Facebook owes its success to the affection and loyalty of some 720 million ordinary people around the world who are Facebook fans. So it seems very ironic that Facebook’s stock offering is about to create truly extraordinary wealth for a tiny cadre of company insiders and Wall Street bankers and investors.

The Facebook IPO will be a classic Wall Street capital-raising operation, which means that all the usual players will get their piece. The public offering will be “managed” by a consortium of investment banking firms, led by Morgan Stanley, Goldman Sachs, and other leading Wall Street banks. For their efforts, these banks will split a fee that industry experts say will be at least $50-75 million and may be considerably higher. That’s not bad pay for a couple of months work, even by swollen Wall Street standards.

You may wonder what the banks do to earn that kind of payday. The usual answer is that they “make the market.” That’s Wall Street talk for making sure that the offering is completely sold out in advance with lots of buying demand left over.

Now if you were trying to peddle the stock of some fifth-rate company with a dodgy history and questionable prospects, you can see why you might need all these investment bankers. It would be up to them to scrounge up enough buyers and call in all their favors to make sure that Dodgy Company stock didn’t tank right out of the box. So the execs at Dodgy would be happy to pay a hefty price for bankers to “make a market.”

But Facebook is such a hot property that one could imagine raising $5 billion just by listing the shares on eBay, or better yet auctioning them off on Facebook. That way, the company could save a hundred million or so in underwriting fees, and also give their loyal fans a piece of the action. Alas, the Securities and Exchange Commission frowns on such methods. Besides, for Facebook, it’s just part of the price of joining the Wall Street Club.

Building the Buying Fever
The other part of “making the market” is setting a price that encourages a bit of buying fever. When trading begins, underwriters want lots of hungry buyers on hand to bid up the price.

This low price strategy has another advantage. It also gives Wall Street favorites a chance to nab some quick profits on the stock. Allocating scarce IPO shares is the industry’s way of rewarding its most important customers by letting them in on the deal.

For example, if Facebook comes out at $50 a share, all those waiting buyers might take the price to $60 or $70 a share. In that case, those who got the original IPO shares will be sitting on a 20% to 40% instant profit. If the stock price eventually fades, most of them will have taken their profits and been long gone. If you wonder how big money begets more big money on Wall Street, this is one of the ways.

But it’s the Facebook company insiders who will enjoy the biggest payday. Founder Mark Zuckerberg, who owns 24% of the company’s stock, will be worth somewhere between twenty and twenty-four billion dollars. Former FB partner Dustin Moskovitz will be worth a tidy $7 billion. Facebook COO Sheryl Sandberg will own $1.6 billion in stock to go with her $30 million a year salary. Peter Thiel, Facebook’s first investor way back in 2004, will see his original $500,000 bet mushroom to $2.7 billion.

There is something profoundly wrong with the American capital formation system. At this end of the spectrum, it capriciously creates a new class of billionaires. At the other end it starves out the small businesses that are responsible for most of the new job creation in America.

Worse yet, Facebook as a company doesn’t even need the money. Even with its thirty million dollar-a-year extravaganza salaries, it still earned a billion dollars in profits last year, far more than it needs to feed its own growth. No, this stock offering is meant to certify that another crop of dot-commers and their patrons have joined the ranks of the world’s wealthiest people.

Occupy America had at least one thing right when it declared that there is one economic system in America for the one-percenters, and another for the rest of us. The Facebook IPO is just the latest sign of how true that is.

As the daughter of Irish immigrants, she was born into a family and culture of working class poverty. She was literate but otherwise poorly educated. She married young, lost one child and raised five others, including my mother, who was her youngest. Grandma helped support her family first by working as a laundress for a wealthy Park Avenue family, and later by running a boardinghouse on the West Side of Manhattan.

My grandmother’s life was very tightly circumscribed – her family, relatives, neighbors, the Catholic Church, and the endless struggle of the poor to stay alive, stay employed, stave off illness, and educate their children in the hope that they would have a safer and better life.

When you grow up as she did, the world must have seemed fixed rather than fluid. If the world was divided up into a few rich people and a lot of poor people, well, that was simply the natural order of things, just “the way things were.”

If most of the decisions that affected your life were made by your husband, your priest, your doctor, your boss, your landlord, your bank manager, or your local Congressman, well, that too was the natural order of things. My grandmother’s life was bounded in most ways by the decisions of others.

My parents came of age and were married during the Great Depression. For much of their life together, they endured the same financial insecurity and lack of power that marked my grandmother’s generation.

A Different America
But we live in a vastly different America and a vastly different world. Tens of millions of blue-collar kids have been to college, often away from home for the first time. Travel has given us firsthand knowledge of the diversity that exists on the planet. Sixty years of television has opened a panoramic window on the world, and opened us up as well. Nowadays, we skate right through the old cultural and class walls that so partitioned the 20^th century world.

