Mind the Income Gap

Photo: Bruce Gilden

The richest New Yorker, David Koch, is worth an estimated $12 billion. The poorest New Yorkers, 1.5 million people with incomes below the poverty line, are collectively worth nothing—or less. David Koch, in other words, is worth $12 billion more than a fifth of the city’s residents combined.

How does that make you feel?

Depending on your own financial situation, it might make you feel poor: David Koch is worth $11.99999 billion more than me! Or lucky: Thank goodness I’m worth more than zero. Or guilty: How can I complain about not having enough when others have nothing? Or angry: David Koch is a symbol of one of society’s greatest ills!

If you’re in the last camp, at least spread the resentment around: Of Forbes’s 400 richest Americans, 45 live in New York City, and they are each worth at least $1 billion. If our 45 billionaires suddenly decided to give half their collective $136 billion to the city’s poor, each of the 1.5 million would get a check for more than $45,000—a wonderful windfall, certainly, but not enough to eliminate the shocking wealth disparity.

That there is a startling gap between rich and poor is not news, and it’s also not confined to New York: The U.S. as a whole has seen widening wealth inequality in the past two decades. But the phenomenon is more pronounced here: Manhattan has the highest income disparity of any of the roughly 3,000 counties in the country. At the top of the income spectrum, people are trading in their Gulfstream IV’s for private Boeing jumbo jets. At the bottom, they’re struggling to get enough to eat.

I grew up on the Upper East Side and went to a Manhattan private school, so I got some early exposure to the city’s wealth disparity. I lived on 98th Street—just north of a figurative 96th Street Mason-Dixon Line that, 30 years ago, divided one of the richest neighborhoods in the country from one of the poorest. My family considered its peers to be the Upper East Side Joneses, not the Harlem Joneses, and had a habit of living beyond its means.

Photo: Bruce Gilden, Magnum

On the one hand, I was fabulously rich, wealthy beyond the dreams of people we drove past in Harlem on our way to the Third Avenue Bridge. I was also richer and luckier (and decidedly wimpier) than the kids who occasionally broke up our pickup baseball games in Central Park by chasing us down and stealing our bats and mitts—and this relative privilege meant that my fear and rage at such treatment was also mixed with acceptance and, bizarrely, guilt: We could afford mitts, and they couldn’t, so the violence was understandable.

On the other hand, one reason my family often drove out of the city via Third Avenue—a route unpopular with my mother, especially after someone yanked open a door at a stoplight and tried to climb into the car—was that my father didn’t want to waste money on the Triborough’s toll. Private-school tuitions and an Upper East Side mortgage ate most of his salary, so I also knew what it felt like to be, if not poor, tight. Not having to constantly worry about money seemed the biggest advantage that the “rich kids” in my class had. That their money made them “better” than us, at least in some people’s eyes, was also not lost on me.

The usual reaction to extreme wealth disparity is that it is a disgraceful problem that needs to be solved. Although this view resonates emotionally, it is worth asking whether it is, in fact, true. Despite serving as a stark reminder that some people have it better than others, is it really bad that David Koch alone is worth more than 1.5 million other New Yorkers put together? Or are Koch, Mayor Bloomberg, Donald Trump, Carl Icahn, Martha Stewart, and thousands of other fantastically wealthy New Yorkers just inspiring examples of the ongoing American Dream? (Work hard and you can be one of us.)

If you embody the American Dream—or aspire to—you will be relieved to hear that some economists believe that wealth disparity is not, in fact, a problem and that your riches are actually a net benefit to society. In this view, the rich getting richer is consistent with the Pareto principle, which holds that economic change is positive if it helps at least one person without hurting anyone. Rich people, this theory goes, don’t hurt poor people or society by getting richer; they merely help themselves. In some cases, they also help others. They save and invest mountains of capital, helping to create jobs, products, and services. They support “high culture” in a way that folks struggling to make rent simply can’t. They pay a higher percentage of their incomes in taxes. And they give millions to charity.

Photo: Bruce Gilden, Magnum

Although philanthropy is occasionally dismissed as a guilt-diminishing pastime for those who have already amassed much more than they will ever need, it has created extraordinary value for this city. From Andrew Carnegie, who gave away an estimated 90 percent of his fortune, to the Rockefellers, George Soros, and David Koch (who has given away $200 million over the years), wealthy New Yorkers have made great strides in counteracting social problems. A single anonymous donor, for example, recently pumped $30 million into dozens of social-service organizations in all five boroughs, the donor’s fifth such gift in five years.

One can argue about whether such money would be better allocated by government-mandated wealth redistribution (i.e., taxes), but such policies tend to constrict economic growth and, in so doing, hurt the poor as well. In this country, we have yet to figure out how to have both a turbocharged economy and a reasonably equal wealth distribution, but the answer does not seem to be to make it more difficult to get rich.

The real social problem, economists like Martin Feldstein of Harvard argue, is not inequality but poverty. The Coalition Against Hunger estimates that 425,000 of New York’s 3.6 million working adults don’t have enough to eat. And it’s hard to disagree that between the two ills—wealth disparity and poverty—the latter is far more serious.

Feldstein is quick to point out, of course, that there are plenty of people who don’t buy the premise that the rich do no harm by getting richer. “Some see inequality as so intolerable that they regard increasing the income of the wealthy as a ‘bad thing,’ ” he writes. “Such an individual, whom I would describe as a ‘spiteful egalitarian,’ might try to reconcile this with the Pareto principle by saying, ‘It makes me worse off to see the rich getting richer.’ ”

Spiteful egalitarianism is not a particularly attractive philosophy, but it’s easy to see why it has so many adherents. A spate of recent studies have shown that money can buy happiness, especially at the low end of the economic scale. When you can’t afford food and shelter, you’re likely to be miserable no matter what else is going on in your life. Even in the middle-and upper-income brackets, money correlates to a sense of well-being: If you make more than your neighbors and peers, you will tend to be happier than if you make less (and vice versa). In other words, inequality makes us unhappy no matter how much we have—at least if we’re on the have-less-than-our-friends side of the scale.

Intra-peer stresses are practically unavoidable in New York. Thanks to the vast disparities in pay between the city’s major industries, friends with the same brains, education, background, and work ethic can quickly find themselves far apart on the economic spectrum. Only a few years after college, the financial gulf between a twentysomething dedicated to the arts or nonprofit work and a classmate dedicated to, say, Morgan Stanley can be immense.

A common anxiety related to these disparities results from the tendency for friends to split costs on a per-person basis, rather than a per-income one. Such splits are typically limited to the occasional meal or cab ride and thus set your budget back only a few weeks. But examples range to the extreme. Some acquaintances of mine recently celebrated the 40th birthday of a well-heeled friend. The person who planned the celebration, for whom money is less important than exotic locales, fine wines, and vivid memories, honored the event by booking the following boondoggle (details changed to protect the wealthy): round-trip flights to Milan, two nights at Villa d’Este (a sixteenth-century resort near George Clooney’s house on the bank of Lake Como), a charter boat to Bellagio (the real Bellagio, carved into the edge of a mountain), and a day trip to Venice.

The reactions among the invited friends were mixed. The Wall Street folks were always up for a hop across the pond. The non-financiers, who had plenty of pennies but not so many that they didn’t have to count them, were dismayed—why not just a nice dinner? And the nonprofiteers basically had a heart attack. This is not to equate the comparably frivolous problem of income disparity between well-educated friends with actual poverty—it is simply to illustrate the stresses caused by relative wealth.

One school of thought on wealth disparity holds that it is bad for society not just because of relative comparisons but because it is often accompanied by a reduction in economic mobility. For Mayor Bloomberg et al. to be seen as inspirations rather than ruling-class oligarchs, poor people have to believe that they can reach such heights, too. Without the potential for mobility, economist Timothy Smeeding argues, wealth disparity can lead to crime, a lack of social cohesion, and reduced community involvement.

Photo: Bruce Gilden, Magnum

On this score, there is evidence that the fluid immigration and opportunity that made the American Dream part of the national identity is history. According to American University’s Tom Hertz, there is less than a 2 percent chance that an American born to parents whose income is in the bottom 60 percent of all incomes will end up in the top 5 percent. Americans born to parents in the bottom 20 percent, meanwhile, have a 40 percent chance of staying at the bottom. Among the nine high-income countries Hertz has studied, only the U.K. had a lower rate of mobility. For the three-quarters of New Yorkers who don’t have college degrees, the challenge of upward mobility can be particularly acute. Education tops Hertz’s list of factors affecting the odds that one will end up in a higher income bracket than one’s parents, followed by race and health.

For every David Komansky, the Bronx-raised former Merrill Lynch CEO who dropped out of college and then worked his way to the top, and every Stan O’Neal, the current Merrill Lynch CEO, who started on a General Motors assembly line and worked his way through Harvard Business School and corporate America, there are a million New Yorkers who will likely never work their way anywhere. The American Dream is still real, but it’s less achievable than it used to be, and equal opportunity, unfortunately, is a myth.

New York has changed a lot in the 30 years since I was a kid getting terrorized in the park. The city has gotten richer, cleaner, and safer, and thanks to the latest amazing real-estate boom, there are no longer any figurative Mason-Dixon Lines in Manhattan. The gorgeous Harlem brownstones near our old route to the bridge are now worth $2 million apiece—a development that has benefited existing owners even as it has driven some residents out. And last time I visited Central Park’s East Meadow, it seemed as safe as Gramercy Park did when I was young.

Spiteful egalitarianism is not a particularly attractive philosophy, but it’s easy to see why it has so many adherents.

It would be hard to argue that after three decades of increasing wealth, the city is not better off than it was in the seventies. At the same time, it’s hard not to notice that Manhattan has lost some of its economic and cultural diversity as the unstoppable wave of gentrification has flooded through almost every neighborhood. Many longtime Manhattan residents lament such changes. The borough has become an airbrushed playground for wealthy financiers, money managers, corporate lawyers, and international jet-setters, they say. Gone are the grit, the soul, the youthful, creative energy that bred generations of artists, writers, and performers.

But economic diversity and artistic vibrancy have not left the city; they’ve simply migrated outward. If you’re looking for a thriving arts community, get on the L train. If you’re looking for the ethnic and economic diversity that 30 years ago defined the Upper West Side, check out Fort Greene and Prospect Heights. If you’re looking for evidence of economic mobility, head to Queens, where, driven by the success of West Indian immigrants, black households now make more money than white ones.

Economic and cultural evolution has been a constant in the city’s history. After all, the now luxurious downtown loft spaces that made cheap art studios in the sixties and seventies were once failed warehouses and factories. Change can be painful, but stasis is impossible. And a rising standard of living, which on balance the city has enjoyed over the past few decades, is better than a falling one.

Mind the Income Gap