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https://www.nber.org/papers/w25442 https://www.nber.org/papers/w25442 'Have the idle rich replaced the working rich at the top of the U.S. income distribution?

https://www.nber.org/papers/w25442 https://www.nber.org/papers/w25442 'Have the idle rich replaced the working rich at the top of the U.S. income distribution? Using tax data linking 11 million firms to their owners, this paper finds that entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries.' Without going into the extensive exaggerations, lies and data-fudging of Piketty- do you look at the Forbes 400 list of wealthiest Americans and see a lot of inherited wealth there? A lot of Rockefellers, Morgans, and Vanderbilts? It's a bit surprising, right, because if we accept r > g then Rockefellers/Morgans/Vanderbilts should own most of the US by compounding wealth starting over 100 years ago at this point.... And in fact we find the Forbes 400 is virtually all- self-made entrepreneurs who created their own wealth. If you find a Rockefeller there who's never worked a day in his life but is simply living on rentier income, please let me know. (As I mentioned in the original comment, one of the reasons Piketty's rentier fantasies don't work is that he doesn't gauge consumption- and I suspect idle wealthy inheritant-types who don't work burn cash at a greater rate than r)

RestlessMind 8y ago
Forbes 400 for 2018: https://www.forbes.com/forbes-400/#715eb42a7e2f https://www.forbes.com/forbes-400/#715eb42a7e2f Looking at top 40 (because it gets boring to look up bios after a while), I see the following folks who inherited companies founded by their family members: Charles Koch, David Koch, Jim Walton, Alice Walton, Robson Walton, Jacqueline Mars, John Mars, Abigail Johnson, Donald Bren, Lukas Walton, Leonard Lauder. That is 11 out of top 40 (or 27.5%) have inherited their wealth. That is certainly a big fraction of billionaires who did nothing but win the birth lottery.
- roenxi 8y ago
  I don't know exactly what Mr. Piketty actually claimed, but that statistic pretty good evidence that return on capital vs the growth of income is not the major cause of wealth inequality. The major cause would be inheritance law and birth rates in wealthy families. Economic divides are a strange concern anyway; I don't see how I am unfairly disadvantaged by someone else's obscene wealth through winning the birth lottery. The issues as I see them are (1) high inequality is often an indicator of corruption and (2) many cities won't build sufficient high-density housing for political reasons. What exactly is Jim Walton consuming that should be given to the poor? He probably doesn't eat that much food, and I doubt he is competing for housing stock with people who are struggling to make rent.
  - RestlessMind 8y ago
    > but that statistic pretty good evidence that return on capital vs the growth of income is not the major cause of wealth inequality I see 27.5% as too damn high to be among the richest in the world just based on birth lottery. > I don't see how I am unfairly disadvantaged by someone else's obscene wealth through winning the birth lottery. Wealthy people get disproportionate benefits in: legal system [1], healthcare [2], political influence [3]. I can go on, but there few examples are sufficient to see why someone should get these privileges just because of birth. > What exactly is Jim Walton consuming that should be given to the poor? Don't know about Waltons, but Koch brother are consuming their wealth to purchase political influence [4]. I would rather have it spent on poor. [1] https://en.wikipedia.org/wiki/Peter_Thiel#Gawker_lawsuit https://en.wikipedia.org/wiki/Peter_Thiel#Gawker_lawsuit [2] https://www.nytimes.com/2017/06/03/business/economy/high-end-medical-care.html https://www.nytimes.com/2017/06/03/business/economy/high-end... [3] https://en.wikipedia.org/wiki/Dark_money https://en.wikipedia.org/wiki/Dark_money [4] https://en.wikipedia.org/wiki/Political_activities_of_the_Koch_brothers#The_Koch_Network https://en.wikipedia.org/wiki/Political_activities_of_the_Ko...
- hash872 8y ago
  The Kochs are active executives within their companies, which is a huge % of net worth. Wikipedia states that their stakes were worth $1.1 billion in 1983 when the brothers took them over, obviously they are worth vastly more now. It's not like they're rentiers who never worked- they still created most of their current wealth. This seems to be true for a number of 2nd generation wealthy. If r > g is true- why are the large majority self-made entrepreneurs? Wouldn't the compounding effect of inherited wealth make say the Rockefellers top the list by 2019? I couldn't find them in the top 100. The broader point is to use actual data versus empty theorizing from first principles. While I don't personally agree with what you stated above, you're already miles ahead of Piketty by using real-world data that we have on wealthy families vs. extremely broad theorizing on stuff like 'r always exceeds g'
  - mdorazio 8y ago
    You seem to be assuming that the ultra rich keep their wealth as personal wealth. This is pretty far from what actually happens. In most cases they setup foundations with large endowments instead of directly passing it to heirs (though the heirs are often board members and never have to work a day in their life). You mention the Rockefellers as an example. Guess what foundation has a $4.1 billion endowment, 105 years after its founding? Where is Bill Gates putting all his money? A foundation. See where I'm going with this? I'll take arguments against r > g seriously when they account for institutional wealth instead of just personal wealth.
    - barry-cotter 8y ago
