Wealth: earned or inherited

The efforts of the right to discredit Piketty’s Capital have so far ranged from unconvincing to risible (there’s a particularly amusing one from Max Hastings in the Daily Mail, to which I won’t bother linking). One point raised in this four-para summary by the Economist is that ” today’s super-rich mostly come by their wealth through work, rather than via inheritance.” Piketty does a good job of rebutting this, but for those who haven’t acquired the book or got around to reading it, I thought I’d repost my own response, from 2012.

The coming boom in inherited wealth (repost)

As everyone who has been paying attention knows, the news on inequality is nearly all bad. Not only has inequality increased dramatically in the US, but intergenerational economic mobility is declining[1]. And, where the US leads, the rest of the world looks likely to follow. The top 1 per cent lost more than most during the crisis of 2008-09 but, as Stephen Rattner reports here (drawing on work by Piketty and Saez), that was just a blip. A stunning 93 percent of the additional income created in the US in 2010, compared to 2009, went to the top 1 per cent, and there’s no reason to think things were much better in 2011 – average real earnings have fallen yet again, and employment growth, though positive, was still modest. Wealth inequality is also high, though it has not increased as much as income inequality.

The one bright spot mentioned by Rattner is that ” those at the top were more likely to earn than inherit their riches”. Since I’m already noticing that point popping up in the places you might expect to see it (can’t find a link right now), let me point out that Rattner’s explanation, that “the rapid growth of new American industries — from technology to financial services — has increased the need for highly educated and skilled workers” is wrong, and that there is every reason to expect a boom in inherited wealth.

The fact that currently wealthy Americans have not, in general, inherited their wealth follows logically from the fact that, in their parents’ generation, there weren’t comparable accumulations of wealth to be bequeathed.  More generally, starting from the position of relatively (to earlier periods and to the current one) equal income and wealth that prevailed between about 1950 and 1980, growing inequality of income must precede growing inequality of wealth, since wealth is simply the cumulative excess of income over consumption (and US high-income earners have not been notable for restraint as regards consumption). 

So, given highly unequal incomes, and social immobility, we can expect inheritance to play a much bigger role in explaining inequality for the generations now entering adulthood than for the current recipients of high incomes. That will include direct transfers of wealth as well as the effects of increasingly unequal access to education, early job opportunities and home ownership.


fn1. More precisely, since intertemporal comparisons are difficult, the chance that a person with parents at the top (or bottom) of the income distribution will end up in the same or a similar position is now higher in the US than in Europe, whereas, until at least the  late 20th century there was good reason to think that the oppositewas true.

91 thoughts on “Wealth: earned or inherited

  1. and here i thought economics – market sentiment, share market bubbles, panic selling, &c. – was a branch of psychology. 😉

  2. @Julie Thomas
    Wow! is that the authoritarian left speaking? You so loved your son that you denied him the right when nearly adult to learn a little by direct association about the kind of relatively rich and poerful or at least influential people that you do not associate with and know by the srereotypes with which you label them with. Bravo! Oh that I was as certain about anything as you seem to be about everything important.

    I haven’t heard of a private school offering a sports scholarship. What schools do that. Come to think of it, it sounds a bit like those great football enthusiasts the Marist and Christian Bros. And that gives me a clue (with Bertrand Russell’s help) to the origin of your severe certainties: you are I guess a lapsed Catholic.

  3. @yuri

    I think it is you speaking all on your own, from your own pain about somethings that hurt you so badly that you like to find things to criticise in others.

    Do you have any insight into what it was in your own ‘self’ that I wrote that triggered this irritable, risible response?

    I can assure you that it would be a useful exercise for you to ponder on this matter of motivation. I suspect that you don’t have much understanding or experience of how one goes about developing insight into one’s motivations, but it is possible and there is a lot of information on the internet you know, it really will make you so much happier and smarter if you invest sufficient effort and are honest with your self.

