Thursday, June 23, 2005

Veiled Praise

June 23, 2005

Cambridge, Mass.

I CONSIDER my appearance quite unremarkable. I'm 5 feet 8 inches, 150 pounds, fresh-faced and comfortably trendy - hardly, in my view, a look that should draw stares. Still, the Muslim headscarf, or hijab, that I wear makes me feel as if I am under a microscope.

I try to go to the gym just about every morning. Because I work out with my scarf on, people stare - just as they do on the streets of Cambridge.

The other day, though, I felt more self-conscious than usual. Every television in the gym highlighted some aspect of America's conflict with the Muslim world: the war in Iraq, allegations that American soldiers had desecrated the Koran, prisoner abuse at Guantánamo Bay, President Bush urging support of the Patriot Act. The stares just intensified my alienation as an Arab Muslim in what is supposed to be my country. I was not sure if the blood rushing to my head was caused by the elliptical trainer or by the news coverage.

Frustrated and angry, I moved to another part of the gym. I got on a treadmill and started running as hard as I could. As sweat dripped down my face, I reached for my towel, accidentally dropping my keys in the process. It was a small thing, I know, but as they slid down the rolling belt and fell to the carpet, my faith in the United States seemed to fall with them. I did not care to pick them up. I wanted to keep running.

Suddenly a man, out of breath, but still smiling and friendly, tapped me on my shoulder and said, "Ma'am, here are your keys." It was Al Gore, former vice president of the United States. Mr. Gore had gotten off his machine behind me, picked up my keys, handed them to me and then resumed his workout.

It was nothing more than a kind gesture, but at that moment Mr. Gore's act represented all that I yearned for - acceptance and acknowledgment.

There in front of me, he stood for a part of America that has not made itself well known to 10 million Arab and Muslim-Americans, many of whom are becoming increasingly withdrawn and reclusive because of the everyday hostility they feel.

It is up to us as Americans to change how the rest of the world views us by changing how we view some of our own citizens. Mr. Gore's act reminded me that rather than running away on my treadmill, I needed to keep my feet on the soil in this country. I left the gym with a renewed sense of spirit, reassured that I belong to America and that America belongs to me.

Fatina Abdrabboh is a student at the Kennedy School of Government at Harvard.

Thursday, June 09, 2005

Losing Our Country

June 10, 2005
The New York Times

Baby boomers like me grew up in a relatively equal society. In the 1960's America was a place in which very few people were extremely wealthy, many blue-collar workers earned wages that placed them comfortably in the middle class, and working families could expect steadily rising living standards and a reasonable degree of economic security.

But as The Times's series on class in America reminds us, that was another country. The middle-class society I grew up in no longer exists.

Working families have seen little if any progress over the past 30 years. Adjusted for inflation, the income of the median family doubled between 1947 and 1973. But it rose only 22 percent from 1973 to 2003, and much of that gain was the result of wives' entering the paid labor force or working longer hours, not rising wages.

Meanwhile, economic security is a thing of the past: year-to-year fluctuations in the incomes of working families are far larger than they were a generation ago. All it takes is a bit of bad luck in employment or health to plunge a family that seems solidly middle-class into poverty.

But the wealthy have done very well indeed. Since 1973 the average income of the top 1 percent of Americans has doubled, and the income of the top 0.1 percent has tripled.

Why is this happening? I'll have more to say on that another day, but for now let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power.

Since 1980 in particular, U.S. government policies have consistently favored the wealthy at the expense of working families - and under the current administration, that favoritism has become extreme and relentless. From tax cuts that favor the rich to bankruptcy "reform" that punishes the unlucky, almost every domestic policy seems intended to accelerate our march back to the robber baron era.

It's not a pretty picture - which is why right-wing partisans try so hard to discredit anyone who tries to explain to the public what's going on.

These partisans rely in part on obfuscation: shaping, slicing and selectively presenting data in an attempt to mislead. For example, it's a plain fact that the Bush tax cuts heavily favor the rich, especially those who derive most of their income from inherited wealth. Yet this year's Economic Report of the President, in a bravura demonstration of how to lie with statistics, claimed that the cuts "increased the overall progressivity of the federal tax system."

The partisans also rely in part on scare tactics, insisting that any attempt to limit inequality would undermine economic incentives and reduce all of us to shared misery. That claim ignores the fact of U.S. economic success after World War II. It also ignores the lesson we should have learned from recent corporate scandals: sometimes the prospect of great wealth for those who succeed provides an incentive not for high performance, but for fraud.

Above all, the partisans engage in name-calling. To suggest that sustaining programs like Social Security, which protects working Americans from economic risk, should have priority over tax cuts for the rich is to practice "class warfare." To show concern over the growing inequality is to engage in the "politics of envy."

But the real reasons to worry about the explosion of inequality since the 1970's have nothing to do with envy. The fact is that working families aren't sharing in the economy's growth, and face growing economic insecurity. And there's good reason to believe that a society in which most people can reasonably be considered middle class is a better society - and more likely to be a functioning democracy - than one in which there are great extremes of wealth and poverty.

Reversing the rise in inequality and economic insecurity won't be easy: the middle-class society we have lost emerged only after the country was shaken by depression and war. But we can make a start by calling attention to the politicians who systematically make things worse in catering to their contributors. Never mind that straw man, the politics of envy. Let's try to do something about the politics of greed.


Deficit Is Arriving Under Forecasts

Good News for White House
Comes on Economy's Climb,
High Level of Tax Receipts
June 9, 2005 10:27 a.m.; Page A3

The White House, which hasn't had much good news since President Bush's second term began, is about to start spreading some: This year's deficit is coming in lower than anticipated, thanks to the economic recovery and higher-than-expected tax receipts.

