The Meritocracy Trap

by Daniel Markovits

  the revenues of the ten largest: For more on the growth hedge fund and asset management industries and thus of income defense, see Robin Greenwood and David Sharfstein, “The Growth of Finance,” Journal of Economic Perspectives 27, no. 2 (Spring 2013): 3–28, www.people.hbs.edu/dscharfstein/Growth_of_Finance_JEP.pdf. Hereafter cited as Greenwood and Sharfstein, “The Growth of Finance.”

  According to this view: See Winters, Oligarchy, 24.

  even a favorable pitch: The phrase “swollen fortune” and the emphasis that property is not scale-blind recall Teddy Roosevelt’s famous “New Nationalism” speech.

  ten or even twenty times the median wage: In Great Britain, the United States, and Norway, for example, elite civil servants received 17.8, 7.8, and 5.3 times the average wage at the century’s start and still received 8.9, 4.1, and 2.1 times the average wage at midcentury. See Henry Phelps Brown, The Inequality of Pay (New York: Oxford University Press, 1977), Table 3.4, 84. Michael Walzer also reports these numbers in Spheres of Justice: A Defense of Pluralism and Equality (New York: Basic Books, 1983), 158.

  In 1969, a congressperson: A congressional staffer earned $10,000 in 1969; a congressperson earned $42,500; a full-time lobbyist might earn $15,000. See Norman Ornstein, “District of Corruption,” New Republic, February 4, 2009, accessed July 21, 2018, https://newrepublic.com/article/61705/district-corruption, and “Registrations by Lobbyists,” CQ Almanac 1970, 26th ed. (Washington, DC: Congressional Quarterly, 1971), 11-1214–1245, accessed July 21, 2018, http://library.cqpress.com/cqalmanac/cqal70-1290625. The $15,000 estimate is a rough average of the annual salaries of lobbyists registered between December 23, 1969, and January 3, 1971.

  a federal judge received: In 1969, a district judge earned $30,000, while roughly the top 13 percent of lawyers earned $50,000 or more. See “Judicial Compensation,” United States Courts, accessed July 21, 2018, http://www.uscourts.gov/judges-judgeships/judicial-compensation#fn7, and “In Search of the Average Lawyer,” ABA Journal 56, no. 12 (December 1970): 1164.

  the secretary of the treasury: In 1964, secretaries of executive departments made $35,000. See Arthur Sackley, “Salaries of Major Federal Officials, 1789–1965,” Monthly Labor Review 87 (October 1964): 1145. A well-compensated financial analyst might make $40,000 a year. See William Norby, “Profile and Compensation of the Financial Analyst,” Financial Analysts Journal 28, no. 2 (March–April 1972): 36. See also Chrystia Freeland, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (New York: Penguin Press, 2012), 226. Hereafter cited as Freeland, Plutocrats. Freeland reports that as recently as 1980, top regulators earned one-tenth of the salaries of leaders of the businesses that they regulated. By 2005, they earned one-sixtieth.

  the military or the clergy: See Zouheir Jamoussi, Primogeniture and Entail in England: A Survey of Their History and Representation in Literature (Newcastle upon Tyne: Cambridge Scholars Publishing, 2011), 61.

  now earn many times more: Non-elite public-sector employees, incidentally, also receive lower wages than their private-sector counterparts. “On average, total compensation is 6.8 percent lower for state employees and 7.4 percent lower for local workers, compared with comparable private sector employees.” See Keith Bender and John Heywood, Out of Balance? Comparing Public and Private Sector Compensation over 20 Years (Center for State & Local Government Excellence and National Institute on Retirement Security, April 2010), 3.

  perhaps $2 million: For the salaries that a congressperson might make as a legislator and as a lobbyist, see Christopher Lee, “Daschle Moving to K Street: Dole Played a Key Role in Recruiting Former Senator,” Washington Post, March 14, 2005, A17, accessed July 22, 2018, www.washingtonpost.com/wp-dyn/articles/A32604-2005Mar13.html (“Other influential former members of Congress have drawn annual compensation packages of as much as $1 million and higher after making such moves,” Lee reports. “[Former Republican senator Robert J.] Dole has been reported to earn $800,000 to $1 million annually, a range the Republican called ‘more or less’ accurate in an interview Friday.”). Similarly, Congressman Billy Tauzin left office to be paid $2 million a year as a pharmaceutical lobbyist, and Congressman Eric Cantor, after losing a bid for reelection, now receives roughly $2 million a year to work as an investment banker. See Paul Blumenthal, “The Legacy of Billy Tauzin: The White House-PhRMA Deal,” Sunlight Foundation (blog), February 12, 2010, accessed July 22, 2018, http://blog.sunlightfoundation.com/2010/02/12/the-legacy-of-billy-tauzin-the-white-house-pharma-deal [inactive], and Taylor Wofford, “Eric Cantor Lands $3.4 Million Investment Banking Job,” Newsweek, September 2, 2014, accessed July 22, 2018, www.newsweek.com/eric-cantor-lands-34-million-investment-banking-job-267924. The current salary for a member of the House of Representatives is $174,000. See Ida Brudnick, Congressional Salaries and Allowances: In Brief (Washington, DC: Congressional Research Service, April 11, 2018), 9.

