I am very sad he never discusses I Capture the Castle. Perhaps we need a list of literature Piketty should have used! (Sorry this doesn't respond to the actual content; it's late and while the chapter gave me a lot to think about, I'm not very thinky now.)
Thanks for filling in for my flaking out. I have more work travel coming up in August so this time I'm going to look at the calendar before picking a chapter, but I am catching up.
I saw Reversal of Fortune about the same time I read this chapter, and its portrayal of the agony and unmanliness of being idle-rich felt very bottom-of-the-U.
Also, unless there are people who earn ridiculous salaries, all the rich people would be heirs, and that would be unjust. (P. says there are people who make this argument. I don't think I've ever actually seen it in the wild. Is it familiar to anyone else?)
I was also surprised at this assertion - and he said it had been made in the US? I think the last time the President's salary got raised there was talk about how he shouldn't be that disparate with CEOs, but I can't imagine heirs being brought up in that context.
I've certainly heard the argument referred to in comment 4. It is a bad argument!
Chapter summary was really excellent.
Actually, a look at Sunny von Bülow, some of whose financial details were made public, does seem to show the same downward pressure on inherited wealth. In 1935 at the age of 5 she was left a fortune valued at over $100m; when she was divorced in 1965, she had $75m; when her estate was divided up in 1987, it appears to have been $90m. So by whatever combination of lower returns, taxes, and consumption, the estate shrunk in real terms at 3.7% a year over those first 30 years, and 4.9% a year over the next 20.
What am I not understanding here? $90 is greater than $75 in most notations. If her fortune changed from $75 at the time of her divorce to $90 at her death, it would seem to have increased over that period. Perhaps the main downward pressure had been her husband's spending habits, of which she was subsequently divested?
Paying for college is certainly equivalent to inheritance. P. is clear that he is discussing inheritance at death + gifts during life, and college must be one of the biggest gifts commonly made by the "patrimonial middle class". The other big one was traditionally a deposit on a house, but I'd guess that that is increasingly unaffordable except at the top end of the UMC.
This was certainly a better summary than I would have come up with as a last-minute pinch-hitter. One thing I was struck by was his Table 11.1, which shows the wealth of various age groups as a percentage of those aged 50-59. The line for 1947 dramatically shows the effects of the war on the older generations. I do wonder if some of this may be due to incomplete records due to the war, though. His argument was that those who were near retirement age and lost their capital in the war would not have been able to catch up through earnings as much as younger generations. But 2 years after the end of the war, there wouldn't have been a lot of time for anyone to have caught up much. Why would the capital of older people have been so much more vulnerable to loss than those younger? Did they have most of their wealth in the form of annuities guaranteed by the Vichy government or something like that? Or is this an effect of postwar devaluation of the franc?
It's a pity there isn't a similar line around 1920 to see the immediate impact of WWI, and also fill in at an approximately 10-year interval from the surrounding lines (over which you could assume that each group had roughly moved one column right).
7: Yeah, there was a lot of inflation between 1965 and 1987. Prices went up by around 3.5x.
11. I remember that, I was there. But P. usually adjusts his numbers for inflation. I guess on this occasion he hasn't.
10. I think the argument is not that younger people had caught up by 1947 - they hadn't, their proportionate wealth was much the same, but it was a slice of a smaller pie. Rather, older people, who were dependent on savings and investments to live had lost an enormous percentage of their wealth during the war years which they had no means of recuperating because they couldn't work.
I think the down-payment on a house gift is actually not all that uncommon among American small-rentiers (people with something to inherit, but not seriously rich). I can think if a number of examples among my acquaintances. (Come to think, my down payment was an inheritance: childless great-uncle died living in a nice paid-off house in Queens, which provided maybe $20K each among the seven kids in my generation.)
Also, Piketty's description of the timing of pre-inheritance gifts sounds off to me from an anecdotal American perspective. He suggests that the typical gift is about 10 years before the donor dies; sort of a recognition that the expected inheritance is delayed by modern medicine. Significant gifts I've seen have tended to be earlier; college tuition, if we're counting that, significant financial support in the child's twenties, help with real estate (the family across the hall bought a condo for their kid to live in during college -- not sure who retained ownership).
the family across the hall bought a condo for their kid to live in during college -- not sure who retained ownership
This is very common among the lesser rich here too. I think the parents usually retain the property to let to subsequent tenants as a pension booster, but it will go to the kid in their will (having, in theory at least, appreciated in value well about inflation.)
I agree that the timing of P.'s "typical" gift sounds strange. People in their 70s downsize their housing and realise a bunch of cash, but they usually hang onto that to pay for care and treatment later without eating into their main savings too much. At one time you paid less tax on a gift more than 10 years before death than on inheritance, but I think they've fixed that here at least.
re: 16.1
Yup. I can think of a couple of friends whose parents did that for them. Not people I'd describe as rich, really. People in the sorts of solidly middle-class white-collar careers like the one I'm nominally.** Just people who arrived in those careers on the other side of the generational wealth line.*
* the idea that I could even afford to buy my own fucking house, let alone someone else's is hilarious.
** university lecturers, high school teachers, one person's Dad was a senior accountant for a Scottish local authority, etc. Almost all public sector, but professionally educated types.
