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? 

Saving Detroit: A Proposal

If you're standing near a microphone, you'd better get out of the way or be trampled by the mad stampede of public figures rushing to tell the world that, no,  not never, no way will we gave any money to bail out Detroit. 

Okay, but here's a suggestion.  Give 'em the White Sands Missile Testing facility.  Or the Los Alamos Nuclear lab.  Or any other of the array of goodies that flow from the Federal coffers to New Mexico, making New Mexico the biggest net importer of Federal dollars--a taker instead of a maker, as we might say.  Or if you prefer, any of the other 30-odd states who hold membership in the moocher club.  The list includes every single one of the old Confederate states except Georgia (which at least for a while used to pretend it was not rebel territory anyway).  It also includes a veritable who's who of the Republican leadership: Alaska, Utah, Kentucky, Alabama,, Oklahoma (Oklahoma?) and so forth: nothing like Senatorial power, I suppose, to keep the sluice gates open.

This is, of course, nothing new.  It's in the nature of nationhood that the rich parts support the poor parts--just ask the Liga Nord in Italy, or any German who lived through the shower of Deutschmarks that welcomed East Germany home to ein volk.  In the  United States, we generally do it in two ways: one by "federalizing" wealth transfers which in the nature of things flow from one part of the geography to another.  And the other, by doling out military resources: they used to say that Mendel Rivers' South Carolina had so much military hardware it risked sliding back into the Atlantic Ocean (to join, I suppose, the pirate ecology from whence it arose).

Of course, this may be precisely Grover Norquist's point.  It's a crime against nature for  Delaware to feed New Mexico, just as, I suppose, it is an offense for St. Louis to feed East St. Louis, or for Manhattan to feed--well, anybody above the top of Central Park.  Come to think of it, as I walk around my own neighborhood, I'd say the folks over past Sixth Street are looking a little grabby themselves.

Meanwhile, although we don't have separate rankings for cities, I see that the State of Michigan stands fairly high on the "makers" side of the equation--eighth out of the fifty, just ahead of Nebraska.  Even if we aren't going to bail out Detroit, how about smoothing down the distribution, so Michigan gets to keep some of the money they now send to, say, Maine or Maryland, and keep it for the homies?

Wealth Watch: the Art Market

I'm sure this is not original with me, but I'll repeat it: one reason for the high end art market is that it is so hard for the truly obscenely rich to find things they can buy not available to the ordinarily prosperous.  Charles Saatchi and I can each buy a spanking new Toyota Camry, maybe even a Lexus.  Charles Saatchi can buy a formaldehyde shark and Nigella Lawson; not I.  Now this:

More than $70 million for Rothko’s “White Center” in 2007, a high-water mark for that artist.

More than $20 million later that year for a Damien Hirst pill cabinet, then a record for a living artist.

And $250 million for Cézanne’s “Card Players” in 2011, the highest known price ever paid for a painting.

Given the secrecy of the art market, few knew at the time who had laid out such unprecedented sums.

But it has become increasingly clear that those masterpieces and many more have been purchased by Qatar, a tiny Persian Gulf country with enormous wealth and cultural ambitions to match: it is buying art at a level never seen before.

The times keeps going on about "Qatar" as the buyer but I think the real focus should be on 30-year-old Sheika al Mayassa bint Hamad bin Khalifa al-Thani, whose name translates as "Richie Rich."  “Art becomes a very important part of our national identity," she (sic) said in a TED talk a while back.

In other news, from last week's Economist:

Qatar, with one of the world’s highest GDPs per person, scored lower than impoverished Albania in reading, science and maths in the OECD’s PISA study in 2009.

The Economist does add: 

Almost everywhere else [in the world] boys and girls did more or less equally well (on standardized tests), but in Arab countries girls outperformed their pampered male siblings by huge margins, and most Arab countries have more female than male university students. 

 No word yet on whether the Sheika will be making a bid on Nigella Lawson. 

Well, That's All Right, Then

As Ludwig von Mises wrote to Ayn Rand: “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you.”

 H/T Corey Robin; also for a dynamite meditation on an old Underbelly favorite--the multiple and conflicting reasons for wanting to have money--go here.

Re Luddie's point--I used to puzzle over that issue during my smoke breaks from my job as a dishwasher at Avis Baroody's Howard Johnson in The Weirs Beach, NH.  Nice to have it straightened out.

An Assignment for Somebody: Wal-Mart Wages

Here's a job for which I am too old and sick and stupid and tired and lazy to do myself.  But it  society shouldn't be too hard.

