Wealth, Income, and the Folly of Redistribution

A column by Peter Cuthbertson at TCS Daily comments on research showing that most wealthy people have very frugal habits. Indeed, their frugality is a big reason why they are wealthy:

Dr. Stanley revealed that the typical millionaire spent less than $400 on their most expensive suit, and only about 1% spent more than $2,800. Only one in ten millionaires had ever spent more than $300 on a pair of shoes. Most millionaires pay a few hundred dollars or less for their watch, and $30,000 or less for their main motor vehicle. They have been married to the same person most of their adult lives. …This is no coincidence. It is not that most millionaires are in the habit of being frugal despite their wealth: it is that they are so wealthy because they are in the habit of living so frugally. The plentiful residual income goes into savings and investments that are left to grow for decades. It is not inheritance that explains American millionaires: most inherited nothing and fewer than one fifth inherited even 10% of their wealth.

The column also notes that there is a big difference between income and wealth, and explains how class-warfare policies are poorly designed:

This surprising picture of America’s wealthy presents class warriors with two problems. First, un-American as it might be to scapegoat and overtax the rich when they are perceived as Porsche-driving and Rolex-wearing, one can nonetheless imagine the envy that might inspire. But what is the future of class hatred in an America where, in fact, Porsche drivers and Rolex wearers have little net wealth, and the real rich are those who eat at the same restaurants and drive the same cars as most people, even when they can afford not to? …Second, devising economic policies that would target the wealthy would be still more difficult. Higher income taxes might reduce income inequality, but it would be a sideshow to the reality that inequalities of wealth are a result of some living below their means, not unequal incomes.

Unfortunately, the American left is unlikely to promote the behaviors that would lead to greater prosperity among those with lower incomes:

If liberals are determined to reduce economic inequality, they would have to take lessons from Dr. Stanley and encourage generally a culture of delayed gratification and a certain amount of self-denial – a self-reliant America of stockholders and coupon-clippers who marry and stay married. This is the profile of America’s wealthy, and a serious effort to reduce inequality would mean getting more Americans to adopt this lifestyle.