We had a bunch of people trying to buy our house for that reason last time we moved. They felt comfortable standing in our living room criticising our decor for being unsuitable for students*. One woman actually told us she wasn't going to offer because we didn't have a dishwasher. God forbid that a healthy 18-year-old should have to do their own dishes.
*We eventually sold it to a nice gay couple who were an architect and an interior designer, who offered on the strength of what we'd done with the decor.
Right. That economic category is the people across the hall too.
Just people who arrived in those careers on the other side of the generational wealth line.*
If I understand what you mean by the 'generational wealth line', that feels significant to me, anecdotally, and P. doesn't address it. The people I know who are getting gifts from their parents seem downwardly mobile to me; as if they are very unlikely to be able to provide similar gifts to their children in the next generation. The sort of people we're talking about have wealth (again, anecdotally) largely from appreciated real estate, which is no longer an easily available option.
I don't have numbers to talk about here, but it seems like something worth looking at.
Another way of putting that is that while I'm familiar with people who get and give significant parent/child money gifts, in the economic levels where I know people, it doesn't look as though these gifts turn into stable multigenerational fortunes; the gifts are dissipated, and any surviving wealth depends on the child's vocational success.
But I may be misreading what's going on, given that there's a limit to what you know about your acquaintances' finances.
re: 19
Yeah. It's obviously true that the kind of profession I'm in* doesn't offer the kind of material benefits that it did 20 years ago. I think that's generally true across the board for non-finance professions. I know very few people, apart from a couple of bankers and lawyers, and a few people [like me] whose parents were on very low incomes or no incomes at all, who aren't materially worse off than their parents were at their age. I am materially better off than my parents, but then again, they both have cheap places to live, no debts, and pensions they will be able to live on.
Even among my friends my age, in London and the SE, there's definitely a divide. Those who managed to get into the property market, say, pre-2007, are generally all doing pretty OK. They are in the hole for some pretty big mortgages, but they've also got a lot of equity sitting and they can afford to live where they do. And when they do eventually downsize or retire, they'll be quids in. Those of us who didn't, are fucked, basically. Property at the moment is appreciating a the kind of rate where even if I was saving an unrealistically huge proportion of my income** the amount I'd need to save for a deposit is itself accelerating out of reach.
So, we'd need to save, say £25-40,000 right now, to buy a place like the one we live in. But if we save for 3 years, the deposit we'd need in 3 years time would be £70K. I can't realistically save £25,000 a year. £25,000 a year is the median salary, ffs.
* I'm not an academic, but I'm paid on essentially the same pay scale.
** not really possible while also paying rent, and childcare.
No, I see them more as a desperate attempt to keep your kids' heads above water in the hope that things will get better before they retire themselves.
LB, you live in a very different world than I do. Maybe it's the slight age or location difference, but what you're saying about down payments and buying extra properties is vanishingly rare in my social circle. 22 is much more familiar.
I don't know lotsof people buying their kids real estate, but some. Friend my age with a well paying job but an extravagant lifestyle, rich parents (1st generation rich -- successful professional) have subsidized him all along and recently subsidized a significant upgrade in apartment size; the family across the hall; second-hand gossip about people I don't know well myself. But I figure if I know a couple of stories, it's not uncommon, given that I don't know many people well enough to know how they pay for things.
It's obviously too late for me, but maybe the boy will be able to marry money. He's probably going to be a little shorter than your average heiress wants, but there's probably a personality-based work around.
He's probably going to be a little shorter than your average heiress wants
How old is he? He many grow a bit.
The examples from the comments so far sound like the decline of the patrimonial middle class.
It's pretty plausible that the US would have a very different gift / time curve to France, given they have both heavily subsidised tertiary education and medical care. In the US you have to spring for a very expensive college education and accumulate a buffer of capital against geriatric medical costs.
I'm sure he will grow, but on both sides of his family, none of his male ancestors were over 5'10".
I would say that a comfortable majority of peers of mine that own a home (in various coastal enclaves) got down payment (or actual inheritance) help from a parent. The parents generally are successful professional-level, not inherited wealth-or-finance capitalist level.
That seems like a weird thing to go presidential on. It's also pretty common from what I see, but probably not a majority of my peers. The houses are cheaper and plenty of them have parents without the money to help.
re: 29
5ft 10 is a fine manly height.
I know that I wouldn't have been able to afford the down payment on my condo without some significant gifts from family.
I also thought of the going-to-college thing; I assume Piketty didn't mention it because he's a decadent etc. European and his people don't have to pay for higher education.
(It also brought the Mitt Romney line about "borrow half a million dollars from your parents" to mind. This also makes me think of various noncash benefits transferred to children, for instance, getting someone a job with a family friend's company or the whole "Bill Gates' mom was on a charitable board with the wife of an IBM exec" thing.)
My sister has lived for years in the nice but unremarkable suburban house of my childhood, while my parents live in a second house. They are not in a prime global capital metropolis. Parents earned their money as middle class working stiffs with no inheritance, bought property and held it for a long time.
That seems like a form of inherited capital, though it wouldn't be picked up by Piketty. If they gift the house it would.
In metropoli of global capital, I would expect this same effect, just a few steps further up the wealth ladder.