For my grandparents, and even my parents, the worlds of business, finance, Wall Street, and wealth-creation must have seemed like some mysterious “black box,” whose inner workings were simply beyond their ken.

But with knowledge comes transparency. A couple of years of financial scandal opened our eyes, for instance, about how the folks on Wall Street really make their living. We used to think that it was about minding the economy and keeping businesses strong and healthy. It turns out that what they mostly do is find ever more interesting ways to make ever larger sums of money, for themselves and for other big investors.

Hedge funds earn billions of dollars every year for their managers and ultra-wealthy clients, but have great difficulty explaining what value they contribute to the world in return. (You’d be a little tongue-tied too if you had to explain the social contribution of derivatives trading or computer-driven arbitrage.)

And we know too that Wall Street investment banks played both sides against the middle in the now infamous trading of subprime mortgage bonds that almost ruined several economies, including our own.

Meritocracy Matters
Still, with all of the recent scandals and outrages, Americans remain committed to the ideal of the meritocracy – that is, if you make a big contribution, you ought to reap a big reward. Perhaps the most cherished of all the American myths is the Horatio Alger story:  In America, anybody can make it to the top, regardless of where they started. And the corollary to that is: “If you earned it, you get to keep it.”

At the same time, the “cloud of unknowing” that used to protect extreme wealth-making from scrutiny has almost disappeared. Most Americans can now see that the record-setting profits earned by US global companies in the last ten years were generated mostly by sandbagging American jobs.

Most of us are savvy enough to understand that the pressures of the global marketplace may have made those job losses inevitable. But we also know that those same job losses are also funding obscene compensation packages and soaring capital returns for owners of capital. That is hardly the meritocracy we cherish.

Former president Bill Clinton was famous for his ability to convince voters that he “shared their pain.” There’s a worrisome wave coming for the wealthy in America. Most of us no longer believe that the folks at the top share our pain. But we sure do think that they should.

If my grandmother were here, she might think of it as just “the natural order of things.”

For the next ten years, I immersed myself in the nuts and bolts of the New York City political system, first as a street-level campaign volunteer and then as an elected member of the Democratic Party hierarchy and leader of the Party’s operations in my community.

I got to participate in what was left of the old neighborhood clubhouse system that had managed politics in New York for more than a century, going back to the days of the infamous Tammany Hall. Neighborhood political power was the residue of generations of social service and small favors to the immigrant and working class neighborhoods of New York. Everyone knew someone who had been helped out in a time of need by the local political club. Everyone knew that one day they might be in need themselves. The quid pro quo for all that service was strict political loyalty – an obligation to show up on Election Day and vote for the local Club’s choices.

These neighborhood clubs were in turn knit together into County organizations, each headed by a very powerful County Leader. What gave them Ruling Elite power was their control over the Primary Election process. In the days before television and direct mail campaigning, it was almost impossible to run for office without the support of the local party machine. In fact, it was near impossible to even get your name on the ballot. New York was famous for its byzantine election laws, which were specifically designed to stymie insurgent candidacies.

This system of party control existed in both the Republican and Democratic Parties. So, well into the 1970s, the choice of Mayors, Governors, US Senators, Congress, and city and state legislatures in New York was determined almost entirely by the County Leaders of the two major parties. Voters were free to “elect” their favorite candidate in the general election, but it was the Party leaders on both sides who decided who those candidates would be.

The Breakup of the Party Machines
There were a number of factors that caused the breakup of the old political machines.

First, the rapid rise of the Middle Class undermined the historic allegiance between the working class and the Democratic Party. (It became a truism among those of us who worked in politics that staunch Democrats who moved to the suburbs quickly became staunch Republicans.)

Second, the 1960s and 1970s saw the sharp rise of “cause” politics – civil rights, the anti-war movement, and women’s rights. Those issues offered a powerful platform against “the establishment,” including the old party organizations. So, in a certain sense, “the times” turned against the old hierarchies of political power.

Third, television moved politics out of the streets and out of local neighborhoods, and into living rooms instead. For the first time, political candidates could go “over the heads” of the parties and directly to the voters. Candidates were no longer reliant on party bosses to “bless” their candidacies. The party machines quickly lost their ability to dominate the process.

The last blow to the old system was delivered by the concurrent arrival of big money and negative campaigning. Politics used to be mostly a neighborhood and communal process that was facilitated by the old party structures. It is now almost entirely a personal process that is facilitated by truly scandalous amounts of money.

There is not much sign that we are any better off than we were fifty years ago, before the breakup of the old institutions began in earnest. The collapse of old structures is generally followed by an extended period of chaos, as we try on a succession of new ideas and new costumes, hoping to find the right and lasting fit. (I guess it should not surprise us that we do change on the societal level in much the same way that we do it on the personal level.)

