Posted by
Andrews on Monday, April 07, 2008 3:28:07 PM
I was reading John Fund's Political Diary, filling in for the Best of the Web on the WSJ site (no point linking as it will be gone by the time I post), and I was struck by how dense the quote of the day is.
Here is the quote in its entirety:
Quote of the Day
"When people think of the 'rich,' they might imagine
billionaire plutocrats presiding over yacht fleets. Reality shows have
made these folks appear remarkably prevalent. Lost in our obsession
with the extremely rich, though, is another trend: over the past two
decades, the ranks of the somewhat rich have also exploded. Indeed, the
8.4 million American households -- some 7.6 percent of all U.S.
households -- with a net worth between $1 million and $10 million
comprise one of the fastest growing demographics in the country. 'The
rich are different from you and me,' F. Scott Fitzgerald once said. But
according to The Middle-Class Millionaire by Russ Alan Prince and Lewis
Schiff, these working-rich households are not so different from the
rest of us, at least in their stated values.... Predominantly small
business owners or principals in professional partnerships, these
millionaires 'have achieved the American dream the American way'" --
writer Laura Vanderkam, writing at American.com.
So, why did this quote inspire my third grade response of "duh", you may ask? Simple, it is because if anyone thought for even a few seconds, the reason we have more millionaires will be horribly obvious.
Well, part of it is because we are getting wealthier. Despite all the doom and gloom of the chattering classes, America's economy is still fundamentally strong and growing. It was not crushed by the events of 9/11, it will not be crushed by this adjustment after an over-optimistic housing and lending boom. It continues to grow.
But the real reason this demographic is growing is that we continue to use the term "millionaire" as synonymous with "rich", while continuing inflation makes the distance between the millionaire and the average citizen smaller and smaller. Just think about it. Between 1971 and 1981, we underwent something like 600% inflation in total*. If prices and incomes multiplied sixfold that means someone earning $167,000 in 1971 was a millionaire in 1981. Voila! More millionaires!
Then again, this has given me a brilliant idea. Since people, even on the right, seem unable to distinguish between "rich" and "millionaire", then I have a secret path to general prosperity. If we tell the Fed to start printing money like it was toilet paper, start up some Argentina style inflation, maybe even some good old Wiemar inflation, we could turn every American household into billionaires before the end of the decade.
And thus we can win the war on poverty. Because, obviously, if everyone is a billionaire, we have no more poverty any more.
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* Inflation figures vary depending on how inflation is measured, relative to gold, by CPI, by some other index, as an increase in any of the many measured money supplies, and so on. I do not recall where I got the 600% figure, but it is certainly one of the higher numbers. (I think it may be relative to the price of gold, given the high value. I have to check to be certain.) But, the point is the same whether you use this figure or another, as we inflate the money supply, the number of millionaires will increase, but it does nothing to increase actual wealth.
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ADDENDUM
I checked and discovered that the 600% figure was inflation as measured by the price of gold. By picking the dates 1971 and 1981 and that specific means of measuring inflation, it gave the greatest figure possible. More conservative figures, such as CPI, place inflation throughout the 1970's at less than 100%. (See
this document for the chart of gold prices.) I used the 600% figure as it was the only inflation figure I could recall while writing, and it made for easy math. It doesn't really change my argument if you use a lower figure, it just takes longer. (For thsoe who are curious, the 600% figure came from Ron Paul and Lewis Lehrman's
The Case For Gold. Despite my many problems with Ron Paul during his presidential run, this remains a very good work on the gold standard and free banking. Maybe not as good as Salsman's
Breaking the Banks, Anderson's
Economics and the Public Welfare, or the seminal
Human Action, but still a good shorter book.)
SECOND ADDENDUM
I forgot to add one other comment. The fact that someone has a net worth of $1 million can mean nothing more than they own a house with a yard in certain cities. Given the absurdly inflated prices houses have been drawing in some cities, especially on the east and west coasts, having a paper net worth of $1 million is hardly an accomplishment. Many houses that went for $300,000 in 1990 are worth well over $1,000,000 today. Which makes a $1 million net worth a bit less impressive.