Nuance, meritocracy, and the upper 20%

If there’s one adage in life that has proven itself true numerous times it’s this: you might get rich through luck, but you won’t stay rich through stupidity. There are numerous nuances about wealth that many don’t understand, or don’t want to understand. Instead they just want to stare that the aggregate figures and complain.

In the case of Richard Reeves of the New York Times, it’s basically to tell the upper-middle class that we are “rich”. And I say “we” because I am fortunate enough to have gotten to that income level. But Reeves completely misses the nuance that goes with the income level.

Such as where you live. My current salary in San Francisco wouldn’t garner anywhere near the standard of living that I have in Kansas City. In 2013, Learnvest published an article highlighting how $166,000 per year in New York isn’t exactly middle-class. Note: it’s not upper-class either. And in Silicon Valley, software engineers earning what I make or more are “scraping by“.

Now Reeves does point out that class segregation does exist in the United States. It’s quite easy to tell where the more affluent members of society are likely to live. For example, in Kansas City, Missouri, drive along US-169 near Briarcliff Road and you’ll see an area that is obviously occupied by the more well-off in Kansas City. Same with driving down Ward Parkway. Other areas of the Kansas side of the metro are similar.

At the same time, though, you can also see that between completely different metro areas by looking at cost of living. The comparison between Silicon Valley and Kansas City I’ve already highlighted. And there’s also a comparison to be made between even Des Moines and Kansas City.

But where Reeves goes a little out of bounds is in trying to describe why that class segregation exists, and whether it’s actually a problem.

The big difference is that most of the people on the highest rung in America are in denial about their privilege. The American myth of meritocracy allows them to attribute their position to their brilliance and diligence, rather than to luck or a rigged system. At least posh people in England have the decency to feel guilty.

Meritocracy is far from a myth. I did not earn my place on the ladder in the US economy through “luck or a rigged system”. Instead I earned it through my choice of career, along with my expertise and experience allowing me the job I currently hold where I earn my salary. As such I’m not in denial about my “privilege”. I know I earned it.

And many others above me on the income rungs also earned theirs. It wasn’t given to them in any way.

In the United States, the most liberal politician can pay for a lavish education in the private sector. Some of my most progressive friends send their children to $30,000-a-year high schools. The surprise is not that they do it. It is that they do it without so much as a murmur of moral disquiet.

Why should they have any sense of moral disquiet? Because they are well-off enough to be able to send their children to prestigious private schools and enjoy their wealth in other ways? I’m sure the Obamas had no feeling of moral disquiet sending Malia and Sasha to private schools, both in Illinois and Washington.

While that alone isn’t a guarantee of future success, it does give them one hell of a head start. But, again, where is the concern?

There seems to be a rather common point of view wherein the rich should feel ashamed for being rich. “Rich guilt”, which is loosely related to “white guilt”, it seems. And President Obama’s statement that “you didn’t build that!” in reference to people who did build successful business ventures.

But another nuance often lost in discussions of wealth in the United States is socio-economic mobility. This is the approximate measure of how easy it is for someone in the United States to not only move up income brackets, but also move down. Interestingly, a lot of people decry low socio-economic mobility as being bad, but don’t understand how their policy ideas only make that situation worse by, in essence, punishing success.

But while socio-economic mobility in the United States appears to be low compared to our European counterparts — for numerous reasons I won’t venture into here — it hasn’t changed much compared to the 1970s.

As such, the statement “Most of the children born into households in the top 20 percent will stay there or drop only as far as the next quintile” misses a lot of nuance. Not to mention it’s also not correct (more on that in a second). Again, you might get rich by getting lucky, such as luck of birth, but you won’t stay rich by being stupid. A lot of those born into the upper 20% will also attend some rather affluent schools, allowing them to learn what they need to keep from dropping out of the upper 20%.

This is why I get rather taken aback by those who call individuals such as President Donald Trump “stupid”. Openly and brazenly calling him that. Because Trump is far from stupid. The fact he’s a billionaire shows that. He took what his father gave him and built upon that.

Bill Gates got very, very lucky in starting Microsoft. The economic tides very easily could’ve turned against him and his startup. At any time that also could’ve happened. Instead he’s still the richest person in the world, though don’t think for a moment he’s sitting on $80+ Billion in cash.

And depending on the variety of his securities, one bad market swing could wipe away a significant chunk of it. And that is the case for most of the rich. Because the rich aren’t sitting on cash. Don’t think the images of Scrooge McDuck having so much cash he needs a giant building to store it are in any way realistic.

As such, contrary to the assertion of Gary Solon, who Reeves quotes in his op-ed, there isn’t a “wealth trap”. Again, you don’t stay rich being stupid. And there are plenty of examples of people born into affluent families squandering the wealth they inherited. Time published an article in 2015 with the rather eye-opening title: “70% of Families Lose their Wealth by the Second Generation“. And Time reveals another eye-opening statistic: 90% of rich families lose their wealth by the third generation. This is where this statement comes from: “riches to rags in three generations”.