I think the same factors that revolutionized politics were at work in business as well – the slow erosion of the old order; the rise of a new class of entrepreneurs with outsized personal aspirations and agendas; an explosion of diversity; and the corrosive effects of a money-driven system.

So we have largely rid ourselves of the old ruling elites, in politics, business, religion and almost anywhere else we look across the society. And it seems true that we live freer and more choice-filled lives. But, in this moment, it hardly seems like a better life.

That realization is probably the surest sign that, wherever we are headed, we are not quite there yet.

Still, the sky always seems darkest just before the dawn. There are signs that William Butler Yeats’ promised Second Coming is nearer than we think.

Turning and turning in the widening gyre/ The falcon cannot hear the falconer/ Things fall apart; the centre cannot hold/ Mere anarchy is loosed upon the world/ The blood-dimmed tide is loosed, and everywhere/ The ceremony of innocence is drowned/ The best lack all conviction, while the worst/ Are full of passionate intensity.

Yeats wrote those words in 1919, in the aftermath of The Great War, when it must have seemed that the whole world had lost its way. Americans have been spoiled because in our lifetime war has taken place “over there” instead of “over here.”  We know little of what it is like to watch the structures and institutions that provide order and meaning disintegrate overnight.

And yet, it may be just as hard to experience the slow death of institutions that we have grown up with and grown fond of – a political system that lifted our aspirations and our sense of national pride; a business community that we could entrust with our material wellbeing and our sense of worth in the world; a government that seemed to work for each of us and all of us all at the same time.

It seems fair to say that life in America is a good deal harder and meaner than it used to be. Our institutions have lost their sheen of benevolence and most of our good will. If we are to make it right again, it would help to know how and why it went wrong. An article from New Yorker columnist George Packer offers a big head start.

The Old Ruling Elite
Packer has penned a brilliant piece in the latest edition of Foreign Affairs (http://fam.ag/raulXS) on the demise of what he calls the Ruling Elite in America. Here is how he describes their role:

“At the same time, the country’s elites were playing a role that today is almost unrecognizable. They actually saw themselves as custodians of national institutions and interests. The heads of banks, corporations, universities, law firms, foundations, and media companies were neither more nor less venal, meretricious, and greedy than their counterparts today. But they rose to the top in a culture that put a brake on these traits and certainly did not glorify them…(They) did not act on behalf of a single, highly privileged point of view—that of the rich. Rather, they rose above the country’s conflicting interests and tried to unite them into an overarching idea of the national interest.”

I remember that world from when I was young. It was orderly, well-managed, hierarchical, and very autocratic. America was at the zenith of its worldwide power and influence. The changes of the 1960s and 1970s that would rock the foundations were yet to come. America the country felt much like a vast corporation that was closely held and tightly-managed by an all-powerful Board – what Packer calls the Ruling Elite.

Of course, it wasn’t terribly democratic. And it wasn’t exactly government “of the people, by the people, and for the people” either. It was an aristocracy of the elite with a public veneer of democracy. Although we got to vote for elected officials, the people we got to pick from had already been selected in advance. So mostly, we got to ratify choices that the Ruling Elite had already made.

But, so long as the ruling elite consensus held, it worked really well. Government functioned, business prospered, and wealth was increasingly shared. The country moved slowly towards a kind of single class society, but with enough variation to honor the uniquely American belief in moving up and moving out.

So what happened? Well, of course, the times changed, and the world changed. But mostly we changed. We wanted a lot more choice and a lot more personal power in our lives than the old system could afford us. So we set about dismantling the old elite power structures. To our great surprise, “power to the people” turned out to be way more doable than we ever dreamed.

But here’s what we never saw coming – the possibility that we might dump the old structures before we could find their right replacements. Having a governing consensus from the top down requires control by a benevolent elite. We are not up for that anymore, and neither are they. And building a governing consensus from the bottom up requires brand new mechanisms that we have only barely begun to put in place. So, out with the old, and oops – not quite ready with the new.

That “oops” should tell us two things. First, for the short term we had better be prepared for a lot of governing chaos but not a lot of good governance. Institutions reflect the consciousness that created them, and running old institutions with a new consciousness never really works. And second, we have to shorten up our sights. Building a governing consensus from the bottom up is almost by definition a purely local endeavor.

If Yeats’ Second Coming is really coming, it will emerge down here with us, and not up there with the “them” in Washington and New York.

If he is correct, it means that the current war against spending and economic investment  in Washington, DC will have two drastic effects. First, it will prolong our economic stagnation and suffering. Second, it will delay the profound changes that are necessary to put our economy back on a growth path.
Here’s the gist of his case. In the early 1900s, the US economy was largely farm and food-based. More than 20% of all American workers were employed on farms. But by the 1920s, farming was in the midst of a grand shift in food-growing technology. Stiglitz describes it this way:

“In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.”

