The Meritocracy Trap

by Daniel Markovits

  epitomizes today’s unequal economy: Ford tied his workers’ wages expressly to this logic. “Wages,” he observed, “is more of a question for business than it is for labor. It is more important to business than it is to labor. Low wages will break business far more quickly than it will labor.” Ford, Today and Tomorrow, 151. A legend involving Ford’s son, Henry Ford II, illustrates the same lesson with respect to automation. While showing union leader Walter Reuther around a mechanized factory in the 1960s, Ford reportedly joked, “Walter, how are you going to get those robots to pay your union dues?” Reuther reportedly answered, “Henry, how are you going to get them to buy your cars?” Rutger Bregman, “Free Money Might Be the Best Way to End Poverty,” Washington Post, December 29, 2013, accessed November 19, 2018, www.washingtonpost.com/opinions/free-money-might-be-the-best-way-to-end-poverty/2013/12/29/679c8344-5ec8-11e3-95c2-13623eb2b0e1_story.html?utm_term=.065017746030.

  even week to week: The average payday borrower’s annual household income is just $30,000. This number is calculated using data compiled in Pew Charitable Trusts, Payday Lending in America: Who Borrows, Where They Borrow, and Why (July 2012), 35, www.pewtrusts.org/~/media/legacy/%20uploadedfiles/pcs_assets/2012/pewpaydaylendingreportpdf.pdf.

  to twenty-two thousand by 2016: See Federal Deposit Insurance Corporation, “For Your Information: An Update on Emerging Issues in Banking, Payday Lending,” January 29, 2003, www.fdic.gov/bank/analytical/fyi/2003/012903fyi.html; Stephen J. Dubner, “Are Payday Loans Really as Evil as People Say?,” Freakonomics, April 6, 2016, accessed November 19, 2018, http://freakonomics.com/podcast/payday-loans.

  McDonald’s and Starbucks franchises combined: Bethany McLean, “Payday Lending: Will Anything Better Replace It?,” Atlantic, May 2016, accessed November 19, 2018, www.theatlantic.com/magazine/archive/2016/05/payday-lending/476403. McLean attributes the claim about McDonald’s and Starbucks to Dartmouth economist Jonathan Zinman.

  $7.4 billion on payday loans: Pew Charitable Trusts, Payday Lending in America: Who Borrows, Where They Borrow, and Why (July 2012), 35, www.pewtrusts.org/~/media/legacy/%20uploadedfiles/pcs_assets/2012/pewpaydaylendingreportpdf.pdf.

  between 5 and 10 percent: See Saez and Zucman, “Wealth Inequality in the United States,” 563.

  funding for rising consumption: For a more detailed discussion, backed by data, see Chapter 8.

  between the 50th and 75th percentiles: Drennan, Income Inequality, 41; Bricker et al., “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin 98, no. 2 (June 2012): 55, http://federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf. See also Robert Hockett and Daniel Dillon, “Income Inequality and Market Fragility: Some Empirics in the Political Economy of Finance” (unpublished manuscript, January 21, 2013), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204710. Hereafter cited as Hockett and Dillon, “Income Inequality and Market Fragility.”

  Debt payments unsurprisingly rose alongside debt for the middle class, reaching roughly a fifth of income for the bottom 90 percent by 2010. Jank and Owens, “Inequality in the United States”; Nicolas P. Retsinas and Eric S. Belsky, eds., Borrowing to Live: Consumer and Mortgage Credit Revisited (Washington, DC: Brookings Institution, 2008); Hockett and Dillon, “Income Inequality and Market Fragility,” Figure 11.