While the administration and Congress won't officially revise their separate annual deficit projections until midsummer for fiscal 2005, which ends Sept. 30, government and private-sector analysts agree the shortfall is more likely to be about $350 billion, rather than the $427 billion the administration forecast in January. Treasury Secretary John Snow is expected to carry the tidings to London for this weekend's summit of finance ministers from the Group of Eight leading nations, who have harped on the growing American debt and foreign borrowing.

Administration officials say the improved fiscal picture suggests the president is on track to deliver more quickly on a campaign promise to cut the annual deficit in half as a share of the total U.S. economy, to 2.3% of gross domestic product. (By comparison, last year's $412 billion deficit was 3.6% of GDP.) Private analysts don't put much stock in that promise, however; even if Mr. Bush claims victory, the nation still faces long-term deficit problems. Overall federal spending is increasing, including for war costs. More broadly, spiraling health-care costs for Medicare and Medicaid programs, including a prescription-drug benefit for seniors starting next year and a wave of baby-boomer retirements after 2008, will drive federal deficits to unsustainable sizes.

"These are the good ol' days. These are the best of times," says Congressional Budget Office Director Douglas Holtz-Eakin, a former administration economic adviser. "After this, it gets worse."

Accentuating the positive, the administration yesterday unexpectedly released an updated economic forecast that will be used to calculate the revised budget projections in July. Officials said economic growth would continue at a 3.4% annual rate, just under what they projected in December. While rising energy prices nudged up the inflation forecast to 2.3% for the year, inflation is projected to fall back to the earlier estimate of 2.1% after that. The administration sees interest rates rising over the next few years -- both short-term rates largely influenced by the Federal Reserve Board and also bond-market rates, which have been surprisingly low.

"With the president's focus on spending discipline, we are seeing positive signs for the American economy, and for the federal government's balance sheet," Budget Director Joshua Bolten said in a statement.

His Office of Management and Budget wouldn't speculate on a narrower 2005 deficit projection. But private forecasters have begun doing so, especially after CBO last month suggested the deficit would be closer to $350 billion than the $394 billion it had earlier forecast for the president's 2005 budget.

A narrowing deficit makes life easier for the administration in several ways. It can more readily counter complaints from European allies -- which have larger deficits as a share of their economies -- that the U.S. needs to do more to get its economic house in order, just as Mr. Bush is about to attend a G-8 meeting next month in Scotland. At home, a smaller deficit eases his argument for making his first-term tax cuts permanent, blunting Democrats' complaints that those tax cuts and war costs are exacting an economic toll on the nation.

But a narrower deficit has downsides for the president as well. "The bad news, of course, is that as the deficit comes down cyclically, the pressure ... is lessened" to get Congress to make tough changes in tax and spending policy to reduce deficits for the long term, says Goldman, Sachs & Co. chief economist William Dudley.

Also, deficit calculations complicate Mr. Bush's flagging drive to overhaul Social Security. A narrower deficit is possible largely because Mr. Bush and Congress are counting surpluses for Social Security; until 2017, the system is expected to draw more in workers' payroll taxes and interest than it pays out in benefits. Some congressional Republicans are urging the White House to earmark the Social Security surpluses to create the personal retirement accounts that Mr. Bush has proposed. But he won't do so, White House advisers say, given his commitment to showing a reduced deficit.

Mr. Bush's promise to halve the deficit by fiscal 2009, when he leaves office, starts from his administration's own projection last year that the 2004 deficit would be $521 billion, or 4.5% of GDP. So half would be a figure equal to 2.3% of GDP, officials say. But private analysts considered the administration's projection inflated, just as they did this year's forecast of a $427 billion deficit for 2005, so the administration "could create an environment in which the numbers then come in better than expected," said Morgan Stanley economist David Greenlaw. While his and other analysts' projections have proved too high, he added, "using numbers in the $420 billion range really were not supportable by any stretch of the imagination."

The CBO this week, in its latest monthly budget report for the first two-thirds of the fiscal year through May, tried to account for the improved deficit picture. It said federal tax revenue had risen by 15.4% compared with the same eight months of fiscal 2004, more than double the 7% growth in federal outlays so far. The 2005 deficit through May was $273 billion, narrower by $73 billion from the comparable period a year before.

Individuals' income-tax payments were up 20%, and the CBO suggested the growth was "more concentrated" among taxpayers who pay the highest rates -- the wealthy whose incomes have grown faster than those of lower-income Americans in recent years. Such conclusions can't be certain until more data are available in the coming year. Another factor, the CBO said, were lower-than-expected tax refunds. Corporate revenues in the first eight months were 48% higher, reflecting profits growth in 2004. The CBO said its next report, which will reflect June 15 estimated-tax payments, will be the first to gauge corporate profits for 2005.

Its director, Mr. Holtz-Eakin, said in an interview that offsetting the good news on increased revenues is the pressure on the White House and Congress to fix the alternative-minimum tax. The AMT was intended to make sure that wealthy taxpayers can't claim so many tax breaks that they avoid any liability, but increasingly it is snagging the middle-class -- bringing billions of dollars more to the Treasury, but at the risk of a taxpayers revolt. Federal spending, meanwhile, is up significantly for Medicare, defense, farm subsidies, education, homeland security and interest on the federal debt.

In short, Mr. Holtz-Eakin said, "I don't see anywhere in this picture where there's room for big improvement."

Write to Jackie Calmes at

Wednesday, June 08, 2005

Wealth Porn

WASHINGTON, June 7, 2005

This commentary was written by's Dick Meyer.
Behind every liberal rich-person basher lurks a rich-person gawker. Or at least most of the time.

