In response to a Cafe Hayek piece on the wealth of Americans, Barry Ritholtz wrote an op-ed entitled “Rockefeller Really Was Way Richer Than You Are.” The problem is the title’s really not supported by the op-ed.
In reality, the two posts are talking about two totally different things. Don’s post at Cafe Hayek is focusing on absolute wealth while Barry’s focuses on relative wealth (that is, your wealth compared to your contemporaries). Whether or not one is more important than the other depends greatly on the context. If you want to view relative standards of living across a single time period, then relative wealth makes sense. When you want to compare across time, then you want to look at absolute wealth.
He makes the statement that “by that same logic, everyone today — rich, poor and middle-class — is much worse off than the poor of 100 years from now.” That is an incorrect statement. It all depends on the institutions (as was mentioned in a post later that same day on Cafe Hayek). If the US remains relatively free, if there are no black swan events (World War 3, for example), then it is quite possible that humans will be wealthier in 100 years from now. But a word of warning: history is full of examples where standards of living fell over a significant period of time: the Dark Ages, The Great Depression (and subsequently World War 2 for Europe), the Antebellum Period. To ignore the role of institutions is fatal.
Barry goes on to make a very valid point about relative wealth in the near term (that is “keeping up with the Joneses”). However, that signalling is not a reason to worry about income inequality (if anything, it is an argument against it).
Which leads us into the meat of Barry’s article, his take away that income inequality can and should be ignored. He argues that one shouldn’t ignore income inequality because of signalling, but the argument is unconvincing to me. The point of income inequality, the cry that it is dangerous, is the assumption that the rich get richer and the poor get poorer. But a point of Don’s article is that, no, the poor don’t get poorer. Sure, they may be poor compared to other contemporaries, but so what? There will always be those who are relatively poor, relatively middle class, relatively rich. What matters, at least from an economic point of view, is absolute wealth. Can we really say Rockefeller was better off than I? Sure, I may not have multiple homes or servants, but that’s not really high quality of life enhancing, is it? In his day, only a handful owned cars. Less than a century later, they are ubiquitous (I chose cars an an example because Woodrow Wilson, a contemporary of Rockefeller, called cars “the picture of the arrogance of wealth”).
So, looking back at Barry’s objection to Don’s post, it seems to me that he measures wealth not in possessions, or standard of living, or potential, but rather in one’s ability to brag. That may be fine for him, but I’d rather be a humble middle-class economist with a full belly and no digestive issues, than a 1900’s robber baron with depression and a perpetual upset stomach any day of the week.