The Great American Serf Class

This past weekend Chelsea Clinton married Mark Mezvinsky. Young people getting married is always a hopeful and happy occasion and we wish them well. Yet we should recognize that this marriage of politics and finance for what it really is: the symbol of all that is wrong with our society. Money, money, money. For money is where the American dream intersects the national debt.

It is not really important that the wedding cost $3-5 million and the couple might choose to move into his $1.8 million loft in Manhattan. Conspicuous consumption is part of human nature so the glitzy, ostentatious rich you will always have with you. Besides, the Clintons have never been known for their self-restraint.

What is more important is the net worth of the groom and those like him. (We must note in passing that his family is also notoriously political – but he is not, yet.) If he is at all successful as a hedge fund manager, his net worth has to be in the neighborhood of $300-500 million. This money, and the $100 million that Bill and Hillary have “earned” since she lost the race for the presidential nomination, can and will be passed on to their heirs in perpetuity, paying little if any taxes from generation to generation. There are thousands of people in the financial sector who have this kind of money and will similarly pass on that money and power to their heirs. (It's called a dynasty trust.)

What is most important is that all of these people then have an entitlement to the output of the American economy and American workers stretching generations into the future. These huge entitlements have been created in just the past decade, a breathtakingly short period of time. In addition, the winnings in this casino corner of the financial sector are not based on any merit or productive contribution by either this first-generation or the entitlement holders coming thereafter.

Now, a healthy financial sector is, of course, an absolute prerequisite to a smoothly functioning capitalist economy. It is the job of the financial sector to allocate resources efficiently, that is to allocate capital to those who have the greatest opportunity to invest and meet the market test of long-term profitability.

But that is not what is happening. The shadow banking system is that unregulated sector where it is the easiest to rip off the rest of us. Most of the multi-trillion dollar derivatives market contributes absolutely nothing to the efficiency of our economy. In addition, mathematical algorithms that shave a 20th of a second off of millions of trades permit so-called traders to skim billions of dollars.

The American dream of our founding fathers was originally formulated as the physical security that comes from the rule of law and the economic security that comes from the right to accumulate and use private property. This dream finds a reality in a well-policed community with widespread property ownership. In this dream, hard work and talent eat away at drudgery and toil. This dream assumes equal opportunity and a meritocracy.

When the output of a society is allocated without reference to how it is produced or by whom, there is little room for merit. Now we are setting up, as never before, an economic elite with entitlement privileges undreamed of by previous generations. It is very much like feudalism. In the Middle Ages, about the 10th century, the nobles seized the land, and therefore the means of production. The serfs were bound to the land and permitted to work it so long as the greater part of the output went to the entitled Lord. For hundreds of years thereafter, the serfs suffered and the nobles prospered.

This meritless seizing of the future wealth of America is the link between a suffering middle-class and the burden of the national debt. The financial elite are the ones who will be holding the accumulated wealth of America as well as the national debt. The working class will just turn over most of their paycheck to the wealthy, some of it in taxes but most will go to the simple cost of maintaining the competitive excesses of that top 5%. The people don't understand now who is paying for that wedding.

The moneyed elite have the power to pervert the rule of law, undermine opportunity and merit and thereby deny the American dream. If it is government that takes us down the road to serfdom, it will be because government was bought and paid for by the financial elite. If the American people want their government back, they should look to who owns it.

This isn't the entitlement problem that the governing elite would have you be angry about.