33 - upon further review, the figure of half a million dollars wasn't in Romney's quote about borrowing from your parents.
From what I can tell, virtually everyone in my cohort who's bought a house has had significant help from relatives, but none of them has had a whole house bought for them. And I'd say it's probably 50/50 as to whether they're downwardly or upwardly mobile, at this point in their lives, at least. I think the problem with this kind of anecdata is that, as usual, our unacknowledged class strata in this country only tend to mix with each other, or with people very close by.
Take my former cow-orker who's FIL was a big wheel with a national accounting firm. This was a guy who was heavy-duty enough (the FIL) that when the company transferred him back east, he told them he'd only do it if they flew him back and forth from MSP as much as he wanted. Frequent flyer miles up the wazoo. He probably could have afforded to buy his daughter and my cow-orker a house outright, and I'm sure they get some decent monthly stipend, but mostly they live on two professional salaries in the same manner that they would without the parental help.
By contrast, those people in the stratum just below me who are always a month away from homelessness, and have parents who, if anything, sponge off of them for beer and cigarette money, are in a completely different world, that only intersects mine at certain formal interstices (the bar, for instance).
So that's where I think some of the averaging and medians tend to break down as a reflection of how people actually live. It's easy to look at my life and say "Natilo is 24% less wealthy than his parents were at his age" or whatever, which is 14% above the national median. But my bouncing around within my particular tranche doesn't necessarily tell you much about my friend Joe who is 6% wealthier than his parents, but is never going to be able to afford his own house or drive a less-than-10-year-old car, or whatever. And stuff.
The Modigliani triangle is interestingly contingent on end-of-life events. To make it personal, my parents are in their mid-seventies, healthy as conceivable at that age, and own two fairly valuable houses between them. If they were both hit by buses tomorrow (thought experiment, hoping this doesn't happen), my sister and I would inherit not a huge amount of money, but an amount that would be quite significant to me. If they both live twenty more years, but stay in good health until near the end and die cheaply, inheritance would be pretty much the same, I think: they both live very cheaply, and I'm pretty sure with social security and pensions they're not spending down assets. But if they need residential care for decades, which is also perfectly possible, that's an expense sufficient to consume everything they own. I don't have a good sense of what the odds are for people comparable to my parents; do they tend to have their assets spent down by end-of-life care, or is that not all that common?
there's probably a personality-based work around.
Avoid puns.
A gift well under the allowed-gift tax amount from my parents would have made a huge difference when we were buying the house and got tangled up in a bank's liquidity crisis, but they weren't willing to help since they don't want to support immorality. They give my semi-functioning-alcoholic brother a fair amount of financial help, but I don't have any "not fair!" response to that.
I have a coworker near retirement who's trying to buy a duplex that her struggling adult daughter could live in and sort of manage while the other side gets rented. Again, that's about keeping an adult child off the street more than anything else.
The unanswered question I had at the end of this chapter, I don't really think Piketty is in a position to answer, but I'd like to see someone else do followup.
He talks about there being more single-digit prole equivalent inheritances out there, and I think he's right. But there's a real conceptual difference between a consumable inheritance; the kind of college-education, living expenses in your twenties, thing we've been talking about in this thread, and what I'd call in Balzac/Austen terms a fortune: inherited wealth that produces significant income, the sort of thing that Piketty talks about as tending naturally to increase in size if r>g. What is that crossover point, under which inheritances are spent and over which they grow, and what percentage of the population receives the latter kind of inheritance (and what part of private wealth consists of the latter, rather than the former, kind of inheritance)?
That's a question that's going to be very different country by country, but it seems to me to be an interesting one.
I'm also curious how much US civil forfeiture now prevents wealth from accumulating among the lower SES.
Buck, kibbitzing, queries whether paying for college counts as the sort of gift that's equivalent to an inheritance. Sounds plausible to me, and significant in what P. calls the 'patrimonial middle class', but P. doesn't raise it.
Of course, P. comes from a country where college education is paid for by the government, so its probably not as much on his radar as it would be for an American.
43 owned by 33.
I have relatives who bought their kid a house for college, but it was in Rochester, so I can't imagine it was that expensive.
To follow up my 41, that seems like such an interesting question to me because it goes to Piketty's thesis about r>g leading inevitably to wealth concentration. Consumable inheritances (is there a better word for this?) are a huge part of inequality; I have a very different life than someone who needed to pay for their own undergrad education and so forth. But they aren't themselves a force for concentration of wealth in the way 'fortunes' are, and I'd like to know how much inherited wealth is in the form of 'fortunes'.
14: small-rentiers
Petits rentiers, surely (and I think Piketty uses that term?). And searching on that term, the first result is a Douthat NYTimes piece on that part of Piketty, and part of which I do not entirely disagree with. (His overall dickishness is still there--"take that liberals!"*--but overall it is not too far afield from the discussion on this thread.
LB, I can do one of the later chapters unless you're looking for someone who hasn't raised their hand in class so far.
47: Who are we to be fussy? Name a chapter, and it's yours.
The Little Eichmanns of Income Inequality.
I haven't done a chapter and should probably pull my weight. 13 looks more potentially interesting to me than any of the others, so I could do that.
