How Do You Become One of the Richest 1 Percent?

by Jim Geraghty

Doug Ross, among others, had thoughts on this section of yesterday’s Jolt — although I must strongly disagree with his characterization of Ana Marie Cox as inane and dimwitted . . . 

Let’s Get Real About the ‘One Percent’ and How They Got There

There’s a lot to disagree with in Ana Marie Cox’s piece contending the richest one percent are fighting class warfare against the rest of us. Perhaps no argument sticks out more than this point:

Both [billionaire Tom] Perkins and [economist Greg] Mankiw seem to think that the poor (or just the not-rich!) resent the wealthy simply because they have so much. They think we resent the number of zeros in their paychecks. Of course not. We resent that those zeros come out of ours.

Do the “zeros in their paychecks” come out of “our” paychecks?

Earlier this week, James Piereson, a senior fellow at the Manhattan Institute, examined who makes up America’s richest “one percent” in the Wall Street Journal:

In 2010, the latest year for which we have complete data, roughly 119 million households filed tax returns with the IRS, leaving about 1.1 million households in the top 1% of the income distribution. A taxpayer needed a taxable income of $307,000 to enter the top 1% . . . 

According to research on individual tax returns in 2004 and 2005 by Jon Bakija of Williams College, Adam Cole of the Treasury Department and Bradley T. Heim of Indiana University, the top 1% consists primarily of salaried executives at nonfinancial businesses (30%) and secondarily of doctors (14%), people working in finance (13%) and lawyers (8%).

The lawyers among the super-rich get their money from their clients; their clients are always free to choose a cheaper lawyer. Those cheaper lawyers may not be as good, of course.

The doctors among the super-rich get their money from hospitals, patients, and insurers. No one seems to complain about rich doctors, though; when you’ve developed the skill to, say, reach into a person’s skull and brain and cut out tumors without cutting away anything they need, people generally think you’ve earned that big paycheck.

The richest professional athletes, musicians, and actors get their money from teams and tournaments, studios and television networks, record sales and DVD sales and apparel sales and all that. Again, everyone chooses to buy those products.

(Every product purchased in America is freely chosen, with one glaring exception: Health insurance now must be purchased to avoid paying the special taxes under Obamacare.)

There’s an argument to be made about CEO pay and golden parachutes, and how gargantuan pay packages and golden parachutes have pulled away and separated from a company’s performance. This has been a longtime bipartisan gripe; back in 2007 Robert Samuelson, no corporation-hating lefty, said the “the public pounding of CEOs for their lavish pay packages is amply justified.” Debra Saunders called it “the welfare state for CEOs.” In a time when the Great Recession plods on and on and much of the reduction in the unemployment rate is driven by people leaving the workforce, it’s not surprising that a perennial outrage would become more incendiary.

But even here, the outrage is strangely focused on particular figures.

The New York Times’s Steven Davidoff notes that Google chairman Eric Schmidt recently enjoyed a $100 million payday of restricted stock, with few cries or objections, compared to JP Morgan Chase’s Jamie Dimon’s $20 million payday. He notes, “Schmidt, by the way, was reported by Business Insider to have a “fabulous life” with a Gulfstream V, a 195-foot yacht and multiple homes across the country including a new $22 million Hollywood mansion.”

I don’t think the 11,500 employees at Gulfstream, the 338,526 workers in the boating industry, or the home builders of that Hollywood mansion are all that bothered by how Schmidt spends his money in his “fabulous life.” Even the greediest CEO helps create jobs in the industries that care to those wishes we find so ostentatious and absurd. To create more jobs, we actually need more conspicuous consumption, not less.

Cox gets closer to the real issue with this question:

The question on most people’s minds is simpler still, and yet somehow too difficult for the CEOs and their enablers to comprehend: Am I so expendable as to be worth such a small paycheck . . . or no paycheck at all?

