The Aristocracy Threshold

My friend Andy and I came up with the term, “Aristocracy Threshold” a while ago as we were discussing wealth and how people do/don’t accumulate it. It’s an interesting concept.

The idea is that there is some amount of wealth that, if achieved, allows an individual or family to become financially independent soley on the basis of how their existing wealth is invested. To put some meat on this concept, the U.S. median household income in 2000 was $42K/year, which is probably a reasonable number for what it takes to live “paycheck to paycheck”. But, if you are one of the 30,000 “ultra-rich” people in America (worth more than $30M) your wealth is generating at least 50X that much income. Assuming you only spend $400K/year – 10X what most people do – 80% of your yearly income is left unspent and becomes yet more income-generating wealth.

The majority of America never reaches this threshold; they spend their days working 9-5 jobs earning just enough to pay the bills and hopefully set enough aside so that they can retire in time to relax a little before kicking the bucket. But, for an elite few, they or their families climb over this threshold, changing their lives forever.

The concept, and economics behind it, are pretty simple but the ramifications of this are enormous. For starters, these people no longer have to work for a living, thus freeing up a huge amount of time, which can actually be problematic. After all, “what do you wanna do?” (“I dunno, what do you wanna do?”, etc…) It can be pretty damn boring, and for your average grown adult, you need more than passing diversions to make your life worthwhile.

Some, many, turn their focus to charitable work. Others seek challenges in the form of fame (ala Paris Hilton), yet-more-fortune (Warren Buffett), or power (The Bush Family).

But the result of these alternate lifestyles is that the wealthy are almost alien in their strangeness to most people. Socializing is difficult, if not impossible since, for virtually any conversational topic, the differences between these two worlds is horribly awkward. “What’s your job?” (“I’m retired”, said the 28-year old), “Where do you live?” (“Well, depends on the time of year and how I’m feeling”), “How was your vacation?” (“Oh, lovely! We just spent two months trekking in Paraguay, and before that we were living with our friends in Tuscany for a while…”). The answers are either intimidating or embarassingly snooty sounding, depending on which side you happen to be. Either way, it’s not exactly conducive to forming deep and meaningful friendships.

The result: A small group of people, the aristocracy (well, plutocracy actually) wielding tremendous power and influence over the general public, yet socially isolated from them, with the source of that power and isolation growing stronger over time.

I’ll leave speculation on such issues as faults and merits of this phenomenon, how this threshold is crossed (both ways!), and the forces that repel both sides away from the threshold for a later post.

One response to “The Aristocracy Threshold”

  1. [Editors note: The above article originally incorrectly referred to the threshold as a “gap”. It’s been corrected in light of the commentary below. Thanks!]

    Dear Broofa,

    As the aformementioned Andy, I feel compelled to respond. First of all, the term we coined, I believe, was the “Aristocracy Threshold,” not ‘gap,’ which isn’t quite as snappy.

    The distinction is important, because it suggests there is a threshold at which point people no longer need to work (ie, contribute to society) yet simultaneously their ability to consume keeps expanding.

    My theory is that absent some sort of equalizing force, if a society permits people to cross the Aristocracy Threshold, and pass their wealth to their children, a system is set up in which an ever-shrinking group of people control an ever-growing amount of wealth. An aristocracy is created, supported on the backs of the labor of the general population.

    This theory depends on the assumption that money represents a finite resource pool. Ie, the aristrocracy members are taking wealth from others, rather than simply creating it. A simple thought experiment, however, confirms the validity of this assumption: imagine making everyone in the world a millionaire. Rather than allowing everyone to join the aristocracy, we would immediately see rampant inflation (cheeseburgers cost $25,000), which would push society back toward a system of poor workers and wealthy consumers.