who is rich? [politics]

[twoeleven]

I have strongly mixed feelings about wealth taxes, because they have effects ranging from beneficial to disastrous. For the moment, I'm just going to mention one beneficial one: vast disparities in wealth seem to be the death of republics. Any number of the Classical Greek poleis suffered oligarchic coups, and Venice had become an oligarchy long before Napoleon conquered it. A brief study of history will show that it ain't the poor ruling these oligarchies.

I think old money is worse than new money, as people who inherited wealth have no connection to how the vast majority of people live, even less so than people who earned their wealth. Moreover, when one has gazillions of unearned dollars, playing politics is one of the few worthwhile distractions: it allows people to impose their wills on others, something no other entertainment can do. (I'll get back to the general subject of money and politics in another, long-delayed post.)

So if wealth is bad for the republic, maybe taxing it is not such a bad idea. But who is rich? Those who follow the Old Faith know a traditional answer: "he who is satisfied with his lot", but that's not the most helpful for setting government policy.

I really loathe using arbitrary numbers. Picking a million dollars as the threshold of wealth, or ten million, or any other convenient round number, offers no way to justify it, and often has little connection to reality. Why a million dollars rather than two million? Neither can be defended in a vacuum.

So, lemme try to crank some substance into the question.

The median personal income is about $31,000 a year; median personal wages are a little more, about $31,500. The household figures are a hair under twice each, between $61k and $62k. I like using measures of median income as a key for economic policy questions. It has a clear connection to how much money people typically have: half the people (households) earn more and half earn less. It also partially accounts for inflation, and to the extent that income lags inflation, it tends to work to lower definitions of "wealthy".

So, taking median income as meaningful, now what? One way of estimating income from investments without reducing principal is to assume one can withdraw 3% per year to live on. So, if one wanted an income of the median wage, you'd need to have $1.05M invested (double that for the wages of a median household). That's not a bad definition of "wealthy": somebody with that much money could sit on their ass all day and rake in more money than half the people/households in the US.

Another way of looking at wealth is to think about how much money the median person could earn in their lifetime. Typical working ages are 18-67 – 49 years – so multiplying that by the median income/wage gives about $1.54M in lifetime earnings. Anybody with more money than that has more than half the people will ever bring in, much less keep. (Again, roughly double for household figures... and accept that it's a crude estimate because it doesn't take inflation into account.)

Regardless of the details, it seems safe to then say that wealth much exceeding $1.5M is evidence of being rich. I'd probably round that up a bit, maybe to $1.75M, to provide some margin for the limitations of these sorts of estimates. Still, it remains a defensible bright line for wealthy vs not.

And, of course, there are plenty of people whose annual income exceeds these amounts. That may be a reasonable way to define "super-rich" or "excessively rich".