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WISDOM IN A NUTSHELL

MONEY
Who Has How Much and Why

By
Andrew Hacker
Published by Simon&Schuster/1997
ISBN 0-684-19646-8 /0-684-84662-4 paperback
254 pages

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The Big Idea


Americas gulf between the rich and poor has grown wider than ever. The disparity between the
income of men and women, white and black is still evident, while the number of self-made
millionaires has grown along with the number of individuals who take home $100,000 a year.
Indeed, there are more millionaires, but there are also more neglected children, more single
mothers, and more citizens in prison. The founding fathers of the United States Constitution
outlined how the nation would grow with an economy that would acknowledge diversity in the
faculties of men and such has occurred in the years that followed the statements of James
Madison and Alexander Hamilton. Here are the facts about who has the money in the worlds
most powerful nation.

The Beginning of Money and Capitalism


Two centuries ago Alexander Hamilton wrote that when America made the necessary shift from
an agrarian to an industrial society, its scientists, inventors, and engineers would be honored for
creating a demand for articles, for challenging their imaginations and intellect to put on the market
products that were designed to arouse the response of the purchasing public, and henceforth the
consumerist nation was born.

How much Money do you really need?


In a Roper-Starch survey conducted in 1995, Americans said they needed just $25,500 a year to
get-by, $41,100 to live in reasonable comfort, and $102,000 to fulfill all their dreams.

The Consumer Identity


Our wardrobes, the food we eat, where we travel, and what music we listen to, form only part of
our purchases that define our personalities. By our purchases and possessions we make an
attempt to persuade the world that we are original, unique, and that we truly exist.

Technology and Choice


Capital owners and managers are always looking for new technologies to recast the human
experience. Capitalism ushered in the automobile, air-conditioning, television, commercial
aviation, the computer, and the birth-control pill. The Pill, for example, is a biochemical
technology that played a crucial role in shaping American society as we know it today. It signaled
the freedom to choose careers other than motherhood. The American capitalist society holds
freedom of choice first. New inventions and new products create new jobs and careers, while
phasing out obsolete ideas, technologies, and lifestyles.

The Inequality Index


Finland is the most egalitarian nation in the world, according to a widely used measure of
inequality, which computes how far the rich and poor in one country are from the national median
income. The United States comes in thirteenth place with the highest inequality index or
income disparity after Finland, Sweden, Belgium, Netherlands, Norway, Switzerland, New
Zealand, France, United Kingdom, Australia, Canada, Italy, and Ireland. Americas rich receive
more than their counterparts in other countries, but her poor get so much less.

In New Yorks Chenango County, the deputy sheriff starts at $16,000 a year. A Vermont radio
news director gets $17,000, in Albuquerque, New Mexico, an airline reservationist makes
$14,000. How do Americans get by on so little?

Three Nations: Rich America, Middle Class America, and Poor America
There are more young couples living together today than in any time in America. Young people
share quarters with one or more roommates. Those from affluent homes receive subsidies from
parents. A large number continue to live at home. People are having less children.
In 1970 a single income would suffice for a full household. More Americans own two cars instead
of one, more Americans travel to Europe than in 1970, and today the laser printers, multiple CD
changers- even coffee costs more than the days of typewriters and turntables. More Americans
are ordering takeout food and eating out than in 1970.
In 1995, the threshold for one person living alone was $7,763 or about $150 a week. A single
parent with two children came to $12,278 or $236 a week. One would be more likely to get by in a
rural than urban area, where being poor is less evident, and there is not much available for
purchase.

Americas Widows
Among the aged poor, women outnumber men by 3 to 1. They are mostly widows living alone
who make do on reduced pensions.

The Rise of the Inmate Population


America has a growing group of men who have never had any steady employment, at least of the
legal kind. They lack a high school level of literacy and the social deportment most employers
expect. Many are released from the prison system and fail to find any employment, because of
their criminal records. Positions like school janitor, taxicab driver, or security guard, which would
be ideal for those seeking a fresh start are unavailable to these men because of their criminal
history.

Competing with those Fresh off the boat


One reason why unemployment persists even when jobs are available is immigrants are willing to
take wages that citizens of longer lineage would never consider. The long-term unemployed are
unwilling to take the jobs offered to immigrants, so the poor Americans feel they must receive
more, simply because they have been American longer.

