The Fear and Loathing of the One Percent
Are they the whiny rich? Or besieged job creators?
Whatever you call them, and whatever your politics, there is no doubting that the One Percent is on the defensive – culturally, financially and psychologically. And now a new poll shows that their fear and lack of risk taking may be imposing real financial costs on the economy.
The 2012 Survey of Affluence and Wealth in America, from American Express Publishing and Harrison Group, finds that One Percenters are hoarding three times as much cash as they were two years ago. Their savings rate soared to 34 percent in the second quarter of 2012, up from 12 percent in 2007.
Higher savings would normally be good for the economy. But not now, when capital is needed to invest in growth and jobs. The One Percenters put 56 percent of their available cash into savings accounts and money markets in 2012 – that’s up from 24 percent in 2007.
They’re investing just 44 percent in financial markets – down from 76 percent in 2007. More One Percenters say the stock market is “a real risk” rather than a “real opportunity.” That’s a big switch from just last year, when 62 percent said the market was an opportunity.
In other words, One Percenters used to save less, and invest more. Now they’re “basically stuffing money under the mattress,” said Jim Taylor, vice chairman of Harrison Group.
That also means they’re spending less – on everything from traditional luxury to second homes. Fully 82 percent said they would spend more if they had more confidence in the future.
“This has resulted in people managing their risk to a ‘no loss’ position rather a ‘real gains’ position,” Taylor said. “That’s not the great tradition of American investing.”
One respondent in the study said “My savings rate has gone up and I’m not spending, which I realize is bad for the economy ... but I like having a wide moat around me so that nothing can bother me.”
The wealthy aren’t just building financial moats, they’re also building psychological moats. The Occupy movement, media coverage of inequality and the Obama campaign’s “you didn’t build it” attacks have all made the wealthy fearful of any outward signs of success.
The survey showed that only 31 percent of today’s One Percenters “like it when others recognize me as wealthy.” That’s a huge drop from 2010, when 53 percent liked the recognition. This jibes with another recent poll that showed One Percenters don’t see themselves (and don’t want to be seen) as One Percenters.
The wealthy, in other words, are embarrassed to be wealthy.
“We can’t have a rise of an aristocracy without the aristocracy believing in it,” Taylor said.
As a result, today’s wealthy are further isolating themselves from broader society. Only 46 percent of One Percenters say “it is important for me to join social events in my community.” That’s a huge drop from 2010, when 64 percent said community is important. Fully 90 percent of the ultra-wealthy say they prefer to spend time with their closest friends and family.
Many Democrats might argue that all of this moat-building and cash hoarding and community-shunning by the rich is exactly why we should tax them more. They say the lack of mass consumer demand is the reason the wealthy aren’t investing and creating jobs. At least the government would deploy that capital into the economy, rather than keep it under a Vividus mattress, they argue.
Most One Percenters agree with them – at least when it comes to higher taxes. The survey found that 62 percent of One Percenters are in favor of an income-tax increase. More than half say the increase should be imposed on people making $500,000 or more (basically themselves).
Another 31 percent say it should be imposed on filers making more than $250,000 – basically the Obama cut-off.
Only 25 percent think the income cut-off should be $1 million.
Taylor said that it’s the uncertainty over tax policy – rather than higher taxes themselves – that is most affecting the spending and investing of the wealthy. He said this reality stands in stark contrast to the public perception that greed is preventing compromise in Washington.
“All of this antagonism that is being created is not the fault of the people Obama says are being greedy,” Taylor says. “If there is resistance to tax increases it’s coming from others – perhaps lobbyists or Tea Party people or consultants. The One Percent accept the reality.”
And they also understand, perhaps, the need for self-preservation.
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank