This might seem flippant to you, but here are a couple of representatives of the 1% explaining this.
Warren Buffett once claimed that the “genius of the American economy, our emphasis on a meritocracy and a market system and a rule of law has enabled generation after generation to live better than their parents did.”
The Economist suggested that “people succeed through brains and hard work.”
Economist Tyler Cowen believes in a “hyper-meritocracy” in which wealth is created by the most intelligent and motivated people.
All sounds quite reasonable and fair…until you look at the way that most of the super wealthy actually make their money. There’s very little merit involved – in fact, it is much more to do with privilege, pillage and plunder.
In 2012 Goldman Sachs made £250m speculating on staple foods. While the UN was warning of a global food crisis in 2013 due to poor harvests in the US and Ukraine, Goldman’s traders were gambling on the crisis raising the cost in items such as wheat and rice, and placing bets. The starvation of the many contributed to a 68% rise in the profits of the bank that year and a rise to £250,000 per year salary for each of the banks employees.
One might argue dispassionately that it doesn’t make it morally wrong for someone to profit from a catastrophe so long as they played no part in causing it. However, this assumes that the mass speculation does not impact the price, which it patently does. The droughts and poor harvests combined with mass speculations hiked up food prices by 40% over 7 years . By betting on starvation, Goldman drives up the price of food not just on a market ticker screen, but in the real world – where those high prices have resulted in real people starving to death.
As Paul Buchheit writes for Truth Out:
In 2007 hedge fund manager John Paulson conspired with Goldman Sachs to create packages of risky subprime mortgages, so that in anticipation of a housing crash he could use other people’s money to bet against his personally designed sure-to-fail financial instruments. His successful bet against American households paid him $3.7 billion.
This is the behavior that resulted in the Financial Crisis that is still reverberating around the global economy.
High Street Banks and Mortgage Providers, credit card companies and other debt merchants chased the custom of individuals with little or no regard for their ability to pay back the loans. They did this to sell on to Investment Banks as Collateral Debt Obligations.
This product was then, with the support of the Cartel’s gatekeeper, the Credit Ratings Agencies, declared Triple A for its credit worthiness; the same as a government bond.
The banks then took these investment products and sold them to unknowing pension companies who bought them on the basis that they were now deemed perfectly safe.
The same banks then insured for the very product they sold the pension firm going toxic. These are called Credit Default Swaps (CDS). There was no limit on who could set up these CDS’s either. So, banks could place greater risk into the market by betting not only on their own toxic sell offs, but those of other banks.
The individual bankers got hideously rich while homeowners, taxpayers, national economies and even some of their own companies crashed under the weight of the debt.
HSBC Bank laundered money for Mexican drug cartels. Countrywide and Wells Fargo targeted Blacks and Hispanics for unaffordable subprime loans. GE Capital skimmed billions of dollars from its customers. Bank of America and JP Morgan Chase hid billions of dollars of bonuses and losses and loans from investors. Banks fixed interest rates in the LIBOR scandal, and illegally foreclosed on millions of homeowners in the robo-signing scandal.
How many of these bankers went to jail? None. How many faced personal fines or sanctions? None.
Financial Services corporations have effectively begun printing their own money by inventing financial instruments which turn debt into assets. The problem is, the assets are used to create paper profits for corporations and individuals, while the debt is simply ignored until it explodes, as it did in 2008, and then passed over to the taxpayer.
By 2004, UK Banks were creating £500bn a year this way, they created £567bn in 2007 as the crisis was at their door. To put this figure in perspective, the entire national debt in 2007 was £501bn. Corporations created the same amount of debt based money in a year, as the UK’s entire national debt. This has totally screwed up the money supply, with the Bank of England creating only a tiny fraction of the money in circulation.
The Derivatives market that capitalises on this debt based money, by turning consumer debt into investment vehicles, caused the Financial Crisis. This market encourages fraudulent, reckless and predatory lending to consumers who cannot repay, as by creating the debt the organisation can print money.
Today, 97% of all money in circulation is from this commercial money supply.
Luck of birth is one of the primary factors in whether you become a have or a have not – because most are have-alreadys. The authors of The Meritocracy Myth say it well:
“In the race to get ahead, the effects of inheritance come first and merit second, not the other way around.”
Much of the individual wealth is taken by individuals who had the right connections. Oh, and those trendy, beardy CEOs of Silicon Valley, the alleged mecca of self-made tech visionaries, are no different. A Reuters analysis concluded that a prestigious degree and personal connections to power-brokers are “at least as important as a great idea” for Silicon Valley entrepreneurs.
If you’re still undecided about the meritocracy myth, take a look at what happened to social mobility under the neoliberal policies of the last four decades.
A recent University of California study examined social mobility patterns in England between 1066 and 2011. The key findings of the study by Gregory Clark were:
- The modern ‘meritocracy’ is no better at achieving social mobility than the medieval oligarchy. Instead that rate seems a constant of social physics rather than social engineering.
- There is tentative but disquieting evidence that after 1000 years of complete long run social mobility, modern England is becoming more stratified by class.
A recent scientific study by Princeton and Northwestern University found the US to be an oligarchy, not a democracy – with growing wealth inequality stratifying society in the same way. Entrance to the 1% club is based primarily not in merit, but inheritance…and the ruthlessness to aim a gun at the door and fire to keep the riff-raff out.