Background: I've been boning up a bit on a particular notion of economics, once in fairly wide currency, now mostly unfashionable (excepting possibly Joseph Stiglitz).  That is: the idea that "spreading the wealth"--union wages, just better wages--might make the whole society richer in that you provide money to the people who will spend it.  Yes, it is akin to the current kerfuffle over Keynesian pump-priming: whether you can ever make the world richer by taking the money out of the hands of one and put it into another.  But I'm thinking of a a slightly different spin: the idea that the boss might  make make himself richer by raising the worker's pay insofar as it churns more money through the whole community.

It is a view exemplified, I think, by Henry Ford when he undertook to pay workers $5 a day so as to raise the general wage level and sell more Model Ts.  Reading Michael Lind,  I infer that it was, if not widely popular, still part of the common parlance in the 20s. Surprising how completely it has vanished from public discourse lately.

But here's my assignment for somebody.  Estimate Wal-Mart's payroll.  Multiply it by 1.5--i.e., give everybody a 50 percent raise.  Go to the P&L and adjust  bottom-line net income accordingly.  I.e., in terms of that holy of holies, "shareholder value," how much would it cost?  My guess is "not a lot," but if so, try it with 1.2--a 20 percent increase. Or just for fun, try 2--double the wages.  

For extra credit, identify a representative member of the class of Wal-Mart trust fund babies--i.e., the ones on the Forbes billionaire list.  Identifying (or estimating) their current shareholdings, estimate how many Mercedes they would be deprived of if the proposed innovation were put into effect.  My guess is: not a lot.  But if you come up with an answer, tell me and I'll blog it.

Wish I'd Written It: Salmon/Lewis on the Plutocracy

Best thing I've read all day, except why does he call it an American plutocracy? Seems to me the point is that it is a deracinated global, perhaps galactic, plutocracy.  The "American" wrinkle is that the plutocrats seem still to care enough about the American system that they actually feel the need to corrupt it.

Measuring GDP Since the Meltdown: How Can we Lose what we Didn't Have?

Fascinating data here on what has happened to per capita GDP since the end of 2007.  China is, of course, up--a nosebleeding  35 percent; India, 22 percent.  Of the G7, Germany just about breaks even.  US, Britain, Japan, are all down in the 4-5-6 percent negative range.   Plot it by a pre-break 10-year trend line and things are, of course, much worse: US down by 10 percent, poor Ireland, 25 percent.

Yes, well, fine, but--wait a minute.  We now--we knew then but we pretended we did not know--that a lot of that pre-break GDP was just smoke and mirrors.  Saying we're 4 percent down from peak GDP--isn't that a little like saying we lost a million bucks with Bernie Madoff?  Fact is, we never had a milion bucks with Bernie Madoff, and we never had all that GDP either.  For a fascinating discussion of these issues, go here.

And the Second Prize Goes To...

Okay, wiseguys: if I asked you who was the richest man in the United States in 1970* 1870, you might well say "Cornelius Vanderbilt"--and by all that I know, that would be correct.   But after Vanderbilt, who was the second richest?  No Googling, now--but I've got you there, haven't I?

I just picked up a plausible answer, reading TJ Stiles' First Tycoon. I admit I had never heard of the guy.  For a quick summary, go here.
--
*Thanks, Ken.

The Singapore Millionaires

I'm a couple of days late on the story about how 15 percent of all Singaporeans are millionaires. A quick skim suggests that just about everything that might have been blogged has been blogged on the topic. Still, I yield to the temptation to serve as an aggregator/polisher of what has gone before.

For starters: the press report I quote says, more precisely, that "over 15 percent of all households in Singapore have over a million dollars in assets under management." Sic, households? It is perhaps not so surprising that a "household" of (say) two full-time employed investment bankers has tucked away more than a million? And sic, "assets under management," so we are excluding personal residences?

Second point: we're all millionaires now. Okay, not all. But if you present-value the likely payment streams from Medicare, Social Security, various other pension sources, an an awful lot of UB readers would have balance sheet assets somewhat north of a million (MR has a good thread on this).

Three: a million ain't a million any more. Suppose you're 65 with a life expectancy of 20 years. You want to draw $50k a year. Even ignoring interest (and inflation protection, and dependent/survivor protection)--there's a million right there. Grant that $50k is better than sleeping in a cardboard box, still it is not what lots of middle class strivers hope for and dream of. And come to think of it, if you are in high-rent places like, well, Singapore, maybe you are living in a cardboard box.

