from the Wall Street Journal, a book review by Gregory Clark on Edward Wolff’s “A Century of Wealth in America”, How the Richest Got That Way:
Despite the liberal background of the author, however, “A Century of Wealth in America” offers comfort and support to those who favor less wealth taxation. A core element of Mr. Piketty’s indictment of contemporary wealth inequality was his claim that inheritance is the major source of wealth; he estimated that, given the slower economic growth that most economists anticipate in the future, inherited wealth would soon constitute 90% of wealth in economies such as that of the United States. But Mr. Wolff finds that, for modern America, wealth inheritance explains a much more modest share of private wealth: In 1989-2013, it was 23% on average. In other words, more than three-quarters of all wealth is created anew in each generation in the U.S. From what activities that new wealth comes, however, Mr. Wolff’s sources do not reveal. The book is no guide to getting rich in modern America.
Even more surprising, inherited wealth is much more important in the lives of those who have relatively little wealth than it is in the lives of the super rich. For the top 1% of wealth holders from 1989 to 2013, inherited wealth accounted for only 17% of their assets. (The 1%, in this analysis, is an overwhelmingly self-made group.) By contrast, for those with assets of just $25,000-$50,000, inherited wealth accounted for 52% of their worth.
As a bizarre consequence of this pattern, African-Americans, who have low levels of net worth on average, are the social group for which inherited wealth represents the largest share of their net worth. Another odd implication is that inheritances tend to make overall wealth-holding more equal. Were inherited wealth to be completely abolished, the wealth of the poor would decline more than that of the rich. Inherited wealth is the great equalizer. Who knew?
I have studied inequality for years and increasingly conclude that it is much more difficult to measure in an accurate and meaningful way that we imagine.