Guest Post by Charles Hugh Smith
The Wealthy Are Not Like You and Me–Our Terminally Stratified Society
When we say “The Wealthy Are Not Like You and Me,” most people will assume we’re talking about ultra-high-net-worth individuals (UHNWIs) with $30 million or more in assets or even the hyper-rich worth hundreds of millions or billionaires.
I’m not discussing the tiny class of UHNWIs here, I’m discussing the 8 million households of the top 5% and the 13 million households of the top 10% who own 70% of all assets and almost 90% of income-producing assets such as stocks, bonds, rental properties, etc. Not the uber-wealthy or hyper-wealthy, just the wealthy who own a million or two in assets not counting their primary residence.
A recent survey reports that there are 13.6 million households that have a net worth of $1 million or more (about 10% of the 132 million US households), and about 8 million US households have a net worth of $2 million or more (about 6% of households), not including the value of their primary residence. .
This top 10% collect about 50% of all income and account for about 40% of all consumption.
The topic here is the increasingly impermeable barrier between the top 5% and the bottom 95%, a matter not just of financial inequality but of sociological separation discussed by Christopher Lasch in his 1996 book The Revolt of the Elites and the Betrayal of Democracy.
I want to stipulate that I am not slamming the class of people I’m describing here. Rather, I am observing them as an anthropologist observes tribes, classes and cultures.
I recently met up with some old friends from our college days. At the time, they were students living in a cookie-cutter high-rise apartment with the usual hand-me-down furniture and concrete-block / pine boards book-shelving.
Now they live in a multi-million dollar house in an exclusive neighborhood, surrounded by $5 million McMansions recently built on small lots after the original homes were demolished. They too demolished the house inherited from parents and built a new luxe home.
What struck me as a journalist / analyst was how wealthy there are, and how all their friends are wealthy. They don’t interact with the bottom 95% of “normal” people except as their housecleaning maids, repair or delivery person, etc., as interchangeable, commoditized laborers who are effectively peasants / peons in our highly stratified neofeudal economy. They don’t actually know any “normal” people as friends or even colleagues; their friends are all wealthy people like themselves.
We might say this impermeable class divide is natural, but this overlooks three key factors.
One is that the barrier between the wealthy and the not-wealthy was once more permeable. As Lasch observed, America’s elites have separated themselves from the rest of society in exclusive enclaves and in a mobile lifestyle detached from place.
Other commentators have written about the same sociological trend of elites living in bubbles populated by other elites: in elite universities, in exclusive social groups, in exclusive neighborhoods no normal household can possibly afford, etc.
Lasch’s point was this economic / lifestyle stratification is toxic to democracy, a reality that is playing out in all sorts of ways.
Another factor is all the wealthy people I know became wealthy as a direct result of financial help from their parents. Every wealthy person I know (with a very few exceptions)–and by that I mean people who live in homes worth $750,000 or more in value and who own other substantial financial assets that generate capital gains and income–attended university funded by their parents, and whose first home purchase was enabled by help from their parents or in-laws.
I’ve also observed that this class of privileged people often tout their “bootstrapping” while neglecting to list the full measure of financial support they received from their family. Everyone wants to claim “I did it all myself” but this rings hollow once the facts of the matter come out.
This class also inherited substantial wealth when their parents passed away, or from trusts established by the parents to transfer their wealth prior to their death.
Lastly, all the wealthy people I know bought or acquired assets long ago at prices that were affordable to households with normal middle-class incomes. At today’s valuations, the homes and assets they bought decades ago are no longer affordable to any household below the top 10%.
Another shared characteristic of the wealthy who inherited their wealth and benefited tremendously from the past 30 years of asset inflation is that they uniformly attribute their wealth to their hard work. Yes, they worked hard, but so did most of the bottom 95% who aren’t wealthy.
The deciding factor wasn’t the wealth they created as entrepreneurs or workers; it was the assets they were able to buy long ago as the direct result of financial help from their parents–or put another way, the wealth generated by the monumental inflation of assets their parents bought decades ago.
