Monday, May 14, 2007
The nouveau pentamillionaires: Take the TigerHawk poll!
According to SmartMoney, the number of "pentamillionaires" -- people with more than $5 million in assets -- has quadrupled in the last ten years, to more than 930,000. Assuming this factoid is true, it is a cause or an effect -- or possibly both -- of the rising inequality of wealth in the United States. Whether a cause, effect, or both (as in a feedback loop), setting all other considerations equal is the quadrupling of pentamillionaires in the last decade good for the United States, bad for the United States, or of no normative significance? Answer in the poll below!
The SmartMoney article also explores the origins of all this new money, which I offer without comment:
On average, folks who recently hit the $5 million mark report that only 10% of their money came through passive investments. And only 10% of pentamillionaires inherited their wealth. One might think that good fortune would play a role, but even luck is largely a matter of one's own making. Psychologist Richard Wiseman has found that people who describe themselves as lucky share common habits that account for their success: They're friendly and fond of new experiences, traits that put them on a collision course with new opportunities. In addition, "lucky" folks simply have higher expectations of success — they're too pigheadedly optimistic to heed the long odds and call it quits.
Not to say that getting rich is simply a matter of having a swell attitude. The path to riches usually involves the kind of risk that would make most people feel a little queasy. Harrison Group head Jim Taylor recently persuaded more than 3,000 pentamillionaires to discuss their path to success. Perhaps not surprisingly, none of them had a cushy union job down at the DMV. The vast majority — 80% — either started their own business or worked for a small company that saw explosive growth. And almost all of them made their fortune in a big lump sum after many years of effort.
Surprisingly, today's very rich say that money itself wasn't much of a motivator. Once you've got food in your belly and a big-screen TV, the mere prospect of more Benjamins isn't enough to get you leaping out of bed at 5 a.m. Rather, rich folks often make their fortunes after they make up their minds to solve a problem or do something better than it's been done before.
I take it back -- I will comment. In my experience, all of the bits in bold above are extremely important, but the first -- unstoppable optimism and being open to new experiences -- can carry you very far in life even if you do not end up rich. Open optimists enjoy richer and more exciting lives regardless of their wealth or lack thereof, and are far more able to weather adversity and even tragedy. This is so obviously true I often wonder why everybody -- or at least everybody who lives in a free country -- isn't optimistic and open to new experiences. And -- here's the really good part -- optimism and openness can be learned. I know. I am not naturally optimistic or adventurous, but by my early thirties I understood that optimism and openness were the bedrock of success in just about any endeavor, from advancement at the office to the raising of children. I began to see opportunities all over the place, and things have been interesting ever since.
13 Comments:
By 
, at
Mon May 14, 10:00:00 PM:
I think the question of whether a group of people have too much of a share of the money pie is only relevant if the pie is a fixed size. However, in our abundant world, where the size of the pie is ever expanding, people in the free world (particularly the U.S.) are allowed to reach their potential. Those people serve as an example to all of us who are on that path to reaching our potential. So to answer your original question "is it bad that we have so many people who have such wealth?" I think the question should be flipped around and asked "why do so few people reach thier financial potential?" One last point to emphasize, is that the financial potential of one person is not the same for the next and it is relevant to the wants and needs of the people in question. A person who works on Wall Street has a different perspective on "his" share versus the person who works for a non-profit organization.
By , at
Mon May 14, 10:32:00 PM:
Late at night 4 people walk past you on the street.
A billionaire, a pentamillionaire, an ordinary wage earner, and a homeless street junkie.
Which one makes you most concerned?
Why would you even THINK that the pentamillionaires are the problem?
By 
SR, at
Tue May 15, 01:20:00 AM:
Wealth "inequality" isn't so much a problem as it is the natural condition of a free society. By defiition, the more super rich there are, the more inequality, because the bottom is always the natural condition of man, ie ZERO wealth. It is neither good no bad, it just is.
By , at
Tue May 15, 01:29:00 AM:
Also worth noting - even if wealth equality were a good thing and we had it, there would still be a power inequality. Individual wealth and opportunity is the bulwark of our system. Consider the pairing of the New Jersey state motto: Liberty AND Prosperity.
By , at
Tue May 15, 07:46:00 AM:
As a nine year old I scavenged for returnables to support my sick father, mother and baby brother. We were poor, welfare as we know it was non-existant and we were proud. I started my own adult life with nothing. My wife, son and I went without food for days on several occasions while waiting for my paycheck. I worked hard and long, worked my way through college, served in the army, scrimped and saved, built my own house and fixed my own cars etc. My wife worked beside me as a full partner in her own profession. Today I am one of those pentas. I earned it with hard work, sacrifice and optimism. My kids all have advanced degrees from private schools, without loans to repay, and they strive for greatness. That is beyond my reach but I cheer them on as I have all the young people I come in contact with. Equality is available for all in this great nation. Some folks take advantage and some don't. Optimists have a better chance to succeed - they can because they think they can.
By , at
Tue May 15, 12:37:00 PM:
I too am a fortunate one, and I earned every cent by risking all we had, plus some; dealing with the vicissitudes of employee satisfaction, customers, and tax thievery for many years. Happily, the opportunity to struggle, sometimes fail, and ultimately succeed on a bigger scale than I might have imagined has been magnificent. In retrospect it's all been so much fun that the issues seem small, now.
The only reasons we in America have income inequality is because our species has ambition and risk-tolerance inequality, and only the frustrated object to wealth. The poor have always found success in this country, as have the poorly educated. The ambition-less and those with an overblown sense of entitlement are those most at risk.
Optimism about the future is all that carried me through the early years, and so I also preach optimism (daily), but I never forget how wonderful our risk encouraging culture is, and how tolerant of failure we are as a nation (one of our founding values!).
