The Meek Shall Inherit from Their Boomer Parents

And more from this week...

One problem with rising income inequality is that it leads to even sharper increases in wealth inequality. From 1989 to 2019, for instance, the liquid net worth of the wealthiest 10% of American households increased by $30 trillion. For the bottom half of households, liquid net worth fell.

The who-cares-about-inequality crowd tends to argue that wealth inequality is especially untroubling; it doesn’t necessarily represent different lifestyles or levels of consumption, for instance, but rather savings and investment that is fueling grater prosperity for all. If that were ever true, it’s not true any more. Your one thing to read this week is from The Economist: Inheriting Is Becoming Nearly as Important as Working.

The unprecedented wealth amassed by Baby Boomers may not cause trouble sitting in their retirement accounts and home equity. But it is dramatically distorting markets as it subsidizes the lifestyles of select members of younger generations. And as the Boomers pass on themselves, the estimated $120 trillion that they will leave behind, just in the United States, is poised to remake the face of the economy and create a landscape of winners and losers uncorrelated with merit, effort, or output. In the United Kingdom, one-third of those born in the 1980s will receive an inheritance equal to at least ten years’ earnings for their peers.

There is an economic problem here and a social one. The economic problem can be stated simply as follows: The money isn’t real. Yes, yes, money is never real. But in a well-functioning economy, the money that people earn is correlated with the output they produce, and thus the aggregate money earned can be spent acquiring the aggregate output. (This and most of the statements to follow are subject to all sorts of caveats. I’m speaking in broad strokes here. As the kids say, “don’t @ me, bro.”)

“Money is both a medium of exchange and a store of value,” we learn in economics class. As a medium of exchange, it facilitates transactions that would otherwise have to occur through direct bartering of thing for thing. Very useful! And when people consume less than they have produced, they save that difference, the savings stored in money-denominated assets that they are entitled to convert back into consumption at some future date and in the meantime provide resources for capital investment and lending. Other people consume more than they produce in the short run, in turn acquiring an obligation to produce more in the future. Welcome to capitalism!

OK, but then what is this $120 trillion that will soon be bequeathed? Did the Boomers really produce $120 trillion more than they consumed? No. Assets that they held, stocks and real estate, appreciated in value. Others out there did not consume $120 trillion more than they produced, now standing ready to produce for the lucky inheritors. If the inheritors choose to just hold the stocks and real estate themselves, they can continue to feel rich. But what happens if they try to convert the savings back into consumption? Even sooner, what is happening as those young people fortunate to have rich parents receive support from those parents equivalent to what their peers could only hope to earn someday in much better jobs? Madeline Leung Coleman tries to answer that question in How Many New Yorkers Are Secretly Subsidized by Their Parents?

I don’t think anyone quite knows the answers to these questions. Certainly, our standard economic measures do a poor job measuring the trends. What we have is another form of imbalance, much like the enormous trade deficit, or the descent of financial markets into capital-extracting speculation, which we should expect to confound our expectations for how markets will perform.

And that brings us to the social problem. The fundamental premise of a market economy, and certainly the basis for its claim to be a just mechanism for allocating resources, is that people deserve what they have because they earned it. “Earned” is an oddly abstract word—what we actually mean is that they produced something of equivalent value. You get out what you put in.

Maybe we disagree with how the market values things and consider the teacher’s work more valuable than the stock broker’s, but at least we understand that the stock broker found someone willing to pay him more for the work he did, and it would be open to the teacher to pursue work as a stock broker too. Exceptions abound, of course inheritance has always been a fact of life, along with other windfalls, and all manner of inequities, but at least the perception has been that they are the exceptions, not the rule.

The model may still be unfair in all sorts of ways. It does not depend upon equal opportunity. Starting point in life and innate ability may leave some people with far greater opportunity and ability to succeed and contribute. But they do have to then, you know, succeed and contribute. If you are born with all those advantages and fail to take advantage of them, you are likely to find yourself downwardly mobile.

