Tag Archives: wealthy

Higher taxes might push companies to leave but not necessarily wealthy residents?

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Many municipalities and states are looking for ways to raise additional tax revenue and this has led to conflict with companies that either have had or want tax breaks to stay where they are (a prominent Illinois example here). But we could also consider whether higher tax rates prompt wealthier residents to move elsewhere. Some evidence from New York City suggests this did not happen:

According to the Census Bureau’s latest American Community Survey, the average household income of those who left the state in 2010 was $44,739. The average for those who came was $55,419 — the largest differential in at least five years…

A separate analysis of census data found that the number of households making more than $250,000 who lived in New York a year earlier but left peaked in 2004 and has generally declined since 2007. About 14,000 households in 2009 and the about the same number in 2010 reported having left New York within the past year, the lowest numbers in that category since 2003.

That analysis did not take into account inflation, and could reflect lower migration rates in general across the country.

As this short piece suggests, we may not want to run and apply this to all wealthy residents in the United States. Additionally, if this can be done with American Community Survey data for New York City, why not do it with other areas of the country in order to make comparisons? Then we could find out whether this data is more reflective of New York City and its relative wealth and importance as a finance and cultural center than of larger trends about wealthy people.

I do wonder about the value of using short-term migration data to prove points about new legislation and revised taxes. People could move for a lot of reasons beyond just one change and I don’t think the ACS data tells us why people move. This could be a clever way to examine a “natural experiment” but there needs to be care taken in interpreting the results.

How sociology can help explain the high prices of art

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Collecting art is an expensive hobby – and sociology can help explain why:

The top art prices may have little to do with classic economics. Noah Horowitz, whose Art of the Deal is a crucial text on the subject, says in the long run your investment in art may only do about as well as your holdings in bonds—and comes with greater risk. (But, as one major New York collector put it, that’s not so bad, if you have nowhere else to store your income. And anyway, “bonds aren’t that good to look at.”) At this moment, when the 1 percent has the cash to burn, buying art is less about finance than about the cultural value of money, and of art. “A dollar is not a dollar is not a dollar,” says Viviana Zelizer, the great Princeton sociologist who wrote The Social Meaning of Money. The dollars spent in Miami are “cultural dollars,” Zelizer says, and that makes them obey their own rules. Below, five reasons why art defies economics…

The sociologist Mitch Abolafia, who has made a study of Wall Street financiers, says that sometimes money speaks for itself. “A trader said to me one day, with glee in his eyes, ‘You can’t see it, but money is everywhere in this room. Money is flying around—millions and millions of dollars.’ It was a generalized excitement about money. Even I felt it.” That’s the excitement we all get from expensive art. One collector, who believes deeply that art should be bought for art’s sake, acknowledges basking in the “robust glow of prosperity” that his purchases give off once their value has soared.

The people who are spending record amounts on art buy more than just that glow. (And much more than the pleasure of contemplating pictures, which they could get for $20 at any museum.) They’ve purchased boasting rights. “It’s, ‘You bought the $100 million Picasso?!,’” says Glimcher. Abolafia explains that his financiers were “shameless” in declaring the price of their toys, because in their world, what you buy is less about the object than the cash you threw at it. The uselessness of art makes any spending on it especially potent: buying a yacht is a tiny bit like buying a rowboat, and so retains a taint of practicality, but buying a great Picasso is like no other spending. Olav Velthuis, a Dutch sociologist who wrote Talking Prices, the best study of what art spending means, compares the top of the art market to the potlatches performed by the American Indians of the Pacific Northwest, where the goal was to ostentatiously give away, even destroy, as much of your wealth as possible—to show that you could. In the art-market equivalent, he says, prices keep mounting as collectors compete for this “super-status effect.”…

I’m convinced that most collectors spend their surplus millions on art because they have a genuine belief in its aesthetic value. “We don’t consider art an investment. We get a psychic reward—I love to come home and look at our walls,” says Eli Broad, a prominent collector from Los Angeles, taking a break from shopping with his art-loving wife at the fair in Miami. (They’d just bought some early Cindy Sherman photos, for sale at Metro Pictures for a modest $150,000.) Aesthetics are the bedrock the art market is built on. But, for want of any other reliable measure, they often get tallied in dollars. One of New York’s biggest dealers told Velthuis, the Dutch sociologist, that collectors “permanently have to explain to themselves why they spend so much money on art, sometimes up to 40 percent of their total net worth. So that they want to hear all day long that it makes sense what they do.” And the easiest way to gauge the aesthetic “sense” of an art purchase is to check out the “cents” the thing is selling for. When you’re looking for great art, you may spot it by its price tag.