There’s a kind of class double-think going on here. On the one hand, upper-middle-class Americans believe they are operating in a meritocracy (a belief that allows them to feel entitled to their winnings); on the other hand, they constantly engage in antimeritocratic behavior in order to give their own children a leg up.

How is giving your kids the best starting chance “anti-meritocratic”? Indeed isn’t that what virtually all parents want: to give their kids a better chance in life than they had? It’s actually why we have the luxuries we enjoy in the United States: people building on the ideas and achievements of those who came before.

But leads can be squandered through complacency. Just talk to anyone who was cheering on the Atlanta Falcons in last-year’s Super Bowl. Being able to send your kid to a prestigious private school is no guarantee they’ll succeed in life. And plenty of people who went through public schools are successful.

Things turn ugly, however, when the upper middle class starts to rig markets in its own favor, to the detriment of others.

Okay this ought to be good…

Take housing, perhaps the most significant example. Exclusionary zoning practices allow the upper middle class to live in enclaves. Gated communities, in effect, even if the gates are not visible.

This is the class segregation to which I referred earlier. But this didn’t occur through exclusionary zoning practices, and I invite Reeves to back up that assertion with reports if he has them. Instead home values create these “enclaves”. I mentioned earlier the Briarcliff area of Kansas City, Missouri.

Quoting Realtor.com:

When it comes to real estate clichés, “Location, location, location” has all other contenders (including “Not a drive-by!”; “Cash is king!”; “Is that your checkbook or are you just glad to see me?”; and “Worst house, best street”) beat by a mile. Not only has it been in use since at least 1926 (according to the New York Times), but it’s utterly and inarguably true.

In the quoted article, they also have an image showing what can bring down home values quite a bit. And when you look at this image, these are often things you don’t think of when thinking of affluent areas:

I should note that I don’t live far from a large cemetery and a funeral home. And it’s perfectly understandable that a cemetery being nearby would lower a home’s value and likely make it somewhat difficult to sell. Cemeteries give a lot of people the willies.

But a bad school having almost double the effect of a cemetery is worth noting. High renter concentration and homeless shelters tend to also point to a lower-earning population. Especially since a high renter population also means higher likelihood of Section 8 housing.

The effect tends to compound: bad schools may occur from less property taxes being collected on lower-value homes.

And these tend to be areas that more affluent people either avoid or escape. Also compounding the problem is attempts for the rich to bring their money into those areas may be met with animosity by the population living there.

Atlantic Bay points out other things that negatively affect home values in an area:

  • Crime (which tends to exist with poverty in a feedback loop)
  • Poorly maintained exteriors
  • Foreclosures nearby the home
  • Unpleasant odors
  • Dangerous trees and limbs
  • Unkempt yards
  • Annoying pets

Along with crime is also the sex offender registry. A home in an area with a higher concentration of registered sex offenders could see a significant drop in home value, according to Business Insider, and will likely be avoided entirely by home buyers with children.

But again, these are things you won’t see in affluent neighborhoods.

The federal tax system gives us a handout, through the mortgage-interest deduction, to help us purchase these pricey homes.

Not to the degree you might think. And the ability to take certain itemized deductions is reduced at greater incomes. Buying a pricey home in an affluent neighborhood means you have a greater level of income, but it also means your eligibility to deduct all of the mortgage interest could be reduced.

For the upper middle classes, regardless of their professed political preferences, zoning, wealth, tax deductions and educational opportunity reinforce one another in a virtuous cycle.

That “cycle” doesn’t exist.

Instead the cycle is a little more like what we’ve seen with Donald Trump: born into a rich family, gets a good education, and so learns how to take risks that will pay off.

And again anything can derail this. A bad investment here, a bad business venture there. And a person starting off born into a family with 8 figures to their net worth may find themselves with… less. Much less. Same if they don’t do anything to maintain the wealth and just squander it.

You might get rich by getting lucky, but you won’t stay rich being stupid.

It takes a brave politician to question the privileges enjoyed by the upper middle class. Recently, there have been failed attempts to make zoning laws more inclusive in supposedly liberal cities like Seattle and states like California and Massachusetts.

There’s not really much that laws can do with regard to the enclaves that form. Investment in the lesser-off areas is what is needed. But since these lesser-off areas tend to have higher rates of crime, that tends to scare away potential investors. While the damage from the New Deal policy known as “redlining” is still being felt today, there really isn’t much laws can do to undo that damage.

But the people who make up the American upper middle class don’t just want to keep their advantages; armed with their faith in a classless, meritocratic society, they think they deserve them. The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else.

And have you talked to upper-middle class earners? I can tell you from my own perspective that it isn’t any sense of entitlement. And the luxuries I enjoy I don’t feel I deserve. Rather it’s what I have earned. Since they are advantages and luxuries I pay for from my salary.

It’s the lesser fortunate that seem to believe they have a claim to my salary and so demand the government take more of it.

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