    I was brought up to think that all religions were irrational. I went to humanist meetings with my father sometimes though. Does that provide you with another clue you can use? 🙂

  4. Yes a clue that your attempt to signal that you have a sense of humour and even a light touch by emoticon derives from a an earnest indoctrinating background – a kind of Soviet version of family life in Calvin’s Geneva. I didn’t, and my children didn’t need to be taught that religions were not soundly based on reason for us to shed the faint tincture of theism that naturally made itsel apparent in early life.

    My many years of paying school fees, mostly at schools with some Christian connection, when the academic scholarships they all won didn’t cover the year or the amount are undserstandable even I think to you qua parent.

    When one of them won valuable scholarships to one highly regarded school which he wanted to go to, and also to one very highly regarded (especially academically) school we sent him to the former and, out of fairness to siblings, to find the money for fees if necessary. As it turned out the others all won scholarships at various stages too so we were lucky. I had been making preparations to get them into selective high schools – though not as determinedly as my ALP member cousin who bouhht a flat as nominal residence within the catchment area of a selective high school which also took some locals. (That was a good move as her daughter has a D.Phil from Oxford in molecular biology.)

  5. @yuri

    Thanks for that information. Now I understand just a little bit more clearly where your pain and resentment is coming from.

    But people are different you know and that’s the really essential thing that you ‘should’ remember when you choose to think so badly of the other people who done you wrong.

    Take comfort in the idea that it is probability all the way down – not turtles or Atlas shrugging and you don’t need to compare yourself to, or compete with, your relatives. As my grandma used to say “comparisons are odious”.

    You do seem to have an irrational need to identify the ALP as the source of all evil things in your family and the world, even? That seems problematic to me and you might want to understand the source of this dysfunctional thinking and ponder how much happier and more rational you could be if you just got over it. You might even be suffering from some sort of cognitive disability as well as the emotional disability that clearly underpins your miserable, irritable attitude.

    I never voted for the ALP. I blame them for the dole bludger meme they started back in the 80’s when there was high unemployment and no jobs and people who were unlucky and found themselves unable to find work were blamed. This attitude that they were lazy and stupid was the beginning of the crap judgemental society we now have and is the basis of so much of the psychological dysfunction and disability that we now see particularly in men of a certain age who form most of the long term unemployed.

    I don’t think I want to give you any more ‘clues’ though; your attitude is so very boring and typical of people who were fooled into competing for status and stuff over the past couple of decades and didn’t win enough to make them happy. Sigh, there are so many of you out there. But I never did want to be one of those psychologists who ‘helps’.

    I do wish I knew how to put a ‘roll eyes’ emoticon or a “snort” which would be so much more appropriate. But you can have another smile just because it is free. 🙂

  6. @Julie Thomas

    I never voted for the ALP. I blame them for the dole bludger meme they started back in the 80?s

    Actually, 1974, via Clyde Cameron, who also spoke of public servants as “shiny bums” in true populist style.

  7. @Fran Barlow

    It started that early? The bastards!

    I saw, close-up, that nastiness destroy a couple of blokes I knew well. It was cruel and such a waste of human capital.

  8. @Julie Thomas
    You don’t need to provide me with any more clues for my entertainment.

    To start with it is entertaining enough to try and work out whether you have some inkling of the truth that you know almost nothing about me and that your inferences (if that’s what they are rather than just random emissions) are far wide of the mark, in which you are just making clumsy attempts to be provocative – a kind of trolling.

    Alternatively, are you one of those people that one can feel sorry for who is so uncertain and so desperate to live up to the intellectual standards (never perhaps quite understood) that were held out as the summum bonum of aspiration with sad consequences for the relative dullard? (I was alerted to this category by a Jewish friend when we were discussing a couple of Jews who had committed egregious crimes and been caught. He pointed out that in a whole extended family – in this case Ashkenazim – of generally pretty bright people who value and use their intellects the shame at being thought a bit thick even after you have qualified as a lawyer or medical specialist can lead to pretty desperate acts).

