Classical Values :: Principal can be almost as embarrassing as principle . . .

Principal can be almost as embarrassing as principle . . .

When Michael Barone's piece about the trustfunder left caught my attention, I focused on the issue of guilt -- arguing that unless wealth is inherently evil, those who inherit it should not feel any guiltier than those who earned it. (I realize those who believe property is theft would place "earned" in quotes, but I don't!) Anyway, my point was unless money is evil, inheriting money carries no moral culpability.

I now see that although Barone supplied no numbers as to how many trustfunders there are, blogger Brad DeLong has gone out of his way to "do the math," claiming that his numbers prove that Barone has not only way overstated his case, but that he "embarrasses himself":

Let's do the math. People with "enough money not to have to work for a living, or not to have to work very hard." How much money is that for an upper middle class lifestyle (have to go to all those restaurants and art galleries: organic produce is expensive)? Figure $70,000 (pretax) per year in property income (and even at that you still have to work pretty hard). If you spend 4% of your capital each year, that's a wealth level of $1.7 million.

Emmanuel Saez tells me that there are roughly 600,000 people living in households with $1.7 million or more of wealth--and that's including the value of their house. Only a fraction have that much income-producing wealth. More than half of that fraction are over 60. More than half of the ones who are left are Republican. And at least half of the remainder have earned all their money--not inherited any of it.

So we are down to less than 75,000 "trustfunder lefties" in America. And they--those of them who live outside the major cities--are supposed to be responsible for the worries about sprawl and environmental degradation that make Sun Valley and Jackson Hole lean Democratic? For the Bay Area's 1.2 million vote edge for John Kerry? Michael Barone embarrasses himself.

OK, I am not an economist, nor am I a mathematician. (In fact, I hate math!) This means that I ought to be free to examine "the math" performed above without fear of embarrassment, right?

Did Barone in fact embarrass himself? When I read the piece, his definition of "trustfunders" seemed reasonably clear:

Who are the trustfunders? People with enough money not to have to work for a living, or not to have to work very hard. People who can live more or less wherever they want. The "nomadic affluent," as demographic analyst Joel Kotkin calls them.

I have known many people exactly like that. They get regular infusions of cash from their parents, or else have trust funds left to them by their grandparents or other family members which furnish income from time to time (either to them or to their parents to "sprinkle" for them). They are not rich, they don't live high on the hog, and they often work. However, the money in their backgrounds provides a sort of safety net which prevents them from being able to really achieve failure in the true sense of the word. If major troubles befall them, family money will be found somehow to bail them out. "Nomadic affluent" describes them perfectly, as their inability to realize true failure often (and tragically) carries with it a corresponding inability to achieve true success. They are ridden with guilt, often concealing even from good friends the unearned aspects of their money. The San Francisco Bay Area is full of them (they numbered among the hordes of people who used to do things like follow the Grateful Dead around to every show, domestically and internationally, seemingly without having to work), and I think Barone's argument is very well taken.

With all due respect to Mr. DeLong, I must take issue with his definition of "trustfunder left":

Figure $70,000 (pretax) per year in property income (and even at that you still have to work pretty hard).

Where does he get the idea that Barone was talking about $70,000 a year? That's a lot of money. Twice the starting salary of many white collar jobs. Anyone getting that much in unearned income is way beyond not having to "work that hard." With $70,000 a year, you could (dependent on location) live from a comfortable to a luxurious existence anywhere in the United States -- or retire in Mexico with a house full of servants and live like a prince.

I've known plenty of people who get around $20,000 a year (often in the form of tax free gifts). Such money can go a long way, and can make the difference between having to buckle down and work hard, and being able to coast. If you're a vegetarian, $20,000 can buy a lot of beans and rice. If you live in rent-controlled Berkeley or Santa Monica, it can pay your $250.00 a month rent for quite some time -- leaving plenty of cash to go dining at the many fine restaurants in Berkeley's "gourmet ghetto." (Hell, twenty grand can buy a lot of airfare too -- especially if you scour for specials....) I remember growing up on the East Coast, there used to be an expression called "coupon clipper" which referred to the people who scrimped and saved so they could get by on what remnants remained of past family wealth. (It was a bit of a pun, as they'd not only clip the interest coupons, they'd also clip store coupons, leave small tips, and squeeze pennies to get by without working. Believe me, there is such a thing as the "non-working non-rich." It happens!)

