Is the US Heading for 'Developing Nations' Inequality Levels?

By Paul Harris, The Observer UK. Posted July 30, 2007.

On the surface, Mark Cain works for a time-share company. Members pay a one-off sum to join and an annual fee. They then get to book holiday time in various destinations around the globe.

But Solstice clients are not ordinary people. They are America's super-rich and a brief glance at its operations reveal the vast and still widening gulf between them and the rest of America.

Solstice has only about 80 members. Platinum membership costs them $875,000 to join and then a $42,000 annual fee. In return they get access to 10 homes from London to California and a private yacht in the Caribbean, all fully staffed with cooks, cleaners and "lifestyle managers" ready to satisfy any whim from helicopter-skiing to audiences with local celebrities. As the firm's marketing manager, Cain knows what Solstice's clientele want. "We are trying to feed and manage this insatiable appetite for luxury," Cain said with pride.

America's super-rich have returned to the days of the Roaring Twenties. As the rest of the country struggles to get by, a huge bubble of multi-millionaires lives almost in a parallel world. The rich now live in their own world of private education, private health care and gated mansions. They have their own schools and their own banks. They even travel apart -- creating a booming industry of private jets and yachts. Their world now has a name, thanks to a new book by Wall Street Journal reporter Robert Frank which has dubbed it "Richistan." There every dream can come true. But for the American Dream itself -- which promises everyone can join the elite -- the emergence of Richistan is a mixed blessing. "We in America are heading towards 'developing nation' levels of inequality. We would become like Brazil. What does that say about us? What does that say about America?" Frank said.

In 1985 there were just 13 US billionaires. Now there are more than 1,000. In 2005 the US saw 227,000 new millionaires being created. One survey showed that the wealth of all US millionaires was $30 trillion, more than the GDPs of China, Japan, Brazil, Russia and the EU combined.

The rich have now created their own economy for their needs, at a time when the average worker's wage rises will merely match inflation and where 36 million people live below the poverty line. In Richistan sums of money are rendered almost meaningless because of their size. It also has other names. There is the "Platinum Triangle" used to describe the slice of Beverly Hills where many houses go for above $10m. Then there is the Jewel Coast, used to describe the strip of Madison Avenue in Manhattan where boutique jewelry stories have sprung up to cater for the new riches' needs. Or it exists in the MetCircle society, a Manhattan club open only to those whose net worth is at least $100m.

The reason behind the sudden wealth boom is, according to some experts, the convergence of a new technology -- the internet and other computing advances -- with fluid and speculative markets. It was the same in the late 19th century when the original Gilded Age of conspicuous wealth and deep poverty was spawned by railways and the industrial age. At the same time government has helped by doling out corporate tax breaks. In the 1950s the proportion of federal income from company taxes was 33 per cent, by 2003 it was just 7.4 percent. Some 82 of America's largest companies paid no tax at all in at least one of the first three years of the administration of President George W. Bush.

But who are the new rich? Some of the names are familiar, Microsoft tycoon Bill Gates and savvy stock investor Warren Buffett. But most are unknown, often springing from the secretive world of financial hedge funds. Men like James Simons, who took home compensation of $1.7bn last year. Last year the 25 top earning hedge fund bankers in the US earned an average of $570m each. The average US household income is $50,000.

It is such men -- and they are usually men -- who feed the outlandish luxury goods economy of Richistan. It is they who are responsible for the rebirth of the butler industry, which was all but dead in the Seventies and is now facing a shortage of trained staff. So keen is the demand that many can expect to earn a six-figure salary when they graduate from booming butler schools.

Then there is the runaway feeder-industry of luxury consumer items. The new ultra rich turn up their noses at Rolexes; the sought-after brand is Franck Muller, which sells a high-end timepiece for $736,000. Or try a Mont Blanc pen, encrusted in jewels, for $700,000. Louis Vuitton's most exclusive handbag sells for $42,000. Only 24 were ever made and none ever touched a shelf as all were pre-sold to Richistani clients.

In places such as Manhattan and Los Angeles, restaurants and bars outdo themselves in excess. New York's Algonquin Hotel has a $10,000 "martini on a rock" (it comes with a diamond at the bottom of the glass). City eateries sell burgers for more than $50. One offers a $1,000 omelette. In Los Angeles there is a craze for Bling mineral water -- at $90 a bottle.

Then there are the boats. The private yacht industry in America has been caught in an arms race of size and luxuriousness. So far, there has been a clear winner: Oracle-founder Larry Ellison's 450 foot water palace, the Rising Sun. More than 80 rooms on five stories and a landing craft that carries a Jeep, a basketball court doubling as a helipad and a fully-equipped cinema.

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