  A congressional staffer might quintuple his income, from $50,000 to $250,000. For average staffer salaries, see Daniel Schuman, “What’s the Average Salary of House Staff?,” Open House Project, December 2, 2009, accessed July 22, 2018, www.webcitation.org/5xkbywzmS. (Staffers in 2009 earned between $29,890.54 and $120,051.55, and roughly 80 percent earned between $29,890.54 and $61,389.93.) For salaries on becoming lobbyists, see Kevin Bogardus and Silla Brush, “Democratic Aides May Get Cold Shoulder from K Street After Midterms,” The Hill, September 14, 2010, accessed July 22, 2018, http://thehill.com/business-a-lobbying/118495-democratic-party-aides-see-value-drop-on-k-street (“Lobbying salaries offered to Democratic staffers leaving Congress for K Street about a year ago [in 2009] ranged from $250,000 to $500,000.”).

  For a general synthesis of many of these reports, See Richard Hasen, “Lobbying, Rent-Seeking, and the Constitution,” Stanford Law Review 64, no. 1 (February 2012): 2224–25. See also Robert Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred Knopf, 2007), 139. Hereafter cited as Reich, Supercapitalism. By 2006, well-connected staffers would get $500,000 per year as lobbyists; former chairs of congressional committees could get up to $2 million.

  is now $400,000: In 2017, the chief justice of the Supreme Court made $263,300. That same year, the average partner compensation at Wachtell, Lipton, Rosen & Katz was $5.7 million. See “Judicial Salaries: Supreme Court Justices,” Federal Judicial Center, accessed July 23, 2018, www.fjc.gov/history/judges/ju dicial-salaries-supreme-court-justices, and Gina Passarella Cipriana, “The 2018 Am Law 100 Ranked by Compensation—All Partners,” American Lawyer, April 24, 2018, accessed July 23, 2018, www.law.com/americanlawyer/2018/04/24/the-2018-am-law-100-ranked-by-compensation-all-partners/. Jones Day, Kirkland & Ellis, Orrick, Paul Weiss, Skadden Arps, and Susman Godfrey now all offer Supreme Court clerks $400,000 signing bonuses. Staci Zaretsky, “$400K Is Now the Official Market Rate for Supreme Court Bonuses,” Above the Law, November 15, 2018, accessed January 8, 2019, abovethelaw.com/2018/11/400k-is-now-the-official-market-rate-for-supreme-court-clerk-bonuses/.

  a hundred times as much: In 2018, the secretary of the treasury and other officials on the Executive Schedule Level I made $210,700. See U.S. Office of Personnel Management, “Salary Table No. 2018-EX: Rates of Basic Pay for the Executive Schedule,” 2018 Executive & Senior Level Employee Pay Tables, accessed July 23, 2018, www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/18Tables/exec/html/EX.aspx. In 2017, total CEO compensation at Goldman Sachs, JPMorgan Chase, and Morgan Stanley averaged $26.8 million. See JPMorgan Chase & Co., Schedule 14A: Preliminary Proxy Statement (filed April 4, 2018), accessed July 23, 2018, www.sec.gov/Archives/edgar/data/19617/000001961718000067/jpmc2018preliminaryproxy.htm; the Goldman Sachs Group, Form 8-K (filed February 15, 2018), accessed July 23, 2018, www.sec.gov/Archives/edgar/data/886982/000119312518047491/d518947d8k.htm; and Morgan Stanley, Schedule 14A: Definitive Proxy Statement (filed April 6, 2018), accessed July 23, 2018, www.sec.gov/Archives/edgar/data
/895421/000119312518109962/d492849ddef14a.htm. See also Freeland, Plutocrats, 226, who reports that as recently as 1980, top regulators earned one-tenth of the salaries of leaders of the businesses that they regulated. By 2005, they earned one-sixtieth.

  daughter of Pakistani immigrants: See, e.g., Seth Stern, “The Dealmaker: Top M&A Attorney Faiza Saeed is Cravath’s Presiding Partner,” Harvard Law Bulletin, May 18, 2017, accessed July 23, 2018, https://today.law.harvard.edu/the-dealmaker/.