46: Oh, that's interesting, and come to think he implies, I think correctly, that P. means his chart of inheritances greater than one prole-equivalent to refer exactly to what I wanted to know; the number of inheritances that one would expect to tend to drive further accumulation rather than being dissipated.
I don't have a sense of what a single prole-equivalent inheritance is in the US; what are we talking, maybe $25K a year for an average member of the bottom half of the income distribution? How much capital would you need for $25K income -- at 5% it'd be $500,000, but that sounds like an implausibly high return unless you were in risky investments.
45. P.'s thesis up to now has surely been that the growth of the "patrimonial middle class" has been a factor restraining runaway inequality. If there are stronger countervailing forces tending to greater inequality, then financial pain in that section of the population is exactly what you'd expect. Previous generations of conservative politicians understood this, following policies designed to enhance the middle class ("property owning democracy" - Stanley Baldwin; "shareholding democracy" - Margaret Thatcher, I'm sure there are American equivalents). They seem to have decided that this sort of political intervention is no longer needed. P. is quite clear that in his view runaway inequality can only be prevented by political intervention, so without the political will his analysis offers a "Belle epoque" or pitchforks. Probably both.
52: I'm just going to keep on talking to myself indefinitely here, but come to think, I think the college/health-care differences between Europe and the benighted topfull US are really significant here. College and end-of-life medical expenses are largely set by your ability to pay (Medicaid requires nursing home residents to impoverish themselves before providing coverage, right) and top out at an amount that can be comparable to or exceed a life-time prole-equivalent. So, middle-class wealth gets whacked down significantly in every generation here in a way that P. doesn't discuss, and an inheritance sufficient to drive accumulation would need to be significantly larger here than it is in the EU.
Am I talking through my hat, or does this make sense to anyone else?
Certain types of hats do little to impede vocal clarity.
54. It makes perfect sense, and yet, does the data support it? The fact that until the present generation a plurality of Americans have self-identified as middle class since WWII makes me wonder.
I really think that if Piketty writes more books for the general public, he should circulate the manuscript to random fairly-well read people like, say, us, to suggest better (broader?) literary references.
54. In theory, yes, these expenses would be absent in the EU.
In practice, unemployment in the EU is much higher for young people outside big cities. I only know about geriatric care in one EU country, CZ. Decent care opportunities are oversubscribed-- the choices are a) a facility far from home and from anyone familiar, b) facilities with copays (modest by US standards, but locally expensive), and c) bribery to jump in line.
In CZ, DE, and FR, I think that it's pretty common for family to pay for the young college grad to move to the big city, or the kid lives with roomates into their mid-30s. So there are still considerable transfers from the middle classes for elder care and a good future for their kids, but the form of the transfer is different than in the US.
The residential geriatric care freely available in the UK is generally to be avoided if possible, but then so is the alternative. How much of your savings the private version consumes depends on how long you survive. In some institutions, often not long, it's a bit of a lottery. Transfers to kids are, as so often, intermediate between the situations lw describes and the US.
52 - I believe Jeremy Siegel's work pegged the long-term return on equities (as opposed to bonds or real assets) at 6.5%, although he said about ten years ago that he didn't expect that to hold going forward.
I can do Ch. 14 (but I haven't read 11 yet, eek.)
I haven't done a chapter and should probably pull my weight.
I want to do a chapter at some point, but right now I'm just falling further behind so I may not get to do so . . .
I'm just glad that the pace is slow enough that it is still practical to catch up. I still appreciate the decision to stick with one chapter per week rather than two.
Quick googling led me to this: For Stocks, The Worst Decade Ever, describing the 2000s, which would also be most of the time I've had retirement money in the stock market. This may explain why I find talking about 5% returns kind of mystifyingly inflated.
So, Thorn's on for 13, and Paren for 14, 15 and 16 still up for grabs.
I can do 15.
Adjusted for inflation, the S&P 500 has given 4.4% returns over the last 10 years.
The Hills at Home wanders amusingly between labor and inheritance. Throw it into the extended Piketty dance remix.
Paying for college surely feels like a form of inheritance made to tip the odds on maintaining class status, over and above the productive capacities of the kid. That is, some engineering degrees (e.g.) are probably a straight-up capital investment, but IME if you look like a good bet as an engineering student someplace will offer you a full ride, so it's not only explicable it's often unnecessary. It's the economic benefit that apparently attaches to any degree that seems puzzling. (My estimation of the critical thought enforced on US undergraduates is currently low.)
For geriatric care; when did it become more common than not for the incapacitated old with living children to go into commercial homes? The 1960s, when the country seemed rich (but the minimum wage was high; what caretakers?) or the 1970s, when middle-class women had careers with an arc, or the 1980s, after a generation of moving around a lot? The system of grandpa mumbling in the kids' chimney-corner is hard on grandpa and whoever does the lifting and washing, and the system of one of the daughters remaining unmarried to look after the parents in their home is hard on the daughter, but they clearly kept the work and the inheritance in the same place so they were comprehensible.
The life expectancy at age 65 has gone from 70 in 1960 to 79 in 2010, so partly it wasn't as big an issue, and partly there was a lot less in the medical sphere that was done as people aged back then. (Same reason early national health insurance was as much about getting payments to afford staying at home during illness as it was about paying for the medical care.)