That productivity revolution rocked American farming in the 1920s. As productivity went up, food prices went down. As food prices dropped, farmers mechanized further to increase crops, adding to the downward spiral of prices and income. By 1932, according to Stiglitz, typical farm worker income had dropped by anywhere from one-third to two-thirds. That caused a slump in demand for manufactured goods, so plants began to lay off workers. Income and demand dropped again. A shortfall of tax collections led to layoffs for state and local government workers. Each downward step fueled the next. By the end of 1932, 23% of the working population had no jobs. As government red ink mounted, deficit hawks of the day called for drastic spending cutbacks.

Doesn’t all of this sound a bit familiar? Stiglitz suggests that all we have to do is substitute manufacturing for agriculture, and we will see that the same patterns have been unfolding in our economy over last two decades. Productivity gains outrun demand and manufacturing jobs shrink. Outsourcing shrinks jobs even further. Increased competition for scarce jobs lowers pay. Lower incomes mean less consumer spending, which further depresses the economy.

In the 1930s, millions of farmers lost their jobs and their livelihood. Because of the dried-up Depression economy, they could not migrate to the industrial cities to find new jobs in manufacturing. They found themselves trapped in the small towns on the plains with nowhere to go.

Today, workers in US manufacturing find themselves similarly trapped, victims first of vast productivity increases and then of the shift of manufacturing jobs overseas. Like the depression-era farmers, many of them will never find significant employment again.

Most economists agree that it took World War II to pull America out of the Great Depression. In order to defeat Japan and Germany, America built a world class manufacturing economy on the fly. All this was paid for by deficit spending for the war effort. After the war ended, millions of soldiers came home and were given free educations so that they could take full part in the country’s booming economy. That, too, was paid for by the government.

Stiglitz argues that something akin to government wartime spending is needed once more to facilitate the shift to a post-industrial economy. Manufacturing employment has bottomed-out in the same way that farm employment bottomed-out 80 years ago. US manufacturing at its peak employed one out of every three workers. Today, that number is less than one out of ten.

Whether Stiglitz’s gloomiest predictions are accurate is not entirely the point. We have always looked to government to provide the “stimulus” needed to kick-start new technologies and new industries.

Given the current political climate in Washington, there is zero chance that the government will undertake what would amount to a Marshall Plan-scale of investment in the Post-Industrial economy. If we are going to allow our investment in solar technology to be “spooked” by one bad loan, for example, where will we find the courage to step up to what the future requires of us? Where will our new jobs come from, and how will we generate the R&D and capital investment needed to grow them?

We could look to corporate America, except that big business is already sitting on the largest accumulation of cash in history, and shows no signs of willingness to make investments that are not tied to short-term returns, or that entail higher risk. (The Wall Street Journal reported in September 2011 that American non-financial companies were “hoarding” more than $2 trillion in cash and other liquid assets. And that does not even include the extraordinary amount of cash piling up in overseas subsidiaries.)

Balanced budgets and payroll tax cuts have their place, but they hardly amount to a serious strategy to create the economy of the future. If we follow “Do-Nothing” economic policies, it shouldn’t be a big surprise if we end up with a “Do-Nothing” economy.

And yet, our lives are often filled with chance occurrences, fortuitous encounters, or unlucky twists of fate that heavily influence success or failure. This is not to denigrate the role of knowledge, experience, courage, and skill. Being lucky usually won’t bring success if you don’t have the other prerequisites. But the opposite is true more often than we think – lots of people may hold the prerequisites, but good fortune often chooses the winners.

Let me offer an example from my own life.

In 1972, I decided to run for political office in New York City. I was too naïve to realize just how crazy a decision that was. My opponent was a popular incumbent, well-known and well-respected in the community. He headed the established political club in the neighborhood, while mine was a virtual unknown. His campaign infrastructure was large; mine consisted of three other people and myself. If he had to, he could have outspent me many times over.

Professional politicians have a name for this kind of lopsided race: they call it a “suicide run.”

Fortune, however, smiled on me. Several weeks into the race, my opponent was nominated for a judgeship, and he immediately stepped down from the race. His successor was picked not for his political skills, but for his years of loyal service.

In the days before television advertising and high-priced direct mail campaigns, local campaigns could be won “in the streets,” as we used to say. I had a gift for street campaigning, and my opponent did not. I won by less than 100 votes out of almost 2500 cast.

Was I a good candidate? I was a great candidate. Did I outwork my opponent? You bet. Was our campaign smarter and more effective than theirs? It sure was. Could I have won without that judgeship? Not in a New York minute.

Though I did not fully realize it at the time – I was way too busy being full of myself – my political career was launched by pure chance.

How Chance Intervenes
Few things in life are chancier than being adopted. Steve Jobs was adopted and raised in Palo Alto, California – just about Ground Zero for the technology culture that so inspired him growing up. What if his adoptive parents were from Napa Valley instead of Silicon Valley? There would almost certainly never have been an Apple Computer. And it would have been left to someone besides Steve Jobs to transform both consumer technology and the way we run our lives.

