What is wealth?

Arnold Kling discusses the concept of Wealth. Arnold is an interesting and thoughtful economist who usually provides intriguing food for thought.

Such is not the case today.

Arnold unfortunately cites David R. Henderson and Charley Hooper, who argue that we are all in the top 1% of the world’s wealthiest people:

“Except for the few hundred thousand who are homeless, the Americans whom the U.S. government defines as poor live exceptionally rich lives. In most ways, their lives are better than those of kings and queens just 200 years ago. Consider the quality and quantity of our food, clothing, refrigerators, televisions, washing machines, stereo systems, and automobiles. . . “

This is such a silly argument, and on so many levels. Without even addressing the factual issues, let’s take a look at the rhetorical problems, one at a time:

1) Any Temporal Argument is Two Sided:

If Henderson and Hooper claim we are “wealthier” today than long dead royalty of Shakespeare’s time, than that is an admission how much poorer we are than people from the lowest rung of society 400 years from now.

Of course, that’s just as foolish an argument. Nobody today thinks to themselves: “Huzzah! I am wealthier than King Henry!”, nor do they lament “Alas! I have less wealth than the poorest schlump to be born in the year 2404. . . woe is me.”.

Quite frankly, its transparently disingenuous. (That’s a polite way of saying its idiotic.)

Compounding their own disingenuousness, H&H “time shift” their initial comparison of wealth from 200 years ago to Shakespeare’s time. Last I checked, the bard was born in 1564 So the actual comparo is over between 440 and 400 years ago.

Here’s why this is so foolish: It is the nature of mankind is to relentlessly raise his standard of living, generation after generation. This has been especially true over the past 500 years. And progress is accellerating at an ever quickening pace. Consider the gains we’ve made this past century, and even this past decade.

Yes, we are much better off than people 400 years ago. But, due to the accellerating pace of progress, the equivalent leap in standard of living is nonlinear — meaning its likely to happen much faster than 400 years into the future. Our gains versus the people who lived in England in the 1600s will likely be had by inhabitant’s of America in the year 2104, a mere 100 years from now. What the living standard will be like in 2404, 400 years hence, is simply inconceivable.

Comparing yourself to Kings who lived 4 centuries ago — or paupers to be born 4 centuries from now — is a fundamentally irrelevant and disingenous issue.

2) Wealth is Relative:

Regardless of the silliness of the historical/future argument, the authors exhibit a fundamental misunderstanding regarding people’s conception of their own financial well being: Wealth is a relative concept.

Some people define wealth as having $100 more than what their brother-in-law has. We try to “keep up with the Jones” because they are their contemporaneous and geographical peers. People do not tend to compare or define themselves vis a vis noncontemporaries.

And consider Gore Vidal’s observation: “It’s not enough that I succeed. My friends must fail.”

When NYC Mayor Ed Koch used to asked, “How’m I doing?” no one had to point out that he wasn’t looking for a comparo with King Solomon, Julius Ceasar, or Emperor Ming.

Wealth is relative to the here and the now. (Its actually rather pathetic that this needs to be pointed out).

3) Deficits, anyone?

Notable due to its absence is any discussion on the impact of deficits on the long term fiscal health of the nation. H&H’s entire debate was a not-so-subtle rail against rolling back tax cuts for the wealthiest 1%.

If we are discussing taxes, than we must also address spending cuts and deficits. The authors do neither.

As a fiscal conservative, I am offended by Henderson’s failure to discuss this. Henderson was a senior economist with President Reagan’s Council of Economic Advisers, so he damn well knows the economic revival which followed Reagan’s tax cuts subsquently led to tax hikes and spending cuts to bring the spiraling deficit under control. The tax hikes and spending cuts were initially made by Reagan himself, and then by each of the next 2 presidents.


When I first read the excerpt, I initially suspected these authors had suffered some kind of a blunt force trauma to the head . . . In their dementia, their lack of mental accuity led to make rather pedantic and foolish arguments.

Then I went to read the full piece — it is at TechCentral Station, where the full glory of the author’s intents are revealed: Its a diatribe against presidential candidate John Kerry’s plan to rollback the tax cuts for the top 1%.

So in addition to being a poor piece of tortured logistical reasoning, it is also a bunch of partisan hackery.

Arnold Kling: you can do much better than citing intellectual deitrus such as this . . .

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  1. Joshua Allen commented on May 22

    You seem to be in violent agreement with the authors. As I read it, they point out that a) we are all getting inexorably richer, and b) rich vs. poor is more about envy and “keeping up with the Jonses” than about objective circumstances. You don’t seem to disagree.

    OTOH, I *would* disagree with the authors, but for different reasons. First, I think it is false that we are all richer than the kings of 400 years ago. In access to technology and finished goods, perhaps yes. But not many of us can get away with having a harem full of concubines, nor can we get away with working just a few hours each day. Harems and idleness are out of the reach of most humans, just as they were 400 years ago. And slavery and genocide are still to be found on the globe; in fact in *absolute* numbers there are more people living in slavery as part of the sex trade, living under fear of death, genocide, etc. than ever before. The authors would tell the woman forced into slave labor to “Cheer up! You have hi-tech lipstick that even Marie Antoinette could not afford!”. And I think it is a leap of faith to assume that things will be immeasurably better 400 years from now. It could be great, or it could be terrible, and I think both possibilities are equally likely.

  2. Paperwight’s Fair Shot commented on May 22

    Wealth Begets Power

    Now, what The Big Picture doesn’t treat here is the tendency of that relative wealth to create political power. In cruder circumstances than contemporary democracies, that means buying land, buying muscle, and imposing your will on those less able to …

  3. M. Strowbridge commented on May 24

    Spelling error: “detritus” not “deitrus”

    [EDITOR] Thanks for focusing on the most important aspect of this commentary. Your priorities are perfect . . .

