Two anecdotes, a newspaper article, some analysis, and two questions. First, the anecdotes. My dad used to quip that the perfect job was being a doctor specializing in diseases of the rich.
Here’s the second anecdote. Have you ever heard the story of the Greek philosophers, the Arab, and the horse? Three Greek philosophers and an Arab were all staying at the same inn. At dinner the philosphers were debating the number of teeth in the head of a horse. Each philospher mustered his arguments and debated the subject endlessly. The first philosopher insisted that horses have 32 teeth; the second was convinced that horses have 40 teeth; the third insisted on 48.
The philosophers called upon the Arab to act as judge of their debate. After listening to all of the arguments the Arab asked for permission to leave the room. After a brief hiatus the Arab returned and solemnly pronounced in favor of the second philosopher. All of the philosophers sprang to their feet and demanded to know which of his arguments had swayed him. The Arab responded “Arguments? I went back in to the stable and counted”.
Now the newspaper article. Consider this piece from the Wall Street Journal’s Econoblog:
The persistent growth in income inequality in the U.S. is a significant problem, one that policy makers would be wise to focus on. Over the past 30 years, we have seen inequality rise along all three dimensions — wages, incomes and wealth — and it shows no signs of slowing. As a result, income and wealth is becoming increasingly concentrated in the hands of a relatively small, elite group. Recent research by Ian Dew-Becker and Robert Gordon of Northwestern University has found that income in the top one percent (the 99th percentile) grew by 87% between 1972 and 2001, but grew by 497% in the top one hundredth of a percent (the 99.99th percentile).
I won’t bother to substantiate this claim (you can look it up for yourself) but income growth has been slower in lower quintiles than in the uppermost quintile. And it used to be commonly noted that wealth was widely distributed across the upper income quintiles. This is no longer the case: more than 70% of the nation’s wealth is held by the top 10% of income earners.
I think that the growing gap between the highest-earning 10% and the rest of the country will have social and political implications that I don’t much care for but that’s not what this post is about.
What this post is about is a subject that economists frequently comment on: the national savings rate. For example, here are economist and econblogger Mark Thoma’s posts that touch on national savings. And that leads to my first question. Given the enormous increase in both the income of the high earners and the wealth of the richest isn’t it a practical necessity that increases in national savings in the United States must come from the richest as well? I’ve touched on this subject before.
But I have a second question, too. Why don’t economists just ask? Don’t they want to specialize in diseases of the rich? There are few enough of the ultra-rich that they could all be asked why they aren’t saving more.
Saving is a statement about the future and I suspect that the reason that the rich aren’t saving more is two-fold. First, spending is a lot more fun than saving and, second, I wonder if the rich aren’t confident that they’ll stay right up there at the top come what may. Given the stats cited in the article above that sounds like a pretty good bet.