The New York Times has been running an impressive, book-length series of articles about class in America. Some of them have been riveting as well as "important." But I'd bet a Rolex that the most popular of the nine pieces published thus far was the front page story that ran Sunday, June 5, headlined, "Old Nantucket Warily Meets the New."

It's all about how the new "hyper-rich" have taken the island over from the old rich. It's a great and grotesque piece.

Accompanying it is a wonkish but equally impressive look at how these "hyper-rich" people, those earning about $1.6 million a year or more annually, are leaving even the regular rich in the dust. The amount of national treasure consumed by the top 0.1 percent of taxpayers has grown to levels not seen since the Roaring '20s.

This is also a terrific piece.

But cruise around the rest of this Sunday's Times and what you'll find is a whole lot of what can only be called wealth porn. There are voyeuristic, detailed, titillating accounts of the doings and digs of the rich and well-groomed all over the paper. It's like that every Sunday. This week it was jarring because of the stories I just mentioned. I think that's called cognitive dissonance.

It is precisely the same cognitive dissonance that allowed the Democratic Party to nominate John Kerry and John Edwards - combined net worth, about $1 billion - to bash the rich, bemoan the split of the "two Americas" and beat up on George and Dick for being pals of the rich. When the rich, or those profiting from the rich, condemn other, less enlightened rich people, skin crawls. And many Americans - to the chagrin of Democrats, Marxists and Europeans - tend not to begrudge the rich and hyper-rich their riches.

Back to the Sunday Times, the single greatest current events icon in the East Coast, Blue State urban, moneyed and intellectual world. If anything creates water-cooler buzz in this orbit, it's the Sunday Times. It is also the greatest purveyor of super high-class, wealth porn there is and it's blessed with the imprimatur of news, sociology and high purpose.

The Times magazine this week, ironically, was "The Money Issue." The cover story was a terrific profile of a more-than-hyper-rich hedge manager named Cliff Asness. The piece was a nice glimpse into the secretive hedge fund universe, but what made it riveting was the portrait of a not famous, under-40 gazillionaire. As always, the Sunday magazine had a section for real estate porn: page after page filled with ads for opulent homes. This week there were ads for 27 homes listed at over $5 million.

In the Sunday Styles section, Alexandra Wolfe - daughter of writer Tom Wolfe - filed a story about how grown daughters of people with names like Tisch and Della Femina are taking their kids to posh new clubs where they can exercise and socialize while their kids get taken care of nearby.

There was a short feature about what's hot in diamond earrings (hoops, not chandeliers, prices ranging from $2,400 to $16,500) and a long article about how David Geffen, Steven Spielberg and Jeffrey Katzenberg are concerned about giving the public access to public beaches in Malibu. There were also the regular weekly features about society weddings and charity balls.

The Sunday Business Section always profiles a hyper-rich guy and this week it was Ronald Perelman. The piece had real news value apart from the wealth porn, just like the hedge fund story.

I'm not suggesting the Times shouldn't have done any of these stories. I just want to point out the irony of running an excellent set of pieces about the anthropology and demographics of the hyper-rich in a paper that is dining out on them. It is a kind of limousine liberalism that I believe also afflicts the Democratic Party too often, a conceit that "we are the enlightened rich."

Bill Clinton didn't bash the rich a lot, but he could have; Johns Kerry and Edwards did bash the rich a lot, and it flopped. It flopped partly because Americans who are not rich simply do not have a European-style, class base resentment. Americans aspire to being rich. That's the American way. But the '04 Democratic rhetoric also flopped because the guys spewing looked like such phonies; they weren't just rich, they were richer than the Republicans: they were hyper-rich.

In the House, Dennis Hastert, former high school wrestling coach, is a more authentic voice of the little guy than Nancy Pelosi, wife of a wealthy real estate developer, and in her own right part of a powerful political family including two past mayors of Baltimore, one of them also a five-term congressman.

The Senate has plenty of guys who make well-to-do look shabby, but the Democrats probably have the greater net worth, led by heirs like Kennedy, Dayton and Rockefeller and self-made moguls like Corzine, Kohl, and Lautenberg.

The point is not that being rich, or exploiting interest in the rich to sell newspapers, should be disqualifiers for tackling issues of economic justice. The point is to do it with some humility and an ear well-tuned to hypocrisy.


Dick Meyer, a veteran political and investigative producer for CBS News, is the Editorial Director of, based in Washington.

Old Nantucket Warily Meets the New

June 5, 2005
The New York Times

NANTUCKET, Mass. - In spring, along with the daffodils, crowds on the ferry and workers raking the beaches, comes the ritual of real estate gossip. What properties changed hands over the winter? And who could possibly be paying those out-of-sight prices?

That 15-acre waterfront parcel for sale for $15 million? It was snatched up after only one day on the market. Turns out the purchaser was Steven Rales, the billionaire entrepreneur who owns at least 61 acres next door and bought the parcel to protect his privacy and waterfront views, said Dalton Frazier, a local real estate agent.

Have any other palatial estates expanded? Not so long ago H. Wayne Huizenga, the billionaire founder of Blockbuster and owner of the Miami Dolphins, wanted more elbow room and bought a neighboring house for $2.5 million. Richard Mellon Scaife, the publisher and heir to a banking fortune, bought an extra house too; he needed it for the staff.