Sounds like a common sociological explanation: status matters. In order to show their social status or to break into elite circles, people with money buy art.

It would be interesting to read more about how this plays out with emerging artists. After watching Exit Through the Gift Shop, it looks like there is quite an interest in “discovering” and capitalizing on the “next best thing.” It’s one thing to be able to buy works by the masters but another to find the next Banksy and become a new patron.

And can the wealthy create a different kind of status by donating their works to museums or traveling exhibitions to show that they are sharing?

Comparing where Occupy Wall Streets protests are versus where the super wealthy live

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In looking at which metropolitan areas have bigger shares of the top 1% of income earners in the United States, Howard Wial hints at an interesting relationship: are the Occupy Wall Street protests taking place in the same places as where the wealthiest live?

These very high-income households are disproportionately metropolitan. While about 85 percent of all income tax filers have metropolitan addresses, about 93 percent of the very rich live in metropolitan areas. The top 3 percent are highly concentrated in a relatively small number of large metropolitan areas.

Only twenty metropolitan areas — New York, Los Angeles, Chicago, Washington, San Francisco, Boston, Houston, Philadelphia, Dallas, Miami, Atlanta, San Jose, Seattle, Minneapolis, San Diego, Detroit, Phoenix, Baltimore, Bridgeport (Fairfield County, Connecticut, is the center of the hedge fund industry and home to many corporate headquarters), and Denver — have at least 1 percent of all the nation’s very high-income households. Collectively those areas account for 56 percent of the highest-income households but for only 37 percent of all households…

There are Occupy movements in nearly all the metropolitan areas where the top 3 percent are concentrated. All of the 20 metropolitan areas with the most top-income households have groups listed in the directory on the Occupy Together Web site. So do all but six of the 54 metropolitan areas where the very rich are disproportionately located.  (The missing six are Bridgeport, Connecticut; Naples, Florida; Sebastian, Florida; Lafayette, Louisiana; Midland, Texas; and Tyler, Texas.)

Yet movements in support of Occupy Wall Street also exist in many places other than those where the very rich are concentrated, including such seemingly unlikely locales as Anderson, Indiana, and Texarkana, Texas.  Geographically, their reach is greater than that of the very rich.

This would be interesting to follow up on: how much of the protest activity is being driven by places where the richest and everyone else live relatively near each other? And for those protesting outside of these wealthier areas, is the process of setting up a protest much different in order to face a more anonymous opponent?

David Brooks: blue inequality versus red inequality (exemplified by places like Naperville)

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David Brooks approaches inequality in America a little differently than the 1% vs. 99% of Occupy Wall Street. He suggests that there are two big kinds of inequality and the suburban/smaller city kind is more important:

In the first place, there is what you might call Blue Inequality. This is the kind experienced in New York City, Los Angeles, Boston, San Francisco, Seattle, Dallas, Houston and the District of Columbia. In these places, you see the top 1 percent of earners zooming upward, amassing more income and wealth…

Then there is what you might call Red Inequality. This is the kind experienced in Scranton, Des Moines, Naperville, Macon, Fresno, and almost everywhere else. In these places, the crucial inequality is not between the top 1 percent and the bottom 99 percent. It’s between those with a college degree and those without. Over the past several decades, the economic benefits of education have steadily risen. In 1979, the average college graduate made 38 percent more than the average high school graduate, according to the Fed chairman, Ben Bernanke. Now the average college graduate makes more than 75 percent more.

