Wealth in the modern world

Maasai herder with cattle

With the primary election season upon us, there has been a lot of attention focused on income and wealth. Particularly that of the 1%.

In a widely reported account, Oxfam released a study last week purporting that just 62 billionaires possessed as much wealth as half of the world’s population. Without delving into the politics of equality, taxation, and redistribution, let’s simply look at why that might be.

The first question one might ask is how is wealth measured? In our Western sense, wealth is measured in dollars: the equity in our homes and other possessions, the value of our 401Ks and other bank accounts. These assets are currency-denominated. But to a Maasai nomad, wealth is measured by the number of cattle he owns. The value of those bovines is not likely to show up in Oxfam’s report.

But that is to quibble. It is undeniably clear that Bill Gates holds more assets than all of the Maasai tribes put together, regardless of how those assets are measured.

Another minor confusion to clear up is the distinction between income and wealth. Income is the flow of net additional assets accruing to an individual, typically from labor (wages) or return on capital (investments). For the Maasai, income is measured in milk, not in steaks.

Oxfam does not confuse these, but politicians and the media have a free-for-all, mixing income and wealth in a confusing mélange of “who owns what” and “who earns what.” The answers can be greatly different, with wildly differing effects on public policy. It is wise to learn the difference. 

But let’s refocus on wealth, and who holds it, and why.

Between the Civil War years and the mid-twentieth century, we saw enormous growth in this country. This was due largely to technological advances. In these eighty years, we saw the coming of the transcontinental railroad, coast-to-coast telegraphy and telephony, massive steelworks, sprawling oilfields, and the capital accumulation (banks) to finance all of it.

The names are famous. Cornelius Vanderbilt (railroads and shipping), John D. Rockefeller (petroleum), Andrew Carnegie (steel making), Henry Ford (automobiles), and J.P. Morgan (banking). These, along with many others, built twentieth century America. And for their pains, for their risk taking, they became enormously wealthy. (Completely unknown are the stories of thousands of other entrepreneurs who tried and failed. Only the successful made it into our consciousness).

Did these vaunted capitalists deserve their wealth? One can only compare the lives of a woman in 1870 to one in 1940. The latter woman could call a relative on a far coast, just to chat. She could travel there in mere days, not months. She was able to listen to entertaining radio programs and wash her clothes in a new-fangled wringer/washer. She could drive to the grocery store and buy fresh bananas recently imported from Nicaragua. And place her homogenized milk in an electric refrigerator, keeping it fresh for days. These were the most wrenching changes in the history of mankind, in only one lifetime.

Many millions experienced these benefits. Was it immoral for the Vanderbilts and Rockefellers, Carnegies and Fords, to have accumulated great wealth as a result? What if the opposite were attained – no wealth, no such advances?

In the current debate, Oxfam lists sixty two billionaires who hold half of the world’s wealth. Let’s ask, what have they done to deserve it? With limited space, here are a few:

A couple of Waltons – $161 billion – Walmart

Bill Gates – $79.2 billion – Microsoft (Windows et al)

Warren Buffett - $72.7 billion – Berkshire Hathaway, Geico (the little lizard)

Larry Page and Sergey Brin –  $58.9 billion – Google

Jeff Bezos – $34.8 billion – Amazon

Mark Zuckerberg, $33.4 billion – Facebook

Let’s imagine stripping these people of their wealth and erasing their companies. No more Walmart “everyday low prices.” No more Microsoft Windows (OK, that’s a mixed blessing). Goodbye little lizard and the millions of home and auto insurance policies he represents. No more Google – look it up yourself at the library. So long Amazon, can’t order those terrific shoes for delivery on Friday. And the cruelest cut of all – no more silly cat videos on Facebook to share with your many “friends.”

In the end, the populists have possibly won the debate. While the capitalists of the Golden Era instituted the greatest advances in human history, thoroughly earning their wealth, the most recent ones have simply provided us with convenience and entertainment.

In the end, we need to determine how much that is worth.

Let's laugh together, shake hands and get to work

What does it take to lift oneself from poverty? A topic of great debate, it is often argued stridently across an ideological chasm, light of fact and heavy of slur. So it is refreshing to see some actual data.

Researchers at Baltimore’s John Hopkins University have just concluded their life’s work. Karl Alexander, Doris Entwisle, and Linda Olson’s new book, “The Long Shadow,” documents the trials and tribulations of nearly 800 inner city children from the first grade in 1982 through adulthood. The 25-year study tracks the childrens’ educational achievements, family status, and eventual economic outcomes.

The results could not be simpler: family matters.

Nearly half of all children from poor families remained poor as adults. Children from families with more resources tended to be more successful as adults.

Children from low-income families were 10 times less likely to complete college than those from higher-income families. Only 4 percent of children from low-income families achieved a college degree as opposed to 45 percent from middle class or affluent families.

Women benefit from marriage. Those in stable relationships had a larger household income than single women.

As the study involved a mixture of races, there were race-based observations as well.

For non-college degreed men, white men found better paying jobs than black men – on average $43,500 vs. $21,500. These jobs were typically in the trades or the remaining industrial base of Baltimore. (This income discrepancy diminished with educational achievement).

For those without a high school diploma, the results were even more dramatic. The unemployment rate for white male high school dropouts was 11 percent; for blacks, 60 percent.

Black women had fewer family resources than white women. This is compounded by their lower marriage rate versus white women (31% vs. 55%).

Black men were six times more likely to be incarcerated than white men. Very disruptive to black family structure, this contributed to the lower household income of black women.

These are all facts. Incontrovertible. But here is where the argument starts – in determining the “why.”

Why are poor children stuck in poverty? Why do children from more affluent families do well? Why is educational achievement so difficult for poor children? Why do white men have better paying jobs than blacks? Why do black women have fewer financial resources? Why is their marriage rate lower? Why are black men incarcerated at such a high rate?

The answers to these questions are not trivial. They spell the difference between effective and failing (but feel-good) programs. Worse, bad programs that can actually do harm.

We spend enormous resources on social programs in an attempt to salve these ills. Nearly $3 trillion per year is poured into means-tested governmental and private charitable welfare programs (not including Social Security and Medicare). But more than the waste of well-intended but ill-performing programs is the human tragedy of lives not actualized, dreams not achieved.

One would think that the debate would be rigorous, rational, wide-ranging, and thoughtful. It is not.

Instead, political correctness constrains what can be said and who can say it. Ad hominem attacks substitute for reasoned rejoinder (“I don’t agree with what you just said, so you are a worthless blob of human waste”). There are many articles on the web describing the Alexander (et al) study. Reading the comments following the articles is quite revealing. A poster may pose a hypothesis only to be shouted down in a storm of vituperation terming him or her as racist, brainless, or “a hater.” It is an emotional mob, incapable of reasoning.

Unfortunately, the same is true in the wider public sphere. Letters to the editor lean heavily on personal attack, light on debate. Politicians, with few exceptions, avoid reality, speak in platitudes, and attempt to buy more votes. There is no holding to account for actual results.

Here is the truth. Racism still exists. But so, too, does tolerance. Progressives are not idiots, conservatives are not evil. Both want the best outcome for the most people, but differ on how to achieve it. These are chasms that can be crossed, common purposes achieved.

What stands in the way? Political correctness is a scourge. It must be fought resolutely as the fundamental danger that it is. Rigid ideologies are even worse. The truth always exists in the grey netherworld between extremes.

Here is a quote from a great philosopher, comedian Bill Cosby. “You can turn painful situations around through laughter. If you can find humor in anything, even poverty, you can survive it.”

Let’s laugh together, shake hands, and get to work.