Episode 11: What It Takes to Be Rich

and fairness guaranteed. The future of trading is here now at n A d e x dot com futures, options and swaps. Trading involves risk and may not be appropriate for all investors. Hi, and welcome back to Bloomberg benchmarkt podcasts about the global economy. It is Thursday, November twelve, and I'm Tory Stillwell, an economics reporter with Bloomberg News in d C. And I'm joined this week by my co host, Akiedo, our editor for Benchmark in San Francisco, and Dan is taking the day off to prepare for

his big move to New York. So it's just me and Ywauki. Tori, how's it going pretty good? Do you want to tell everyone about your Hawaiian adventure. Oh my gosh. Yeah, I almost called in from Hawaii today where I was on vacation, but sadly, I'm now back in reality. While you were in Hawaii, did you have a chance to follow some of the riveting monetary policy proceedings that happened.

I did see this one which definitely surprised me. It went, God wants Yellen to delay rate hike to spring, lawmaker says, um. This was Brad Sherman, who is a California Democrat and the House of Representatives, and it was at a congressional hearing where lawmakers were asking Janet Yellen fed chair all these questions. Let's play the tape. God's plan is not for things to rise in the autumn a matter of fact,

that's why we call it fall. Nor is it God's plan for things to rise in the winter through the snow. God's plan is that things rise in the spring, and so if you want to be good with the Almighty, you might want to delay until May. Okay, So was it the nuttiest thing you've ever heard in a congressional hearing? Yeah, No, that was the best. I think that just that's just like quote of the century in terms of monetary policy. I don't know, maybe there are better quotes, but incredible. Yeah.

And we should also note that after the hearing, Brad German went on Twitter and said, don't actually think God has an opinion on monetary policy, but if she did, she with a capital s she would agree that the EFFENC shouldn't increase rates in winter. Yeah. I think next time maybe we could make a sacrifice to a follow or something like that, like get some other deities involved here, you know what I'm saying, Get all the gods on

our side. Oh my gosh. Yeah. So the context of this is that the Federal Reserve is about to raise interest rates. A lot of people think that this interest rate hike is going to come in December next month, so uh, you know, yelling is starting to come under pressure from a lot of lawmakers to delay that um And that's not surprise, right, It's it's not every day that monetary policy is involved in these divine discussions, But it's no surprise at all that a lot of people

want interest rates to stay at zero forever. At the same time, a lot of people are pushing for interest rates to be hyped sooner rather than later, especially some of the more conservative leaning legislators who think that the FED is really playing with fire here and they got a little bit more ammunition. Or I guess maybe God has a little bit working against him or her. I don't I don't know. But the job's report came in, uh,

pretty strong for October. Payrolls were the strongest this year two one, and wages were up two point five percent from the year before, and that is a clear break from the wage worth pattern that we've seen since the recovery started. Really great news there, and if the trend of higher wages continues, that'd be great news because it helped alleviate some of the increase in income inequality that we've seen over the past few years. And you know,

we've been hearing a lot about income inequality. Angus Deton, who we spoke with a couple of weeks back when the Nobel Prize this year, after doing research on it. Herschiko started it late last month as something that's actually hurting their sales, and it seems like every US presidential candidate is being asked what they do to fix it.

Tori on the show, we've talked about average wages, we've talked about median wages, but we haven't really talked about the fact that the fates for the rich and the poor the book, who are on opposite ends of the spectrum, have been really different in how they're diversion. So hopefully for today's episode, we'll be able to talk about what it takes to be rich in America. Today. Well, let's talk a little bit more about these income tears for the quote rich and the quote core. Uh, let's break

those down a little bit. And we talked to our data guru, Waylu. She's based in New York and crunches just incredible amounts of census data for us. She's just amazing at it. And she told me that Bloomberg generally defines riches the top twenty of incomes and inteen you were by that definition, you were rich if you made a little over a hundred and twelve thousand dollars, if that's what your household income was. By contrast, the bottom twenty percent, you're in that bottom twenty if you your

household made about twenty one five hundred dollars. So there's about a one hundred thousand dollar different, right, It's pretty big, and poverty at the way low end of the spectrum. A single person is living in poverty if they make about eleven thousand, seven hundred seventy dollars or less a year. So I feel like that's really low for the poverty line. I mean eleven thousand dollars a year. It depends on how many people are living in the household. To the

more people you have, the threshold gets a little higher. Um. But yeah, it's it's mind blowing that someone could could survive on that limited amount of money, you know, Tori. Why does it matter if the rich are earning a bigger share of the pie the way they have been over the last twenty years. I mean, if the pie is getting bigger and on average people are earning more, doesn't really matter if some people are taking more and

more of the pie than others. I think the main reason people are concerned about it is because we know that poor people spend a much larger proportion of their incomes in their paychecks than rich people do. And to kind of illustrate this, I have some data, of course, um, and it's it's actually kind of striking. The first time I looked at it, I got it mixed up. Because the numbers are so crazy. But so for the lowest twenty percentile of income, their income before taxes was about

