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“Up By Your Bootstraps”: An American Success Story. Sunday musings 12/22/19

While fooling around on Twitter the other day I stumbled upon the latest beauty from Robert Reich, the Nobel Prize winning economist who has been making a mockery of his earlier achievements as a present day pop-culture economist: 60% of wealth in the U.S. is inherited. Now if that is even true it is at best brutally misleading, verging on dishonest. If even 60% of the dollar value of wealth was inherited the reality is that over the last 30 years whatever the original value was of that inheritance it ┬áhas increased many, many times over, falsely elevating its percentage level. What is much more misleading though is the purposeful effort to let readers assume that 60% of the people who would be considered wealthy (pretty low bar to be wealthy but that’s a topic for another post) got that way by inheriting their money. That’s just not true; a super-majority of the global value of wealth in the U.S. is actually concentrated in a very small cohort of super-rich.

What makes Reich’s clickbait headline and lede even more galling is that he uses his little bit of data sleight of hand to dismiss the cherished “up by your bootstraps” (EBYB) story line that underlies the success of literally countless narratives told by American families about their rise from poverty. Indeed, the possibility of EBYB success is a large part of what continues to drive people from all over the world to seek a new beginning by emigrating to America. Reich is calling BS on the entire EBYB path to success and in doing so saying that to seek an EBYB success is a sucker’s game.

Reich is just the latest and most famous non-practicing celebrity economist to let his fascination by, and revulsion at the super-rich blind him to the day-to-day reality of middle class success.

It is the rise from poverty, the elevation from being among the working poor and taking an UBYB approach to leaving both of those states that matters. The creation of super wealth, even the creation of entry-level wealth, is little more than a pipe dream for almost everyone who desires to ┬árise from whatever financial straights exist at the beginning of their journey. What matters, and what Reich casually nullifies, is not the immigrant who amasses a billion dollar fortune by becoming the owner of the largest yogurt company in America, but the thousands of immigrants who scrimp and save and buy a retail outlet that sells yogurt and at which they will toil for endless hours in order to support their families. It’s not the second generation that takes over the family-owned car dealership but the hundreds of tiny entrepreneurs who buy a NAPA franchise in order to create a little nest egg that can’t be formed as a line worker at Ford. In that 40% of wealth lies a super majority of small “fortunes” consisting of the fruits born from UBYB success stories.

At the risk of being accused of substituting anecdote for analysis (albeit looking at the flip side of Reich’s own story coin) let me tell a couple of stories to illustrate that UBYB is much more than myth. My Dad was born into a family of the working poor during the teeth of the Depression. One of six children his family expanded (to 10? 12?) when his mom died and my grandfather remarried. Dad was a “cardboard in the shoes kid”; when your shoes got a hole in them you neither got new shoes nor a new sole, you stuck a piece of cardboard inside the shoe to cover the hole. Family lore has it that Dad was plucked out of the trade path in high school by a teacher who saw in him the potential to rise. Upon graduation he went to UNH on a football half scholarship, whereupon he promptly starved for lack of money. Like so many young men of the time he joined the Army. During his enlistment and his years fighting in Korea he rose to the rank of Sergeant First Class. After mustering out he went to UVM where a combination of another half-scholarship and the GI Bill got him through school. Dad graduated with a degree in what we would now call industrial engineering, the only member of his family to get a degree.

Our life in the early days of Dad’s career (Mom stayed home after I was born) was one of “enough”. We had risen above the level of working poor, but the most charitable description of our status would be to say that we clinged to the lowest rung of middle class. But my Dad was a true believer in the UBYB dream. He put himself through Business School as he slowly rose among the ranks of middle management at the company where he began his career. When that company was sold and much of the lower and middle managers were let go Dad caught on with a much smaller, older, family owned enterprise. After quadrupling sales at the new company he and two other senior mangers bought out the founding family. For 15 years of so our family was comfortably in what at the time would be the upper middle class. Mom and Dad prepared a wealth starter kit in the hopes that their good fortune would continue on the same upward trajectory.

Did we become wealthy? Did my siblings and I enjoy the fruits of my Dad’s success with a big inheritance or a big infusion of start-up capital at the beginning of our own journeys? Sadly, this was not to be. For all of my father’s brilliance at running a small company he was not equally adept at divining the effects of large macroeconomic trends. The 80’s brought crushing interest rates, inflation, and an artificially inflated dollar, all of which conspired to destroy not only my Dad’s company but the entire domestic industry of which he was a part (there are no manufacturing companies in the U.S. remaining in his industry). There will be no generational transfer of wealth; Mom just sold the family home and hopes that the sale will support her for the rest of her life. Was Dad’s UBYB story a failure? Of course not. My parents sent four kids to college, all four of us debt free on graduation. We are all economically independent and have been since graduation. We would all be counted among that 40% Reich dismisses.

Cynical readers, especially the young, would say that my parents’ story has nothing but historical relevance. Such an UBYB story was little but a historical footnote by the time my Dad bought his company. Nothing could be further from the truth. I have two very close friends, men I’ve know since school days. My oldest close friend grew up in a family that was devastated by mental illness. He and his father shared a one bedroom apartment, taking turns between the single bed and a couch, floating just above the poverty level of the 70’s. Mother and Father were high school grads; there was little familiarity with college as a goal. Like my Dad my friend was raised up by teachers and the parents of a couple of classmates and put on a straight shot to a college degree. He got some scholarship aid and took out a bunch of loans and graduated from a highly selective college. My friend has taken himself UBYB to where he now has generational wealth. None of it was inherited. There was no wealth to disburse when his Dad died a couple of years ago. Indeed, I think he paid for the funeral.

As an aside, as this is the Christmas Holiday season, my friend is the most grateful human being I know. His Birthday is on Christmas Eve. You know how some Christmas babies always resent the fact that they have to “share” their day with Christmas, complaining that they get shorted because of the overlap? Not my friend. There wasn’t anything under the tree or wrapped up in a “Happy Birthday” package; there wasn’t anything at all. To this day I have never heard a single word of resentment from my friend. He is grateful for every tiny blessing that comes his way, even if it has come because he bought himself up by his bootstraps. My Dad was like that. They are both inspirations.

So you see Mr. Reich, even if your data is accurate and tells the story you’d like us to think it does, it still doesn’t render moot the power of UBYB wealth. Wealth, it turns out, is sometimes better measured in smaller ways than those that catch the attention of starry eyed celebrity economists. Sometimes it is something as small as being able to resole a shoe or order a new pair of sneakers without worrying about the rent. UBYB might mean the next generation goes to college. Maybe they even graduate without debt. Where once there may have been inherited wealth for my siblings and me to look forward to perhaps there will be that kind of wealth for our children and/or grandchildren.

“Up by your bootstraps” wealth is about people, and there are many, many more people in that 40% you deride than those fortunate few who have assembled the 60%. The opportunity to raise yourself “up by your bootstraps” within sight of that 40% is still the American Dream. It is still the hope of a nation, the antidote to the pithy observations of economists enthralled by the super rich, the engine that lifts countless families out of poverty. “Up by your bootstraps” is no myth.

 

 

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