Question: What makes us feel wealthy?
TEXT OF INTERVIEW
TESS VIGELAND: The tax cut debate went viral recently after a University of Chicago professor, Todd Henderson, wrote a blog post titled "We are the Super Rich." His argument was that he actually isn't, despite a household income -- his wife is a doctor -- of more than $300,000.
He complained that letting the tax cuts lapse would cut into a budget that includes a gardener, housekeeper and nanny, two cars, $60,000 a year in retirement savings, and $60,000 for private school. "We are just getting by," he wrote.
The blogosphere cried foul. But what's really at work here is whether someone feels rich.
ROBERT FRANK: There is this generational issue where being wealthy used to mean that you lived off the income from your capital, that you didn't have to work and that wealth gave you the freedom to do what you really loved doing, rather than just working for money.
What changed in the late 1980s, 1990s and really ramped up in the 2000s, was the consumption side of that. So being rich used to mean you could live a modest and fine lifestyle off your capital. With this arms race of conspicuous consumption where houses and mansions got to be twice as large as they used to be, yachts got to be three times their average size, luxury became this enormous industry where everyone, both the aspirational and the truly wealthy, were spending, spending, spending. The definition shifted from living modestly off your capital to having tons of stuff.
VIGELAND: Do you think that changes coming out of the economic collapse and the recession?
FRANK: I think everyone expected it to change because the wealthy took a huge hit in their wealth and it did change probably for about a year. But what we are starting to see now, just in the last few months, with the stock market rebound and capital markets coming back, is that the wealthy are spending on luxuries again. And I think we are going to see a "Back to the Future" here where wealth and being rich is really defined on the luxury consumer and who has the bigger house. It might shift a little bit away from the Hummer and back towards the Prius. But I do think the wealthy love to show their wealth; America is still an achievement oriented society and I think that it will still largely be wealth defined by consumption as opposed to just living modestly off your capital.
TED KLONTZ: I don't believe that they see themselves that way. I think that the words that they would use is that we are really lucky, we are really fortunate we don't have to worry about some of the other things. But I think words like rich and wealthy are really ways that people who look at people who seem to have a lot or have a lot of capability to get a lot, it's more of an external label that we hang on people.
FRANK: It's true it becomes a four-letter-word, in my book "Richistan," I profile about a dozen people or so with net worths of $10 million or more. I had a couple, they are worth about $200 million, they said to me "Wow, I love reading that book about those people. I couldn't believe those people in your book." And so the wealthy loved the book and it was mainly because, as Ted points out, they don't see themselves as wealthy.
There is another component to that, which is that Americans always look up when they are defining wealth, so they never feel like the top guy. Even someone like Larry Ellison sorts of looks at Bill Gates and wonder what's it like to be Bill Gates. When they do these Gallup polls and they poll people and say what it takes to be rich, most people take their current income or current wealth and double it, because that's the most amount they can sort of realistically imagine themselves having. There is a billionaire I talked to who said "I'm not rich, now let me tell you about this guy I know who is rich." We are always looking at those above us and comparing ourselves to the people that we would like to be, rather than looking down at the reality.
VIGELAND: But from either end, isn't there a level of absurdity to saying that if you have $1 million, $5 million, $200 million, a couple of billion, that you are not wealthy? It's delusional!
FRANK: Some of it is PR because you want to seem humble no matter how much you have because that is the American way. But the larger point there, which I think is an honest one for most of these wealthy people, is if you can convince yourself and you are convinced that you are not rich, you are not wealthy, you are absolving yourself of the responsibilities that come with wealth. John Rockefeller, Jr. talked a lot about, with great privilege comes great responsibility, and he really built the Rockefeller philanthropy engine that drives so much good work today. And I think that if you are a self-made rich guy and you say, "Well I'm not wealthy, the guy down the street is," then philanthropy, giving to the community, treating your workers well, all the responsibilities that comes with wealth sort of falls of your shoulder. And you can just say, "Well when I get there, that's when I will be responsible." And it's a serious issue that a lot of today's wealthy don't perceive themselves as wealthy.