Arnold Kling  

Wealth and Self-Control

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Greg Mankiw writes,


The neoclassical theory of distribution teaches us that a person's earnings depend on his or her productivity. But earnings are not the same as wealth. The accumulation of wealth is mostly about the ability to exert self-control.

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CATEGORIES: Income Distribution



COMMENTS (9 to date)
Floccina writes:

Very true I think that if you took some people who where good savers with middle class attitudes and put them in a situation where they could only earn minimum wage that after a couple of years they would be saving/accumulation wealth again.

There is an interesting book called “Your Money or Your Life” that shows how you can save with very little income. Also the “Millionaire Next Door” comes to mind.

But this post does beg the question how can we be sure that an individual gets more total utility by sacrificing in the short term to have more in the long term.

Mensarefugee writes:

If anything, the Millionaire Next Door (or was it The Millionaire Mind?) inadvertently showed that IQ does impact wealth.

Stanley showed how the millionaires had average grades and stayed married to their spouses yadi yadi ya...

And then he says matter of factly that their SAT scores were 1100 to 1190. This was before the infamous 1996 renorming (and subsequent ~20 point drift) so it actually equates to, say, 1190- 1280 in todays metric. Thats at least a standard deviation above the norm by any calculation (perhaps as high as 1.5)

Over and above that - bear in mind that as you go to the right of the bell curve the number of people diminishes dramatically. Ergo to get an 'average' SAT score of the millionaires who took Stanley's survey - If it was 50 to the right of SAT Score 1100-1190 and 50 to the left - This would imply in *percentage* terms a very very lopsided Curve with those smarter being vastly over-represented vis-a-vis their numbers in the population.

Conclusion: Thomas Stanley's statement that the millionaires were of average intellect is not supported.

randy writes:

I read "In Praise of Idleness" by Bertrand Russell yesterday. In it, he declared savers to be selfish and immoral. I have to agree. If commerce is good, then somebody's got to do the spending. And it ain't the wealthy doing all that spending.

N. writes:

Or, as my dad always said, "it's not what you make, it's what you keep."

Mensarefugee writes:

In our economy 'savings' are simply recycled into businesses via banks.

Steve Sailer writes:

This study Mankiw credulously cites has been completely distorted in the press. The data really shows that high IQ people have much greater wealth than lower IQ people -- e.g., people in the study with 120 IQs ahd more than 100% greater net worth in their early 40s than did people with 100 IQs.

If, however, you statistically "control for" factors that correlate with both IQ and character, like education level achieved, you can make the IQ effect magically disappear. But, all that's happening is showing that high IQ plus low self-discipline equals average wealth accumulation.

Telnar writes:

One aside about "The Millionaire Next Store" (which a couple of commenters mentioned): While it makes a number of interesting sociological point about how people came to have a million dollars or more, the quantitative parts are not particularly useful. The biggest problem is that the model the authors use to identify expected wealth as a function of age is linear in age. Here is that formula as described on page 13:

"Multiply your age times your realized pretax household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be." [the paragraph below makes it clear that investment income is included]

This formula has all sorts of problems starting with the fact that it makes no allowance for the possibility that one's income might discontinuously rise from a negative number (net of student loans) at, say, age 22. In addition, investments are handled as if they are static sources of income rather than growing exponentially over time.

More generally, this methodology treats anyone with rising income as not being as good a saver as someone with stagnant income of equal present value.

j writes:

Analyzing the life stories of people who left legacies (to TAU), one may find some constants:

* Stability
* Acquiring property early in life
* Luck (property acquired increases its value with time)

Those who die rich generally bought real estate that increased its value, or invested in stocks that beat inflation.

jim mcclure writes:

From what I read in the newspsper yesterday, it appears that people over 55 are accumulating wealth at a far greater rate than younger folks. That is, it is not so much class distinction driving wealth inequalities as age. Self-control is probably an increasing function of age, but there is also the typical career profile over the life cycle that tends to peak around 55.

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