  These trends continue. The bottom 90 percent have saved effectively not at all since the turn of the millennium, and the bottom 80 percent have had negative net savings since the mid-1980s. Saez and Zucman, “Wealth Inequality in the United States”; David Bunting, “The Saving Decline: Macro-Facts, Micro-Behavior,” Journal of Economic Behavior and Organization 70, no. 1–2 (2009): 293; Drennan, Income Inequality.

  mid-skilled labor can command: Elizabeth Warren and Amelia Warren Tyagi, The Two Income Trap (New York: Basic Books, 2003), 15–54. Hereafter cited as Warren and Warren Tyagi, The Two-Income Trap.

  medical expenses and car and house repairs: Center for Responsible Lending, The Plastic Safety Net: The Reality Behind Debt in America (October 2005), 4–5, www.responsiblelending.org/credit-cards/research-analysis/DEMOS-101205.pdf. See also Anika Singh Lemar, Debt Weight: The Consumer Credit Crisis in New York City and Its Impact on the Working Poor, Urban Justice Center (2007), 3, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3160600. Hereafter cited as Lemar, Debt Weight. Christian E. Weller, Pushing the Limit: Credit Card Debt Burdens American Families, Center for American Progress (2006), https://cdn.americanprogress.org/wp-content/uploads/kf/CREDITCARDDEBTREPORT_PDF.PDF; Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin (2006): 92.

  increasingly insecure earnings: The odds that a middle-class family would suffer an income decline of $20,000 or more grew by roughly a quarter between 1990 and 2003, and the odds of suffering a 50 percent or greater income drop doubled between 1970 and 2000. Tom Hertz, Understanding Mobility in America, Center for American Progress (April 26, 2006), 22, www.americanprogress.org/issues/economy/news/2006/04/26/1917/understanding-mobility-in-america; and Hacker, The Great Risk Shift, 31–32, Figure 1.4. More generally, between 1991 and 2009, a composite index of economic insecurity grew by two and a half times as much for the middle three income quintiles as for the top and bottom quintiles. Insecurity increased by 14 percent for the richest quintile and 12 percent for the poorest, but by an average of 30 percent across the middle three quintiles. Drennan, Income Inequality, 53. Drennan bases his calculations on Jacob Hacker’s Economic Security Index, www.economicsecurityindex.org/?p=home.

  “Annual income twenty pounds”: Charles Dickens, David Copperfield (Oxford: Oxford University Press, 1973 [1850]), 141.

  Dickens’s own father: Jerry White, Mansions of Misery: A Biography of the Marshalsea Debtors’ Prison (London: Penguin Random House, 2016), 179–219.

  wave of foreclosures and bankruptcies: Warren and Warren Tyagi, The Two-Income Trap, 20.

  in all federal courts that year: Lemar, Debt Weight, 3.

  the precariat: Guy Standing, The Precariat: The New Dangerous Class (London: Bloomsbury, 2011).

  social and economic caste: A related argument appears in Bowles and Park, “Emulation, Inequality, and Work Hours.”

  in every major city today: “Super luxury” cars such as the Mercedes-Benz S-Class and the BMW 7 Series can range anywhere from the low $90,000s range to $250,000. “Best Super Luxury Cars,” U.S. News & World Report, accessed October 7, 2018, https://cars.usnews.com/cars-trucks/rankings/super-luxury-cars. Extremely high-end household appliances are common as well, such as the Wolf and Thermador dual fuel ranges, the top high-end ranges recommended by the product review website owned by the New York Times, which start retailing at $9,200 and $14,700 respectively. Tyler Wells Lynch, “The Best High-End Ranges,” Wirecutter, January 24, 2017, accessed November 19, 2018, https://thewirecutter.com/reviews/best-high-end-ranges.

  the entire automotive industry did in 2000: “That’s Two Million Dollars, Please,” The Economist, January 20, 2015, accessed November 19, 2018, www.economist.com/news/business-and-finance/21640081-carmakers-are-targeting-wealthier-motorists-boost-sales-and-profits-thats-two-million.

  the world’s “most powerful” brand: Jerry Garrett, “Echoes of the ’30s, Inflation-Adjusted,” New York Times, March 8, 2013, accessed November 19, 2018 www.nytimes.com/2013/03/10/automobiles/autoshow/echoes-of-the-30s-inflation-adjusted.html.

