This article should be titled: wealth is hard to measure and silly measurement techniques yield silly conclusions.
The benefit of wealth is logarithmic (one can debate the appropriate base, eg 2 or 10).. A family’s second million dollars is much less useful than the first, and a family’s 11th million isn’t that important at all.
The faux “inequality” created by stock market swings would disappear upon adjustment for the logarithmic effect. This adjustment would also give proper weight to what happens in the middle and bottom of the labor market— having $5000 in your bank account is much better than having $500 and having $50k begins to confer a degree of independence.
came here to say this too - this post is about accounting, it hokey pokeys around the arguments for a wealth tax, which is insane concentrations of wealth in small numbers of people that creates almost no utility for them beyond peer status games (which would be unaffected by uniform taxation) that are quietly restoring feudal levels of inequality in the developed world.
“ a family’s 11th million isn’t that important at all.”
Haha $11 million at 4% is the income of a doctor married to a software developer. It’s a solid upper middle class income but there are a great many things you can’t afford on $440k a year.
A doctor married to a software developer isn’t upper middle class then. 11 million is above the 99th percentile of wealth over all ages for every calculator I tried.
If top one percent isn’t upper class then upper class is so constrained to the point of being useless. It seems like the people in this group just like categorizing themselves as like everyone else so they say upper middle instead of middle, when they really have enormous financial advantages over their peers.
It's a way of shunting responsibility. My favorite example of this in recent memory was on twitter in a discussion of this terrific paper measuring doctor incomes (https://kevinrinz.github.io/physicians.pdf), where doctors showed up en masse to say, why are you looking at us, CEOs are the real problem, pay no attention to the 1%ers over here...
I think there's value in recognizing that the 80th to 99.5th percentiles are a significant issue, and may in some sense be classified as an "upper middle class" that is a very distinct issue from the people in some higher range that have significant distortionary effects on the economy just from their holdings. It's unfortunately that the Occupy movement got so many people focused on just the "rich", so that calling yourself "upper middle class" is a get-out-of-jail-free card.
This is a nice framing. Getting back to the health care analogue, it's easy to blame things like surprise billing on CEOs, but we can't forget about the "upper middle class" (your terminology, tho I do not like it myself) doctors perpetrating these institutions and earning rents off of them.
Just want to comment here as a doctor. First, income definitely depends on what field of medicine and where you practice. I'm in primary care and make much less than the mean for doctors. I work at a small private practice and the margins are really, really tight. (Maybe this model is no longer viable, which makes me sad). And doctors work long hours for the pay they receive. And the education is quite expensive. Still, I'm open to the idea that doctors make too much money.
But think about this for a minute. Do we really want to live in a world where doctors are paid less? I think many on this substack think public teachers should be paid higher and, (more controversial) - police. The argument goes that if you want better quality of teaching /a better police force, pay people more. Incentivize them to go into these fields. Now let's say you drastically cut doctors' salaries. I could be wrong, but I submit that you would get less qualified doctors in the end. Maybe that's ok; maybe it would be good enough, but do you want to try that experiment?
If you were an ER doc, and your income was higher because of surprise billing, it should be lower, by at least the amount to which you're profiting off a rent-seeking institution. It is amazing how you are quickly proving my point by posting "sure, I'm profiting off of an institution that drains the public, but can you imagine living in a world where the vast majority of doctors aren't in the top 1%?"
Most other highly-paid professions don't feel the need to threaten to take their toys home if they aren't made rich.
I mean, I'm even more repulsed by the actual spending of the very very top. But calling $11 million or even $440k *middle-class* is the height of being out of touch. $440k in a two-adult household is the 97th percentile in the US (cf https://wid.world/simulator/US/).
There are lots of upper class people earning incredible supernormal rents who are not famous.
$440K is arguably upper middle class in some parts of the country, if that's a before tax income. Mind you, the net (let's call it 280k after taxes and healthcare) would allow one to live quite comfortably anywhere in the US; but it wouldn't necessarily allow one to live lavishly in some metros, especially if there are dependents to support
I think a lot of time the disagreement with respect to these semantic issues happens because of conflation of lifestyle and wealth. In other words, a lot of Americans enjoy some of the trapping of wealthy household *lifestyles* (prestigious suburbs, luxury cars, fancy vacations, private schools, etc) but are dependent on wages to support those lifestyle. I don't know about you, but I reckon such households are merely affluent or upper middle class (they're not rich as such).
If you don't think $11 million is a lot of money, you don't realize how not rich the vast majority of people are.
This isn't about the possible gradations of wealth, and most people here are pretty explicit about not considering status signaling an important part of the conversation. Sure, maybe the super-rich can spend $750K on a yacht vacation, but they could go on a nearly-as-nice vacation for a hundredth that price, so the marginal difference is very small if you don't count the differences in status signaling.
"but they could go on a nearly-as-nice vacation for a hundredth that price, "
You think a week on Royal Caribbean with 4,500 strangers is nearly as nice as a 300' yacht that you and those you've invited have all to yourselves? The differences are orders of magnitude not "nearly as nice."
One one-hundredth of 750K is 7.5K, which is about ten times the price of a Carnival Cruise. For that money, you could get a reasonably luxurious vacation.
Your perspective here feels so far off from everyone else's, it's hard to wrap my head around it. We're talking here about the marginal difference between financial security and lack thereof. The difference between a $750K vacation and a 7.5K vacation is a lot smaller than the difference between a vacation and no vacation.
Or to put $11 million in perspective, a weeks charter on a regional car dealer mogul’s yacht might be $750,000. Think how rich someone has to be to spend $750k on a weeks vacation. And then think how rich you have to be to buy, crew and maintain said yacht.
Oddly topical but the just less than super yacht economics are interesting right now. Apparently there's a surplus supply of used yachts in the 150' range from over-leveraged prior owners that got hit by the early COVID downturn in charters. So entry prices are down and deprecation curves are pretty flat on the yacht. Let's say it's $2M all in to run the boat annually. Breakeven is just five $400k charters. So if you can cover the $10M purchase price - it's a pretty good side deal.
Everyone freaking out missed the Cobra's point... a person with $11 million in wealth that is making a 4% annual return on that wealth has an annual income of $440K a year, roughly the same annual income as a doctor married to a developer. Even if the doctor and developer are in debt and have zero wealth, both households have the same annual income and are likely to make similar purchasing choices.
Of course this assumes that the 11x millionaire has no other income, so they're probably retired, and have more time to burn and perhaps even want to chip away at their principal in their golden years... so I am betting they will, in fact, make significantly different purchasing choices. Also if the doctor and developer are in student loan debt, a fair amount of their income gets absorbed paying that off. So in the end maybe I don't get Cobra's point either?
The point is still nonsensical because the 10th million and 11th million still return a similar level of income (400k vs 440k) and the person is still upper class. Like the OP said, the first million is more important than the second million which is much more important than the 11th million.
This was my understanding as well, but I wasn't exactly sure what Cobra's point was either. In the end I understood it to mean that that kind of wealth generates so much income that the principle never need be used. Then this could be passed down to progeny as an automatic wealth generator as well.
My point was that if he thinks money doesn't buy a vastly better lifestyle at numbers above $10 million than he doesn't understand the scope of the problem.
I think you're getting blow back because while there is certainly a massive difference in consumption between $10 million and $1 billion in assets, the difference is mostly irrelevant when compared to the lifestyle differences between, say, $1,000 and $50,000.
Not the right comparison, original poster is comparing going from 0 to 1 million against going from 10 to 11 million, much bigger difference between the first pair of numbers than the second in terms of lifestyle. They're not saying that $11 million by itself is rich/not rich/etc.
America should measure itself by how many families have $200,000, not how many have $2 million. The biggest benefit of wealth is security and having the mean wealth is much better than being broke or credit dependent.
I maintain the position I took a few weeks ago, which I think complements Matt's.... that wealth inequality itself is not ipso facto a moral atrocity. The moral issues have to do with the way we've both legally and culturally linked capital to personal dignity and access to things that really should be basic human rights (health care, housing, education, freedom from incarceration, etc). There's something in here about "class" in the way Scott Alexander depicted it... class isn't your income bracket or wealth, it's your social status, the deference your wants and needs are given by others, heavily influenced by your wealth in our culture but really a function of all sorts of personal characteristics, both innate and influenceable. Wealth gives you more influence over the characteristics that increase your social status (degrees, fancy clothes, Substack subscriptions that help you sound smart), which in turn gives you more influence over your outcomes in life and the outcomes of people and causes you care about. People with less access to capital often struggle to secure the basics like housing, health care, education, effective legal protections--never mind Beamers and Substacks. The cultural association of wealth to social status to human dignity is the first moral problem. The close second (or arguably bigger) one is gatekeeping access to the basics with a price tag higher than many can afford. Raw wealth redistribution is not the worst idea, but it's also not the only way or the best way to address the problems we really care about. We could start by questioning whether a college degree is really a job requirement as often as we claim it is, for example.
