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

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.

Now an Oregon-based company is taking things further: private submarines. An estimated 100 or so private subs are now drifting around the world's oceans. Then there are the rockets -- several notable billionaires are now leading the way in private exploration of space. One of them is Robert Bigelow who has ploughed $500m into trying to build an inflatable space hotel. A miniature prototype model was successfully launched and tested last month. In a scene that perhaps James Bond would find familiar, armed guards now patrol the fences of Bigelow Aerospace's headquarters wearing badges decorated with an alien as their corporate logo.

But this is not just a world of riches gone mad that the rest of America can ignore. The growth of such a large super-rich class, coupled with a deepening poverty in many communities, is starting to tear at the fabric of society. Even some of the most wealthy -- like Gates and Buffett -- have spoken openly of the needs to address the massive "inequality gap" that they have come to exemplify. In effect, some of the very richest Americans are calling for themselves to be taxed. In a speech last month Buffett -- the third richest man in the world -- pointed out that his tax rate was 17.7 per cent of his income while his secretary was taxed at 30 per cent. "Many of the new super-rich are looking long term at the world and they see a collapsing US education system and health-care system and the disappearance of the middle class and they realize: this is bad for everybody," said Frank.

Defenders of low tax for the very rich point to the theory of trickledown economics -- the spending power of the rich benefiting the poor. But while the super-rich have boomed, the earning power of the average and poor citizen has not nearly matched the performance of the elite. In 2005 the top one per cent of earners in the US gained 14 per cent in income in real terms, while the rest of the country gained less than one per cent. The situation is especially bad for the severely poor -- those living at half the poverty level -- whose numbers are at a 32-year high. The rich are getting richer but are not bringing everyone else with them. "If you look at the impact of the last 20 years it seems pretty clear that trickledown just does not work," said Paul Buchheit, economics professor at Chicago's Harold Washington College.

There are some signs of a change in attitude. Recent huge Wall Street flotations such as the listing of private equity giants like Blackstone have created a push in Congress for taxes on the instant billionaires they have created. Scandals of excess such as Enron and WorldCom and the trial of Conrad Black have been high-profile. But few politicians, needing campaign cash from new millionaires, will get far preaching higher tax. Calls for more equality tend to have come from men like Buffett and Gates whose fortunes are so enormous that a little extra tax would make no difference. Bush has pushed to phase out taxes like the estate tax, which benefit only the rich. "I don't see it changing. No matter what administration is in power," said Buchheit.

But many think it must change. To a large degree, the debate over the booming lives of the super-rich is an argument about the American soul. America is a country that has always worshiped wealth, where the creation of a fortune was seen as virtuous and a source of pride.

But now that huge wealth has started to squeeze the "middle class" out of existence, leaving the haves and have-nots in very separate worlds. It is possible that political will may develop to address the problem or that the problem will correct itself. The notorious end of the Gilded Age came in the panic of 1893 that sank America into depression.

Frank believes the signs of a coming storm are there. "The trick is to spot when prosperity turns to excess," he said. "When a large amount of people make a lot money very quickly it's a sign you are near the top of the market."

In a world of mega-yachts, private submarines and space hotels, that peak might be close at hand. And it's a long way down.

Billionaire's row

-- There are 7.5 million households in America worth up to $10m. A further two million are worth $10m-$100m and thousands are worth more than $100m.

-- There is now a two-year waiting list for 200ft yachts. If put end to end, the boats on that list, which cost $50m each, would be 15 miles long.

-- Sebonack Golf Club in the Hamptons, Long Island, charges $650,000 for membership. That doesn't include the $12,000 annual dues, or tips for caddies.

-- Google founders Sergey Brin and Larry Page have a private Boeing 767.

-- John D. Rockefeller was America's first billionaire. Adjusted for inflation, he had $14 billion -- less than the net worth of each of Sam Walton's five children today. There were 13 US billionaires in 1985. Now there are more than 1,000. There are as many millionaires in North Carolina as in India.

-- "Affluent" is Richistani for "not really rich." According to Frank, you need about $10m to be considered entry-level rich.