Expert View: What's money got to do with need?

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If you are doing business in America this year, I have two tips: aim upmarket and wear a good pair of socks.

If you are doing business in America this year, I have two tips: aim upmarket and wear a good pair of socks. In the two- hour wait to clear US security last week, it became obvious that al-Qa'ida is winning the war on terrorism. In the current climate of fear, passengers have to put their shoes on the conveyer, leaving them padding round. There is little evidence of economic discontent, but well-heeled Americans are asking: "Can you recall a time when the terrorist threat has ever been as great?"

Well yes. Like everything else, it may be that terrorism has gone global, from New York to Moscow, with Kenya and Bali thrown in. But actually we have seen this before. In the years leading up to the First World War there was a very similar global terrorist threat. We had bombs in Madrid, shootings in Brussels, assassinations in Italy. Russia got it worst of all: barely a month went by without attempts on ministers or royals. Reading newspapers of the day, fear was all-pervasive. But from a financial point of view, this didn't seem to matter one jot. Although the elite felt the need to hunker down, world markets and economies enjoyed unparalleled prosperity in that pre-war period. They simply got on with it.

This would be a good history lesson for President Bush. He's certainly worried about terrorists and their effect on Wall Street, and his initiative of ending the "double taxation" of dividends may help market confidence short term. But is it necessary? Whether it will help the economy or not is open to debate. The rich are the ones who will benefit from this measure, and they tend not to spend tax gains (the last US study indicated top earners saved 80 per cent of tax cuts). Indeed, the rich really don't need a tax cut.

The richest 5 per cent of US families now have annual incomes of $254,840 (around £155,000), against $149,150 (inflation adjusted) in 1973. By contrast, the incomes of the poorest 20 per cent have barely risen over that period. They "enjoy" $13,320 now versus $13,240 then. Worse still are the very top earners: there are now 13,000 individuals who have a post-tax income over $3.6m.

To understand how this has come about, you have only to study recent evidence of corporate excess. In September last year, a survey showed how the proliferation of stock options had led to an explosion in top executive remuneration and inequality. In large companies, CEOs earned 531 times the amount of their average employee, compared to 42 times in 1980.

This column has never been a great fan of GE's Jack Welch, and so took an interest in the various perks unearthed in his recent divorce hearings. The use for life of a luxury Manhattan apartment and his own access to a private jet might be considered generous for a retired worker in a company whose share price has fallen dramatically.

Have we ever seen such subsidised excess? Well yes – if you go back again to that embattled pre-war elite. The CEOs are the robber barons and the Grand Dukes of our age. Interestingly, the gilded mansions of Palm Beach and the Hamptons are enjoying a revival at present, and the percentage employed in domestic service is back at 1910 levels.

The economic and financial boom in the past 20 years has led to extraordinary social change. Some commentators have likened this loose financial environment to the Sixties revolution in permissive behaviour. The gainers from this change, however, have been very narrowly concentrated. Why is there not more political opposition to this inequality? One poll maybe shows why: 19% of Americans mistakenly think what they earn puts them in the top 1 per cent, and another 20 per cent believe they will get into that elite one day.

It seems you can fool a lot of the people, all of the time.