Scrape away the 1) parents-paid university, 2) the parental help in buying their first property, 3) their ability to save money in IRAs and 401Ks as a result of having low-cost mortgages (or no mortgage at all) and invest these savings in other assets at low prices, and 4) the rampant asset inflation of the past 30 years, and how much wealth would they own that was solely the result of their earnings / frugality?
Yes, there are wealthy entrepreneurs who earned their wealth by creating value in an enterprise, but once again, scrape away the enterprises that are bubble-dependent real estate and stock-market based ventures, and how many entrepreneurs actually created wealth via creating value? Take away the 30 years of asset inflation and the answer is very few.
Much of what the wealthy claim as brilliance is nothing more than the good fortune of living in a multi-decade era of ever-rising asset valuations.
Some friends inherited portfolios of dividend-paying stocks that had been on auto-reinvestment of dividends for 50 or 60 years. Small stakes invested back then are now worth $1 million or more. Others inherited gold purchased at low prices decades ago. These are just two examples of many transfers of wealth that rarely get mentioned.
As a general rule, the wealthy don’t reveal all the help they received, or attribute their wealth to asset inflation. They tout their long service in academia or Corporate America, their wise investing, their hard work, etc.
I know this because I’ve benefited from the same asset inflation, though I didn’t benefit from an inheritance or much help from my parents ( I did receive a rusting old VW that needed an engine rebuild–a real plus at the time as I needed a car to get to work). But even the accomplishments I can claim credit for–working my way through university by working 24-32 hours a week, fully self-supported, and building my own house at the age of 27–are out of reach of the majority of “normal people” now.
University tuition and fees have skyrocketed, and so have rents. It’s almost impossible for a young person to make enough income from 30 hours of work per week to pay all the university costs, the rent for a tiny studio ($135 per month in 1975) and maintain an old car, plus groceries, beer, etc.
There is one other factor that must be described in this stratification of wealth: the role of frugality. My wife and I lived in the cheapest, crummiest studio in the city for years, worked Saturdays on construction side-jobs, did our own auto maintenance, etc. to save up the money to buy a lot and building materials to build our own house. I know many other people, mostly immigrants but some native-born Americans, who followed the same route of extremely disciplined frugality to save up the down payment needed to buy a house.
But even the path of frugality is steeper now. The rent for even the crummiest studio is sky-high, used cars cost a small fortune and wages have stagnated for 45 years, a fact I’ve often noted in my blog posts. Even wages in construction have stagnated.
Adjusted for inflation / purchasing power, I made more money as a 23-year old carpenter/tradecraft worker in 1976 than I’ve ever made since. In other words, it took fewer hours of work in 1976 to pay for basic shelter, food, utilities and transport than it does now. (See chart below of wages share of the economy: it topped in 1975.)
When the economic stratification was less pronounced and less entrenched, you might have had a spectrum of neighbors. Now the wealthy only know other wealthy people, because no one who isn’t wealthy can possibly buy a home in their exclusive enclaves or enter their social circles of people wealthy enough to donate to the arts or politics.
In the bubble of the wealthy, one hears about the travails of finding people to fix pool pumps, wealthy acquaintances who scored a beachfront rental for only $7,000 a month and endless stories of jetting around. One also hears strained efforts to show how frugal they are, as if scoring discounted airline flights is the sort of frugality that will eventually build up a down payment for an insanely over-valued house in their enclave.
Extreme stratification is now the norm globally. The barrier between those who inherited wealth or who had enough help to buy assets decades ago and those without parental wealth to help them now is impermeable. Even as younger generations lobby for more housing to be built, it’s still unaffordable unless it’s heavily subsidized.
Here are a few links describing aspects of this impermeable stratification:
New Grads Chasing ‘TikTok Lifestyles’ Struggle In NYC As Rents Surge
A Tale of Paradise, Parking Lots and My Mother’s Berkeley Backyard (NYT.com) NIMBYs and YIMBYs–older wealthier residents don’t want new multi-story housing to change their enclaves, younger people want more housing to (hopefully) lower rents.
