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This article seems to be missing an obvious point: The top 1% earn most of their money from investments rather than salary. And since rich parents will often g

by MarkMc 10y ago

This article seems to be missing an obvious point: The top 1% earn most of their money from investments rather than salary. And since rich parents will often give their assets to their children (in the form of trust funds or inheritance) it's natural that the children will also be rich. In fact, I'm surprised at how little advantage there is to having rich parents. Someone whose parents' income is in the top 1% and graduates from an elite university has less than a one-in-five chance of staying in the top 1%.

Retric 10y ago
Top 1% income includes a lot of people who are just barely in that 1% and get most of their money from income. Many people go in and out of that top 1% in good and bad years so it's not as fixed as your thinking. Wealthy people may even have a net negative income for multiple years while keeping a 7 figure lifestyle. Even wealth is tricky as someone's wealth at death is probably a better indicator. Though again complicated by trusts that are not in their name.
- taeric 10y ago
  Citations? I think the top 1% is a much more stable group than this indicates. Top 10%, I would completely agree with here. And I fully accept I could be wrong. I'm currently googling a few things, to see if I am off here. I'm asking not to be a jerk, but this is put forward as fact here. So I'm assuming you have actual numbers to back this up.
  - yummyfajitas 10y ago
    Only 1/3 of people in the top 1% in 2005 would remain in the top 5 by 2009. See table 3: https://www.aeaweb.org/conference/2013/retrieve.php?pdfid=462 https://www.aeaweb.org/conference/2013/retrieve.php?pdfid=46... Among people with income > $1M, 50% had this income for only 1 year. https://taxfoundation.org/millionaire-status-fleeting/ https://taxfoundation.org/millionaire-status-fleeting/ One great way to have a lot of income is to sell a house that appreciated in value over many years. But it's hard to do that repeatedly.
    - stuaxo 10y ago
      This is so soon after the credit crunch of 2008 it can't be generalised, A data set ending 1 year after the great depression would probably look the same. It would be more interesting to take a longer term data, just like this study did. (Even 2005 to 2015 would be more realistic).
      - yummyfajitas 10y ago
        Did you even read the paper? From 1991-2005, the odds of remaining in the top 1% for 5 years have ranged from 21% (in 1999) to 36% (in 1994). Intermediate results are more or less the same from 2005-2010.
        taeric 10y ago
        I'm curious how much of that is falling out of the top, and how much is the to accelerating ever higher. And you still need to adjust for inherited wealth. That is, of those that fell out, how many got there from inheritance?
  - philipov 10y ago
    1% is a rather arbitrary division point. Even if you assume that there exists a stable cluster of wealth at the top, why would it be bounded around 1%? It is much more likely that the group is either smaller than 1%, or larger. Suppose it's larger, then the group could still be stable, but the churn between people at 1.1% and 0.9% would still cause the arbitrary measurement of top 1% to change a lot. Now suppose the group is smaller than 1%, and the churn is instead at the top of the cluster directly beneath the stable group at the top, but still causes the composition of the top 1% to change constantly.
    - taeric 10y ago
      Yes, it is an arbitrary cutoff. If you have a non-arbitrary method to pick the cutoff, propose it. Otherwise, what is the argument?
tcbawo 10y ago
I wonder how many people in the top 1% appear as a one-time blip (eg. due to sale of real estate).
- andyv 10y ago
  Over a decade, apparently more than half: http://http://townhall.com/columnists/thomassowell/2007/11/27/that_top_one_percent http://http://townhall.com/columnists/thomassowell/2007/11/2...
battlebot 10y ago
Other research has shown that inherited wealth is usually gone within two generations. Not sure if the creme de la creme are immune from that--you start talking billions of dollars and it is hard to imagine anything but perpetual wealth.
harmegido 10y ago
I would guess that the author read the study from which the report is based, and noted the section defining 'Child Income' : "Our primary measure of child income is total pre-tax individual earnings. For single filers, individual earnings is defined as the sum of wage earnings and net self-employment income" They go on to say how they also measured child income in the same manner as for parents (including investment income, etc) to see if that made a difference.
daxorid 10y ago
Studies of lottery winners show regression to the mean over generations. Self-earners do not. What do you think the discrepancy's cause is, given your hypothesis?
- danharaj 10y ago
  A lump sum of money and an estate built around extracting wealth from economic processes are two different things. The typical lottery winner doesn't have the social connections or technical skills necessary to create such an estate themself. Having money quite obviously is different from having investments. If the lottery winning family does not focus on wealth accumulation, then their wealth will regress towards the mean for their lifestyle. If the lottery winner puts all their winnings in an index fund, that would be a good start to creating such an intergenerational estate. However, surprising perhaps to many people, not everyone is interested in turning money into more money. People who try to make money, surprise, have the skills, connections, and desire to do so. Of course, wanting to be such a "self-earner" doesn't mean one has the means or the luck to become one. The key point is this: if your estate is currently extracting wealth from investments, odds are that you inherited that estate. Your family having money in the past is a precondition of such a state, but it is not sufficient to sustain it. Wanting to be the first generation of your family with wealth extraction privileges does not mean you'll succeed and most such aspirants fail.
- Retric 10y ago
  Maintaining weath is something weather family's teach their kids. Avoiding losing the fortune is not that hard, but requires a focus on doing so. Further, family's tend to spread weath between members. If you have wealthy friends and hit bad times then plenty of people may help you get a leg up. But, if you are the only person is a circle with weath you end up helping a large group which can't help you back. As an example, a weathly family friend may help with tuition. Or funding a business venture, which is how people may go broke and then become rich again.
contingencies 10y ago
The Chinese have a saying: 富不過三代 / "wealth does not survive three generations"
- paganel 10y ago
  In the case of the Chinese that might also have been caused in the past by communists taking over the country and nationalizing everything or by people from up-North invading and making themselves rulers. Things are much more stable in Europe, not to mention the US. The Nazis were, generally speaking, quite friendly towards accumulated wealth (unless you were a Jew, of course), and in case of Britain the last major "all of your accumulated stuff is ours"-thingie happened after the Norman invasion, almost 1,000 years ago.
  - hubert123 10y ago
    Yeah or maybe the chinese have thousands of years of history and that saying doesn't come from the last 100 years.
    - paganel 10y ago
      I of course know that, just wanted to say that a saying it's just a saying, nothing more. You can think that all is nice and stable and then a guy like Mao and his army comes along and all the sayings attached to the old order of things don't mean anything anymore.
      - swampthing 10y ago
        Wouldn't a guy like Mao coming along render this saying even more true? But to be clear, the saying has nothing to do with government seizure or anything like that - it's about the nature of mankind.
    - douche 10y ago
      On average, there has been a massively destructive war or peasants revolt or foreign invasion every three or four generations, down through the ages of Chinese history. But I'm sure it is the same sentiment as the Dutch expression I remember from a couple of Dan Carlin podcasts, about ascending the stairs in wooden clogs, and descending them in silken slippers. The idea of a cycle where hard work leads to prosperity, leading to decadence, leading to ruin, seemingly crosses all times and cultures.
frozenport 10y ago
If they have kids the wealth gets split?

