Monday, November 27, 2006

The Rich and the Richer

Front page news in the NY Times today: "Very Rich are Leaving the Merely Rich Behind." Some highly-paid professionals, such as doctors and professors, find that they can make even more money by becoming consultants to Wall Street. The sub-headings in the article are "Turning to Philanthropy," "Trying Not to Live Ostentatiously," and "Linking Security to Income." There are some interesting contradictions in the article-- the doctor they profile dreamed of doing research and winning a Nobel Prize. At 35, in 1996, he was making $150,000. His wife made even more, so the family was by no means facing hardship.  But he decided that the chances of making a contribution to science were too slim and decided he wanted to make more money instead-- but one of his justifications for what he is doing is that he wants his children to be able to pursue careers they have "a hunger for" instead of just doing what pays the bills. Oh well, I guess everyone wants more for their kids than they do for themselves.
The other person profiled, an economics professor who now works for a private equity firm, really hits something: speaking of his Park Ave. apartment, he says "On an absolute scale it is lavish... But on a relative scale, relative to my peers, it is small."
That is the big question, isn't it? How do we define who our peers are? Globally, within America, within our neighborhoods, within our educational and social affiliations? I think we all tend to see our peers as the people around us who have a little more than we do-- I know I am guilty of this. If I compare myself to other people I went to school with, or other New Yorkers, I feel like I'm somehow behind. I can also pat myself on the back for living a somewhat comparatively frugal life. But if I decide to define my peers differently, I can find plenty of them in comparison to whom I am living like a queen. Billions of them, in fact.
I think a little "absolute" thinking is a good idea sometimes. But I guess "Very Poor are Leaving the Even-More-Abjectly-Poor Behind" wouldn't make as good a headline.


wendy said...

I thought this comment wa very interesting too:

"he wants his children to be able to pursue careers they have "a hunger for" instead of just doing what pays the bills".

How many times have we heard about children who have inherited money blowing it and turning out to be bums? This is one justification that Bill Gates gave for giving away so much of his fortune. He didn't want to "burden" his children with all that wealth. I guess where you are on the wealth scale may have something to do with your perception.

Wanda said...

If you don't know how to handle wealth responsibily, then there's a problem. But if his kids are appreciative and spends the money wisely, then he's giving his children the gift of choice. To me, money means choices - and to have the kind of freedom that $20 million gives you is amazing (if not a little scary). But I'm sure if I'm in that situation, I'd manage. ;)

mOOm said...

I often feel like Dr Glassman profiled in the article.... though $150k is twice what I'm making as an economics professor and more money isn't what I want (I want freedom of location)... but in science effort often doesn't seem appreciated much and it is demoralizing. BTW I think he is doing a very worthwhile job evaluating which drug projects to fund.

My path is to try to leverage what I know about time series analysis etc. into ways of making money through trading, though not that successfully so far as more than technical knowledge alone is needed.

Dan said...

This was a really interesting post. I didn't get to read the article in the Times but it is interesting to see how the wealth gap in the United States and the world just seems to get bigger and bigger and I do wish that more people would turn to philanthropy. On the note of measuring yourself with your peeers, here's an interesting to help put your finances in perspective:

fin_indie said...

If you feel behind comparing yourself to others in NY, think again. Re-read the millionaire next door. Sure, you have your millionaires there, but you also have a lot of people running round living like those who have $10M+, but instead are living with that little debt secret... You shouldn't feel behind at all -- just don't compare yourself to those running around with all that *bling*.

cheapstreet said...

What is being behind? What is the measure of success? Is the point of money to keep score with others? I money just power?

If an individual falls into the 'keeping score' trap, are they missing the bigger picture? I think the adage, "Money is a means to an end", is very insightful. But can it be that most people forget what their end actually is?

English Major said...

I so often feel behind other New Yorkers, behind kids I went to school with, behind kids I knew in high cetera. And then I realize that I make in an entry-level position what some people support a family on for their entire lives. It's cheesy, but it helps me keep some perspective.

Anonymous said...

I came across this today again(old Seth Godin blogging) , I think it's still pertinent.
Warren Buffet on Gratitude

Be Grateful

There are roughly 6 Billion people in the world. Imagine the worlds biggest lottery where every one of those 6 Billion people was required to draw a ticket. Printed on each ticket were the circumstances in which they would be required to live for the rest of their lives.

Printed on each ticket were the following items:

- Sex
- Race
- Place of Birth (Country, State, City, etc.)
- Type of Government
- Parents names, income levels & occupations
- IQ (a normal distribution, with a 66% chance of your IQ being 100 & a standard deviation of 20)
- Weight, height, eye color, hair color, etc.
- Personality traits, temperment, wit, sense of humor
- Health risks

If you are reading this blog right now, I'm guessing the ticket you drew when you were born wasn't too bad. The probability of you drawing a ticket that has the favorable circumstances you are in right now is incredibly small (say, 1 in 6 billion). The probability of you being born as your prefereable sex, in the United States, with an average IQ, good health and supportive parents is miniscule.

Warren spent about an hour talking about how grateful we should all be for the circumstances we were born into and for the generous ticket we've been offered in life. He said that we should not take it for granted or think that it is the product of something we did - we just drew a lucky ticket. (He also pointed out that his skill of "allocating capital" would be useless if he would have been born in poverty in Bangladesh.)