68.3 working women and geographic mobility, definitely. I think the other nail in the coffin for in-family care of the elderly is a decreasing number of kids.
Tom Wolfe pulled in some pretty broad socio-economic forces, and he's widely beloved. Dalls, maybe?
The average age of, mm, physical dependence has increased less than life expectancy has, and the difference needs more skilled care? My experience from working in long-term facilities was that they were mostly shit-wiping warehouses, forgive the language, but I was unskilled so devoted to the wiping.
Anyway, this seems like an insuperable problem for families with less than stratospheric wealth; we used to mostly die when we returned to being consumers rather than producers; now we can hope to, as was said above, zero out middle-class patrimony in every generation. And we're lucky if it doesn't take the kids' resources, as well as that of the aged.
Yeah, it's true a lot of assisted-living places are not actually medical providers in any real sense - they might have a few nurses on staff, and do a few scans if the money's right, but anything more and they call 911.
I look forward to giving my kid the choice... "well son, you could let me live in your house and wipe my shit - like I did yours for so many years - and get yourself a nice inheritance, or I could go to a facility and you can have what little is left at the end."
While looking after my grandfather, my mother and I joked that assisted suicide would be legal by the time she hit 80 and obligatory by the time I did. Ha ha.
I finished at lunch today. Last few chapters are downhill running, like reading a well informed op ed, the vaguely technical work is in the middle.
The residential geriatric care freely available in the UK is generally to be avoided if possible, but then so is the alternative.
...death?
"Affordable" private care. I used to know somebody who was a good nursing home manager and got sent into failing homes to turn them around. The stories she told were not comforting, and yes, death played a large part in them.
76: Just started 16, but that's been my experience for several chapters now.
If you get in-home care, maybe try to pay more than minimum wage or the caregiver might turn to a life of crime and large dogs.
Ireland has a system where you hand over most of your income* and an annual chunk of your assets in return for funding your care. (For your main residence this chunk is capped at 22% total, which can be loaned to you and repaid after your death)
*nominally 80% but if you're on the standard old age pension most of the rest will go on extras not covered.
There can be a waiting list to get on this scheme frim time to time. http://www.hse.ie/go/fairdeal/
Thanks Lizardbreath. I think you have a point about middle class accumulation being likely to be wiped out. I think this state of affairs is too new for us to really see how it is going to work out, but I can't help but think it tends to increase the power of the really big fortunes.
It means the bulk of the population can never get out of wage slavery doesn't it.
I actually don't know if it's a good or a bad thing. I'd approve of a draconian inheritance tax, even if it wiped out the inheritances of the patrimonial middle class. The sort of thing I'm talking about is like a capped draconian inheritance task. Which is inferior to an uncapped version, but maybe it's still a net force for social equality? The reduction in inequality between the patrimonial middle class and the poorer part of the population is a net plus? Maybe?
I clearly do not have fully formed thoughts about this.
One obvious (and this is totally peripheral to Piketty, but related to the discussiom more generally) is that socialism is capable of providing lots of things that look like "wealth" and this lessening the need for the bulk of the population for inter-generational wealth accumulation. The obvious example is that state-provided long term care lessens the need for accumulating wealth to pay for the care, but there are tons of other examples (public parks reduce the need for a big house with a back yard, etc. etc.). Of course paying for these things through taxes also reduces the ability to accumulate wealth, but it makes such accumulation less necessary. A world in which there's more overall socialism may make a patrimonial middle class less necessary.
For Piketty, though, I think the key point is that wealth disparity is so great that you could achieve many of these benefits at little cost to the middle class or its patrimony simply by distributing wealth downwards from the very rich.
And 85 dovetails nicely with 86 last. The shift in gains of both income and wealth to the top 1% (and 10%) have been so severe (at least in the US) that you've had an actual fall in median private wealth at the same time you've seen an enormous increase in total private wealth. Stunning. There was also the study I saw a week or two ago that says that in terms of median wealth the US is something like 20th in the world and about at the level of Taiwan.
Or, put differently, in eg France you have both more socialism (and thus less need for wealth) and substantially higher median wealth than in the US.
Meaning that in the US we're probably closer to approaching the pre-WWI state P. describes than to the current French situation where inheritance is economically important but significantly less concentrated.
I wonder if media representations of the super-rich as a norm, in the Austen-Balzac sense, are emerging or are going to emerge. I can't think of anything much offhand -- what's the economic bracket for "The Real Housewives of [wherever]"?
Most romantic comedies seem to be set among the top, say, 5%. Or Sex and the City, which always irritated me by positing the normalcy of super-comfortable New Yorkers who had occasional, not-serious economic problems. Mr. Big was Darcy, maybe. (NB I don't pay a ton of attention to romcoms or Sex and the City, so maybe this is inaccurate.)
Even sitcoms tend to portray the top 10%. Really big houses, vague managerial jobs.
87.2. DeLong posted it at WCEG. I think I linked it in an earlier Piketty thread.
I think that in many ways Kim Kardashian is a reasonable proxy for the future of American wealth. You inherit a lot of wealth and that inheritance is 100% necessary to your social and financial position, yet you are also supposed to "do" something "creative" with that wealth to earn even more with your capital and show that you deserve it, while adopting a culturally populist stance (instead of eg funding the opera). Of course KK is more sexualized and "tacky" than the rich kid who goes to Stanford/Harvard and gets a job with a bank through connections and starts investing in "disruptive" start ups, but it's the same basic dynamic, the inherited wealth itself allows you to create the fiction that you deserve your good fortune due to your purportedly great business skills/nice ass, even where your business skills aren't that remarkable and your ass isn't that great.
