Friday, April 04, 2014

Untangling the Wealth (Income) Puzzle

Twice this week, I've heard versions of the same story.  Paraphrasing:
--I look at my investment accounts and I can't believe what a lot of money I've got; and
--I'll never be able to retire.
Say what?  Does this compute?  I think it may; I'm not sure I can do it but I'm game to try.

One: I always like to start with Heidi Fleiss (remember her?) telling Larry King (remember him?) --"Oh Larry, you have no idea how many really rich people there are."  Well she's right.  Well maybe not about Larry but most of us don't seem to know how many rich people there are--at least in the sense that most of us consistently underrate the real imbalance of wealth in the nation (or the world), so much held by so few.

But two, what kind of income does it take to make into "the ten percent" in the US today? Kiplinger pegs it at $120,000 (taxable adjusted gross income, this must be family, not individual).  For readers of this blog, comparing to all those stories of great wealth, I suspect $120k doesn't sound like all that much.  Yet remarkably. for a lot of them, it probably describes most of the people they know.  A professor and a lawyer.  A dental hygienist and a cop.  Hell, a doctor and a mailman (we meet one such couple, just a few years ago).  These folks may (or may not) think they are doing okay but they certainly don't think that they (or their friends) are among the "wealthy."

So, what's going on here?  Let me toss out a number of possibilities (and BTW, none of these points are original with me; they all come stuff we've all been reading lately--I'm just too lazy to footnote).

One  is, I suppose, the simple distinction between "income" and "wealth."  A couple of things about wealth: one, it's harder to measure--harder to value, easier to hide. And two, wealth disparities are virtually always greater than income disparities" the "bottom 50 percent" may lead lives of squalor and desperation but at least they have some income: of wealth, they have almost none (but what abut land-poor farmers?--ed.).

Two: it is just now beginning to sink into his how long the tail is on the wealth distribution--on the upside.  It's not the 10 percent; it's not even the one percent, it is the one tenth or even one hundredth of one percent, the crowd you could pack into a single conference room at Davos, who have been really racking up  the really obscene impressive gains. As Heidi might say, you have no idea, except maybe slowly it is sinking in.

Three, back to us ten per centers: maybe we don't live like lords but we kind of think we ought to be able to.  Ski vacations in the Pyrenees, weddings on the Great Wall.  Isn't that what being wealthy is all about?  And isn't that supposed to be us?

Three and a half, a sub point about living well: we worry about pensions, but I think the plain fact is that it has never sunk in on most of us just how costly a good pension really is.  Suppose you retire and went to collect $50k a year (chump change!) for 20 years.  At zero interest rates, that's a million bucks.  And how much will it take us to save that over 40 years?  Divide that million by 40 and you get $25k, and good luck in piling that on alongside the student loan debts, the mortgage and, oh yes, the ski vacation.  Those numbers are not new, of course; my point is that they've been mostly concealed from us by the way we financed (or failed to finance) our pension benefits.  Most of them came (or were supposed  to come) from employer-sponsored plans, so structured that we never really understood the true cost (of course, I should factor in the fact that most of those "promisors" never intended to keep their promises anyway).

Four: as others have noted, maybe the recession ended, but we didn't get the memo.  Maybe we used to be ten percent but one or both lost jobs and we're now teetering on the edge of long-term unemployment. If this is recovery, maybe recession itself doesn't look all that bad.

Finally, a tip-o'-the hat to Chris Hedges Hayes, who wrote what remains one of the most insightful books I read in the last year.  Paraphrasing (and perhaps distorting) Hedges, I'd venture that we all live in a world where, even if we are not actually more insecure, still we feel more insecure: things may be going okay at the moment but there's an invisible blackbird on our left shoulder whispering "remember thou must die."  That phenom provides  least raw existential angst, but we can also monetize it: one of the reasons we spend so much money is that we feel we have to shore up the castle walls for our children, and build the moment, and feed the alligators.  But the line down at the alligator food supply store seems longer every day.

Whew, how depressing.  Meanwhile, I hear the angel of death is in town, and that he has been asking after me.  I think I'll light out to Samarra for a while.

Update:  Then there's this.

Update: So, you think $120k is hard?  What do you think is going on with the other 90 percent? 


The New York Crank said...

The cause of this perceived poverty among the pretty-darn-comfortable is that there was a time when having a million dollars meant you were a millionaire. Now all it means is, you have a million dollars – or roughly the price of a one bedroom apartment in a so-so neighborhood in Manhattan.

There was also a time when two bucks bought you a decent dinner. What every economist ignores is Crank's Law: Prices rise to meet the money available to pay for things.

Why don't I have a Nobel Prie for economics?

Yours crankily,
The New York Crank

Buce said...

Or as IO was heard to say on the couch in the office of the old Antioch Record: what this country needs is a food five-cent fuck. Adjust for inflation and I suppose that comes in at around a dollar today

brad said...

I thought lighting out for Samarra was exactly what you were not supposed to do?

Buce said...

Heh. I should put my ironies in special colored ink. Perhaps puce.

What color is puce, anyway?