by MarkMc 10y ago

Retric 10y ago

Top 1% income includes a lot of people who are just barely in that 1% and get most of their money from income. Many people go in and out of that top 1% in good and bad years so it's not as fixed as your thinking. Wealthy people may even have a net negative income for multiple years while keeping a 7 figure lifestyle. Even wealth is tricky as someone's wealth at death is probably a better indicator. Though again complicated by trusts that are not in their name.

taeric 10y ago
Citations? I think the top 1% is a much more stable group than this indicates. Top 10%, I would completely agree with here. And I fully accept I could be wrong. I'm currently googling a few things, to see if I am off here. I'm asking not to be a jerk, but this is put forward as fact here. So I'm assuming you have actual numbers to back this up.
- yummyfajitas 10y ago
  Only 1/3 of people in the top 1% in 2005 would remain in the top 5 by 2009. See table 3: https://www.aeaweb.org/conference/2013/retrieve.php?pdfid=462 https://www.aeaweb.org/conference/2013/retrieve.php?pdfid=46... Among people with income > $1M, 50% had this income for only 1 year. https://taxfoundation.org/millionaire-status-fleeting/ https://taxfoundation.org/millionaire-status-fleeting/ One great way to have a lot of income is to sell a house that appreciated in value over many years. But it's hard to do that repeatedly.
  - stuaxo 10y ago
    This is so soon after the credit crunch of 2008 it can't be generalised, A data set ending 1 year after the great depression would probably look the same. It would be more interesting to take a longer term data, just like this study did. (Even 2005 to 2015 would be more realistic).
    - yummyfajitas 10y ago
      Did you even read the paper? From 1991-2005, the odds of remaining in the top 1% for 5 years have ranged from 21% (in 1999) to 36% (in 1994). Intermediate results are more or less the same from 2005-2010.
      - taeric 10y ago
        I'm curious how much of that is falling out of the top, and how much is the to accelerating ever higher. And you still need to adjust for inherited wealth. That is, of those that fell out, how many got there from inheritance?
- philipov 10y ago
  1% is a rather arbitrary division point. Even if you assume that there exists a stable cluster of wealth at the top, why would it be bounded around 1%? It is much more likely that the group is either smaller than 1%, or larger. Suppose it's larger, then the group could still be stable, but the churn between people at 1.1% and 0.9% would still cause the arbitrary measurement of top 1% to change a lot. Now suppose the group is smaller than 1%, and the churn is instead at the top of the cluster directly beneath the stable group at the top, but still causes the composition of the top 1% to change constantly.
  - taeric 10y ago
    Yes, it is an arbitrary cutoff. If you have a non-arbitrary method to pick the cutoff, propose it. Otherwise, what is the argument?

