tag:theconversation.com,2011:/au/topics/the-wealthy-23750/articles
The wealthy – The Conversation
2023-05-31T12:38:48Z
tag:theconversation.com,2011:article/205353
2023-05-31T12:38:48Z
2023-05-31T12:38:48Z
Most super rich couples have breadwinning husbands and stay-at-home wives, contrasting sharply with everyone else
<figure><img src="https://images.theconversation.com/files/528142/original/file-20230524-15-8jribu.jpeg?ixlib=rb-1.1.0&rect=484%2C0%2C6776%2C4671&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Uber wealthy couples are rather traditional when it comes to who works and who doesn’t. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/business-pasion-royalty-free-image/186565267?adppopup=true">EXTREME-PHOTOGRAPHER/E+ via Getty Images</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em> </p>
<h2>The big idea</h2>
<p>Men are the sole breadwinners in over half of super rich heterosexual couples – defined as those in the top 1% of households – while the women are not employed, according to <a href="https://doi.org/10.1093/sf/soad061">our new peer-reviewed study</a>. That’s twice the rate of less affluent heterosexual couples.</p>
<p>Our finding is based on 30 years of data, from 1989 to 2019, from the Federal Reserve’s <a href="https://www.federalreserve.gov/econres/scfindex.htm">Survey of Consumer Finances</a>. We examined how couples divide work, focusing on three different wealthy groups – the super rich, the just plain rich and the upper middle class, as defined by their wealth percentile, and compared them with those of less affluent couples. </p>
<p>To get a better sense of how much money we’re talking about and the extreme differences among these groups, super rich couples in the U.S. had a median net worth of US$17.6 million in 2019. That compares with $2.3 million for rich couples – those in the next 9% of the wealth distribution – and $796,000 for the upper middle class, who were in the 10% after that. Our fourth group comprised everyone below the 80% threshold, with median wealth of just $67,000. </p>
<p>We found that, in 2019, 53% of super rich heterosexual couples had arrangements in which the woman was not gainfully employed, compared with 27% of rich couples, 20% of upper-middle-class couples and 26% of less affluent couples. </p>
<p>On the flip side, just 28% of super rich couples had both the man and woman working full time. In rich, upper-middle-class, and less affluent households, that figure was 51%, 61% and 50%, respectively. </p>
<p>Looking at the data over time is revealing. Whereas the share of couples in which only the man worked has modestly declined over the last 30 years for the other groups, it remained high among the super rich. </p>
<p><iframe id="WMMD7" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/WMMD7/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Why it matters</h2>
<p>The uniquely high prevalence of sole male-breadwinner arrangements among the super rich is a symptom of stark class and gender inequalities in the U.S. economy. </p>
<p>Rising class inequality between the super rich and all others <a href="https://doi.org/10.1177/0003122418820702">has been driven</a> by a handful of men’s incomes and wealth rising exponentially compared with everyone else’s. </p>
<p>And even though <a href="https://doi.org/10.15195/v9.a6">women have made progress</a> in entering professional jobs that pay $100,000 or more, the glass ceiling – or perhaps more appropriately, the <a href="https://doi.org/10.1177/0003122418820702">diamond ceiling</a> – is still firmly intact. </p>
<p>Accordingly, a woman’s objectively high income may seem less consequential to the overall household finances when her husband earns an exorbitantly high income of a million or more. Or, it may seem trivial when the couple has massive amounts of wealth exceeding $10 million.</p>
<p>The absence of women at the top of the economic ladder has many implications. </p>
<p>The super rich are inordinately powerful in the <a href="https://doi.org/10.1146/annurev-soc-020321-031544">workplace</a> and in <a href="https://press.princeton.edu/books/paperback/9780691162423/affluence-and-influence">politics</a>. If the majority of the wealthiest married women are not in the workforce, it is unlikely they have the same degree of public influence as their husbands. So men continue to exercise the majority of societal power associated with the super rich. </p>
<p>We also know that family structure shapes people’s worldviews and behaviors. Previous research shows that men with stay-at-home wives <a href="https://doi.org/10.1177/0001839214528704">are less supportive of women</a> in their own workplaces, including being less likely to promote them. This suggests that the most powerful leaders in the workplace and in politics may not be as eager to support women’s career advancement or family-friendly workplace policies as some might hope.</p>
<h2>What we still don’t know</h2>
<p>We don’t know what exactly drives super rich couples’ work-family decisions. </p>
<p>We believe that at least some of the women in these couples exit the labor force after their partner achieves economic success – and their incomes are no longer needed to maintain their lifestyle.</p>
<p>It’s also possible that some super rich men’s wealth accumulation was made possible, in part, by their wives’ unpaid labor throughout their careers. </p>
<p>The most highly compensated jobs in the U.S. economy tend to require <a href="https://doi.org/10.1111/jomf.12596">long hours</a>, frequent travel and the ability to be on call 24/7 – all of which tend to be incompatible with raising children and managing a household.</p>
<p>Men may have been able to meet these intense job demands and become financially successful because they have wives who stepped back from their own careers, freeing them from the majority of household responsibilities – a dynamic that few women have access to.</p><img src="https://counter.theconversation.com/content/205353/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
While most heterosexual couples are dual-earners, super rich couples continue to have gender-traditional arrangements in which the man is the sole breadwinner.
Jill Yavorsky, Assistant Professor of Sociology, University of North Carolina – Charlotte
Sarah Thebaud, Associate Professor, Sociology, University of California, Santa Barbara
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/199311
2023-02-15T08:38:29Z
2023-02-15T08:38:29Z
Invisible Trillions review: global capitalism operates beyond the rule of law and threatens democracy
<figure><img src="https://images.theconversation.com/files/508894/original/file-20230208-15-42994g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Achieving greater transparency and accountability in democratic governance and in capitalist economics must occur simultaneously. </span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>Secrecy has become as important for corporations as transparent and taxable profits used to be, according to Raymond W. Baker in his new <a href="https://www.goodreads.com/book/show/60978837-invisible-trillions">book</a> Invisible Trillions. Global capitalism, he argues, operates beyond the rule of law. This contributes to extreme inequality that threatens liberal democracy.</p>
<p>Deals in the financial secrecy system account for half of global economic operations. This is far beyond illicit transfers of funds through corporate under-pricing and overpricing of exports and imports, or the drug and other criminal networks 50 years ago. Tax havens, “shell companies”, anonymous trust accounts, fake foundations and new digitised money laundering technologies have proliferated. Add to that falsified trade. All of this is facilitated by international lawyers, accountants and financial strategists based mostly in rich countries. </p>
<p>The book’s timely contribution is how financial secrecy threatens both free enterprise and political freedoms. Both are critical to dealing with current inequalities afflicting humanity and to meeting challenges in public health, climate, and elsewhere.</p>
<p>Baker indicts the United States as the biggest user of the financial secrecy system, and the biggest recipient of dirty money from around the world. A key indication of the cost of this is that gaps between top and average wages in the US have shot up from 20 to 1 in 1960 to 350 to one today. Had this not occurred, Baker told me he estimates, the middle class would now be better off by US$50 trillion. </p>
<h2>Pioneering work</h2>
<p>A <a href="https://www.amazon.com/Capitalisms-Achilles-Heel-Free-Market-System/dp/1119086612">pioneer</a> in exposing illicit financial flows, Baker is a member of the <a href="https://au.int/sites/default/files/documents/40545-doc-IFFs_REPORT.pdf">High-Level Panel</a> on the subject commissioned by the African Union (AU) and UN Economic Commission for Africa. It was chaired by former South African president Thabo Mbeki from 2011 to 2015. It is suspended pending further funding. Invisible Trillions should spur renewed work by the panel.</p>
<p>The panel’s <a href="https://au.int/sites/default/files/documents/40545-doc-IFFs_REPORT.pdf">2015 report</a> estimated that in the previous half-century, Africa lost over a US$ trillion in illicit money flows. This is about what Africa received in official development assistance over the same period. Baker made a similar finding in his <a href="https://www.amazon.com/Capitalisms-Achilles-Heel-Free-Market-System/dp/1119086612">2005 book</a>, Capitalism’s Achilles Heel. </p>
<p>He began his career as an entrepreneur in Nigeria after independence, applying his 1960 Harvard MBA to launch several successful local businesses in the 1960s and 1970s. After relocating to Washington, DC in the 1980s, he became a guest fellow at the <a href="https://www.brookings.edu/">Brookings Institution</a>. He eventually founded <a href="https://gfintegrity.org/">Global Financial Integrity</a> in 2006. The research institute continues to produce seminal research and policy analysis on all aspects of the secretive world of illicit financial flows.</p>
<h2>Clean up must begin from above</h2>
<p>Baker is cogently critical not only of the complicity of the US and its corporations, but also law firms, auditors and consulting companies that abet tax avoidance, concentration of wealth, and corruption of government officials. He accuses the US and China, which together account <a href="https://statisticstimes.com/economy/united-states-vs-china-economy.php">for over 40% of the world’s nominal GNP</a>, of knowingly exploiting secrecy in global economic relations. </p>
<p>Little wonder that 193 members of the United Nations have pledged to halt illicit financial flows, but with little discernible effect. Meanwhile, the COVID pandemic, the war in Ukraine and climate change worsen inequality within and among nations.</p>
<p>Concise and accessible, Invisible Trillions has three parts:</p>
<ul>
<li><p>Democratic Capitalism at Risk</p></li>
<li><p>Corroding the Commons</p></li>
<li><p>Renewing Democratic Capitalism.</p></li>
</ul>
<h2>Rogue capitalism</h2>
<p>I found Baker’s criticisms of capitalism in the US to be reasonable, his indictments of corruption and authoritarianism illuminating, and his emphasis on fairness, justice, equity and human rights hopeful. America’s leading democracy scholar, <a href="https://politicalscience.stanford.edu/people/larry-diamond">Larry Diamond of Stanford University</a>, wrote the book’s foreword. As he asserts:</p>
<blockquote>
<p>Only radical improvements across the globe in financial transparency and accountability and in regulatory capacity and integrity can break this cycle of political decay and despair. </p>
</blockquote>
<p>Baker, however, carefully avoids analysis of the <a href="https://www.washingtonpost.com/outlook/2018/11/06/united-states-isnt-democracy-and-was-never-intended-be/">structural deficiencies</a> of US democracy. He defers to others to build on his analysis of how secretive concentrations of wealth became possible with the complicity of banks, corporations and “complicit governments” in key chapters of Part II.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=669&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=669&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=669&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=840&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=840&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508892/original/file-20230208-26-mlr1kw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=840&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
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</figure>
<p>Although the book is mainly about the “rogue capitalism” of the US, it includes the impact of secrecy on economic behaviour further afield, using seven country case studies. Featured are the two dictatorships – Russia and China – plus a flawed pluralistic democracy, South Africa, an example of <a href="https://theconversation.com/south-africas-state-capture-commission-nears-its-end-after-four-years-was-it-worth-it-182898">state capture</a>. Other examples of where secrecy serves autocrats are Guatemala, Venezuela, Myanmar and Iran.</p>
<p>The South African case shows well the role played by foreign corporations, international lawyers and public relations firms in corruption. Baker concludes Part II with a very short chapter, “Hiding in Silos”. It is critical of western attempts to spread the rule of law while ignoring</p>
<blockquote>
<p>the degree to which the capitalist system (is) operating increasingly beyond the rule of law.</p>
</blockquote>
<p>This sets up Part III, in which he proposes ways and means for “Renewing Democratic Capitalism”.</p>
<h2>Renewing democratic capitalism</h2>
<p>In Baker’s view, democracy is self-correcting, but capitalism is not. His main message is: reform capitalism or forfeit democracy.</p>
<p>His suggestions focus on the US and its potential for either causing disaster or preventing it. This will depend, he argues, on the US government requiring greater transparency, accountability and governance reforms by corporations.</p>
<p>He advocates forcing banks and other financial institutions to once again separate lending and investing. And audit firms should not offer costly financial advice – another conflict of interest.</p>
<p>Baker recommends government action on increasing minimum wages to $15 an hour, ensuring universal healthcare, waiving student debt, and a reckoning with “race”. He also urges a reducing inequality among nations. In sum, an agenda much like that of the Biden administration.</p>
<p>Unless national Democratic majorities continue to grow and press effectively for <a href="https://www.amacad.org/ourcommonpurpose/report">bi-partisan democratic reforms</a>, it is difficult to imagine the country playing the kind of constructive democratic role at home or abroad that Baker calls for.</p><img src="https://counter.theconversation.com/content/199311/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John J Stremlau does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Raymond W. Baker says the estimated hundreds of billions of dollars in hidden wealth a decade ago has skyrocketed to trillions today.
John J Stremlau, Honorary Professor of International Relations, University of the Witwatersrand
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/193921
2022-11-04T12:35:22Z
2022-11-04T12:35:22Z
How winning record $2 billion Powerball jackpot could still lead to bankruptcy
<figure><img src="https://images.theconversation.com/files/493380/original/file-20221103-13-rtnw5b.jpg?ixlib=rb-1.1.0&rect=98%2C134%2C8080%2C5309&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Got the winning ticket? </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/PowerballJackpot/472c058979164ec0823b9328b236fcb6/photo?Query=powerball&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1087&currentItemNo=1">AP Photo/Julio Cortez</a></span></figcaption></figure><p>Someone in Altadena, California, was the <a href="https://www.cnn.com/2022/11/08/us/powerball-lottery-record-delayed-drawing-tuesday-trnd/index.html">lucky winner of the largest Powerball jackpot</a> in history – or perhaps the unlucky winner? </p>
<p>Officials <a href="https://www.powerball.com/article/ticket-california-wins-world-record-204-billion-powerball-jackpot">revealed that the winning ticket</a> was purchased on Nov. 8, 2022, after the <a href="http://www.powerball.com/games/home">Powerball jackpot</a> swelled to <a href="https://www.cnn.com/2022/11/08/us/powerball-lottery-record-delayed-drawing-tuesday-trnd/index.html">US$2.04 billion</a>.</p>
<p>The prize was the largest lottery the world has ever seen, <a href="https://www.today.com/money/1-6-billion-powerball-california-couple-claims-winning-ticket-6-t100966">overtaking a $1.6 billion Powerball jackpot</a> in 2016 and <a href="https://www.cnn.com/2018/10/24/us/mega-millions-drawing-wednesday/index.html">$1.54 billion Mega Millions in 2018</a>.</p>
<p>The <a href="http://powerball.com/#powerball-prizes-and-odds">odds of winning</a> the Powerball lottery are very small, <a href="https://www.cbsnews.com/news/powerball-jackpot-record-amount-19-billion-odds-of-winning/">about 1 in 292 million</a>. You are about <a href="https://www.cdc.gov/disasters/lightning/victimdata.html">300 times more likely to be hit by lightning</a>. If <a href="https://www.census.gov/quickfacts/fact/table/US/PST045217">every adult</a> in the U.S. purchased just one ticket, each with a different number, there would still be a good chance – about 11% – that no winner would emerge at a given drawing and the pot would continue to grow even larger.</p>
<p>But once a lottery winner is declared and claims the prize, a more interesting question arises: What happens to all that money and the supposedly lucky ticket holder? As <a href="http://doi.org/10.1007/s10834-012-9299-y">research by me</a> and others shows, it’s often not what you’d expect. </p>
<figure class="align-center ">
<img alt="a bolt of lightning can be seen on the horizon in the clouds above the sea" src="https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/493384/original/file-20221103-15-f050yg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">You’re 400 times more likely to be hit by a bolt of lightning than to win the Powerball.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/thunderstorm-over-sea-royalty-free-image/608978427?phrase=lightning">Jerry Kestel/EyeEm via Getty Images</a></span>
</figcaption>
</figure>
<h2>A smaller prize than it seems</h2>
<p>The first thing to bear in mind is that even when the jackpot is eye-wateringly large, the actual payout will be much less. </p>
<p>If someone comes forward with the winning ticket, they will not actually receive $2 billion in one big check. As a single winner, they can either choose a lump sum payment that amounts to about $929 million or receive $2 billion worth of annual payments that get progressively higher over <a href="http://www.megamillions.com/difference-between-cash-value-and-annuity">30 years</a>.</p>
<p>Also, the taxman gets to take a big bite. The federal government <a href="https://www.usamega.com/powerball/jackpot">will take</a> about $344 million, leaving $585 million if it’s a lump-sum payment. And then the state in which the winner resides will swallow a smaller portion if it has an income tax, as California does.</p>
<p>That jackpot is starting to look a lot smaller, though it’s still a massive chunk of change. </p>
<h2>Where windfalls go</h2>
<p>The conventional wisdom is that winning the lottery will change your life. While that’s probably always true, research suggests that it’s not always going to change in the way you might hope. </p>
<p>Economists Guido Imbens and Bruce Sacerdote and statistician Donald Rubin <a href="https://doi.org/10.1257/aer.91.4.778">showed in a 2001 paper</a> that people tend to spend unexpected windfalls. A look at lottery winners approximately 10 years after they won found they saved just 16 cents of every dollar won. </p>
<p>In my own research, I found that average people in their 20s, 30s or 40s who were <a href="http://doi.org/10.1007/s10834-012-9299-y">given an inheritance or large financial gift</a> quickly lost half the money through spending or poor investments. </p>
<p>And other studies <a href="http://doi.org/10.1162/REST_a_00114">have found</a> that winning the lottery generally didn’t help financially distressed people escape their troubles and instead only postponed the inevitable bankruptcy. <a href="https://www.cnbc.com/2018/02/06/why-the-560-million-powerball-winner-wants-to-stay-unknown.html">One found</a> that one-third of lottery winners eventually go bankrupt. </p>
<h2>It’s not easy to blow it all</h2>
<p>So how exactly could a lottery winner blow through hundreds of millions of dollars so quickly? It’s not easy. </p>
<p>Demographic research on lottery players’ characteristics shows that <a href="http://link.springer.com/article/10.1007/s10899-010-9228-7">lottery playing peaks</a> when people are in their 30s and falls as people get older. And the average female in the U.S. <a href="https://www.cdc.gov/nchs/data/vsrr/VSRR10-508.pdf">lives to age 80.5 and the average male to 75.1</a>.</p>
<p>So that means if the winner is in her 30s, she would have about 45 years or so to spend the lump after-tax sum of, let’s say, $470 million. That means she would have to spend a bit over $10 million a year, or roughly $29,000 per day, to burn through it all – even more when you factor in interest accrued while it sits in the bank.</p>
<p>In addition, really blowing it all means the winner has no assets to show for it. If she uses the money to buy luxury homes, <a href="https://www.vulture.com/2018/10/banksy-says-that-painting-was-meant-to-be-totally-shredded.html">Banksy paintings</a> and Ferraris and Aston Martins, her net worth wouldn’t actually change and she’d be able to retire with her wealth intact – assuming the investments kept their value or rose. </p>
<p>Blowing through the money, which leads to bankruptcy and low savings rates, means the winner has nothing to show for her spending besides a good time, plus goodwill from friends and relatives who went along for the ride.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two white men in suits, ties and coats stand next to each other in New York in front of a tall building. One of them is pointing and looking up" src="https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=888&fit=crop&dpr=1 600w, https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=888&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=888&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1115&fit=crop&dpr=1 754w, https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1115&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/493393/original/file-20221103-26-1gh4il.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1115&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Huntington Hartford, at left, next to Robert Moses, was born rich but died in bankruptcy.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RobertMoses/9cfd01d5e7384b53ab10381973ddf653/photo?Query=Huntington%20Hartford&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=14&currentItemNo=12">AP Photo</a></span>
</figcaption>
</figure>
<h2>Riches to rags</h2>
<p>And that’s basically what a man named Huntington Hartford did. </p>
<p>Hartford, who lived from 1911 to 2008, was the heir to <a href="https://www.groceteria.com/store/national-chains/ap/ap-history/">the Great Atlantic & Pacific Tea Co.</a> fortune. This company, which started just before the Civil War, is better known as the A&P supermarket chain. A&P was the first U.S. coast-to-coast food store, and from World War I to the 1960s, it was what <a href="https://www.walmart.com/">Walmart</a> is for today’s American shoppers. </p>
<p>Hartford inherited <a href="https://www.telegraph.co.uk/news/obituaries/1996555/Huntington-Hartford.html">approximately $90 million</a> when he was 12. <a href="http://businessmacroeconomics.com/">Adjusting for inflation</a> means he was given <a href="https://www.bls.gov/data/inflation_calculator.htm">about $1.6 billion</a> as a child, after taxes. Yet Huntington <a href="https://www.nytimes.com/2008/05/20/arts/design/20hartford.html">declared bankruptcy</a> in New York in 1992, approximately 70 years after being handed one of the largest fortunes in the world.</p>
<p>Hartford had the reverse Midas touch. He lost millions buying real estate, creating an art museum and sponsoring theaters and shows. He combined poor business skills with an exceptionally lavish lifestyle. After declaring bankruptcy, he lived as a recluse with a daughter in the Bahamas until he died. </p>
<h2>May the odds be ever in your favor</h2>
<p>Hartford’s life story, coupled with academic research, shows that coming into a windfall of cash doesn’t always have a happy ending. Squandering that money is easier than it seems. </p>
<p>If you like to pay the lottery, I wish you good luck. If you win, I wish you even more luck.</p>
<p>Nevertheless, one key lesson, whether you play or not, is that when you get a windfall or win the lottery, plan ahead and resist the all-too-human temptation to spend all the money.</p>
<p><em>This article was updated on Nov. 10, 2022, to reference the winner.</em></p><img src="https://counter.theconversation.com/content/193921/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Squandering all that money is easier than it seems.