  tens of thousands of dollars: The “quintessential banker watch” is allegedly the Rolex Daytona, which retails for approximately $12,500, although “higher level employees such as managing directors” favor more expensive models such as the Patek Philippe chronograph, which costs upward of $40,000. Leslie Albrecht, “Wear This to Feel Dominant During Business Negotiations,” MarketWatch, August 31, 2017, accessed November 19, 2018, www.marketwatch.com/story/
this-accessory-makes-people-feel-dominant-in-business-negotiations-2017-08-30.

  from its cellars: See “About/Restaurant,” The French Laundry, accessed January 27, 2019, www.thomaskeller.com/yountville-california/french-laundry/restaurant. See also “What Is the Price Range for a Meal at the French Laundry?,” Forbes Travel Guide, May 21, 2017, accessed November 19, 2018, https://stories.forbestravelguide.com/what-is-the-price-range-for-a-meal-at-the-french-laundry. The French Laundry serves scores of bottles that cost tens of thousands of dollars, including a 2009 Domaine de la Romanée-Conti bottle that sells for $25,000. “Wine Selection,” The French Laundry, accessed October 7, 2018, https://hub.binwise.com/winelists/french-laundry-wine-list.html.

  more than 10 percent annually since 1990: Naomi Barr, “Treasure, What’s Your Pleasure?,” Slate, November 19, 2013, accessed November 19, 2018, www.slate.com/articles/business/billion_to_one/2013/11/the_next_fashion_billionaire_michael_kors_marc_jacobs_and_others_on_the.html. Hereafter cited as Barr, “Treasure, What’s Your Pleasure?” See also Bartels, Unequal Democracy, 14. Bartels cites Anna Bernasek, “The Rich Spend Just Like You and Me,” New York Times, August 6, 2006, accessed November 19, 2018, www.nytimes.com/2006/08/06/business/yourmoney/06view.html, and Yacine Ait-Sahalia, Jonathan A. Parker, and Motohiro Yogo, “Luxury Goods and the Equity Premium,” Journal of Finance 59, no. 6 (2004).

  The economy as a whole grew at an average annual rate of just under 2.5 percent between 1990 and 2016, and average annual economic growth is forecast to be just 2 percent in the coming decade. Kevin Dubina, “Projections of the U.S. Economy, 2016–26: Slow Growth Continues,” Career Outlook, U.S. Bureau of Labor Statistics, November 2017, www.bls.gov/careeroutlook/2017/data-on-display/economic-growth.htm?view_full; and “GDP Growth (Annual %): United States,” World Bank Open Data, World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=US.

  doubling in the next decade: Dominique Muret, “Luxury Goods: Goldman Sachs Forecasts 4% Average Growth for Next 10 Years,” Fashion Network, September 30, 2016, accessed November 19, 2018, https://us.fashionnetwork.com/news/Luxury-goods-Goldman-Sachs-forecasts-4-average-growth-for-next-10-years,737938.html. For an even more extravagant prediction of growth, see Barr, “Treasure, What’s Your Pleasure?”

  trade in his Chevy for a Cadillac: Billy Joel, “Movin’ Out,” The Stranger (Columbia Records, 1977).

  exceeded $350: Emma Gaedeke, “Beyonce Extends the Formation World Tour 2016; Tickets Most Expensive in Recent History,” Music Times, February 19 2016, accessed November 19, 2018, www.musictimes.com/articles/65535/20160219/beyonce-extends-formation-world-tour-tickets-expensive-recent-history.htm.

  easily cost over $200: See “Los Angeles Lakers: 2018–19 Regular Season (All Times Pacific),” NBA.com (2019), www.nba.com/lakers/tickets/individual; “Dallas Cowboys Tickets,” Ticketmaster, www.ticketmaster.com/artist/805931; “New York Yankees Tickets,” MLB.com (2019), https://www.mlb.com/yankees/tickets.