      If you don’t hold wealth as personal wealth you don’t hold it at all. It’s not yours. There are no Rockefellers on the board of the Rockefeller Foundation. https://www.bloomberg.com/research/stocks/private/board.asp?privcapId=210269 https://www.bloomberg.com/research/stocks/private/board.asp?... One of the directors of the Ford Foundation is a Ford. https://www.tfff.org/who-we-are/board-directors https://www.tfff.org/who-we-are/board-directors None of the directors of the Carnegie Corporation are Carnegies. https://www.carnegie.org/about/trustees-and-staff/ https://www.carnegie.org/about/trustees-and-staff/ Two of the directors of the Hearst Foundation are Hearsts, of thirteen. If these foundations are attempts to keep wealth in the family they’re utter failures. At the peak of his personal wealth Rockefeller was worth over 1% of US GDP. $4 billion is nothing compared to that.
- barry-cotter 8y ago
  The Koch brothers would be nowhere near the top 40 based on the wealth they inherited. They may have inherited the companies but their wealth is not mostly inherited. I’m not saying they could have done it from a standing start but the Koch brothers are closer to Bezos or Gates than the Walton heirs.
usaar333 8y ago
Do you have a direct link to the paper? It doesn't look like it refute's the OP's point that the top 1% of people sorted by income are wage earners. The abstract seems to be talking about "top income' (i.e. sort people by income and fetch from highest to lowest until you have 1% of all income in the US), which is a different measure. But hard to tell without the paper.
User23 8y ago
A simple way to put this is that today's 1% isn't yesterday's 1%. Static inequality is oppressive. Dynamic inequality is entrepreneurship. PG explains this well in his inequality essay.
mdorazio 8y ago
I went to the trouble of actually buying the paper you cited and, surprise, it doesn't say what you seem to think (did you only read the abstract?). Here are the key findings: - Among the top 1%, 69% earn pass-through business income in some form - At the 99th percentile, business income only accounts for about 40% of total income The majority of what is described in the abstract (and a lot of the focus in the paper) is on the 0.1%, not the 1%. If you dig through their data and filter out the clear focus on $1M+ earners, the picture is pretty clear: the 1% are mostly working people who supplement wage income with some kind of side business income. This is exactly what you would expect if you think about lawyers, doctors, software developers, consultants, etc. When you get near the 0.1% level the picture changes significantly and business income takes over along with number of employees at owned businesses.
- hash872 8y ago
  While I did not purchase the document, I did rely on famous economist Tyler Cowen to summarize it. I feel pretty comfortable with that decision as he's an SME. > the 1% are mostly working people who supplement wage income with some kind of side business income. This is exactly what you would expect if you think about lawyers, doctors, software developers, consultants This is.... not what I would expect, at all. If you told me my thesis was just wrong and that the 1% (not .1%) just made wage income, I could accept that. But- you think it's normal for highly paid professionals to work a self-employed side gig, and that's what tips them into that top percentile? Like, a Bain consultant is going out and doing some extra side consulting in her copious spare time outside of her 80 hour a week job? This seems bizarre & unlikely (I am just relying now on your interpretation of the paper). Worth noting that high-earning doctors, lawyers, some developers can be self-employed, and so neither an employee or employer (especially for doctors I think that's the path to the highest income). Not sure how that factors in to the paper
  - mdorazio 8y ago
    Yes I think that's extremely normal. And that's exactly what the paper talks about - self-employed = pass-through income. If you're a lawyer or consultant and you bill your clients through your 1-person LLC (extremely common), your income is pass-through income and the paper would conclude that you are a "top earner" whose income comes from owning a business. On the doctor side, it's quite common for specialists to be technically self-employed and bill hospitals for their time rather than being a true FTE. See the issue with using the abstract comments here? Also important to note is that the paper isn't looking at individual earners, it's looking at households (it bases its information on tax filings, most of which for 1%+ people would be joint filings). If you and your wife each make $220k in total compensation (relatively easy in the Bay Area or NYC for example), congratulations, the paper says you're a 1% earner. Back to my main point - if you want to talk about business owners in the job-creating sense vs. income, it's important to distinguish between 1% and 0.1%. The latter is composed mostly of medium-size business owners (a good thing!), but the former is not.
jmharvey 8y ago
One reason the Forbes list is so dominated by self-made entrepreneurs is that it's relatively easy to verify their wealth based on public records. Jeff Bezos' net worth is, to a first approximation, the same as his stake in Amazon, which is regularly reported in SEC filings. The wealth of the Rockefellers/Morgans/Vanderbilts is less concentrated in any single company, so if they don't voluntarily disclose their finances to Forbes, they stay off the list, regardless of what their net worth is.
- barry-cotter 8y ago
  Thankfully they get divorced occasionally so we can be reasonably sure that no matter how discreet they are they are not the shadowy powers that actually control the US. Divorce lawyers want as much money as possible for themselves and for their clients and they don’t care if you hold your wealth in a well balanced diversified portfolio or if it’s all in one company.