That being said, I'm not sold on government owned housing for all. Sounds rather Soviet to me. "Capitalism is the worst economic system except for all the others that have been tried" and all that. But Matt has convinced me of contrarian ideas before!
I'm not sure Matt is suggesting that we have government housing though. He seems to suggest that we don't own the capital of housing and just buy its services like we do for other essential goods.
We don't grow and process our own food with our own fields and capital.
Ok Marie, let me know when you start your own substack and I'll be the first subscriber. :) I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world (abolish private schools, abolish billionaires, no private home ownership.) The reason why "Capitalism is the worst economic system except for all the others" is that people are naturally selfish and want to benefit/protect themselves and their family. Wouldn't it be great if we all just wanted to share? But we don't, so you have to work within that framework; you have to start with that principle. Then you can try to even the playing field somewhat. I like what MutterFodder posted as well as John from Fl. As MutterFodder suggested, instead of focusing on the injustice of privilege, create a system that offers opportunity for the underprivileged. Invest in elementary schools and mentorship programs; make community college free (Pasadena Community College offers this); incentivize/subsidize small businesses in poor areas;
promote criminal justice reform, etc. You want a wealth tax on the uber-rich? Fine, but it's not enough. Yes, the system is unfair, but I think solution should be more about empowering the have-nots, than punishing the have's.
-"I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world " - me too and add to that a tendency to try to fix unfair history- talk about an exercise in futility
-Re: capitalism, I was naively thinking one day, what if we got rid of capitalism and just had a point system where you could earn points by helping other people and give points to people who helped you? Then I realized that was capitalism.
-Re: Substack, I keep trying to start one and then my toddler needs me :D
people are naturally selfish. they're also naturally generous. how much in either direction and toward whom is heavily influenced by institutions, policies, norms, etc. not just a fact of nature.
I think you're the one that linked the idea of wanting to accumulate personal wealth to the inclination to rape a couple of days ago? Let's re-phrase that by saying human nature has a tendency to be greedy, selfish and aggressive. State of nature stuff. We are never going to overcome those impulses; we can only try to mitigate and tame them. Please recognize the damage that has been done to people and societies where extreme fairness was attempted. My dad was a Marxist. It's a lovely idea. Where has it worked? Where?
I know the mega-landlords thing is a thought experiment that would never happen, but I'm surprised you didn't touch on the mortgage interest deduction as a perverse incentive. My understanding of the research around this is that it just encourages people to buy larger homes and doesn't actually help anyone with affordability, and that countries who have eliminated it haven't seen their home ownership rates plummet. Is there any feasible political path to getting rid of this? Seems like you could do a lot to end the "have most of your wealth tied up in your home" problem by doing so.
Interesting! I hadn't really considered that. On the other hand, I'm always skeptical of using Singapore as a point of comparison for things like healthcare or home/auto ownership... they have a very different form of government and a lot of the policies are very much tailored to Singapore being a populous city-state.
As is mentioned below by others, home ownership problems in the US don't really lend themselves to a one-size-fits-all solution... NYC has very different problems than other major cities, which in turn have different problems than places like Cleveland/Detroit, which have different problems than the suburbs, which have different problems than emptying rural areas...
There is a really terrific paper on the Mortgage Interest Deduction in the 2014 Rev. of Econ. and Stats. by Hilber and Turner. Here is the abstract.
"Abstract—This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy arising from changes in the MID within and across states over time. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID boosts homeownership
attainment only of higher-income households in less tightly regulated housing markets. In more restrictive places, an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.
With the Trump tax cuts and current interest rates you have to have a very expensive house before you can take advantage of that tax credit. I bought a house the year of tax reform and didn’t itemize that year or later.
The combination of low interest rates and the Trump tax cut changes — SALT limit and big standard deduction — have diluted the value of mortgage interest deduction significantly. In general interest deductions have been curtailed over time for personal taxation.
This is correct, but then it also skews the value of the deduction further in favor of the rich (who likely either have expensive enough houses to take advantage of the full $750k value on which interest can be deducted, or enough charitable contributions where they're over the standard deduction limit anyway).
I'd love to see the US phase this out over something like 10-15 years, where the level goes down by ~$50k a year until they get to zero.
The treatment of housing struck me as the one weak point in an otherwise interesting article. @J. Willard Gibbs You are right that policies like the mortgage interest deduction are the most important part of this discussion and were ignored, though I think it’s pretty complicated what policy is best and why. The really big subsidy to owner occupied housing is the imputed rental exclusion, and that would be very hard to eliminate - as long as we have one, homeownership is still favored over rental . But I really don’t understand why Matt thinks that current policy favors scarcity. As you say the tax code has an incentive to buy - anything that raises prices stimulate supply. Maybe it’s because Matt lives in DC we’re land is scarce so it’s hard to build? in much of a country land is still available and there’s a ton of new building, Arguably too much for responsible urban planning. Can anyone explain to me what he was getting at?
I think his point is that it is hard to build in DC because voters (homeowners) naturally want the value of their investment to increase (or not decrease). Placing restrictions on new supply helps those homeowners by reducing competition for their valuable asset.
The fact that renters also vote, and often vote to place restrictions on new supply due to neighborhood character, gentrification or environmental concerns cuts against this explicitly self-interested view of zoning restrictions. But Matt wrote the book and writes persuasive essays to change people's minds.
The home ownership rate in California (last time I looked) was plunging toward 50%. A number of other states (the usual suspects) aren't too far behind. Eventually, when some state's home ownership rate falls far enough below 50%, we'll see the substantive weakening of NIMBYism.
But that's what it's going to take, I'm pretty sure.
OK I can see that would be the case in dense East Coast cities. Just not most of the country, Ahem! Even here in blue Austin the neighborhood preservationists almost always lose. So it’s an argument against NIMBYs but it’s not a basis for a general argument about housing of the kind that’s in the article
Thinking further about this, to the extent that there’s opposition to building around here it’s mostly the result of the fact that builders aren’t required to internalize the burden on infrastructure especially schools but also transportation. If new building plans were made as part of comprehensive planning efforts that make minimized disruption to existing school patterns there’d be less opposition. It’s not uncommon where I live for kids to be switched multiple times because of redistricting resulting from growth
Is it right that the neighborhood preservationists almost always lose in Austin? I thought the sightlines to the Capitol are still very strongly protected, and many people I've talked to are convinced that their viewsheds are safe because of how many times proposals have been shot down.
I imagine the area around the Capitol is protected (as IMHO it should be) but just a little bit south, from 8th Street down, is unrecognizable from 10 years ago. My main concerns are in my post below. The issues here are very different from what you see in a denser East coast city. I am really interested in finding solutions to the obstacles to well planned higher density growth, which I do think center on failure to think more comprehensively about what growth means for things like schools and transportation. I loathe driving and would pay handsomely for decent public transportation but every mass transit initiative that has been proposed has been apparently been designed by someone who lives in Brooklyn and has never visited Austin.
These are all good reasons why “wealth”, individual net worth as of today, is problematic for measuring how well off 25 year olds and billionaires are in the short run, why it might be better for us to have less of our individual wealth tied up in housing, and why social security is good.
But I don’t think that’s convincing that “wealth isn’t what matters”. We need some way of measuring how financially secure people are that takes into account current income, future income, assets/liabilities and other benefits (gov health insurance, social security).
Totally agree the argument that student loan forgiveness helps low-wealth people is dumb because by definition they have big student loan balances and may be negative.
But we also need a measure that helps distinguish a 30 year old making $50k/year with a big student debt balance and renting an apartment from someone with same age and income with no student debt and paying a mortgage because their parents supplied tuition and a down payment— because they had more wealth than the other parents.
Also someone making $40k with a degree at age 25 is likely to earn more over the course of her life, and be much better off, than someone age 60 making $40k with no degree.
Most of our means testing is income based, which misses this distinction— that’s the key reason I see for this (currently not great) part of the discourse right now. Survey questions like “Could you handle a surprise $400 expense?” try to get at it. Credit scores try to build a picture of your future ability/reliability to pay, which is kind of close.
So sure, net worth isn’t a great indicator for taxing and means testing, but there’s got to be some measure to pull out what pure income misses.
Yeah, this seems basically right to me. Matt has convinced me with this post that measuring wealth instead of income is going to cause all sorts of weird distortions that don't reflect things that matter. But I think the same is true about measuring income instead of wealth.
This is really smart analysis though I still think income is a much better measure in terms of taxation. Sure the 25 y/o and the 60 y/o making 40k/year are in very different situations, but I still think its fair to tax them the same. The 25 y/o will probably end up making 100k soon enough and we can tax them more when they get there.