  (not even by using points from loyalty programs): Nelson D. Schwartz, “In an Age of Privilege, Not Everyone Is in the Same Boat,” New York Times, April 23, 2016, accessed November 19, 2018, www.nytimes.com/2016/04/24/business/economy/velvet-rope-economy.html. Hereafter cited as Schwartz, “In an Age of Privilege.”

  an ordinary entrance ticket: Schwartz, “In an Age of Privilege.”

  for these travelers: Schwartz, “In an Age of Privilege.”

  those rich enough to pay: Andrew Leonard, “The 1 Percent’s Loathsome Libertarian Scheme,” Salon, July 11, 2014, accessed November 19, 2018, www.salon.com/2014/07/11/the_1_percents_loathsome_libertarian_scheme_why_we_despise_the_new_scalping_economy.

  the equivalent of a fifteen-hour delay: Katherine A. DeCelles and Michael I. Norton, “Physical and Situational Inequality on Airplanes Predicts Air Rage,” Proceedings of the National Academy of Sciences 113, no. 20 (2016): 5588–91; Deborah Netburn, “First-Class Cabin Fuels ‘Air Rage’ Among Passengers Flying Coach,” Los Angeles Times, May 3, 2016, accessed November 19, 2018, www.latimes.com/science/sciencenow/la-sci-sn-air-rage-first-class-20160502-story.html.

  provide luxury medical care: Julie Connelly, “Doctors Are Opting Out of Medicare,” New York Times, April 1, 2009, accessed November 19, 2018, www.nytimes.com/2009/04/02/business/retirementspecial/02health.html.

  These unconventional luxury businesses are indeed all expanding. One recent study reported a 30 percent increase in the number of concierge doctors in a single year (a shift that deprived nearly 2.5 million insurance-dependent patients of their doctors), and another found that one in fifteen conventional doctors plans to abandon insured patients in favor of concierge care within the coming three years. A. C. Shilton, “The Doctor Won’t See You Now,” Slate, May 4, 2015, accessed November 19, 2018, www.slate.com/articles/health_and_science/medical_examiner/2015/05/concierge_medicine_only_rich_people_can_find_a_doctor_in_naples_florida.html. Hereafter cited as Shilton, “The Doctor Won’t See You Now.” To arrive at the 2.5 million number, take the roughly 1,015 new concierge doctors reported in the study and multiply it by the 2,303 patients that the average family practice doctor keeps on. G. Caleb Alexander, Jacob Krulander, and Matthew K. Wynia, “Physicians in Retainer (‘Concierge’) Practice,” Journal of General Internal Medicine 20, no. 12 (2005): 1079–83; and The Physicians Foundation by Merritt Hawkins, 2016 Survey of America’s Physicians: Practice Patterns & Perspectives (September 2016), www.merritthawkins.com/uploadedFiles/Physicians%20Foundation%202016%20Survey%20of%20Americas%20Physicians.pdf.

  median patient visit length: Ming Tai-Seale, Thomas G. McGuire, and Weimin Zhang, “Time Allocation in Primary Care Office Visits,” Health Services Research 42, no. 5 (2007): 1871–94, www.ncbi.nlm.nih.gov/pmc/articles/PMC2254573/pdf/hesr0042-1871.pdf.

  including on weekends: Robert M. Portman, “Concierge Care: Back to the Future of Medicine?,” The Health Lawyer 15, no. 1 (2002); Shilton, “The Doctor Won’t See You Now”; Pauline W. Chen, “Can Concierge Medicine for the Few Benefit the Many?,” New York Times, August 26, 2010, accessed November 19, 2018, www.nytimes.com/2010/08/26/health/26pauline-chen.html.

  on top of medical bills: Nina Bernstein, “Chefs, Butlers, Marble Baths: Hospitals Vie for the Affluent,” New York Times, January 21, 2012, accessed November 19, 2018, www.nytimes.com/2012/01/22/nyregion/chefs-butlers-and-marble-baths-not-your-average-hospital-room.html.

