Wealth can be a difficult concept to get ahold of. If you get into the weeds, economists and accountants may disagree about what exactly should be counted. But for a basic definition wealth is assets minus debts. In our own samples, when we ask people to define wealth, only about 20% of our respondents are getting that right. Most talk about money along with things like values. That’s consistent with the messaging of asset management firms. Their websites have testimonials that highlight happiness, retirement, and providing for your family. Whatever the reason, the study participants don’t understand wealth well.
Friday, July 17, 2020
What’s “Wealth”? Most Americans Aren’t Sure
According to Yale researchers, most Americans underestimate the wealth gap between white Americans and black Americans. Most also have trouble defining “wealth."
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5 comments:
The interview was interesting, but it lacked data. What is the average wealth held by each race? How was this wealth measured? Who was sampled? What were the components of wealth? Were government entitlements counted as assets? Probably not, but that would skew the analysis.
I expected Asians and whites to have the same average wealth, or for Asians to be slightly higher. So this is surprising.
Given that wealth inequality was at its lowest point before the advent of the Great Society, it seems that we should be debating the repeal of all of those programs. They have been counter-productive.
Asians may be bright enough to force Harvard to favor other races, but as my California niece-in-law reminds me, Asian Americans do have to deal with prejudiced (“Go back where you came from!”) whites. This may limit their wealth.
The apparently lesser wealth gap prior to the Great Society may be due to the remarkable rise in the compensation of [white] business leaders. In the 1950s S&P-500 CE0s were paid about 20 times as much as the average company employee. Now, more like 300 times.
Prejudice against Asians has disappeared in high-paying tech fields, just look at the audience in any of the Apple events. Asians are massively overrepresented.
I tend to agree that CEO pay is shocking, but how much of that comes from incentive-based stock awards? How much is the direct result of increases in stock prices? Put another way, how much of that remarkable compensation comes not from the employer but from other rich people trying to buy assets from the CEO?
The huge shift to stock-based compensation was the direct outcome of the limitation on deductible compensation imposed during the Clinton years. Another case of unintended consequences.
We still have the fact that the Great Society programs have poured trillions into the black community without moving the needle very much at all. Witness the riots around the country. But if those entitlements are counted as wealth, I suspect the gap would be far smaller.
Yes, CEOs increasingly benefit when the value of their company’s stock rises. Weren’t they clever to realize that stock buybacks were an easy way to enhance that rise? (Tim Cook excepted, of course. Apple has to do *something* with all those billions.)
I favor distributing special dividends to shareholders instead of buybacks. However, the dividends are taxable and require reinvestment. When the buyback boosts the price, there is no tax penalty until the stock is sold.
So the buybacks are surely defensible when a company has more profit than it knows how to plow back into the company.
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