Both capitalism and democracy promise the
opportunity for upward mobility. Capitalism
offers upward mobility to anyone with a profitable idea or productive skillset
and work ethic. Democracy implicitly promises a "level playing field"
of meritocracy, where talent, drive and hard work open opportunities for
advancement.
Crony capitalism
offers wealth to the class that already possesses it. Feudalism bestows
"rights" to wealth to a favored few. In a way, upward
mobility is a real-world test of a nation's economic and social order: if
upward mobility exits in name only, then that nation is neither capitalist nor
democratic. Stripped of propaganda and misleading labels, it is a feudal
society or a crony-capitalist economy masquerading as a capitalist democracy.
Japan is an
interesting case study. Some readers of last week's series on Japan
noted that Japan was still very wealthy and life was good there. Indeed, some
commentators have made the case that Japan has purposefully indebted itself to
mask the wealth generated by its export machine: The Myth That Japan is Broke. (via Mike H.)
My focus was the
consequences of economic stagnation, not measuring Japan's national wealth, and
this raises the issue of upward mobility: Yes, Japan remains very
wealthy, but the wealth is concentrated in a specific neofeudal class; Japan's
economy has lost the upward mobility of its long 1950-1990 growth phase.
We are blessed
to have many young (20s and 30s) Japanese friends, single and married. Though
it is not a random selection, it is geographically and socially diverse. In
reviewing each friend/couple's education, financial stability, homeownership
and the wealth of their parents, I realized every young person (under
40) who owns a house or flat has parents who made the purchase of their
education and home financially possible.
Everyone without
wealthy parents--and "wealth" means enough income/savings to pay for
an entire university education in cash, and then pay 50% or more of their
child's home purchase in cash--does not own a home, even those with a college
education.
In other words,
wealth is being transferred within the class that already earned and
accumulated the wealth. It is not being earned by young people. The untidy
truth is that they aren't paid enough to buy a home and accumulate wealth for
their children.
What nobody in
Japan dares discuss is the fact that tens of millions of young
"freeters" will never make enough to get married, much less own a
home or save enough to educate their children, unless they receive a lump sum
of wealth from their parents while they are young enough for it to matter. If
their parents don't have enough wealth to matter, then the freeters are doomed
to membership in Japan's expanding underclass.
So a nation can
claim $3 trillion in offshore assets or whatever wealth metric you choose, but
if that nation has lost upward mobility, then the wealth is increasingly
concentrated in a neofeudal structure. How "wealthy" do we say a
nation is that has lost upward mobility?
Once upward mobility
is lost, "social recession" sets in and the social contract frays.
How different is
the U.S.? Most
people who don't have physicians in their nuclear family or close circle of
friends think that an M.D. is the ticket to upward mobility. In many cases,
this is an exaggeration. I just received an email from an M.D. who stated that
adjusted for inflation, his highest earnings were 30 years ago, in 1981. Others
write to tell me that the hundreds of thousands of dollars in student loans
that those without wealthy parents must borrow to attend medical school take
many years to pay off, even with salaries that most people consider generous.
This is an
example drawn from what most assume is the top-level "surefire ladder to
wealth." We could look at non-Elite graduates of Ivy League universities
(i.e. the non-Elites accepted in the name of diversity) and see how they're
doing in terms of wealth accumulation that can be passed down to their kids.
Sure, they're "doing well" in most cases, making a comfortable
living, but are they making enough to pay off their student loans, own a home
that isn't 90% owned by the bank and accumulate enough savings to not only pay
their children's education in cash but also help them buy their own home with
at least 25% down in cash? If not, then they're not really accumulating wealth
that can be transferred, they're simply consuming it.
Correspondent
Chris Sullins added transferrable generational wealth to my short list of
"what makes someone middle class": Priced Out of the Middle Class (June 28, 2012). How
many American households can pay for their children's university education in
cash and then fund their purchase of a home?
Here are the
eight "threshold" characteristics of membership in the middle class:
1. Meaningful
healthcare insurance
2. Significant
equity (25%-50%) in a home or other real estate
3.
Income/expenses that enable the household to save at least 6% of its income
4. Significant
retirement funds: 401Ks, IRAs, income property, etc.
5. The ability
to service all debt and expenses over the medium-term if one of the primary
household wage-earners lose their job
6. Reliable
vehicles for each wage-earner
7. Hard assets
and cash that can be transferred to the next generation, i.e. generational
wealth.
8. Ability to
invest in offspring (education, extracurricular enrichment activity, etc.).
How many
households meet these criteria? Not many. This is now a list for the
upper-middle class, the top 10% who earn in excess of $150,000 a year. But even
households with significant incomes and inheritances from their parents are
losing items on this list.
What I am
seeing, once again anecdotally, is the consumption of family wealth as America
"eats its seed corn." Families with savings are
"investing" them in $120,000 per child college educations that may
not qualify the young person for a job that pays enough to duplicate their
parents' purchasing power--or a job at all.
Having lost
their corporate job, they're burning $12,000 to $15,000 annually buying their
own health insurance.
Having drunk the
debt-is-cheap Kool-Aid, they're heavily indebted, and much of their income goes
to debt service and taxes.
Families that
had significant cash wealth in 2000 are burning through that cash at an
alarming rate. By the time the children are all educated and back living at
home or in their own apartments, then Mom and Dad have to buy them vehicles,
pay their dental bills, etc. because Junior doesn't earn enough to actually
support himself.
The wealth that
could have been transferred to the next generation has been consumed suporting
a "middle class" lifestyle and providing the next generation with
what was once the basis for advancement: a university education, healthcare
insurance, a reliable vehicle, etc. Now that jobs are hard to find and
compensation is low, the next generation still needs the accumulated wealth of
the household to get by.
That is not
upward mobility, it is downward mobility, on a vast and largely unnoticed
scale.
No comments:
Post a Comment