In his book, Outliers, Malcolm Gladwell cites dozens of examples of how chance intervenes in startling ways that we rarely realize or talk about.

In the eighth grade, Gladwell writes, Bill Gates and some of his friends, through a special connection, were granted virtually unlimited online access to computers at the University of Washington campus. It was an astonishing gift, and the young Gates took full advantage. School for Gates became just a sideline. His real life was computer programming. That first piece of good fortune was followed by others – paid programming gigs, access to programming mentors, exposure to higher-level skills.

By the time he dropped out of Harvard to start Microsoft, Gates estimates that he had already accumulated more than 10,000 hours of programming experience. Here is how he explains his later success: “I had a better exposure to software development at a young age than I think anyone did in that period of time, and all because of an incredibly lucky series of events.”

The Role of Birthdays
What does it take to achieve success as a professional athlete? For some, it takes a fortunate date of birth. In hockey, as in most sports, kids begin competing in grammar school. Since kids compete with their classmates, being the oldest in the class rather than the youngest provides a huge competitive advantage. That head start multiplies over time. 40% of Canadian pro hockey players are born between January and March, which, in grammar school, makes them the oldest in their class. Only 10% are born from October through December, which makes them the youngest in their class. The oldest kids wound up with a 4:1 advantage over the youngest.

The same kind of age disparities show up on the academic side as well. Kids are fast-tracked in school the same way that they are on the sports field, and those early differences are just as hard to overcome.

One last story from Malcolm Gladwell’s book. This one is also about the role of birthdates in success. If we look carefully at a list of the 75 wealthiest people in history, from Cleopatra to the present day, 14 of the 75 – almost 20% of the list, were Americans born between 1831 and 1839.

As Gladwell explains it, they were of perfect age to take advantage of the biggest industrial expansion in American history during the 1860s and 1870s. The expansion birthed new industries – and new fortunes – in railroads, oil, banking, finance, steel, manufacturing, streetcars, meatpacking, etc.

Each of these titans was born in just the right decade. When the boom unfolded in front them, they were at their peak of their business prowess, and they made the most of their unprecedented opportunities.

If we believe in having a fair society, then we have to begin to account for the role of chance in people’s lives. Because of the extremes of wealth and poverty in America, we tend to over-reward success, and over-punish its lack. But the line between the two is sometimes very thin, and is often driven as much by chance as ability.

How about you, dear reader? If you have a story of how chance made a difference in your life, email me at the address below. If we get enough responses, we will do a follow-up story.

You can ask Art Pope, the CEO of Raleigh-based Variety Wholesalers. Last year, he and his family invested $240,000 in legislative races all over the state. Their favored candidates won enough races to win control of the State Legislature for the Republicans. It’s the first time that the Party has controlled both statehouses in North Carolina in more than 100 years.

Pope is one of a new breed of Oligarchs who choose to circumvent the democratic process and dictate public outcomes through sheer power, money, and will.

According to the Institute for Southern Studies (see their report at http://bit.ly/dn4VpZ), Pope and other family members in 2010 personally contributed $240,000 to Republican candidates in 22 highly-targeted races. Three “independent” political groups – Americans for Prosperity, Civitas Action, and Real Jobs NC – poured another $2,000,000 into the same races. ISS reports that all three are closely tied and significantly funded by either Art Pope personally, his family, the family business, or the family foundation.

Eighteen of these races were won by Republicans, and that tipped the balance of control in the legislature. Most Carolina political observers agree that it would never have happened without Art Pope’s money.

Though Pope is a conservative Republican, the Oligarch movement spans the ideological spectrum. It includes such stars as Grover “No New Taxes” Norquist in politics, and Bill Gates in Charter School education.

Norquist is the “Doctor No” of the Tax Movement. His national influence has been building for years, thanks to his campaign to get Republican candidates to sign his “no new taxes” pledge. That communal pledge was the number one reason why the Congressional Budget Super-committee struck out on a deal to reduce the country’s debt by some 4 trillion dollars.

The committee’s most prominent proposals included a mix of large spending cuts, the elimination of tax loopholes, and modest increases in taxes on the wealthiest Americans. Polls show that a significant majority of Americans favor these tax changes. Plans with tax increases as well as spending reductions had wide support among economists and budget experts, and broad bi-partisan support outside Congress.

None of that mattered. Even though most economists think it is insane public policy to prohibit all tax increases under all circumstances, Norquist’s “No-Tax-Increases-Ever” policy prevailed. The net effect is to continue the Washington stalemate and further diminish the reputation of the government.

Norquist, in the meantime, just keeps smiling. Though never elected to anything, he nevertheless wields enough power to impose his own vision of taxation on three hundred million of his fellow Americans.