The real estate frenzy, even in the dead of winter, is only the most visible reminder that over the past decade or so this 50-square-mile, fishhook-shaped island off the Cape Cod coast has come to be dominated by a new class: the hyper-rich. They emerged in the 1980's and 1990's, when tectonic shifts in the economy created mountains of wealth. They resemble the arrivistes of the Gilded Age, which began in the 1880's when industrial capitalists amassed staggering fortunes, except that there are so many of them and they seem to be relatively anonymous.

Like their precursors, they tend to be brash, confident and unapologetic. They feel they have earned their money, and they are not shy about spending it. They construct huge mansions, outdo one another in buying high-end status symbols like mega-yachts (100 years ago it was private railroad cars) and not infrequently turn to philanthropy. Their wealth is washing over the upper reaches of society as it did a century ago, bringing cultural and political clout as they take up positions on museum boards and organize presidential campaign fund-raising dinners.

And they seem unconcerned about being accepted by the old money. If the blue bloods want to mix with them, fine. But if not, the hyper-rich are content to stick with their kind. If they cannot join an exclusive country club, they form their own. They are very good at creating a self-enclosed world where the criterion for admission is not the Social Register, but money.

Once a low-key summer resort, Nantucket is rapidly turning into their private preserve, joining the ranks of other enclaves like Palm Beach, Aspen, the Hamptons and Sun Valley. Now that the hyper-rich have achieved a critical mass, property values have zoomed so high that the less-well-off are being forced to leave and the island is becoming nature's ultimate gated community.

"It's a castle with a moat around it," said Michael J. Kittredge, a 53-year-old entrepreneur who realized a fortune when he sold his Yankee Candle Company seven years ago for about $500 million. He was relaxing in the living room of his 10,000-square-foot house, which has a basement movie theater and a 2,000-bottle wine cellar. A separate residence a quarter-mile away houses staff members and a gym.

"Successful people want to be with other successful people," Mr. Kittredge said. "Birds of a feather," he added. "On Nantucket you don't feel bad because you want a nice bottle of wine. If you order a $300 bottle in a restaurant, the guy at the next table is ordering a $400 bottle."

Dressed in blue jeans and a pink button-down shirt, he looked across the breadth of his swimming pool at a spectacular water view. The island, he said, is rapidly dividing into two types of people: "the haves and the have-mores."

New-Fashioned Values

Nantucket, with its vistas overlooking cranberry bogs and more than 80 miles of beaches, has always had its share of rich people. In the first half of the 19th century, owners of whaling ships amassed fortunes from oil and built the still well-preserved Federalist and Greek Revival mansions on upper Main Street.

During the last century, Vanderbilts, Mellons, duPonts and other wealthy families built residences here. Over time, as inherited wealth smoothed the rough edges, their descendants morphed into American high society and evolved a signature style of living based on understatement and old-fashioned patrician values.

Some of the scions of these older families are still here. They spend their time sailing, playing tennis and sometimes recalling the halcyon days of crossing the moors behind packs of beagles to hunt down rabbits. The mix of the old aristocratic families and the hyper-rich often plays out as a none-too-subtle tug of war between class and money.

Nina Chandler Murray, an 85-year-old relative of the Poor family from Standard & Poor's, the investment credit rating firm, is convinced that the world of the elite was more genteel in the old days.

"Coming from a New England background, you had a honed discipline of what was expected," Dr. Murray, a psychologist, said over iced tea and chocolate chip cookies on the porch of her hillside home above the harbor. "Showing off money was a sin. It was not that status was not important, but marriage was very closely controlled and predetermined, and everyone knew where everyone else fit."

A family name alone was enough to place someone in the pecking order. Wealthy people dressed down. Women eschewed heavy jewelry. The uniform for a man was a plain shirt, faded "Nantucket red" Bermuda shorts and Topsiders. Now, Dr. Murray suggested, the rule is: If you've got it, flaunt it.

"What has happened in America is that achievement is so important that everyone wants everyone else to know what they have done," she continued. "And in case you don't know, they want to tell you with a lethal combination of houses, cars and diamonds."

Dr. Murray was appalled at a recent dinner party when a woman leaned over to her and said, "My husband paid $250,000 to join the golf club, and he doesn't even play golf."

Work Hard, Spend Hard

Mr. Kittredge, who began his candle-making business at age 16 in his mother's kitchen and says he was raised in a "lower-class to lower-middle-class" home, holds attitudes typical of many of the newcomers. When prodded he will say that he worked hard for his money and that others can do the same. He is unapologetic about spending it lavishly and says that he has paid his dues in the form of taxes, which he estimates at $500 million so far. He also says that the chasm between the old-timers and the newcomers is inevitable.

"Money makes a lifestyle," he said. "It creates a division between the old money and the new. It is a little bit of class jealousy. We go to a cocktail party and a guy is telling my wife about his airplane. So finally the question comes up: 'How do you get over to the island?' and she says, 'We come by plane.' And he says, 'What kind of plane?' and she says, 'A G-IV.' And so the wind comes out of the guy's sails."

"The old money guy has a twin-prop airplane and that is pretty incredible," Mr. Kittredge continued. "For his time, that is pretty great. Now he is talking to a guy who is half his age who has a transcontinental jet. That is the end of the conversation.

"Or you meet someone and they start telling you about their boat. He has a 45-foot boat and he is very happy with it. Then he'll say, 'Do you have a boat?' And you say, 'Yes.' 'Well, what kind of boat do you have?' And you say, 'A Fed Ship.' And he says, 'How big is it?' That's how people rank them. So I have to say, 'It's 200 feet.' It's the end of the conversation. Is there envy? Yes, could be. Was he a wealthy guy in his day? Absolutely, but relative to today - no. The two worlds can mix as long as they don't talk too much."

The accouterments of wealth play a different role for the old-money clans than they do for the new wealthy, says Nelson W. Aldrich Jr., author of "Old Money."