tcbawo 10y ago

I wonder how many people in the top 1% appear as a one-time blip (eg. due to sale of real estate).

andyv 10y ago
Over a decade, apparently more than half: http://http://townhall.com/columnists/thomassowell/2007/11/27/that_top_one_percent http://http://townhall.com/columnists/thomassowell/2007/11/2...

battlebot 10y ago

Other research has shown that inherited wealth is usually gone within two generations. Not sure if the creme de la creme are immune from that--you start talking billions of dollars and it is hard to imagine anything but perpetual wealth.

harmegido 10y ago

I would guess that the author read the study from which the report is based, and noted the section defining 'Child Income' : "Our primary measure of child income is total pre-tax individual earnings. For single filers, individual earnings is defined as the sum of wage earnings and net self-employment income" They go on to say how they also measured child income in the same manner as for parents (including investment income, etc) to see if that made a difference.

daxorid 10y ago

Studies of lottery winners show regression to the mean over generations. Self-earners do not. What do you think the discrepancy's cause is, given your hypothesis?

danharaj 10y ago
A lump sum of money and an estate built around extracting wealth from economic processes are two different things. The typical lottery winner doesn't have the social connections or technical skills necessary to create such an estate themself. Having money quite obviously is different from having investments. If the lottery winning family does not focus on wealth accumulation, then their wealth will regress towards the mean for their lifestyle. If the lottery winner puts all their winnings in an index fund, that would be a good start to creating such an intergenerational estate. However, surprising perhaps to many people, not everyone is interested in turning money into more money. People who try to make money, surprise, have the skills, connections, and desire to do so. Of course, wanting to be such a "self-earner" doesn't mean one has the means or the luck to become one. The key point is this: if your estate is currently extracting wealth from investments, odds are that you inherited that estate. Your family having money in the past is a precondition of such a state, but it is not sufficient to sustain it. Wanting to be the first generation of your family with wealth extraction privileges does not mean you'll succeed and most such aspirants fail.
Retric 10y ago
Maintaining weath is something weather family's teach their kids. Avoiding losing the fortune is not that hard, but requires a focus on doing so. Further, family's tend to spread weath between members. If you have wealthy friends and hit bad times then plenty of people may help you get a leg up. But, if you are the only person is a circle with weath you end up helping a large group which can't help you back. As an example, a weathly family friend may help with tuition. Or funding a business venture, which is how people may go broke and then become rich again.

contingencies 10y ago

The Chinese have a saying: 富不過三代 / "wealth does not survive three generations"

paganel 10y ago
In the case of the Chinese that might also have been caused in the past by communists taking over the country and nationalizing everything or by people from up-North invading and making themselves rulers. Things are much more stable in Europe, not to mention the US. The Nazis were, generally speaking, quite friendly towards accumulated wealth (unless you were a Jew, of course), and in case of Britain the last major "all of your accumulated stuff is ours"-thingie happened after the Norman invasion, almost 1,000 years ago.
- hubert123 10y ago
  Yeah or maybe the chinese have thousands of years of history and that saying doesn't come from the last 100 years.
  - paganel 10y ago
    I of course know that, just wanted to say that a saying it's just a saying, nothing more. You can think that all is nice and stable and then a guy like Mao and his army comes along and all the sayings attached to the old order of things don't mean anything anymore.
    - swampthing 10y ago
      Wouldn't a guy like Mao coming along render this saying even more true? But to be clear, the saying has nothing to do with government seizure or anything like that - it's about the nature of mankind.
  - douche 10y ago
    On average, there has been a massively destructive war or peasants revolt or foreign invasion every three or four generations, down through the ages of Chinese history. But I'm sure it is the same sentiment as the Dutch expression I remember from a couple of Dan Carlin podcasts, about ascending the stairs in wooden clogs, and descending them in silken slippers. The idea of a cycle where hard work leads to prosperity, leading to decadence, leading to ruin, seemingly crosses all times and cultures.

frozenport 10y ago

If they have kids the wealth gets split?