How Wealth Perpetuates Itself

It goes without saying that those who are born into rich families are more likely to remain rich themselves, and so on and so forth. But The Atlantic puts this in stark display with the following chart from The Wall Street Journal:

The rich spend far less on basic necessities like food and health care and far more on pensions and insurance, which can be left to children through trust funds and the like.

The article explains the relevance of this disparity:

When you have money, you spend less on the stuff that ensures you survive the day and more on the stuff that ensures that you (and your children, and your possessions, and your estate) survive and thrive for many years. Poverty is a chaos that screams in the present tense, and the anxiety of having no money forces poorer families to direct their attention to immediate concerns. As a result, the poor spend relatively more on what will keep them alive, because they must. And the rich spend more on what will keep them rich, because they can.

It’s boring to point out that having more money affords you more food, more clothes, more housing, and more cars. But the richest families actually spend less on food, clothes, housing, and cars than the poorest families as a share of their income. The real difference between the rich and the poor is that the rich spend a larger share of their much larger income on insurance, education, and, when you drill into the housing component, mortgages—all of which are directly related to building wealth, preserving wealth, and passing it down in the form of inheritance of direct investments in the lives of their children.

In other words, most people are in a paradoxical situation whereby you need wealth to have wealth, whether it is seed money for a business, money to afford an education, or valuable assets you can invest into your children. Many people are unable to realize their potential or that of their children because they simply lack the material resources, and no longer have access to the well-paying, socially mobile jobs — nor any sort of viable safety net — to help them along.

Heck, even if the wealthy did not spend a lot on education — and as the chart shows, in relative and absolute terms, they spend slightly less than the poorest Americans — they would still have the advantage by virtue of the other perks that wealth brings (and recall that wealth entails both income and assets like property, stock, etc.)

But the danger of setting inequality and immobility in opposition is that they’re not in opposition. Matthew O’Brien has written eloquently on “opportunity hoarding,” the idea that rich people are talented at doing all the right things you need to stay rich and make sure your kids get rich, too. Rich couples live in richer districts, read more to their kids, send them to better schools, hook them up with better internships, slide them into better entry-level jobs (or, better yet, into the family business), and finally pass down their insured and well invested wealth. Even education, the great American equalizer, makes for a poor equalizer. And it’s not only because wealthy teenagers are more likely to go to school. Young people born to rich families who don’t go to college are 2.5 times more likely to end up in the richest quartile than young people born to poor families who do go college. Wealth sticks, and nothing enriches like richness.

As long as economic opportunities remain scarce for the majority of the population, we can expect this cycle to continue: a small cohort of the population that becomes an entrenched neo-aristocracy (joined by the few who get lucky or somehow manage to break into higher income) and the majority that, being deprived of such access to assets, better paying jobs, and other means of sustainable wealth, remain in lower standing in relative terms.

This is not to say that everyone need to be rich to be happy and enjoy good well-being. Some of the most successful societies in the world are broadly middle-class in their makeup. The issue is when most people are unable to get beyond paying for the basics to enjoy decent healthcare, education, stimulating activities, and leisure. Then of course there is the problem of having an enduring elite class with the wealth and networks to influence government policy to serve their own interests — which often include shutting out as many opportunities for others as possible.

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