Majority of flights taken by a small percentage of flyers
A bit of realism and humility are in order. Yes, we worked hard, but we’re not wealthy because we’re so brilliant or even because we’re so frugal. We’re wealthy because the global economy is structured to inflate asset bubbles. Those who bought or were given assets decades ago have benefited, those entering university and the workforce now cannot afford the same things we bought with average incomes without inheriting wealth from their families.
Those inside the bubble of wealth who only associate with other wealthy people don’t seem to notice the social / financial stratification or its profoundly negative consequences. Perhaps they think this is how everyone lives, fretting about finding cheap laborers and cheap flights, or they discount their own wealth as merely “comfortable.” Perhaps they think “since I’m doing great, everyone’s doing great.”
They have lost touch with those who didn’t get to buy assets on the cheap, who didn’t get their university education paid for by their family, who don’t have an inheritance or a down payment provided by the Bank of Mom and Dad.
History suggests such a stratified society cannot endure as a democracy.perish.The threats to the republic are unprecedented, and conventional responses are an accelerant of collapse: the status quo is now the problem rather than the solution.
We have an opportunity to redraw America’s Grand Strategy from the ground up. Should we fail to do so, the United States will fail, along with all the other nation-states that are incapable of grasping degrowth and social unity as solutions.
This revolutionary Grand Strategy will be the deciding factor between nation-states that fail and the few (if any) that will not just survive but actually thrive.
Shut up boot licker with your commie whiny shit.
Describing a real dynamic is different than recommending solutions.
Please turn off Fox News. You’re proving the point that the ‘conservative’ talking points surrounding economic mobility are nothing more than blandishments under the current neo-fascist, neo-feudal regime.
Lol. Did anyone commenting on this actually READ and attempt to comprehend? CHS is talking about generational roadblocks to wealth accumulation. If you think that Millenials today can do the same things we did 30+ years ago and have the same success, you’re blind as well as stupid.
Just Sayin’
Get the hell out of my way, I’m busy actually doing it.
My daughter and son in law are doing it– and without assist from either sets of parents. They both work full-time, daughter makes extra money as math tutor in-person and online; SIL does webpage design as a side gig/hobby and has authored 2 books.
Daughter even got her Ivy league education/masters without paying a cent by agreeing to a contract for “teach for America”- sacrificed 2 years of her life working in an inner city shithole school in Philly
in exchange for that extra boost on the resume and now it pays dividends as she works in a higher salaried private school.
The key word is “sacrificed”– many millennials rack up student/credit card debt for useless degrees, sign up for new care loans for 7-10 years after high school graduation and generally live in the “instant gratification” mindset.
Many of us were just as poor and struggling as they are when we were the same age. Amazing what 40+ years of hard work and industriousness will accomplish.
“generational wealth” that this tool is spewing is the same argument that the Slavery Reparations crowd uses.
I know many in the top 10% ( huge jump to top 5%) who did it by weekend sidework, frugality, overtime whenever offered and taking a few risks with investing in small business partnership/fixer uppers etc.
Academic scholarships and working through school- community colleges for 2+ years of basic classes and extra years to complete degrees.
Turning hobbies into profitable ventures- (not a ton of money but $125k over 12 years extra income I personally have made).
Personally I grew up poor and contrary to what this Obama parrot cites, ( nobody got wealthy on their own, Obama quote) my clothes came from yard sales, cheap consignment stores and K-mart. We bought whole chickens and cut them up because a package of thighs, breasts or legs alone was too much. A 33c box of spaghetti and $1 jar of sauce was dinner for 4 kids.
Heck, my mom would even open packs of socks up at Christmas and wrap each pair separate so I would appear to have more gifts during the holidays. Dad died in Nam, mom was a bookkeeper who eventually got her CPA in her late 30’s.
