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Solving the Mystery of the Richest Americans' Missing Wealth

Families in the top 1 percent are grabbing a rising share of the nation’s income -- why does the data show no jump in their share of the wealth?

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But Fed researchers do take eminently reasonable statistical steps to minimize this nonresponse factor. So what other explanation could account for Robert Frank’s “wealth-and-income puzzle”?

The Fed could be overestimating the wealth of average American families. Any overestimating of average household wealth would, of course, reduce the percentage share of America’s total wealth that the rich hold.

New York University economist Edward Wolff suspects this may indeed be happening. The Fed may be overestimating the wealth of average Americans, he notes, by not taking into account Corporate America’s massive switch from defined-benefit to defined-contribution pension plans.

The Wall Street Journal’s Robert Frank has still another explanation for the top 1 percent statistical puzzle, an explanation that no one, he concedes, can yet prove.

Those huge incomes that go into rich people’s pockets aren’t translating into a greater share of the nation’s wealth, Frank postulates, because the rich have been busy spending massively on “McMansions, yachts, planes, Gucci bags, bottles of Mouton Rothschild, and $300,000 watches.”

The rich, in other words, have been consuming, not investing, a huge chunk of their incomes. Now some of this consumption may add to a rich person’s net worth on paper. A yacht, for instance, can appreciate in value over time. But much of this consumption — a $2,632 ticket to a ballgame at the new Yankee Stadium, for instance — simply subtracts from a rich person’s net worth.

Could America’s rich actually be consuming, on personal pleasures, enough to put a statistically significant dent on their share of U.S. family net worth? Maybe. We have no reliable national data on rich people's personal consumption. But every so often we do get a glimpse at the immense fortunes America’s rich are regularly spending to be all they can be.

One such moment came last month in the Connecticut divorce trial of former United Technologies CEO George David — the nation's top-paid CEO in 2004 — and his 36-year-old former investment banking spouse, Marie Douglas-David.

Douglas-David is suing for $57 million more than her ex is offering. She needs that extra, her lawyers contend, to cover her basic expenses. These expenses, to be precise, run $53,000 a week, a sum that covers, among other outlays, “$4,500 a week for clothes, $8,000 for travel, and $1,500 for eating out.”

How typical might Douglas-David be? We can't know for sure. The puzzle of our top 1 percent's static net worth share, for now at least, must remain unsolved. Should that bother us? Does this puzzle, in the final analysis, really matter?

Sure does. The puzzle that the Wall Street Journal's Robert Frank has identified carries much more than just statistical significance. The entire rationale for cutting taxes on the rich rests, after all, on the notion that the wealthy will “invest” the extra dollars tax cuts deliver unto them. These investments, the argument goes, will strengthen the core economy and leave all of us better off.

But if the rich are frittering away their fortunes, they’re not creating wealth, they’re burning through it. And that, advises the Journal’s Frank, ought to be “a worrying sign for those who hope that the rich are sitting on the sidelines with loads of accumulated wealth, ready to lead us into recovery.”

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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