Totally agree! That example makes me think more about the student loan forgiveness debate where ppl argue it will help those with less wealth. True... but that can mean young people with a debt balance and no savings yet who have degrees and good incomes and are going to be fine in the long run. Not helping generationally wealth poor families as much.
Why does there have to a measure? People seem to be assuming there is some equation that will reflect their intuitive sense of who is "rich" and who isn't, but it doesn't have to exist. There doesn't need to be a "correct" way of ranking people according to wealth. Every approach will highlight some aspects and underweight others.
For sure, people always argue about how to define rich and there's no perfect answer. But for policy, we definitely have to pick a measure for things like a) tax rates and b) targeting policy outcomes. Tax rates are mostly based on your annual income and people who are 'income rich' pay more, but the Elizabeth Warren "wealth tax" would try to charge everyone over $50 million in wealth a % of their net worth. When people argue for student loan forgiveness a lot of times they say it will help people with less wealth-- which sounds good, but many are just young people with student loan debt at the time who will probably make a lot of money over the next 30 years and don't really need help.
I agree that we should define policy goals first. I just feel that a lot of the discussion around these things seems to devolve into trying to decide who is "too rich". A wealth tax because "billionaires shouldn't exist" seems pointlessly punitive to me. The wealth of the richest is almost all on paper anyway; whether Bezos has $50b or $100b seems completely irrelevant.
But, yeah, I was just nitpicking your last sentence; I liked the rest of your post!
100% — I’m always kinda thrown off by people getting extra hyped about billionaire bashing. The point should be what helps people who need it the most. BUT I do think it’s kinda funny basically everyone points to someone like 20% richer than them to draw the line for what’s REALLY rich.
It helps if you think of wealth as the present value of expected future income, minus liabilities. That's what the value of a securities portfolio is, after all, and it also brings the value of a dental degree into the picture. Of course the latter is an imprecise calculation, to say the least, but at least it tells us that your newly minted dentist is actually pretty well off, student loans notwithstanding.
Good point! Thinking about "income" and thinking about "wealth" are really two ways of attempting to think about this thing that has factors that are classified each way, as well as factors that we don't account well.
It would be interesting to see a measure of wealth that counts human capital and social security. Seems like that would give a more realistic (and probably more equal?) picture of wealth inequality.
I was kicking a similar idea around and closest thing I could think of was credit scores-- some company or analyst is trying to decide how likely you are to be able (and willing) to pay down the road, so a lot of that is combining your assets/liabilities, current earnings, expected future earnings, etc. But then you think about gov run 'social credit scores' and it starts sounding like that Chinese gov surveillance stuff...
After following the arguments for the past few years, I have concluded that jealousy of the rich drives the wealth inequality debate while compassion for the poor drives the income inequality debate. There are good and bad arguments (and arguers) on both sides of each debate, but the rationale for bringing up the topic at all is fundamentally different.
Makes sense. I would add that wealth implies power in a way that income doesn’t. To use the example above, a doctor married to a software developer making $440k are still working for the man. Someone getting $440k a year in income from $11 million in assets is in a very different position.
THIS is the thing. The more wealth you have, the less accountable to the world you have to be with your time, the more risks you can take careerwise, etc.
Ironically, as you move up the corporate ladder, being able to walk away because you have a net under you of wealth makes you move up faster. You can take more risks. You can speak truth to power when required. You bring a certain confidence that makes you a better executive.
This is one of the more subtle ways that wealth begets more wealth.
If you’re such a good manager at 32 that you have 6m squirreled away your negotiating position is - live in comfort the rest of my life or put up with more of your s*it?
Damn, what kind of 32 year old manager has $6M squirreled away? And my experience has shown that people who speak truth to power don’t always last long at that firm
Except they are working! They may or may not be able to succeed in selling their product - but if they are sitting around all day trying to figure out how to lobby the federal government, then they are lobbyists pitching a product to congress.
I think the issue is more that even if wealth inequality is a reasonable indicator of economic dysfunction, then using it as a target of economic policy leads to perverse results that make everyone worse. More to the point, what we need to do to actually solve the systemic problems causing the inequality in the first place will actually exacerbate inequality in the short term.
Some inequality is good; you want to have incentives for people that produce significant value to benefit from that personally, and it will create inequality.
But (a) the fact that inequality is much higher in the anglosphere than the rest of Europe suggests that current levels of inequality are not inevitable and are the result of policy choices and (b) there is reason to worry that inequality is self-perpetuating in the absence of deliberate choices to reverse it.
Looking through those slides again, I think they're mostly about income inequality rather than wealth inequality. But I still think they bolster a naive intuition that inequality is a problem and that we shouldn't spend too much energy trying to convince itself that it doesn't matter.
I think a society with great wealth inequality is, ipso facto, likely to be a more unequal society in important ways, and that's a problem.
I disagree. At the low end someone with more wealth than their similar income peers has more financial flexibility to weather unemployment, spend more time searching for better opportunities, or afford housing in better areas. At the high end wealthier people can exert political influence.
I think both this comment and the Original Post miss the forest for the trees a bit.
Yes, there are important caveats to make when talking about the importance of wealth. But that doesn't make it meaningless (or even a bad measure).
To say that we only care about are differences in consumption is true, to some extent*, but it's true at such a high level of abstraction that I don't know that it's helpful.
In practice wealth has an enormous impact on the choices available to people and how constrained their lives are. We can (and should) increases the options available to people, but we should _also_ pay attention to differences in wealth.
*(thought experiment; if people were allowed to borrow freely, with no penalties, and all debts were cleared upon death, then yes consumption would be almost completely divorced from wealth. But that isn't a very good guide for policy because trying to move towards that world won't necessarily be an improvement).
I do think a distinction should be made between the ideas A) "wealth inequality doesn't matter very much" and B) "a lot of people have little or no wealth." (I'm not suggesting Matt is eliding these two; just pointing out "B" is a problem, irrespective of the wealth inequality situation).
Matt makes an elegant case for the former (A) proposition.
But I feel that, over and above any arguments about spiraling wealth *differentials*, there remains the bitter truth that too many Americans can't handle a $400 emergency. And that's a problem, quite apart from the fact that Musk and Bezos could buy many a small country.
(I remember reading a statistic a few years back; it was something to the effect that: *average* household net worth in the US was 4th or 5th highest in the world; but *median* household net worth in the US was like (quoting from memory) 22nd. The US was behind powerhouses like Portugal and Taiwan on this score. To me such a statistic indicates that the political economy of the United States is set up in such a way as to ensure plentiful revenue streams for the wealthy. In more enlightened polities, things are arranged so that the non-rich can enjoy a modicum of financial security. This seems bad for Americans.)
Agree. I'm less interested in how much Bezos' "wealth" went up or down this year and how much economic security most people have -- sometimes with the wealth tax discourse it can end up sounding more about the 1%. But the most important points I've heard made around wealth are things like the median black/white wealth gap, which was mostly built up through subsidized homeownership in the 20th century for white people. And so a 30 y/o Black person making $50K in 2020 is often less secure than a white person with the same age/income because way less likely to have family help with a down payment or college and more likely to need to help other family members.
So there are really two big ways to solve "wealth inequality" - one is redistribution (touted by the left) and the other is "equality of opportunity" (touted by the right). We hear a lot about that second one but very little about actual creative ways to implement it other than vagaries like "hard work" or "pull yourself up by your bootstraps". But the barriers to entry to those wealth castles can be really high and many of our laws and rules are designed to make scaling those walls more difficult, not easier.
If we found creative ways to bridge the "moats" that keep people from building wealth or acquiring ways to attain wealth, we'd go a long way towards solving that wealth inequality. One hidden advantage of Universal Basic Income, for example, is that it would allow many to spend their time starting small businesses instead of working a 9 to 5 job. We know it takes time and energy to start a business, as well as a ramp up until enough business is generated to pay the bills, so a UBI could offer that. If we offered "people investments" so that you could buy "stock" in persons who seemed promising in their potential but lacked resources (based on, say, their ability to acquire a degree or pass a skills test or start a small business), we could help fund these people getting their needs met so they could work on things that really yielded results instead of being stuck in an hourly job that just barely paid the bills. This already happens with those well-off and their offspring and is a proven methodology so writing directed checks towards the disadvantaged could go a long way to evening the playing field.
We give lip service to this kind of thing, but all the attempts are half-hearted (try getting a loan from the SBA or your local bank if you don't already have wealth or momentum to back it...). Not everyone is going to be entrepreneurial, but even a 10% or 15% rise in new small businesses could lead to tons more jobs created as well as wealth for the entrepreneur. Look at Kiva for an example of how we can invest in "people stock" in third world countries right now.