RestlessMind 8y ago

Forbes 400 for 2018: https://www.forbes.com/forbes-400/#715eb42a7e2f https://www.forbes.com/forbes-400/#715eb42a7e2f Looking at top 40 (because it gets boring to look up bios after a while), I see the following folks who inherited companies founded by their family members: Charles Koch, David Koch, Jim Walton, Alice Walton, Robson Walton, Jacqueline Mars, John Mars, Abigail Johnson, Donald Bren, Lukas Walton, Leonard Lauder. That is 11 out of top 40 (or 27.5%) have inherited their wealth. That is certainly a big fraction of billionaires who did nothing but win the birth lottery.

roenxi 8y ago
I don't know exactly what Mr. Piketty actually claimed, but that statistic pretty good evidence that return on capital vs the growth of income is not the major cause of wealth inequality. The major cause would be inheritance law and birth rates in wealthy families. Economic divides are a strange concern anyway; I don't see how I am unfairly disadvantaged by someone else's obscene wealth through winning the birth lottery. The issues as I see them are (1) high inequality is often an indicator of corruption and (2) many cities won't build sufficient high-density housing for political reasons. What exactly is Jim Walton consuming that should be given to the poor? He probably doesn't eat that much food, and I doubt he is competing for housing stock with people who are struggling to make rent.
- RestlessMind 8y ago
  > but that statistic pretty good evidence that return on capital vs the growth of income is not the major cause of wealth inequality I see 27.5% as too damn high to be among the richest in the world just based on birth lottery. > I don't see how I am unfairly disadvantaged by someone else's obscene wealth through winning the birth lottery. Wealthy people get disproportionate benefits in: legal system [1], healthcare [2], political influence [3]. I can go on, but there few examples are sufficient to see why someone should get these privileges just because of birth. > What exactly is Jim Walton consuming that should be given to the poor? Don't know about Waltons, but Koch brother are consuming their wealth to purchase political influence [4]. I would rather have it spent on poor. [1] https://en.wikipedia.org/wiki/Peter_Thiel#Gawker_lawsuit https://en.wikipedia.org/wiki/Peter_Thiel#Gawker_lawsuit [2] https://www.nytimes.com/2017/06/03/business/economy/high-end-medical-care.html https://www.nytimes.com/2017/06/03/business/economy/high-end... [3] https://en.wikipedia.org/wiki/Dark_money https://en.wikipedia.org/wiki/Dark_money [4] https://en.wikipedia.org/wiki/Political_activities_of_the_Koch_brothers#The_Koch_Network https://en.wikipedia.org/wiki/Political_activities_of_the_Ko...
hash872 8y ago
The Kochs are active executives within their companies, which is a huge % of net worth. Wikipedia states that their stakes were worth $1.1 billion in 1983 when the brothers took them over, obviously they are worth vastly more now. It's not like they're rentiers who never worked- they still created most of their current wealth. This seems to be true for a number of 2nd generation wealthy. If r > g is true- why are the large majority self-made entrepreneurs? Wouldn't the compounding effect of inherited wealth make say the Rockefellers top the list by 2019? I couldn't find them in the top 100. The broader point is to use actual data versus empty theorizing from first principles. While I don't personally agree with what you stated above, you're already miles ahead of Piketty by using real-world data that we have on wealthy families vs. extremely broad theorizing on stuff like 'r always exceeds g'
- mdorazio 8y ago
  You seem to be assuming that the ultra rich keep their wealth as personal wealth. This is pretty far from what actually happens. In most cases they setup foundations with large endowments instead of directly passing it to heirs (though the heirs are often board members and never have to work a day in their life). You mention the Rockefellers as an example. Guess what foundation has a $4.1 billion endowment, 105 years after its founding? Where is Bill Gates putting all his money? A foundation. See where I'm going with this? I'll take arguments against r > g seriously when they account for institutional wealth instead of just personal wealth.
  - barry-cotter 8y ago
    If you don’t hold wealth as personal wealth you don’t hold it at all. It’s not yours. There are no Rockefellers on the board of the Rockefeller Foundation. https://www.bloomberg.com/research/stocks/private/board.asp?privcapId=210269 https://www.bloomberg.com/research/stocks/private/board.asp?... One of the directors of the Ford Foundation is a Ford. https://www.tfff.org/who-we-are/board-directors https://www.tfff.org/who-we-are/board-directors None of the directors of the Carnegie Corporation are Carnegies. https://www.carnegie.org/about/trustees-and-staff/ https://www.carnegie.org/about/trustees-and-staff/ Two of the directors of the Hearst Foundation are Hearsts, of thirteen. If these foundations are attempts to keep wealth in the family they’re utter failures. At the peak of his personal wealth Rockefeller was worth over 1% of US GDP. $4 billion is nothing compared to that.
barry-cotter 8y ago
The Koch brothers would be nowhere near the top 40 based on the wealth they inherited. They may have inherited the companies but their wealth is not mostly inherited. I’m not saying they could have done it from a standing start but the Koch brothers are closer to Bezos or Gates than the Walton heirs.

