Most of the rich did not inherit their wealth, at least in the US, so it is mostly a moot point. That having been said, a person who inherits an investment and doesn’t change it can be said to be deciding to choose a given level of risk rather than a different level. Contrast that with a person subsisting on welfare. He isn’t producing anything at all, even passively. So, again almost by definition, investors are more productive than people subsisting on welfare.
Although I think you are correct that a person who invests his own money and receives an ROI is more productive, or more directly productive, than someone who inherits. But the inheriting investor who pays capital gains is going to be paying more in taxes than the person subsisting on welfare who doesn’t pay income tax, doesn’t pay sales tax on his food, doesn’t pay tax on his rent benefits, etc.
So is “percentage of income you pay in taxes”. Suppose it takes $10K a year to support someone on welfare. I make a million dollars a year, and pay $100K in taxes. Joe Blow makes $15K a year, and pays $2K in taxes. I can support ten other people, Joe not even one. Maybe that’s not fair, and I should be supporting twenty other people, or fifty. The fact remains that I am supporting more people now, the percentages notwithstanding.
I’m not sure “millionaire” is the right level of wealth here. Inflation has eroded the exclusivity of that term. Work a middle-class job, buy a home, and save 10% of your income for a few decades, and you’re a millionaire. So it’s not at all surprising to me that most millionaires earned their money: earning that much money is in reach of many disciplined people.
How many people with net worth $50 million and up earned it? That much requires either starting a successful business or inheriting it. I can’t find good statistics on that (they probably don’t exist), but here’s some statistics on Forbes 400
40% inherited or were given “a sizeable asset” (which they appear to define as “$1 million or more”.
I mean, it’s still impressive to take a $1 million inheritance and turn it into $1 billion. But it’s not that impressive to choose your parents well.
This, I have a hard time agreeing with.
Yes, someone could inherit an asset and carefully examine their options, leaving it alone. Or they could simply do nothing at all. It reminds me of the resolution of Aesop’s fable with the frogs who settle on King Log. King Log is just a log. He doesn’t do anything. But he’s considered a good king because he doesn’t actively screw things up like the previous king. But King Log also doesn’t deserve any credit for the flourishing of the frogs.
An inheritor who doesn’t make any changes is basically Investor Log. He could do a lot worse. He could go meddle in company affairs, or turn the rental property into a home for diseased feral cats or something. But simply doing nothing and sipping drinks by the pool doesn’t make him productive.
I realize that’s a caricature of a rich person, and I don’t think it actually applies to the vast majority. I’m just saying: owning productive assets seems to be insufficient proof of personal productivity.
Since we agree that the majority of investors earned their own money rather than inheriting it, I think owning productive assets is fairly strong evidence of being productive. Especially compared, as mentioned, to a person subsisting on welfare who doesn’t generate any income.
Group A consists of people, 70% of whom earned an income and invested some of it and incurred the risk and are now collecting the results. Group B consists of people, 100% of whom earned nothing, invested nothing, and are now collecting nothing. Which group is more productive?
Maybe group B are all lovely people. But they aren’t productive, lovely people. Which is why Mr. Mailer is better known as a writer than as an economist.
It is evidence of having been productive - not being productive at the moment. I’m an excellent example of this.
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BTW, you seem to be conflating risk with productivity. If that were true, Evel Knievel would have been the world’s most productive person. Successful ventures indicate productivity, but I’m not sure investing in perpetual motion machines (a highly risky investment) represents productivity.
Risk is important - it just isn’t productivity.
Of course, hard work is not the same thing as productivity. I freely grant that many people work much harder than someone who spends an hour or two a day managing investments…and for much less return. This is regardless of where the money for the investment came from.
But investment is not equivalent to productivity either. Investing in a start up yes, but investing in a giant corporation is not going to make a lot of difference in anything except your portfolio value.
And someone working 12 hours a day on investments may or may not do better than someone working on them 12 hours a quarter. So even time invested in investing is not important.
Right. Just like rich people who subsist on their inheritance don’t produce anything.