92. I'm sure you're right. That was Romney's playbook during the election, and KK was adumbrated by Hilton. They're everywhere if you look.
90.2: I also think that phenomenon contributes to a somewhat-skewed popular understanding of the level of prosperity of the late '50s/early 60s. Look everyone who isn't in The Honeymooners* lives in big house on a quiet tree-lined residential street.
*Or Lucy and Desi.
90: But the point P. makes about this is that in the Balzac/Austen world, the normal wealth is 30 prole-equivalents, which he calculates as about 30 million €. People with that much were ordinary, people with half that much were poor-ish, people with a quarter that much were dealing with genteel poverty and almost falling out of their social class. Darcy was rich by those standards, with an equivalent wealth of many more prole-equivalents.
Current media is disproportionately about the upper economic percentiles of the population, and misrepresents living standards pretty egregiously. But to match Balzac/Austen levels of focus on the superrich, we'd have to be watching TV about people with multiple yachts feeling poor because they can't afford private jets, which I think we mostly aren't.
I liked it better when wealth was measured in cows instead of proles.
If no one's taken chapter 16, I'll do it. Probably.
I don't know whether there's any difference in the distribution of inherited wealth vs total wealth.
Along with the Kardashians, consider the
Pritzkers.
93. Has "adumbrated" ever been said on TV? It would be great to have Robin Leach, narrator and guiding force behind "Lifestyles of the Rich and Famous" shout
selected comments from this thread. Interspersed with shouted declamation of some of Piketty's triple-layer clause sentences, those by Bill Cosby, wearing Coogi.
Remember how vulgar and stupid Leach's show seemed when it first appeared? I bet that it would seem boring and ordinary now.
To be fair, there's lots more channels so the competition is greater.
The Real Housewives shows actually mostly are problems like those described in 95, e.g., this person, though the cast members are also selected for their tackiness/drama potential so that they can be easily made fun of and are thus immune from the deference ordinarily due to the rich.
But I'm mostly serious about 95; whatever our world of rich-fawning looks like, it won't look like the Austen world, but will require more of a facade of merit and effort. (Though, thinking about it, 30x the median income is roughly the right cut-off for a lot of media focus; median US income is $50k/year and Sex and the City portrays, roughly, the lifestyle of New Yorkers who earn about $1.5 million/yr).
Sex and the City portrays, roughly, the lifestyle of New Yorkers who earn about $1.5 million/yr
I never watched it really, but I saw bits and pieces, and this seems off by almost a factor of ten. The characters were certainly unrealistically well off, but they looked sort of lowish six-figure income well off, not seven figure income well off. (In the vocabulary I was thinking in at the time, senior associate incomes, not senior partner incomes.)
I have no idea what it means in terms of income, but they were able to buy modest-by-Texas-standards apartments without too much trouble, wear expensive clothes, and eat in restaurants and take taxis everywhere. It came across as "money is no object, but we're not trying to keep up with extraordinarily rich people".
modest-by-Texas-standards apartments
TV has always done that kind of thing with NYC apartments. If they used actual-size apartments, the rest of the country would read it as "poverty."
Didn't the lead character have a job writing as advice columnist where she appeared to set her own hours and never worry about a deadline. I also think she had an expensive designer shoe habit, not just wardrobe but dozens and dozens of pairs in her closet. That's more the life of a trust fund type than a working writer.
102: Well, Carrie was always seriously in debt. She couldn't really afford those shoes.
That's why she had to dump the carpenter and the artist and hook up with Big.
102 -- I think you may be thinking in terms of late 90s/early 2000s salaries and prices.
I ain't saying she's a gold digger, but I only briefly saw her with a guy from Northern Exposure.
105: Advice columnist have to write 6-10 paragraphs a week. There are several commenters here that write much more than that on a daily basis, and that's in addition to having a job. The only challenging part of her job was coming up with dumb puns, but I've realized this comes naturally to some people.
Some of you may have forgotten the episode in which Carrie rode the bus to save money, but I haven't.
I've been thinking for a while that we may be on the verge of having the term "trust find kid" lose its negative connotations. Already it's used with much less contempt than it was, say, 15-20 years ago.
107: Wasn't that when the show was on?
111: It will go back to its original meaning -- desirable spouse.
Austen-era gentry & aristocracy also performed effort & merit: land management & improvement, being vicars, keeping the parish bull, local magistracy, charitable visits, etc etc. And forms of display probably analagous to opera funding.
Yes, but at that time median income was about $35,000, so 30x median income would give you about $1 million/yr income, which is roughly in the zone of the way the SATC characters actually lived (though obviously they were not scripted in jobs that were supposed to be paying them $1 million/yr). At a minimum they were living a lifestyle that would not have been affordable except on 10-20x median income.
115 to 112. To 114, yes but the difference now is that the wealthy are supposed to use their inheritance to become specifically professional/entrepreneurial, thus blurring the lines between capital and labor income.