  “barely disguised employment agencies”: Thomas Ferguson and Robert Johnson, “When Wolves Cry ‘Wolf’: Systematic Financial Crises and the Myth of the Danaid Jar,” paper presented at INET Inaugural Conference, King’s College, Cambridge, April 2010, accessed July 23, 2018, www.ineteconomics.org/uploads/papers/INET-C@K-Paper-Session-8-Ferguson-Rob-Johnson.pdf, 21.

  on leaving public office: See Mark Leibovich, This Town: Two Parties and a Funeral—Plus Plenty of Valet Parking!—in America’s Gilded Capital (New York: Blue Rider Press, 2013), 148–64. See also Christopher Lee, “Daschle Moving to K Street: Dole Played a Key Role in Recruiting Former Senator,” Washington Post, March 14, 2005, A17, accessed July 23, 2018, www.washingtonpost.com/wp-dyn/articles/A32604-2005Mar13.html.

  “has long been seen”: The entire story is reported in Juliet Lapidos, “Eric Cantor Cashes In, Goes to Wall Street,” New York Times, September 2, 2014, accessed July 23, 2018, https://takingnote.blogs.nytimes.com/2014/09/02/eric-cantor-cashes-in-goes-to-wall-street/. For the New York Times prediction, see Editorial Board, “Eric Cantor’s Big Payoff,” New York Times, August 9, 2014, accessed July 23, 2018, www.nytimes.com/2014/08/10/opinion/sunday/eric-cantors-big-payoff.html; for the Wall Street Journal’s reflections after the fact, see Dana Cimilluca and Patrick O’Connor, “Eric Cantor to Join Wall Street Investment Bank,” Wall Street Journal, September 2, 2014, accessed July 23, 2018, www.wsj.com/articles/eric-cantor-to-join-wall-street-investment-bank-1409630638.

  sold out years in advance: See Greg Jaffe and Jim Tankersley, “Capital Gains: Spending on Contracts and Lobbying Propels a Wave of New Wealth in D.C.,” Washington Post, November 17, 2013, accessed July 23, 2018, www.washingtonpost.com/national/capital-gains-spending-on-contracts-and-lobbying-propels-a-wave-of-new-wealth-in-d-c/2013/11/17/6bd938aa-3c25-11e3-a94f-b58017bfee6c_story.html?utm_term=.44ae6632d430. Hereafter cited as Jaffey and Tankersley, “Capital Gains.”

  Washington is now among: See Jaffe and Tankersley, “Capital Gains.” See also Richard Florida, “Venture Capital Remains Highly Concentrated in Just a Few Cities,” City Lab, October 3, 2017, accessed July 23, 2018, www.citylab.com/life/2017/10/venture-capital-concentration/539775/.

  any other major metro area: See Jaffe and Tankersley, “Capital Gains.”

  $200 per person, before wine: See Jaffe and Tankersley, “Capital Gains.” For Washington restaurants, see, e.g., Maura Judkis, “One of the Most Expensive Restaurants in Washington Is Going to Increase Its Prices,” Washington Post, January 23, 2017, accessed July 23, 2018, www.washingtonpost.com/news/going-out-guide/wp/2017/01/23/one-of-the-most-expensive-restaurants-in-washington-is-about-to-increase-its-prices/?utm_term=.3884ea4ce2ca.

  “ways of expropriating wealth”: Ajay Kapur, Niall Macleod, and Narendra Singh, “Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Imbalances,” Citigroup, Industry Note, October 16, 2005, accessed July 23, 2018, https://delong.typepad.com/plutonomy-1.pdf. I borrow the term “income defense” from Winters, Oligarchy, 18–19.

  “only morons pay the estate tax”: See Julie Hirschfeld Davis and Kate Kelly, “Two Bankers Are Selling Trump’s Tax Plan. Is Congress Buying?,” New York Times, August 28, 2017, accessed July 23, 2018, www.nytimes.com/2017/08/28/us/politics/trump-tax-plan-cohn-mnuchin.html.

  paid any estate tax at all: See Brian O’Connor, “Heirs Inherit Uncertainty with New Estate Tax,” New York Times, February 23, 2018, accessed July 23, 2018, www.nytimes.com/2018/02/23/business/estate-tax-uncertainty.html.

  Elite lobbying and lawyering are now conspiring to create changes to the law of trusts that might in effect eliminate estate taxes entirely, even for the super-rich. A doctrine known as the rule against perpetuities has for generations prevented people from establishing perpetual trusts, which allow the dead to control assets indefinitely from beyond the grave, including for the benefit of their descendants. Recently, two rich brothers—one a New York lawyer and the other an Alaska banker—hatched a plan to repeal the rule in Alaska, by statute, to bring more trusts and estates business to the state. They succeeded, and other states are now following suit. See Ray Madoff, Immortality and the Law: The Rising Power of the American Dead (New Haven, CT: Yale University Press, 2010), 81.