The Other End of the Spectrum
At the other end of the Oligarch spectrum is Bill Gates, founder of Microsoft. A recent New York Times article called Gates one of the “Policy-Making Billionaires” who have shifted their focus from donating to charities to “pouring billions” into advocacy.

According to the Times story, the Gates Foundation has been investing heavily in support for more charter schools. As one example, charter school supporters lobbied for changes to the “Race to the Top” education program. As a result, states that participate can no longer limit the expansion of charter schools.

Whether you oppose or favor charter schools in not the issue here. This kind of big money influence takes decision-making power out of the hands of parents and the local school community. It transfers that power to people with deep pockets and a particular policy axe to grind.

Charter School fans of course welcome the Gates help. But others see it as an undemocratic intrusion. Education scholar Diane Ravitch criticizes the charter advocates as a “billionaire boys’ club.”  She warns that they exert enormous influence over education policy with little accountability.

The same Times article quotes Richard L. Brodsky, a former New York State lawmaker: “It’s sort of influence-peddling writ large. The notion that the society is better served by the super-rich exercising their charitable instincts is in the end anti-democratic.”

Government of the Few
The Oligarchs rightly recognize that government is sinking into a partisan swamp of stalemate and inaction. That breeds unrest among the voters, and distrust of government at every level.

There is a dangerous vacuum building between what we expect from government and what it delivers. These oligarchs and others like them are poised to step into the breech and create change that the political system can’t or won’t produce.

Thanks to the new oligarchs, we are moving backward toward government of the few rather than forward to better government by and for the many.

One of the 20^th Century’s most influential economists, Milton Friedman, spent a lifetime advocating that business has no legitimate goal except the pursuit of ever-greater profits. Should we be guided solely by self-interest or even greed in the pursuit of our economic lives?

It’s not just an idle question. It goes to the heart of public policy questions about accumulation of wealth, progressive taxation, corporate social responsibility, and social safety nets.

The fundamental free market belief is that everyone is driven, or ought to be driven solely by self-interest. If we buy that belief, then it’s only a small leap to the next one, which says that the only true goal of business is the maximization of profit. But maximizing profit also means maximizing individual income and wealth. And that pretty much brings us to where we are today, where 20% of the population owns 85% of everything worth owning in America.

What becomes of fairness and justice in a world driven by self-interest?

There’s a new field of economic study called Behavioral Economics, and it was created to answer these kinds of questions – not by listening to what we say, but by looking at what we do.

The Ultimatum Game
A famous study from Behavioral Economics – called the Ultimatum Game ­– casts an interesting light on the idea that we are driven solely by self-interest. It also hints at the reasons behind our current culture wars against the wealthy.

Here’s how the Game works. Two people are approached with an offer to split a significant sum of money. There are a couple of conditions. One person will make an offer to the other about how the money will be divided. The other person either accepts or rejects. If the second person says no, the deal is gone for good – no negotiations, no discussions, no do-overs.

Classical economic theory proposes that we always rationally pursue our self-interest. Therefore, if we hold position number two, we should accept any split above zero dollars. After all, any amount of new money in our pocket leaves us better off than we were before.

But that isn’t what happens in practice. When the split for person two drops to $30 or less, the offer is almost always refused. This experiment has been run dozens of times in different circumstances, but the results are virtually the same. People would rather turn down money than accept a deal that isn’t fair.

The British consultant and lecturer James Thirtle expresses it this way: “Fairness allows societies to exist …we still feel very strongly when another individual is treating us unfairly, and will act in a way designed to demotivate that behavior – even if it costs us personally.  It’s necessary because ensuring others act fairly is necessary to keep society functioning and that society is much more important in the long term than the short term loss of some money.”

We Crave Fairness
So, we seek economic fairness – economic justice – as avidly as we cherish the liberty to pursue our own interests.

Liberty and Justice – we crave them both. It’s why our Founding Fathers and Mothers saw fit to pair up two virtues so opposite in intent. We hold them in our mind as one, Liberty and Justice, barely mindful that each of the virtues is the other’s opposing twin. Liberty and justice dance together in uneasy partnership. Each wants to follow its own urges, but each is necessarily limited by the other.

Entrepreneurial freedom – the opportunity to be all that you can be and get all that you can get – is embedded deeply in the American Myth and in the national psyche. But so too is its opposite twin – the idea that all citizens are entitled to some fair share of the national wealth. And the cry out for fairness is not simply a wayward impulse towards socialism, as its detractors like to think.  It is instead a cry for balance that is deeply rooted in ethical, moral and social principles.

Most of us would agree, for example, that allowing a few people to accumulate too much power or too much money usually results in less freedom for all. That was so obviously the case, for example, in the recent sub-prime mortgage scandal. The lure of quick bucks at every juncture of the mortgage business nearly sank the entire banking system. And, when the whole mess finally imploded, it dried up credit all around the world. Everyone who depends on credit got hammered as a result.