Four, "havens." The United States comes seventh on the list of millionaire countries, with only 4.5 percent. But as many have noted, every one of those higher on the list is, in some sense a "haven" country, at once insulated and deeply involved with its neighbors and the rest of the world--one way or another, an Entrepôt.   Compare, say, Manhattan or San Francisco (or Shanghai)  and you might get numbers a lot  more like Singapore.  The question then arises: are Manhattan/Singapore to be understood as ripping off their hinterland?  Or is the hinterland to be understood as dragging down the leaders?


There a lot of potential complications in the "havens" story, of course: Taxmom ragged me a while back about the Viking raiders--suggesting that socialism can survive as long as it has capitalist neighbors to sponge off of.   And merely having "neighbors" doesn't say much.  Switzerland may thrive because it is surrounded by healthy and prosperous trading partners.  But to be landlocked among hostile neighbors--think Uzbekistan or Chad--now, that is a real misfortune (Paul Collier develops this last point).

Rose-Colored Glasses

Here's one that isn't quite new but it ought to be welcomed by anybody who loves an inconvenient fact: Steve Rose's counterintuitive case that things are actually pretty good right now, together with a reviewer's complications on Rose's complications.      I suspect the takeaway--if there is a takeaway--is that the world is a more complicated place than we suspected.  We knew that that the blessed billionth are living better and better, and we know (or thought we know) that the middle class is being hollowed out and thrown away. The thrust of Rose's evidence suggests that part of the middle class is actually doing okay, and that the real perplexities, if such they be,fall only on a limited segment.

Buffettology Update

I knew that Warren Buffett still lives in the home that he bought in Omaha in 1958 for $31,500. I guess I didn't realize that it has five bedrooms and measures 6,000 square feet. And, yes, by the standards of the obscenely rich, that's still pretty small potatoes.

Millionaires

Joel flags me to the news that my natal state, cold, rocky, infertile New Hampshire, now lies eighth on the list of states with the most millionaires, just ahead of California and behind Alaska. "Millionaire" in this case means a million in liquid assets (i.e., not counting real estate), so tax returns aren't the point. Re New Hampshire, let's just say it wasn't that way when I was a kid, but things have changed now that southern New Hampshire has caught all the spill from the Massachusetts tech boom (and with famously low taxes to boot). I'll bet places like Berlin and Colebrook till look pretty much like they did when I was a kid, though.

Cynics will glom onto the fact that Maryland, Virginia and DC all make the list, as evidence of civil-service/government bloat. There's probably some truth to that--I suspect that civil servants, aside from being comparatively well paid, are more prudent than the common ruck, more likely to lay up treasure for a rainy day. Or maybe it is just all those lobbyists.

It's interesting that New York does not make the list (though Connecticut and New Jersey both do). Brings me back to a point I think I've made before: DC may be prosperous, but it is not the home of obscene riches. Can't argue with the number on millionaires, but for zillionaires, I bet you still have to go to Manhattan's Upper East Side.

A Declaration of Human Rights?

...walk-in closets, his-and-hers bathrooms, caramel macchiatos, balsamic reductions, boutique wines, liberal-arts colleges, personal trainers, and $50 entrees.

--Greg Clark, A Farewell to Alms 4 (2007)

Filthy Rich II: Meditation on Wealth

TigerHawk is proud of making money; Andrew Sullivan ( but see update below) suggests he should be ashamed.

But it’s more complicated than that. It’s too simple to treat money as a source of praise or blame, because there are too many reasons for making money, or keeping it. Here’s a catalog, incomplete, of categories, overlapping and nonexclusive, of motivations for wealth:

Vainglory: think Rameses II, or Donald Trump. Some people just like to call attention to themselves. The Greeks were big on vainglory; they even used it as a means of taxation—get rich people to sponsor a festival or a trireme to show just how rich they were.

Vainglory may look like, but is not quite the same as

Competition: getting money is a visibile sign you’ve won a race. The trouble with competition as a reason for making money is that it never ends. There are some people who will never be satisfied with a $60,000 Mercedes if their neighbor’s Mercedes cost $100,000. So also a competitive CEO who makes $5 million a year, will go to sleep weepy if his neighbor makes $5 million and one.

At any rate, competition and vainglory both should be distinguished from

The desire to consume. “Lawyers,” they used to say, “live well, and die poor.” Point taken: I have known a fair number of lawyers who will never drink $20 Scotch if $40 Scotch is on offer. They earn a lot, they spend a lot, and they’d better hope their bookkeeper tucked away something in their retirement account. Sometimes, this desire to consume may reflect sheer brio: maybe these guys really like $40 Scotch. But often enough, I suspect it is a kind of manic insatiability that makes you just want to gobble up everything in your way. Not limited to the purely wealthy, I suppose: they say that Thomas Aquinas was fat.

