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Jared Bernstein Headshot

Why McCain's Wealth Matters

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So McCain is rich. Or, his wife is rich, and that makes him rich too. Wasn't there some movie where Dudley Moore was engaged to a women with megabucks, and he kept getting drunk and introducing her to people as my 'financier' (instead of fiancée)?

For all the ink spilled over this last week, two related issues were under-explored, the latter of which is especially important: what's 'rich,' and why does it matter? What does McCain's wealth, and the way he talks about it, reveal about his ability to be a successful president?

On the first point--what means 'rich'?--there's no simple answer, no line in the economic sand that divides the rich from the rest. I'll get to the income data in a second, but they're only of marginal help here.

For one, there's tremendous geographical variation. If your family income is $100,000 in a rural area of a low-income state, you're well off. That income in Manhattan arguably puts you in the middle-class.

This example also suggests that there's a relative component to "rich." To be rich means you breath the rarified air in the upper reaches of the income scale. In a series of recent revealing remarks, McCain said he thought an income of $5 million made you rich. There's no doubt that's true, but if that's your income cutoff, almost nobody's rich.

The often-cited work of income analysts Piketty and Saez (see Table 0) reveals that admission to the top 1% of the income scale will run you a cool $375,000. Too many common folk there for your taste? Then you'll need about $600K to move up to the top half of the top 1% (i.e., the top 0.5%).

What's that? You want to roll with some serious money? It'll cost you $2 million to break into the top 0.1% (the top tenth of the top percent), and $10.5 million for the top 0.01% -- the top one-hundredth of the top one percent, average income: $30 million.

So yes, Cindy's $100 million in wealth, inherited from her family business, puts the McCain family solidly up there in the narrowest sliver of the richest of the rich. But numbers like these only give you an upper bound. Certainly, there are more rich people in America than those who reside in the 15,000 households of the top 0.01%.

My research on income class has led me to take a less quantitative approach to the question of who's middle class, rich, poor, etc. I think it has much to do with your choices and your access to opportunities.

Rich people's choices are generally not constrained by lack of income (boy, that sounds really obvious, but read on). Years ago when I worked with poor clients in New York City, I remember someone telling me they thought about cost before making a long-distance phone call.

Move up the "choices chain" and you get the picture. Middle class people tend not to think twice about a phone call, but a baby sitter, dinner, and a movie, is not a slam dunk right now, what with prices up and incomes down. And speaking of the price of transportation, vacations don't become "stay-cations" for rich people. Their choice set isn't constrained that way.

These choices may sound kind of trivial, but of course, there are real life-changing opportunities at stake here. One of my favorite -- well, least favorite, really -- factoids to make this point has to do with access to higher education. Once you control for cognitive ability, high-testing, low-income kids have the same (low) college completion rates as low-testing high-income kids. We do not, my fellow HuffPosters, reside in a meritocracy.

(If I may shamelessly tout my own work with colleagues at EPI, please read our forthcoming chapter on income mobility from the new State of Working America, out Labor Day -- though I'll see if I can get the mobility chapter posted here ASAP. It's a tour through this critical question of how challenging it is for people to get ahead given the mobility barriers they face these days. To us, this strikes at the heart of a basic American economic value. We may not believe in equal outcomes in this country, but we sure believe in equal opportunities. And the data on inequality and mobility suggest this basic value is under siege.)

Oh, and yes, if you don't know how many homes you own, you're definitely rich. (When I told my sister about this McCain gaffe last week, she responded: "Well, I don't know how many pairs of shoes I own." See...it's all relative.)

Which brings us to he who would be president. I understand and appreciate the urgency in campaigns to frame your opponent. In this case, the Obama team jumped quickly and effectively on these gaffes to paint McCain as elite and out-of-touch. But beyond the campaign politics, what do these statements, and more pointedly, his wealth, say about McCain as president?

After all, FDR was rich, and his empathy and energy devoted to helping the have-nots was boundless. Lots of politicians who came from humbler backgrounds but ended up rich, like Bill Clinton, John Edwards, or for that matter, Barack Obama, also built a policy agenda to offset the status quo regarding inequality and opportunity. Is it simply that rich Democrats get this in a way rich Republicans don't?

Perhaps so, though I'm sure there's lots of exceptions. Problem is, I don't think McCain is one of them. It is important to view his comments in the context of his agenda, which is as unempathic as his gaffes. As I pointed out last week (see Figure 1 here), his tax plan delivers by far the biggest boost to the average incomes of the richest households; Obama's plan does the opposite. McCain really does double-down on Bushonomics, which takes the inequities inherent in today's market outcomes, and injects them with a dose of steroids.

From this perspective, the problem isn't that he's rich. It's that his wealth is part of a package that strongly suggests he can't relate to the economic struggles faced by so many people from households that don't reside in the top "fractiles" of the income distribution. And if you can't relate, you're much less likely to craft and move a policy agenda that will help, a shortcoming we've seen much too much of in recent years.

This whole dust up reminded me of a CNBC spot I was on with Phil Gramm when he was still McCain's top economic advisor. He was going on about the supply-side, trickle-down nonsense that fits ever so neatly into these guys view of wealth. Arguing his case, Gramm said something like, "I've never been offered a job by a poor person. Have you?"

If government helps rich people, so goes this mythology, they'll unleash a torrent of economic activity that they're sitting on now because tax rates are too high. Cut the regulations that bind them, the taxes that squelch their incentives, and they'll not just lift their own economic fates, but those of the least advantaged as well.

The evidence, of course, points precisely in the opposite direction, but, and here's the kicker, these folks are impenetrable to evidence, and I fear their privileged positions make them so. Their wealth insulates them from reality in a way that you don't see from the other rich folk noted above.

It's not just that McCain can't relate to have nots, it's that he doesn't really want to. He wants to pull the levers that Phil Gramm and others tell him work best, and since he doesn't relate to folks who know very well how many homes they own -- though they may be uncertain whether they'll own them next month -- he lacks the motivation to question whether these levers actually work.

I don't care how much money our president has (though the seven homes thing really does seem beyond the pale given today's housing climate). But I deeply want him or her to understand the economic plight of those with less, and the evidence regarding the policies allegedly designed to help. When their wealth operates like empathy-killing blinders, then that wealth is a problem...a big one.

To listen to McCain last week, and to do so while poring over his policy agenda, really does suggest the dangerous degree to which he's out-of-touch. The Obama folks are right. We'd better work to keep him out of yet another house: the white one on Pennsylvania Ave.

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