Jay L. Zagorsky, Clinical associate professor, Boston University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/176643
2022-04-28T21:32:41Z
2022-04-28T21:32:41Z
Yes, US economy may be slowing, but don’t forget it’s coming off the hottest year since 1984 – here’s who benefited in 4 charts
<figure><img src="https://images.theconversation.com/files/460409/original/file-20220428-20-bsp6p1.jpg?ixlib=rb-1.1.0&rect=93%2C93%2C6818%2C3751&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tracking changes in net wealth is one of the best ways to see who benefited from economic growth. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/1335148671">Chris Rogers/Photodisc via Getty Images </a></span></figcaption></figure><p>The U.S. economy <a href="https://www.bloomberg.com/news/articles/2022-04-28/u-s-economy-contracted-in-first-quarter-on-surge-in-trade-gap?srnd=premium&sref=Hjm5biAW">unexpectedly shrank</a> in the first quarter, according to <a href="https://www.bea.gov/sites/default/files/2022-04/gdp1q22_adv.pdf">gross domestic product data</a> released on April 28, 2022. While the reasons were technical and weren’t seen as signs of weakness, they <a href="https://www.marketplace.org/2022/04/27/can-the-fed-lower-inflation-without-getting-the-economy-into-a-recession/">add to worries</a> that the U.S. might be headed for another recession as the Federal Reserve seeks to fight inflation by raising interest rates. </p>
<p>But before we fret too much about what 2022 will bring, I believe, as a <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">financial economist</a> who studies the decisions people and companies make with money and the resulting impacts, it’s worth reflecting on 2021, which saw the strongest economic growth in almost four decades. </p>
<p><a href="https://www.bea.gov/data/gdp/gross-domestic-product">GDP</a>, which provides a snapshot of the economy by measuring the total value of all goods and services consumers produce and exchange, <a href="https://fred.stlouisfed.org/series/A191RL1A225NBEA">surged 5.7% in 2021</a> after accounting for inflation, the fastest pace since 1984. </p>
<p>So who benefited from all this growth? </p>
<h2>Record gains in American net worth</h2>
<p>A useful way to assess how economic growth affects individuals is by looking at <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:networth;population:all;units:levels">personal financial wealth</a>. This is measured by <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/">net worth</a>, or the difference between what someone owns and owes.</p>
<p>By that measure, it’s likely that the <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">vast majority of Americans</a> are <a href="https://www.jpmorganchase.com/institute/research/household-income-spending/family-cash-balances-income-and-expenditures-trends-through-2021">better off</a> than they were in 2020 – or even before the <a href="https://www.gspublishing.com/content/research/en/reports/2021/02/15/e52e6826-59ec-4c7a-9ebb-732af6ce3946.html">COVID-19 pandemic</a> – meaning they have less debt relative to their assets. This is in no small part thanks to the <a href="https://www.usaspending.gov/disaster/covid-19?publicLaw=all">trillions of dollars in pandemic-related spending</a> by the U.S. government. </p>
<p>Overall, Americans’ <a href="https://www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-covid-19-evidence-from-the-distributional-financial-accounts-20210830.htm">net worth increased</a> by over US$18 trillion during 2021 to $142 trillion, likely the biggest increase ever. </p>
<p>It amounts to an average gain of almost $55,000 for every American. </p>
<p><iframe id="aI9ZO" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/aI9ZO/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The wealthiest got most of that</h2>
<p>Of course, the average hides tremendous variation across groups.</p>
<p>It’s <a href="https://americansfortaxfairness.org/issue/2-years-covid-u-s-billionaires-1-7-trillion-57-richer/">already been</a> <a href="https://ips-dc.org/u-s-billionaire-wealth-surged-by-70-percent-or-2-1-trillion-during-pandemic-theyre-now-worth-a-combined-5-trillion/">thoroughly</a> <a href="https://www.timesofisrael.com/billionaires-share-of-global-wealth-soars-as-pandemic-widens-inequality-gap-as/">reported</a> that <a href="https://www.aa.com.tr/en/americas/us-billionaires-wealth-soars-70-during-pandemic-report/2396011">billionaires</a> saw their <a href="https://www.cnbc.com/2020/05/21/american-billionaires-got-434-billion-richer-during-the-pandemic.html">wealth soar</a> during the pandemic. <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/">This was driven</a> largely by double-digit gains in the value of their stock holdings and businesses, while their liabilities grew only 1%. </p>
<p>In 2021, the wealthiest 1% of Americans saw their net worth grow $6.7 trillion to about $46 trillion, making up well over a third of the overall gains. Another $6.2 trillion went to the next 9%. Meanwhile, just $1.5 trillion went to the bottom 50%. </p>
<p><iframe id="B4Ycs" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/B4Ycs/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>But those in the bottom half grew the fastest</h2>
<p>The richest may have gotten the most, but the net wealth of the bottom half jumped at the fastest pace. </p>
<p>The bottom 50% saw their wealth grow 64% in 2021. That’s the biggest calendar-year growth of any of these groups since at least 1988, dwarfing the percentage gains of the richest. </p>
<p>This happened largely <a href="https://www.nar.realtor/newsroom/record-high-prices-and-record-low-inventory-make-it-increasingly-difficult-to-achieve-homeownership-particularly-for-black-americans">because homeowners</a> saw real estate <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/#quarter:128;series:Assets;demographic:networth;population:all;units:shares">assets</a> grow a lot faster than <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/compare/chart/#quarter:128;series:Liabilities;demographic:networth;population:all;units:levels">mortgage debts</a>.</p>
<p>While these changes are positive for Americans, both on average and in general, this has not changed the overall distribution of wealth that much. </p>
<p>The bottom half of Americans accounted for 5.5% of the country’s assets before the pandemic and at the end of 2021 owned 5.9%. Though this is the highest level since 2013, it still lags behind levels it saw during the 1990s, when the share rose to nearly 9%.</p>
<p><iframe id="riwzX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/riwzX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>White people gained most, but still saw share fall</h2>
<p>Similar to the income-level story, <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:race;population:1,3,5,7;units:levels">most of the gains</a> went to white Americans, who saw their net wealth soar $14.5 trillion in 2021 to $119 trillion. Black Americans gained $1.3 trillion, and Hispanics saw growth of $683 billion. </p>
<p>But the percentage gains were highest for people of color – 26% for African Americans and 24% for Hispanics. That compares with 14% for white Americans.</p>
<p>As a result, the <a href="https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:128;series:Net%20worth;demographic:race;population:1,3,5,7;units:shares">overall share held by white people</a> fell to 83.6%, the lowest since at least 1988 and very likely the lowest ever. Black net wealth increased to 4.4% of the pie, the most since 1992. Hispanics held 2.5% of total U.S. net wealth. </p>
<p>For context, non-Hispanic <a href="https://www.census.gov/quickfacts/fact/table/US/PST045221">white Americans make up about 60%</a> of the population, versus 13.4% for Black Americans and 18.5% for Hispanic or Latino Americans.</p>
<p><iframe id="jqdlF" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/jqdlF/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>What happens next, as economic growth slows, is hard to say. <a href="https://doi.org/10.1016/j.jpubeco.2020.104273">A large chunk of the coronavirus-related aid</a> <a href="https://doi.org/10.1162/rest_a_01043">went to poorer Americans</a>, which helps explain the gains for the bottom 50% as well as for Black people and Latinos. That aid has now ended. </p>
<p>Still, the market for workers remains on fire, with unemployment at 3.6% at the end of March 2022, <a href="https://fred.stlouisfed.org/series/UNRATE">near a half-century low</a>. And <a href="https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q1-2022">economists</a> have been <a href="https://www.conference-board.org/research/us-forecast">forecasting</a> pretty <a href="https://www.spglobal.com/ratings/en/research/articles/220328-economic-outlook-u-s-q2-2022-spring-chills-12320559">solid</a> growth. </p>
<p>Will this strong economic growth continue?</p>
<p>Count me as one economist hoping Americans continue benefiting from improving job prospects to build wealth – even as the economic picture gets a bit cloudier. </p>
<p>[<em>More than 150,000 readers get one of The Conversation’s informative newsletters.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-150K">Join the list today</a>.]</p><img src="https://counter.theconversation.com/content/176643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Most of the gains went to the richest Americans, but almost everyone saw an improvement in terms of net wealth.
D. Brian Blank, Assistant Professor of Finance, Mississippi State University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/163464
2021-09-23T13:03:39Z
2021-09-23T13:03:39Z
Some rich people will love at least one sweetener in Democrats’ $3.5 trillion plan
<figure><img src="https://images.theconversation.com/files/422188/original/file-20210920-21-1wp0ud9.jpg?ixlib=rb-1.1.0&rect=125%2C269%2C5865%2C3718&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Several lawmakers from high-tax states like New York are pushing for changes to a key tax deduction in Democrats' $3.5 trillion spending package.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/rep-thomas-suozzi-center-speaks-at-a-news-conference-news-photo/1232332329">Kent Nishimura/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>While liberal lawmakers look for ways to <a href="https://www.cnbc.com/2021/09/13/house-democrats-propose-tax-increases-in-3point5-trillion-budget-bill.html">raise taxes on the rich</a> to finance their US$3.5 trillion spending package, some <a href="https://www.bloomberg.com/news/articles/2021-09-13/democrats-plan-meaningful-change-to-cap-on-salt-deduction?srnd=premium&sref=Hjm5biAW">House Democrats are aiming to lower them</a>. </p>
<p>Specifically, several Democrats from high-tax states such as New York and New Jersey <a href="https://buffalonews.com/news/dems-vow-meaningful-salt-relief-after-latest-tax-proposal/article_d5f228e6-14cb-11ec-a9ce-abb26fa125e4.html">want to eliminate or at least raise</a> the $10,000 cap on the federal deduction of state and local taxes – also known as SALT – as part of the bill. The Democrats argue lifting the cap would help middle-class taxpayers and support homeownership. </p>
<p>“We are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities, and we are working daily toward that goal,” <a href="https://waysandmeans.house.gov/media-center/press-releases/neal-pascrell-suozzi-path-forward-salt">several lawmakers said</a> in a Sept. 13, 2021, statement. </p>
<p>But our research suggests wealthier Americans would see most of the savings. </p>
<h2>A deduction mainly used by the rich</h2>
<p>Before 2017, taxpayers who itemized <a href="http://www.taxhistory.org/thp/readings.nsf/ArtWeb/663D98E8EB142B3B852581C6005A9982">could deduct every penny</a> of their state and local income or property taxes from their federal taxable income. This benefited homeowners because they are more likely to itemize their taxes due to the mortgage interest deduction. </p>
<p>Over 90% of households that earned $200,000 or more took the deduction in 2017 compared with less than 20% for those making under $100,000, according to the IRS. </p>
<p>That changed after Congress <a href="https://taxfoundation.org/tax-reform-explained-tax-cuts-and-jobs-act/">passed a package of tax cuts</a> in December 2017 that, among other things, increased the standard deduction for all taxpayers but added the cap on the state and local tax deduction for those who itemize. </p>
<p>As a result, the share of households who itemized their taxes <a href="http://dx.doi.org/10.2139/ssrn.3827336">shrank from 31% in 2017 to 11% in 2018</a>. </p>
<p>We examined the impact of the tax code change in a <a href="http://dx.doi.org/10.2139/ssrn.3827336">recent research paper</a>, which used data from the American Housing Survey and a National Bureau of Economic Research <a href="https://users.nber.org/%7Etaxsim/">tax simulator</a>. Primarily, we wanted to estimate the federal income tax liability and tax benefits associated with homeownership for a representative set of taxpayers across the United States. </p>
<p>Our analysis shows that eliminating the cap would result in substantially lower federal income taxes for high-income households, while making little difference for people who earned less. </p>
<p>For example, a typical New Jersey household that earns $400,000 to $1.1 million would see federal income taxes cut by $14,401 if the cap were removed, or 15.7% of all 2018 income taxes paid. Even in a relatively low-cost state such as Ohio, eliminating the cap would reduce federal income taxes for a similar household by $5,466, or 5.2% of its 2018 tax bill. </p>
<p>But, most importantly for <a href="https://www.theatlantic.com/ideas/archive/2019/02/here-are-progressive-tax-policies-democrats-need/581830/">those who favor a progressive tax code</a>, our analysis found that lifting the cap would barely affect middle-income households. </p>
<p>For example, a typical New York household earning $100,000 to $150,000 would see its federal tax bill go down $149 were the cap lifted, while the median savings would be $16 in California and $407 in New Jersey. But for the vast majority of states, getting rid of the cap would have no effect on most people in this income bracket, in large part because the 2017 tax law <a href="https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-standard-deduction-and-itemized-deductions">doubled the standard deduction</a>. Across all states, the average change in taxes for people earning between $100,000 and $150,000 would be $49. </p>
<p>[<em>Over 110,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<p>The impact of removing the cap would have a very small impact on most lower-income taxpayers since <a href="https://www.irs.gov/pub/irs-soi/18in21id.xls">less than 5% of them claimed</a> the state and local tax deduction in 2018. </p>
<h2>A middle-class misconception</h2>
<p>The <a href="https://www.cbsnews.com/news/tax-returns-2019-salt-deduction-cap-middle-class-homeowners-hit-by-the-new-tax-law/">association of the state and local tax deduction with middle-class homeownership</a> is likely the reason for this misconception about who would benefit from repealing the cap. </p>
<p>But in fact, one of the main ways middle-income homeowners benefit from the tax code is through the <a href="https://www.irs.gov/taxtopics/tc701">exclusion from capital gains taxes</a> of up to $250,000 in net profit from the sale of a home – $500,000 if filing jointly. </p>
<p>The state and local tax deduction, however, mainly helps the wealthiest Americans.</p><img src="https://counter.theconversation.com/content/163464/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The 2017 tax cuts put a $10,000 cap on the deduction for state and local taxes. The richest households would see the biggest gains from eliminating or raising the cap.
Brent W Ambrose, Jason and Julie Borrelli Faculty Chair in Real Estate and Professor of Real Estate, Penn State
David C. Ling, Professor of Real Estate, University of Florida
Gary McGill, Senior Associate Dean & Professor of Accounting, University of Florida
Pat Hendershott, Emeritus Professor of Finance, University of Aberdeen
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/165946
2021-08-25T12:26:17Z
2021-08-25T12:26:17Z
What’s a major donor? A fundraising expert explains
<figure><img src="https://images.theconversation.com/files/417287/original/file-20210821-27-1r1rlnm.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3000%2C1742&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Craigslist founder Craig Newmark donates millions of dollars to journalism schools as well as other causes.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/founder-of-craigslist-and-craigconnects-craig-newmark-news-photo/514824568">Bryan Bedder/Getty Images for Rush Philanthropic Arts Foundation</a></span></figcaption></figure><p><a href="https://www.donorsearch.net/major-donor-fundraising-strategies/#1">Major donors</a> are the people who give the most money to a specific nonprofit. The amount they must donate to attain that status varies, depending on the nonprofit’s budget.</p>
<p>If you gave US$500 to your neighborhood food pantry, you would probably become one of its major donors. With a large university, hospital or any other nonprofit with a multimillion-dollar budget, however, it may take an annual gift of $100,000 to land in its <a href="https://www.redcross.org/donations/ways-to-donate/donation-and-engage.html">top tier of supporters</a>.</p>
<p>The largest category of giving posted on a nonprofit’s website is a good way to see what it considers a major gift. These levels often have splendidly pompous names. The <a href="https://www.seattleopera.org/donate/benefits/">Seattle Opera</a> designates donors with “Visionary Circle” status for giving $1 million, for example. The <a href="https://www.pittsburghopera.org/support/give-now/galaxy-society/">Pittsburgh Opera</a> considers donors giving $3,500 or more to be members of its “Galaxy Society.”</p>
<p>Billionaires and others who give away millions of dollars at a time can be called philanthropic “<a href="https://www.bnymellonwealth.com/articles/strategy/the-significance-of-megadonors.jsp">megadonors</a>,” a term also common for <a href="https://abcnews.go.com/Politics/12-megadonors-accounted-75-political-giving-past-decade/story?id=77189636">political funders</a> with deep pockets.</p>
<h2>Why major donors matter</h2>
<p>In addition to amassing many <a href="https://www.growthforce.com/blog/why-your-nonprofit-needs-a-sustainer-program">donors who give on a monthly</a> or <a href="https://smartannualgiving.com/annual-giving-101/">annual basis</a>, fundraisers consider <a href="https://fundraisingip.com/major-fundraising-campaigns-guide/">major gifts a huge priority for campaigns centered around a big project</a>, such as the acquisition of a new building. These campaigns rely on substantial gifts from the very rich people who fundraisers and bankers call <a href="https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp">ultra-high-net-worth individuals</a>.</p>
<p>In the past, fundraisers would anticipate seeing 80% of campaign gifts coming from 20% of all donors. What they used to call the <a href="https://imarketsmart.com/the-80-20-rule-is-dead/">80-20 rule of thumb</a> has changed, however, in tandem with <a href="https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/">growing economic inequality</a>. Today, nonprofits raise closer to <a href="https://www.librarystrategiesconsulting.org/2017/04/the-law-of-8020-and-capital-campaigns/">90% or more of their funds from roughly 10% of their donors</a>.</p>
<p>[<em>Over 110,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p>
<p>Researchers have found that other people may <a href="https://doi.org/10.1111/j.1467-9779.2006.00250.x">follow the lead of a major donor</a>. That is, when a major donor makes a huge donation to a fundraising campaign, smaller donors become more likely to support it, too. And they tend to make larger donations than they otherwise would have.</p>
<h2>Concentrated influence</h2>
<p>Large <a href="https://nonprofitquarterly.org/where-have-all-the-donors-gone-the-continued-decline-of-the-small-donor-and-the-growth-of-megadonors/">donations from the richest Americans</a> are <a href="https://releases.jhu.edu/2018/11/18/michael-bloomberg-makes-largest-ever-contribution-to-any-education-institution-in-the-united-states/">growing in size</a>, and their proportion of total giving is rising as well.</p>
<p>The 0.1% of U.S. households with income exceeding $2 million annually <a href="https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-returns-publication-1304-complete-report">donate approximately 30%</a> of all the money given to nonprofits each year. This trend is bound to continue because <a href="https://www.forbes.com/sites/chasewithorn/2021/04/30/american-billionaires-have-gotten-12-trillion-richer-during-the-pandemic/?sh=1180646ef557">billionaires are becoming even wealthier</a>. </p>
<p><em>Read other short, accessible explanations of newsworthy subjects written by academics in their areas of expertise for The Conversation U.S. <a href="https://theconversation.com/us/topics/significant-terms-105996">here</a>.</em></p><img src="https://counter.theconversation.com/content/165946/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renee Irvin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
How much money it takes to attain this status varies according to the size of the nonprofit getting the gift.
Renee Irvin, Associate Professor of Nonprofit Management, University of Oregon
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/151208
2021-01-26T18:52:43Z
2021-01-26T18:52:43Z
We are the 1%: the wealth of many Australians puts them in an elite club wrecking the planet
<figure><img src="https://images.theconversation.com/files/380346/original/file-20210124-13-1vb2vqt.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C8688%2C5709&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Among the many hard truths exposed by COVID-19 is the huge disparity between the world’s rich and poor. As economies went into freefall, the world’s billionaires <a href="https://www.theguardian.com/business/2020/oct/07/covid-19-crisis-boosts-the-fortunes-of-worlds-billionaires">increased</a> their already huge fortunes by 27.5%. And as many ordinary people lost their jobs and fell into poverty, The Guardian reported “the 1% are coping” by <a href="https://www.theguardian.com/world/2020/mar/13/coronavirus-lifestyles-of-the-rich-and-famous-how-the-1-are-coping">taking private jets</a> to their luxury retreats.</p>
<p>Such perverse affluence further fuelled criticism of the so-called 1%, which has long been the standard <a href="https://www.washingtonpost.com/lifestyle/style/why-does-everybody-suddenly-hate-billionaires-because-theyve-made-it-easy/2019/03/13/00e39056-3f6a-11e9-a0d3-1210e58a94cf_story.html">rhetoric of the political Left</a>. </p>
<p>In 2011, Occupy Wall Street protesters called out growing economic inequality by <a href="https://www.aljazeera.com/news/2011/12/27/occupy-wall-street-we-are-the-99">proclaiming</a>: “We are the 99%!”. And an <a href="https://www.oxfam.org/en/press-releases/carbon-emissions-richest-1-percent-more-double-emissions-poorest-half-humanity">Oxfam report</a> in September last year lamented how the richest 1% of the world’s population are responsible for more than twice as much carbon pollution as the poorest half of humanity.</p>
<p>But you might be surprised to find this 1% doesn’t just comprise the super-rich. It may include you, or people you know. And this fact has big implications for social justice and planetary survival.</p>
<figure class="align-center ">
<img alt="People crossing the street in Sydney" src="https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380388/original/file-20210125-19-hdvuk6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Many everyday Australians have a net worth that puts them in the world’s richest 1%.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Look in the mirror</h2>
<p>When you hear references to the 1%, you might think of billionaires such as Amazon’s <a href="https://mkorostoff.github.io/1-pixel-wealth/">Jeff Bezos</a> or Tesla founder <a href="https://www.bbc.com/news/technology-55578403">Elon Musk</a>. However, as of October last year there were <a href="https://www.cnbc.com/2020/10/08/asia-pacific-is-home-to-most-billionaires-globally-pandemic-grows-wealth.html">2,189 billionaires worldwide</a> — a minuscule proportion of the 7.8 billion people on Earth. So obviously, you don’t have to be a billionaire to join this global elite. </p>
<p>So how rich do you have to be? Well, Credit Suisse’s <a href="https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html">Global Wealth Report</a> in October last year showed an individual net worth of US$1 million (A$1,295,825) - combined income, investments and personal assets — will make you among the world’s 1% richest people. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/five-ways-coronavirus-is-deepening-global-inequality-144621">Five ways coronavirus is deepening global inequality</a>
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</em>
</p>
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<p>The latest official data shows the average Australian household has a <a href="https://mccrindle.com.au/insights/blog/australias-income-and-wealth-distribution/">net worth of A$1,022,200</a>. Australia’s richest 20% of households – about two million of them – have an <a href="https://mccrindle.com.au/insights/blog/australias-household-income-wealth-distribution/?pdf=953">average net worth of A$3.2 million</a>. Even if those households comprised two income-earning adults, their net worth equally divided would put many in the top 1% of global wealth holders.</p>
<p>A net wealth of US$109,430 (A$147,038) puts you among the world’s <a href="https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html">richest 10%</a>. Half of Australia’s households have a <a href="https://www.abc.net.au/news/2019-07-12/household-income-and-wealth-abs-data-shows-rich-are-richer/11302696">net worth of A$558,900</a> or more. </p>
<figure class="align-center ">
<img alt="Aerial view of suburban Australian homes" src="https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=477&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=477&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=477&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=599&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=599&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380348/original/file-20210124-13-133suwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=599&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The net worth of many Australians puts them in the global elite.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<h2>What does all this mean for the planet?</h2>
<p>It’s true the per capita emissions of the super-rich are likely to be far greater than others in the top 1%. But this doesn’t negate the uncomfortable fact Australians are among a fraction of the global population <a href="https://www.gfmag.com/global-data/economic-data/richest-countries-in-the-world">monopolising global wealth</a>. This group causes the vast bulk of the world’s <a href="https://www.leeds.ac.uk/news/article/4562/shining_a_light_on_international_energy_inequality">climate damage</a>.</p>
<p>A 2020 Oxfam report shows the world’s richest 10% produce a staggering <a href="https://www.oxfam.org.au/wp-content/uploads/2020/09/bp-power-profits-pandemic-100920-en-embargoed.pdf">52% of total carbon emissions</a>. Consistent with this, a 2020 <a href="https://www.nature.com/articles/s41560-020-0579-8?proof=t">University of Leeds study</a> found richer households around the world tend to spend their extra money on energy-intensive products, such as package holidays and car fuel. The UN’s 2020 Emission Gap Report further <a href="https://www.unenvironment.org/emissions-gap-report-2020">confirmed this</a>, finding the top 10% use around 75% of all aviation energy and 45% of all land transport energy.</p>
<p>It’s clear that wealth, and its consequent energy privilege, is neither socially just nor ecologically sustainable.</p>
<figure class="align-center ">
<img alt="Man with one shiny shoe and one scruffy shoe" src="https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380372/original/file-20210125-21-1uki61.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Global wealth disparity is not just or sustainable.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>A potential solution</h2>
<p>Much attention and headlines are devoted to the <a href="https://www.oxfamamerica.org/explore/stories/billionaire-wealth-grows-by-25-billion-a-day-while-poorest-wealth-falls/">unethical wealth</a> of billionaires. And while the criticism is justified, it distracts from a broader wealth problem — including our own.</p>
<p>We should note here, one can have an income that’s large compared to the global average, and still experience significant <a href="https://www.dss.gov.au/sites/default/files/documents/09_2015/data-highlight-no-1-2014-financial-hardship_0.pdf">economic hardship</a>. For instance in Australia, the housing costs of more than one million households exceed 30% of total income – the commonly used <a href="https://www.acoss.org.au/housing-homelessness/">benchmark</a> for housing affordability.</p>
<p>Here lies a central challenge. Even if we wanted to reduce our wealth, the <a href="https://theconversation.com/when-houses-earn-more-than-jobs-how-we-lost-control-of-australian-house-prices-and-how-to-get-it-back-144076">enormous cost</a> of keeping a roof over our head prevents us from doing so. Servicing a mortgage or paying rent is one of our <a href="https://grattan.edu.au/wp-content/uploads/2018/03/901-Housing-affordability.pdf">biggest financial obligations</a>, and a key driver in the pursuit of wealth.</p>
<p>But as we’ve shown above, as personal wealth grows, so too does environmental devastation. The rule even applies to the lowest paid, who are working just to pay the rent. The industries they rely on, such as <a href="https://www.citysmart.com.au/news/unsustainable-impacts-fast-fashion/">retail</a>, <a href="https://theconversation.com/the-carbon-footprint-of-tourism-revealed-its-bigger-than-we-thought-96200">tourism</a> and <a href="https://www.theguardian.com/sustainable-business/2014/jul/25/greenwashing-hospitality-industry-water-conservation-technology-hotels">hospitality</a>, are themselves associated with environmental damage. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/coronavirus-shows-housing-costs-leave-many-insecure-tackling-that-can-help-solve-an-even-bigger-crisis-137772">Coronavirus shows housing costs leave many insecure. Tackling that can help solve an even bigger crisis</a>
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<p><a href="https://www.ppesydney.net/content/uploads/2021/01/19_Baumann-Alexander-and-Burdon.pdf">Existing economic and social structures</a> mean stepping off this wealth-creating treadmill is almost impossible. However as we’ve <a href="https://theconversation.com/access-to-land-is-a-barrier-to-simpler-sustainable-living-public-housing-could-offer-a-way-forward-121246">written before</a>, people can be liberated from their reliance on economic growth when land - the very foundation of our security - is not commodified.</p>
<p>For social justice and ecological survival, we must urgently experiment with <a href="https://theecologist.org/2020/mar/04/towards-walden-wage">new land and housing strategies</a>, to make possible a lifestyle of reduced wealth and consumption and increased self-sufficiency. </p>
<p>This might include urban commons, such as the R-Urban project in Paris, where several hundred people co-manage land that includes a small farm for collective use, a recycling plant and cooperative eco-housing.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=545&fit=crop&dpr=1 754w, https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=545&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/333571/original/file-20200508-49579-4dc69m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=545&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The R-Urban project in Paris, which includes a small farm.</span>
<span class="attribution"><span class="source">Flickr</span></span>
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<p>Under a new land strategy, other ways of conserving resources could be deployed. One such example, developed by Australian academic <a href="https://theconversation.com/the-simple-life-manifesto-and-how-it-could-save-us-33081">Ted Trainer</a>, involves cutting our earnings sharply - with paid work for only two days in a week. For the rest of the working week, we would tend to community food gardens, network and share many things we currently consume individually.</p>
<p>Such a way of living could help us re-evaluate the amount of wealth we need to live well.</p>
<p>The social and ecological challenges the world faces cannot be exaggerated. New thinking and creativity is needed. And the first step in this journey is taking an honest look at whether our own wealth and consumption habits are contributing to the problem.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-simple-life-manifesto-and-how-it-could-save-us-33081">The 'simple life' manifesto and how it could save us</a>
</strong>
</em>
</p>
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<p><em>Clarification: this article has been updated to state that, for Australia’s richest 20% of households, the average net worth of two income-earning adults would put many in the top 1% of global wealth holders.</em></p><img src="https://counter.theconversation.com/content/151208/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Baumann is affiliated with the NTW project (<a href="http://www.ntwonline.weebly.com">www.ntwonline.weebly.com</a> | <a href="http://www.facebook.com/land4all">www.facebook.com/land4all</a>). This project is working on a reframing of public housing policy settings – to provide an example of of the sort of local collaborative development on public land related to the final link in this article.</span></em></p><p class="fine-print"><em><span>Samuel Alexander does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
You might be surprised to find yourself in the company of Elon Musk and Jeff Bezos in the world’s richest 1%. This has big implications for planetary survival.