It's a problem of our political environment that nobody has a consistent rhetorical message that synthesizes these two. Republicans are so afraid of committing socialism heresy they can't contemplate that socializing the cost of basics like healthcare, education and retirement might free small businesses and individuals to be more entrepreneurial and nimble and the best way to provide equal opportunity. And Democrats seem strangely averse to promoting reforms like ending employment based health insurance as a boon to entrepreneurialism and effectively a tax cut on small business - apparently that would sound too much like a Republican talking point.
As someone who used to be responsible for evaluating and approving our company's health care plan, I now conclude we should have universal, government-provided health insurance. Something like Medicare for all, but with higher deductibles and co-pays to keep costs from spiraling like we see with many government funded programs (military and education costs come to mind).
It is wasteful for every business with more than 50 employees to staff or contract for a health care expert to evaluate program design, co-pays, contribution levels and network coverage. It is a distraction from the delivery of a good or service to a customer. As a country, we decided with the ACA to conscript businesses to provide health insurance because that was the compromise available at the time. It is now time to move away from employer-provided insurance to a government-provide system. If I were designing a system from a clean sheet of paper, I don't think it is ideal. But we don't have a clean sheet and this is would be an improvement.
When the ACA was adopted I remember some employee benefits attorneys were predicting the individual exchanges would gradually supplant employer-provided insurance plans as employers would drop their own plans. It hasn't turned out that way but it probably wouldn't take too much tweaking to push things in that direction. Maybe the only good thing that can be said about employer-provided insurance, and I'm not even sure it's true, is it imposes some market discipline on healthcare costs as portion of total employee compensation.
Don't think higher copays are a useful way to control costs though - they inflict pain on patients but can't really control costs for anything that exceeds the amount of the copay. If you have a $75,000 hospital or medication bill, making the patient pay $1k or $2k more in copays only erodes the value of the insurance policy, and functions as stealth premium increase, but doesn't meaningful affect the total cost. Routine preventive care for people without chronic conditions might be different because it's predictable; it's kind of a misnomer to even call health insurance "insurance" for that, and routing those routine expenses through insurance plans serves a redistributive purpose more than a true risk-spreading insurance purpose.
I agree that price is a challenging way to reduce over usage or waste with medical systems. The challenge is that I haven't seen a better one. Do you have one you would recommend as better? Maybe a refund at the end of the year if you haven't spend below a certain threshold...
Other than for very predictable routine care where you could prefund an HSA and let patients keep what they don't spend, I don't think it makes sense to look to patients to control costs. They simply don't have the leverage or the expertise to judge whether the care they're being prescribed is necessary and cost effective - that's why you go to the doctor, so they can tell you what you need. But under a fee-for-service system doctors have a financial conflict of interest because they make more money the more care they provide.
The only party who really has an incentive to control overall costs is the end payer, whether that's an employer, a gov't program or a health plan, and a vertically integrated, at risk health that gets paid a per-head fee is in the best position because they have the expertise and incentive to only provide necessary care in the most efficient way, since they lose money otherwise.
A few weeks ago, I would have scoffed at this, but then I started researching the intricacies of Medicare. Man, we need some serious simplification in this space!
Whenever I get into arguments about income, wealth, millionaires etc... I always specify the term "liquid wealth". Seems much more useful.
I have a decent amount of equity in my house here in Boise (thanks to all the Californians moving in and driving up prices), but two years ago when the wife and I looked at trading down to a smaller house, we couldn't find anything that wasn't also expensive, and there wasn't much to find anyway.
So our imaginary wealth was basically useless, well unless we move to Cleveland.
I like to think of useful wealth. I know people who live month to month that have a lot more fun and a higher quality of life than chronic savers who save everything. Sure, their retirements might be different, but...
What's worth more? $2K to someone in their 20s or $10K to someone in their 80s?
Anyway... fuck the rich. The rich being anyone who earns 50% more than I do.
Another great article. Thanks! I’m sending this around.
But please stop advocating for taking my house away and giving it to landlords or building apartment complexes or oil refineries or whatever next door. You’re freaking me out. We spend the money we’d saved over decades on this split level so our kids could play in the backyard and ride bikes around the neighborhood without getting creamed by a car. We’d like to keep it that way
^^^please stop advocating for taking my house away and giving it to landlords or building apartment complexes^^^
I've never read an Yglesias piece arguing for eminent domain takings of suburban homes in order to build apartment blocks.
(Though yes, in the coming Yglesian dictatorship, you might get a fat *offer* for your little slice of paradise from a developer who thinks she can make bank by putting up condos).
Apartment complexes next door and oil refineries next door are very different thing. I don't think Matt wants oil refineries next door to any residences (though I suppose I haven't actually read any model zoning code he would propose). Apartment complexes next door he'd be in favor of, but he'd also want street design and parking pricing that means most of the apartment dwellers would also walk and bike around the neighborhood like the kids, and would likely try to keep the cars (and buses, lots of buses!) on the big arterial roads, while neighborhood streets are more attractive for biking and walking.
I think Matt's point is that if home ownership wasn't structured as it is, you could have just that, on say a 30 year lease, while having much better access to good plumbers, electricians, etc, and without the overall system functioning as a massive driver of inequality, not just in wealth, but in education, housing, etc.
Hi Matt, great piece with a gloss on Apple that could really use revision:
"Apple doesn’t own the factories where the iPhone is made. The most valuable company in the world is mostly a cluster of brands, patents, trademarks, and human relationships. The companies like Foxconn and TSMC that own the physical capital used to make Apple gear are decent businesses, but the best businesses are very heavily tilted toward the intangible."
1. Apple's value comes from knowing how to produce extraordinarily useful tools that most productive rich people purchase. Patents and trademarks are details, brand is an epiphenomenon. "Human relationships" is part of it, but not the essence. César Hildalgo's work focuses on this point; see your boy Paul Romer's encomium: https://paulromer.net/why-information-grows/
2. Foxconn *is* a great deal of that know-how; the underlying relationship between Foxconn and Apple is complex. Apple bullies them a lot, but then the Chinese government sort of owns Apple via its high level control over Foxconn. To your larger point, how the accounting is done is sort of beside the point.
The interesting taking off point for getting rid of private homeownership is to look at places where there are no private homes. This would include company towns such as the one featured in Nomadland. The house Fern lived in was seemingly very nice but completely went away when the source of income supporting the town disappeared.
The other is base military housing. These range from dorms for enlisted men to McMansions for generals, all publicly owned and maintained. It is especially salient on overseas bases where owning private home would be foolhardy or legally difficult. The United States military is the most successful socialist society ever developed. Government provided housing, health care, and education. Plus heavily subsidized food and recreation. It's worth an investigation.
On the same day as the last MY Wealth Tax post the NYT Opinion section ran an article on closing the $7.5 trillion tax-gap to fund an infrastructure bill. I don't know where they're getting the $7.5T number since the latest IRS net tax-gap figures are still from the Obama era at $381B / year. Maybe they're throwing in the fraud estimates and then a 10 year run...
But on just straight tax code compliance, closing the tax-gap would raise more than Warren's "2 cents" Wealth Tax ($300B / year) without any of the mark-to-market enforcement impossibilities her plan faces. I feel like an IRS fairness message would have huge appeal to the tent building coalition. Hope it gets prioritized.
Accurately measuring wealth requires constructing full accrual personal financial statements for individuals. Given that most people wouldn't be able to read them anyway, that is just going down an endless rabbit hole.
Let's focus on how we got to this level of inequality, and use that knowledge to help us get out.
We got here largely by greatly reducing the most progressive features of our income tax, capital gains tax, and inheritance tax. The way out of it is to build those progressive features back in.
No, that doesn't address inequality quickly by tapping the Bezos' fortune, but it does get to it before it's passed to the next generation, and consequently would be an easier lift politically.
This article should be titled: wealth is hard to measure and silly measurement techniques yield silly conclusions.
The benefit of wealth is logarithmic (one can debate the appropriate base, eg 2 or 10).. A family’s second million dollars is much less useful than the first, and a family’s 11th million isn’t that important at all.
The faux “inequality” created by stock market swings would disappear upon adjustment for the logarithmic effect. This adjustment would also give proper weight to what happens in the middle and bottom of the labor market— having $5000 in your bank account is much better than having $500 and having $50k begins to confer a degree of independence.
came here to say this too - this post is about accounting, it hokey pokeys around the arguments for a wealth tax, which is insane concentrations of wealth in small numbers of people that creates almost no utility for them beyond peer status games (which would be unaffected by uniform taxation) that are quietly restoring feudal levels of inequality in the developed world.
also jeff bezos cashed out $10 000 000 000 of amazon stock, *just last year*, he’s not just quietly sitting there stroking his share certificates https://www.cnbc.com/amp/2020/11/04/bezos-sells-more-than-3-billion-worth-of-amazon-shares-.html
Are we really doing simple correlation is causation here?
Haven’t those labour rights been more eroded in southern states with less overall wealth?
“ a family’s 11th million isn’t that important at all.”