The Mystery Grist
To repeat Thirtle’s point, fairness is a fundamental principle for a civil society. We drum it into our children again and again, in words that echo from every play space and playground: “If you aren’t willing to share, then you don’t get to play.”

This clash of opposites is the mystery grist for the human mill. We each carry the seeds of greed and generosity, self-interest and self-effacement, darkness and light, guns and roses, war and peace, saints and sinners, Ma Barker and Mother Teresa. Each of us is a part of it all, and a part of each other as well.

Life seems best lived in an uneasy balance of opposites. Freedom and fairness – we’re wired for both.

After 30 years of working in wood, Boggs is recognized as a premier designer and crafter of custom-built tables and chairs. Now he has his eyes on a bigger prize. He has set out to create a new kind of business structure that not only makes his own business better, but also provides a sturdier business umbrella for other independent woodworkers. He calls it the Boggs Collective.

A couple of years ago, Brian found a perfect partner for this venture. Melanie Moeller is an organizational consultant whose practice centers around organizational design and culture change. Though they started with a mutual romantic interest, they soon discovered that their very different skill sets also converged perfectly around a common vision for the Collective. They have been together and at it ever since. (For those who love serendipity stories, they met on Match.com.)

An Industry Challenge
The challenge for the woodworking industry, as Boggs sees it, is a problem of scale. “It’s hard for a woodcrafter to make a living and build a business as a solo practitioner. The economics simply don’t work for most people.” says Boggs. “The real satisfaction for artists and crafts people comes from being able to design and create original work. But, even though hand-crafted furniture can seem expensive, the price for custom pieces barely supports the necessary design effort and production work. For most solo woodworkers, there is little time or money left over for outreach, marketing, improving their craft, or upgrading their facilities. And, while doing reproductions of their pieces hones their skills and is better for them economically, many woodworkers would prefer the joy and creative challenge of designing something new instead.”

This is not unlike the scale problem that single parents face. With only one parent available, it is hard to find the time to meet all of the needs of the family. So some things always go undone. The same is true of most craftspeople and their businesses.

The obvious solution, both Moeller and Boggs say, is to create a shared environment that increases the scale, spreads overhead costs, and builds business and production efficiencies.

A Four Pillar Approach
Melanie Moeller explains how it works: “The Collective has what we call the Four Pillars. The first is the procurement of logs and bark, the raw materials of the Collective. The other side of this is that we can guarantee a steady market for loggers and wood harvesters, and support them in sustainable wood practices.

“The second is the Co-op Shop, where woodworkers rent shared space, and get access to top-notch equipment and facilities, and ready access to wood.

“The third pillar is the Collective as a School. Brian has a deep commitment to passing on the wisdom he has gleaned from working with wood. Students at the Collective range from weekend hobbyists to those who are considering woodworking as a career. The School also helps us build our base of followers, discover new talent, and diversify our income stream.

“And finally, the last Pillar is Marketing. It is much more efficient from a marketing standpoint to have each of the designers contribute to a shared body of work. Instead of each designer having only a small budget of time and money to promote their work, we can have a much larger budget and focus on the promotion and marketing of an entire Gallery of work.”

It’s not hard to see the power of their collective model, or the extent to which the whole is going to be significantly greater than its parts. Their enthusiasm is infectious, and it prompts Brian to sum up the meaning of what they are trying to do: “The Collective model supports multiple levels of craftsmanship, and more efficient use of the best materials and finishes. It allows us to raise our bar around sustainability. And it supports everyone’s desire to spend more time being creative.”

Challenges Ahead
When asked about the challenges ahead of them, Melanie is quick to jump in: “There’s only two big ones left. Cash to build out our infrastructure, and building the Dream Team.”

The Dream Team translates to finding and enlisting superb craftspeople who “fit the culture, hit the efficiencies, hold the tolerances.” With regard to funding, they face the same dilemma as most start-ups. The big expenses are up front, and the income to pay for them comes later. But with Brian’s three decades of experience and success behind them, they believe that they know this business and this market. That’s why their business plan includes efficiencies and profit drivers that most craft businesses can’t begin to approach. They feel confident that funding will emerge – perhaps drawn as much by the elegance of their vision as by its real promise of business success.

In some other era, a couple with this level of imagination and entrepreneurial flair would have been out there building a business empire, with one eye on being the biggest and the best, and the other on a growing pile of personal wealth.

But there is a different value system that is starting to drift in from the edges of the business community. Brian and Melanie are very aware that this is a particularly propitious moment to launch a new model that is grounded in those values. So it is not surprising that their conversation about the Collective is dotted with talk of sharing, stewardship, sustainability, collaboration, community, and the power of collective wisdom.