Alex Baumann, Casual Academic, School of Social Sciences & Psychology, Western Sydney University
Samuel Alexander, Research fellow, Melbourne Sustainable Society Institute, The University of Melbourne
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/130132
2020-01-21T19:04:29Z
2020-01-21T19:04:29Z
The science backs Harry and Meghan turning in their royal privilege. Fame and fortune aren’t the keys to happiness
<p>If you’ve ever dreamt of fame and fortune, Prince Harry and his wife Meghan Markle turning their backs on the royal lifestyle might seem churlish. So too their desire to be “financially independent”.</p>
<p>As a senior royal, Harry is at the height of his popularity – a popularity that marrying Markle has only amplified. </p>
<p>On top of the millions he has inherited from his mother and great grandmother, he gets millions more annually, both from his cut of the “sovereign grant” paid by the British government and the allowance from his father (from the revenues of Duchy of Cornwall estate).</p>
<p>Harry and Meghan aren’t exiting the family firm penniless, but if they stayed they would be looked after in luxury for the rest of their lives. </p>
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Read more:
<a href="https://theconversation.com/prince-harry-and-meghan-markle-why-half-in-half-out-just-isnt-an-option-for-royals-129726">Prince Harry and Meghan Markle: why half in, half out just isn't an option for royals</a>
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<p>Madness? No. Research suggests Harry and Meghan would be well and truly in their right minds to be sick of royal fame and fortune. </p>
<p>Psychologists, economists and philosophers have confirmed three things. First, money can’t buy happiness. Second, we want to feel we have earned our success and popularity. Third, being looked after from the cradle to the grave has its downsides. </p>
<p>In short, having everything handed to you on a platter just isn’t satisfying. </p>
<h2>Money doesn’t buy happiness</h2>
<p>Even though this statement is arguably a cliché, there is good <a href="https://www.payscale.com/career-news/2013/05/study-proves-money-cant-buy-happiness">evidence</a> it’s true. While money buys happiness up to a point, the positive effects of money on happiness <a href="https://psychology.unl.edu/can-money-buy-happiness">level off</a> once individuals have obtained enough wealth to live a comfortable life. </p>
<p>This relationship has been observed at the country level, with multiple studies showing that, once a nation reaches a certain level of wealth, national happiness does not increase in parallel with extra wealth. This is known as the <a href="https://esrc.ukri.org/about-us/50-years-of-esrc/50-achievements/the-easterlin-paradox/">Easterlin paradox</a>. According to economist John Helliwell, a co-editor of the <a href="https://worldhappiness.report/ed/2019/changing-world-happiness/">World Happiness Report</a>, the <a href="https://www.researchgate.net/publication/8364900_The_Social_Context_of_Well-Being">social context</a> – marriage and family, ties to friends and neighbours, workplace ties, civic engagement, trustworthiness and trust – is more important than wealth. </p>
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<p>One reason given for why wealth doesn’t buy individuals any more happiness after a certain point is that money becomes both a reason and means to distance ourselves from others. To paraphrase Christopher Ryan, author of <a href="https://www.simonandschuster.com/books/Civilized-to-Death/Christopher-Ryan/9781451659108">Civilized to Death: The Price of Progress</a>, what people tend to do with extra money is buy separation, whereas researchers “<a href="https://www.wired.com/story/why-are-rich-people-so-mean/">have concluded again and again</a> that the single most reliable predictor of happiness is feeling embedded in a community”. </p>
<p>Extraordinary wealth, then, sets us against what we are programmed to do by evolution: seek out the company of others and band together in a community. Research has repeatedly shown this has a huge mental health cost.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/loneliness-is-a-social-cancer-every-bit-as-alarming-as-cancer-itself-126741">Loneliness is a social cancer, every bit as alarming as cancer itself</a>
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<p>Importantly, too, how we earn our money affects how much we enjoy it. <a href="https://www.ncbi.nlm.nih.gov/pubmed/29320930">Research</a> among more than 4,000 millionaires in the US, for example, showed those who were “self-made” were moderately happier than those who inherited their wealth.</p>
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Read more:
<a href="https://theconversation.com/measures-of-happiness-tell-us-less-than-economics-of-unhappiness-42817">Measures of happiness tell us less than economics of unhappiness</a>
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<p>Taken together, these factors help explain why Harry and Meghan’s wealth might, psychologically speaking, be more curse than blessing.</p>
<h2>The popularity paradox</h2>
<p>Most of us, particularly teenagers, <a href="https://www.scientificamerican.com/article/cracking-the-popularity-code/">crave popularity</a>. According to <a href="https://yougov.co.uk/ratings/politics/popularity/royalty/all">a YouGov poll</a>, Harry is the second-most-popular member of the British royal family – pipped only by Queen Elizabeth. Some are convinced <a href="https://theconversation.com/prince-harry-and-meghan-markle-why-half-in-half-out-just-isnt-an-option-for-royals-129726">he won’t keep this popularity</a> without his royal status. </p>
<p>Why would someone want to give up being liked and loved by stepping out of the limelight? </p>
<p>Because <a href="https://en.wikipedia.org/wiki/Attribution_(psychology)">psychological research</a> shows people feel less pride in their achievements if they attribute it to external reasons. In this case, that would being born as a royal for Harry, and being pretty and marrying into a royal family for Meghan. For their popularity and success to mean something, they would need some “internal attribution” – that it has something to do with their own abilities, effort and skill.</p>
<p>In a world that values meritocracy, as Alain de Botton argues, we need to “own our success” — the very thing Harry and Meghan cannot do as royals. </p>
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<h2>Trapped by certainty</h2>
<p>Most of us aspire to being financially secure for the rest of our lives. Many of us would give a lot to know what lies ahead. </p>
<p>But while there is comfort in some sense of security and predictability, knowing exactly what the future holds might be a curse. This is because humans thrive also on feeling a sense of freedom and choice. </p>
<p>So just as having no certainty can take its mental toll, so does feeling one’s future is totally predetermined and that you have no real control over the way your life will unfold.</p>
<p>Psychologists call the motivation to regain a freedom after it has been lost <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4675534/">reactance</a> – and this might be something strong within someone, for example, who has lost freedom due to marrying into a high-profile family.</p>
<h2>Seizing control</h2>
<p>Do the reasons above explain why Harry and Meghan have left the royal fold? We can’t say that. Only they know their motivations. </p>
<p>But what we do know is that all the research points to fortune, fame and security not necessarily leading to a good, happy life. These things can in fact be burdens, <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0139156">bringing out</a> our worst, not our best. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-paradox-of-happiness-the-more-you-chase-it-the-more-elusive-it-becomes-112217">The paradox of happiness: the more you chase it the more elusive it becomes</a>
</strong>
</em>
</p>
<hr>
<p>That happiness comes more from community connection, merit, effort and making our own decisions is good news for the rest of us. Let’s hope it works out for Harry and Meghan too.</p><img src="https://counter.theconversation.com/content/130132/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jolanda Jetten receives funding from the Australian Research Council. </span></em></p>
Research suggests Harry and Meghan would be well and truly in their right minds to be sick of royal fame and fortune.
Jolanda Jetten, Professor, School of Psychology, ARC Laureate Fellow, The University of Queensland
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/119074
2019-06-23T19:10:33Z
2019-06-23T19:10:33Z
Inequality and climate change: the rich must step up
<figure><img src="https://images.theconversation.com/files/280096/original/file-20190618-118505-14vqt9f.jpg?ixlib=rb-1.1.0&rect=8%2C24%2C2755%2C1819&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tourism, that quintessentially elitist pursuit, is now responsible for almost 8 percent of global CO₂ emissions.</span> <span class="attribution"><a class="source" href="https://Unsplash.com/photos/Iqs4tpxXyng">Blake Barlow/Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>From the beginning, the issue of inequality with respect to the impacts of climate change and the global response has been a recurring theme in international climate negotiations. Emerging and developing countries have been sought spur the developed world into acknowledging its greater burden of responsibility and, accordingly, its obligation to make a larger contribution to the shift toward a low-carbon economy. The concept of climate justice emerged from this debate, inspiring the legal principle of “common but differentiated responsibilities” (CBDR).</p>
<p>The CBDR principle is recognised, among others, by the United Nations bodies charged with overseeing the negotiations – hence the effort at COP24 to translate the pledges enshrined in the <a href="https://www.vie-publique.fr/focus/decrypter-actualite/qu-est-ce-que-accord-paris.html">Paris Agreement</a> into specific, measurable commitments, particularly in relation to the financial transfers between the global North and South. This is the famous <a href="https://unfccc.int/sites/default/files/resource/l20f_0.pdf">“100 billion dollars”</a> a year that developed countries set as their collective target for 2020, with the aim of helping the countries of the Global South take measures to cut emissions and adapt to a changing climate.</p>
<h2>Unequal CO<sub>2</sub> emissions</h2>
<p>The complexity of the relationship between inequality and climate change is also linked to the scope of analysis we choose to adopt. Taking a simple approach, we can identify inequality in terms of carbon emissions on the one hand, and the inequality in terms of impacts on the other. The emissions gap can be measured at multiple levels.</p>
<p>At the country level, China recently became the world’s biggest CO<sub>2</sub> emitter, responsible for a startling 26% of global carbon emissions. Africa still has the lowest emissions of any continent, but this masks a great deal of variation between countries, with South Africa by far the largest emitter.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=423&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=423&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=423&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=531&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=531&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280097/original/file-20190618-118501-agfkph.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=531&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Annual share of CO₂ emissions by country (2016).</span>
<span class="attribution"><span class="source">Our World in Data</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>At the individual level, the richest 10% produce around half of all CO<sub>2</sub> emissions deriving from consumption, according to a 2015 estimate by <a href="https://www-cdn.oxfam.org/s3fs-public/file_attachments/mb-extreme-carbon-inequality-021215-fr.pdf">Oxfam</a>. When we look at per-capita data for the entire globe, the contrasts become even more striking. The <a href="https://policy-practice.oxfam.org.uk/publications/extreme-carbon-inequality-why-the-paris-climate-deal-must-put-the-poorest-lowes-582545">Oxfam study</a> also indicates that the lifestyles of the wealthiest Americans are 10 times more emissions-intensive than those of China’s richest.</p>
<p>In the United States, as the share of national income enjoyed by the top 10% grew between 1997 and 2012, there was a corresponding increase in emissions levels. Moreover, inequalities in consumption tend to encourage the formation of carbon-intensive habits: we know that the compulsion to imitate socially prestigious behaviours is one of the <a href="https://en.wikiquote.org/wiki/The_Theory_of_the_Leisure_Class">key drivers</a> of consumption patterns, and the result of this social mimicry is escalating carbon emissions, as more and more people base their aspirations on the lives of the richest 1%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=525&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=525&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280099/original/file-20190618-118526-bgur60.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=525&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Country ranking by per-capita CO₂ emissions.</span>
<span class="attribution"><span class="source">Oxfam</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Tourism, a quintessentially elitist activity, is now responsible for <a href="https://www.sciencedirect.com/science/article/pii/S0921800916308345">almost 8%</a> of global CO<sub>2</sub> emissions, and the sector’s growth is outpacing all efforts to curtail its impacts. It seems quite clear that highly unequal societies, where economic, cultural, and political power is disproportionately held by the rich, tend to incubate conditions that foreshadow a dangerously carbon-intensive future.</p>
<p>Meanwhile, other mechanisms are also at work. Inequality erodes social cohesion and undermines individual willingness to engage in collective action. It weakens the sense of social responsibility that is so vital to foster demand for pro-environmental policies, as we are seeing at the moment with the <a href="https://theconversation.com/climate-strikes-researcher-explains-how-young-people-can-keep-up-the-momentum-113594">climate protests</a> taking place across Europe.</p>
<p>From a technological perspective, economists <a href="https://econpapers.repec.org/article/eeeecolec/v_3a70_3ay_3a2011_3ai_3a11_3ap_3a2201-2213.htm">Francesco Vona and Fabrizio Patriarca</a> have demonstrated how high inequality hampers the development and adoption of new green technologies, as such innovations are accessible to fewer people. Similarly, Lucas Chancel and Thomas Piketty have proposed a <a href="http://www.ledevoir.com/documents/pdf/chancelpiketty2015.pdf">consumption-based emissions inequality index</a> to measure differences between income deciles within each country – thus shifting the focus from the national to the individual level. They argue that in a globalised economy it makes more sense to consider the quantity of emissions “consumed” (through the products we buy and the services we use) than to talk about emissions “produced”.</p>
<p>When we adopt this consumption-based approach, the map of emissions inequality reveals some arresting contrasts. A clear gap emerges between the North and South, but also between the world’s wealthiest <a href="https://www.inegalites.fr/La-mesure-des-inegalites-qu-est-ce-qu-un-decile-A-quoi-ca-sert">10%</a> and everybody else.</p>
<h2>Unequal exposure to climatic hazards</h2>
<p>Differing degrees of vulnerability to the impacts of climate change are strongly correlated with existing patterns of income inequality. Individual and societal exposure to the hazards of a warming climate varies widely, not only between developed and developing countries (a gap we have known about for a long time), but also between different groups within a country.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280100/original/file-20190618-118505-1jhxh87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">One extra day where the temperature exceeds 33°C has a strong adverse effect on household income in Vietnam.</span>
<span class="attribution"><span class="source">De Laubier el al. (2019)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/280101/original/file-20190618-118526-t7trjy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">One extra day where the temperature exceeds 33°C also has an impact on the gap between Vietnamese income quartiles.</span>
<span class="attribution"><span class="source">De Laubier el al. (2019)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In the United States, for example, the effects of climate change are disproportionately felt by the least privileged, and so climate becomes another conduit for <a href="https://science.sciencemag.org/node/696077.full">reinforcing existing inequalities</a>.</p>
<p>A similar but much more pronounced effect can be observed in an emerging country like Vietnam, which is doubly vulnerable due to its high proportion of agricultural employment and elevated susceptibility to the hazards of climate change. We have demonstrated this in the larger context of a project carried out by the French Development Agency (AFD), <a href="https://vn.ambafrance.org/800-jeunes-reunis-pour-le-lancement-de-gemmes-Vietnam">GEMMES Vietnam</a>, which presents a systematic analysis of the “socio-economic impacts of climate change and adaptation strategies in Vietnam.”</p>
<p>We found that one additional day per year where the temperature exceeds 33 °C seems to have a strong adverse effect on both the <a href="https://www.afd.fr/sites/afd/files/2019-03-02-55-35/Impacts%20of%20Climate%20Events%20in%20Vietnamese%20Agriculture.pdf">technical efficiency of rice cultivation</a> and <a href="https://www.afd.fr/en/impacts-extreme-climate-events-technical-efficiency-vietnamese-agriculture">household income</a>, widening the gap between income quartiles (the population having been divided into four income groups) irrespective of occupation. This highlights that exposure to climatic hazards is unequal.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/274445/original/file-20190514-60554-1nwds0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rice cultivation in Vietnam is especially sensitive to temperature variations, with a direct impact on the incomes of rice growers.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/fr/image-photo/rice-planting-37212694">Beboy/Shutterstock</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Climate change not only increases the exposure of the most vulnerable to the ensuing climatic hazards, but it also heightens their sensitivity to its adverse effects and diminishes their capacity to adapt and recover following an extreme climate event.</p>
<p>All indications seem to point to the need to promote more restrained consumption patterns among the wealthy alongside the more general principle of reducing inequalities, if we are to have any hope of meeting the objectives set out in the Paris Agreement. Unless we address inequality and curb the excessive emissions generated by the lifestyles of the rich, there is a risk that efforts to live up to the Paris Agreement will lead to a breakdown in the social bond.</p>
<p>In other words, the responsibility to cut carbon emissions must be shouldered by the highest-income countries, and by the most privileged social groups in certain emerging and developing nations. Achieving this goal will require a drastic contraction of consumption habits. The surest path to meeting the COP21 objectives is by tackling inequality and strengthening the social bond – especially if we are to achieve the most ambitious goal of capping the average global temperature rise at just 1.5 °C.</p><img src="https://counter.theconversation.com/content/119074/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>
In the face of climate change, the poorest are suffering from the excess emissions of CO₂ linked to the lifestyle of the richest. It is time to act, in the name of climate and social justice.