  $18 trillion of assets offshore: This sum represents 10, 20–30, and 50 percent of the total assets owned by the rich in North America, Europe, and Latin America respectively. See Winters, Oligarchy, 233. Wealth in tax havens is, for obvious reasons, difficult to find and measure. For some of the complexities, see Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman, “Who Owns Wealth in Tax Havens: Macro Evidence and Implications for Global Inequality,” NBER Working Paper No. 23805 (September 2017), 8, www.nber.org/papers/w23805.pdf.

  fell by perhaps a third: For the share of national income belonging to the top 1 percent of earners, see Michael Greenstone and Adam Looney, Just How Progressive Is the US Tax Code? (Washington, DC: The Hamilton Project, April 13, 2012), 3, accessed July 23, 2018, www.hamiltonproject.org/assets/legacy/files/downloads_and_links/0413_tax.pdf; for tax rates among the 1 percent, see Emmanuel Saez, “Reported Incomes and Marginal Tax Rates, 1960–2000: Evidence and Policy Implications,” Tax Policy and the Economy 18 (2004): 117–73. Hereafter cited as Saez, “Reported Incomes and Marginal Tax Rates.”

  lower rate than his secretary: See Warren Buffett, “Stop Coddling the Super-Rich,” New York Times, August 14, 2011, accessed July 23, 2018, www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=0, and Chris Isidore, “Buffett Says He’s Still Paying Lower Tax Rate Than His Secretary,” CNN Money, March 4, 2013, accessed July 23, 2018, https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html.

  become effectively flat: When the payroll taxes that fund Social Security and Medicare and also state and local taxes are taken into account, the average overall tax rates in the United States today are almost totally flat. In a typical recent year, the bottom fifth of earners receive 3 percent of income and pay 2 percent of taxes; the middle fifth receive 11 percent and pay 10 percent; and the top 1 percent receive 21 percent and pay 22 percent. See D.R., “Taxes and the Rich: Looking at All the Taxes,” The Economist, July 19, 2012, accessed December 29, 2018, www.economist.com/blogs/democracyinamerica/2012/07/taxes-and-rich-0.

  left for private-sector jobs: See Jesse Eisinger, “Why the S.E.C. Didn’t Hit Goldman Sachs Harder,” New Yorker, April 21, 2016, accessed July 23, 2018, www.newyorker.com/business/curren/why-the-s-e-c-didnt-hit-goldman-sachsharder [inactive].

  “hate cannot drive out hate”: Martin Luther King Jr., Strength to Love (New York: Simon & Schuster, 1964), 47.

  “that he, who best deserves”: This is from Dryden’s translation of the fourth book of Virgil’s Georgics. Virgil, The Georgics, with John Dryden’s Translation (Ashington: Mid Northumberland Arts Group, 1981), 147.

  “economically . . . negative assets”: See Kevin Williamson, “Chaos in the Family, Chaos in the State: The White Working Class’s Dysfunction,” National Review, March 17, 2016, accessed July 23, 2018, www.nationalreview.com/article/432876/donald-trump-white-working-class-dysfunction-real-opportunity-needed-not-trump. See also Edward Luce, “The New Class Warfare in America,” Financial Times, March 20, 2016, accessed July 23, 2018, www.ft.com/content/63b061be-ecfc-11e5-bb79-2303682345c8.

  “the stagnant pool”: See Bret Stephens, “Only Mass Deportation Can Save America,” New York Times, June 16, 2017, accessed July 23, 2018, www.nytimes.
com/2017/06/16/opinion/only-mass-deportation-can-save-america.html.

  “takers” and “makers”: See Ezra Klein, “Romney’s Theory of the ‘Taker Class,’ and Why It Matters,” Wonkblog, Washington Post, September 17, 2012, accessed July 23, 2018, www.washingtonpost.com/news/wonk/wp/2012/09/17/romneys-theory-of-the-taker-class-and-why-it-matters/?utm_term=.ad5165f4407f. Ryan has since said that he regrets this phrase. See “Speaker Ryan on the State of American Politics,” press release, Speaker.gov, March 23, 2016, accessed July 23, 2018, www.speaker.gov/press-release/full-text-speaker-ryan-state-american-politics [inactive].

  “are dependent upon government”: See Amy Davidson Sorkin, “Mitt’s Forty-Seven-Per-Cent Problem,” New Yorker, September 18, 2012, accessed July 23, 2018, www.newyorker.com/news/amy-davidson/mitts-forty-seven-per-cent-problem. Romney subsequently expressed regret at the remark. See Ashley Parker, “Romney, Buoyed by Debate, Shows Off His Softer Side,” New York Times, October 6, 2012, accessed July 23, 2018, www.nytimes.com/2012/10/07/us/politics/mitt-romney-after-debate-success-shows-softer-side.html?pagewanted=all.