usaar333 8y ago

Do you have a direct link to the paper? It doesn't look like it refute's the OP's point that the top 1% of people sorted by income are wage earners. The abstract seems to be talking about "top income' (i.e. sort people by income and fetch from highest to lowest until you have 1% of all income in the US), which is a different measure. But hard to tell without the paper.

User23 8y ago

A simple way to put this is that today's 1% isn't yesterday's 1%. Static inequality is oppressive. Dynamic inequality is entrepreneurship. PG explains this well in his inequality essay.

mdorazio 8y ago

I went to the trouble of actually buying the paper you cited and, surprise, it doesn't say what you seem to think (did you only read the abstract?). Here are the key findings: - Among the top 1%, 69% earn pass-through business income in some form - At the 99th percentile, business income only accounts for about 40% of total income The majority of what is described in the abstract (and a lot of the focus in the paper) is on the 0.1%, not the 1%. If you dig through their data and filter out the clear focus on $1M+ earners, the picture is pretty clear: the 1% are mostly working people who supplement wage income with some kind of side business income. This is exactly what you would expect if you think about lawyers, doctors, software developers, consultants, etc. When you get near the 0.1% level the picture changes significantly and business income takes over along with number of employees at owned businesses.

hash872 8y ago
While I did not purchase the document, I did rely on famous economist Tyler Cowen to summarize it. I feel pretty comfortable with that decision as he's an SME. > the 1% are mostly working people who supplement wage income with some kind of side business income. This is exactly what you would expect if you think about lawyers, doctors, software developers, consultants This is.... not what I would expect, at all. If you told me my thesis was just wrong and that the 1% (not .1%) just made wage income, I could accept that. But- you think it's normal for highly paid professionals to work a self-employed side gig, and that's what tips them into that top percentile? Like, a Bain consultant is going out and doing some extra side consulting in her copious spare time outside of her 80 hour a week job? This seems bizarre & unlikely (I am just relying now on your interpretation of the paper). Worth noting that high-earning doctors, lawyers, some developers can be self-employed, and so neither an employee or employer (especially for doctors I think that's the path to the highest income). Not sure how that factors in to the paper
- mdorazio 8y ago
  Yes I think that's extremely normal. And that's exactly what the paper talks about - self-employed = pass-through income. If you're a lawyer or consultant and you bill your clients through your 1-person LLC (extremely common), your income is pass-through income and the paper would conclude that you are a "top earner" whose income comes from owning a business. On the doctor side, it's quite common for specialists to be technically self-employed and bill hospitals for their time rather than being a true FTE. See the issue with using the abstract comments here? Also important to note is that the paper isn't looking at individual earners, it's looking at households (it bases its information on tax filings, most of which for 1%+ people would be joint filings). If you and your wife each make $220k in total compensation (relatively easy in the Bay Area or NYC for example), congratulations, the paper says you're a 1% earner. Back to my main point - if you want to talk about business owners in the job-creating sense vs. income, it's important to distinguish between 1% and 0.1%. The latter is composed mostly of medium-size business owners (a good thing!), but the former is not.

jmharvey 8y ago

One reason the Forbes list is so dominated by self-made entrepreneurs is that it's relatively easy to verify their wealth based on public records. Jeff Bezos' net worth is, to a first approximation, the same as his stake in Amazon, which is regularly reported in SEC filings. The wealth of the Rockefellers/Morgans/Vanderbilts is less concentrated in any single company, so if they don't voluntarily disclose their finances to Forbes, they stay off the list, regardless of what their net worth is.

barry-cotter 8y ago
Thankfully they get divorced occasionally so we can be reasonably sure that no matter how discreet they are they are not the shadowy powers that actually control the US. Divorce lawyers want as much money as possible for themselves and for their clients and they don’t care if you hold your wealth in a well balanced diversified portfolio or if it’s all in one company.