    And you do of course know nothing about me and your cod-psychology is pathetic.

    Pain? Resentment? Where do you find it? I am luckier even than I indicated above. Life is kind and any past hurdles surmounted and consigned to the happy memories of success if not, immodestly, triumph and to reminiscence. A favourite godson (as atheist I am in fact) said recently that I was probably the only person he knew to have no negative emotions. Fearing that he was going to ask me what weed I would recommend that he smoke, and anyway thinking it made me sound a trifle simple minded I replied that he was basically correct but that I did find myself struggling sometimes to fend off the unpleasant emotion of contempt.

    The problem issues sometimes in a mildly sadistic approach to pretentious not very bright people who take themselves seriously. Especially if they throw down the gauntlet and are so deluded that they think they can win, so need teaching a lesson. Sorry about that.

    Of course I couldn’t be referring to you could I? You said something about probability which could suggest the kind of intelligent approach that is only to be found reliably in 1 or 2 per cent of even a First World population.

  9. @Peter Chapman
    Is there any evidence of an impulse toward civilisation, learning, invention and other accoutrements of modernity among the primitive people that we all had as ancestors without ingatherer ban being pursued by some who wanted to take advantage of or merely display some superior ability or attribute? That is surely one essential precondition. Others might include conditions under which the hunter gatherer band, typically no larger than about 150, and usually much smaller, could grow into a community of thousands. It is commonly pointed out that the larger, typically farming, community is a prerequisite for some of the smart people to be able to specialise. But it would also be true that one smart strong guy in a hunter gatherer tribe of 100 or so wouldn’t be much interested in progress if he could have the pick of the meat and the girls without having to found an academy or a health service. How would Aboriginal outstations develop from where they are even alcohol free and with TV to show them the path on which their farmer cousins in the Fertile Crescent set us.

    It would appear to be an empirical question as to just which urges to achieve or assert superiority lead to/are essential to beneficial outcomes to the plodding majority.

  10. @Julie Thomas

    I was going to respond to your post but while we may be writing in English we virtually come from different planets. If that is your guiding philosophy as a mother in life then there is so much that is different from us (and what I consider frightening) that I will not respond in depth to your post.

    Suffice to say, no one here has explained to me why r>g in the long-run, no one has explained to me why r is always value accretive, and no one has explained to me why it is a good think that Piketty has ignored household wealth and pensions that make up a lot of what accrues to “capital” nowadays in the western developed world.

  11. @faust

    Good decision Yuri, I did think that you would have trouble keeping up with my creative intelligence – 🙂 – but that doesn’t matter, most types of humans, even bitter and twisted neo-libruls, can be reconstructed.

    Brains can change. Did you know that? Check out Norman Doidge for more info, if you can bring yourself to challenge your prejudices. That doesn’t seem to be one of your intellectual strengths.

    I am pleased that you are frightened though. You should be; there are many many people who think like I do, increasingly so, I am finding as I talk to the country people who, in ignorance sucked up the neo-librul kool-aid and are now gagging on the taste and feeling quite sick.

    I do understand and appreciate your decision not to engage further with a person you don’t like or understand; that is typical of the very ordinary neo-liberal mind and intelligence. You don’t like difference do you? It is scary.

    But I doubt you have the self-control to follow up on your decision. You can’t help being nasty and revealing all your petty little bourgeois personality traits, can you? Let us see if you can resist responding to me this time.

    But LOL you should be afraid, Yuri, be very afraid of the honest decent people who are increasingly waking up to the way we have been manipulated to live in ways that the selfish greedy grasping people prefer.

  12. faust:- “I will not respond in depth to your post.”
    Julie Thomas:- love your stuff. and good on you for educating your children away from materialism. that you’re criticised for that shows how corrupted the modern era has become. -a.v.

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