"For many self-made men," Mr. Aldrich said, "homes, boats and even membership in expensive clubs are trophy signs of wealth. But for the older money, a boat may well be part of a tableau that has to do with family, with his grandparents and his children. It is part of his identity. If he walked away from the conversation, it was because he thought he was talking about his boat as part of his life. Instead he found he was talking about money, and he doesn't like being reminded that he lives in a competitive world."

Over time, some say, the new money will not prove much different. "Ultimately, the new money becomes as insular as the old money because it gains the power to exclude," said Michael Thomas, a novelist who, like his father, was a partner at Lehman Brothers and whose mother came from an old New England family. "Once you have the power to exclude, you have what people have been seeking in old money."

The single greatest change brought by the hyper-rich is in the cost of housing. The average Nantucket house price last year jumped 26 percent, to $1.672 million, said H. Flint Ranney, a veteran real estate broker.

Last fall one waterfront residence, with its own elevator, wine cellar, theaters and separate guesthouse, sold for $16 million, the year's record.

"Shame has somehow gone out the window," Mr. Thomas said. "There is no incentive to exercise control."

A handful of the new affluent indulge their fantasies with gusto. Michael S. Egan, the founder of Alamo Rent-a-Car, built his own baseball field, complete with a batting cage and stands. Roger Penske, the automotive tycoon and former race car driver, tussled for months with the Historic District Commission until he finally won permission to build a faux lighthouse that joins the two wings of his multimillion-dollar home. The investment banker Robert Greenhill likes to fly his Cessna jet to the Nantucket airport or his Cessna seaplane to his waterfront dock.

The rise in real estate values has, of course, benefited many of the old-timers. With some of their fortunes eroding, they find they are sitting on an extremely valuable asset, a realization that adds a touch of ambivalence to their protests against changes that are all too obvious.

One such change is at the airport. On high summer weekends, more than 250 Challengers, Gulfstreams and Citations a day might land there, vying for parking spaces. Some jets drop off passengers for a round of golf and whisk them away after.

In easternmost Siasconset, the gray-shingled fishermen's cottages that occupied the corners of plots of sea grass and wildflowers are giving way to mansions in private cul-de-sacs. Here and there hedges have sprouted up, tall as windsurfers, to partition the property parcels. They separate the community, contributing to the ineffable sense that something familiar and precious about the ethos of the island is disappearing.

"At least one new family has built a hedge to avoid people seeing them as they pass by," said Wade Green, 72, who has summered here for years. "Those open paths had an old-fashioned elegance to them. It is part of an old and fading spirit of community. Blocking them off is an unfriendly and antipublic thing to do."

Not all the changes here are striking. Downtown, with its cobblestone streets and absence of traffic lights, could still pass as a quaint New England fishing village. But some harbingers horrify the old-timers: upscale restaurants, boutique windows displaying expensive designer jewelry and the arrival of the first ever chain store, a Ralph Lauren shop.

On the sidewalks, class speaks through clothes. "The old money wears Lily Pulitzer, J. McLaughlin and C K Bradley," said one saleswoman, who wanted her name withheld to avoid offending customers. "They wear gold hoops, and if they buy new jewelry it is pearls or they upgrade their diamond rings. The new money wears Juicy Couture, Calypso and big necklaces. They even go to different restaurants. The old people go to 21 Federal and the new people go to the Pearl. They don't want to mix. They want to show off for each other."

But the lines cross. A handful of the hyper-rich gravitate toward Lily Pulitzer to give themselves a blue-blood look. And some pedigreed teenagers lust for Juicy Couture.

Daisy Soros, wife of the harbor designer Paul Soros and sister-in-law of the financier George Soros, has been coming to Nantucket since the 1960's, an era when few women, new money or old, dressed up. She thinks that the newcomers are beginning to influence the culture.

"Everybody is building monster houses now, and they are all dressing up," Mrs. Soros said. "Now even I wear Manolos," she added with a laugh.

Some say that too much is being made of all these distinctions. "The only people who are truly class conscious," said Roger Horchow, who realized his fortune when he sold his catalog business to Neiman Marcus in 1988 for $117 million, "are the second tootsie wives of men with big bankrolls."

Why Wait? Build a New One

When there is a division between the old and the new, it is apt to express itself on the most time-honored of battlefields: the putting green, the tennis court or the marine berth.

The existing clubs are still the preserves of the old wealth, but new clubs are springing up to welcome newcomers, as well as some longtime residents who grew impatient with waiting lists. For years the Sankaty Head Golf Club had a waiting list that seemed to extend for decades. So in 1995, Edmund A. Hajim, an investment banker in Manhattan, and others created the Nantucket Golf Club, assiduously designed to look as if it had been around forever. It became such a hit that its list is now full, too, even at a cost of $325,000 (80 percent reimbursable upon departure), as opposed to the $30,000 it costs to join Sankaty Head.

In the same way, the old Nantucket Yacht Club has spawned a rival, the Great Harbor Yacht Club. About 300 families have already bought memberships, which now cost $300,000.

Some Nantucketers applaud the new clubs.

"Why shouldn't they start a club if they can't get into the old ones," said Letitia Lundeen, who was raised in the social whirl of New York and Washington and now runs an antiques store here.

The resentment of new money riles Liz Petkevich, whose husband, J. Misha Petkevich, an investment banker and former Olympic figure skater, helped found the new yacht club.

Her husband worked hard for what he achieved, she said. "Does that mean we are better than anyone else? No. But we should not be penalized because we cannot get into the old yacht club."

In the old days, the clubs were homogenous and dominated by white Anglo-Saxon Protestant families.