Anda David, Chargée de recherche, Agence française de développement (AFD)
Étienne Espagne, Économiste, Agence française de développement (AFD)
Nicolas Longuet Marx, Project Officer for Uzbekistan and Kazakhstan, Agence française de développement (AFD)
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/111945
2019-04-02T10:40:38Z
2019-04-02T10:40:38Z
So you want to tax the rich – here’s which candidate’s plan makes the most sense
<figure><img src="https://images.theconversation.com/files/266901/original/file-20190401-177199-1v86w3i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More Americans agree with plans to raise taxes on the wealthy.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/washington-march-15-protester-holds-sign-621518240">Rena Schild/Shutterstock.com</a></span></figcaption></figure><p>Several Democratic lawmakers and presidential candidates <a href="https://www.cnbc.com/2019/02/05/warren-sanders-ocasio-cortez-propose-taxes-on-the-rich-ahead-of-2020-election.html">are proposing taxes on the richest Americans</a> as a way to reduce income and wealth inequality. </p>
<p>But while they agree that the wealthiest need to contribute more to the government’s coffers, they disagree over the best way to get the job done. </p>
<p>New York Rep. Alexandria Ocasio-Cortez <a href="https://www.vox.com/policy-and-politics/2019/1/4/18168431/alexandria-ocasio-cortez-70-percent">wants to tax millionaires’ wages</a> at a higher rate. Massachusetts Sen. Elizabeth Warren <a href="https://www.vox.com/policy-and-politics/2019/1/24/18196275/elizabeth-warren-wealth-tax">argues for a new tax on wealth</a>. Vermont Sen. Bernie Sanders <a href="https://www.cnbc.com/2019/01/31/bernie-sanders-proposes-big-estate-tax-hike-including-77percent-rate-for-billionaires.html">suggests expanding the gift and estate tax</a>. </p>
<p>What’s the difference and which is the best way to reduce income and wealth inequality? As an <a href="https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=56687">expert on tax policy</a>, I decided to take a closer look. </p>
<p><iframe id="mzV2j" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/mzV2j/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Income and wealth inequality</h2>
<p>Americans <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">enjoyed substantial economic growth</a> and broadly shared prosperity from the end of World War II into the 1970s.</p>
<p>But in the 1980s, <a href="https://www.brookings.edu/blog/up-front/2017/12/08/what-we-learned-from-reagans-tax-cuts/">President Ronald Reagan dramatically slashed taxes on the wealthy</a> twice, cutting the top rate on wages from 70 percent to 28 percent.</p>
<p>Studies have shown that the drop in tax rates, combined with other “trickle down” policies such as deregulation, <a href="https://www.thebalance.com/trickle-down-economics-theory-effect-does-it-work-3305572">led to steadily rising income and wealth inequality</a>. </p>
<p>The top 1 percent <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">controlled 39 percent</a> of all wealth in 2016, up from less than 30 percent in 1989. At the same time, the bottom 90 percent held less than a quarter of our nation’s wealth, compared with more than a third in 1989. </p>
<p>Each of the Democrats’ proposals aims to change that. </p>
<h2>Ocasio-Cortez’s income proposal</h2>
<p>Currently, the federal government <a href="https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/">taxes all income above US$500,000</a> at 37 percent with <a href="https://www.thebalance.com/net-investment-income-tax-3192936">an additional 3.8 percent investment tax</a> on incomes over $250,000.</p>
<p>Ocasio-Cortez <a href="https://www.cnn.com/2019/01/04/politics/alexandria-ocasio-cortez-tax-climate-change-plan/index.html?utm_term=image&utm_source=twbusiness&utm_content=2019-01-04T15%3A05%3A06&utm_medium=social">wants to create</a> a new “60 to 70 percent” tax bracket for labor incomes over $10 million. She <a href="https://www.washingtonpost.com/business/2019/01/05/ocasio-cortez-wants-higher-taxes-very-rich-americans-heres-how-much-money-could-that-raise/?utm_term=.462f85a3c9f7">estimates that her plan would catch about 4,000 people</a> and raise $720 billion over 10 years. </p>
<p>There are two problems with a tax that goes after income instead of wealth. </p>
<p>First, <a href="https://www.moneytips.com/how-the-mega-rich-avoid-paying-taxes">people who earn very high incomes usually control</a> when they receive their income and how much they receive. The reason is straightforward: <a href="https://smallbiztrends.com/2011/12/top-one-percent-own-businesses.html">They own the companies that pay them</a>. This control allows the rich to <a href="https://www.fool.com/taxes/2018/01/27/4-tax-breaks-for-high-income-households.aspx">nimbly take advantage of whatever brings a lower tax</a>. </p>
<p>When rates on ordinary income go up, the wealthy can defer that income until the rates go back down. Or, they can turn salary into a capital gain and watch the value of their stock rise instead of harvesting profits. Or, they can take advantage of retirement savings. Even death is a <a href="https://www.cnbc.com/2019/03/25/bond-market-says-a-recession-is-coming-and-the-fed-will-cut-rates.html">tax avoidance device for the wealthy</a>.</p>
<p>Second, the income tax targets two types of income: ordinary income from labor and capital gains from property. Mostly, the rich <a href="https://www.forbes.com/sites/omaseddiq/2018/03/10/how-the-worlds-billionaires-got-so-rich/#125b82df124c">earn their money from capital gains</a> and capital gains get a <a href="https://www.bankrate.com/investing/long-term-capital-gains-tax/">much lower tax rate</a> than wages. </p>
<p>That is why the richest Americans <a href="https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html">are effectively paying lower tax rates than the middle class</a>. </p>
<h2>Warren’s wealth tax</h2>
<p>That brings us to the wealth tax. </p>
<p>Sen. Warren <a href="https://www.nytimes.com/2019/02/18/upshot/warren-wealth-tax.html">proposes applying a 2 percent tax</a> on assets worth $50 million to $1 billion and 3 percent on everything above that. She claims that her wealth tax would affect 75,000 households and <a href="https://www.washingtonpost.com/business/2019/01/24/elizabeth-warren-propose-new-wealth-tax-very-rich-americans-economist-says/?noredirect=on&utm_term=.9f41b1d167b1">raise about $2.75 trillion</a> over a decade. </p>
<p>Unlike an income tax, a wealth tax <a href="https://theweek.com/articles/717294/wealth-inequality-even-worse-than-income-inequality">reaches the root</a> of both wealth and income inequality.</p>
<p>There’s only one snag: There are <a href="https://taxfoundation.org/warren-wealth-tax-constitutionality/">strong</a> <a href="http://nymag.com/intelligencer/2019/02/constitutional-concerns-are-a-major-risk-for-a-wealth-tax.html">arguments</a> that a federal wealth tax is <a href="https://theconversation.com/how-slaverys-lingering-stain-on-the-us-constitution-spoils-elizabeth-warrens-wealth-tax-proposal-for-now-110964">unconstitutional</a>. Wealth taxes violate Article I, Section 2, Clause 3, of the U.S. Constitution, which forbids the federal government from laying “direct taxes” that aren’t <a href="https://constitutingamerica.org/february-24-2011-%E2%80%93-article-1-section-2-clause-3-of-the-united-states-constitution-%E2%80%93-guest-essayist-w-b-allen-havre-de-grace-md-2/">apportioned equally among the states</a>. </p>
<p>A direct tax <a href="https://www.salon.com/2019/02/22/how-slaverys-lingering-stain-on-the-us-constitution-spoils-elizabeth-warrens-wealth-tax-proposal_partner/">is a tax on a thing</a>, like property or income. An indirect tax is a tax on a transaction, like when a sale or a gift. </p>
<p>The income tax is a direct tax and constitutional <a href="https://www.law.cornell.edu/constitution/amendmentxvi">because of the 16th Amendment</a>, which specifically allows income taxes without apportionment. As for property, you may notice that <a href="https://www.financialsamurai.com/property-taxes-by-state/">only states levy real estate taxes</a>. In almost every case, the federal government cannot tax real estate or any other form of wealth absent a transaction. </p>
<p>Warren <a href="https://www.bloomberg.com/opinion/articles/2019-01-30/elizabeth-warren-s-wealth-tax-is-probably-constitutional">cites a small group</a> of law professors who back her claim that a wealth tax passes constitutional muster. But the argument against constitutionality is strong enough that a lawsuit before the Supreme Court <a href="https://www.boston.com/news/politics/2019/01/29/elizabeth-warren-wealth-tax-constitution">is sure to follow any attempt to enact a wealth tax</a>. </p>
<p>Barring a victory before a conservative Supreme Court or <a href="https://www.archives.gov/federal-register/constitution">an arduous amendment to the Constitution</a>, the federal government is shut out of taxing wealth.</p>
<h2>Sanders targets wealth transfers</h2>
<p>Sen. Sanders also wants to go after wealth; but unlike Sen. Warren, he wants to focus on when wealth changes hands by reforming the gift and estate tax.</p>
<p>Sanders wants to lower the threshold for when the estate tax applies from $11 million – which <a href="https://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax">touches just 1,000 estates a year</a> – to $3.5 million, where the threshold stood in 2009. He would also levy a new 77 percent rate on estates over $1 billion. Sanders estimates that his plan <a href="https://www.washingtonpost.com/us-policy/2019/01/31/bernie-sanders-propose-dramatic-expansion-estate-tax-richest-americans-including-percent-rate-billionaires/?utm_term=.9c31e5590447">would raise $315 billion</a> over 10 years. </p>
<p>Although this amounts to significantly less than his colleagues’ proposals, it is far superior because it both addresses the root of the problem – wealth disparities – and can be implemented immediately. </p>
<h2>A rising tide</h2>
<p>I agree with Sen. Warren, Sen. Sanders and Rep. Ocasio-Cortez that the United States should return to economic policies that <a href="https://www.economist.com/free-exchange/2014/03/04/does-raising-all-boats-lift-the-tide">seek to lift all boats</a>. </p>
<p>Although American wealth and productivity has surged in the last 40 years, most Americans <a href="https://www.latimes.com/business/lazarus/la-fi-lazarus-economy-stagnant-wages-20180831-story.html">have not fared nearly as well</a> as the richest <a href="https://inequality.org/facts/wealth-inequality/">among us</a>.</p>
<p>Our tax system is at least partly responsible for these gaps. Changing it can be part of the solution.</p><img src="https://counter.theconversation.com/content/111945/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beverly Moran does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Democratic lawmakers have offered a number of ways to reverse decades of widening economic inequality. A tax expert gives them a closer look.
Beverly Moran, Professor of Law and Sociology, Vanderbilt University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/113605
2019-03-15T10:43:31Z
2019-03-15T10:43:31Z
Why rich parents are more likely to be unethical
<figure><img src="https://images.theconversation.com/files/263999/original/file-20190314-28492-1wkvjm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">William 'Rick' Singer founder of the Edge College & Career Network, pleaded guilty to charges in a nationwide college admissions bribery scandal.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/College-Admissions-Bribery/1f5e19e2662047c697f99d8ab55267f9/69/0">AP Photo/Steven Senne</a></span></figcaption></figure><p>Federal attorneys in 2019 arrested 50 people in a <a href="https://www.cnn.com/2019/03/12/us/college-admission-cheating-scheme/index.html">college admission scam</a> that allowed wealthy parents to buy their kids’ admission to elite universities. Prosecutors found that parents <a href="https://www.cnn.com/videos/us/2019/03/12/college-admissions-cheating-scheme-fbi-presser-sot-vpx.cnn">together paid up to US$6.5 million</a> to get their kids into college. The list included celebrity parents such as actresses Felicity Huffman and Lori Loughlin.</p>
<p>Some might ask why did these parents fail to consider the moral implications of their actions? </p>
<p>My <a href="https://scholar.google.com/citations?user=c2Zunb8AAAAJ&hl=en&oi=ao">20 years of research in moral psychology</a> suggests many reasons why people behave in an unethical manner. When it comes to the wealthy, <a href="http://www-2.rotman.utoronto.ca/facbios/file/ROBSocialClass.pdf">research shows</a> that they will go to great lengths to maintain their higher status. A sense of entitlement plays a role.</p>
<h2>How people rationalize</h2>
<p>Let’s first consider what allows people to act unethically and yet not feel guilt or remorse.</p>
<p>Research shows that people are good at <a href="https://doi.org/10.1111/j.1744-6570.2011.01237.x">rationalizing unethical actions</a> that serve their self-interest. The success, or failure, of one’s children often has implications for how parents view themselves and are <a href="https://www.parents.com/health/parents-news-now/whoa-a-new-report-shows-pretty-much-all-parents-feel-judged/">viewed by others</a>. They are more likely to <a href="https://psycnet.apa.org/buy/1977-10287-001">bask in the reflected glory</a> of their children. They seem to gain esteem based on their connection to successful children. This means parents can be motivated by self-interest to ensure their children’s achievement. </p>
<p>In the case of cheating for their children, parents can justify the behavior through comparisons that help them morally disengage with an action. For example, they could say that other parents’ do a lot worse things, or minimize the consequences of their actions through words such as, “My behavior did not cause much harm.” </p>
<p>Viewing the unethical outcomes as serving others, including one’s children, could help parents create a psychological distance to rationalize misconduct. Several studies demonstrate that people are more likely to be unethical <a href="https://doi.org/10.1016/j.obhdp.2010.10.001">when their actions also help someone else</a>. For example, it is easier for employees to accept a bribe when they plan to share the proceeds with coworkers. </p>
<h2>Sense of entitlement</h2>
<p>When it comes to the wealthy and privileged, a sense of entitlement, or a belief that one is deserving of privileges over others, can play an important role in unethical conduct. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/263983/original/file-20190314-28479-1sge5p9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Being wealthy and privileged can lead to a sense of entitlement.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dailymatador/1470586538/in/photolist-3eX99j-MMM6Av-gwRUWE-55gfi-3sgEz-3sgCK-7soKe-rHQaC-pTrvPR-cFh32J-tkHdL-cFhiD5-5FKXDw-5RmL6j-yJfVj-2M3fF-7NjtAZ-2M3dG-yJfH8-4sTXJf-2fBq7V-3EW9Ep-2G1nNB-ftQHq-ftQKe-ftQDS-ftQCD-ftQEi-pY5b6-3EVV8X-s1ieLt-5Lj6U3-4VdF1N-ftQMU-4wVMf-cFhFbN-cFhJsb-cFhFNo-cFhGNs-9U2t9c-PYbLQ-piWrm-aoEss2-6j5L43-5TDDDS-5VSZXQ-7oonKF-dZjkCu-aoEuon-52CGL">Bryan Fernandez/Flickr.com</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Privileged individuals are also <a href="https://doi.org/10.1177/1948550617729885">less likely to follow rules and instructions</a> given they believe the rules are unjust. Because they feel deserving of more than their fair share, they are willing to violate norms of appropriate and socially agreed upon conduct.</p>
<p>Feeling a sense of entitlement also leads people to be more <a href="https://doi.org/10.1207/s15327752jpa8301_04">competitive, selfish and aggressive</a> when they sense a threat. For example, <a href="https://www.sciencedirect.com/science/article/pii/S0749597807000623">white males</a> are less likely to support affirmative action to even the playing field because it threatens their privileged status.</p>
<p>Research suggests that entitlement may come in part from being rich. Wealthy individuals who are considered as “upper class” based on their income have been found to <a href="https://www.pnas.org/content/109/11/4086">lie, steal and cheat more</a> to get what they desire. They have also been found to be <a href="https://www.pnas.org/content/112/52/15838">less generous</a>. They are more likely to break the law when driving, give less help to strangers in need, and generally <a href="https://journals.sagepub.com/doi/abs/10.1177/0956797616667721">give others less attention</a>. </p>
<p>Additionally, growing up with wealth is associated with more <a href="https://journals.aom.org/doi/10.5465/amj.2015.0680">narcissistic behavior</a>, which results in selfishness, expressing a need for admiration, and a lack of empathy. </p>
<h2>Consequences of status loss</h2>
<p>Individuals who think they deserve unfair advantages are more likely to take actions to <a href="https://doi.org/10.1177/0146167218808501">increase their level of status</a>, such as ensuring their children attend high-status universities. Losing status appears to be particularly threatening for high-status individuals.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/263991/original/file-20190314-28475-1p66wdy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Wealthy parents can fear they are losing status if their children do not attend top colleges.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/success?u=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTU1MjYxNzg4OCwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfMTcyMDgxMTkzIiwiayI6InBob3RvLzE3MjA4MTE5My9tZWRpdW0uanBnIiwibSI6MSwiZCI6InNodXR0ZXJzdG9jay1tZWRpYSJ9LCI5N2ZtMERVZVFwZ3cxT2l0MGE2czV1dy95VnciXQ%2Fshutterstock_172081193.jpg&pi=33421636&m=172081193">michaeljung/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>A recent review of the <a href="https://doi.org/10.1146/annurev-orgpsych-032117-104602">research on status</a> demonstrates that status loss, or even a fear of status loss, has been associated with an increase in <a href="https://doi.org/10.1002/gps.4869">suicide attempts</a>. Individuals have been reported to show <a href="https://doi.org/10.1002/ejsp.609">physiological changes such as higher blood pressure and pulse</a>. </p>
<p>Such individuals also made increased <a href="https://www.sciencedirect.com/science/article/pii/S0022103109003138">efforts to avoid status loss</a> by being willing to pay money and allocating resources to themselves.</p>
<p>In their book <a href="https://www.thecoddling.com/">“The Coddling of the American Mind,”</a> First Amendment expert <a href="https://www.mtsu.edu/first-amendment/article/1555/greg-lukianoff">Greg Lukianoff</a> and social psychologist <a href="https://haidt.socialpsychology.org/">Jonathan Haidt</a> make the case that parents, especially in the upper class, are increasingly anxious about their children attending top universities. </p>
<p>These authors argue that given economic prospects are less certain because of <a href="http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/">stagnating wages</a>, <a href="https://www.cnbc.com/2017/11/29/one-third-of-us-workers-could-be-jobless-by-2030-due-to-automation.html">automation</a> and <a href="http://www.pewglobal.org/2018/09/26/americans-like-many-in-other-advanced-economies-not-convinced-of-trades-benefits/">globalization</a>, wealthier parents tend to be particularly <a href="https://www.brookings.edu/blog/social-mobility-memos/2016/07/12/why-rich-parents-are-terrified-their-kids-will-fall-into-the-middle-class/">concerned about the future economic opportunities</a> for their children. </p>
<h2>Feeling invulnerable</h2>
<p>People who feel a sense of power, which often comes along with wealth and fame, tend to be less likely to believe they are vulnerable to the detrimental consequences of unethical behavior. </p>
<p>Experiencing a psychological sense of power leads to a false <a href="https://www.sciencedaily.com/releases/2009/03/090303171451.htm">feeling of control</a>. It could also lead to increased <a href="https://psycnet.apa.org/record/2006-10429-007">risk-taking</a> and <a href="https://doi.org/10.1111/j.1467-9280.2006.01824.x">a decrease in concern for others</a>. </p>
<p>It is possible that some of these moral psychology reasons were behind these wealthy parents cheating on behalf of their children. A desire to go to great lengths to help one’s child is admirable. However, when those lengths cross ethical boundaries it is a step too far.</p><img src="https://counter.theconversation.com/content/113605/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David M. Mayer does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
An expert explains the many reasons why people behave in an unethical manner and what research shows on why the wealthy have a need to maintain their higher status.
David M. Mayer, Professor of Management & Organizations, University of Michigan
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/113506
2019-03-13T18:45:57Z
2019-03-13T18:45:57Z
College cheating scandal shows why elite colleges should use a lottery to admit students
<figure><img src="https://images.theconversation.com/files/263682/original/file-20190313-123522-138ma03.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">U.S. Attorney for District of Massachusetts Andrew Lelling announces indictments in a sweeping college admissions bribery scandal March 12.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/College-Admissions-Bribery/6db34a7917914f4a9e2a4d540387f3b7/35/0">Steven Senne/AP</a></span></figcaption></figure><p>Many Americans are outraged by the <a href="https://www.nytimes.com/2019/03/12/us/college-admissions-cheating-scandal.html">college admission scandal</a> revealed by the FBI earlier this year. The scandal involves celebrities and wealthy investors who allegedly <a href="https://www.nytimes.com/2019/03/12/sports/college-sports-cheating-scandal.html">bought their children’s way onto college sports teams</a> and cheated to <a href="https://www.vulture.com/2019/03/college-cheating-scandal-court-docs-felicity-huffman-lori-loughlin.html">improve their children’s SAT and ACT scores</a>. Of course, the regular college admissions system also <a href="http://www.jstor.org/stable/27736092">favors the children of wealthy families</a> when it comes to elite colleges.</p>
<p>As an <a href="https://www.press.uchicago.edu/ucp/books/book/chicago/D/bo24550619.html">expert on college admissions</a>, I’d like to suggest a simple solution that would make the process more fair: an admissions lottery.</p>
<p>The lottery I envision would involve applicants who meet a certain academic threshold and help universities admit students in a more equitable way. An admissions lottery would accomplish two important goals.</p>
<h2>1. Acknowledge the advantage for the wealthy</h2>
<p>The most fair thing elite colleges can do is to acknowledge that selection inevitably favors those with resources. Indeed, the more selective colleges are, <a href="http://www.jstor.org/stable/27736092">the more privileged the students admitted are</a>. </p>
<p>An admission lottery would send a clear message that admission is significantly based on chance, not just merit. Even the extensive analyses by top economists both for and against Harvard in an affirmative action lawsuit against the school <a href="https://projects.iq.harvard.edu/files/diverse-education/files/expert_report_as_filed_d._mass._14-cv-14176_dckt_000419_033_filed_2018-06-15.pdf">could not predict</a> the admissions outcomes of one in four applicants. </p>
<p>In other words, even when you build a statistical model that includes everything from an applicant’s grades and SAT scores to their parents’ professions, what state they live in and many other factors, it’s hard to understand admission decisions. This suggests more chance is involved than most people think.</p>
<p>The current admissions process suggests to students who get into Harvard, Yale, the University of Southern California or other desirable schools that they deserved their spot exclusively on their own merits – that is, despite their parents’ wealth, whether their parents attended the school and any advantages stemming from the high schools they attended coming into play.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=530&fit=crop&dpr=1 754w, https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=530&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/263722/original/file-20190313-123541-iv1kb0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=530&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Actress Lori Loughlin, left, and actress Felicity Huffman are among dozens indicted in a sweeping college admissions bribery scandal.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/College-Admissions-Bribery/f3a69dfd0690406dbe66a93643b39de9/56/0">AP</a></span>
</figcaption>
</figure>
<p>But that is simply not the case. It is well established that those who get into elite schools come from <a href="https://www.nytimes.com/interactive/2017/01/18/upshot/some-colleges-have-more-students-from-the-top-1-percent-than-the-bottom-60.html">wealthier, better-educated</a> families than teens in the U.S. overall. They also tend to <a href="https://www.nytimes.com/interactive/2017/08/24/us/affirmative-action.html">more frequently be white or Asian</a>. So unless society believes that merit is not evenly distributed across the population, pretending that admissions is meritocratic makes it seem like elite students are more worthy than those who are disadvantaged, when the reality is they just had more advantages.</p>
<h2>2. Save time and money</h2>
<p>An admissions lottery would save universities incredible resources. For instance, at Harvard, a <a href="https://admissionscase.harvard.edu/key-points">40-person committee of full-time, paid admissions officers</a> votes together on each of the tens of thousands of applicants to Harvard College.</p>
<p>If qualified students were entered into a lottery, the university could simply pick names out of an electronic “hat,” so to speak, saving hundreds of thousands of dollars in hours of work. There could be similar savings for other universities as well.</p>
<p>A lottery would also save parents and teens countless hours of time and money and eliminate a lot of stress as they try to navigate an increasingly competitive admissions system. College admissions has led many high school students to <a href="http://chicago.universitypressscholarship.com/view/10.7208/chicago/9780226135083.001.0001/upso-9780226134895">strive toward ever-tougher standards</a> of excellence in academics as well as extracurriculars. This leads to <a href="https://www.cambridge.org/core/journals/development-and-psychopathology/article/i-can-therefore-i-must-fragility-in-the-uppermiddle-classes/E5A58728D6132FC3F5F74794F896415F">unhealthy levels of stress and anxiety</a> for increasing numbers of teens.</p>
<p>I’m not suggesting that the application process be scrapped altogether. Instead, universities should carefully reflect on what qualities they seek in students. One reasonable quality would be a basic level of academic achievement, such that a student – with the supports available on campus – will be able to handle the academic expectations of the university.</p>
<p>In order to ensure all young people have a shot, these expectations and supports should accommodate top students from high schools around the country, including the neediest communities with the fewest resources. Selective colleges could commit to meeting the educational needs to top students from all high schools, regardless of those students’ SAT scores or other measures that compare them to peers from other, more resource-rich schools.</p>
<h2>The first steps</h2>
<p>Some colleges might be reluctant to be the first to adopt an admissions lottery. Those colleges should consider how colleges like <a href="https://www.washingtonpost.com/news/grade-point/wp/2015/07/27/bombed-the-sat-or-the-act-here-are-colleges-that-are-test-optional/?utm_term=.30bfa47f2c7e">Bates and Bowdoin</a> became the first to go test-optional when it comes to the SAT, long before hundreds of other colleges did. Even so, these schools achieved <a href="https://www.nacacnet.org/globalassets/documents/publications/research/defining-access-report-2018.pdf">greater diversity</a> and kept their graduation rates <a href="https://www.nacacnet.org/globalassets/documents/publications/research/defining-access-report-2018.pdf">about the same</a>.</p>
<p>On the other hand, if lots of colleges were to switch to an admissions lottery, they together might develop a <a href="http://www.nrmp.org/the-match-process-video/">“match” system</a>, similar to the system that places medical school students in their residency programs. Students would first be sorted into their first-choice colleges, and then the pool of those students who reach the eligibility bar would be entered into a lottery to select students. After the first choices are made, lotteries for second choices would happen, and so on. This system would also alleviate the cost to families associated with <a href="https://www.nytimes.com/2014/11/16/nyregion/applications-by-the-dozen-as-anxious-students-hedge-college-bets.html">students applying to increasing numbers</a> of colleges, which also drives up the cost of evaluating the applicants.</p>
<p>The struggle over college admissions has led to increasing costs, anxiety among American teens, and unfair perceptions of merit being the exclusive domain of elites. And, as the cheating scandal shows, it has led to corruption. These situations can be avoided if colleges take bold steps toward an admissions lottery.</p>
<p><em>Editor’s Note: This is an updated version of an <a href="https://theconversation.com/why-elite-colleges-should-use-a-lottery-to-admit-students-108799">article</a> originally published on Jan. 8, 2019.</em></p><img src="https://counter.theconversation.com/content/113506/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natasha Warikoo does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The college admission cheating scandal recently announced by the Department of Justice shows why colleges should admit students via lottery, argues an expert on college admissions.