The $100,000 Life


In 1995, 6.3 million American families or 9% of the total were taking in $100,000 a year. Only one
in six of these households earns the money through a single breadwinner, usually a well-paid
husband. The rest are households where Dad makes $52,498, Mom brings in $33,501, and Sis
contributes $17,221 from her earnings at the local mall.

Power Couples
Two-income homes are now found in all economic levels. Even if the husband makes $100,000 a
year, the wife still works in about 60% of all marriages. The category includes $20 million-dollar
couple Bruce Willis and Demi Moore, the Clintons $316,074, many CEO couples, and
Washingtons well-paid couples.

The six-digit incomes: Purchasing Possibilities or the Price of a good


Brain?
More than two and a half million Americans have six-digit paychecks from the Princeton
professor to the FedEx pilot, the doctor just starting out, as well as all those MBA grads. Why are
people getting paid so much? Is it because talent is in short supply so the competition is fierce for
these top performers? If there is a limited supply of talented people, the compensation bidding
naturally goes up. But perhaps the strongest force behind all the $100,000 salaries is the
increasing supply of things clamoring to be bought. And then theres the ever-increasing price of
sending kids off to a good college or university.
Employers have well-dressed men and women representing them and embodying a standard of
living that is fast becoming the national norm. Investors are more likely to trust advice from a guy
in a $2,000 suit. We assume if they are paid well, then they must be the best in their field.
Let us define Americas rich as those individuals and households, which have incomes of at least
$1 million in a given year. These include some sports players, Hollywood entertainers, small
business owners, heirs and heiresses, some trial lawyers, and a few doctors and heads of quasipublic organizations.
Here are some insights to Americas millionaires:

The 68,064 households have 184,889 family members, or enough people to fill all the
seats at Denvers Mile High Stadium, Chicagos Soldier Field, and Bostons Fenway
Park.

88% of the rich include married couples, with most children living on their own, and 961
listed their parents as dependents.

Of the 10,509 people who have incomes of $1 million or more, about one in seven is over
seventy years of age.

3,454 of the rich send alimony to a previous spouse. Many prefer to wrap up divorces
with a single huge settlement.

The rich pay more in medical fees because they can employ round-the-clock nurses for
an elderly relative and can buy medical equipment for these nurses to use at their homes.

Even the rich file for unemployment compensation benefits, maybe for a still dependent
son who cant seem to hold a job, or even a television star who was paid $2 million for 23
weeks of a series, and is entitled to benefits for the remaining 29 weeks of the year.
Heads must have turned at the unemployment office when she waited in line like
everyone else.

The Rich and Taxes


The economy has created more $1million salaries. Many pay themselves a salary from a
business, which can bring them considerable tax benefits. There is a sharp drop in individuals
with money from trusts and estates. In 1994, the rich had to give only 32% of their income to
federal coffers, which meant more cash for luxurious living and for beefing up their holdings. They
employ accountants and advisers who show how money can be sheltered from the IRS. These
come in the form of umbrella partnership real estate trusts, zero-cost dollars safe harbors,
deferred equity compensation, supplemental executive retirement plans, accelerated
charitable remainder trusts and the like. These allow for taxes to be paid with an option of picking

a propitious year. There is a mix of people in this stratum. From athletes and corporate chairmen,
to movie stars and litigation lawyers, golfers in Palm Springs and party goers in Palm Beach.

Life at the Top


Today you need a lot more money to be considered among the very rich. In 1996, Forbes
magazine listed 137 Americans who had personal fortunes exceeding $1 billion. Here are the
following groupings:

Group 1 The Self-Made Men


Includes Bill Gates, Paul Allen, Warren Buffett, John Kluge, and Philip Knight The listing below of
the 20 wealthiest Americans who are self-made illustrates the shift from physical assets to brain
power or speculative skills.
William Gates (Microsoft)
Warren Buffett (Investing)
Paul Allen (Microsoft)
John Kluge (Metromedia)
Lawrence Ellison (Oracle)
Philip Knight (Nike)
Ronald Perelman (buyouts)
Steven Ballmer (Microsoft)
Kirk Kerkorian (Investing)
Sumner Redstone (Viacom)
Ross Perot (EDS)
Richard DeVos (Amway)
Rupert Murdoch (Media)
Jay Van Andel (Amway)
William Hewlett (HP)
Jon Huntsman (Chemicals)
George Soros (Fund manager)
Marvin Davos (Oil)
Ted Turner (Media)

