About Inequality: Rich Get Poorer Over Time, Not Richer

IBD ^ | 06/09/2015 | BY STEPHEN MOORE AND ROB ARNOTT

[SeekAndFind]

It's no secret that the Democrats' 2016 presidential campaign theme will be class warfare — or as Hillary Clinton calls it, "toppling the rich." Which is "rich," given her own wealth.

The left has bought all in to the claim by academics like French economist Thomas Piketty, who argues that capitalism is creating vast dynasties of wealth that are hoarded by a select few oligarchies, with money being handed down from one generation of trust-fund babies to the next.

This narrative is mostly rubbish. While today's rich are much richer than the rich of past generations, the rotation among the elite is prodigious. A forthcoming academic article in the Cato Journal reveals that yesterday's rich get poorer over time, not richer, and get rapidly eclipsed by a new generation of entrepreneurs and innovators who build their own new fortunes.

Consider the Forbes 400 list of wealthiest Americans.

There is surprising dynamism at the top of the income pyramid and major turnover.

The nearby chart illustrates the "fall from grace" that the 1982 elite families experience with the passage of time. According to the Cato report, only one-fourth of the wealthy families in 2014 were on the 1982 list, and their aggregate wealth equals just 39% of the total wealth held by today's elite.

This implies that 61% of the wealth of the 2014 Forbes 400 is "new money" created over the past three decades. At the very top, nearly 80% of the wealth of the Top 30 is first-generation "new money."

[SeekAndFind]

[Gaffer]

I’m guessing because of government, taxes and the economy, they’ve had to take a “preservation of wealth” stance instead of one that is “growth” based on some calculable risk. Trouble is that the risk nowadays isn’t calculable when a capricious tyrant is in charge of the biggest drain on the economy.

[Wolfie]

Wow, I hope they’ll be ok.

[Vigilanteman]

Big factor is that those who don't have to struggle so hard to accumulate wealth also aren't motivated to preserve it by the time they are a couple of generations removed.

Just think of a few of the wealthiest families in history which we seldom hear about anymore-- the Vanderbilts, Coopers, Astors . . .

[Paulie]

—Consider the Forbes 400 list of wealthiest Americans.—

Hey! Where’s MY name on that list?

Oh well, maybe next year...

[CodeJockey]

I’m guessing because of government, taxes and the economy, they’ve had to take a “preservation of wealth” stance instead of one that is “growth” based on some calculable risk.

Excellent point. I've been on the sidelines with my 401k for the last couple of years. Capital preservation fund. Sure, I've missed out on some good returns, but at this point I'm not buying in at record highs. Plus with the market being manipulated by quantitative easing, and low interest rates I feel quite good about where I'm at.

[SandRat]

and I should sorry got them: WHY?

[redfreedom]

I’ve seen it in our own community. Daddy creates new wealth, becomes filthily rich. The kiddies are spoiled rotten, and piss it all away when they inherit it.

So yes the rich do not stay rich, but there is always new wealth created by the creative industrious folks that know how to get it. Rich people will always be popping up just like the gimmedat losers keep popping up. As long as both exist, the left will have class warfare with the net result the middle class getting screwed.

[freedomfiter2]

This is a case of twisted logic. You would get different results if you compared old money with the middle class instead of the super rich. The only thing the writer has proven is that the wealthy are even more so now than 30 years ago.

[minnesota_bound]

First generation creates the wealth.
Second generation maintains it and/or increases it.
Third generation blows all the money.