Natasha Warikoo, Associate Professor of Education, Harvard University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/97947
2018-10-26T08:56:20Z
2018-10-26T08:56:20Z
London’s extraordinary surplus of empty luxury apartments revealed
<figure><img src="https://images.theconversation.com/files/240783/original/file-20181016-165885-im00gl.jpg?ixlib=rb-1.1.0&rect=10%2C109%2C1525%2C1035&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/londonmatt/27291009916/sizes/l">Matt From London/Flickr.</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>More than 500 high-rise developments are <a href="http://www.newlondonarchitecture.org/whats-on/publications/all-nla-publications/nla-london-tall-buildings-survey-2018">in progress</a> across the city of London. For a nation in the grip of a housing crisis, this should be good news. But in reality, this will bring hardly any benefit for many of those seeking a decent home. Almost <a href="https://www.theguardian.com/society/2018/jun/08/high-life-student-becomes-one-of-centre-point-first-residents">none of the new homes</a> are reserved for people with no or low incomes and, although house prices in London <a href="https://www.ft.com/content/5998afd8-3106-11e8-b5bf-23cb17fd1498">are falling</a> – particularly at the upper end of the market – construction for wealthy people and international buyers continues. </p>
<p>Much of this building is actually intensifying the stress on the affordable housing market, as developers grab cheap land and resources that can be converted into expensive, for-profit housing construction. Many public housing estates have been demolished, while others threatened with demolition may be replaced by expensive rented housing and units for sale at <a href="https://architectsforsocialhousing.wordpress.com/2017/09/10/mapping-londons-estate-regeneration-programme/">eye-watering prices</a>. </p>
<p>London hosts <a href="http://www.worldpropertyjournal.com/real-estate-news/monaco/knight-frank-wealth-report-2017-top-global-cities-for-ultrahigh-net-worth-individuals-uhnwi-best-cities-to-live-in-for-billionaires-in-2017-city-wealth-index-liam-bailey-10302.php">the highest number</a> of super-rich individuals per capita of any city globally: around 3,100 residents are ultra-high net worth individuals (UHNWIs) – those with assets, not including property, of £20m or more. And a further 6,100 UHNWIs have second homes in the city. The 2018 Sunday Times rich list suggested there were <a href="http://uk.businessinsider.com/sunday-times-rich-list-2018-richest-people-in-the-world-by-net-worth-2018-5%5D">92 billionaires</a> in London.</p>
<h2>Abundance and austerity</h2>
<p>Affluent buyers continue to build and purchase property. In spite of the UK’s decision to leave the EU, more homes were sold in London at the £10m-plus mark in 2017 than in each of the preceding two years (435, 397 and 401 respectively, according to <a href="http://landregistry.data.gov.uk/">Land Registry data</a>). Yet the large flows of international investment capital and borrowing to buy into the “safe bet” that is London’s housing market <a href="https://www.theguardian.com/money/2018/mar/12/london-property-prices-plunge-as-brexit-effect-deepens">is being shaken</a> by anxiety about the potential impact of Brexit.</p>
<p>It seems perverse that London is incapable of providing for most of those who work in and maintain the city – whether in periods of economic abundance, or austerity. Capital investors, planners and the city’s various tiers of government appear increasingly disconnected from the human need for decent, affordable shelter. This has become a familiar story to Londoners and residents of other cities <a href="https://theconversation.com/investment-in-urban-land-is-on-the-rise-we-need-to-know-who-owns-our-cities-63485">such as New York</a>, which have been touched by investment capital lacking a sense of social mission or responsibility. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/230715/original/file-20180806-119621-fzvzwn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">High-cost homes in Kensington.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/klovovi/7710442204/sizes/l">Klovovi/Flickr.</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In collating <a href="http://www.ijurr.org/article/necrotecture-lifeless-dwellings-and-londons-super%E2%80%90rich/">new research</a> on new-build luxury apartments and houses, I have found that many of the homes in these developments lie underused or vacant. Around <a href="https://www.ons.gov.uk/file?uri=/aboutus/whatwedo/programmesandprojects/theonsbigdataproject/modellingsampledatafromsmarttypeelectricitymeterstoassesspotentialwithinofficialstatistics_tcm77-408756(1).pdf">one in 20 homes</a> in Central and West London lies empty, according to the UK government’s statistics agency. A full <a href="https://www.london.gov.uk/moderngovmb/documents/s58641/08b2c%20University%20of%20York%20data%20report.pdf">89% of all new builds</a> in London are apartments, and between 2014 and 2016 around one in six of these was sold to overseas buyers – that’s 13%. </p>
<p>This figure rises to more than one-third of buyers, or 36%, if we look at the “prime” market areas of central London over the same period. Here, vacancy was measured by looking at homes with little or no “transactional data”, relating to finance, retail or other forms of administration, such as tax records and bills.</p>
<p>On this measure, we find that half of residences in new builds in general are empty, as are 19% of dwellings across London’s inner boroughs. The likelihood that a home is empty rises alongside its market value: 39% of homes worth £1m to £5m are underused, and 64% of homes worth more than £5m. Of the homes owned by foreign investors, 42% are empty. </p>
<h2>Housing for whom?</h2>
<p>The appearance of large numbers of essentially vacant luxury homes says a lot about the ability and motivation of authorities to address society’s need for housing. With roughly <a href="https://www.theguardian.com/business/2018/jan/26/ghost-towers-half-of-new-build-luxury-london-flats-fail-to-sell">a year’s worth of housing production</a> devoted entirely to the construction of luxury apartments – many of which are unsold – it seems fair to offer a damning verdict. </p>
<p>Yet for some, the city’s new architecture indicates a move in the right direction. <a href="http://www.zaha-hadid.com/people/patrik-schumacher/">Patrick Schumacher</a>, director of Zaha Hadid Architects, has <a href="https://www.dezeen.com/2016/11/18/patrik-schumacher-social-housing-public-space-scrapped-london-world-architecture-festival-2016/">argued for</a> public housing to be removed and for a deregulated, free-market approach to be the means by which housing is allocated in all cases. </p>
<p>Even while misjudging the views of the wider audience of these comments (London’s mayor Sadiq Khan, for one, <a href="https://www.standard.co.uk/news/london/top-architect-blasts-freeriding-tenants-living-in-council-houses-in-central-london-and-says-they-a3404711.html">slammed his ideas</a>), such notions nonetheless remain dominant among those who believe that the market should dictate what is built and where, with no concern for wider public value or contribution. </p>
<p>In a time of austerity, many local authorities appear to be seeking to reduce the cost and presence of low-income housing. In this context, expanding the role of private sector development may seem appealing. But it’s increasingly clear that allowing markets and profit motives to trump social concerns could lead to growing anger, given the failure to address the housing needs of low and moderate income groups. </p>
<p>Where inequality, austerity, a major housing crisis and Brexit will lead is not at all clear. It will take an injection of new thinking and a challenge to the dominance of markets and austerity measures, to tackle the housing crisis effectively.</p><img src="https://counter.theconversation.com/content/97947/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rowland Atkinson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
For a nation in the grips of a housing crisis, you’d expect high-rise developments to be good news – unfortunately not.
Rowland Atkinson, Chair in Inclusive Societies, University of Sheffield
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/97618
2018-06-15T09:36:29Z
2018-06-15T09:36:29Z
Mega-basements of the super rich are a good reminder of the city London has become
<figure><img src="https://images.theconversation.com/files/246256/original/file-20181119-76163-ucbppl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/panoramic-view-city-london-uk-438871009?src=oYW3JWmto_qm_-UzGc5lZA-1-7">Lukasz Pajor/Shutterstock.com</a></span></figcaption></figure><p>In 2008 there were estimated to be 8.6m “high net worth individuals” – people with $1m or more of investable assets – in the world, but by 2016 this had <a href="https://www.worldwealthreport.com/download">increased by 92%</a> to 16.5m, according to the World Wealth Report. The geographical distribution of this population is highly concentrated: 4.795m in the USA; 2.891m in Japan; 1.280m in Germany; 1,129,000 in China; 579,000 in France and 568,000 in the UK (compared to 362,000 in 2008). Some half a million of these people live in and around London, in a set of <a href="https://eprint.ncl.ac.uk/file_store/production/222539/CDEA3A06-E1B5-4E15-8280-24A41BA85410.pdf">tightly circumscribed neighbourhoods</a>.</p>
<p>All of this wealth sloshing around London has had myriad consequences for the built environment. Perhaps the most evident has been the appearance of a large number of “super-high”, “super-prime” <a href="https://theconversation.com/dont-fear-the-skyscraper-why-london-needs-more-tall-buildings-45029">residential towers</a> – vertical urban housing that has become something of an <a href="https://eprint.ncl.ac.uk/219812">elite preserve</a>. </p>
<p>But the wealth that has not found its way into the changing skylines of the city has still had major impacts on the existing built environment. Many high-end properties have been transformed as super-affluent newcomers commission often brutal structural conversions of older properties into “state-of-the art” living spaces. Maximising the size of all interior spaces and infusing them with exterior light has now become <em>de rigueur</em>, as have various design and technological “solutions” to matters of privacy and security.</p>
<p>But, in many areas of “super-prime” London attractive to “super-rich” elites, the nature of the original architecture combined with planning restrictions often makes it very difficult to extend properties laterally, or to add additional floors on the top of properties. And so, for some, the only “solution” has been to go down. </p>
<p>Consequently, residential basement developments in the wealthiest parts of London have increased markedly in recent years. The construction of this new subterranean London for the super-rich has been the subject of <a href="https://www.theguardian.com/artanddesign/2012/nov/09/billionaires-basements-london-houses-architecture">much comment</a> but, until recently, little systematic investigation. Our new <a href="https://www.researchgate.net/publication/325046741_Mapping_the_Subterranean_Geographies_of_Plutocratic_London_Luxified_Troglodytism">research</a> now suggests that such developments are emblematic of how London is changing. Along with residential high-rise luxury towers (“luxified skies”) sprouting up across the city, we are also witnessing an epidemic of “luxified troglodytism” – super-rich households extending their properties in a subterranean direction by way of basement excavation. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/223240/original/file-20180614-32323-12phwd9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Basement blueprint.</span>
<span class="attribution"><span class="source">© Emphasis photography and Hogarth Architects</span></span>
</figcaption>
</figure>
<h2>Digging down</h2>
<p>In order to investigate this phenomena, we extracted data from planning portals for the seven London Boroughs of Camden, Hammersmith and Fulham, Harringay, Islington, Kensington and Chelsea, Wandsworth and Westminster – all localities that cover core “super-prime” London – between 2008 and the end of 2017. We discovered that <a href="https://www.researchgate.net/publication/325046741_Mapping_the_Subterranean_Geographies_of_Plutocratic_London_Luxified_Troglodytism">4,650</a> basement developments had been granted planning permission. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=568&fit=crop&dpr=1 600w, https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=568&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=568&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=714&fit=crop&dpr=1 754w, https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=714&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/223175/original/file-20180614-32339-hh6o57.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=714&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Granted basement applications in Kensington & Chelsea, 2008-2017.</span>
<span class="attribution"><span class="source">© Sophie Baldwin and Beth Holroyd</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Hammersmith and Fulham has the greatest number – 1,147 over the decade – followed by Kensington and Chelsea with 1,022 and Westminster with 678. We would classify the great majority (80.7%) as “standard” single-storey excavations – but 16.9% (785) were “large” two-storey (or the equivalent in volume) constructions and 2.4% (112) could only be described as “mega” basements – three storeys or more deep (or the equivalent in volume).</p>
<p>It is the 785 large and 112 mega-basements that should be the real focus of our interest. These almost 900 excavations are on a different scale to the standard constructions. Together they contain: 367 swimming pools, 358 gyms, 178 cinemas and 63 staff spaces. We also found 14 car lifts, seven art galleries, two gun stores – and one owner who admitted to building a “panic” room. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=260&fit=crop&dpr=1 600w, https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=260&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=260&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=327&fit=crop&dpr=1 754w, https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=327&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/223173/original/file-20180614-32323-1fxj52u.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=327&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Upside down houses revealing basements as extrusions.</span>
<span class="attribution"><span class="source">© Sophie Baldwin and Beth Holroyd</span></span>
</figcaption>
</figure>
<p>Some of these basements can take many years of disruptive construction to complete and <a href="https://www.southerntesting.co.uk/services/pre-planning-investigations/basement-impact-assessment-bia/">concerns have been raised</a> about their environmental impact. Perhaps the most “luxified” development we discovered was one that had been granted planning permission in Holland Park in 2013 under a large semi-detached house. It consisted of a new three-storey basement under the entire property and part of the rear garden. It includes a staff kitchen, staff bedroom, six WCs, a gym, a media room, a family room, a family kitchen, a guest bedroom, a guest kitchen, a laundry room, a drying room, a sauna, a steam room, two shower rooms, a jacuzzi, a plunge pool, a pantry, a full-sized swimming pool and a beach. Yes, a beach.</p>
<p>In this particular basement development the “water-related” features were of a roughly equivalent volume to an average new-build property in England. Some of the super-rich swim, bathe and steam subterraneously in spaces equivalent to what the rest of us might consider adequate to undertake all of our domestic activities in.</p>
<p>All this shows that there has been a significant increase in the number of larger basement excavations in the last ten years. Such widespread development of subterranean London is an important component of broader changes in the built environment that have occurred since the 2008 financial crash. The “luxified skies” that Londoners are more used to are highly visible reminders of elite power – but these deluxe basements which, in aggregate, are equivalent in depth to 50 Shards, are also an important aspect of the type of city that <a href="https://www.theguardian.com/money/2018/may/07/pool-basement-wealth-super-rich-digging-down-london">London has become</a>.</p>
<p>The super rich continue to have a significant impact on London – it is simply not so noticeable any longer. Wealth is burrowing underground, rather than just reaching for the skies.</p><img src="https://counter.theconversation.com/content/97618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger Burrows has received funding from the ESRC and the JRF. He is a member of the Labour Party. This research was done in collaboration with The Guardian. The research was carried out with Sophie Baldwin and Beth Holroyd, both students on the MArch programme at Newcastle University, as part of a linked research project.</span></em></p>
London’s super rich are building thousands of subterranean palaces.
Roger Burrows, Professor of Cities, Newcastle University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/93635
2018-06-01T10:40:37Z
2018-06-01T10:40:37Z
Disappointed donors can’t count on getting their charitable money back
<figure><img src="https://images.theconversation.com/files/218880/original/file-20180514-100725-1wrzagd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When Garth Brooks felt that a charity had done him wrong he got his money back.
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/51st-Annual-CMA-Awards-Show/33b255fdbf3a4cb3a50d8666d043fee2/27/0">Invision/AP Photo/Chris Pizzello</a></span></figcaption></figure><p>A wealthy family recently sued the <a href="https://www.bloomberg.com/news/articles/2018-03-05/a-family-s-100-million-gift-to-fund-peace-research-leads-to-war">University of Chicago</a> for allegedly not living up to promises the school made before getting a US$100 million pledge, claims the <a href="https://www.chicagomaroon.com/article/2018/3/5/pearsons-want-100-million-back-from-univeristy-of-chicago/">university says lack merit</a>. Another rich donor rescinded a $14 million gift to the <a href="https://thenevadaindependent.com/article/strife-between-donors-regents-over-unlv-president-comes-amid-broader-effort-to-restructure-nshe">University of Nevada, Las Vegas</a> that they had made contingent on retaining the school’s president when <a href="https://www.reviewjournal.com/news/education/donor-to-pull-14m-donation-after-unlv-president-says-he-will-leave/">the president made it clear he was moving on</a>.</p>
<p>At the same time, George Mason University president Angel Cabrera has promised to get to the bottom of questions stemming from the formerly secret agreements it made with <a href="https://theconversation.com/whats-wrong-with-secret-donor-agreements-like-the-ones-george-mason-university-inked-with-the-kochs-96180">the Charles Koch Foundation</a>, which have stirred outrage on his campus. Cabrera says his institution will <a href="https://www.washingtonpost.com/opinions/george-mason-university-and-the-charles-koch-foundation-are-protecting-academic-freedom/2018/05/11/a6b9b10a-545f-11e8-a6d4-ca1d035642ce_story.html">consider changing its policies</a> to make them more “aligned with our university’s commitment to academic freedom.”</p>
<p>These three controversies point to the same question: What strings can donors attach to charitable gifts? As a <a href="https://scholar.google.com/citations?user=HQJcRy4AAAAJ&hl=en">nonprofit law scholar</a> who advises both charitable organizations and donors, I have seen that the answer depends on several variables.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"975846917166026753"}"></div></p>
<h2>No backsies</h2>
<p>Big donations often come with <a href="https://www.wsj.com/articles/when-unhappy-donors-want-their-money-back-1418619048">strings attached</a>. Hospitals, universities and museums commonly agree to name new wings or entire buildings after donors or to spend the donated funds in specific ways when they secure the donations.</p>
<p>But conflicts sometimes arise over whether nonprofits have kept their word. When these disputes reach the courtroom, judges typically rule that there’s no way for disappointed <a href="https://ncpl.law.nyu.edu/conference-proceedings/">individual donors to get all their money back</a>. </p>
<p>That should not come as no surprise. Once people give to charity, they <a href="https://scholarship.kentlaw.iit.edu/cklawreview/vol85/iss3/5/">typically have little power, if any, to dictate</a> what happens with that money, according to University of Oregon law professor Susan Gary. Foundations, however, can more easily build demands into their grant agreements that are enforceable under contract law.</p>
<p>Typically, the <a href="https://sps.columbia.edu/nonprofit-management/news/cindy-lott-discusses-nonprofit-regulation-and-enforcement-nonprofit">state authorities</a> where charities are domiciled may decide to enforce any strings that were attached or object to attempts to modify those restrictions. But the rules vary from one state to the next. Some states are changing their guidelines now in ways that <a href="http://www.pgdc.com/pgdc/unraveling-donor-intent-lawsuits-and-lessons">make it harder for charities to sidestep</a> commitments to, say, designate donated funds for a specific kind of scholarship or a particular type of <a href="http://www.scale-it-back.com/Belward.html">land use</a>.</p>
<p>Even so, partly because legal battles of this kind are often waged decades after money changed hands, these conflicts can get pricey and drag out.</p>
<p>For example, consider what happened after <a href="https://www.philanthropy.com/article/PrincetonRobertson-Family/162851">Charles and Marie Robertson gave Princeton University $35 million</a> in 1961. The Robertsons created a foundation controlled by Princeton University that helped fund the Woodrow Wilson School of Public and International Affairs, footing part of the bill for tuition incurred by graduate students seeking careers in government service.</p>
<p>Over time, the Robertsons’ original $35 million gift blossomed into a $900 million endowment and the school began to use some of the money for other purposes. <a href="http://philanthropynewsdigest.org/off-the-shelf/abusing-donor-intent-the-robertson-family-s-epic-lawsuit-against-princeton-university">In 2002, their heirs sued</a>, alleging that Princeton was breaking its promise to the couple. <a href="http://www.princeton.edu/robertson/about/">Princeton claimed it had generally kept its word</a>.</p>
<p>After a protracted legal battle, the <a href="https://www.nytimes.com/2008/12/11/education/11princeton.html">case settled in 2008</a>, with Princeton retaining most of the contested funds to use for the Wilson School. However, Princeton also had to transfer $50 million to a new foundation controlled by the Robertson heirs to support education for government service and reimburse them for $40 million in legal expenses.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=290&fit=crop&dpr=1 600w, https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=290&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=290&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=365&fit=crop&dpr=1 754w, https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=365&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/218881/original/file-20180514-100697-pyinq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=365&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Portraits of donors Charles S. Robertson, and his wife, Marie Robertson, on display at Princeton University’s Woodrow Wilson School, in 2004.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Associated-Press-Domestic-News-New-Jersey-Unite-/aa389b8c83e4da11af9f0014c2589dfb/3/0">AP Photo/Daniel Hulshizer</a></span>
</figcaption>
</figure>
<h2>An outlier</h2>
<p>One rare exception to the scant recourse for disappointed individual donors who want to get all their money back, and recoup their court costs occurred in 2012, when the musician Garth Brooks won a <a href="http://latimesblogs.latimes.com/gossip/2012/01/garth-brooks-hospital-lawsuit-donation.html">$1 million verdict</a> against an Oklahoma hospital in his hometown because it failed to build a women’s health center in honor of his late mother.</p>
<p>Brooks testified that he and the hospital president had agreed – but not in writing – about how it should use Brooks’ <a href="http://www.cnn.com/2009/SHOWBIZ/Music/12/15/garth.brooks.sues.hospital/index.html">$500,000 donation</a>.</p>
<p>The hospital asserted that Brooks initially gave anonymously and only later asked that the hospital build a women’s center to be named after his late mother. The $1 million verdict required the hospital to return his $500,000 donation and pay him an additional $500,000 in punitive damages. </p>
<p>I believe that Brooks’ <a href="http://www.nydailynews.com/life-style/health/garth-brooks-sues-oklahoma-hospital-500-000-country-star-wanted-building-named-late-mother-article-1.1008070">celebrity status</a> may help to explain why he succeeded when most donors who aren’t happy with what becomes of their big gifts end up disappointed or feeling shortchanged.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/47ObgOihWB8?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Garth Brooks’ dispute with a hospital over his donation garnered a lot of media coverage.</span></figcaption>
</figure>
<h2>Reasonable expectations</h2>
<p>To be sure, donors may impose some restrictions on their big gifts as long as these demands align with the charity’s mission and operational structure. Some restrictions, however, <a href="http://ccbjournal.com/articles/19609/garth-brooks-has-friends-%E2%80%9Claw-places%E2%80%9D1-donor-restricted-gifts-and-consequences-nonpro">just don’t work</a>.</p>
<p>Donors should not presume, as seemed to be the case with the Engelstad Family Foundation’s support for the University of Nevada and the Charles Koch Foundation’s gifts to <a href="http://www.unkochmycampus.org/charles-koch-foundation-george-mason-mercatus-donor-influence-exposed">George Mason University</a>, that they will be free to dictate <a href="https://insidehighered.com/news/2018/03/19/unusual-donor-agreement-unlv-raises-questions-about-fund-raising-and-governance">who the grantee will hire or fire</a>.</p>
<p>Donors also shouldn’t presume that their arrangements with nonprofits will last forever, as investor Bruce Bent may soon learn. He <a href="https://www.torchonline.com/news/2018/04/25/sju-files-motion-to-dismiss-10m-bent-suit/">gave St. John’s University $500,000</a> in 1981. At the time, Bent says, the school promised to name a business school after the investor. True to its word, St. John’s initially named the building housing the business school “Bent Hall.”</p>
<p>Bent was surprised, 35 years later, to see that the building’s name changed to the <a href="https://www.stjohns.edu/about/news/2016-02-26/st-john-s-university-receives-25-million-grant-renovations-bent-hall-nys-hecap-grant-support-state">Peter J. Tobin College of Business</a> in 2016 amid a $25 million renovation project. The business school program had been renamed in 1999 to honor Tobin, a businessman who was then serving as its dean after he made <a href="https://nypost.com/2018/01/26/st-johns-dropped-my-name-from-biz-school-despite-500k-donation-suit/">a $10 million donation</a>. But the building itself was called Bent Hall until the recent renovation project that neither Bent nor Tobin funded.</p>
<p>St. John’s maintains that the school is upholding its original agreement since “Bent Hall” is also written on a plaque near the side entrance of the building. Nonetheless, Bent seeks damages of nearly $10 million – what he deems to be the current value of his initial $500,000 donation.</p>
<p>The university has filed a motion to <a href="https://www.torchonline.com/news/2018/04/25/sju-files-motion-to-dismiss-10m-bent-suit/">dismiss his lawsuit</a> and says that an “exhaustive search” turned up no evidence of a written agreement over naming rights.</p>
<p>The case is still pending. </p>
<p><em>Disclaimer: The University of Nevada, Las Vegas and the University of Chicago Harris School of Public Policy provide funding as members of The Conversation US.</em></p><img src="https://counter.theconversation.com/content/93635/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Terri Lynn Helge does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
When conflicts over whether nonprofits have kept their word about how they said they’d use big gifts crop up, donors rarely get everything they demand as reimbursement.