The short, sad, hard and terrifying answer is basically, yes. More specifically, you are worth a paycheck that someone else is willing to pay, based upon what you do. If you can remove spleens, people will pay you more than if you paint, unless you’re one of those rare painters who creates works that lots of people want to buy. Notice this has little to with whether or not the painting is “good.” The question is whether someone will reach into their pocket and pull out money to buy it. If you accidentally spill paint on a canvas, it may resemble Jackson Pollack’s No. 5, 1948. That painting reportedly sold for $140 million; yours probably won’t.

I’ll make you a good copy for $10,000.

You are worth what someone is willing to pay you. All the protests in the world won’t change that basic fact, and a minimum-wage hike is a minuscule mitigation of that fact. A minimum-wage hike is the government requiring someone to pay you more as a form of building popularity. Your work has not actually increased in value to your employer, which is really how you earn more.

Something — be it an object or a service, such as a certain amount of time or labor — is worth what someone is willing to pay for it. This is a very hard lesson, and one that people will embrace considerable mental gymnastics to avoid learning.

We bought our house in 2007, as the housing bubble was bursting, and encountered quite a few people who claimed to want to sell their house, but only at that fantastically high number that Zillow.com had given them. Of course, that number was based upon the peak prices of the bubble. Nobody was willing to pay that price, but the alleged sellers weren’t willing to come to terms with that fact. That’s how you see properties on the market for months and months, punctuated by a price reduction of $5,000 or $10,000, followed by more months of no offers.

But for all of my bone-picking, Ana Marie Cox hits on something with this sentence:

Because the wealth of the super-rich is just so damn far away, without any rungs in the ladder between, no assistance for that leap of faith that allows those who struggle to hope their struggles can cease.

This puts the finger on the real problem: a lack of opportunity for advancement to higher levels of income in our modern economy. People don’t worry about how much the rich guy has if they think they can be the rich guy some day. Sadly, way too many Americans look at their current prospects and think the only way they’ll ever enjoy a better life is to win the lottery.

You’ve heard the argument that the lottery is a tax on the stupid, correct? Elsewhere at the Guardian, a columnist argues that the poor play “the lotto because it is one of the only legal opportunities available to them to become rich.” To get rich quickly, yes. But most of America’s rich did not get rich quickly.

How can you become rich in this country? Three avenues are the most common*: have exceptional talent in one of those avenues of the performing arts or athletics, start a business that succeeds wildly, or become skilled in medicine, law, or finance.

Go back to that list of top professions in the richest one percent – business owners, doctors, lawyers, and executives. Those require medical school, law school, and in many cases, an MBA. That’s a commitment of several years, hard work, and additional costs of education. If you don’t study hard, you flunk the medical boards or the bar exam. If you don’t work hard, you don’t get the billable hours and make partner or succeed in your residency. When you see someone wealthy in their 30s and 40s, it’s largely a result of the decisions they made in their teens and 20s.

In short, the folks making those one percent salaries put in more work to get there. And once they’re in the top one percent, they don’t slack off much. This study by the New York Times, from 2012, found that the richest one percent work longer hours, being three times more likely than the 99 percent to work more than 50 hours a week, and are more likely to be self-employed.

Yes, the richest one percent have some genetic advantages in terms of intelligence. Yes, luck can be a factor. Yes, it helps to have connections. But the portion of the one percent who didn’t work hard to get there is fairly small and unrepresentative. (In 2007, wealth transfers (mainly inheritances, but also including gifts) made up, on average, 14.7 percent of the total wealth of the 1 percent.)

* Separate from the path to becoming super-rich, there are a lot of professions that make a pretty good annual salary, according to the Bureau of Labor Statistics. In 2012, air-traffic controllers had a mean (average) annual wage of $118,430. Other average wages from the BLS data:

Petroleum engineers: $147,470

Actuaries: $106,680

Aerospace engineers: $104,810

Midwives: $91,070

Sales representatives for technical and scientific products: $85,690

Elevator installer or repairman: $74,140

Dental Hygienists: $70,700

Boilermakers: $55,830

Plumbers: $52,950

The key is that all of these professions require years of study to become qualified to do that work.