I've been thinking for a while that we may be on the verge of having the term "trust find kid" lose its negative connotations. Already it's used with much less contempt than it was, say, 15-20 years ago.
Really? I don't know if I've ever met one, but why would this happen?
116: possibly the line is blurred both ways - some startup funding sure looks like gifts.
They're all providing cover for each other.
Also new-since-?: executives performing busy-ness all the time, instead of bankers' hours and a month off in the summer. Doubtless much of this is from an increase in actual competition, but a lot of it is bullshit and even if it weren't it isn't worth denying 40-hr weeks and vacation to everyone else.
Aside: who's the German Balzac?
111,117: If your life is like mine, you associate with richer people than 15 years ago. Also, I now express contempt pretty much only when I have something to gain by doing so.
That is, I have a hard time now knowing which acquaintances and colleagues are contemptuous of what.
Also, the whole "wealth creators" thing reads a lot like lords of the manor, providing jobs to needy proles et cetera.
92:
The old aristocracy kept up trappings and appearances of their defunct military jobs for centuries after they ceased being actual knights. And this was intermixed with second sons, impoverished nobility, etc actually being involved as officers in the military.
115: Those still looked more like 150K, maybe 200K lifestyles to me. That is, I was making pretty close to that, and while I wasn't living anything like that, I could have come pretty close by being stupidly improvident.
Thomas Mann or Hermann Broch. Maybe Thomas Musil. The Man Without Qualities is fantastic.
All of these postdate Balzac considerably.
Also, the whole "wealth creators" thing reads a lot like lords of the manor, providing jobs to needy proles et cetera.
Obligatory link to Nick Hanauer's TED Talk.
123: Comparisons to military service get confusing now that buying a commission isn't normal, though. There is, it seems to me, a surviving strata of families that send a kid or two to the service academies in the US despite having enough money not to `need' to.
Possibly more open to comparison; enactments of ritual dignity, once continuous with slightly mystical medieval pomps, now the Met Ball and/or fox hunts and/or the yacht show and/or sponsoring something in a civic parade, depending on where you are. I think that's the interestingly vanishing alternative to trust fund entrepreneurship; one can't imagine an Austen or Heyer character who had inherited money *pretending* to be a brewer. The hero of Rachel Ray, e.g., got hassled for *admitting* he was a brewer.
Mann, Broch, Musil; I was hoping for something from the analogous period of conversion from landed agricultural wealth to industrial wealth. Surely that wasn't so much later in Germany? (Faint misgivings based on Three Men on the Bummel and... side comments in Rebecca West? Or maybe even MFK Fisher?)
The hero of Rachel Ray was hassled for 30 minute meals where everything was covered in EVOO.
129. I don't know. My superficial impression is that Goethe eclipsed everything else. The only other writer I know from about that period is Schiller, who also writes in the wrong key.
Not German, but maybe Jan Neruda would be of interest. Short and sentimental, definitely not Balzac, but closer than Schiller, more explicitly concerned with
urbanization and the newish middle class. Maybe Week in a QUiet House. Sienkiewicz? I only know his historical stuff, but I know that he wrote more than that.
120: Workaholic capitalists turns up through the history of capitalism ... In life, Edison, Charles Merrill, Bill Gates, Murdoch ... In stories, Scrooge, the Hudsucker Proxy, Up in the Air ...
I think after WWII the leisured capitalist type became less acceptable though. Even when that is another way of looking at what eg Gates does now.
The Big Lebowski clearly flags a late 20C return of the power of patrimonial wealth, working stiff and of the petit rentier (The Dude's landlord).
So I'm comically far behind and I'm not reading the thread to avoid spoilers, but I volunteer for the next unspoken-for chapter If there is already a pool of volunteers, I volunteer for the most dully technical chapter.
I met a really well-read guy today who asked for a book recommendation. I panicked and said The Man Without Qualities. It was the only book I could think of that a well-read person wasn't guaranteed to have read
95.1. I read a thing I can't find (on paper), which explained Austen-world like this:
On £100 or more you could be considered "parish gentry" in a small town, basically a solid citizen. You might serve on the vestry or as a churchwarden. You might dine occasionally with the squire and if the regional magnate threw a big party for some reason, you might be invited. Your opinion would be canvassed on strictly local issues. Your sons would be educated at local schools, but would not go to university unless they won a scholarship; your daughters would marry men much like you from your county. You would probably have a job or rent land, though you might own a very small estate. You would probably never visit London.
On £300 or more you could aspire to live as a modest gentleman. You might be a Justice of the Peace and, if you couldn't avoid it (it was expensive), serve a term as sheriff of your county. You might dine occasionally with the regional magnate and your opinion would be canvassed on matters of county significance. Your sons would attend minor boarding schools and might go to university, but wouldn't take a degree unless they asired to the church. You would take your daughters a couple of times to regional places of assembly like Buxton or Astrop Wells (not Bath!) to try to find them suitable husbands. You might hold a position such as Rector of a wealthy parish, or a prosperous country attorney or have a small estate. In either of the latter capacities you might also act as steward for a bigger landowner. You would visit London three or four times in your life, mostly on business, but also as a tourist.