Andrew
By Viking Kaj, at
Tue May 15, 01:33:00 PM:
I don't think the penta's are the issue, I think it's the megas. Families with hundreds of millions who are getting richer by the day under present tax policies while the national debt spirals out of control. The accumlation of so much wealth in the hands of a few does not bode well for our democracy, since it corrupts the system.
By Escort81, at
Tue May 15, 02:12:00 PM:
It sounds like Viking wouldn't have a problem with the proposal the Democrats made on the estate tax / death tax while the Republicans still controlled Congress -- no tax until estates reach $6.7 million in size, and without a step-up in basis in inherited assets (so that capital gains tax would be paid by the person inheriting the asset based on its original purchase price, not the date of death value).
It's hard to say what will happen over the next four years with the estate tax. Currently, there is a phase out through 2010, but then a sunset on the phase-out, as I understand it.
From a purely subjective standpoint, I think there ought to be an estate tax, kicking in somewhere between $6-12 million in size (which is not to far off the old $600,000 exemption figure, adjusted for the appreciation in financial and real estate assets), starting with low rates in the teens and capping out at no more than 25% effective rates (a $40 million estate coughs up no more than $10 million in federal taxes). Confiscatory rates of over 50% should remain a thing of the past.
The growth in pentas is fine, provided that it can be tied to actual productive enterprises that provide needed products, technologies or services (and jobs) to the economy. Someone who helps to run a growing medical device company has probably earned his wealth in a way that yields many positive externalities to society as a whole well beyond what he has received; a southern trial lawyer who "channels" a baby that sadly died at birth through no apparent fault of the medical team, but nonetheless takes home a third of the $50 million judgment of the jury, has simply sucked money out of the system -- an uncompensated wealth transfer.
But I'm not naming names.
By Viking Kaj, at
Tue May 15, 04:13:00 PM:
As a libertarian I generally have a problem with taxes since I don't trust any administration, whether Republican or Democrat, to know how to spend my money better than I do. The estate tax is not the issue in my book, it's the federal income tax which is the major source of revenue for the federal government.
What I have a problem with is the present fiscal policy of the Bush adminstration. The tax cuts have largely been accruing to the benefit of the ultra rich at the same time that the budget deficit careens totally out of control. This has disproportionately shifted the tax burden to the middle class, and also the burden of debt to our children and grandchildren.
The shift has broad reaching implications for all aspects of our society, but one of the most important of these is that "democracy" is increasingly in the hands of the wealthiest segment of our population. The senate is moving towards being a billionaires club and congress is not far behind, with both parties equally at blame here. If we don't do something about the debt and the balance of payments issue, we will continue to move in the direction that the UK took in the 1920's and 30's. Remember what happened to the British Empire? Our policy choices will be limited by our ability to fund these since the interest payments on the debt will be so high. And if we default on the debt, or devalue our currency, the effect will be the same. What happens when the Asians don't buy our bonds anymore, or Chavez succeeds in getting oil price in a basket of currencies to protect against the inherent weakness of the dollar?
If we could trust the mega rich to have the interests of society as a whole at stake it might be different, but the mega rich did not get that way by being solely motivated by the public good. My guess is that they will move to protect their fortunes and that capital will flow overseas. If we believe that democracy is more vibrant in Mexico or Brazil then we are definitely moving in the right direction, since the income disparaties and debt levels are growing more similar rather than less with these two countries.
So either the government has to spend less, or we have to raise more taxes to get out of the mess we are in. I would favor a flat tax with no deductions and maybe two steps. Of course that would put a lot of CPA's and tax lawyers out of business. Anything that gores someone's ox is not likely to happen anytime soon.
By , at
Wed May 16, 07:23:00 AM:
Viking ... define middle class.
People who accumulate $5M make in the very very top few clicks of all wage earners to/save or invest to get to that point.
The fact is that the middle is very small, and pays very little. And the bottom half or so pay nothing, down to actually drawing from Uncle Sam.
We have a spending problem, and it's in our entitlements of all stripes. And we have a population problem, and one that's going to get worse as the boomers retire, and we convert to a culture and country that's outsourced all that made us great and powerful.
John
By Georg Felis, at
Wed May 16, 03:09:00 PM:
I’ll jump in on the “Good Thing” side here. My parents were farmers and managed to accumulate a fair chunk of change (below 1M) before they retired. If I continue saving/investing at the rate I am doing today, I will exceed their real dollar retirement by a factoral. And I expect my children to do better.
And the reason for this is our economy. Government regulation, as much as we may disparage it, keeps the economy stable, our bank accounts safe, quarterly reports (fairly) honest, prosecutes those who break the rules and writes those rules as to handcuff the crooks and permit the ordinary person to participate. We don’t worry as much about a company being looted and left an empty shell, or the stock market plunging to pennies, or some company being confiscated by the government (Yukos oil anyone?). On the flip side, we have one of the freest economies in the world, without forced 35 hour maximum work weeks or eternal employment for people who really need firing.
A fish is unaware of the water, and most of us are unaware of the unseen support web the US has placed around its crown jewels, the Economy (SoxOx notwithstanding). Go ahead and try to start up a company in the Middle East, see how many days you would last before somebody wanders off with the payroll or forces your company away from you.
By Noumenon, at
Wed May 23, 07:37:00 AM:
Well, I know why everyone doesn't choose to be open to new experiences. It's because it's one of the Big Five traits that people's personalities differ on. You don't choose that. You take what you're given and maybe try to fight it if you'd rather be the openminded guy. But it's basically as difficult and pointless as trying to change yourselve from an extrovert to an introvert.
By , at
Mon Jun 11, 01:06:00 AM:
Leave the people free of regulation and they will achieve great things. At this rate we will all be millionaires in short order.