Terri Lynn Helge, Professor of Law, Texas A&M University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/84871
2017-09-29T02:33:04Z
2017-09-29T02:33:04Z
Tax ‘reform’ for the rich: Trump’s plan abandons his working-class supporters
<figure><img src="https://images.theconversation.com/files/188102/original/file-20170929-1449-1apbja0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trump's tax plan will cost trillions. </span> <span class="attribution"><span class="source">AP Photo/Pavel Golovkin</span></span></figcaption></figure><p>President Donald Trump heralded his new tax plan as <a href="http://www.foxnews.com/politics/2017/09/26/trump-vows-tremendous-middle-class-tax-cuts-millions-jobs-with-new-tax-plan.htm">relief for the middle class</a>, revenue-neutral and a “<a href="http://www.nydailynews.com/news/national/trump-promises-middle-class-miracle-tax-plan-detail-article-1.3525658">middle-class miracle</a>.”</p>
<p>Yet the <a href="https://www.nytimes.com/2017/09/27/us/politics/trump-tax-cut-plan-middle-class-deficit.html?mcubz=1">proposal</a>, announced on Sept. 27, does none of these things. Instead, it is a scam not fit to become law of the land because it will enrich the rich, explode the deficit and hurt many middle-class Americans. This may sound like strong language, particularly for an economist, but I’m going to show you why this is no exaggeration.</p>
<p>While some details remain up in the air, <a href="https://www.washingtonpost.com/business/economy/gop-tax-document-reveals-plan-for-massive-tax-cuts-preserves-key-deductions/2017/09/27/684ea40e-a387-11e7-ade1-76d061d56efa_story.html?hpid=hp_no-name_no-name%3Apage%2Fbreaking-news-bar&tid=a_breakingnews&utm_term=.c03437517557">Trump has proposed</a> three main changes to our tax code. He wants to repeal the estate tax, simplify the individual tax code and slash the rates corporations pay. Let’s consider each in turn. </p>
<h2>Killing the ‘death tax’</h2>
<p>The estate tax <a href="http://www.thefiscaltimes.com/2017/08/25/Trump-Wants-Eliminate-Estate-Tax-Here-s-Who-Would-Benefit">currently exempts</a> the first US$5.5 million of wealth for individuals and $11 million for married couples. It is paid by only the <a href="http://www.taxpolicycenter.org/briefing-book/how-many-people-pay-estate-tax">wealthiest 0.2 percent</a> of Americans, or fewer than 15,000 people in 2016.</p>
<p>While some dub it the “death tax” resulting in “double taxation,” <a href="https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">about 55 percent of the wealth subject to it</a> has never before been taxed. It is assets, like stocks and homes, that have appreciated in value but not sold. </p>
<p>While <a href="https://www.washingtonpost.com/news/fact-checker/wp/2017/09/28/fact-checking-president-trumps-tax-speech-in-indianapolis/?utm_term=.69e09e39b23d">Trump falsely claimed</a> its repeal will “protect millions of small businesses and the American farmer,” the reality is that these small firms do not have to pay the estate tax. Eliminating it would allow a small fraction of very wealthy Americans to accumulate even more wealth, widening the chasm between rich and poor.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=472&fit=crop&dpr=1 754w, https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=472&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/188120/original/file-20170929-1449-66jqcz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=472&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bernie Sanders is a strong opponent of repealing the estate tax, arguing too much wealth already goes to the top 0.01 percent.</span>
<span class="attribution"><span class="source">AP Photo/Manuel Balce Ceneta</span></span>
</figcaption>
</figure>
<h2>‘Relief’ for the middle class</h2>
<p>A second key element of the plan overhauls how individuals pay taxes by shrinking the number of tax brackets, doubling the standard deduction and eliminating personal exemptions. This is the part that is supposed to provide tax relief for the middle class.</p>
<p>Currently, the first $10,400 a single person earns goes tax-free (the standard deduction plus a personal exemption). For a married couple, it’s $20,800, plus $4,050 for each child.</p>
<p>By increasing the standard deduction and eliminating exemptions, Trump’s proposal would increase the earnings that escape taxation to $12,000 for single people and $24,000 for couples (with or without kids). After that the new tax brackets would kick in, starting at 12 percent (up from the current 10 percent).</p>
<p>But what Trump giveth with one hand, he taketh away with the other. That’s because any gains the middle class reaps from a higher standard deduction will be minuscule at best because of the loss of personal exemptions and the elimination of certain itemized deductions like state and local taxes and medical expenses. Many middle-class households will end up being worse off under this new tax regime.</p>
<p>With some details, like the mortgage deduction and charitable contributions, still unknown, we can’t be certain of all the winners and losers – except one: The rich will be much better off because the top tax rate will be cut from 39.6 percent to 35 percent.</p>
<h2>Corporate cuts</h2>
<p>The proposal’s third key component is a big tax cut for corporations to 20 percent from 35 percent. While Trump claims it primarily will benefit workers and create jobs, I see it as another bonanza for the wealthy. </p>
<p>Publicly traded companies don’t really pay income taxes. Their <a href="https://www.forbes.com/sites/timworstall/2011/09/22/corporations-do-not-pay-taxes-they-cant-theyre-not-people/#5acd50796222">shareholders, consumers and workers do</a>. And <a href="https://www.cbpp.org/research/federal-tax/corporate-tax-cuts-skew-to-shareholders-and-ceos-not-workers-as-administration">shareholders foot more than three-quarters of the bill</a>. That means if taxes are reduced, companies will make more money and pass most of that along to shareholders, who will benefit from bigger dividends and higher share prices. </p>
<p>This will primarily enrich the richest 1 percent because they <a href="http://www2.ucsc.edu/whorulesamerica/power/wealth.html">own half of all corporate stock</a>. Senior executives – also among the 1 percent – will be big winners as well because their pay and bonuses are <a href="https://hbr.org/2016/02/stop-paying-executives-for-performance">usually tied</a> to the value of their company’s stock. </p>
<p>Trump has tried to sell this tax cut by claiming U.S. corporate rates are the highest in the world, <a href="https://www.vox.com/policy-and-politics/2017/8/31/16228766/trump-us-corporate-business-tax-reform-world">making the U.S. less competitive</a>. While it is true that the statutory rates on corporate profits are greater in the U.S. than in other G-20 nations, effective rates in the U.S. are not the highest and <a href="https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/reports/52419-internationaltaxratecomp.pdf">not that different</a> from these other developed countries .</p>
<h2>Paying for it</h2>
<p>Estimates of the cost of the Trump tax cuts vary, but <a href="http://www.crfb.org/blogs/big-6-tax-framework-could-cost-22-trillion">one reliable estimate</a> puts it at $2.7 trillion over 10 years, or $270 billion a year.</p>
<p><a href="https://www.cnbc.com/2017/09/28/trump-advisor-gary-cohn-says-we-can-pay-for-the-entire-tax-cut-through-economic-growth.html">Trump administration officials claim</a> the tax cuts will pay for themselves by generating economic growth. Neither history nor math bears this out.</p>
<p>Historically, large tax cuts have failed to produce the needed and promised growth. This is true of individual states like Kansas, <a href="http://www.kansascity.com/opinion/readers-opinion/guest-commentary/article156418934.html">which rescinded several tax cuts</a> after they failed to stimulate economic growth and created big deficits. It is also true of President Reagan’s 1981 tax cut, which, as <a href="https://www.washingtonpost.com/news/posteverything/wp/2017/09/28/i-helped-create-the-gop-tax-myth-trump-is-wrong-tax-cuts-dont-equal-growth/?utm_term=.25792e9857b4">one of its key architects noted</a>, failed to spur faster economic growth than the U.S. experienced during the 1970s.</p>
<p>Furthermore, even if Trump’s tax cuts did manage to achieve the 3 percent growth his treasury secretary <a href="https://www.reuters.com/article/us-milken-conference-usa-mnuchin-idUSKBN17X1XR?il=0">is currently touting</a>, this would not nearly be enough to offset the cost of the tax cuts. By my calculations, growth would have to be double that to result in enough additional revenue to offset the Trump tax cuts. </p>
<p>Given that economic growth at <a href="https://tradingeconomics.com/united-states/gdp-growth">its best sustained level</a> over the past 75 years averaged only 4 percent (from the 1950s to the 1970s), getting to 6 percent (from the current 2 percent) <a href="http://thegreatrecession.info/blog/us-2016-recession">is unlikely</a>.</p>
<p>That leaves spending cuts and borrowing to pay for a large tax giveaway to the wealthy – both of which would come at the expense of the middle class, a group <a href="http://thehill.com/homenews/administration/352745-trump-on-middle-class-tax-plan-its-not-good-for-me">Trump promised</a> to protect. </p>
<p>If Trump were to choose to cut spending to pay for some or all of it, he would inevitably have to take the money from programs like subsidized student loans and children’s health insurance programs that benefit middle-class Americans. And if he were to borrow the money, the increased debt levels would likely drive up borrowing costs on everything from car loans to mortgages, which would also <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4707673/">hurt the middle class</a>. </p>
<p>Just as a few brave Republicans prevented the repeal of the Affordable Care Act, will some say no to this reverse Robin Hood tax reform?</p><img src="https://counter.theconversation.com/content/84871/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Pressman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
President Trump released details of his tax plan, which would essentially benefit the wealthiest Americans by repealing the estate tax and other changes at the expense of the middle class.
Steven Pressman, Professor of Economics, Colorado State University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/82961
2017-09-25T01:24:24Z
2017-09-25T01:24:24Z
Let them eat caviar: When charity galas waste money
<figure><img src="https://images.theconversation.com/files/184758/original/file-20170905-13755-fca7k7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Charities may treat the cost of their fundraising festivities differently than other expenses.
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crackers-cream-cheese-black-caviar-horizontal-211444606?src=ULt7c7E_wC7H99iijOCSWg-1-33">Yulia Davidovich/Shutterstock</a></span></figcaption></figure><p>When the <a href="https://www.arcpbc.org/news/94-the-cowboy-ball-benefiting-the-arc-of-palm-beach-county-announces-inaugural-courim-award-and-mar-a-lago-debut-gala-kick-off-unveils-new-award-and-luxurious-auction-items">Arc of Palm Beach County</a> rented Donald Trump’s <a href="http://www.townandcountrymag.com/style/home-decor/a7144/mar-a-lago-history/">Mar-a-Lago estate</a> for its 2016 Cowboy Ball, the organization lured guests with promises of “a gourmet meal in a gilded ballroom, an exciting live auction, exhilarating casino action and mesmerizing entertainment.”</p>
<p>On the auction block to raise money to carry out its mission of assisting people with intellectual and developmental disabilities were yacht excursions, lunch with Bravo’s “Real Housewives of Miami” star Lea Black and a “power breakfast” during New York’s Fashion Week with a branding expert.</p>
<p>Why juxtapose calls to feed the hungry, house the homeless and cure cancer with champagne toasts and caviar hors d'oeuvres? As researchers who study charities, we understand why opulent bashes that raise money for good causes seem puzzling. These inherently contradictory events intended to help people in need double as vehicles for the rich and famous to show off their largesse.</p>
<p>Now that <a href="http://www.palmbeachdailynews.com/news/local/25th-group-moves-from-mar-lago-palm-beach-symphony-changes-concert/upjDb4qMuTKo7l25Tt9wGN/">at least 25 nonprofits</a> – including the Dana Farber Cancer Institute, the American Red Cross and the Palm Beach Zoo – have canceled plans to hold fancy fundraisers like the Arc’s and other events at Mar-a-Lago, we wanted to explore this ironic custom.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=420&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=420&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=420&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=528&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=528&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184401/original/file-20170901-27284-4r8jzw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=528&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mar-a-Lago in pre-Trumpian times.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File%3AMar-a-Lago%2C_Living_Room_looking_southwest_(1967).jpg">Jack Boucher</a></span>
</figcaption>
</figure>
<h2>Why nonprofits hold galas</h2>
<p>Since glitzy <a href="http://www.nytimes.com/2013/11/08/giving/rethinking-the-dinner-gala.html">entertainment and swag are mainstays</a> in the otherwise penny-pinching world of charity fundraising, nonprofits have long forked over <a href="https://www.buzzfeed.com/christophermassie/charities-raise-millions-at-trumps-mar-a-lago-club-but-for-a?utm_term=.an9MK4Ja3g#.wakQyEm5Bp">as much as US$350,000</a> to hold galas at posh venues like Trump’s Florida home and club, which originally belonged to the Post cereal heiress <a href="https://www.biography.com/people/marjorie-merriweather-post-211801">Marjorie Merriweather Post</a>. Are they worth the steep bill?</p>
<p>In a sense, the surprise isn’t that rich people shell out <a href="https://www.local10.com/entertainment/shirley-maclaine-wayne-newton-william-shatner-headline-red-cross-ball">$1,000 per plate</a> for the privilege of hobnobbing with celebrities and their wealthy peers. It’s that accounting, legal and other factors give often cash-strapped nonprofits an incentive to hold such expensive events.</p>
<p>Charities have learned the same lesson as casinos, which splurge on <a href="http://www.businessinsider.com/how-casinos-make-you-spend-money-2014-8">great food and booze</a> to make gamblers spend more on betting. Posh entertaining can coax giving in ways that other fundraising methods, like mass-mailing appeal letters, can’t. </p>
<p>Galas combine what researchers call <a href="http://journals.sagepub.com/doi/abs/10.1177/0899764010380927">key determinants of giving</a>: awareness of needs, a direct ask for assistance, the psychological “<a href="http://www.jstor.org/stable/2234133">warm glow</a>” of appearing generous and peer pressure. That, plus the throw-caution-to-the-wind mentality an open bar stocked with fine whiskey can bring on, is meant to goose generous gifts from wealthy donors.</p>
<p>In short, the <a href="http://onlinelibrary.wiley.com/doi/10.1002/nml.21192/abstract">more fun attendees have, the more they give</a>. What’s more, <a href="http://onlinelibrary.wiley.com/doi/10.1002/nml.232/abstract">peer pressure can boost fundraising</a> when donors gather and try to one-up each other.</p>
<h2>Where the IRS draws the line</h2>
<p>But these events can also be wasteful. </p>
<p>Perhaps the biggest problem with galas is that they frequently <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=617">fail to raise more money than they cost</a> to throw or <a href="http://www.socialvelocity.net/2015/09/the-problem-with-nonprofit-events/">barely break even</a>, many nonprofit experts find. In those instances, only the venues, the entertainers and other vendors profit financially. It is true that even when they don’t make a dime, events may generate intangible benefits, such as strengthening ties between nonprofits and their donors and raising a charity’s profile. But the point is that there are more economical ways to accomplish those goals.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/187283/original/file-20170924-11625-1uw7ysu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fancy fundraisers are a mainstay of nonprofit fundraising.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/prepared-gala-dinner-table-405723928?src=Ofto_JE93fVu0x1cjFLc7g-1-27">Tobb8/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>The first lines of defense in distinguishing real charity from partying while drawing attention to a good cause are legal and regulatory constraints. However, the IRS does little of this kind of policing, and its regulations are written and enforced in a way that encourages lavish events rather than discouraging them.</p>
<p>Federal tax law prohibits charities from operating businesses solely to deliver money to their particular cause. But U.S. tax regulations generally do not treat <a href="https://www.irs.gov/pub/irs-tege/eotopicl82.pdf">fundraising as a business</a> – even when it looks a lot like a profit-making endeavor. When a nonprofit, say, sells trips to Paris to the highest bidder, the government sees this as just another way a charity raises money for its cause. Although it looks like forbidden for-profit activity, it doesn’t treat that nonprofit as a travel agent to penalize this businesslike behavior.</p>
<p>The IRS, however, might probe whether nonprofits that purchase goods and services from insiders – including board members – are overpaying them. That kind of practice would most likely violate both state charity law and federal tax law. </p>
<h2>Built-in incentives</h2>
<p>Ratings groups such as <a href="https://www.charitynavigator.org">Charity Navigator</a> and the <a href="http://www.give.org">Better Business Bureau</a> have the power to exert some pressure to avoid wasteful charitable spending too. But the accounting reports that underlie their methods also encourage galas. </p>
<p>These accounting reports of charities split spending among three categories: programming, administration and fundraising. An organization that reports excessive spending on fundraising – especially relative to how much money it raised as a result – is a red flag for waste. However, this red flag is typically not raised for over-the-top entertaining.</p>
<p>Why? </p>
<p>The costs of a fundraising event attributable to things donors enjoy, including food, drink and auctioned items, don’t have to be recorded as fundraising expenses.
Instead they can, in accounting jargon, be “<a href="https://asc.fasb.org/imageRoot/56/92564756.pdf">netted</a>” against donations.</p>
<p>In other words, if a donor pays $1,000 to attend a gala but gets a swag bag of goodies that cost the charity $900, the event reflects a (net) donation of $100. It does not have to treat the $900 spent on the bag as a <a href="http://www.mocpa.org/docs/resources/nfp-sept-asset11-web2-3.pdf?sfvrsn=0">fundraising cost</a>. That approach, in turn, helps keep the costs associated with throwing fancy galas under the radar of ratings agencies, since many of the costs are not considered fundraising expenses but instead are buried in the details.</p>
<p>And this routine <a href="http://www.nonprofitaccountingbasics.org/special-events/accounting-special-events">accounting practice</a> means that charities with incentives to be frugal are generally free to break the bank for special occasions.</p>
<p>The flip side of this is that donors who purchase European vacations at galas or enjoy fine dining and flashy entertainment at balls cannot deduct everything they spend for these events from their federal income taxes. Only the portion of those expenditures that exceed their fair market value are deductible.</p>
<p>Here’s the bottom line: While galas don’t automatically signal wasteful spending, you can’t count on the authorities or other experts to call it out when they do. </p>
<p>There are other options, such as holding “<a href="https://www.bostonglobe.com/business/2015/03/08/march-start-rubber-chicken-time/DTmTkBCvMcsTzzFWn6VxvO/story.html">no-go galas</a>” – a coordinated effort in which major donors give generously without having to get glammed up to see their money pay for champagne and lobster canapes. The <a href="https://www.stjude.org/get-involved/find-an-event/dinners-and-galas/no-go-gala.html">St. Jude Children’s Research Hospital </a> and the <a href="https://www.facebook.com/MIFAMemphis/posts/10154835664523702">Metropolitan Interfaith Association</a> in Memphis have taken this route, as has EAH, an <a href="http://www.eahhousing.org/whats-new-at-eah-housing/2017-no-go-gala">affordable housing</a> group active in California and Hawaii. </p>
<p>Instead of refusing to hold galas at venues with baggage, these nonprofits are simply letting go of this fundraising ritual.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"863453802451652610"}"></div></p><img src="https://counter.theconversation.com/content/82961/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Why do nonprofit fundraisers juxtapose calls to feed the hungry, house the homeless and cure cancer with champagne toasts?
Philip Hackney, Associate Professor of Law, University of Pittsburgh
Brian Mittendorf, Fisher Designated Professor of Accounting and Chair, Department of Accounting & Management Information Systems (MIS), The Ohio State University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/74803
2017-04-10T00:35:50Z
2017-04-10T00:35:50Z
Are the rich more selfish than the rest of us?
<figure><img src="https://images.theconversation.com/files/164588/original/image-20170409-29386-1y24iq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businessmen pass by Occupy Wall Street protesters at New York's Zuccotti Park in 2011.</span> <span class="attribution"><span class="source">AP Photo/Kathy Willens</span></span></figcaption></figure><p>Social scientists have long known that the rich are not exactly model citizens. </p>
<p>They <a href="https://link.springer.com/article/10.1007/s10551-013-1914-9">evade taxes</a> more often, flaunt <a href="http://www.pnas.org/content/109/11/4086.full">traffic</a> laws that protect pedestrians and donate less frequently to <a href="http://www.jstor.org/stable/3083340">charity</a>. In the aftermath of the Great Recession, there has been <a href="http://www.economist.com/node/16690659">no shortage</a> of reports in the <a href="http://news.bbc.co.uk/2/hi/uk_news/magazine/8013179.stm">popular media</a> on their <a href="http://www.nytimes.com/2010/08/22/magazine/22FOB-wwln-t.html">selfishness and opportunism</a>. </p>
<p>This bad reputation, whether deserved or not, is not a recent phenomenon. Even the Bible tells us that “It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God” (<a href="http://biblehub.com/mark/10-25.htm">Mark 10:25</a>).</p>
<p>But are the rich really so different from the rest of us? In <a href="http://www.nber.org/papers/w23229">recently published research</a>, we used a natural field experiment to try to find out.</p>
<h2>A look at incentives</h2>
<p>Before we get to that, it’s important to look beyond the selfish behaviors mentioned above and consider the different incentives and opportunities faced by the rich that might lead them to make such immoral choices. </p>
<p>For instance, because rich people face a higher tax bracket, every dollar of income they hide from the tax collector benefits them more than it would a poor person.</p>
<p>Similarly, although both rich and poor get the same penalty for a traffic law violation, a fine that would be devastating for a person in poverty amounts to a pinprick for someone who’s wealthy. And while the rich are less likely to give to charity in any one year, they instead tend to make large gifts later in their lives. </p>
<p>So even if the rich often do behave more selfishly than the less well off, their behavior might be more the result of different circumstances rather than differing moral values.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/164621/original/image-20170410-29390-1a70fyt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Too tempting?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/success?src=WCFqdM_dzWGRDLCwUSjhag-1-59">Cash envelope via www.shutterstock.com</a></span>
</figcaption>
</figure>
<h2>Money-filled envelopes</h2>
<p>To suss this out, we <a href="http://www.nber.org/papers/w23229">designed</a> a field experiment in which we “misdelivered” transparent envelopes with money to over 400 rich and poor households in a medium-sized city in the Netherlands. Returning envelopes is individually costly (mostly in terms of time) but benefits the rightful recipient, making this an altruistic, “pro-social” act. </p>
<p>All the envelopes contained €5 (US$5.34) or €20 as well as a card with a message from a grandfather to his grandson explaining the gift. We sent the money, however, in two variations: either as banknotes that could be easily seen by anyone handling the envelope, or as a bank transfer card, which is a slip of paper that orders a bank to send money from one account to another. In other words, the cash acted as “bait,” while the bank transfer card would have had no value to the individual.</p>
<p>Our setup had two advantages over <a href="http://journals.sagepub.com/doi/abs/10.1177/1745691613491272">other studies</a> on the <a href="http://psycnet.apa.org/journals/psp/99/5/771/">topic</a>. First, participants did not know they were being studied as part of an experiment. They were, therefore, not changing their choices for fear of what we might think of them. </p>
<p>Second, there was no “selection bias” in our data that might have skewed the results because the rich tend to shy away from participating in experiments (possibly because they don’t have much time to participate or don’t like the idea of researchers having data on them). In our setup, every rich or poor household was randomly selected.</p>
<p>The overall results showed that the rich returned roughly 80 percent of all envelopes, regardless of whether it contained cash or a card. When cash was used, the rich returned only slightly less. So the rich were somewhat sensitive to the money bait, but not much. </p>
<p>The poor, however, were much less likely to go to the trouble of returning the money and were much more vulnerable to the bait inside the envelope. They kept roughly half of the noncash envelopes and roughly three-quarters of the cash envelopes.</p>
<h2>The rich vindicated?</h2>
<p>Does that mean that despite their reputations as misers, the rich are actually more pro-social than poor people? And in fact, it’s the poor who are selfish? </p>
<p>Well, not so fast. Before drawing any conclusions about character, we need to return to the question of incentives we explored earlier.</p>
<p>One obvious difference in the incentives the rich and poor face is that the latter have a higher need for money. This easily explains why a poor person would be more likely to keep the cash envelopes.</p>
<p>But what about the noncash envelopes? Nothing could be gained from holding onto them, so what does the fact that half of the recipients didn’t send them in tell us? </p>
<p>Looking more closely we saw a striking pattern: The poor were most likely to return the noncash envelopes in the week they got paid their salaries or unemployment benefits (people in the Netherlands tend to get paid toward the end of the month). But then returns became steadily less frequent until, in the week before their pay or benefits arrived, almost no envelopes containing bank transfer cards were returned. </p>
<p>Our proposed reason for this draws on new research showing that the <a href="http://science.sciencemag.org/content/341/6149/976">financial stresses</a> that the poor suffer affect their cognitive abilities, how they set priorities and how chaotic their lives become. </p>
<p>The reason we found this significant is that <a href="http://science.sciencemag.org/content/341/6149/976">research shows</a> that when people are under financial stress, their cognitive abilities are affected and they set priorities differently.</p>
<p>Using a theoretical model to help us interpret the data, we can measure a household’s “neediness” of the cash and how financial stress changes over the course of a month. When we do so, as one might expect, we find big differences in needs and stresses between rich and poor. But what is more important is that, when we statistically remove the influence of these factors, we no longer find differences in the relative altruism of the rich versus the poor.</p>
<p>These findings show the perils of inferring deeper motives from casual behavior. While our raw data show clear differences between the rich and poor in terms of pro-social behavior, digging a little deeper erases them. Our conclusion is that incentives are the biggest determinants of pro-social behavior and that neither the rich nor the poor are inherently kinder or more selfish – in the end all of us are susceptible to behaving this way. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/Od4nSd9AVH8?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">“Trading Places” offered insights into what happens when a wealthy and poor person swap spots.</span></figcaption>
</figure>
<h2>Trading places</h2>
<p>In a famous <a href="http://www.nytimes.com/1988/11/13/books/l-the-rich-are-different-907188.html">conversation</a> about the character of the upper class, Mary Colum, a famous critic, tells Ernest Hemingway that the only difference between the rich and the poor is that the rich have more money. </p>
<p>Our data support Colum’s view, suggesting a poor person would behave just as someone who’s well-to-do if the two were to trade places, and vice versa. </p>
<p>This is not to absolve those who evade taxes or break the law. What it suggests is that the rich are no different than the rest: If we were to put the poor in their place, they would likely behave similarly.</p><img src="https://counter.theconversation.com/content/74803/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jan Stoop receives funding from NWO, Innovational Research Incentives Scheme Veni. </span></em></p><p class="fine-print"><em><span>James Andreoni receives funding from the National Science Foundation. </span></em></p><p class="fine-print"><em><span>Nikos Nikiforakis does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
The wealthy evade taxes and are less likely to donate to charity, but does this mean they’re more selfish than everyone else? New research suggests not.