Haha $11 million at 4% is the income of a doctor married to a software developer. It’s a solid upper middle class income but there are a great many things you can’t afford on $440k a year.
This is inaccurate.
A doctor married to a software developer isn’t upper middle class then. 11 million is above the 99th percentile of wealth over all ages for every calculator I tried.
If top one percent isn’t upper class then upper class is so constrained to the point of being useless. It seems like the people in this group just like categorizing themselves as like everyone else so they say upper middle instead of middle, when they really have enormous financial advantages over their peers.
It's a way of shunting responsibility. My favorite example of this in recent memory was on twitter in a discussion of this terrific paper measuring doctor incomes (https://kevinrinz.github.io/physicians.pdf), where doctors showed up en masse to say, why are you looking at us, CEOs are the real problem, pay no attention to the 1%ers over here...
For reference: https://twitter.com/Jabaluck/status/1286376062998450177. Worth reading doc responses as exactly the phenomenon Chris is describing...
I think there's value in recognizing that the 80th to 99.5th percentiles are a significant issue, and may in some sense be classified as an "upper middle class" that is a very distinct issue from the people in some higher range that have significant distortionary effects on the economy just from their holdings. It's unfortunately that the Occupy movement got so many people focused on just the "rich", so that calling yourself "upper middle class" is a get-out-of-jail-free card.
This is a nice framing. Getting back to the health care analogue, it's easy to blame things like surprise billing on CEOs, but we can't forget about the "upper middle class" (your terminology, tho I do not like it myself) doctors perpetrating these institutions and earning rents off of them.
Just want to comment here as a doctor. First, income definitely depends on what field of medicine and where you practice. I'm in primary care and make much less than the mean for doctors. I work at a small private practice and the margins are really, really tight. (Maybe this model is no longer viable, which makes me sad). And doctors work long hours for the pay they receive. And the education is quite expensive. Still, I'm open to the idea that doctors make too much money.
But think about this for a minute. Do we really want to live in a world where doctors are paid less? I think many on this substack think public teachers should be paid higher and, (more controversial) - police. The argument goes that if you want better quality of teaching /a better police force, pay people more. Incentivize them to go into these fields. Now let's say you drastically cut doctors' salaries. I could be wrong, but I submit that you would get less qualified doctors in the end. Maybe that's ok; maybe it would be good enough, but do you want to try that experiment?
"Maybe that's ok; maybe it would be good enough, but do you want to try that experiment?"
We have. They are called Physician's Assistants and Nurse Practitioners.
If you were an ER doc, and your income was higher because of surprise billing, it should be lower, by at least the amount to which you're profiting off a rent-seeking institution. It is amazing how you are quickly proving my point by posting "sure, I'm profiting off of an institution that drains the public, but can you imagine living in a world where the vast majority of doctors aren't in the top 1%?"
Most other highly-paid professions don't feel the need to threaten to take their toys home if they aren't made rich.
Typo
That should say “they say upper middle instead of upper “.
Is this a troll or just really out of touch?
It’s reality. If you think $11 million is a lot of money you don’t realize how which rich actual rich people actually are.
Or to quote Chris Rock, 'If Poor People Knew How Rich Rich People Are, There Would Be Riots'
I mean, I'm even more repulsed by the actual spending of the very very top. But calling $11 million or even $440k *middle-class* is the height of being out of touch. $440k in a two-adult household is the 97th percentile in the US (cf https://wid.world/simulator/US/).
There are lots of upper class people earning incredible supernormal rents who are not famous.
$440K is arguably upper middle class in some parts of the country, if that's a before tax income. Mind you, the net (let's call it 280k after taxes and healthcare) would allow one to live quite comfortably anywhere in the US; but it wouldn't necessarily allow one to live lavishly in some metros, especially if there are dependents to support
I think a lot of time the disagreement with respect to these semantic issues happens because of conflation of lifestyle and wealth. In other words, a lot of Americans enjoy some of the trapping of wealthy household *lifestyles* (prestigious suburbs, luxury cars, fancy vacations, private schools, etc) but are dependent on wages to support those lifestyle. I don't know about you, but I reckon such households are merely affluent or upper middle class (they're not rich as such).
The rich don't have to work.
I agree with you wholeheartedly, but I can't do the "how many hundreds of thousands of dollars in annual income counts as rich" argument again.
If you don't think $11 million is a lot of money, you don't realize how not rich the vast majority of people are.
This isn't about the possible gradations of wealth, and most people here are pretty explicit about not considering status signaling an important part of the conversation. Sure, maybe the super-rich can spend $750K on a yacht vacation, but they could go on a nearly-as-nice vacation for a hundredth that price, so the marginal difference is very small if you don't count the differences in status signaling.
"but they could go on a nearly-as-nice vacation for a hundredth that price, "
You think a week on Royal Caribbean with 4,500 strangers is nearly as nice as a 300' yacht that you and those you've invited have all to yourselves? The differences are orders of magnitude not "nearly as nice."
One one-hundredth of 750K is 7.5K, which is about ten times the price of a Carnival Cruise. For that money, you could get a reasonably luxurious vacation.
Your perspective here feels so far off from everyone else's, it's hard to wrap my head around it. We're talking here about the marginal difference between financial security and lack thereof. The difference between a $750K vacation and a 7.5K vacation is a lot smaller than the difference between a vacation and no vacation.
Or to put $11 million in perspective, a weeks charter on a regional car dealer mogul’s yacht might be $750,000. Think how rich someone has to be to spend $750k on a weeks vacation. And then think how rich you have to be to buy, crew and maintain said yacht.
Oddly topical but the just less than super yacht economics are interesting right now. Apparently there's a surplus supply of used yachts in the 150' range from over-leveraged prior owners that got hit by the early COVID downturn in charters. So entry prices are down and deprecation curves are pretty flat on the yacht. Let's say it's $2M all in to run the boat annually. Breakeven is just five $400k charters. So if you can cover the $10M purchase price - it's a pretty good side deal.
Everyone freaking out missed the Cobra's point... a person with $11 million in wealth that is making a 4% annual return on that wealth has an annual income of $440K a year, roughly the same annual income as a doctor married to a developer. Even if the doctor and developer are in debt and have zero wealth, both households have the same annual income and are likely to make similar purchasing choices.
Of course this assumes that the 11x millionaire has no other income, so they're probably retired, and have more time to burn and perhaps even want to chip away at their principal in their golden years... so I am betting they will, in fact, make significantly different purchasing choices. Also if the doctor and developer are in student loan debt, a fair amount of their income gets absorbed paying that off. So in the end maybe I don't get Cobra's point either?
The point is still nonsensical because the 10th million and 11th million still return a similar level of income (400k vs 440k) and the person is still upper class. Like the OP said, the first million is more important than the second million which is much more important than the 11th million.
Also the person with $11M can make $440K _without working_ which is a fairly different economic situation.
And they have an $11 million cushion if things go bad.
This was my understanding as well, but I wasn't exactly sure what Cobra's point was either. In the end I understood it to mean that that kind of wealth generates so much income that the principle never need be used. Then this could be passed down to progeny as an automatic wealth generator as well.
My point was that if he thinks money doesn't buy a vastly better lifestyle at numbers above $10 million than he doesn't understand the scope of the problem.
I think you're getting blow back because while there is certainly a massive difference in consumption between $10 million and $1 billion in assets, the difference is mostly irrelevant when compared to the lifestyle differences between, say, $1,000 and $50,000.
Not the right comparison, original poster is comparing going from 0 to 1 million against going from 10 to 11 million, much bigger difference between the first pair of numbers than the second in terms of lifestyle. They're not saying that $11 million by itself is rich/not rich/etc.
America should measure itself by how many families have $200,000, not how many have $2 million. The biggest benefit of wealth is security and having the mean wealth is much better than being broke or credit dependent.
I maintain the position I took a few weeks ago, which I think complements Matt's.... that wealth inequality itself is not ipso facto a moral atrocity. The moral issues have to do with the way we've both legally and culturally linked capital to personal dignity and access to things that really should be basic human rights (health care, housing, education, freedom from incarceration, etc). There's something in here about "class" in the way Scott Alexander depicted it... class isn't your income bracket or wealth, it's your social status, the deference your wants and needs are given by others, heavily influenced by your wealth in our culture but really a function of all sorts of personal characteristics, both innate and influenceable. Wealth gives you more influence over the characteristics that increase your social status (degrees, fancy clothes, Substack subscriptions that help you sound smart), which in turn gives you more influence over your outcomes in life and the outcomes of people and causes you care about. People with less access to capital often struggle to secure the basics like housing, health care, education, effective legal protections--never mind Beamers and Substacks. The cultural association of wealth to social status to human dignity is the first moral problem. The close second (or arguably bigger) one is gatekeeping access to the basics with a price tag higher than many can afford. Raw wealth redistribution is not the worst idea, but it's also not the only way or the best way to address the problems we really care about. We could start by questioning whether a college degree is really a job requirement as often as we claim it is, for example.
