By Kevin D. Williamson
Tuesday, January 29, 2019
In the course of praising Senator Elizabeth Warren’s new
liquidate-the-kulaks-as-a-class economic agenda — the freshest economic
thinking from 1929 — Paul Krugman of the New
York Times writes:
Today we are once again living in
an era of extraordinary wealth concentrated in the hands of a few people, with
the net worth of the wealthiest 0.1 percent of Americans almost equal to that
of the bottom 90 percent combined. And this concentration of wealth is growing;
as Thomas Piketty famously argued in his book “Capital in the 21st Century,” we
seem to be heading toward a society dominated by vast, often inherited
fortunes.
Are we really headed toward a society that is dominated by vast fortunes? It is the
case that the very wealthy tend to get their way politically more often than
not when their preferences diverge from those of the rest of the country, but,
as I argue in my column today, there is rather less to that than you would
imagine (because there is so much consensus about so many political questions
across income groups), and it is worth noting that the disproportionate influence
of the wealthy often pushes the country in the direction progressives prefer,
as on the questions of gay marriage or marijuana liberalization.
And is it the case that more of the fortunes of the
super-wealthy are inherited?
If you go over the Forbes 400, you won’t actually find
that many inherited fortunes. There are some Waltons and Marses and Lauders,
but it’s mostly Bezoses and Gateses and Zuckerbergs and other people who became
vastly wealthy by starting companies. The timelines get complicated, of course:
Bill Gates and the Koch brothers were born into very well-off families, which
no doubt came with opportunities that helped them to follow the courses of life
they followed. It is easier to take great risks when you have a financial
backstop and you are not worried about being evicted from your home should the
enterprise fail. I think we can safely assume that the road to billions is
shorter when starting from millions. But very few of those who start with
millions end up in Koch or Gates territory, and many of those who do end up
there start from modest beginnings. So starting well is neither a necessary nor
a sufficient condition.
My colleague Michael Tanner has looked at the question
of inheritance in some detail:
Although Piketty and others worry a
great deal about the role of inherited wealth, the evidence suggests that
inheritance plays a very small role in how people become wealthy. Surveys vary,
but it can be said with a fair degree of accuracy that the overwhelming
majority of the rich did not inherit their wealth. For example, a study of
billionaires around the world finds that fewer than 3 in 10 American
billionaires got to that position by inheriting their wealth, and that “the
share of self-made billionaires has been expanding most rapidly in the United
States.” And while that represents the
richest of the rich, the slightly less wealthy may be even less likely to have
inherited their wealth. A report from BMO Financial Group found that two-thirds
of high-net-worth Americans could be considered self-made, compared to a mere 3
percent who inherited the majority of their wealth. Interestingly, this study
also found that nearly a third of these people are either first-generation
Americans or were themselves born elsewhere. Among these wealthy “new
Americans,” 80 percent reported that they earned, rather than inherited, their
wealth. Finally, a survey by US Trust found that 70 percent of wealthy
Americans grew up in middle-class or lower-income households. Even among those
with assets in excess of $5 million, only a third grew up wealthy.
Moreover, the role of inheritance
has diminished over the last generation. A recent study by finance professors
Steven Neil Kaplan of the University of Chicago and Joshua Rauh of Stanford
found that fewer of those who made it on to the Forbes 400 list in recent years
grew up wealthy than in previous decades, falling from 60 percent in 1982 to
just 32 percent today. Roughly 20 percent of the Forbes 400 actually grew up
poor, roughly the same percentage today as it was in 1982.
If you would like to read that Kaplan-Rauh study in the American Economic Review, a PDF is
available here.
As usual, it’s complicated. (Williamson’s First Law:
“Everything is simple when you don’t know a f***ing thing about it.”) For
example, inherited assets make up a greater share of the wealth of middle-class
and lower-middle-class people than they do for wealthy people. That may seem
counterintuitive at first, until you think how much wealth an inherited house
would add to the net worth of a family with only modest savings. Many of the
statistics you see about wealth in the United States — the top x percent have more than the bottom y percent combined — are exaggerated by
the fact that high debt and low savings give so many American households,
including some with healthy incomes, a net worth of $0.00 or less. There are
some things that could be done to improve that; the most obvious one, in my
view, would be to simply cease pursuing policies at the federal, state, and local
levels designed to make housing more
expensive. Not a panacea, but a start, I would think.
The poor are not poor because the rich are rich. That
isn’t how income works. But the argument one hears most often in the indictment
of the wealthy isn’t economic at all but moral.
Thus the especial attention directed at those who inherit money. Inheritance in
fact strikes me as among the least disruptive ways to grow vastly wealthy;
inheriting money does not involve a lot of externalities compared to, e.g., starting
Facebook or drilling for oil. Heirs come in different species, of course. It
seems to me that the Alice Waltons and Leonard Lauders are doing a lot of good
things that non-billionaires just don’t do. Bill Gates and David Koch, too.
Beyond philanthropy, billionaires play an important role in the venture-capital
ecosystem, which helps to cultivate innovation and high-growth
entrepreneurship.
But there’s another argument in favor of a de facto aristocracy — whether the
result of inheritance or entrepreneurship or just dumb good luck — that is of
increasing interest: intellectual and political independence. In our age of
social-media-mob politics and the ruthless enforcement of various social and
political orthodoxies — enforcement that now is often carried out by making a
disciplinary instrument of employers — financial independence is necessary to
political independence. F. A. Hayek in his time worried that the rise of
salaried employment as a norm would have undesirable effects on political
thinking and culture as the conformist habits of corporate life evolved into
more widely applied social norms and habits. The relationship between financial
independence and political independence is not lost on Professor Krugman, who
as a creature of the Ivy League and the New
York Times stands very close to the spiritual center of orthodoxy. Neither
is it lost on Senator Warren and her ilk. That’s what all that dishonest talk
about “big money corrupting our politics” is about: bringing the financially
independent under political discipline. As an added benefit, the more
restricted independent political activism is, the more important and
influential grow institutions such as the New
York Times, and the more power accrues to the class of people who have
access to such instruments.
The independently wealthy man is an alternative to the
Organization Man, and in these conformist and stultifying times an increasingly
important one. To remain relatively free to think, to dissent, and to
experiment is in 2019 something of a luxury good.
Which is to say: What progressives actually hate about
those with inherited fortunes is not that they are idle, but that they are free.
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