Are We Entering an Antiwealth Era?

A historical perspective on the populist outrage against wealth and extreme compensation.

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Some of the more searing manifestations of populist rage against wealth and extreme compensation come not from think tanks or academics, but from court jesters. A prime example is Jon Stewart, host of Comedy Central’s The Daily Show, who regularly lambastes well-paid corporate executives on “a Sherman’s march through their companies — financed by our 401(k)s.”

A historical perspective suggests that there are two types of populist outrage at work. The first is a long-term dissatisfaction with “the huge disparity between hedge fund managers who make a billion dollars a year and the regular working people,” says Michael Kazin, a professor of history at Georgetown University who has written extensively on U.S. populism. The second? “A more specific outrage that has deeper roots than the income gap and that is about how people make their money,” Kazin says. “Making money with other people’s money.”

At a panel discussion in late March on financial sector compensation at the National Press Club in Washington, Fred Smith Jr., founder and president of the Washington-based Competitive Enterprise Institute, argued that the private sector would do well to heed popular opinion when it receives financial support of the kind dished out in the continuing bank and insurance company bailouts.

“The rule ought to be that a ward of the state has the same restrictions that government bureaucracies do, and you are held responsible when you screw up,” Smith said in an interview afterward. “It is a weird hybrid, the incompetency of bureaucracy and the high rewards of capitalism. You get rewards without any performance.”

Hedge funds are different, Smith argues, because they are typically “not a wealth-redistribution part of the economy, but a wealth-making part of the economy.” For that reason, he says, their “high compensation is perfectly appropriate.”

Not everyone agrees. Congressman Sander Levin, a Democrat from Michigan, one of the most economically devastated states in the U.S., introduced a bill in April to increase the federal tax rate on so-called carried interest — the big performance fees hedge fund managers collect — to 35 percent from 15 percent. The shift would treat such fees as income rather than as capital gains. According to the Washington-based Institute for Policy Studies, the carried-interest loophole, when calculated for the financial sector as a whole, has cost $2.7 billion in lost tax revenue annually.

Levin’s argument against the loophole echoes what other critics have said over the years. It is unfair, he says, to the “millions of other hard-working Americans, many of whose income is performance-based [and who] pay ordinary rates of up to 35 percent.” Levin introduced a similar bill in 2007, but this time he probably has the backing to get it passed.

Does all this mean we’re entering an antiwealth era?

“People get upset if they feel like you’re not earning your money in an honest way, or you’re not giving something back,” Kazin says. But he notes that Americans typically admire rich people who come by their wealth honorably: “How many people dislike Bill Gates? Besides people from Apple?”

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