That being said, I'm not sold on government owned housing for all. Sounds rather Soviet to me. "Capitalism is the worst economic system except for all the others that have been tried" and all that. But Matt has convinced me of contrarian ideas before!
I'm not sure Matt is suggesting that we have government housing though. He seems to suggest that we don't own the capital of housing and just buy its services like we do for other essential goods.
We don't grow and process our own food with our own fields and capital.
Ok Marie, let me know when you start your own substack and I'll be the first subscriber. :) I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world (abolish private schools, abolish billionaires, no private home ownership.) The reason why "Capitalism is the worst economic system except for all the others" is that people are naturally selfish and want to benefit/protect themselves and their family. Wouldn't it be great if we all just wanted to share? But we don't, so you have to work within that framework; you have to start with that principle. Then you can try to even the playing field somewhat. I like what MutterFodder posted as well as John from Fl. As MutterFodder suggested, instead of focusing on the injustice of privilege, create a system that offers opportunity for the underprivileged. Invest in elementary schools and mentorship programs; make community college free (Pasadena Community College offers this); incentivize/subsidize small businesses in poor areas;
promote criminal justice reform, etc. You want a wealth tax on the uber-rich? Fine, but it's not enough. Yes, the system is unfair, but I think solution should be more about empowering the have-nots, than punishing the have's.
-"I get profoundly uneasy by the left's tendencies to pick policies based on jealousy and resentment, then go to these extremes to try to fix an unfair world " - me too and add to that a tendency to try to fix unfair history- talk about an exercise in futility
-Re: capitalism, I was naively thinking one day, what if we got rid of capitalism and just had a point system where you could earn points by helping other people and give points to people who helped you? Then I realized that was capitalism.
-Re: Substack, I keep trying to start one and then my toddler needs me :D
people are naturally selfish. they're also naturally generous. how much in either direction and toward whom is heavily influenced by institutions, policies, norms, etc. not just a fact of nature.
I think you're the one that linked the idea of wanting to accumulate personal wealth to the inclination to rape a couple of days ago? Let's re-phrase that by saying human nature has a tendency to be greedy, selfish and aggressive. State of nature stuff. We are never going to overcome those impulses; we can only try to mitigate and tame them. Please recognize the damage that has been done to people and societies where extreme fairness was attempted. My dad was a Marxist. It's a lovely idea. Where has it worked? Where?
I know the mega-landlords thing is a thought experiment that would never happen, but I'm surprised you didn't touch on the mortgage interest deduction as a perverse incentive. My understanding of the research around this is that it just encourages people to buy larger homes and doesn't actually help anyone with affordability, and that countries who have eliminated it haven't seen their home ownership rates plummet. Is there any feasible political path to getting rid of this? Seems like you could do a lot to end the "have most of your wealth tied up in your home" problem by doing so.
It's interesting that it's super hypothetical here but it's closer to the reality of housing in Singapore.
Interesting! I hadn't really considered that. On the other hand, I'm always skeptical of using Singapore as a point of comparison for things like healthcare or home/auto ownership... they have a very different form of government and a lot of the policies are very much tailored to Singapore being a populous city-state.
As is mentioned below by others, home ownership problems in the US don't really lend themselves to a one-size-fits-all solution... NYC has very different problems than other major cities, which in turn have different problems than places like Cleveland/Detroit, which have different problems than the suburbs, which have different problems than emptying rural areas...
There is a really terrific paper on the Mortgage Interest Deduction in the 2014 Rev. of Econ. and Stats. by Hilber and Turner. Here is the abstract.
"Abstract—This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy arising from changes in the MID within and across states over time. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID boosts homeownership
attainment only of higher-income households in less tightly regulated housing markets. In more restrictive places, an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.
With the Trump tax cuts and current interest rates you have to have a very expensive house before you can take advantage of that tax credit. I bought a house the year of tax reform and didn’t itemize that year or later.
That's my go-to example when I am pressed to name a good thing Trump accomplished.
The combination of low interest rates and the Trump tax cut changes — SALT limit and big standard deduction — have diluted the value of mortgage interest deduction significantly. In general interest deductions have been curtailed over time for personal taxation.
This is correct, but then it also skews the value of the deduction further in favor of the rich (who likely either have expensive enough houses to take advantage of the full $750k value on which interest can be deducted, or enough charitable contributions where they're over the standard deduction limit anyway).
I'd love to see the US phase this out over something like 10-15 years, where the level goes down by ~$50k a year until they get to zero.
The treatment of housing struck me as the one weak point in an otherwise interesting article. @J. Willard Gibbs You are right that policies like the mortgage interest deduction are the most important part of this discussion and were ignored, though I think it’s pretty complicated what policy is best and why. The really big subsidy to owner occupied housing is the imputed rental exclusion, and that would be very hard to eliminate - as long as we have one, homeownership is still favored over rental . But I really don’t understand why Matt thinks that current policy favors scarcity. As you say the tax code has an incentive to buy - anything that raises prices stimulate supply. Maybe it’s because Matt lives in DC we’re land is scarce so it’s hard to build? in much of a country land is still available and there’s a ton of new building, Arguably too much for responsible urban planning. Can anyone explain to me what he was getting at?
I think his point is that it is hard to build in DC because voters (homeowners) naturally want the value of their investment to increase (or not decrease). Placing restrictions on new supply helps those homeowners by reducing competition for their valuable asset.
The fact that renters also vote, and often vote to place restrictions on new supply due to neighborhood character, gentrification or environmental concerns cuts against this explicitly self-interested view of zoning restrictions. But Matt wrote the book and writes persuasive essays to change people's minds.
The home ownership rate in California (last time I looked) was plunging toward 50%. A number of other states (the usual suspects) aren't too far behind. Eventually, when some state's home ownership rate falls far enough below 50%, we'll see the substantive weakening of NIMBYism.
But that's what it's going to take, I'm pretty sure.
OK I can see that would be the case in dense East Coast cities. Just not most of the country, Ahem! Even here in blue Austin the neighborhood preservationists almost always lose. So it’s an argument against NIMBYs but it’s not a basis for a general argument about housing of the kind that’s in the article
Thinking further about this, to the extent that there’s opposition to building around here it’s mostly the result of the fact that builders aren’t required to internalize the burden on infrastructure especially schools but also transportation. If new building plans were made as part of comprehensive planning efforts that make minimized disruption to existing school patterns there’d be less opposition. It’s not uncommon where I live for kids to be switched multiple times because of redistricting resulting from growth
Is it right that the neighborhood preservationists almost always lose in Austin? I thought the sightlines to the Capitol are still very strongly protected, and many people I've talked to are convinced that their viewsheds are safe because of how many times proposals have been shot down.
I imagine the area around the Capitol is protected (as IMHO it should be) but just a little bit south, from 8th Street down, is unrecognizable from 10 years ago. My main concerns are in my post below. The issues here are very different from what you see in a denser East coast city. I am really interested in finding solutions to the obstacles to well planned higher density growth, which I do think center on failure to think more comprehensively about what growth means for things like schools and transportation. I loathe driving and would pay handsomely for decent public transportation but every mass transit initiative that has been proposed has been apparently been designed by someone who lives in Brooklyn and has never visited Austin.
These are all good reasons why “wealth”, individual net worth as of today, is problematic for measuring how well off 25 year olds and billionaires are in the short run, why it might be better for us to have less of our individual wealth tied up in housing, and why social security is good.
But I don’t think that’s convincing that “wealth isn’t what matters”. We need some way of measuring how financially secure people are that takes into account current income, future income, assets/liabilities and other benefits (gov health insurance, social security).
Totally agree the argument that student loan forgiveness helps low-wealth people is dumb because by definition they have big student loan balances and may be negative.
But we also need a measure that helps distinguish a 30 year old making $50k/year with a big student debt balance and renting an apartment from someone with same age and income with no student debt and paying a mortgage because their parents supplied tuition and a down payment— because they had more wealth than the other parents.
Also someone making $40k with a degree at age 25 is likely to earn more over the course of her life, and be much better off, than someone age 60 making $40k with no degree.
Most of our means testing is income based, which misses this distinction— that’s the key reason I see for this (currently not great) part of the discourse right now. Survey questions like “Could you handle a surprise $400 expense?” try to get at it. Credit scores try to build a picture of your future ability/reliability to pay, which is kind of close.
So sure, net worth isn’t a great indicator for taxing and means testing, but there’s got to be some measure to pull out what pure income misses.
Yes, exactly this. "The current measurement is bad" is hugely different from "the concept doesn't matter".
Yeah, this seems basically right to me. Matt has convinced me with this post that measuring wealth instead of income is going to cause all sorts of weird distortions that don't reflect things that matter. But I think the same is true about measuring income instead of wealth.