All matters of national politics, diplomacy, patronage of the arts and scholarship, fashion, and, with a few exceptions, the upper ranks of the army were the preserve of the group known vat the time as "the upper ten thousand", a number which, if you add to it women, children, wastrel brothers and indigent aunts, corresponds roughly to the top 1%.
I'm pretty sure I'm petite bourgeoisie.
84: I tend to agree with Piketty's implication that the patrimonial middle class is a good innovation especially in a democracy. Accumulated capital is terribly useful, and managing wealth is a skill that is too politically powerful to trust to a narrow class of either capitalists or civil servants and institutional managers.
The fondness Piketty has for the patrimonial middle class reminds me of one of the better New Labour policy ideas, the baby bond. Basically make a small grant for each newborn, invested, progressively scaled, then compound interest grows it until the kid is 18. They then have a small capital stake to plan with and grow at the start of their adulthood. If the other policies haven't saddled them with massive student debt and no prospects. I think the Tories killed it a few years ago; austerity etc.
I jotted that down a few chapters ago but don't think I posted it before.
This chapter, and the thread, made me personally uncomfortable. When the ex-Sultana and I bought our house, the down-payment came as an inheritance from her UMC father. When we divorced and I bought her out of the house, I was able to do so in large part through a gift from my UMC parents. And of course my parents paid for college for my brother and me. (Admittedly, 20 years ago, but still not cheap.) Said parents' wealth is "savings" rather than "inheritance" in Piketty's terms, but that's because of Troubles in the Old Country, which quite literally blew up the patrimony. I have an UMC income myself, but I know that I am not doing as well as my parents were at the same point in the life cycle. So I come out of this feeling like exhibit A for the patrimonial middle class, and still not having managed to do very much with it.
I also come out of this never wanting to read, or even read about, Balzac/Austen (Balzausten?) ever again.
I'm pretty sure you're well down the list in terms of who gets put up against the wall when the revolution comes.
There is a breakdown of capital returns by scale of fortune coming in one of the next chapters, that, spoiler alert, shows that big fortunes get significantly better returns, largely by tapping higher risk hedge funds and less accessible investment opportunities. Piketty makes clever use of the Harvard endowment as a comparison point.
You could actually use this as a defense of inequality. Only when capital is arranged into spectacular masses is it able to afford to seek out the best returns, the obscure corners of the global economy crying out for more robots or shovels or coltan mines. Though it may seem unfair, and we should not stop helping the poor, confiscating such wealth would suppress growth, deprive us of GPS shovel drones and thereby hurt everyone.
I haven't seen this argument in the wild yet, right wing critics seem too busy sputtering, Martin Wolf excepted.
You could actually use this as a defense of inequality.
Pretty weak argument. Seems patently unfair for the already wealthy to get better opportunities to further increase their wealth than are available to everyone else. (They do, of course, but we keep this hush hush and pretend they are just skilled investors. (Or hiring skilled investors.)) Why have massive inequality when you could still get the investment benefits of huge pools of capital through pooled pension funds (which is the source of most of this pooled capital today, although the investor base is shifting more toward private fortunes all the time), endowments (like the Harvard endowment he mentions) or even sovereign wealth funds?
Sure, it seems unfair, but pension funds don't get those 6% returns, and sovereign wealth funds are mostly too opaque and politically compromised to manage it. Life isn't fair but we have to make the best of the world we live in.
Why pension funds don't get those returns is an interesting question, but the higher fees on higher risk investments seem to wipe out effective return. Unless you are in the developing world. See table 4
http://www1.oecd.org/finance/private-pensions/41218144.pdf
Why should this be? Are pension funds shackled by their retail investors to conservative investments that don't have to be defended in detail? Perhaps with plutocratic or vigorous academic management, risks can be explained and consciously managed, and therefore higher returns achieved. Or do private funds just snag the best people? Either way they aren't as good and we shouldn't deprive the world of new Chinese skyscrapers and GPS shovel nurse drones social nanobots.
One counter would be to use funds taxed off private wealth to fund more Harvard-like endowments. That is the university-scale baby bond I guess, but you need Harvard scale according to P. Another would be biting the bullet and accepting lower return - but it seems that would hurt growth, and growth unlike capital return does tend to lift all boats.
Why pension funds don't get those returns is an interesting question, but the higher fees on higher risk investments seem to wipe out effective return.
The investors don't see the high returns but that doesn't mean the fund doesn't make the socially beneficial high risk investments.
Sally Quinn* reads 19th c English literature:
Finally read George Eliots Middlemarch. Extraordinarly insightful about human condition, stunningly atheistic. Satsifying Ending No sex.
*The WaPo/DC society bounder.
145: I suspect, but cannot currently be bothered finding or linking to any evidence, that the pension funds are actually not as good at finding successes as venture capital and hedge funds. Which means higher risk pension funds are actually just losing money, and they would be benefit society more by staying in blue chip stocks and giving the extra to charity.
Which is not to suggest they are wonderful institutions, but they're good at what they're good at.
There is also a school of thought that venture capital and hedge funds are not as successful as they may seem, due to survivorship bias and difficult-to-measure risk profiles (for example this HBS working paper suggests that aggregate hedge fund returns are reasonably approximated by a strategy that just involves writing put options on index funds).
