Surely Schadenfreude

Also published on the Atlantic Monthly’s Business Channel.

What began as bitterness has burst into a full blown battle between the haves and the havenots. Whatever the level of tension was at the outset of this crisis, public sentiment has turned an entirely new shade of red. But it’s not all bad. I’m sure this period in history will prove to be a petri dish for social scientists and political theorists for decades to come. So maybe we’ll learn something from it.  At a minimum, we can expect SSRN‘s servers to be put to extensive use (if they’re not torched as part of the bourgeois conspiracy).

So what got this whole movement started? Aside from obvious causes like crashing asset prices and mass unemployment, I think we can find additional causes by looking to popular culture, how it shaped the public’s perception of wealth, and how wealth and the wealthy took center stage, just before they all disappeared.

I’m Just Gonna Keep On Dancing

When times were good and most people had enough to get along, the public, especially in the U.S., was more than willing to envy the wealthy. This was the case whether the wealthy individual was a derivatives trader, rapper, actor, or heiress. We had gotten to the point where people were famous simply for being wealthy, whether or not they had contributed anything to the world to generate or even justify their wealth. The mere possession of wealth was fetishized, arguably beyond the level of physical beauty. A famous mantra of the era sums up the ethos nicely: “Money, power, respect – it’s the key to life.”

During this period, which I would define roughly as the last decade, the residents of Manhattan embraced an exaggerated, almost ridiculous adherence to this “bling culture.” To live in Manhattan during this time period was to submit to wealth and celebrity being determinative of your daily experiences. And even the wealthy were peasants here. Real estate prices ballooned to unimaginable levels with 1 bedroom apartments renting at costs that exceeded the average income of U.S. citizens.  Manhattan had become the epicenter of American capitalism, and Wall Street was without question its Holy See.

Although there were some economic rough patches over the last decade, in retrospect it seems like a straight shot to the top, at least when compared to the current situation. The salaries of young professionals skyrocketed to create a well educated, highly paid, stimulus addicted sub-culture. And there was nowhere else that young professionals would care to call home than a four thousand dollar a month closet in one of the many coveted neighborhoods of Manhattan’s downtown area.  With ready access to “bling” that the rest of the hoi polloi could experience only on television, Wall Street’s traders, bankers, and lawyers were the fuel of Manhattan’s economic engine. The feigning of celebrity through wealth was the apparent end. Conspicuous consumption, designer clothes, and late hours were the means. Without being famous, 6 and 7 figure-earning 20-something professionals could “party like rock stars” at the city’s restaurants, bars, and clubs and burn out every ember they had left during the 12 hours a week they weren’t working.

Wall Street’s riches were no secret to the public.  Stories of hedge fund managers receiving compensation in excess of a billion dollars a year were already old-hat by the time the housing crisis got underway. But what reports of wealth never focused on was how the money was made. The story of the rise to wealth was secondary to reports of its present expenditure.  Reality TV shows featuring the wealthy, their homes, their boats, and their conquests offer little insight into how wealth is generated. And it seems the public’s perception of how wealth is generated has suffered as a result. The emphasis on the present status of being wealthy has left gaps in the story, and seems to justify the presumption that the wealthy are undeserving, that the money just appeared. But this should not come as a surprise to anyone. After all, entertainment is a product, subject to competition, and only the most fit products will survive. So ask yourself, what’s more entertaining: a piece on a 28 year-old banker strung out on uppers at 4AM grinding through a power point presentation on the cash flows of some pharmaceutical company; or that same 28 year-old banker drunk out of his mind spending thousands of dollars on bottle service and a raw bar at some trendy club with techno music blasting and scantily clad women dancing on tables? I think we’d all agree that the latter would be an easier sale to the networks.