"When I first came here it was the tail end of the 'grande dame' era," said David L. Hostetler, a sculptor, who arrived in 1971. "The place was dominated by WASP women in Bermuda shorts. There were hardly any Jews."

Today the island's elite is diversified enough to support a synagogue where membership has reached 250 families and where the yarmulke worn during services is Nantucket red and decorated with miniature whales.

One place where the old and the new do mix is charity events. As in cultural and philanthropic institutions from San Francisco to New York City, the old money has made room at the table for the new money to replenish the coffers. There are more and more fund-raising events, and they are no longer the low-key affairs they once were. Last year the annual cocktail party and auction for the Nantucket Historical Association instituted valet parking and a classical quartet in black tie.

Some appreciate the infusion of money and energy that the newcomers have brought. "The old money doesn't like to spend money because they worry about whether they can make it again," Ms. Lundeen said. "Even when they can spend it, they often think it's vulgar and unnecessary. The newcomers have brought the island up to par with their demands."

Everything New Is Old

Old-time Nantucketers are given to trading what one of them called "barbarian stories." Did you hear that Rick Sherlund, a Goldman Sachs partner, annoyed some of his neighbors when he hired Jackson Browne to entertain at his anniversary party? Or that Jon Winkelried, another Goldman Sachs partner, had the nerve to close off a small road that people had been using for as long as anyone can remember? Or that Louis V. Gerstner, the former I.B.M. chief executive, hired a Boston litigator to help him push through a plan for a large new house on his $11 million waterfront plot?

Aggressive behavior, Dr. Murray said, is natural to the species. "And after all, why should they give it up?" she said. "Look where it has gotten them. That is exactly how they made their money."

One Nantucketer was L. Dennis Kozlowski, the former chief executive of Tyco International, on trial a second time on charges of criminal larceny, accused of looting the company of tens of millions of dollars. His lavish New York apartment, with its $6,000 shower curtain, became a symbol of the over-the-top corporate lifestyle.

To some, the multimillion-dollar party that Mr. Kozlowski gave on Sardinia to celebrate his wife's birthday - replete with a vodka-spewing ice sculpture fashioned after Michelangelo's "David" - was a modern echo of the lavish celebrations of the Gilded Age.

Subtler distinctions between old and new money lie in the attitude toward work. The financier David Rubinstein bought a 15-acre waterfront property, tore down the existing house, as many wealthy buyers have done, and put up an 8,000-square-foot home. The stunning view lets him watch the sun rise and set, and yet he has boasted to friends that he spends only 12 days a year here; a rock on his front lawn reads: "I'd rather be working."

Robert E. Torray, who is a co-manager of a mutual fund family and has been flying here on his company's Gulfstream since the 1980's, is either on the golf course or working the phone in his cranberry red library. He likes it here because there are Wall Street moguls everywhere and wherever he goes he can talk business.

That is hardly the attitude of some veteran summer residents, who find comfort in the thought that they can occasionally be fogged in without worrying about the office. For them, being rich means a license to break schedules and to play. "If you are working," said Nicki Gamble, whose husband, Richard, is an heir to the Proctor & Gamble fortune, "it is very nerve-racking. The way to be here is not to be working."

Caught by a Boom

The high cost of housing is squeezing middle-class people off the island.

The former principal of Nantucket High School, Paul Richards, and his wife, Martina, a nurse, moved last year to Needham, Mass., after renting here for five years. "The expense of that together with having two little children made a home beyond reach," Mr. Richards said. "It was frustrating to be driven away from two jobs that we very much enjoyed, but a starter home for our family would have cost over $600,000."

Linda Finney Williams, administrator of the Nantucket Zoning Board of Appeals, who has a 19-year-old son in college and an older daughter in law school, said, "I'm hanging on by my fingernails."

"The cost of living has risen so much that it's very hard on us."

The demand for labor is so great that every weekday roughly 400 workers fly in from the mainland for construction, gardening, plumbing and other services. The commute may be a nuisance, but the money makes it worthwhile. It also explains why building is so expensive; the additional costs are passed along to customers.

John Sheehan, a 65-year-old construction worker who rises every day at 4:30 a.m. to catch a plane from Hyannis, does not complain. "I have always been in the lower-middle-class area," Mr. Sheehan said. "But the times are good for me now. I'm making more money than I ever did and I'm living more comfortably."

To try to stem the outflow of workers the Nantucket Housing Office, a private nonprofit group, has proposed a one-time "McMansion" tax of $8 per square foot on any construction space exceeding 3,000 square feet.

The bill has several more hurdles, but if it is approved, the proceeds would be used to build housing for families making $120,825 a year or less.

Some real estate agents worry that the hyper-rich will resent the tax, but so far wealthy homebuilders seem to regard it as a pittance compared with the other costs they incur.

Despite the money to be made, some shop owners and other locals miss the way the island used to be.

Though she applauds their self-confidence, Ms. Lundeen, the antiques dealer, says she is sometimes appalled by what she considers the cavalier ignorance of some women who are suddenly rich. "They don't want to learn," she said. "I had a monogrammed tray and when I proposed it to a customer, she said, 'Why would I want other people's monograms?' These women have never inherited anything."

Robin Bergland, a young florist who moved here from Manhattan, has stopped providing flowers for weddings. "The final straw was a wedding where a Wall Street executive tried to bill me for the wedding gown and medical expenses," she said. "He charged that the roses I used to decorate their party tent ruined the hem of the bride's dress and caused her aunt to trip and break her leg.

"I got threatening phone calls daily. I was terrified until I gave the case to my lawyer and they went away. There's no question it was unlikely to have happened five years ago."