  two dresses at her boutique instead: Freeland, Plutocrats, 107; Joan Juliet Buck, “Drill Bébé Drill,” T Magazine, August 10, 2011, accessed November 19, 2018, http://tmagazine.blogs.nytimes.com/2011/08/10/drill-bebe-drill; Hilary Rose, “Meet the Super-Dentists,” Times of London Magazine, November 26, 2011, accessed November 19, 2018, www.thetimes.co.uk/tto/magazine/article3233551.ece.

  on the concierge model: Concierge billing (as opposed to public provision or private legal or financial insurance) is so dominant in these areas that the lack of mass, middle-class provision of the services goes almost unnoticed.

  to rich clients: The term “income defense” comes from Winters, Oligarchy, 217.

  the gap between the middle and the bottom: The class gap, moreover, far exceeds the racial gap; indeed, once adjustments for class are made, race appears to have virtually no independent effect. Dong D. Wang et al., “Trends in Dietary Quality Among Adults in the United States, 1999 Through 2010,” JAMA Internal Medicine 174, no. 10 (2014): 1587–95; and Tom Philpott, “The Rich Are Eating Richer, the Poor Are Eating Poorer,” Mother Jones, September 11, 2014, accessed November 19, 2018, www.motherjones.com/food/2014/09/food-inequality.

  both thrive: Publicly held, midpriced restaurant chains, known in the industry as “casual dining” enterprises, have experienced a decline in sales despite a fairly even level of American restaurant spending overall. Elizabeth G. Dunn, “As Goes the Middle Class, So Goes TGI Fridays,” Eater, October 3, 2017, accessed November 19, 2018, www.eater.com/2017/10/3/16395490/tgi-fridays-death-of-middl
e-class; James F. Peltz, “Americans Still Love Eating Out. So Why Are Restaurants Like Chili’s, BJ’s and Cheesecake Factory Struggling?,” Los Angeles Times, September 18, 2017, accessed November 19, 2018, www.latimes.com/business/la-fi-agenda-casual-dining-20170918-story.html; and Kate Taylor, “Applebee’s, TGI Fridays, and Chili’s Are Trying to Claw Their Way Out of a Restaurant Death Trap,” Business Insider, March 7, 2017, accessed November 19, 2018, www.businessinsider.sg/can-chains-survive-death-of-casual-dining-2017-2/.

  iconic Chelsea storefront: Nelson D. Schwartz, “The Middle Class Is Steadily Eroding. Just Ask the Business World,” New York Times, February 2, 2014, accessed November 19, 2018, www.nytimes.com/2014/02/03/business/the-middle-class-is-steadily-eroding-just-ask-the-business-world.html.

  a third of their incomes: Saez and Zucman, “Wealth Inequality in the United States.” The top 1 percent by income saves 20 to 25 percent of its income. Saez and Zucman, “Wealth Inequality in the United States,” 563.

  a single common designer: Family Dollar sells clothing made by “Pro Player” and “Modessa” only, and these are not among the designers carried by Neiman Marcus. Casey Graetz, Memo to Daniel Markovits, Word file, on file with author; “Designers by Category: Women’s Clothing,” Neiman Marcus, accessed October 9, 2018, www.neimanmarcus.com/Womens-Clothing/All-Designers/cat000009_cat000001_cat000000/c.cat.

  not even salt: The French Laundry gets its salt exclusively from Le Sanctuaire, which was “conceived from the desire to provide only the rarest choice ingredients and tools to passionate home cooks with the most discriminating appetite for culinary excellence . . . [and] now caters to fine dining restaurants and professional chefs.” See Le Sanctuaire, “About Us,” accessed October 26, 2018, www.le-sanctuaire.mybigcommerce.com/about-us. Taco Bell does not.

  “safe and approved by the FDA”: Susanna Kim, “Taco Bell Reveals Its Mystery Beef Ingredients,” ABC News, April 29, 2014, https://abcnews.go.com/Business/taco-bell-reveals-mystery-beef-ingredients/story?id=23514878; and “Ingredient Statements,” Taco Bell, accessed October 9, 2018, www.tacobell.com/food/nutrition/ingredients.