Exactly.
This is really smart analysis though I still think income is a much better measure in terms of taxation. Sure the 25 y/o and the 60 y/o making 40k/year are in very different situations, but I still think its fair to tax them the same. The 25 y/o will probably end up making 100k soon enough and we can tax them more when they get there.
Totally agree! That example makes me think more about the student loan forgiveness debate where ppl argue it will help those with less wealth. True... but that can mean young people with a debt balance and no savings yet who have degrees and good incomes and are going to be fine in the long run. Not helping generationally wealth poor families as much.
Why does there have to a measure? People seem to be assuming there is some equation that will reflect their intuitive sense of who is "rich" and who isn't, but it doesn't have to exist. There doesn't need to be a "correct" way of ranking people according to wealth. Every approach will highlight some aspects and underweight others.
For sure, people always argue about how to define rich and there's no perfect answer. But for policy, we definitely have to pick a measure for things like a) tax rates and b) targeting policy outcomes. Tax rates are mostly based on your annual income and people who are 'income rich' pay more, but the Elizabeth Warren "wealth tax" would try to charge everyone over $50 million in wealth a % of their net worth. When people argue for student loan forgiveness a lot of times they say it will help people with less wealth-- which sounds good, but many are just young people with student loan debt at the time who will probably make a lot of money over the next 30 years and don't really need help.
I agree that we should define policy goals first. I just feel that a lot of the discussion around these things seems to devolve into trying to decide who is "too rich". A wealth tax because "billionaires shouldn't exist" seems pointlessly punitive to me. The wealth of the richest is almost all on paper anyway; whether Bezos has $50b or $100b seems completely irrelevant.
But, yeah, I was just nitpicking your last sentence; I liked the rest of your post!
100% — I’m always kinda thrown off by people getting extra hyped about billionaire bashing. The point should be what helps people who need it the most. BUT I do think it’s kinda funny basically everyone points to someone like 20% richer than them to draw the line for what’s REALLY rich.
It helps if you think of wealth as the present value of expected future income, minus liabilities. That's what the value of a securities portfolio is, after all, and it also brings the value of a dental degree into the picture. Of course the latter is an imprecise calculation, to say the least, but at least it tells us that your newly minted dentist is actually pretty well off, student loans notwithstanding.
Good point! Thinking about "income" and thinking about "wealth" are really two ways of attempting to think about this thing that has factors that are classified each way, as well as factors that we don't account well.
It would be interesting to see a measure of wealth that counts human capital and social security. Seems like that would give a more realistic (and probably more equal?) picture of wealth inequality.
I was kicking a similar idea around and closest thing I could think of was credit scores-- some company or analyst is trying to decide how likely you are to be able (and willing) to pay down the road, so a lot of that is combining your assets/liabilities, current earnings, expected future earnings, etc. But then you think about gov run 'social credit scores' and it starts sounding like that Chinese gov surveillance stuff...
Why say, "Wealth isn't what matters,"
when you could say, "Wealth isn't the only thing that matters"?
Well, from a practical standpoint wealth doesn't matter. What we really care about are differences in consumption.
After following the arguments for the past few years, I have concluded that jealousy of the rich drives the wealth inequality debate while compassion for the poor drives the income inequality debate. There are good and bad arguments (and arguers) on both sides of each debate, but the rationale for bringing up the topic at all is fundamentally different.
Makes sense. I would add that wealth implies power in a way that income doesn’t. To use the example above, a doctor married to a software developer making $440k are still working for the man. Someone getting $440k a year in income from $11 million in assets is in a very different position.
THIS is the thing. The more wealth you have, the less accountable to the world you have to be with your time, the more risks you can take careerwise, etc.
Ironically, as you move up the corporate ladder, being able to walk away because you have a net under you of wealth makes you move up faster. You can take more risks. You can speak truth to power when required. You bring a certain confidence that makes you a better executive.
This is one of the more subtle ways that wealth begets more wealth.
Exactly!!
If you’re such a good manager at 32 that you have 6m squirreled away your negotiating position is - live in comfort the rest of my life or put up with more of your s*it?
Damn, what kind of 32 year old manager has $6M squirreled away? And my experience has shown that people who speak truth to power don’t always last long at that firm
Except they are working! They may or may not be able to succeed in selling their product - but if they are sitting around all day trying to figure out how to lobby the federal government, then they are lobbyists pitching a product to congress.
This always felt very true to me, but unfortunately it's such a subjective statement that it's impossible to really convince anyone that's the case.
I think the issue is more that even if wealth inequality is a reasonable indicator of economic dysfunction, then using it as a target of economic policy leads to perverse results that make everyone worse. More to the point, what we need to do to actually solve the systemic problems causing the inequality in the first place will actually exacerbate inequality in the short term.
But is it the cause, or the result?
Both . . . .
Some inequality is good; you want to have incentives for people that produce significant value to benefit from that personally, and it will create inequality.
But (a) the fact that inequality is much higher in the anglosphere than the rest of Europe suggests that current levels of inequality are not inevitable and are the result of policy choices and (b) there is reason to worry that inequality is self-perpetuating in the absence of deliberate choices to reverse it.
I agree but (speaking as a European) Europe also has huge issues with growth and innovation. May not be causal but certainly something to be aware of.
I believe that the book The Spirit Level made a fairly convincing case that inequality has negative consequences separate from issues of poverty.
I haven't actually read the book, but the summaries I've seen are fairly strong. Powerpoint here https://www.equalitytrust.org.uk/resources/the-spirit-level
Looking through those slides again, I think they're mostly about income inequality rather than wealth inequality. But I still think they bolster a naive intuition that inequality is a problem and that we shouldn't spend too much energy trying to convince itself that it doesn't matter.
I think a society with great wealth inequality is, ipso facto, likely to be a more unequal society in important ways, and that's a problem.
I disagree. At the low end someone with more wealth than their similar income peers has more financial flexibility to weather unemployment, spend more time searching for better opportunities, or afford housing in better areas. At the high end wealthier people can exert political influence.
I think both this comment and the Original Post miss the forest for the trees a bit.
Yes, there are important caveats to make when talking about the importance of wealth. But that doesn't make it meaningless (or even a bad measure).
To say that we only care about are differences in consumption is true, to some extent*, but it's true at such a high level of abstraction that I don't know that it's helpful.
In practice wealth has an enormous impact on the choices available to people and how constrained their lives are. We can (and should) increases the options available to people, but we should _also_ pay attention to differences in wealth.
*(thought experiment; if people were allowed to borrow freely, with no penalties, and all debts were cleared upon death, then yes consumption would be almost completely divorced from wealth. But that isn't a very good guide for policy because trying to move towards that world won't necessarily be an improvement).
I do think a distinction should be made between the ideas A) "wealth inequality doesn't matter very much" and B) "a lot of people have little or no wealth." (I'm not suggesting Matt is eliding these two; just pointing out "B" is a problem, irrespective of the wealth inequality situation).
Matt makes an elegant case for the former (A) proposition.
But I feel that, over and above any arguments about spiraling wealth *differentials*, there remains the bitter truth that too many Americans can't handle a $400 emergency. And that's a problem, quite apart from the fact that Musk and Bezos could buy many a small country.
(I remember reading a statistic a few years back; it was something to the effect that: *average* household net worth in the US was 4th or 5th highest in the world; but *median* household net worth in the US was like (quoting from memory) 22nd. The US was behind powerhouses like Portugal and Taiwan on this score. To me such a statistic indicates that the political economy of the United States is set up in such a way as to ensure plentiful revenue streams for the wealthy. In more enlightened polities, things are arranged so that the non-rich can enjoy a modicum of financial security. This seems bad for Americans.)
Agree. I'm less interested in how much Bezos' "wealth" went up or down this year and how much economic security most people have -- sometimes with the wealth tax discourse it can end up sounding more about the 1%. But the most important points I've heard made around wealth are things like the median black/white wealth gap, which was mostly built up through subsidized homeownership in the 20th century for white people. And so a 30 y/o Black person making $50K in 2020 is often less secure than a white person with the same age/income because way less likely to have family help with a down payment or college and more likely to need to help other family members.
So there are really two big ways to solve "wealth inequality" - one is redistribution (touted by the left) and the other is "equality of opportunity" (touted by the right). We hear a lot about that second one but very little about actual creative ways to implement it other than vagaries like "hard work" or "pull yourself up by your bootstraps". But the barriers to entry to those wealth castles can be really high and many of our laws and rules are designed to make scaling those walls more difficult, not easier.