Moreover, college graduates have become good at passing down advantages to their children. If you are born with parents who are college graduates, your odds of getting through college are excellent. If you are born to high school grads, your odds are terrible…

[Compared to the attention paid to the wealthiest 1%], the fact is that Red Inequality is much more important. The zooming wealth of the top 1 percent is a problem, but it’s not nearly as big a problem as the tens of millions of Americans who have dropped out of high school or college. It’s not nearly as big a problem as the 40 percent of children who are born out of wedlock. It’s not nearly as big a problem as the nation’s stagnant human capital, its stagnant social mobility and the disorganized social fabric for the bottom 50 percent.

Interesting analysis. Some quick thoughts:

1. Though I didn’t quote it above, Brooks argues further that getting mad at the 1% is easier than dealing with issues like family and education that affect so many people. Brooks is probably right here. This doesn’t necessarily mean that people shouldn’t be upset about the top 1%  but Brooks is suggesting they could do much more good focusing on the bigger, yet more difficult to deal with, issues.

2. Is Brooks dealing with the same kind of concerns expressed in the Moynihan Report that was vilified for years?

3. If Brooks thinks that college is the answer, I’d be interested to see his plan of action in order to pay for all of this and provide the educations necessary to getting to a college experience. Brooks is not alone in suggesting college is the answer but this is not an easy plan to accomplish either.

4. It is interesting that Naperville is mentioned among other Red State cities. Naperville is located in a clearly Republican county (though the Republican lead isn’t what it used to be) but is also in a state that consistently has gone Democratic in recent years. Additionally, Naperville is wealthier than the other cities Brooks lumps it in with: the median household income is just over $100,00o in a city of over 140,000 people . Within these red states, Naperville would be a good example of a place that has thrived with college educated residents with many of them working in professional or high-tech positions either in Naperville or nearby suburbs.

Example of problems with statistics “nearly 1,500 millionaires” (out of more than 235,000) “paid no federal taxes”

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Statistics can be used well and they can be used not so well. Here is an example where the headline statistic suggests something different from the rest of the story:

Of an already small pool of millionaires and billionaires, 1,470 didn’t pay any federal income taxes in 2009, according to the Internal Revenue Service.

Just over 0.1% of taxpayers — or 8,274 out of 140 million total — made more than $10 million in 2009, according to the agency. More than 235,000 taxpayers earned $1 million or more, according to a recent report from the agency.

But of the high earners who avoided paying income taxes, many did so due to heavy charity donations or foreign investments.

About 46% of all American households won’t pay federal income tax in 2011, many due to low income, tax credits for child care and exemptions, according to the nonpartisan Tax Policy Center.

The headline makes it sound like there are a lot of millionaires who are avoiding paying taxes. The actual percentage hinted at it in the story suggests something else: less than 0.63% of all millionaires (1,470/235,000 – less than 1 in a 100)) paid no taxes. In the midst of a political debate about whether to raise taxes for the wealthy in America, each side could grab on to factual yet different figures: the 1,500 figure sounds high like the country is missing out on a lot money while the 0.63% figure suggests almost all pay some taxes. It wouldn’t take much to include both figures, the actual number and the percentage in the story.

Examples like this help contribute to the reaction some people have when they see statistics in the media: how can I trust any of them if they will just use the figures that suit them? All statistics become suspect and it is then hard to get a handle on what is going on in the world.

You shouldn’t purchase your own town, even for $800k

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If you had a little extra cash, you might think about purchasing your own town. Scenic, South Dakota is available for $800,000:

So, what exactly do you get for your $800k? Quite a lot, actually. You’ll get a dance hall, a saloon, two jails, a train depot, two stores, and some more empty buildings…

True, the town won’t be mistaken for New York or even Green Acres. However, based on the pictures, it does have a certain Old West charm. One can almost picture John Wayne ambling down the street. It does look like a ghost town–and with fewer than 10 residents, it’s mighty close to becoming one.