Most poor people don’t subsist on welfare, just like most rich people don’t. But you’re lumping rich productive people in with rich unproductive people and saying “look, rich people are productive”. But that’s not the point. Go look at the quote in the OP again, and consider, as Mailer suggested, individuals.
Is an individual poor person who subsists on welfare and is not productive more worth of judgment than an individual rich person who subsists on an inheritance and is not productive? Should we judge someone coasting on daddy’s fortune as harshly as someone coasting on government largesse? Should we maybe judge them even more harshly because they’re using that many more resources, and probably had vastly more opportunities to be productive?
How about an individual rich person who does work, but also receives billions in government subsidy. How should we judge that person compared to the poor worker who gets the EIC?
Even assuming your subsisting on welfare strawman, they might be participating in the underground economy. They might babysit for unreported cash. They might be dealing drugs. And if you think that isn’t productive, then neither is Philip Morris.
Question: What is the definition of a “productive rich person”? If a rich person owns a factory in China where clothes are made, does that make HIM productive?
There are books that look into the question of what makes people get and stay wealthy. I’ve seen one recommended fairly regularly on the forum over the years, but I don’t recall the title. It might be, “The Millionaire Next Door”. I’m pretty sure that it had “millionaire” in the title.
Yes, it is the point. Here is the first part of the quote
Mailer wants to compare the subset of the poor who live on welfare vs. every rich member of society. A clear majority of the rich did not inherit their wealth, and even those who did inherit can be seen to be productive to a small degree. None of the poor who subsist on welfare produce anything. Not a small amount, not a large amount, not any amount. So I am doing the comparison Mailer suggested, and finding that most rich people are very productive, some rich are productive only to a small degree, and none of the poor who subsist on welfare produce anything.
We aren’t judging worth. We are comparing two groups to see which is more productive, and finding that the rich produce either a lot, or a very little, and the welfare-subsisting poor produce nothing whatsoever. So even the minority of rich who inherit are producing more than anyone who lives off welfare.
Here’s the Mailer quote again, with my emphasis added:
“To blame the poor for subsisting on welfare has no justice unless we are also willing to judge every rich member of society by how productive he or she is. Taken individual by individual, it is likely that there’s more idleness and abuse of government favors among the economically privileged than among the ranks of the disadvantaged.”
I disagree that Mailer, a fairly adept writer, chose those bolded words to communicate that we should look at the class of rich people all together and compare it to the class of poor people, or even the class of poor people who subsist on welfare.
Mailer’s point is that “the poor” as a group, are often derided for the subset who receive unearned assistance, but that “the rich” both as a group and as individuals, are not. He is saying that such a frame of mind is unjust. He is arguing against the exact argument that you suggest he is supporting.
Are they? That’s what I’m trying to get at, and I don’t really feel you’ve responded to my questions, except to say that it’s wrong.
So, here’s another question, attempting to get at the heart of this question: We both agree that a poor person who subsists solely on welfare and does not work is not productive. If a long-lost uncle he didn’t know about dies and he inherits millions does he by that act become more productive? I would say that he does not.
They would be taking exactly as much money from welfare as someone not getting money on the side.
We can also wonder if a woman on welfare with young children counts as productive or not. How about the disabled person?
That book is about how some people who make $X wind up with nothing while others who also make $X wind up as millionaires through not spending and not trying to live a lush life.
I’m not sure it is relevant to a productivity discussion. Some of the people who wind up in debt are more productive than the ones who don’t.
Risking your own capital in pursuit of an ROI is more productive than not doing anything at all. It’s not as productive as earning your own capital and then investing it, but it is more productive than nothing.
So, your answer to my hypothetical person who inherits a bunch of wealth is that he does become more productive at the moment of inheritance? Because he’s now risking his wealth?
Is that true even if he doesn’t actually do anything?
I’m an accountant, and it is that time of year. As far as income taxes go, if you consider three people, all earning the median income of $59k, one is self-employed (like me), one has a standard w2 job, and the third earned it all from capital gains (interest, dividends, realized gains, etc). If all three are single and take the standard deduction, then their final tax burden (income and FICA taxes) on that $59K is $15,586 for the self employed person, $11,928 for the w2 wage earner, and $7,356 for the idle rich person.