No braces, no cars at 16, patches for holes in clothes, hand-me downs, first job at 16 after school although had been cutting grass, shoveling snow and raking leaves since I was 10 for the neighbors for a few bucks.
First house was a duplex in a bad neighborhood but I built equity and it actually was cheaper than renting. Sold it when we had kids and used the money for a slight upgrade to suburbia.
The wife got her RN after kids started school and I finished my doctorate after 12 years of plodding along- had less than $5k of student debt when I finished.
Fast forward 25 years and we live in a rural area on 3 acres. We own a small 7 unit apt building I bought 10 years ago and a friend lives in one unit free and does the maintainence/security. We have an acre in Florida in a co-op that we plan on retiring to ( waiting to build our own small home once certain costs drop a bit).
Haven’t paid interest on a vehicle in 25 years. Old beaters for $2k are everywhere and if it dies after 2 years then I have saved nicely above a $600-800 a month care payment in that timeframe.
Bottom line– you don’t need rich parents, govt assist or snooty comrades. Be creative, be frugal, work hard and get married to a thrifty wife.
You only make it of THEY let you
You whine about the wealth held by this class of earners without once discussing their contribution to society. We are responsible for the vast majority of tax revenue collected and we account for a disproportionately large chunk of this nation’s GDP.
Take your class warfare and envy and shove it up your behind.
But in their misgendered opinions, fed to them by sniveling communist professors and damaged single-parent homes, rich people, or any people who made their own way in life, that’s simply not fair. As Obama parroted the line from some woman, “you didn’t build that.” I’m noticing that some of the same people from yesterday who were all anons at least took a user name. Not all, but some. If this were other sites like Breitbart or Gateway Pundit, I’d suggest not even acknowledging their presence because they get paid to disrupt. But here, I’m not sure if they’re getting paid, but I don’t mind telling them to eat a bag of dicks.
One of the problems of the “poor” is far too many remain poor their entire lives because they learned to live a lifestyle they can not afford.
TV commercials work.
One way to become less poor is to try and learn to want as little as possible from the system. And then actually not consume it.
An old saying I just made up goes:
Few rich people buy $10 cups of coffee.
Their assistants buy it for them.
_____
As a tradesman I breach that familiarity rule with the rich all the time. I do not see them as my betters. If they were my betters, they wouldn’t need me.
Other things could help the poor, immigration legal, illegal does lower wages, your competing against poor ass third worlders, and then taxation, people making under 100k a year shouldn’t be paying there prosperity in federal tax if you want them to even try and prosper, i can’t say it’s just the poors fault when society itself works against the bottom. To keep them poor and voting for Government assistance.
I don’t know, i won’t let the accumulation of wealth control my actions, to have it confiscated ie (taxed) to be used against me and used to pay for munitions and send the military overseas and kill poor women and children, making enough to survive, roof over my head and get to eat making me a useless eater has been good enough without the added burden of great wealth,
And it’s on a individual level, persons who can’t afford the degree and work past through self education are just going to stay poor and stupid.
“The Organization for Economic Cooperation and Development found that 50 percent of U.S. adults can’t read a book written at an eighth-grade level. Illiteracy issues start long before eighth-grade. It starts before young children can talk. The literacy state is not any better for young children.”
I was lucky enough to grow up in the 60s’70s on the farm and move onto construction, remodeling and maintenance since, spending spare time to read,well written history, by serious men. and if i couldn’t understand something spending the time in a dictionary until i could and having the extra IQ helped a lot.
But money wealth … if it’s not gold, silver hard assets it’s just a medium of exchange. i don’t begrudge the wealthy anymore then look down upon the poor i understand there is a subset of people who work against us all and our common benefit. Most of them seek out leadership positions in Government and high finance, corporations and a few in organized crime. Political beliefs won’t change human nature. Too many will or would sell everyone else out for power or money.
It’s what’s on the inside, how you going to act when the bottom fall’s out, will serious men be able to trust you, will the poor widows be glad you are near, will children be afraid of you or seek comfort from your presence, people like to judge according to wealth, he’s a poor low life, or he’s a rich business man, bahh i measure the human race differently.
