02 May 2011

Rich is Rich, sort of

Thing Progress | Matt Yglesias | Rich is Rich

Everything about multi-millionaire congressman Denny Rehberg (R-MT) pleading that he and his wife “are struggling like everyone else” because he’s “land rich and cash poor” is ridiculous.

Everything to the extent that I would go further than Steve Benen:
The notion of being “land rich and cash poor” — or in some areas, “house rich and cash poor” — is legit. A family may have wealth from real estate, but not a lot of money actually sitting in the bank. I get that. [...]
I think accepting this kind of principle into our public discourse is a mistake. If you have $2 million in cash in the bank, that makes you rich because with $2 million you can buy $2 million worth of goods and services. If instead of $2 million in cash in the bank you have $2 million worth of Treasury bonds, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services. Or if you have $2 million worth of Apple stock, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services. And by the exact same token, if you own $2 million worth of land, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services.
In broad strokes, I think Yglesias is right, but in particulars, he's wrong. It's not that someone like Denny Rehberg with his millions of dollars in land isn't wealthy. But those four situations he described are not equivalent.

If you have $2M in cash, you can exchange some of it for $50k of goods and services, and still have $1.95M in cash.

If you have $2M worth of Treasury bonds, you can exchange some of it for $50k of goods and services, and still have $1.95M worth of Treasury bonds.

If you have $2M worth of Apple stock, you can exchange some of it for $50k of goods and services, and still have $1.95M worth of Apple stock.

If you have $2M worth of land, you often can not exchange some of it for $50k of goods and services, and still have $1.95M worth of land. You have far less granularity when your assets are in property.  You are constrained in a way that people with other asset classes are not.

2 comments:

  1. I'm playing the world's tiniest violin here.

    ReplyDelete
  2. I don't feel bad for Rehberg either.

    But Yglesias is wrong to imply illiquidity is without consequence.

    ReplyDelete