But, before you rush to purchase this hotspot, you might want to consider the track record of those who purchase towns:

This isn’t the first time an entire town has gone up for sale. Some may remember actress Kim Basinger’s ill-fated purchase of Braselton, Georgia for $20 million. Basinger planned to turn the town into a tourist draw, complete with film festival. But things didn’t quite work out as she planned. She was later forced to sell the town at a huge loss due to financial problems of her own.

And Basinger isn’t alone. As an article from MSN points out, many have purchased towns only to see that the dream of “owning their own zip code” turn into a nightmare. It’s one thing to be a landlord and have to fix a renter’s leaky faucet. It’s another to be responsible for an entire town of faucets (and toilets, and electricity, and crime prevention, and, and, and…)

This article makes owning a town sound difficult. While this story suggests owners get tripped up by infrastructure, I would think the interactions with residents and other people might even be more problematic. Think back to the experience of company towns in America: places like Pullman, Illinois may have been efficient (and profitable?) but eventually didn’t work. Even in a small place like Scenic, the owner would have to interact with existing residents and take full responsibility for decisions.

Perhaps the gameplay of SimCity would help illustrate the issue: in the early days of the game, it was easy to grow a community and Simcity 2000 offered well-known cheat codes that allowed the mayor to do whatever you want (with unlimited money). But with more recent iterations of the game, it is easier to get bogged down in real matters: paying for infrastructure like roads and water and dealing with the concerns of your citizens and advisers. In the end, even small communities have a lot to take care of in order to get up and running and the services and amenities (and taxes/fees) have to be agreeable to residents.

Are there any “successful” examples of wealthy individuals purchasing a town and maintaining or improving the community? Are there any management companies that would handle these responsibilities for a wealthy owner?

Conspicuous consumption during a recession

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Trying to make sense of how recent events like the lavish wedding of Chelsea Clinton, the furor over Michelle Obama’s trip to Spain, and other similar events, can take place during this recession, Bella English of the Boston Globe turns to the concept of conspicuous consumption.

Sociologist Juliet Schor comments:

“It’s adding insult to injury at a time like this when so many Americans are suffering such extreme economic pain,’’ says Juliet Schor, a sociology professor at Boston College and author of “Plenitude: The New Economics of True Wealth.’’ “Those kinds of conspicuous displays of wealth undermine everyone else. They make us feel poorer and less satisfied with what we have.’’

Thorstein Veblen coined the term conspicuous consumption. According to Veblen, consumption is not just about buying necessities; it is about projecting an image and establishing status. The wealthy intentionally are wasteful in their consumption in order to show that they can afford to be wasteful.

Schor is expressing what the people toward the bottom of the economic ladder feel when the rich show off their riches. Should the rich cut down on their spending in times like these? Or perhaps they could draw less attention to themselves? My guess is that if one has the money, one is going to spend it whether it is a boom time or a down time. The only barrier to this may be a popular backlash – if the consumption actually leads to decreased status (rather than increased status), it may not be worth it.

A disappearing middle class?

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Yahoo Finance has a story that contains 22 statistics to “prove” the American middle class is “radically shrinking.” Interestingly, some of these statistics don’t prove much of anything about the middle class even if  they do indicate something about America as a whole. The post does show that the wealthy have gotten wealthier but without more context (statistics to compare to from the past, rates from other nations, etc.), there are better statistics to use to make this argument. Some of the statistics are linked to the latest economic downturn such as a rising number of bankruptcies and a rising time for finding a job.

Some examples of weaker statistics:

-“36 percent of Americans say that they don’t contribute anything to retirement savings.” How does this compare to previous rates? Perhaps the Americans of today don’t save like people in the past?

-“More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.” Service jobs are often low paying – but we don’t know much more from this statistic.

-“For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.” Sounds bad – but since we now have more people in the country, a percentage would be a much better measure.

-“Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.” This is a shot at Wall Street more than an explanation about the middle class.

Other statistics do back up his point (even though they would all benefit from more explanation):

-“66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.”

-“Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.”

-“The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.”

On the whole, this seems more an alarmist piece. There is evidence to back up his argument – but the evidence here is not presented well and needs a lot more context.