Skip to comments.How Inherited Wealth Helps the Economy
Posted on 06/22/2014 9:55:28 AM PDT by SeekAndFind
Is inherited wealth making a comeback?
Yes, says Thomas Piketty, author of the best seller Capital in the Twenty-First Century. Inherited wealth has always been with us, of course, but Mr. Piketty believes that its importance is increasing. He sees a future that combines slow economic growth with high returns to capital. He reasons that if capital owners save much of their income, their wealth will accumulate and be passed on to their heirs. He concludes that individuals living standards will be determined less by their skill and effort and more by bequests they receive.
To be sure, one can poke holes in Mr. Pikettys story. Since the book came out, numerous economists have been doing exactly that in book reviews, blog posts and academic analyses.
Moreover, given economists abysmal track record in forecasting, especially over long time horizons, any such prognostication should be taken with a shaker or two of salt. The Piketty scenario is best viewed not as a solid prediction but as a provocative speculation.
But it raises the question: So what? Whats wrong with inherited wealth?
First, lets consider why parents leave bequests to their children. I believe that this decision is based on three principles:
INTERGENERATIONAL ALTRUISM This starts with the prosaic premise that parents care about their children. Economists simplify this phenomenon with the concept of utility, a measure of lifetime satisfaction or happiness. Intergenerational altruism within the family is modeled by assuming that the utility of Generation One depends on the utility of Generation Two.
And it doesnt stop there, because future generations will also care about their children. Generation Twos utility depends on Generation Threes utility, which depends on Generation Fours utility, and so on.
(Excerpt) Read more at nytimes.com ...
Piketty ignores absolute living standards. His book is ONLY about relative living standards. Your percentage of the pie not the size of your piece.
Dont expect the Slimes to get this right.
Whether it’s good or bad for the collective is irrelevant. If you have no say on how your property is disposed of after you die then it’s really not your property.
The inheritance tax is the Collective’s declaration that all wealth belongs to the Collective. That we should be grateful they let us pass ANYTHING on.
Actually the NYT article refutes Piketty’s policy prescription and does get it right. It’s not by the NYT editorial staff; it’s by Mankiw.
Did you read the article?
This is one of my problems with the piece... My experience with people who have excessive wealth is that they tend to make somewhat careless investments. They can afford the risk and often take it. When a man's worked for his $400,000 to invest he deals with his choices more responsibly than the person who inherits a few million and is looking for excitement. It's why the "phrase rags to riches to rags in three generations" exists.
Our governments in the same position - too much access to our money has made them bad investors. Lots of 'pie in the sky' stuff goes on when the money doesn't seem real.
No offense meant RBroadfoot....
No offense taken.
The beauty of real capital accumulation is that it is really difficult to destroy. Sure, the 2nd or 3rd generation may be no-count, and squander their inheritance. But that largely means that much of their capital has be transferred from their weak hands to stronger hands.
For example, Steve Jobs’ heirs could be no-count (I don’t know one way or the other) but that would have little effect upon the real capital that he accumulated during his life. Same goes for Conrad Hilton’s heirs and J. Paul Getty’s heirs, several of which are known to be no-count.
The same situation plays out on a smaller scale with owners of drycleaners, restaurants, and construction businesses.
The heirs can only destroy capital only to the extent that they consume it. When government is heir, which it is via the estate tax, all of the capital consumed and thereby destroyed. (Okay, may a few roads and bridges get build, but that’s a tiny fraction of government spending.)
“Only the man who does not need it, is fit to inherit wealth the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve that mind that cannot match it. Is this the reason why you call it evil?”
These are the wisest words I’ve read on inherited wealth. I especially like the “loading the world with fifty parasites” line.
You're one insightful person RBroad... thanks for explaining. I see this differently now.