What happens if the exception becomes the rule, and resources and consumption bear no relationship to effort and production? I get the bigger house because I have the higher paying job and saved more is imperfect, to be sure, but it is coherent, and establishes some useful incentives. I get the bigger house because my parents had the higher paying job falls flat. Of course, there is an entirely different, clan-based system of morality and justice in which this makes perfect sense. But it is not our western liberal system. We should be careful about what elements of it we want to embrace or accept, and consider what each would imply for other facets of our culture.

The alternative would be to interdict the accumulation and transfer of wealth. We can and should also pursue an economy that generates better outcomes, but even great success on that front would then require another generation or two to counteract the wealth concentration that has occurred. Wealth and inheritance taxes are one option to pursue, though making them work well is a technical challenge. (As an aside, it is always fun to ask rich progressives what they think of wealth taxes. You would be amazed how quickly they discover endless reasons it just can’t work. I’ll never forget listening to one billionaire, who styled himself a real pitchfork populist, implore me to consider the plight of his friend, who had most of his wealth stored in fine art. What was he to do? Sell the art?! That’s unreasonable.)

Conservatives have become acutely aware in recent years of the havoc wreaked on society by massive pools of wealth handed down to unaccountable charitable foundations. We should probably attend equally to the havoc when the recipients are not non-profits but trust-fund kids.

WHAT ELSE SHOULD YOU BE READING?

He Gave a Name to What Many Christians Feel | Ruth Graham, New York Times

This is a fantastic profile of Aaron Renn, who we are proud to have as a contributing writer at Commonplace, and who is one of the most thoughtful and influential commentators on the modern version of what once would have been called the “religious right.” Fun fact: Aaron and I started on the same day at the Manhattan Institute back in 2015, having both left careers in business consulting. (Obviously, we both also had a number of interests that diverged from MI’s focus.) It’s been wonderful watching him develop his own unique and indispensable point of view on the nation’s most pressing issues. Congratulations Aaron!

Bonus links: We did a home-and-home podcast series back in August, here I am talking with him, and here he is talking with me.

Inside the Explosive Meeting Where Trump Officials Clashed With Elon Musk | Jonathan Swan & Maggie Haberman, New York Times

I’ve written a lot about the shortcomings of Elon Musk and his island of misfit boys at the DOGE in the past couple of weeks (“The Limits of Governing by ‘Easy Button’” and “What Trump Could Say Tomorrow Night, Even If He Won’t”). It is encouraging to see the political checks on the nonsense beginning to work as they should, most recently in Secretary of State Marco Rubio’s reported confrontation with Musk at Thursday’s cabinet meeting and President Trump’s subsequent instruction that DOGE could only make recommendations, with all operational decisions left in the hands of the agency heads. This is just one round in what will be an ongoing battle for a while, but winning rounds is how you ultimately win the fight.

Bonus link: Back in December, Statecraft’s Santi Ruiz came on the American Compass podcast to discuss “What DOGE Could Do.” Then we were just speculating, he more optimistically, me quite pessimistically. Now check out his blockbuster post, “50 Thoughts on DOGE.”

Bonus bonus link: As one person mused to me earlier today, “Chris Griswold was right.” About what? This terrific piece from October, “Conservatives Must Resist Musk-ification.”

The Schools Reviving Shop Class Offer a Hedge Against the AI Future | Te-Ping Chen, Wall Street Journal

Another in the ongoing series of good pieces highlighting the value and growing popularity of vocational and technical education. One point well emphasized here is that this kind of education is a lot more expensive than sitting a group of kids in a classroom with textbooks. But, I would emphasize, it’s a lot cheaper than trying to pay to get them through traditional college. That’s what makes moving funding out of higher ed and into these kinds of programs so important.

Another interesting note, hinted at in the headline, is that we are seeing a really useful convergence between the “high-tech economy” and the industrial economy. These were long seen as a dichotomy… America was getting out of dirty, physical work and into high-value services in air-conditioned office buildings, and getting everyone a college degree was the key to facilitating this beneficial transition. Well, we’ve learned this was not a beneficial transition. And we’ve learned trying to get everyone a college degree is a terrible plan. Now we’re learning there’s no dichotomy here—that, in fact, the dirty, physical work is integral to the success of the high-tech economy, especially insofar as it will rely on a new generation of energy-intensive data centers. The tech companies suddenly want to be friends with the energy companies and promote trade schools too. This is a very good trend.