The old summer people "used to try and fit in," said Arlene Briard, a taxi driver who has lived here 35 years. "They didn't want to differentiate themselves by class or by a look that said how much money I have. When I sold TV Guides to people, I'd walk into a house, sit down and have a lemonade with people or play tennis with them at the yacht club. Now they get in my taxi and find a way to tell me that they belong to the Nantucket Golf Club.

"Class has a certain grace," Ms. Briard said. "Just because you can go to Chanel and buy a dress does not mean you have class. A person who just pays their bills on time can have class."

Monday, June 06, 2005

Richest Are Leaving Even the Rich Far Behind

The New York Times
June 5, 2005
When F. Scott Fitzgerald pronounced that the very rich "are different from you and me," Ernest Hemingway's famously dismissive response was: "Yes, they have more money." Today he might well add: much, much, much more money.

The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known.

The Treasury Department uses a computer model to examine the effects of tax cuts on various income groups but does not look in detail fine enough to differentiate among those within the top 1 percent. To determine those differences, The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projections and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable.

The analysis also found the following:

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

¶The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax.

The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger.

The hyper-rich have emerged in the last three decades as the biggest winners in a remarkable transformation of the American economy characterized by, among other things, the creation of a more global marketplace, new technology and investment spurred partly by tax cuts. The stock market soared; so did pay in the highest ranks of business.

One way to understand the growing gap is to compare earnings increases over time by the vast majority of taxpayers - say, everyone in the lower 90 percent - with those at the top, say, in the uppermost 0.01 percent (now about 14,000 households, each with $5.5 million or more in income last year).

From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000.

President Ronald Reagan signed tax bills that benefited the wealthiest Americans and also gave tax breaks to the working poor. President Bill Clinton raised income taxes for the wealthiest, cut taxes on investment gains, and expanded breaks for the working poor. Mr. Bush eliminated income taxes for families making under $40,000, but his tax cuts have also benefited the wealthiest Americans far more than his predecessors' did.

The Bush administration says that the tax cuts have actually made the income tax system more progressive, shifting the burden slightly more to those with higher incomes. Still, an Internal Revenue Service study found that the only taxpayers whose share of taxes declined in 2001 and 2002 were those in the top 0.1 percent.

But a Treasury spokesman, Taylor Griffin, said the income tax system is more progressive if the measurement is the share borne by the top 40 percent of Americans rather than the top 0.1 percent.

The Times analysis also shows that over the next decade, the tax cuts Mr. Bush wants to extend indefinitely would shift the burden further from the richest Americans. With incomes of more than $1 million or so, they would get the biggest share of the breaks, in total amounts and in the drop in their share of federal taxes paid.

One reason the merely rich will fare much less well than the very richest is the alternative minimum tax. This tax, the successor to one enacted in 1969 to make sure the wealthiest Americans could not use legal loopholes to live tax-free, has never been adjusted for inflation. As a result, it stings Americans whose incomes have crept above $75,000.

The Times analysis shows that by 2010 the tax will affect more than four-fifths of the people making $100,000 to $500,000 and will take away from them nearly one-half to more than two-thirds of the recent tax cuts. For example, the group making $200,000 to $500,000 a year will lose 70 percent of their tax cut to the alternative minimum tax in 2010, an average of $9,177 for those affected.

But because of the way it is devised, the tax affects far fewer of the very richest: about a third of the taxpayers reporting more than $1 million in income. One big reason is that dividends and investment gains, which go mostly to the richest, are not subject to the tax.

Another reason that the wealthiest will fare much better is that the tax cuts over the past decade have sharply lowered rates on income from investments.

While most economists recognize that the richest are pulling away, they disagree on what this means. Those who contend that the extraordinary accumulation of wealth is a good thing say that while the rich are indeed getting richer, so are most people who work hard and save. They say that the tax cuts encourage the investment and the innovation that will make everyone better off.

"In this income data I see a snapshot of a very innovative society," said Tim Kane, an economist at the Heritage Foundation. "Lower taxes and lower marginal tax rates are leading to more growth. There's an explosion of wealth. We are so wealthy in a world that is profoundly poor."

But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators. Speaking of the increasing concentration of incomes, Alan Greenspan, the Federal Reserve chairman, warned in Congressional testimony a year ago: "For the democratic society, that is not a very desirable thing to allow it to happen."

Others say most Americans have no problem with this trend. The central question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who served in the Reagan and George H. W. Bush administrations. "As long as people think they have a chance of getting to the top, they just don't care how rich the rich are."

But in fact, economic mobility - moving from one income group to another over a lifetime - has actually stopped rising in the United States, researchers say. Some recent studies suggest it has even declined over the last generation.

Friday, June 03, 2005

School assignment system called ‘wasted effort'

School assignment system called ‘wasted effort'

By Bonnie Eslinger
Staff Writer, San Francisco Examiner
June 3, 2005

The student-assignment system currently used to diversify San Francisco's public schools was called a "well-intentioned, but wasted effort that didn't do the job," according to the federal judge now overseeing the district's desegregation efforts.

U.S. District Judge William Alsup made the comments in court Thursday as the district updated the court on its progress toward meeting the goals of a 1983 legal settlement that has required the district to work toward integrating schools and increasing the academic achievement for the district's minority students.

The 22-year-old debate on how to best achieve those ends is again at the forefront since the court order, called a consent decree, is scheduled to end on Dec. 31, which would allow the district to try other ways to assign students to schools.

Peter Cohn, of the National Association for the Advancement of Colored People which originally filed suit against the district that led to the court-ordered desegregation, has said the organization will ask for an extension of the order due to evidence that shows the district remains segregated with a persistent achievement gap. He agreed a new system needed to be found.