Jan Stoop, Associate Professor of Applied Economics, Erasmus University Rotterdam
James Andreoni, Professor of Economics, University of California, San Diego
Nikos Nikiforakis, Professor of Economics, New York University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/71641
2017-01-23T14:33:23Z
2017-01-23T14:33:23Z
Rich and famous lifestyles are damaging the environment in untold ways
<figure><img src="https://images.theconversation.com/files/153851/original/image-20170123-8055-1jteb4s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/elegant-woman-stepping-out-car-parked-174642191?src=6FzyDE2kDROsPBCFw6lTug-1-68">www.shutterstock.com/Tyler Olson</a></span></figcaption></figure><p>To be rich is a thing that many in our society spend their whole lives striving for. Not having to worry about money and indeed, splashing it on designer clothes, chains of diamonds and private planes is seen by some to be the ultimate dream.</p>
<p>But life like this comes at more of a cost than we realise. To coincide with the 2017 World Economic Forum, Oxfam published a new report, which claimed that the eight richest people in the world control the same wealth <a href="https://theconversation.com/do-8-men-really-control-the-same-wealth-as-the-poorest-half-of-the-global-population-71406">as half of the world’s population</a>. A vital debate certainly – and yet not the only one that needs to be had. </p>
<p>We know that “wealthy” countries in Europe, North America and parts of Asia have <a href="http://data.worldbank.org/indicator/EN.ATM.CO2E.PC">higher per-capita environmental burdens</a> than poorer countries, and that the people of the former are living <a href="http://www.stockholmresilience.org/research/planetary-boundaries/planetary-boundaries/about-the-research/the-nine-planetary-boundaries.html">beyond the bio-physical boundaries</a> – the limits of the environment – in order to do so. But those at the top levels of these countries are practising lifestyles with even higher environmental consequences, enabled by their own wealth.</p>
<p>In an average mature economy like the UK’s, the ecological footprint is <a href="http://ecologicalfootprint.com/">6.69 global hectares per person</a>. That means if everybody in the world had this lifestyle we would need 3.7 planets to support us all. Yes, there are those who are living with a smaller footprint, but that is not a life the majority are striving for.</p>
<h2>Life of luxury</h2>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/153900/original/image-20170123-8070-d1fuqf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Not your average sailboat.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/superyacht-on-yellow-sunset-side-view-221221633?src=t0iH1BYhXEaKZpn-JKu6jg-1-7">xbrchx/www.shutterstock.com</a></span>
</figcaption>
</figure>
<p>The wealthy few who embrace luxurious and extravagant lifestyles impose a great burden on the environment because they acquire so many possessions, and then use them in particularly profligate ways. Many have private jets and super-yachts.</p>
<p>Of course, those of us who are not in the elite minority could just be envious of those with affluent lifestyles. Or maybe many of those at the top have been deflecting or otherwise containing the debate, side-steppping it as they are so often accused of doing with taxation. It may even be that we all ignore the environmental consequences because modern society sees the “jet-set” lifestyle as one to aspire to, not denigrate. Perhaps all of us have some guilt in the knowledge that we too have recklessly extravagant elements to our lives, and that these <a href="http://theconversation.com/eco-authenticity-advocating-for-a-low-carbon-world-while-living-a-high-carbon-lifestyle-56893">may be rather difficult to change</a>. </p>
<p>The luxury consumption and sustainability debate is <a href="http://www.tandfonline.com/doi/full/10.1080/10282580601157935">one that Plato had</a> back in 380 BC. But then, the threats of climate change and other environmental issues were not so pressing. </p>
<p>Now, the future of the planet relies on humans worldwide creating policies to mitigate our own environmental burdens. But by targeting those affluent lifestyles which are doing more ecological damage, we might be able to address the disproportionate cost.</p>
<h2>Affluence and sustainability</h2>
<p>However, it is not as easy as saying we need to limit how many mansions one person owns; there are several components to the ecological burdens of wealth. Neither is this something that can be expressed simply by looking at above-average carbon emissions – though that certainly is one important dimension. </p>
<p>Take a look at this example: the annual average personal carbon footprint was <a href="http://shrinkthatfootprint.com/carbon-targets-for-your-footprint">7.3 tonnes in 2010</a>, and yet the estimated sustainable footprint we should all have by <a href="http://shrinkthatfootprint.com/carbon-targets-for-your-footprint">2050 is 1.5 tonnes per annum</a>. A Learjet private plane, flying on one trip from Aspen, Colorado to San Francisco – 1,386.6km (861 miles) – would, according to our calculations, <a href="https://micpohling.wordpress.com/2007/05/08/math-how-much-co2-released-by-aeroplane/">have CO₂ emissions of</a> 4,411.8kg. By contrast, driving the average car 10,000km (6,213 miles) over a year would emit about 1,600kg of CO₂.</p>
<p>But to live an affluent lifestyle, one does more than hop on a jet. There are the houses, cars, boats, clothes, jewellery, technology – money is no object so there is no limit to the amount of objects one can possess. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/153861/original/image-20170123-8088-1ivm4oa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A small rock does big damage.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/photo-single-cut-diamond-on-piece-140339647?src=C1NWvaELBi5MQ4vjDGbr9w-1-88">RTimages/www.shutterstock.com</a></span>
</figcaption>
</figure>
<p>You might be wondering how simply owning a lot of “things” can damage the environment. One way to understand this is through the <a href="https://www.gdrc.org/sustdev/concepts/27-rucksacks.html">ecological rucksack concept</a>. This measures the total quantity in kilograms of materials moved from nature to create a product or service, minus the actual weight of the product. Aluminium, for example has a rucksack “factor” of 85:1, so 85kg of material is required to make 1kg of aluminium. Diamonds on the other hand have a factor of 53,000:1. </p>
<p>Though we all know what a standard lifestyle of the rich looks like nowadays, in truth the ecological footprint is largely unknown beyond the individual acts we can analyse. We could be dangerously underestimating the damage that a handful of people are doing to the environment, and not properly mitigating it. </p>
<p>This is not just a call for research into affluent lifestyles, we must name and shame those who are being reckless with the environment for the sake of themselves, and instigate policy action to stop them. </p>
<p>Eight billionaires might not account for half of the world’s environmental problems – and perhaps they do a lot of good, too – but the ecological burdens they create are surely greater than eight subsistence farmers in India. And it is about time we knew just how much more damage they are doing.</p><img src="https://counter.theconversation.com/content/71641/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Cars, clothes, diamonds and jets: it’s time we addressed just how much the wealthy are hurting the planet.
Peter Wells, Professor of Business and Sustainability, Cardiff University
Anne Touboulic, Assistant Professor, University of Nottingham
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/69434
2016-11-28T11:40:05Z
2016-11-28T11:40:05Z
The top five reasons the rich like to donate to universities
<figure><img src="https://images.theconversation.com/files/147577/original/image-20161125-32035-1plwxq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Last year 35 UK universities received donations of a million pounds or more.</span> <span class="attribution"><span class="source">Pexels</span></span></figcaption></figure><p>When it comes to charitable giving, most people living in the UK are pretty generous with their money – with <a href="https://www.cafonline.org/docs/default-source/personal-giving/caf_ukgiving2015_1891a_web_230516.pdf?sfvrsn=2">most giving at least once a year</a> and about two-fifths giving every month. On average £10 billion is donated every year to a wide variety of causes. And recent data from the <a href="https://www.cafonline.org">Charities Aid Foundation</a> shows the <a href="https://www.cafonline.org/docs/default-source/personal-giving/caf_ukgiving2015_1891a_web_230516.pdf?sfvrsn=2">three most popular causes</a> are medical research, children and young people, and animals. </p>
<p>But when it comes to the rich and famous, they like to give a little differently. The top choice for those able to make gifts worth £1m or more is one that barely figures among the general population, and that is universities.
<a href="https://www.rosscasesurvey.org.uk/">The annual Ross-Case report</a> into higher education philanthropy, which I research and write, has been tracking the quantity, value and destination of seven figure donations since 2008. And in all nine years of the study, the most popular cause has always been higher education. </p>
<p>Indeed, universities are not just at the top of the table, they receive almost as much as all the other causes combined – as the figures in the <a href="http://www.case.org/Documents/Research/Ross-CASE/RossCASE2016_report.pdf">newly released 2016 report show</a>. But not all universities are basking in philanthropic success. And the recent report, which tracks all (not just seven figure) donations to universities, showed that the universities of Oxford and Cambridge raised more than all the other Russell group universities combined. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=411&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=411&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=411&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147578/original/image-20161125-32049-14fmmxh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Universities attract many of the largest donations.</span>
</figcaption>
</figure>
<p>The survey also showed that the average philanthropic income in Russell group universities – excluding Oxbridge – was £10m – which includes some large single sums. And our new report discovered that in 2015, 35 UK universities received donations of a million pounds or more. And that eight non-Oxbridge universities received multiple seven figure donations – including some single gifts of £10m or more.</p>
<p>The research also goes some way to explain why the rich like to give to higher education. Because it is clear that universities top the million pound donation league table year-on-year for a number of reasons. So here are the top five explanations for universities’ philanthropic advantage.</p>
<h2>1. Credibility</h2>
<p>Universities are large, enduring institutions that have the capacity to utilise large sums. They all have multi-million pound annual turnovers, and are therefore capable of handling seven-figure donations – unlike the vast majority of charities, which have annual turnovers of well under £1 million. </p>
<p>The long and successful history of many universities is also reassuring to donors who wish to erect buildings or endow posts with a long life-span. </p>
<h2>2. Ambition</h2>
<p>The range of activities undertaken by universities creates opportunities that accommodate the personal interests of almost every donor. This can include funding cutting-edge scientific research, providing scholarships for deprived students, or supporting arts, cultural and sporting activities on campuses.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147580/original/image-20161125-32046-m6ec32.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">‘Life changing research? I funded that’.</span>
</figcaption>
</figure>
<p>Universities with a track record of transformational impact hold particular appeal to ambitious donors who typify “<a href="https://www.theguardian.com/society/2012/mar/07/new-philanthropists-wealthy-people">the new philanthropists</a>”. These are typified by the <a href="http://www.gatesfoundation.org">Bill Gates</a> and <a href="http://www.cnbc.com/2016/09/21/chan-zuckerberg-initiative-dedicates-3-billion-towards-disease-research.html">Zuckerbergs of the world</a> – people who have created huge amounts of wealth in business and wish to apply their entrepreneurial skills to achieve similarly ambitious goals in the social sphere.</p>
<h2>3. Contacts</h2>
<p><a href="https://www.kent.ac.uk/sspssr/philanthropy/documents/How%20Donors%20Choose%20Charities%2018%20June%202010.pdf">Research shows</a> that autobiographical connections play a large part in charitable giving decisions – so people give most readily to charities they are familiar with rather than to the most “worthy” needs. And alumni are a constituency that universities can approach for donations. </p>
<p>This is unlike other causes such as international development and UK-based welfare charities, who on the whole don’t have an obvious constituency of contacts.</p>
<h2>4. The X factor</h2>
<p>The opportunity for supporters to be part of a university community, and feel invested in its work and goals, is attractive. And philanthropic support that can be integrated into the social lives of donors, such as attending dinners, graduation events and concerts, helps to build and cement relationships between both parties. </p>
<p>Computer science expert and author James Martin <a href="http://www.independent.co.uk/news/people/profiles/the-100-man-why-philanthropist-james-martin-gave-away-his-fortune-2182882.html">gifted over £100m to Oxford University</a> and helped to established the <a href="http://www.oxfordmartin.ox.ac.uk/about">Oxford Martin School</a> – for pioneering research into global challenges. This sum remains the largest single benefaction in the university’s history. Martin explained that: </p>
<blockquote>
<p>It has really been the most exciting and fascinating opportunity and it has changed my life for the better. </p>
</blockquote>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/147579/original/image-20161125-32016-1tka4n5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Donations can help to open doors.</span>
</figcaption>
</figure>
<p><a href="http://www.rosetreestrust.co.uk/about-rosetrees/whos-who/richard-ross/">Richard Ross</a>, whose family business provides property development finance, <a href="https://www.kent.ac.uk/sspssr/philanthropy/documents/C000028_A4MPReport_V13_051211.pdf">used similar words</a> to describe his experience of supporting researchers at a range of universities:</p>
<blockquote>
<p>For me it is not just a case of giving away money, it’s about meeting the researchers we fund, being involved in what they’re doing and being part of it. Meeting people like neuroscientists is more interesting than anything I will ever do in any other part of my life.</p>
</blockquote>
<h2>5. Asking for it</h2>
<p>With rare exceptions, donors generally only give a million pounds or more if they are asked to – so donations depend on the “demand” of charities, as much as the “supply” of donors. </p>
<p>So it may well be that universities are simply better at asking for larger sums of money because they have made greater investments in this funding stream. A recent <a href="http://www.hefce.ac.uk/pubs/year/2012/cl,142012/">£200m government-funded scheme</a> which ran between 2008 and 2011 helped to incentive donors by offering to match their contributions. The scheme also helped universities to professionalise their fundraising departments through capacity-building and training.</p>
<p>And given that no other area currently enjoys the same multiple philanthropic advantages of the university, it is unlikely that higher education will lose its status as the top million pound donation recipient anytime soon.</p><img src="https://counter.theconversation.com/content/69434/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Beth Breeze does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Why higher education is a worthy cause for the rich and famous.
Beth Breeze, Director, Centre for Philanthropy, University of Kent
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/62339
2016-09-21T00:01:44Z
2016-09-21T00:01:44Z
How corporate America can curb income inequality and make more money too
<figure><img src="https://images.theconversation.com/files/138530/original/image-20160920-12465-1a525a0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Share a little?</span> <span class="attribution"><span class="source">Two fish via www.shutterstock.com</span></span></figcaption></figure><blockquote>
<p>Scorpion met Frog on a river bank and asked him for a ride to the other side. “How do I know you won’t sting me?” asked Frog. “Because,” replied Scorpion, “if I do, I will drown.” Satisfied, Frog set out across the water with Scorpion on his back. Halfway across, Scorpion stung Frog. “Why did you do that?” gasped Frog as he started to sink. “Now we’ll both die.” “I can’t help it,” replied Scorpion. “It’s my nature.”</p>
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<p>This centuries-old <a href="http://www.aesopfables.com/cgi/aesop1.cgi?4&TheScorpionandtheFrog">parable</a>, which has been retold by <a href="https://www.youtube.com/embed/iPDgGxLb2OM">Orson Welles</a> and many others and sometimes refers to a turtle rather than a frog, is usually meant to show how a bad nature cannot be changed – even if self-interest and preservation demand it. </p>
<p>It’s also an apt metaphor for the <a href="https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf">growing scourge</a> of <a href="https://theconversation.com/us/topics/economic-inequality-15917">income inequality</a>, one of the defining issues of our age. A standard explanation for why income inequality is increasing, to borrow a <a href="http://www.vanityfair.com/news/2011/05/top-one-percent-201105">quote from Nobel-winning economist Joseph Stiglitz</a>, is that “wealth begets power and power begets more wealth.” </p>
<p>That is, because the rich and corporate CEOs use their influence to promote their self-interest, inequality is built into the very DNA of capitalism. And to return to our metaphor, the rich scorpions sting the rest of us – by exacerbating income inequality through pay policies, stock buybacks and other actions – because it’s simply their nature. </p>
<p>But there’s plenty of evidence <a href="http://www.oecd.org/els/soc/Focus-Inequality-and-Growth-2014.pdf">income inequality undermines the economy</a> and, as a result, harms companies and the wealthy too. Eventually, we all sink together. </p>
<p>A <a href="http://positiveorgs.bus.umich.edu/research-review-articles/">growing body</a> of research in the emerging area of “positive organizational scholarship” suggests a different lesson from the scorpion fable: <a href="http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm">everyone can benefit if they work together</a>. That is, companies can invest in their workers, help reduce income inequality and make more money, all at the same time. </p>
<p>But they need a new perspective to see how.</p>
<h2>Age of rage</h2>
<p>The issue of income and wealth inequality has received a lot of attention in recent months, particularly on the campaign trail, as <a href="http://money.cnn.com/2015/10/13/news/economy/clinton-sanders-income-inequality/">candidates</a> <a href="http://www.pressherald.com/2016/07/01/income-inequality-widens-as-top-1-see-greatest-growth/">have argued about</a> whose policies would be most effective at lifting wages of the working class. </p>
<p>And no wonder. The percentage of total income received by the top 1 percent of earners in the U.S. has risen from under 8 percent in the 1970s to over 18 percent today. The percentage of total wealth held by the richest 0.01 percent (the elite 1 percent of the 1 percent) has soared from under 3 percent to over 11 percent over this interval. </p>
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<p>We haven’t seen extremes like these since the start of the Great Depression. So the response, consisting of <a href="https://berniesanders.com/issues/income-and-wealth-inequality">speeches</a> by political candidates, <a href="http://www.scientificamerican.com/article/economic-inequality-it-s-far-worse-than-you-think/">articles</a> by pundits, <a href="http://inequality.stanford.edu/cpi-research/area/income-and-wealth">research</a> by academics and <a href="http://www.bloomberg.com/news/articles/2011-11-09/occupy-wall-street-protests-inject-income-inequality-into-political-debate">angry outbursts</a> by the public, is hardly a surprise. </p>
<h2>How inequality hurts growth</h2>
<p>Let us consider two important ways income inequality undermines the economy: (1) by diminishing worker motivation and (2) by reducing the velocity of money.</p>
<p>The demotivating impact of income inequality occurs when workers see the gains of productivity going almost entirely to executives. </p>
<p>Since 1973, <a href="http://www.epi.org/productivity-pay-gap/">productivity has increased</a> by over 73 percent, while (inflation-adjusted) hourly worker pay has risen by only about 11 percent and <a href="http://www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/">CEO compensation has soared</a> by 1,000 percent. </p>
<p>Who can blame people for being reluctant to work harder when they know the proceeds will go to someone else? <a href="http://www.psychologicalscience.org/index.php/news/releases/are-humans-hardwired-for-fairness.html">Extensive behavioral research</a> has shown that people will forego personal gain to prevent outcomes they perceive as unfair. In work settings, this leads to demotivated workers working below their potential, even when it leads to smaller raises or bonuses. The result is reduced productivity, lower quality and less creativity, all of which undermine corporate profit and economic growth. </p>
<p><a href="http://www.usnews.com/opinion/blogs/economic-intelligence/2013/09/12/record-high-income-inequality-threatens-us-growth">Another way</a> inequality affects the economy is by reducing the velocity of money by <a href="http://www.dal.ca/content/dam/dalhousie/pdf/faculty/science/economics/seminars/Alvarez-Cuadrado%20SavingInequalityLast.pdf">shifting cash</a> to people who spend it more slowly. Working-class people who are stretching to make ends meet spend their income quickly – usually pretty much all of it – while wealthy people whose resources exceed their immediate needs <a href="https://www.dartmouth.edu/%7Ejskinner/documents/DynanKEDotheRich.pdf">tend to save substantial portions</a> of their income. </p>
<p>Consequently, whenever a company takes a dollar out of the hands of a worker and puts it into the hands of an executive or investor, the number of times that dollar will be spent in the economy is reduced. The result is less business for capitalists and less employment for workers. </p>
<p>These two observations imply that policies that decrease income inequality also <a href="http://voxeu.org/article/effects-income-inequality-economic-growth">bolster the economy</a>. Since this benefits both rich and poor, such policies offer opportunities for the rich, and the businesses they control, to be <a href="http://www.the-crises.com/income-inequality-in-the-us-1/">part of the solution</a> rather than part of the problem of income inequality. </p>
<h2>Ford’s famous $5</h2>
<p>The most straightforward opportunities are workforce investments to increase motivation and productivity of workers. </p>
<p>This is what Henry Ford did a century ago with his <a href="http://www.henryford150.com/5-a-day/">famous US$5 a day wage</a> – at a time when typical manufacturing wages were about $2.25 a day – which <a href="http://www.thedailybeast.com/articles/2014/01/06/henry-ford-understood-that-raising-wages-would-bring-him-more-profit.html">he called</a> “one of the finest cost-cutting moves we ever made.” In the present day, businesses ranging from tiny cleaning company Managed by Q to giant retailer Costco are using high wages as part of what Zeynep Ton of MIT calls a <a href="http://mitsloan.mit.edu/newsroom/articles/the-good-jobs-strategy-a-q-and-a-with-mit-sloans-zeynep-ton/">“good jobs strategy”</a> to drive productivity, quality and profits. </p>
<p>But isolated actions by individual companies are too small to have a significant impact on the velocity of money across the economy. To realize the full economic benefit of some income inequality-reducing policies, businesses need to implement them collectively. </p>
<p><a href="https://www.amazon.com/dp/B001ULOPO0/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1#nav-subnav">This happened</a> to a degree with Ford’s high-wage policy. Despite the legend that he raised wages to enable his workers to buy his cars, Ford’s original goal was to improve retention and productivity. However, when other employers followed suit, their collective wage increases produced a working class that could buy more cars and more of everything else. </p>
<h2>One way companies make inequality worse</h2>
<p>A contemporary example of a situation that calls for collective action is the increasingly common practice of <a href="http://fortune.com/2016/04/25/buybacks-stock-market/">stock buybacks</a>. </p>
<p>These are used by public companies to boost their stock prices by reducing the total number of shares, which in turn increases earnings per share. However, because this enhances <a href="http://www.theatlantic.com/politics/archive/2015/02/kill-stock-buyback-to-save-the-american-economy/385259">stock-based executive compensation</a> without benefiting workers, <a href="https://hbr.org/2014/09/profits-without-prosperity">stock buybacks amplify income inequality</a>. </p>
<p>An alternative for boosting stock price without aggravating income inequality is investing in worker compensation as part of a productivity enhancement strategy. But, since productivity investments take time to produce results, it is likely that the buyback strategy will generate a greater increase in stock price, and executive compensation, at least in the short term. So, from a pure self-interest perspective, management has incentive to adopt the buyback strategy rather than the workforce investment strategy. </p>
<p>The fact that stock buybacks exceeded $500 billion in 2015 suggests that many businesses made precisely this choice.</p>
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<span class="caption">A case of nature vs. self-interest?</span>
<span class="attribution"><span class="source">Scorpion frog via www.shutterstock.com</span></span>
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<h2>Stop stinging the frog</h2>
<p>Unfortunately, because buybacks divert money away from investments in productivity <a href="http://www.reuters.com/investigates/special-report/usa-buybacks-pay/">without improving firm performance</a>, they ultimately lead to less profit, fewer jobs, lower wages and a smaller overall economy. Furthermore, if other firms are using them to boost executive compensation, a company that wants to recruit and retain top managerial talent will be seriously tempted to use buybacks as well. </p>
<p>An option for breaking this economically destructive cycle, which almost never gets considered, is for firms to lobby to take the buyback option off the table for everyone. If, for example, stock buybacks were restricted, as they were prior to 1982, management would have greater incentive to make genuine investments in their businesses, including in their workforces.</p>
<p>In addition to producing productivity gains within businesses, the increase in worker compensation would result in a velocity-of-money induced stimulus to the economy as a whole. The combined effect over time could even be large enough to make both executives and workers better off than they would be under the buyback strategy. </p>
<p>While collective lobbying for sensible regulations may sound like business heresy – in a world where corporate lobbying usually seeks narrow favors or to stymie regulations in general – it is a rational response to a situation in which legal and profitable actions by individual companies create negative consequences, or “externalities,” on the rest of the economy, and thereby wind up hurting the companies themselves. </p>
<p>Metaphorically, such scenarios are analogous to a large number of tiny scorpions (businesses) riding across the river on a giant frog (economy). When a single scorpion stings the frog, it derives pleasure from doing what comes naturally and barely harms the mammoth frog. But when every scorpion does the same, the frog dies and so do all the scorpions. </p>
<p>But humans aren’t scorpions, so we can choose to stop the self-destructive stinging and allow everyone to cross the river.</p><img src="https://counter.theconversation.com/content/62339/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wallace Hopp does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Rather than pursue self-interested policies that widen the gap between rich and poor, companies can invest in their workers, curb income inequality and make more money all at the same time.
