Capitalism = Destruction?

[tunk]

On the subject of inheritance, I take Ayn Rand’s position: in a market economy, wealth tends to change hands to those who are most capable of wielding it, and so no matter how much you inherit, if you don’t use it wisely in the long run you will lose it. It might be useful to consult some data on the United States.

Inheritance hasn’t formed a very large percentage of the net wealth of the rich historically. According to the Fed, from 1989 to 2001, there “was a precipitous drop in the share of recipients [of wealth transfers] among the highest income group, from 48 to 36 percent, and for the top one percent of the wealth distribution, from 57 to 44 percent”. Surprisingly, “wealth transfers as a share of household net worth tends to decline with both income and wealth.” In 1998, the present value of wealth transfers amounted to 17 percent of the net worth for the highest income class.

[F]or all three groups of rich households, wealth transfers as a share of their net worth fell between 1989 and 2007. […] It is therefore reasonable to conclude that inheritances and other wealth transfers have become less important for the rich as a source of wealth accumulation over these years.

We might note, as Thomas Sowell writes in Economic Facts and Fallacies, that many of those in the top quintile of income earners do, in fact, work more.

@Economic Facts and Fallacies

There are nearly six times as many [heads of households who work full-time] in the top 20 percent of households as in the bottom 20 percent. Even the top five percent of households by income had more heads of household who worked full-time for 50 or more weeks a year than did the bottom twenty percent. […] There was a time when it was meaningful to speak of the “idle rich” and the “toiling poor” but that time is long past.

The US Treasury has done a number of studies on historical income mobility. Many of them have reached the same conclusion: as long as you were not in the extreme top or extreme bottom, your chances of moving between income brackets remained fairly good (though obviously not ideal).

• There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.
• Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.
• Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.
• The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
• Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

The gyrations of income mobility seem to apply to millionares as well. According to the Tax Foundation, only 15% of millionaires remain so for more than a year.

I’m not trying to defend the rich here or say every single one of them deserves to be where they’re currently at; I’m just saying reality is always a little bit more complicated than the “RICH GET RICHER POOR GET POORER HURRR” caricature you get all the time from the media and from left-wing propagandists.