$18.5 billion
$15.0 billion
$7.5 billion
$7.2 billion
$6.0 billion
$5.3 billion
$4.0 billion
$3.7 billion
$3.4 billion
$3.4 billion
$3.3 billion
$3.2 billion
$3.2 billion
$3.2 billion
$2.9 billion
$2.5 billion
$2.5 billion
$2.2 billion
$2.1 billion

Group 2 The Family Business


Sons (No daughters by the way) of second-generation wealth, and those who grew their inherited
fortunes into larger enterprises. This group includes those family members who actually go to the
office and work everyday like the Johnsons of SC Johnson, The Wrigleys of Wrigley Chewing
gum, and the Mars brothers of Mars candy bars.
The 20 Largest Family Fortunes (1996)
Walton (retailing)
Du Pont (chemicals)
Mars (candy)
Rockefeller (oil)
Newhouse (publishing)
Haas (jeans)
Bass (oil)
Cox (newspapers)
Cargill (grain)
Dorrance (soup)
Pritzker (finance)

founded 1962
founded 1802
founded 1911
founded 1870
founded 1922
founded 1873
founded 1930s
founded 1898
founded 1865
founded 1876
founded 1902

$24.8 billion
$13.9 billion
$12.0 billion
$9.9 billion
$9.0 billion
$8.6 billion
$8.1 billion
$8.0 billion
$7.9 billion
$7.7 billion
$6.0 billion

Mellon (banking)
founded 1869 $5.8 billion
Lauder (cosmetics)
founded 1946 $4.1 billion
Scripps (newspapers) founded 1870s $3.6 billion
Upjohn (pharmaceuticals) founded 1885 $3.2 billion
Ziff (publishing)
founded 1927 $3.0 billion
Smith (machinery)
founded 1889 $2.8 billion
Davis (groceries)
founded 1925 $2.3 billion
Chandler (newspapers) founded 1894 $2.1 billion
Gund (food, banking) founded 1919 $2.1 billion

Group 3 Heirs and Widows


While its true there are inheritance taxes to be paid, with prudent estate planning, much of the
sons, daughters, and widows wealth can be protected from going to the government. The recently
deceased self-made billionaires normally leave all their wealth to their families, so there will
always be a small percentage of Americans who have a life of leisure; Ray Krocs widow receives
a few pennies from every burger sold by McDonalds, for instance.

Group 4 Old Money


These are the people who are living off the dividends of capital gains from three generations or
more of wealth. E.g. Seventeen hundred Du Ponts share in the family fortune. There are still
some families who have considerable wealth even if they dropped out of the Forbes list during the
90s, like the Kennedys.

Then and Now


In 1918 the Guggenheims, Rockefellers, J.P. Morgans, and George Eastmans became rich by
turning raw materials into products. Today corporate America has created new wealth and to be
on the Forbes 400 list one needs to take in $415 million.

The Rich and Not Famous


Americans are familiar with Home Depot, Lands End, Dominos Pizza, Blockbuster, FedEx,
Tower Records, Carnival Cruises, and Fidelity Investments, but the wealthy founders behind
these giants are hardly household names: Arthur Blank, Gary Corner, Thomas Monaghan,
Frederick Smith, Rusell Solomon, Harry Huizenga, Ted Arison, Daniel Abraham, Lawrence
Ellison, and Edward Johnson.

Wealthy Women

Oprah Winfrey (entertainment and publishing)


Mary Hudson (gasoline stations)
Estee Lauder (cosmetics)
Janice Davidson (software)
Pamela Lopker (software)

Black Money

Berry Gordy (Motown Records)


John Harold Johnson (Ebony and Jet magazine)
Reginald Lewis (Beatrice Foods)
Bill Cosby (entertainment)
Oprah Winfrey

Immigrants

Rupert Murdoch (Australia)


Edgar Bronfman Jr. (Canada)

With regards to geography, California now has more rich people than New York, and in terms of
age, the youngest person to make it on his own is Michael Dell who made his fortune by age 26.

Do Americans resent the rich?


There is little evidence to show that Americans of modest income resent the rich. In fact, the
ordinary taxpayer resents those who are receiving public assistance more than those who are
living in the lap of luxury. Americans feel little resentment especially towards those who earned
their fortunes through honest work. Further, the rich provide added entertainment whenever they
have highly-publicized divorces, custody battles, sex scandals and even murder trials like O.J.
Simpsons. They clearly do not resent Michael Jordan for making his millions, and how could
anyone resent the charming Oprah Winfrey or the funny and wholesome Bill Cosby?