I think Barone's point -- with which I thoroughly agree -- is that even $20,000 can bring on a lot of guilt -- some of which translates into political contributions.

So, I completely take issue with the unreasonably high $70,000 threshold DeLong has created. But he doesn't stop there. Instead, he uses this high income straw figure to create an artificially small, hypothetical population of independent millionaires:

.... 4% of your capital each year, that's a wealth level of $1.7 million.

Emmanuel Saez tells me that there are roughly 600,000 people living in households with $1.7 million or more of wealth--and that's including the value of their house. Only a fraction have that much income-producing wealth. More than half of that fraction are over 60. More than half of the ones who are left are Republican. And at least half of the remainder have earned all their money--not inherited any of it.

So we are down to less than 75,000 "trustfunder lefties" in America.

Again, I am not a mathematician, so I'll leave his math alone. But I do have a question based on logic.

These "trustfunder" people (left, right, Republican, Democrat, whatever) -- even the ones actually getting $70,000 a year, what does the word "trustfunder" mean?

That they're being paid from a trust, right?

This means that they -- the trustfunders -- are beneficiaries of trusts! Sorry to bore my readers, but I want to make sure that common sense is not lost in an unrelated mathematical projection based on a hypothesis at odds with facts.

At the risk of sounding pedantic, I'd like to remind readers that by definition, a trust consists of principal which is not owned by the beneficiary, but which has its own life. There are different kinds of trusts; some are eventually turned over to the beneficiaries, some revert to charities, some are known as "spendthrift trusts" (intended to protect ne'er-do-well beneficiaries by being untouchable), and some can "sprinkle" according to the sole discretion of the trustees.

Obviously, this is superficial; I am not an expert on trusts. But in any event, trust principal is not owned by the beneficiary! This means that the "rough" figure of "600,000 people living in households with $1.7 million or more of wealth" is incredibly irrelevant to any discussion of trust beneficiaries. The latter will simply not show up in any list of millionaires, for the simple reason that they aren't millionaires. They don't own the money. They are mere beneficiaries who are paid whatever interest income the trustees pay them.

I must be missing something here.

Am I having a disagreement over principal?

Or a disagreement over principle?

ADDITIONAL THOUGHT: Beyond the scope of this post is the extent to which some of the trustfunder guilt may be fostered by conservatives who also deem unearned wealth "immoral." (I don't know how many of them there are in the Republican Party, perhaps enough to kill estate tax reform?)

MORE: According to CNN Money (hardly a right wing source), there are 2.3 million millionaires in the United States. Can we be sure that the Saez projections DeLong cites are correct?

AND MORE: What I didn't know when I called Mr. DeLong a "blogger" was that he is a major figure in the field of Economics -- a leading professor at U.C. Berkeley, a former Deputy Assistant Secretary of the Treasury for Economic Policy in the Clinton administration, an author, and (last but not least), a blogger with whom I happened to disagree.

(I guess I really was "missing something," wasn't I?)

Unearned wealt is not immoral, nor is earned wealth somehow moral. The morality or immorality of the question is not directly related to the wealth at all� it is simply a correlative effect noticed by many.

In simpler terms, the morality or immorality is not based on whether the wealth is earned or unearned but in the mindset of the person associated with the wealth. Earning wealth is likely to create a certain mindset, one that usually has certain principles of saving and investing. When one is handed wealth, one might not have had the opportunities to develop such mindsets.

To give an illustrative example, I was discussing a photographic history of lynching in America with a co-worker when another co-worker, who was twenty and still largely supported by her parents, asked why those people didn't just move. We tried to explain to her the difficulties of travel at that point, the level of poverty many of them endured, and the sheer amount of danger they faced as transients... and it made no sense to her. When she left, I thought a minute and came up with a phrase that I think sums it up: "She's never been hungry." Unless you've been in a situation where you can look ahead to next week and wonder if you'll be able to eat anything, poverty doesn't hit you the same way...

B. Durbin · April 11, 2005 03:51 PM