  4. Marc Brazeau commented on May 24

    Let them eat Hostess Cake.

    They are also saying that a king 400 years ago wasn’t rich. It’s nonsense.

    It’s not that their is anything to disagree with in their facts. It’s the specious assertion that the poor today aren’t really poor.

    What their argument shows is how much ideology is driven by temperment. If you are tempermentally inclined to identify with the underdog or the downtrodden, then you seek outcomes that favor them. If you identify with power and priveledge, you seek outcomes that favor them. Hopefully, you have enough intellectual honesty to seek outcomes that promote a greater public good, with an emphasis on you the goals of your team perhaps.

    Twenty years ago, the average CEO made something like 15 times the income of the average worker. Today the ratio is over 300 to 1. The fact that you can be living in Section 8 housing and own a DVD player doesn’t mean that we should stop trying to ensure that a rising tide will lift all boats. These days the tide is catapulting some yachts and capsizing canoes. That hasn’t always been the case and it needn’t be.

    Being the poorest member of a given society is a drag in any society at any time. The fact that you aren’t a Rwandan famine victim doesn’t change that. Nor does the fact that Louis XIIII didn’t have the complete third season of the Sopranos on DVD. But there is no reason that the poorest segments of the richest society in the history of mankind shouldn’t have access to housing, healthcare, good education and safe neighborhoods. Other countries manage it. We choose not to.

    That TCS piece would make Ayn Rand blush.

    I’m not arguing that the talented, the innovative, the hard working aren’t entitled to compensation and lot’s of it. But they are operating in an environment that allows those qualities to achieve. And that shouldn’t be forgotten. If Bill Gates had been born in Burundi, we’d all be using MAC’s. And he would have died of diahrrea at age six.

    There are reasonable and (nearly) persuasive arguments to be made against tax hikes for the top 1%. That the material circumstances of the majority of the population are better than those of 99% of all humans through the entire existence of humanity isn’t one of them.

    One could similarly argue to the top 1% that after a tax increase they will still be the top 1%, so get over it. Huzzah.

    Why someone would sit around and try to come up with arguments against a more equitable society is beyond me.

  5. Kaleem Aziz commented on May 26

    May be they are saying that we are richer because we work united to create goods that serve us, than they used to in the ages of Kings and Queens.

    My Economics professor often mentions how Kings and Queens used to get people to work for building art-like projects (think Pyramids, or Taj Mahal, or China Wall) instead of refrigerators, cars and cell phones that we use the same effort to do today. That makes a big difference, I think, because the former creates real-estate that no one uses (except for being a tomb for the dead), while the latter creates “value” in helping people live better lives.

    I took that’s what he meant.

    Best regards,

  6. The Big Picture commented on Sep 21

    What is Wealth, part II

    Yesterday’s NYT had an article about wealth that fell into several of the usual traps of this discussion. To his credit, David Leonhardt looked at a few aspects of the question. He did not manage to avoid two of the major traps when it comes to this di…

  7. Kurt Wurstle commented on Nov 16

    The war on wealth if waged should be waged fairly. Is a graduated tax scale fair? Should someone that through taking risk, hard work, and personal sacrifice create a successful result be expected to shoulder a greater share of the tax burden? If the same person’s efforts result in personal failure, does society give back the time, energy, and money lost. NO! Fair is a relative concept used by many to justify their actions. Is it fair to take from someone that has plenty to give to someone that has little? Well it might be within limitations. Nobody wants people to be cold and hungry but people do have a responsibility to manage their lives and to care for those that they are responsible for. So what if they can’t manage their lives? Do people have a right to fail? When and who should step into an adult’s life? The state does have a role to play and collects taxes to fulfill it’s role. If we are going to continue to believe in the ownership of personal property and personal responsibility then we can not endorse unfair redistribution of wealth.

  8. wunsacon commented on Dec 28

    >> Is a graduated tax scale fair? Should someone that through taking risk, hard work, and personal sacrifice create a successful result be expected to shoulder a greater share of the tax burden?

    Yes. The rewards at the upper end are far out of proportion to the risk, hard work, and personal sacrifice committed. That’s a feature of the economy, the system, not a function of the greatness of the top 1%.

    Graduated taxation is profit-sharing for society.

  9. atlastaman commented on Mar 6

    >> Yes. The rewards at the upper end are far out of proportion to the risk, hard work, and personal sacrifice committed. That’s a feature of the economy, the system, not a function of the greatness of the top 1%.

    Graduated taxation is profit-sharing for society. << Using the premise of 'profit-sharing for society,' it appears the reward for those who've never risked anything would be outrageously disproportionate? I will never understand why people will consistently reward "do nothings" in life and look for the government to make life better for the impoverished. THE GOVERNMENT! The government sponsored the war on poverty. A battle that's been fought for decades before Iraq and will be fought for endless decades after. There will never be an end to the war on poverty until attitudes are changed. An individual can't lay around watching Jerry Springer and hope to be rich...and it sure won't happen on government assistance. I used to be a scout master of troops in 'at risk' areas. I would always tell my boys that education is great and I hope they get all they can, but if they don't get the degrees, at the least get a job and be the damn best worker you can. People will notice and you will be rewarded with other opportunities. Just work hard and smart and save money and you'll never live an impoverished lifestyle.

  10. seeker commented on May 1

    I would agree that wealth is relative. I would also propose that the question of how comparatively wealthy we are is not a quantitative question, but rather a qualitative one.

    We might view wealth as measured by the quality of freedom that an individual has, who upon giving away a valuable resource, is absent of worry, regret or future detriment. That individual is not a slave to possessions, but rather, a free individual who truly possesses wealth.

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