And Then The Music Stopped

And then it all came crashing down on top of us. What began with the collapse of markets in obscure corners of high finance escalated to a global liquidity crisis, and then a global recession. And now, jobless, and angry, the public remembers that piece about the 28 year-old slurring his speech with a piece of crab hanging off his chin. They think to themselves, “This is who did this to me. This brat making more money than I can count and eating food I can’t pronounce.” What they don’t think is, here’s the kid who is the pride of his family, who’s worked hard his entire life to get into top schools and get a job at a top bank, working 80 hours a week at a cubicle strung out on uppers to push him through to the next day. And yes, on Saturdays at 3 AM he can be found somewhere on the Lower East Side with a piece of crab attached to his face.

The danger we face is not a lack of understanding or sympathy for the wealthy. Wall Street is not running a charity. People who work there know what they’re getting into and don’t deserve sympathy for choosing demanding careers. And in any case the thanks come via direct deposit. Rather, the danger we face is shaming the accumulation of wealth. Those who forcefully pursue their own selfish goals within the bounds of the law generate wealth for those around them. This is a tried and tested fact. By succumbing to anger and an easy answer for what went wrong, in the short term we run the risk of being distracted from the more pressing issues before us. And in the long term, we run the risk of discouraging the entrepreneurship and progress that has lifted humanity out of poverty.


3 thoughts on “Surely Schadenfreude

  1. The prose is nicely done, but your error is similar to the error you commit in tirelessly defending CDS as risk reducing: by employing a (rather silly) straw man you cast the debate in irrelevant terms. In that case, the CDS, an obvious lack of real-world familiarity re-generated a textbook and elementary argument that never rose to real issues posed by actual CDS in practice. Reading you is like reading a eloquent tantrum on the existence of gravity. “Some people argue that things float. They are jealous. Let me prove to you why things fall down.” We know things fall down, we are trying to figure out who is throwing pianos off the roof.

    In this case, a refresh of Adam Smith creates an even more ridiculous straw man, class warfare. We aren’t there yet.

    The backlash isn’t against wealth creation. Good grief. The U.S. isn’t entirely some subset of some slice of New York. The celebration of, and admiration for, entrepreneurial wealth creation is generally thriving. Visit Northern California or dozens of other cities and areas across the country. People generally want to emulate wealth creators, but they aren’t as stupid as you suggest: the resentment is against false wealth creation, and visible wealth destruction, caused by a certain type of financier who gained his/her wealth based on farce. The resentment is against a particularly anti Adam Smith type of capitalism: gains ill-gotten. If not illegally (Madoff), then artificially (paper gains for now, not clawed back when shown to be illusory). And, we were strangely tolerant of even that, until it started to impact everybody else. Surely you can sort out the difference?

    The backlash is rather against (i) this flavor of Planet Finance and (ii) the concern that big government, by redirecting taxpayer dollars to dubious pursuit, could do more harm than good (e.g., see your misunderstanding of the importance of laundering money through AIG, where the issue is more complex than you acknowledge). The new Boston tea parties. The situation is exactly the opposite of what you suggest: the backlash is entirely consistent with a classical view of capitalism. Ergo, as with the CDS, your arguments distract from real issues.

    Finally, it’s important to note that nobody, for example, is protesting Warren Buffett. Even as he has a large stake in Moody’s, one of the prime culprits to the current problem. Why not, he is a financier? (nor Bill Gates, but he’s built a company!) Because, contrary to your raging straw man, few people begrudge even the investor who makes money “the old fashion way”; by earning it.

    • Dr. Phil,

      Please refrain from using multiple identities/bogus email addresses when commenting on my blog.

      Though you call me insufferable, in the interest of protecting your career, I will not divulge your real name. In the future, if you have something to say to me, at least have the courage to go on the record. I do.

      FYI, most blogs, like mine, log IP addresses. So if you’re doing this elsewhere, it is in all likelihood, to no avail.

  2. Dr. Savin, Phil and Dr. Fan, Erdos –

    I would like to add one thing. If D represents the democratic nature of society, and 8 represents 2008, would you say this equation is fair:


    Please discuss.

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