Luck Run Amok—Part 5
What Does It Take to Be Part of the 1 Percent?
Much has been said and written about growing income inequality in the United States. The share of national after-tax income going to the top 1% increased from 7% in 1980 to 14% in 2025. The share going to the bottom 90% fell from 65% to 47%. The economically elite are feasting while the rest are dieting.
Income, however, is an imperfect measure of economic well-being. Facebook’s Mark Zuckerberg, Tesla’s Elon Musk, Oracle’s Larry Ellison, and Google’s Larry Page and Sergey Brin are each paid an annual salary of $1, but have billions of dollars in wealth. They aren’t the only ones, just the most extreme examples. Many employees (especially those who work for young companies without much revenue) are paid with stock or stock options that let them buy the company’s stock cheaply. Their current income greatly understates their compensation and economic well-being.
More generally, many entrepreneurs have an abundance of what economists call human capital—ideas, wisdom, and talents that can be used to generate income. They might have a great idea for a new product or service (think YouTube, Uber, Spotify) and they work hard to build a profitable company. Instead of collecting a salary for building houses or shuffling papers, they cash in on a great idea. There may not be much income at first, but their company’s stock may soon be worth millions, even billions, converting their human capital into financial wealth. Their income is a poor gauge of their economic success.
On the other hand, some people have little wealth but enough income to provide a comfortable lifestyle. I know several families with over a half million dollars in annual income and essentially no wealth. They spend hundreds of thousands of dollars a year in order to live in McMansions, drive BMWs, go on paradise vacations, and send their children to expensive private schools. By any measure, they are living a rich life. They figure that once their children are grown and gone, they will start saving. Or maybe they plan to leave their jobs horizontally. Their work isn’t physically demanding and, as long as they are reasonably alert, there is no real need to stop working. They expect to die without ever having had substantial wealth, but always having had a wealthy lifestyle.
In fact, wealth and income may both be misleading measures of a person’s economic prosperity.