My family, associates viewed it by our societies modern standards,for a long time rich poor successful or not but the last few years has started to open some eyes around me.
Unfortunately, I don’t think it’s even pretend anymore. Several years ago, I knew precisely where a bunch of illegals lived because of my job and knew companies that were hiring them and paying them off the books for labor, but right as I was telling the department overseeing that, Obama decided that we didn’t need any of that illegal oversight. Now I doubt they even care to hear about any illegal.
You are mostly if not completely correct. The United States is a consumer-driven society, built on needing what you don’t need. And paying for it with the bank’s money, aka financing. I am a victim of that. We actually have money, but I also have debt. We certainly will be okay so long as these suggested threats we often see about the government confiscating your money in the bank or your IRA or what have you. At which point, I become a willing criminal.
Part of the frugal is only buying what you really need. What I have also done in the past is when something I need is offered for sale with 0% interest, I’ll buy it on payments, even tho I have the money to purchase it outright. I’ll use their money while I make the monthly payments, saves the hit on the cash reserves.
Fantastic Observations GNL.
Being a high-earning millennial in tech, I can attest to the truth of this: the wealthy have generational wealth; Rampant inflation moves faster than working income these days.
I’m only living in a ‘rich person house’ because the VA loan meant I didn’t need to put anything down. The GI bill payed for my Graduate degree that got me the job to afford the mortgage, and I was lucky enough to benefit from the lotto-funded scholarships Florida offered for undergrad. Even still, I have negative net worth. And although the house has basically doubled in “market value” in recent years, that equity is imaginary because I never intend to sell.
Yes, I’m conflicted about accepting gov’t benefits, but I literally put my body, mind, and spirit on the line to execute their brutal, pointless wars–receiving injuries to each. I’ll carve out what I can to acquire real assets and pass those on to my children.
I am conflicted also. I love meritocracy but I see fraud in the system. I believe it will only get worse. No one ever seems to understand the danger posed to society through G.R.E.E.D.
Good or bad, right or wrong, like it or not, when wealth and income inequality gets bad enough, bad things happen. Countries turn into 3rd world shitholes. G.R.E.E.D. is the most destructive human trait.
He claims that if you’re in the top 5% you got there as a direct result of financial help from your parents. Bull Shit! I came from a poor family and wasn’t given anything. I had a good job and lived well below my means. Did well timing wise on a number of investments and I’m now retired with no financial concerns. Yes I did do it all myself.
ASIG you are not alone. The only things I got from my parents were a good IQ and a solid work ethic. I did build it myself.
When I worked for them, Merrill Lynch under took a study of precisely the situation GNL describes. He is right: the overwhelming majority of millionaires inherited, at least a proportion of their money. You are an anecdote.
The article is by Charles Hugh Smith.
You are correct, I scanned it. Duly noted.
Married at 20 & 19 worked hard saved and invested paid for top educations for our children who are successful and gainfully employed .
So here we are with a modest home a nice trailer in a beach oriented community and a million in investment assets for retirement because we were frugal and followed a lucrative financial path of owning used cars worth $5 thousand bucks and putting those car payments aside to have $100 thousand working for us and here we are now 49 years later enjoying our time left on this earth and we owe NOTHING TO ANYONE FOR THIS ESPECIALLY THE THIEVING GOVERNMENTS LOCAL STATE AND FEDERAL YOU ALL GOT YOUR POUND OF FLESH AND WE KNOW YOU ALL WILL DO YOUR DAMNEDEST TO CONFISCATE (STEAL) MORE FROM US !
We know you will take all you can but FUCK YOU ANYWAY 💸💸💸🖕🖕🖕
Explain yourself down voter ! We had setbacks in life and pressed on beyond them . Point is you cannot sit in your own failures in life and dwell upon them !