ten thousand dollars in the year ended June. This is coming from the Bureau of Labor Statistics, about ten thousand dollars. Think of that, their average annual expenditures for that same amount of time was about twenty three thousand dollars. So they're going in like huge amounts of debt here based on their income UM. By contrast, the highest twentieth percentile, their income before taxes is about a hundred sixty six thousand, and they're spending about a hundred and one thousand UM,

so much smaller sharing. So they're just they're just not spending as much, right, and they spend on totally different things um. Where people often spend much more money on food and housing, whereas wealthier people will funnel a lot

more money into things like pensions and insurance UM. So a lot of economists have talked about this as a reason as to why the recovery may have been so weak, because we've got, you know, this concentration of wealth and these people aren't spending it as much as I should say, right, so there's normal person rich and then there's rich person rich, which is kind of that seems like an alien universe

to me. But do you want to go over those numbers too waylou Again, our data guru told me that that super rich is going to be like the top five percent of household incomes and that was about a little over two hundred and six thousand dollars for a household. The ultra rich is going to be like the top one percent. And for that data, I am going over to UH to E p I. They wrote this big, big report at the start of the year UM looking

at income inequality trends for for decades. For the US, the average income of the top one percent was about one point three million dollars. If we want to think like out of your mind rich, like stupid amount of money wrenching. Uh. The threshold there, the income threshold of the top point zero one person is nine point nine million dollars. Uh. We're gonna take a quick break for a word from our sponsor, but when we come back, we will try to add some color to all these

numbers that I just spouted off. You know, we want to attach real people to them, and why we plebeians would even care after the break? What do traders want to limit risk? Access every opportunity and trade on a level playing field. Nate x binary options let you set your maximum profit and loss before the trade, so your risk is always limited. Find opportunities in multiple markets, stock in dissees, commodities, forks, even economic numbers, and bitcoin, all

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kind of lifestyles they must have. We've drafted Caleb Melby, a reporter for our executive pay team whose main job it is to try to figure out how much money people are making. And before he was with us here at Bloomberg, he was a reporter at Forbes, where he got the license to run around the country hunting for hidden billionaires, which he also does here, and before that he was an intern in New York living in the same dorm as me. Hello, Caleb, what what are these

people like? Hey? I mean it was interesting listening you talk about that, that that top tier, that that million what was a million and a half? Is that what you're thinking about? Yeah, So, so to give you an idea, like how much farther beyond that percentage point, uh you can go? I mean, uh, at at the Bloomberg Pay Index, we're tracking uh the two d highest paid people and uh, they're they're making each of them upwards of twenty million

dollars a year. And when you were talking earlier about how they spend that money on different things, they're they're point in pensions, they're pointing in in insurance. I mean that's simply because it's really hard to try to figure out how to spend all that money, and a lot of them really defer it and often in uh tax advantaged ways, um sock it away for the future. I feel like it is not that hard for me to figure out how to spend a couple of million dollars UM.

So I don't want to sound too sympathetic, No, I don't mean mean to be uh to ask you to feel an overwhelming amount of empathy for them. These are very specialized problems. I was I was in one billionaire's apartment about a month ago, and I won't to tell you who it was, but he was he was obsessed, um with trying to figure out how to pass his international company onto his heirs in this tax efficient way. And that's one of those things that you really see

occupying their thoughts. Your your your normal person is trying to figure out how to stock away enough for retirement and and for them, it's how do I take everything I've sucked away and pass it on to the next generation of familial ownership. How many billionaires have you met in your life? Uh? You know I I've been to conferences where there's there's dozens of them. So at this point, your who's my favorite? There's a really colorful character out

in Brooklyn. His name is David will lent Us. He essentially built the neighborhood of Dumbo, this uh chic industrial neighborhood right on the water. And he's this really crass, funny, brash guy. Who who Who's the first to admit that you do not have to be a genius to make it in real estate. And I find I find his honesty very very um exciting and new, and as far as billionaires go, he's the sort of guy you can talk to and don't feel like you're talking to an alien.

Tell us more about your job, what do you do every day? More often than now we are we are not meeting executives. We are not meeting billionaires. That's not what our day and day out looks like. It does happen sometimes, and and that's that's fun. But normally people are not particularly interested unless you're talking about, say Donald Trump, uh in talking about what they make or how much

they're worth. So we spend a lot of our time talking into off the record sources, former employees, insiders, going through documents, making Foyer requests to the government to unseal certain documents or acquire certain documents that help shed light on these massive fortunes that are at the center of you know, the world economy. You've met Donald Trump, right, yeah, a few times now, and he's called you what was what?