The Party Is As Weak As I’ve Ever Seen It | Rep. Jared Golden, Time

Congressman Jared Goldman may be my favorite Democrat, and only partly because he has introduced legislation based on American Compass proposals for a 10% global tariff and a Family Income Supplemental Credit. He is also one of the few members of his party who seems committed to understanding and more effectively representing his constituents, rather than lamenting their backwardness and lecturing them. This interview is a great introduction to his thinking.

They Crashed the Economy in 2008. Now They’re Back and Bigger Than Ever. | Matt Wirz & Justin Baer, Wall Street Journal

The annual gathering for the structured-finance industry is in Las Vegas. “The last time it boomed like this was 2006 and 2007. Mortgage bonds were selling like crazy, and this crowd was flying high. Then these financiers crashed the U.S. economy and sent the global financial system to the brink.” Self-recommending.

Europe’s Defenses Risk Faltering Within Weeks Without US Support | Andrea Palasciano et al., Bloomberg

I’m including this mostly to foreshadow the link below to this week’s fantastic American Compass podcast episode with UK leader Michael Gove, where we debate the appropriate way for the United States to engage with a Europe that has refused to take seriously its own defense. How unserious has Europe been? Bloomberg has lots of fascinating data points and anecdotes, but I was most taken aback by this one: “Germany, the EU’s most populous country and biggest economy, had a little over 181,000 troops at the end of 2024, a slight decrease from the previous year.”

AI CORNER

A very pessimistic week for AI, so of course I wanted to make sure you saw it all. First, this is from last week, but a great summary from Tyler Cowen of reasons for skepticism about rapid economic disruption. Cowen thinks AI could boost annual economic growth by about half-a-point, which is similar to my best guess. (When Oren and Tyler agree on something, take note!) Suffice to say, not the 10% annual growth that Satya Nadella suggested would indicate the arrival of AGI.

Meanwhile, GPT-4.5 came out, and folks are unimpressed to say the least. GPT-5, meanwhile, is no longer going to be a world-beating breakthrough model, but some sort of amalgamation of existing models. Jeremy Kahn dives in at Fortune, in “The $19.6 Billion Pivot: How OpenAI’s 2-year struggle to launch GPT-5 revealed that its core AI strategy has stopped working.” Microsoft has indicated it is scaling back its investments (following on Nadella’s comment that “there will be overbuild”), prompting an epic rant from Ed Zitron, who it turns out delivers a weekly epic rant about what he considers the AI bubble or outright con.

Google co-founder Sergey Brin came out firing with a memo suggesting, per the New York Times, that “the company could lead the industry in artificial general intelligence — when machines match or become smarter than humans — if employees worked harder.” Specifically, 60+ hours per week, in the office. Which definitely seems like the sort of thing you say when you’re feeling confident about your progress toward AGI.

But top prize goes to Sam Altman, for this sad tweet:

AOL’s decision to offer unlimited, flat-rate access in 1996 is often and rightly considered an inflection point in growth and adoption of the Internet. OpenAI discovering that it is going to bankrupt itself offering unlimited, flat-rate access to its models is perhaps a harbinger of something else.

HIGHLIGHTS FROM COMMONPLACE

The Stale Poundcake of Freedom Conservatism | Drew Holden. A dispatch from the saddest room in Washington.

They Said It Couldn't Be Done | Mark Krikorian. Trump ends Biden’s migration crisis in no time.

The Stabilization of Religious Decline Is a Big Deal | Emile Doak. It shows that a better political order is possible.

Long Live the Building Class | Karl Zinsmeister. Would-be overseers underestimate the American love and capacity for independent enterprise.

And fresh off our debate triumph at the ARC Conference, Michael Gove, former Conservative UK MP and cabinet secretary and current editor of the Spectator, joined me on the American Compass Podcast to discuss how the United States should engage with a Europe that has refused to get serious about its own defense.

Check out the latest every day at commonplace.org, follow us on X @commonplc, and subscribe for the best of each week directly in your inbox.

Enjoy the weekend!