For all that, they are as driven to succeed as any other entrepreneurs you will meet. It’s just that their definition of success includes not just themselves but a whole community of woodworkers, some of whom already call the Collective home, and others who will do so in the future.

If Carlyle were here today, he might observe that nothing much has changed. We are still plagued by mistaken beliefs that are passed along to us as something akin to gospel truths.

One of the zanier ones has popped up again. It goes something like this: it’s really good that rich people have lots of disposable income, because it is their investment and spending that creates all those jobs for the rest of us.

Of course, that is spectacularly untrue, but that does not stop its proponents from trotting it out, especially when there is talk of more taxes for the wealthy.

Talking About Investing

So, let’s talk first about “investing.”

For most Americans, “investing” is shorthand for their portfolios of stocks and a few bonds. And it is true that Americans are inveterate investors. Last year, the NY Stock Exchange reported that trading volume in stocks reached 17 trillion dollars. Since the wealthiest 20% of the American population now own about 85% of our financial wealth, we can be pretty certain that most of that investing was not being done by poor people or the middle class.

Of course, almost none of that “investment” found its way into the hands of businesses so that they might actually create jobs. Consider that if I buy 1000 shares of IBM, somebody besides IBM is selling me those shares, and the proceeds make their way to that seller’s account, and not to IBM’s.

Well, you might ask, what about Initial Public Offerings (IPOs)? Don’t they benefit the companies that issue the IPO stock? Yes indeed. But IPOs represent only the tiniest fraction of activity on the NY Stock Exchange. In 2010, IPOs were just $39 billion, or about 1/4 of 1% of the exchange’s total stock volume.

Well, how about secondary offerings in which companies sell additional stock to the public? In 2010, according to the Quarterly Research Institute, total secondary offerings amounted to $186 billion. If you add IPO totals to the secondary totals, you still only get to about 1% of total stock volume. And even if we add in all the venture capital invested in 2010, it only adds another $21.8 billion.

The net result is that only a miniscule amount of the money that gets counted as “investments” actually winds up in the hands of companies who can create jobs. The rest of it is just pure stock market speculation.

So much for the rich “investing in business and jobs.” The real investment heroes in America are the entrepreneurs themselves, their friends and family who often put up “seed” capital, and the angel investors and venture capitalists who help promising startups get to takeoff speed.

What About Spending?

According to Moody Analytics, the top 5% of Americans (as sorted by wealth) have high incomes and a net worth of at least $5 million. They are the super-rich in America, and they account for 37% of all consumer spending. (The bottom 80% of Americans account for about 39% of consumer spending.)

So, if we want to consider the proposition that the rich through their spending create lots of jobs for the rest of us, we should probably look at how they spend their money.

In February, 2011, USA Today ran a story entitled “For the Wealthy, a return to luxury spending.”  The story reports that, after a slump in sales because of the last recession, sales of luxury goods are quickly rising again.

Porsche’s U.S. sales in 2010 were up 29% over 2009; Cadillac‘s climbed 36%. Rolls-Royce sales increased 171%. To celebrate the sales surge, Porsche announced a new model, the 918 Spyder. It’s a hybrid, and it costs more than $600,000, but think of all the money you will save on gas.

In the meantime, according to USA Today, vacation home sales in Cape Cod, Mass., rose 9% in 2010 from the year before. In Hilton Head, S.C., sales were up nearly 14%. Palm Beach, Fla., home sales were up nearly 40%.

A Swiss watchmaker introduced “the lightest watch in the world,” a sleek beauty that weighs less than ¾ of an ounce. What’s the price tag, you ask? Well, you know the old saying that if you have to ask, you probably can’t afford it – the RM 027 Tourbillion goes for just a tad over half-a-million bucks. They immediately booked over 100 orders.

Fine arts is on fire at Sothebys and Christie’s, where last Fall’s auctions were up more than 100% from the year before. Auto website Edmunds.com reported that in 2010, more than 32,000 people bought new cars for more than $100,000 apiece.

The list goes on and on, but you get the idea. You aren’t going to find a lot of new jobs for folks in Candler, NC or Knoxville, TN on the backs of $500,000 watch sales, half-million dollar art purchases, $60 million Grumman Gulfstreams, or $2500 Bottega Veneta cocktail dresses. Just picture how few people it takes to produce and sell fifty million dollars worth of watches if you can sell them at $500,000 a pop.

In the luxury marketplace, people aren’t buying goods alone, but status. In some cases, notably in art and real estate, it’s also another form of investment. The profits go mostly to luxury entrepreneurs, dealers, and agents who, if successful, become part of the luxury class themselves.

In short, putting scads of money into the hands of the rich is a terrible economic idea, except for the wealthy and their wannabes. So, the next time someone suggests that we ought to be grateful to the rich for investing in the economy, and in all that job-creation, let’s ponder – with Thomas Carlyle – just how “dismal” an idea that really is.