Wallace Hopp, Associate Dean, University of Michigan
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/57777
2016-05-10T01:35:14Z
2016-05-10T01:35:14Z
Are we ready to raise taxes on the rich? History says no
<p><a href="https://theconversation.com/inequality-can-be-addressed-only-if-we-start-talking-about-the-working-class-44442">Economic inequality</a> is high and rising. At the same time, <a href="http://www.cbpp.org/research/state-budget-and-tax/most-states-have-cut-school-funding-and-some-continue-cutting">many governments</a> are struggling to balance budgets while maintaining spending for popular programs.</p>
<p>That’s prompted some presidential candidates to argue it’s time to raise taxes on the rich. Bernie Sanders is <a href="https://berniesanders.com/issues/income-and-wealth-inequality/">leading the charge</a> and would create a new top income tax rate of 54.2 percent, up from the current 39.6 percent. Hillary Clinton <a href="http://money.cnn.com/2016/03/03/pf/taxes/hillary-clinton-taxes/">would institute</a> the so-called <a href="https://www.whitehouse.gov/sites/default/files/Buffett_Rule_Report_Final.pdf">Buffett rule</a> to require individuals with adjusted gross incomes of over US$1 million to pay an effective rate of at least 30 percent, and she’d add a new 4 percent surcharge on anyone who pulls in $5 million or more.</p>
<p>As White House aspirants, other politicians and voters debate whether it’s time to once again soak the rich to spread their wealth around, it’s helpful to consider what prompted past governments – ours and others – to raise their taxes.</p>
<p>We investigated tax debates and policies in 20 countries from 1800 to the present for our new book, “<a href="http://press.princeton.edu/titles/10674.html">Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.”</a> Our research shows that it is changes in beliefs about fairness – and not economic inequality or the need for revenue alone – that have driven the major variations in taxes on high incomes and wealth over the last two centuries. </p>
<p>In general, societies tax the rich when people believe that the state has privileged the wealthy, and so fairness demands that the rich be taxed more heavily than the rest. To understand whether today’s voters are ready to tax the rich requires identifying the political and economic conditions that drive these beliefs.</p>
<h2>Debating taxation</h2>
<p>Debates about taxation typically revolve around self-interest (no one likes paying taxes), economic efficiency (tax policies should be good for economic growth) and fairness (the state should treat citizens as equals). </p>
<p>While it’s easy to see how self-interest and considerations about economic growth influence changes in tax policy, it’s harder to discern how fairness fits into the equation. In fact, our research suggests that fairness has played a key role in either generating a consensus around raising taxes on the rich or lowering them. </p>
<p>Politicians and others tend to use three arguments about fairness to support or oppose taxing the well-to-do: </p>
<ol>
<li><p>“Equal treatment” arguments claim that everyone should be taxed at the same rate, just like everyone has one vote. </p></li>
<li><p>“Ability to pay” arguments contend that states should tax the rich at higher rates because they can better afford to pay more compared with everyone else. </p></li>
<li><p>“Compensatory” arguments suggest that it is fair to tax the rich at higher rates when this compensates for unequal treatment by the state in some other policy area. </p></li>
</ol>
<p>Over the last 200 years, of all the varying arguments used to support raising taxes on the rich, our research suggests that compensatory claims, especially during mass mobilization wars, have been the most powerful. </p>
<p>When these arguments are credible, a consensus for taxing the rich shapes policymaking. </p>
<h2>Time to tax the wealthy</h2>
<p>Compensatory arguments were important in the early development of income tax systems in the 19th century when it was argued that income taxes on the rich were necessary to counterbalance heavy indirect taxes (e.g., sales taxes) that fell disproportionately on the poor and middle class. </p>
<p>The chart below shows when countries raised or lowered taxes on the rich, based on average top income and inheritance rates since 1800.</p>
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<p>As you can see, the real watershed moment for taxing the rich for many countries came in 1914. The era of the two world wars and their aftermath was one in which governments taxed the rich at rates that would have previously seemed unimaginable. </p>
<p>In fact, as our research shows, the most significant compensatory-based justifications for raising taxes on the rich have been to preserve equal sacrifice in wars of mass mobilization, such as World Wars I and II. This was true for both governments of the left and the right.</p>
<p>These conflicts forced states to raise large armies through conscription, and citizens and politicians alike argued that there should be an equivalent conscription of wealth. </p>
<p>The next chart shows this effect clearly by comparing average rates in countries that did and did not mobilize for World War I.</p>
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<h2>Conscripting wealth</h2>
<p>If mobilization for mass warfare is when major changes in taxes on the rich occurred, how do we know that the effect of these wars was due to changes in fairness considerations? </p>
<p>As we examine in detail in our book, when countries shifted from peace to war, or the reverse, there was also a shift in the type of tax fairness arguments made. During times of peace, debates about whether it is fair to tax the rich center on equal treatment versus ability to pay arguments. It was primarily during times of war that supporters of taxing the rich were able to make compensatory arguments. </p>
<p>An example of this type of argument goes like this: if the poor and middle class are doing the fighting, then the rich should be asked to pay more for the war effort. Or, if some wealthy individuals benefit from war profits, then this creates another compensatory argument for taxing the rich. </p>
<p>The following graph shows how the composition of fairness arguments changed in parliamentary debates in the UK before and after World War I. </p>
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<p>We also found that these compensatory arguments had the biggest impact in democracies, such as the United Kingdom and United States, in which the idea that citizens should be treated as equals is the strongest. </p>
<h2>Why taxes on the rich declined</h2>
<p>Although tax rates on the rich stayed high for a few decades after the major wars of the 20th century, they have declined substantially over the last 40 years. Does this decline give us further clues about the long-run determinants of what arguments work to impose higher taxes on the rich? </p>
<p>The most important factor has been that in an era in which military technology favors more limited forms of warfare – cruise missiles and drones rather than boots on the ground – the wartime compensatory arguments of old can no longer be used in national tax debates. Without conscription, these arguments are not credible. </p>
<p>In this new technological era, advocates of reducing taxes on the rich have argued that fairness demands equal treatment, while proponents of taxing the rich have been forced to fall back on traditional ability to pay arguments – that the wealthy should pay more because they can afford it. With compensatory arguments gone, in most countries the consensus for high taxes on the rich eroded over time. </p>
<p>We also considered the role that changing concerns about economic incentives and the role of globalization may have played in the decline in rates but found little evidence when it comes to personal income and wealth taxes.</p>
<h2>What this means today</h2>
<p>What can we conclude for today’s tax debates from all of this? </p>
<p>Our research suggests we should not expect high and <a href="https://theconversation.com/partisan-divide-over-income-inequality-makes-reducing-it-even-harder-56637">rising inequality</a> alone to lead to a return to the high top tax rates of the post-war era, when U.S. taxes peaked at over 90 percent. This is the lesson to draw from history, and it also fits with what many American voters prefer today. </p>
<p>When we conducted a survey for our book on a representative sample of Americans, we found only minority support for implementing a tax schedule with radically higher taxes on the rich than the one in place today. </p>
<p>At the same time, citizens still care a great deal about fairness. As in other eras not dominated by war mobilization, their fairness beliefs are primarily formed by equal treatment and ability to pay views, without a consensus for high rates. </p>
<p>Still, even though there seems to be limited room for large changes in top statutory or marginal rates, contemporary views on fairness suggest there would be support for important reforms so that the rich pay higher <em>effective</em> rates. </p>
<p>In the U.S., sometimes the rich <a href="http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/">actually pay a lower effective tax rate</a> than everyone else because of loopholes and other privileges in the tax code. This is the main argument in favor of the <a href="https://www.whitehouse.gov/sites/default/files/Buffett_Rule_Report_Final.pdf">Buffett rule</a>, named after billionaire investor Warren Buffett. </p>
<p>The rich paying a lower share of their income than everyone else clearly violates our sense of fairness, whether you are a proponent of equal treatment for all taxpayers or argue the rich should pay more because they are best able to. Reforms to address these privileges should be something both groups can agree on.</p><img src="https://counter.theconversation.com/content/57777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kenneth Scheve received funding for this research from the Russell Sage Foundation, Stanford University, New York University, and Yale University.</span></em></p><p class="fine-print"><em><span>David Stasavage received funding for this research from the Russell Sage Foundation, Stanford University, New York University, and Yale University.</span></em></p>
Two centuries of tax policy show efforts to raise taxes on the rich hinge on questions of fairness. The history also suggests proponents have a tough road ahead.
Kenneth Scheve, Professor of Political Science, Stanford University
David Stasavage, Julius Silver Professor, Department of Politics, New York University
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/52944
2016-01-19T04:02:35Z
2016-01-19T04:02:35Z
Why the rich should do more to save the world
<figure><img src="https://images.theconversation.com/files/108263/original/image-20160115-7368-1i7wvug.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bill Gates pioneered the Breakthrough Energy Coalition, an initiative by 28 billionaires to push for more funding for clean energy. </span> <span class="attribution"><span class="source">EPA/Ian Langsdon</span></span></figcaption></figure><p>One of the remarkable outcomes of the <a href="http://www.cop21paris.org/">climate change negotiations</a> in Paris is an initiative launched by 28 billionaires on the sidelines of COP21 to push for an increase in funding for clean energy technologies. </p>
<p>The <a href="http://www.breakthroughenergycoalition.com/en/index.html">Breakthrough Energy Coalition</a> was pioneered by Microsoft founder <a href="https://www.gatesnotes.com/globalpages/bio">Bill Gates</a>. It is aware of the limits of what governments can achieve on their own in shifting the pattern of industrial development and consumption towards cleaner energy. Even though public funding is critical to the development of new technologies, commercialisation by the private sector is what brings them to the market.</p>
<p>In the age of austerity, many governments are not equal to the weight of the challenge at hand. This is particularly true when it comes to increasing public investment into new areas of research and managing a future that is confronted by multiple risks. </p>
<p>The energy challenge is particularly daunting for Africa. Sub-Saharan Africa is energy starved, with 600 million people out of a population of <a href="http://data.worldbank.org/region/SSA">973 million</a> without access to <a href="http://www.mckinsey.com/insights/energy_resources_materials/powering_africa">electricity</a>. The entire region, excluding South Africa, has an installed generation capacity of 28 Gigawatts, equivalent to <a href="http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:21935594%7EpagePK:146736%7EpiPK:146830%7EtheSitePK:258644,00.html">Argentina</a>. </p>
<p>This, in turn, affects growth, industrial development and employment. It condemns Africa to a perpetual state of catch-up, chasing after elusive shadows of growth and prosperity. </p>
<h2>Plugging the gap</h2>
<p>Given the general lack of fiscal resources and technical capacity in many African governments to deal with this backlog, working with the private sector becomes a necessity. Africa provides a testing ground for innovative solutions, and initiatives such as the one Gates has pioneered could offer a great opportunity to plug the gap.</p>
<p>Without a doubt, governments need to play their part in creating the right environment to attract greater private sector investment. But ultimately success will hinge on collaboration.</p>
<p>In today’s global system, power to effect change is more laterally organised, and diffused across states, business, wealthy individuals and other influential non-state actors. Solutions to major social challenges at the domestic and global level hinge on co-funding, co-design of solutions and harnessing of will across the private and public sectors.</p>
<p>As William Eggers and Paul Macmillan <a href="https://hbr.org/product/the-solution-revolution-how-business-government-and-social-enterprises-are-teaming-up-to-solve-society-s-toughest-problems/an/11558E-KND-ENG">point out</a>:</p>
<blockquote>
<p>citizens, businesses, entrepreneurs, and foundations, often turn to each other rather than relying solely on the public sector to coordinate solutions to every problem. </p>
</blockquote>
<p>The fundamental mark of the shift in the global landscape of power today may not be the rise of emerging economies but the growing role of private individuals and a host of non-state actors. Some may well be far more resourced than many states.</p>
<p>Writing about a Third Industrial Revolution nearly a decade ago, the futurist Jeremy Rifkin <a href="http://thethirdindustrialrevolution.com">predicted</a> that there would in future emerge an infrastructure of collaboration to build momentum for what he called a “post-carbon” future. This collaborative network would comprise the private sector, civil society and governments. </p>
<h2>The role of wealthy individuals</h2>
<p>Although they are often maligned and associated with greed, billionaires such as Gates and others have shown that wealth can be deployed in the service of humanity, especially to purchase a more sustainable future for the next generation. </p>
<p>Since wealthy individuals tap into their personal resources, they do not need to jump bureaucratic hurdles before they commit resources. And the reach of their impact can defy artificial national borders.</p>
<p>Dubbed the philanthrocapitalists, the 28 billionaires who clubbed together in Paris, are collectively worth an estimated <a href="http://www.europost.bg/article?id=15294">$350 billion</a>. They are drawn from both the developed and the developing world. Apart from household names such as Gates, Mark Zuckerberg and Richard Branson, there are also Chinese magnates such as Jack Ma and Neil Shen; Indians (Ratan Tata and Mukesh Ambani); a Gulf prince Alwaleed bin Talal; Nigeria’s Aliko Dangote; and South Africa’s Patrice Motsepe. </p>
<p>They have found a social outlet for their wealth. Their aim is to push for a shift away from the production paradigm of 18th to 19th centuries’ industrial revolution, and to create a more sustainable future driven by clean technologies.</p>
<p>In the context of mitigating the effects of climate change, the Gates-led super elites will be working with 19 governments from developed and developing countries. The countries have signed up to an initiative called <a href="http://mission-innovation.net/">Mission Innovation</a> aimed at achieving global innovation on clean energy.</p>
<p>Developing countries that are part of the initiative include Indonesia, India, Mexico, Brazil, Chile, China and the United Arab Emirates. Not a single African country is member.</p>
<p>There are touted benefits for member countries. The group of 28 investors will prioritise countries that are part of the project in channelling investment into research pipelines.</p>
<p>The collective is seeking to address the twin challenges of:</p>
<ul>
<li><p>low scales of investment into green technologies of the future; and</p></li>
<li><p>energy security.</p></li>
</ul>
<p>For example, they cite the fact that the current scale of funding towards clean energy research is a <a href="https://www.washingtonpost.com/national/health-science/obama-bill-gates-to-lead-major-effort-to-spur-spending-on-climate-research/2015/11/29/80b157ca-96e7-11e5-94f0-9eeaff906ef3_story.html">paltry at $10 billion</a>. The investors are committing themselves to double this to <a href="http://www.theguardian.com/environment/2015/nov/30/major-powers-pledge-20bn-for-green-energy-research">$20bn over next five years</a>.</p>
<p>Given South Africa’s energy constraints and its commitment to a low-carbon trajectory, it is surprising that it did not sign up to the initiative. It would make sense for the country to use this platform to draw lessons and position itself closer to evolving frontiers of clean energy. Hopefully South Africa and other African countries will, in time, participate.</p>
<h2>Why collaboration is important</h2>
<p>There are a number of lessons that can be drawn from the initiative.</p>
<p>The first is that individual philanthropists or governments working apart from the private sector cannot address major national and global challenges. Collaboration is the future. </p>
<p>Collaboration and networks are likely to be the most effective instruments for tackling social problems from health to food security to climate change and a host of collective problems that confront us in the 21st century.</p>
<p>Remarkably, the group of philanthrocapitalists acknowledge that governments can act proactively by increasing their role in investing in research to stimulate new industries and to seed private creativity. The role of philanthrocapitalists and entreprenuers is to scale up funding and push these technologies towards commercialisation.</p>
<p>If this initiative is sustained, it can be a pioneer for a new form of progressive global capitalism.</p>
<p>There is a need for more philanthrocapitalists who care about the future, who seek to create something that would sustain long after they are gone, and who understand that the value of wealth is to contribute to the betterment of humankind.</p><img src="https://counter.theconversation.com/content/52944/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mzukisi Qobo does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
In the age of austerity, governments have limited resources to invest in new areas of research – like clean energy – that have multiple risks. Billionaires like Bill Gates can help plug the gap.
Mzukisi Qobo, Associate Professor at the Pan African Institute, University of Johannesburg
Licensed as Creative Commons – attribution, no derivatives.
tag:theconversation.com,2011:article/52322
2016-01-11T04:35:49Z
2016-01-11T04:35:49Z
Why reaching and staying middle class is a lifetime challenge
<figure><img src="https://images.theconversation.com/files/107258/original/image-20160105-28988-1hzuttf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many people aspire to live a middle class life. Once they attain it, sustaining it is a big challenge. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Many people are born into the middle class, but for those born in poverty the lifetime challenge is reaching middle class status.</p>
<p>The definition of middle class status is a challenge in itself. People in poverty are often described as those surviving on less than US$1,25 (some R17,50) <a href="http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22510787%7EpagePK:64165401%7EpiPK:64165026%7EtheSitePK:469382,00.html">per day</a>. But that does not imply that middle class simply starts just above this threshold.</p>
<p>The wealthy are easy to describe. Wealthy people have lots of money and lots of things. Naturally the wealthy will have their own ranking among and between themselves; you probably have to be wealthy to understand this.</p>
<p>This is well illustrated by the rumour that John D. Rockefeller, the American businessman, supposedly <a href="https://critiqueofcrisistheory.wordpress.com/responses-to-readers-austrian-economics-versus-marxism/paul-volckers-banking-reform-proposals-and-socialist-revolution/">commented</a> on J P Morgan’s estate of US$80 million (some US$1,2 billion in current value) after his death in 1913 by saying: </p>
<blockquote>
<p>“And to think, he wasn’t even a rich man.” </p>
</blockquote>
<h2>Who makes up the middle class</h2>
<p>Likewise there are different categories of “middle class”. In the US an annual household income ranging from US$25 000 (R350 000) to US$75 000 (R1 million) will probably place people in the lower to upper middle <a href="https://www.aei.org/publication/middle-class-disappeared-higher-income-groups-recent-stagnation-explained-changing-household-demographics/">class</a> range.</p>
<p>Economist <a href="http://www.econ3x3.org/article/who-are-middle-class-south-africa-does-it-matter-policy">Justin Visagie</a> describes the South Africa middle class as a household of four persons with a total household income of between R5 600 and R40 000 per month after direct income tax. This covers the range from lower to upper middle class as in the US.</p>
<p>A general definition for a middle class existence in South Africa is discretionary expenditure. Middle class families can typically buy the things they need and will have money to spend as they please after they have purchased all necessities.</p>
<p>If this description is accepted, it is clear why people in poverty surviving on R17,50 per day (R2 100 per month for a family of four) desperately aspire to reach the middle class, albeit then the lower middle class.</p>
<p>Likewise, it is a long reach from the lower middle class to the upper middle class. An upper middle class family is nearly seven times better off than a lower middle class family in terms of the classification above.</p>
<p>But with reaching middle class status comes new challenges. Middle class status results in a particular lifestyle. A household equipped with gadgets and equipment using electricity (fridges, freezers, TV and the like). A motor vehicle. A better house and better schools for the children.</p>
<p>Simply put: in a middle class existence, expenditure follows income. More middle class trimmings follow a middle class existence. What was good enough before is no longer good enough. And definitely not good forever.</p>
<p>And with what is good enough, often comes debt. Middle class people borrow money to purchase things associated with middle class existence. </p>
<h2>The challenges of the middle class</h2>
<p>The first challenge to stay middle class is therefore to retain a middle class job. It is unfortunately true that the average middle class South African is only two pay cheques away from financial hardship.</p>
<p>There are many examples of middle class people living above their means. One is expensive and flashy cars. The neighbours must see that middle class has arrived. </p>
<p>Another is neglecting to budget annually for house maintenance. The cost of maintaining a house inevitably amounts to 1% per annum of the replacement value of that house.</p>
<p>A simple calculation shows that a family living in a house worth R1,2 million should budget annually R1 000 per month for the upkeep of its property. Naturally this amount is not used every month, but should be accumulated for periodic expenses to maintain the property and improvements.</p>
<p>But the middle class challenge goes beyond keeping a middle class job. It also entails sufficient provision for retirement that will continue to support a middle class lifestyle.</p>
<p>Transnet pensioners who get a pension from the Transnet Second Defined Benefit Fund are the best example in South Africa of people who have slipped out of the middle class.</p>
<p>In brief, this Transnet fund stipulates that pensioners get an annual pension increase of 2% per annum. In a period where inflation averages nearly 6% per annum (5,8% per annum since 2002), these pensioners get poorer every year.</p>
<p>A simple example illustrates this point: the real income of a person who retired in 2002 and received increases of only 2% per year since would have decreased by 40% over the ensuing period.</p>
<p>Inflation is therefore a clear and present danger for people who want to protect a middle class lifestyle, particularly after retirement. </p>
<h2>Live within your means</h2>
<p>The sustained protection of a middle class lifestyle therefore not only entails the discipline of living within your means, but also requires diligent saving over a lifetime. People who attained middle class status often live above their means in their enjoyment of this newly attained status. Avoidance of this pitfall will help to ensure a sustained middle class lifestyle.</p>
<p>The challenge of our time is therefore twofold. The first is reaching a middle class lifestyle. This is a challenge in itself that many people can only dream of.</p>
<p>The second is to retain middle class status over a lifetime and into retirement. With households facing financial pressure from all directions, retaining middle class status should not be taken for granted. It will increasingly require careful planning, hard work and diligent saving.</p>
<p><em>This article was written in collaboration with Carina Rossouw, a BAcc LLB student at the University of Stellenbosch.</em></p><img src="https://counter.theconversation.com/content/52322/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>
Reaching middle class status and sustaining it into retirement is a major challenge. The key is to live within your means.
Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand
Licensed as Creative Commons – attribution, no derivatives.