Learn and move past it or be a failure drink alcohol and smoke weed to excess at great expense and at your 50 year high school reunion wonder why so many are successful and retired while you are stoned and wishing in one hand and shiting in the other !
I owe you NOTHING
You can’t take it with you.
No sure can’t and I’m assisting other family members and my wife and I mentor young people to obtain a firm footing for their future and we are enjoying our earned wealth and sharing it with our children .
Just ran a actuarial accounting and even with modest withdrawals we won’t be broke for 69 years .
Of course if Biden wins again we will be pushing shopping carts under a bridge with a harbor freight tarp !
I think he is missing a point.
The vast majority of the bottom 95% have also given up on other mental models [for their goal in life] than trying to become one of the top 5%-ers.
Therefore, from the superficial view of the rich, there is no ‘divide’.
One of three sons of hardworking, intelligent parents with decent value sets who survived the Depresssion and WWII. Each of us sons went to college; the other two to private colleges, one with almost obscene tuition. That son did the best in life, economically speaking, was the “favorite son” with the high tuition. The other dropped out midway through his junior year because his freshman honey from the sorority claimed she was pregnant-she was not and they divorced 10 years later. I graduated from a 2nd tier state college that had insanely manageable tuition, did 5 years of academic work in 4 years, married a gal who was twelve when we first met, had a career with a top twenty tech company. Never once in all those years felt we were in a position where we did not have enough money and never took any kind of government handout to get where we are today.
I can summarize things here: oil and water do not easily mix, nor do classes in real life. Those who succeed generally do so because of sometimes subtle differences that propel a few to greater things than those who never quite get there. Many of those subtle differences are nothing more than virtues-things like living within your means, refusing to play the keeping-up-with-the Jones mentality, and being all around good people with the good values we were lucky enough to inherit from our parents.
I’m not trying to be a dick about this but if you fuck-up your first two paragraphs with a false premise, then what follows will be a continuation of your fuck-up and I’m out. The Fuck-up: When you hear someone say X percent has X percent of all the assets, this is a false premise unless they are talking about dictatorships and even then that can be sometimes misleading. The fact of the matter is, X percent control and own X percent of all assets has been true since the dawn of man at all times in history. The premise is used to get the reader or listener to get the idea in their mind to believe the economic pie is finite. It’s not and never has been. The finite pie concept is a tool dictators use to get people to fight for the dictator over envy and greed. There is no such thing as a finite economic pie or the term “wealth creation” could not or would not exist. So FUCK the X% have X% of all the assets.
I believe, contrary to what many above post, that his observations are mostly correct. Commenters have posted their own experiences and their current station in life. But, what is missing is that not a single one is in the top 5% and I believe that is the point of his article.
I also am one that went from poor upbringing to top 10% but it was only because of life lessons taught by my depression-era grandparents. We live a frugal life, have zero debt, and I have a good job. But, none of those things will propel my wife & I from comfortably top 10% into top 5%.
I fully hope and expect my children to make top 5%. Both have great education, starting at private religious school through college, funded by their parents. My son graduated a few years ago and is quickly progressing through the ranks in his chosen field. He will soon be out-earning me and is on trajectory to continue upward.
My daughter starts college in a few weeks. She has chosen a career with outstanding earning potential and is already being recruited by student job programs in her chosen field. At the same time she receives 5 or more credit applications everyday. She knows those are leeches that will only hold her back by trading shiny trinkets for future earnings.
Free education and the opportunities it presents is a leg up that the author mentions.
Our retirement nest egg will be structured in a way to benefit our children, grandchildren, and future generations after we pass. Instead of a one-time payout the funds will be in a living trust, also mentioned by the author.
I am in the top 1%.
Although I have worked very hard and I have two masters degrees. I did not get to the top 1% by myself … I inherited from both sets of parents who were well-off. I also had the advantages and disadvantages of growing up with wealth.
I am not ashamed of this but I will also say that far, far too many of my cohort are all about the privilege of wealth without any of the concomitant responsibility.I suspect a good many of them harbor a death wish.