In Reality, the Wealthy Inherit Ungodly Sums of Money

At the National Review, Kevin Williamson tells us that the rich and wealthy are hard workers, not people who just inherit a bunch of money. It's not clear who exactly he thinks he is responding to, but someone must have really irked him on this. In any case, the reality is that the wealthy, whether they work hard or not, are generally inheritors of enormous sums of money. On average, the wealthiest 1 percent of households have inherited 447 times more money than households with wealth below $25,000. 

As a preliminary matter, it deserves emphasizing that Williamson's focus on intergenerational transfers of money is extremely narrow. Rich parents pass along more than just money to their kids. They also pass along social and cultural capital that help their kids capture the scarce supply of highly-paid jobs. Indeed, even rich kids who do not receive a college degree are 2.5 times more likely to wind up as high-income adults than poor kids who do receive a college degree. That is not because of money transfers, but it's unfair intergenerational advantage nonetheless.

With that noted, it also turns out that Williamson is even wrong (or at least very deceptive) about the narrow inheritance point that he inappropriately focuses on. Here is what he says about inheritance:

Wealth transfers — inheritances and gifts combined — constitute a small part of the holdings of the rich, whether you define “rich” in terms of income or net worth. For the top income quintile, gifts and inheritances amount to 13 percent of household wealth, according to research published by the Bureau of Labor Statistics. For the top wealth quintile, they amount to 16 percent. For the hated “1 percent,” inherited wealth accounts for about 15 percent of holdings. Contrary to the story the Left likes to tell about economic inequality in the United States, those numbers have gone down over recent decades — by almost half for the wealthiest Americans. Meanwhile, inherited money makes up 43 percent of the wealth of the lowest income group and 31 percent for the second-lowest.

Williamson would have us believe that not only do the rich and wealthy not receive that much inheritance, they actually receive less inheritance than the middle class and poor! Those with any intuitions on statistics can probably spot the problem. He is providing inheritance as a ratio of wealth. But 15 percent of the assets of the wealthiest 1 percent is massive, certainly much higher than 43 percent of the assets of the "lowest income group" (not sure what this refers to). Presenting these statistics as ratios is extremely misleading and tell us little more than that the wealthy have a ton of wealth and the poor very little.

Sadly, Williamson is not a fan of hyperlinking, and so I was forced to rely on the google to see if I could find out what his data source is. I believe he is referring to this paper from Wolff and Gittleman. Anyone not attempting to mangle the findings of that paper would come away with a much different take than Williamson has.

The figures here are so unbelievably lopsided that you can hardly even make out the graph on the bottom end. But as you would expect, the wealthier the household is, the more wealth transfers they have received (I will group together and call these transfers "inheritance"). The least wealthy group of families have received, on average, $6,100 in inheritance. On the other hand, the wealthiest 1 percent of families have received, on average, $2.7 million in inheritance. So the wealthiest 1 percent of families have inherited $447 for every $1 the least wealthy group of families has. Those in the middling wealth ranges—$25k-$50k, $50k-$100k, and $100k-$250k—have received inheritances of $14.8k, $22.5k, and $51.4k respectively.

If we switch to median instead of mean, the gaps between the sizes of the inheritances shrink somewhat, but the same trend remains: the wealthier the family is, the more inheritance they got.

At the median, the least wealthy group has received only $23.4k in inheritance while the wealthiest 1 percent has received $871.9k in inheritance, a ratio of $37.3 to $1.

Like I said at the top, focusing just on wealth transfers really misses the point because there are so many other advantages to being born with a silver spoon in your mouth than a big inheritance. Those advantages give you a much greater shot at getting into one of the lucrative niches in the economy. We should try to think of ways to disrupt these wealth transfers as much as possible, but they aren't the only channels through which unfair intergenerational transfers flow. Nonetheless, when we take a sober look at them, we do actually spot the kinds of massive class-based disparities Williamson seems to suggest aren't there.