What was that that he called you Donald after we published a story, said Donald, Mr Trump, after we published a story putting his net worth at two point nine billion came out in in the Daily Mail, and he, according to the Daily Mail story, said I was a dopey kid and wet behind the ears. Sounds that right, Yeah, he's He's not not a guy who who takes slights

light lightly. By the way, how much what is Donald Trump's network earth compared to the approximately ten billion that he has self reported to the media, So we we put him at two point nine billion as opposed to that ten billion, and uh, one really big way to account for a large part of that gap is the three point three billion he ascribes to his brand value that he considers like it a line item all onto itself, um,

which is certainly a really special asset to have. And when we talked to experts, we uh they said that for like his uh, you know, collection of golf courses, there is a Trump premium. It means something to play golf on a on a Trump course, and and that that's applied to our valuation of those golf courses. But when you look at certain things like say Trump Tower here in New York, a lot of that is condos

that he's since sold off long ago. So you see that huge skyscraper you assume it has to be worth a lot of money, and it is, but there's actually hundreds of other people that have sentach chunks of what what a skyscraper like that is worth? And what would you say that your brand value is, Caleb, my my brand value is? I mean, can I get a Chipotle burrito? Yeah? Man,

after my own heart. So, Caleb, you and I have talked about this a little a little bit last week, but I was chatting with a friend and he actually got a little a little hot and bothered because some of your colleagues, all of our colleagues, broke this news about a Walmart air being twenty seven billion dollars poor than everyone else thought. And he was mad because he basically said, I mean the like the cliff Notes version is we're being nosy. Why does it matter they're still billionaires?

And why would we like splash this all over the front page of our website? So rude, et cetera. Um, there's no journalistic value in this. What is the journalistic value? It's a fair question. And is somebody who when he was in college imagined he'd be writing album reviews his whole life? Uh? I like, I I definitely sympathize with him. But the report that David DeYoung and Tom Metcalf put out on Christie Walton and her son Lucas Walton, I

encourage anybody to go out and read it. And the question as to what news value this has, I think becomes once you get past that headline number pretty relevant. I mean, you have this family that controls what is currently I believe, like the third the second biggest company in America UM, and how they divvy up that fortune and how they control it, and in turn, how they

control Walmart Company, I think is inherently newsworthy. And as you dig farther into that story, what David and Tom uncovered was this fascinating estate structure that helped UH John Walton, Christie's UH now deceased husband, essentially cut his tax bill in half. So when we're talking about policy in terms of income inequality, we we need to look at the decisions we've already made as a nation in terms of the options available to the super rich for passing these

fortunes on. You know, because one, once you you move past that five million estate threshold, big taxes start to kick in, and yet we still have all these loopholes. And I think if you droll into that story, beyond the fact that there's this guy who nobody has really ever heard of or talked about, Lucas Walton, who has most of what we thought was his mother Christie's fortune, what you see is this really interesting passing of the torch that helped avoid a lot of taxes for the

Walton family. You know, I think this really comes down to the fact that it's really hard to know how much everyone's wealth is. You know, wealth is different from income. Income is what you make every year, but wealth is the amount of money that you accumulated over a lifetime. It's all over the place, often in multiple countries if you're a rich person, the way many of Caleb subjects are, and so it's really it's it's not a very transparent universe.

That's why I think your team, Caleb is really cool, because you're bringing more transparency to this space. Yeah, and I mean we I've talked to readers about our stories before, and some of them are just interested in those big numbers. Some of them are interested in those entrepreneurial stories. Some of them are interested in those, uh, the tax strategies, the way they allocate that wealth like you were describing Aki, and probably for our readers, like keeping up with the

Jones is to like how close am I think? Absolutely? How how close am I I could be them? Um? If you dig into any major wealth story, there's almost always some element of luck, which I think keeps us all reading because we always hope that maybe we could have that. Especially in the era of tech startups with Unicorn and valuations, we're all kind of hoping that we

have that next billion dollar idea, right. But I feel like in today's society, if anything, people feel like they're even farther away from that goal of becoming rich than I don't know, maybe people fifty years ago. I feel like that sense of the American dream really went down the toilet in two thousand eight. Yeah, I get that sense too. But what what? What's interesting, only only ever having done this beat post two thousand and eight, is that um hunger for these these stories hasn't gone away

for one reason or another. UM either because it feels so far away and so foreign, almost like it's a fairy tale. Maybe that's the case, or maybe there's something aspirational in it, but readers keep on keep on company these stories and droves. Well, here's hoping that we all have the luck to be millionaires and billionaires one day. Or Caleb, if you're the one who makes it, that you share some with me. I have preferably in chili potel.

I have some ideas right now. If Mark Andreason is listening, I'd love to pitch him. Thanks again for listening to Bloomberg Benchmark will be back again next week. Until then, you can find us on the Bloomberg terminal and on Bloomberg dot com, as well as on iTunes, pocket cast, did your Google Play and all those great platforms. And while you're there, please take a minute to rate and review the show so more listeners can find us and

let us know what you thought of the show. You can talk to and follow us on Twitter at at Tori Stillwell at A seven and for our very special guest, Caleb at Caleb Melby. See you next week. This episode was brought to you by nat X. You know, any long term investment is going to go through short term dips and price fluctuations. Nat X binary options that you turn those short term movements into trading opportunities. You decide your maximum profit and loss before each trade, so your

risk is always limited. Trade stock in disees, commodities for X, even bitcoin in economic numbers, all from one account on a c f TC regulated US exchange. Instead of just watching the markets ups and downs, turn them into trading opportunities At nate x dot com. It's the future of trading n A d e X, dot com, futures, options, and swaps. Trading involves risk and may not be appropriate for all investors.