Hail to the Chief


The CEO is to our generation as the feudal lord or baron was in the agrarian days. Why are these
CEOs paid so much? The common rationale for their astronomical compensation plans is that
under the CEOs leadership the company was able to achieve new heights in stock growth and
performance. Sometimes, high pay is used to keep an employee from leaving a company. But
more often, the large sums of money paid to a CEO are not really to show how much this person
is worth, but to show that the company can pay its top people top dollar, so its actually about
maintaining a healthy corporate image.

Chief Executives Money Scale


Founders

Company

Stock Owned

Average Compensation*

Philip Knight
William Gates
Leslie Wexner
Michael Dell
Charles Schwab
Frederick Smith
Bernard Marcus

Nike
Microsoft
Limited
Dell Computer
Charles Schwab
Federal Express
Home Depot

33.9%
23.9%
23.1%
21.3%
20.0%
8.5%
3.1%

$1,378,000
$370,000
$2,036,000
$573,000
$4,457,000
$884,000
$2,591,000

William Wrigley
Washington Post
Marriott
New York Times
Anheuser-Busch

17.8%
16.0%
7.5%
7.1%
0.5%

$1,457,000
$606,000
$1,482,000
$1,419,000
$3,891,000

H.J. Heinz
Travelers Group
Coca-Cola
Disney

1.6%
1.3%
0.7%
0.6%

$23,829,000
$39,935,000
$11,917,000
$46,549,000

Founders Heirs
William Wrigley
Donald Graham
Willard Marriott
Arthur O. Sulzberger
August Busch III
Employed Executives
Anthony OReilly
Sanford Weil
Roberto Goizueta
Michael Eisner

John Welch
John Smith

General Electric
General Motors

0.03%
0.01%

$9,080,000
$1,988,000

*Average of total payments for years 1991-1995

The Shrinking Corporation


Corporations like Nike employ only 9.500 U.S.-based employees, most of whom are involved in
the sales, design, and promotion aspect of the business. Labor is farmed out to Taiwan,
Malaysia, or Brazil. The idea of the shrinking corporation proves a company can be profitable with
less American employees, so its top executives can have their fat paychecks and if there are any
layoffs, they happen in faraway countries anyway.

Americas M.D.s, J.D.s, and Ph.D.s


The American Lawyer
Over the past 35 years the number of lawyers in America has more than quadrupled from
213,000 in 1960 to 894,000 in 1995.
New York still has the highest paid starting associates and partners, mostly because the cost of
rent and living is much higher. The profit per partner at New Yorks Wachtell Lipton comes to
$1,595,000, while a starting associate at Chadbourne and Park can earn $85,000.
The American Doctor
Just a couple of reasons why physicians incomes are declining:
HMOs have set the limit on doctors compensations, and fees are varied according to
specialization.
Doctors attend to clients/patients one at a time and there are just so many hours in one
day. Lawyers in America actually make more money than doctors because they can be
hired by corporations, and can counsel for class suits.
The American Professor
Teaching is no longer the thankless profession it once was. In the countrys leading educational
institutions, the average salaries for full professors at Harvard, Stanford, CalTech, Princeton,
Yale, MIT, NYU, Chicago, and Columbia are all around the $100,000 mark, with Harvard
professors earning $107,000 and Columbia coming in at $93,000.

Outcastes and Immigrants


Generations after the abolition of slavery, America is still far from being color-blind.

Black women have fared better than their black brothers in terms of educational
achievement and median income.

From 1975 to 1995 the median income ratio of blacks to whites actually decreased.
Blacks earned $605 for very white wage-earners $1000 in 1975, and in 1995 blacks
earned only $577 against the white workers $1,000.

Black and white women tend to mix more easily at workplaces than black and white men.

African Americans are over-represented in occupations such as nursing aides and


orderlies, hotel maids, postal clerks, bus drivers, social workers, or janitors.

Blacks are under-represented in the fields of engineering, designing, architecture, law,


advertising, dental hygiene, and geology.

The occupations where there is most parity to whites are in retail, banking, aircraft
mechanics, education, hairdressing, and entertainment.

Ancestry and Median Household Incomes

Americans of European ancestry or in the general term, whites, have generally higher
median incomes with Russians earning the highest at $45,778 and French being the
lowest at $30,696.

Among Americans with native origins from other countries, India and the Philippines hold
the higher median incomes at $44,696 and $43,780 respectively. Cambodians make the
least at $18,837.