If we found creative ways to bridge the "moats" that keep people from building wealth or acquiring ways to attain wealth, we'd go a long way towards solving that wealth inequality. One hidden advantage of Universal Basic Income, for example, is that it would allow many to spend their time starting small businesses instead of working a 9 to 5 job. We know it takes time and energy to start a business, as well as a ramp up until enough business is generated to pay the bills, so a UBI could offer that. If we offered "people investments" so that you could buy "stock" in persons who seemed promising in their potential but lacked resources (based on, say, their ability to acquire a degree or pass a skills test or start a small business), we could help fund these people getting their needs met so they could work on things that really yielded results instead of being stuck in an hourly job that just barely paid the bills. This already happens with those well-off and their offspring and is a proven methodology so writing directed checks towards the disadvantaged could go a long way to evening the playing field.
We give lip service to this kind of thing, but all the attempts are half-hearted (try getting a loan from the SBA or your local bank if you don't already have wealth or momentum to back it...). Not everyone is going to be entrepreneurial, but even a 10% or 15% rise in new small businesses could lead to tons more jobs created as well as wealth for the entrepreneur. Look at Kiva for an example of how we can invest in "people stock" in third world countries right now.
It's a problem of our political environment that nobody has a consistent rhetorical message that synthesizes these two. Republicans are so afraid of committing socialism heresy they can't contemplate that socializing the cost of basics like healthcare, education and retirement might free small businesses and individuals to be more entrepreneurial and nimble and the best way to provide equal opportunity. And Democrats seem strangely averse to promoting reforms like ending employment based health insurance as a boon to entrepreneurialism and effectively a tax cut on small business - apparently that would sound too much like a Republican talking point.
As someone who used to be responsible for evaluating and approving our company's health care plan, I now conclude we should have universal, government-provided health insurance. Something like Medicare for all, but with higher deductibles and co-pays to keep costs from spiraling like we see with many government funded programs (military and education costs come to mind).
It is wasteful for every business with more than 50 employees to staff or contract for a health care expert to evaluate program design, co-pays, contribution levels and network coverage. It is a distraction from the delivery of a good or service to a customer. As a country, we decided with the ACA to conscript businesses to provide health insurance because that was the compromise available at the time. It is now time to move away from employer-provided insurance to a government-provide system. If I were designing a system from a clean sheet of paper, I don't think it is ideal. But we don't have a clean sheet and this is would be an improvement.
When the ACA was adopted I remember some employee benefits attorneys were predicting the individual exchanges would gradually supplant employer-provided insurance plans as employers would drop their own plans. It hasn't turned out that way but it probably wouldn't take too much tweaking to push things in that direction. Maybe the only good thing that can be said about employer-provided insurance, and I'm not even sure it's true, is it imposes some market discipline on healthcare costs as portion of total employee compensation.
Don't think higher copays are a useful way to control costs though - they inflict pain on patients but can't really control costs for anything that exceeds the amount of the copay. If you have a $75,000 hospital or medication bill, making the patient pay $1k or $2k more in copays only erodes the value of the insurance policy, and functions as stealth premium increase, but doesn't meaningful affect the total cost. Routine preventive care for people without chronic conditions might be different because it's predictable; it's kind of a misnomer to even call health insurance "insurance" for that, and routing those routine expenses through insurance plans serves a redistributive purpose more than a true risk-spreading insurance purpose.
I agree that price is a challenging way to reduce over usage or waste with medical systems. The challenge is that I haven't seen a better one. Do you have one you would recommend as better? Maybe a refund at the end of the year if you haven't spend below a certain threshold...
Other than for very predictable routine care where you could prefund an HSA and let patients keep what they don't spend, I don't think it makes sense to look to patients to control costs. They simply don't have the leverage or the expertise to judge whether the care they're being prescribed is necessary and cost effective - that's why you go to the doctor, so they can tell you what you need. But under a fee-for-service system doctors have a financial conflict of interest because they make more money the more care they provide.
The only party who really has an incentive to control overall costs is the end payer, whether that's an employer, a gov't program or a health plan, and a vertically integrated, at risk health that gets paid a per-head fee is in the best position because they have the expertise and incentive to only provide necessary care in the most efficient way, since they lose money otherwise.
A few weeks ago, I would have scoffed at this, but then I started researching the intricacies of Medicare. Man, we need some serious simplification in this space!
Whenever I get into arguments about income, wealth, millionaires etc... I always specify the term "liquid wealth". Seems much more useful.
I have a decent amount of equity in my house here in Boise (thanks to all the Californians moving in and driving up prices), but two years ago when the wife and I looked at trading down to a smaller house, we couldn't find anything that wasn't also expensive, and there wasn't much to find anyway.
So our imaginary wealth was basically useless, well unless we move to Cleveland.
I like to think of useful wealth. I know people who live month to month that have a lot more fun and a higher quality of life than chronic savers who save everything. Sure, their retirements might be different, but...
What's worth more? $2K to someone in their 20s or $10K to someone in their 80s?
Anyway... fuck the rich. The rich being anyone who earns 50% more than I do.
Another great article. Thanks! I’m sending this around.
But please stop advocating for taking my house away and giving it to landlords or building apartment complexes or oil refineries or whatever next door. You’re freaking me out. We spend the money we’d saved over decades on this split level so our kids could play in the backyard and ride bikes around the neighborhood without getting creamed by a car. We’d like to keep it that way
^^^please stop advocating for taking my house away and giving it to landlords or building apartment complexes^^^
I've never read an Yglesias piece arguing for eminent domain takings of suburban homes in order to build apartment blocks.
(Though yes, in the coming Yglesian dictatorship, you might get a fat *offer* for your little slice of paradise from a developer who thinks she can make bank by putting up condos).
Apartment complexes next door and oil refineries next door are very different thing. I don't think Matt wants oil refineries next door to any residences (though I suppose I haven't actually read any model zoning code he would propose). Apartment complexes next door he'd be in favor of, but he'd also want street design and parking pricing that means most of the apartment dwellers would also walk and bike around the neighborhood like the kids, and would likely try to keep the cars (and buses, lots of buses!) on the big arterial roads, while neighborhood streets are more attractive for biking and walking.
I think Matt's point is that if home ownership wasn't structured as it is, you could have just that, on say a 30 year lease, while having much better access to good plumbers, electricians, etc, and without the overall system functioning as a massive driver of inequality, not just in wealth, but in education, housing, etc.
Hi Matt, great piece with a gloss on Apple that could really use revision:
"Apple doesn’t own the factories where the iPhone is made. The most valuable company in the world is mostly a cluster of brands, patents, trademarks, and human relationships. The companies like Foxconn and TSMC that own the physical capital used to make Apple gear are decent businesses, but the best businesses are very heavily tilted toward the intangible."
1. Apple's value comes from knowing how to produce extraordinarily useful tools that most productive rich people purchase. Patents and trademarks are details, brand is an epiphenomenon. "Human relationships" is part of it, but not the essence. César Hildalgo's work focuses on this point; see your boy Paul Romer's encomium: https://paulromer.net/why-information-grows/
2. Foxconn *is* a great deal of that know-how; the underlying relationship between Foxconn and Apple is complex. Apple bullies them a lot, but then the Chinese government sort of owns Apple via its high level control over Foxconn. To your larger point, how the accounting is done is sort of beside the point.
The interesting taking off point for getting rid of private homeownership is to look at places where there are no private homes. This would include company towns such as the one featured in Nomadland. The house Fern lived in was seemingly very nice but completely went away when the source of income supporting the town disappeared.
The other is base military housing. These range from dorms for enlisted men to McMansions for generals, all publicly owned and maintained. It is especially salient on overseas bases where owning private home would be foolhardy or legally difficult. The United States military is the most successful socialist society ever developed. Government provided housing, health care, and education. Plus heavily subsidized food and recreation. It's worth an investigation.
In other words, the true wealth is the friends we made along the way.
On the same day as the last MY Wealth Tax post the NYT Opinion section ran an article on closing the $7.5 trillion tax-gap to fund an infrastructure bill. I don't know where they're getting the $7.5T number since the latest IRS net tax-gap figures are still from the Obama era at $381B / year. Maybe they're throwing in the fraud estimates and then a 10 year run...
But on just straight tax code compliance, closing the tax-gap would raise more than Warren's "2 cents" Wealth Tax ($300B / year) without any of the mark-to-market enforcement impossibilities her plan faces. I feel like an IRS fairness message would have huge appeal to the tent building coalition. Hope it gets prioritized.
https://www.irs.gov/newsroom/irs-releases-new-tax-gap-estimates-compliance-rates-remain-substantially-unchanged-from-prior-study
Accurately measuring wealth requires constructing full accrual personal financial statements for individuals. Given that most people wouldn't be able to read them anyway, that is just going down an endless rabbit hole.
Let's focus on how we got to this level of inequality, and use that knowledge to help us get out.
We got here largely by greatly reducing the most progressive features of our income tax, capital gains tax, and inheritance tax. The way out of it is to build those progressive features back in.
No, that doesn't address inequality quickly by tapping the Bezos' fortune, but it does get to it before it's passed to the next generation, and consequently would be an easier lift politically.