Oddly, the desire to consume is remarkably close to another, seemingly rather different, motive, and that is

The desire to to good. One thing you've got to give to Aristotle: he never saw the point of poverty and innocence. Of course you want to accumulate wealth and power, Aristotle would have said--how else can you do any good in the world? So also the guy who is happy to skip his $40 Scotch and his $100,000 Mercedes so he can buy 10 million mosquito nets for the third world.

We can turn now to another motive which seems rather different from all of the above, and that is

Sadism: think “who’s your daddy?” Some people enjoy the humiliation and suffering of others. Here as elsewhere, I would concede that the quality is not solely a province of the wealthy—there are probably more poor sadists than rich ones--but wealth does allow some people to indulge a particular taste. But sadism is undoubtedly one taste that money can satisfy.

I think none of these is quite the same as a perhaps more familiar asserted motive for making money and that is

Greed: Silas Marner and Scrooge McDuck didn’t want to spend money, or even to show off. They liked to have money so they could run their fingers through it. It’s hard to guess how many wealthy people are motivated by greed because they tend not to call attention to themselves. I should add that I suspect there are more greedy people who are not wealthy and want to be, then who are wealthy per se. Greed tends to make the best the enemy of the good, and the seriously greedy often outwit themselves.

Perhaps paradoxically, I think "greed" as a motive for great wealth is close to another, superficially different, motive for making money and that is

It's fun: Warren Buffet lives in a modest house and drives to a modest office in a modest car. It isn't quite that he is a skinflint (although I guess you'd have to say "careful"), but rather that in an important sense, he is unconscious of money. He's a classic illustration of the proposition that you need to find something you love to do, and the money will follow. Best way I can tell, he has worked incredibly hard most of his life, but at something he loves. The $50 billion is just frosting on the cake.

None of these reasons is quite the same, I think, as my next reason, i.e.,

Security: some people just fear growing old and sick and poor. As with competiton or consumption, the trouble with security is that the search never ends. Build yourself a nice little farm and the Barbarians from over the border will trample your fields and set fire to your barn. Tuck away a nice 401k and some lunatic in the White House destroys the value of the dollar.

Security in this sense is close to

Independence. I believe it was Humphrey Bogart said the nice thing about having money is that it allows you to tell other people to go to hell. I remember also the Simenon story, in which the prosperous lawyer gets a wild hair for his secretary. “This is going to cost you,” his ever-so-proper wife tells him. “Never mind,” he says, “I can afford it.” I concede once again that this isn’t entirely a matter of money. Alexander the Great asked the philosopher Diogenes if there was anything he could do for him. “Yeh,” said Diogenes, “get outta my sun.”

There is yet one more motivation for getting money; it is central to our inquiry, which is why I have saved it to the end. And that is

As an index of achievement: money may be proof that you are a good fellow who adds value to society. Her, at last, I suspect we come to what TigerHawk had in mind when he showed his pride in his money. And indeed it is possible that constructive achievement may bring wealth.

But I see two problems with wealth as an index of achievement. One, plenty of achievement does not bring wealth. And two--the point of this entire exercise--it appears that there are so many motives for wealth that we can't begin to focus on just one. So wealth as an index is almost no help at all.

Reviewing, I think it may help to try to restate the terms of debate. TigerHawk seems to be saying that if you have achieved wealth, you probably did something to deserve it. Andrew seems to be saying that if you have achieved wealth, you probably have done something of which you should be ashamed (he may be channeling Balzac, who said that every great fortune is founded on a great crime).

But I like to think that I've got the true handle on the problem, which is to say I think they both miss the point. I argued earlier (link) that the main prerequisite for achieving great wealth is that you've got to want to achieve great wealth. Is the desire for wealth a bad thing? For myself I will concede (scandal of scandals?)I’m un-Christian enough to be an agnostic on the point: as far as I’m concerned the desire for great wealth is a matter of taste, like broccoli versus tomatoes. My point here is that there are a thousand roads to riches, and maybe both TigerHawk and Andrew fall short in imagination as they try to consider how one gets there. And, I might add, an issue far too rich and complicated to be captured in crude categories of "left" and "right."

Update: Okay, so Sullivan didn't say it. But he smiled while somebody else said it.