Americas Immigrants and the Economy

As consumers Americans have benefited greatly from immigrant labor. Office cleaning,
taxi rides, meals, the bargain sweater from GAP, and childcare offered by immigrants
have kept prices of many goods and services down.
Immigrants hold lower-paying jobs and are willing to do so despite the fact many have
college degrees from back home, and your taxi driver may have been an engineer in
Pakistan, or your laundry lady could have taught high school back in Manila.
Were it not for Indian-run motels, a lot of Americans would be sleeping in their cars.
Were it not for Asian immigrants, CalTech and MIT would have empty seats in their
classrooms.

Immigrant Chairmen
Samir Gibara
Malik Hasan
Mory Ejabat
Ray Irani
Roberto Goizueta

Egypt
India
Iran
Lebanon
Cuba

Goodyear
Health Systems International
Ascend Communications
Occidental Petroleum
Coca-Cola

Family Reunification in Immigration Law: an Economic Plus


High incomes of Asian households reflect both spouses work at jobs beyond the regular 9 to 5
scope. A grandparent usually serves as full-time babysitter and housekeeper. This proves the
Family Reunification provision in American immigration laws have been a good economic
investment. Elderly parents need not go to nursing homes, keeping costs down, while retaining
their self-respect.

Projected Ethnic Composition in the USA by 2030


Whites
Black
Latino
Asian

60.5%
13.1%
18.9%
6.6%

The main reasons for these projections: Whites and Asians are having fewer kids to replace their
populations.

Immigration: The Bottom Line


A country that embraces Arnold Schwarzenegger and Henry Kissinger agrees to the idea that it
needs the talent and vigor of newcomers. If immigrants continue to show they outlearn residents
of longer tenure, then America has no choice but to let them in.

Four Sisters: Profiles of American Women


To give a human dimension to the statistics, here are brief profiles of four sisters based on the
existing realities in America today.
Sarah Sloan
Almost 40, no income of her own, by choice
Married to a wage-earning husband
2 children
Listed as her husbands dependent
10 million American women are just like her
Sally Sloan
Single mother, mid-30s, 2 kids, never been married, unemployed
Father of one child provides only a fraction of support; the other father provides no
support at all.
Basic monthly welfare/stipend is $389
Receives food stamp program worth $214 a month
Government rent stipend $185 a month
Total government assistance is $788/month
Receives Medicaid (free dental care, prescriptions, etc)
5 million women are just like her
Sandra Sloan
35, recently divorced, one child
Airline reservationist, works from home, ($14,000 a year)
Receives child support $250 a month, no alimony
Total $17,000 annual income
Samantha Sloan
37, single, no kids
Corporate vice-president ($190,000 and rising)
Travels frequently on business
Got involved with a married man after breaking up with a longtime boyfriend who wanted
her to give him more of her time
Will rise as high as she can on the corporate ladder, and then leave to start her own
company
1.4 million women are like her or are earning $75,000 a year

The Gender Gap

In 1995, women received $538 for every mans $1,000.


Single never been married women in their early to mid-30s with full-time jobs are
making 5 dollars more than their male colleagues.

The ratio of median income for women to men is pulled down because of the large
number of non-working wives and many who choose to work only part-time.

Less I dos in America

Fewer Americans are getting married today than ever. Many are postponing marriage
until they are older, and more marriages are ending in divorce. Men are more inclined to
remarry, but women who divorce more likely stay single.

Many young Americans either live alone, or share rent with a roommate or live-in partner.
They are becoming part of the fast-growing group of DINKS or Double Income No Kids
bunch. They are comprised of both straight and gay couples.

Women have higher expectations from a partner today, especially black women.

More single women are deciding to have children on their own.

Routes to higher incomes for Women

Postponing marriage and kids


Additional education and training

The Ever-Present Gap

Women have to find a balance between work and family that is never required of men.
Most successful women have to choose between work and family, while successful men
never have to make that choice.

Money and America Today


If you want efficiency and prosperity, variations in income are inevitable. A family just off a plane
from Korea has more opportunities than a black couple whose ancestors have been here for
centuries. Young people today will not be able to enjoy a standard of living their parents had at
their age. There are more self-made millionaires and $100,000 earners in the USA than
anywhere in the world, but there are also more neglected kids, single moms, and prison inmates.
The cost of power and influence is great. How much will it cost to bridge the existing gaps?

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