The current system uses a "diversity index" that takes into account a student's socioeconomic background but does not consider race. It is the result of a subsequent lawsuit in 1999 by Chinese-American parents who said their children were being denied the opportunity to go to popular schools due to their race.

In recent months, the board has been reviewing several alternative ideas to the diversity index, three proposed by a community task force and another from first-year board member Norman Yee. However, the district's lawyers informed the judge Thursday that two school desegregation experts had been retained and were prepared to review all existing ideas as well as present new options.

"It was a good move to hire experts," said Cohn. "It will help the board make the most informed decision."

UCLA education professor Stuart Biegel, assigned by the court to monitor the desegregation efforts, also applauded the district's decision to seek other ideas. Two of the four current proposals allow more opportunity for students to get assigned to neighborhood schools, giving little advantage to students living within the boundaries of some of the worst schools to attend others.

Veteran board members Dan Kelly and Jill Wynns have both said they would not support any of the existing proposals since they don't focus on desegregating schools. Kelly has authored a resolution that would continue to work toward integration and bring back race as a factor in the assignment process.

San Francisco isn't the only school district embattled in school-assignment debates as a result of desegregation efforts. Districts across the country, including Boston, Chicago, Seattle and Baton Rouge, La., are currently in legal battles, but some districts have been released from their desegregation court orders, including Kansas City, Mo., and Dallas.

"It's a difficult thing desegregation, especially when the use of race could be limited," said Biegel, who later noted, "But there are plans nationwide that are working."

Last year, in Louisville, Ky., a federal judge upheld the limited use of race in making student assignments to achieve racial integration in the public schools.

David Levine, one of the lawyers for the Chinese plaintiffs, said that the Kentucky ruling wouldn't apply in California, since voters passed Proposition 209 in 1996, which eliminates the use of racial preferences for public education and other state agencies and


Whatever assignment system the district decides to use, the consent decree should come to an end, said Levine, since students were not forced by the district to go to bad schools. "The kids can choose any school they want, with the exception of Lowell [High School], and throw themselves into the lottery."


Fear and Rejection

June 2, 2005
Fear and Rejection
Forgive me for making a blunt and obvious point, but events in Western Europe are slowly discrediting large swaths of American liberalism.

Most of the policy ideas advocated by American liberals have already been enacted in Europe: generous welfare measures, ample labor protections, highly progressive tax rates, single-payer health care systems, zoning restrictions to limit big retailers, and cradle-to-grave middle-class subsidies supporting everything from child care to pension security. And yet far from thriving, continental Europe has endured a lost decade of relative decline.

Western Europeans seem to be suffering a crisis of confidence. Election results, whether in North Rhine-Westphalia or across France and the Netherlands, reveal electorates who have lost faith in their leaders, who are anxious about declining quality of life, who feel extraordinarily vulnerable to foreign competition - from the Chinese, the Americans, the Turks, even the Polish plumbers.

Anybody who has lived in Europe knows how delicious European life can be. But it is not the absolute standard of living that determines a people's morale, but the momentum. It is happier to live in a poor country that is moving forward - where expectations are high - than it is to live in an affluent country that is looking back.

Right now, Europeans seem to look to the future with more fear than hope. As Anatole Kaletsky noted in The Times of London, in continental Europe "unemployment has been stuck between 8 and 11 percent since 1991 and growth has reached 3 percent only once in those 14 years."

The Western European standard of living is about a third lower than the American standard of living, and it's sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas. There is little prospect of robust growth returning any time soon.

Once it was plausible to argue that the European quality of life made up for the economic underperformance, but those arguments look more and more strained, in part because demographic trends make even the current conditions unsustainable. Europe's population is aging and shrinking. By 2040, the European median age will be around 50. Nearly a third of the population will be over 65. Public spending on retirees will have to grow by a third, sending Europe into a vicious spiral of higher taxes and less growth.

This is the context for the French "no" vote on the E.U. constitution. This is the psychology of stagnation that shaped voter perceptions. It wasn't mostly the constitution itself voters were rejecting. Polls reveal they were articulating a broader malaise. The highest "no" votes came from the most vulnerable, from workers and the industrial north. The "no" campaign united the fearful right, led by Jean-Marie Le Pen, with the fearful left, led by the Communists.

Influenced by anxiety about the future, every faction across the political spectrum found something to feel menaced by. For the Socialist left, it was the threat of economic liberalization. For parts of the right, it was the threat of Turkey. For populists, it was the condescension of the Brussels elite. For others, it was the prospect of a centralized European superstate. Many of these fears were mutually exclusive. The only commonality was fear itself, the desire to hang on to what they have in the face of change and tumult all around.

The core fact is that the European model is foundering under the fact that billions of people are willing to work harder than the Europeans are. Europeans clearly love their way of life, but don't know how to sustain it.

Over the last few decades, American liberals have lauded the German model or the Swedish model or the European model. But these models are not flexible enough for the modern world. They encourage people to cling fiercely to entitlements their nation cannot afford. And far from breeding a confident, progressive outlook, they breed a reactionary fear of the future that comes in left- and right-wing varieties - a defensiveness, a tendency to lash out ferociously at anybody who proposes fundamental reform or at any group, like immigrants, that alters the fabric of life.

This is the chief problem with the welfare state, which has nothing to do with the success or efficiency of any individual program. The liberal project of the postwar era has bred a stultifying conservatism, a fear of dynamic flexibility, a greater concern for guarding what exists than for creating what doesn't.

That's a truth that applies just as much on this side of the pond.