class has become.

For several years I’ve predicted that a new wild card in American life — the presence of economic resentment at the bottom of the top 1 percent of our income distribution — would become a powerful force for reform. The SEC’s fraud case against Goldman Sachs may be the first shot in what I think of as the revolt of the “lower upper class.”

Who belongs to the lower upper class? According to Miller, you do…

Everybody talks about the gap between the “haves” and “have-nots.” But what about the growing gap between the “haves” and the “have-not enough time to spend all my money in multiple lifetimes”?

Lower Uppers are doctors, accountants, engineers and lawyers. At companies they’re mostly people above the rank of vice president and below the CEO. Their comrades include well-fed members of the media (and even part-time Post columnists who earn their livings as consultants). They include government officials — and, yes, SEC lawyers — who didn’t make or inherit fortunes before entering public service. Lower Uppers are professionals who by dint of education, hard work and good luck are living better than 99 percent of anyone who has ever walked the planet. They’re also people who can’t help but notice how many people with credentials much like their own seem to be living in the kind of Gatsby-like splendor they’ll never enjoy.

There are many, many lawyers that can attest to how much it sucks to be busting your butt so that your client, Jay Gatsby, can have even more money:

This stings. If people no smarter or better than you are making $10 million or $50 million or $100 million in a single year, while you’re working yourself ragged to scrape by on a million or two — or, God forbid, $300,000 — then something must be wrong.

David Brooks has also noted this problem:

For those who don’t know, Ward Three is a section of Northwest Washington, D.C., where many Democratic staffers, regulators, journalists, lawyers, Obama aides and senior civil servants live…

In the first place, many people in Ward Three suffer from Sublimated Liquidity Rage. As lawyers, TV producers and senior civil servants, they make decent salaries, but 60 percent of their disposable income goes to private school tuition and study abroad trips. They have little left over to spend on themselves, which generates deep and unacknowledged self-pity.

Second, they suffer from what has been called Status-Income Disequilibrium. At work they are flattered and feared. But they still have to go home and clean out the gutters because they can’t afford full-time household help.

Third, they suffer the status rivalries endemic to the upper-middle class. As law school grads, they resent B-school grads. As Washingtonians, they resent New Yorkers. As policy wonks, they resent people with good bone structure.

In short, people in Ward Three disdain three things: cleavage, hunting and dumb people who are richer than they are. Rich people have to learn to adapt to the new power structure if they hope to survive

Is it “entitlement” to be pissed about making a couple of hundred thousand dollars a year when you live in and work in a world among people making tens of millions? Remember, these uber wealthy are you clients, your friends, your college roommates. Now they earn the GDP of a small country while you earn just enough to get wiped out by pissed off spouse during a messy divorce.

And at least for lawyers and other professionals, you can’t even dream of “working harder” in order to bridge the gap. You’re already working as hard as you can. You can’t (legitimately) bill more than 24 hours in a day.

Now, up till now the lower upper class has been pretty docile when it comes to standing up against the distribution of wealth at the very top. It’s … unseemly … to bitch about making $300,000 a year when so many Americans live on less that $50,000. And it’s not exactly in the DNA of educated elites to adopt a populist mantra.

At least the older educated elites. But younger people who have been hard working and are very well educated are starting to notice that they are getting screwed. How else do you explain how pissed off people get when a firm cuts somebody’s six figure salary by ten percent?

Read some of the comments on our quote of the weekend about the potential marginal tax rate that will hit New Yorkers making over $300,000 a year. Some of them are no doubt from reactionary anti-tax people. But I imagine that quite a few of those comments are left by moderates on both side of the aisle. What unites them — hard as this may be for some people to fathom — is that making $300,000 doesn’t make you rich. Not in New York, not by a long shot.

So, how might the lower upper class get their revenge?

Think of SEC vs. Goldman, then, as the Lower Uppers’ Lexington and Concord. As Lower Uppers lash out, the public will cheer. Eliot Spitzer’s crusade against Wall Street when he was attorney general was hugely popular. Voters who distrust government tell pollsters they still want greedy bankers brought to heel. There’s a political opening for a “comeuppance” agenda that starts with the financial regulatory reform President Obama is pressing this week.

But it hardly ends there. The next big skirmish will be taxes. And it brings out the beast in even rumpled Lower Uppers.

One well-known and otherwise mild-mannered, free market-oriented Ivy League economics professor, for example, told me not long ago that “we should tax the [bleep] out of these guys,” meaning CEOs, private equity honchos and other banking types. He said the pay scams they’d cooked up left them earning classic economic “rents” — much more than would be needed to keep them engaged in the same activity. Since reducing rents doesn’t affect what people actually choose to do, economists say they can be taxed without hurting the real economy.

This could be the storm that reforms America’s political alliances. Once you realize that you can’t join them, you might as well beat them.

Goldman Sachs and the revolt of the lower upper class [Washington Post]
Lawyers in ‘Lower Upper Class’ Begin Revolt with Goldman Case, Columnist Says [ABA Journal]
Ward Three Morality [New York Times]

Earlier: Quote of the Weekend: Thanks Obama!

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