The other day, against my better judgement, I cut up a butternut squash to go into some recipe. You might be familiar; a smelly, obnoxious thing like an angry potato that turns into a truly hideous mushy texture when cooked. And then it stinks even more.
The experience left me with a little pang of sorrow, because I couldn’t help but think of how hungry someone must have been at some point in history to think “Hey, I’m going to eat one of those.” Surely they had to have been standing there, famished, with butternut squash in one hand and a rat in the other.
The unfortunate incident also made me think of the uniqueness of our circumstances, so dependent on what we are brought up with. Some people are brought up believing sincerely that butternut squash is a food; if your parents put it on the table in front you as a child and told you to eat it, odds are their parents did also. You might in turn foist such foul platefuls on your offspring as well.
The passing down of circumstances like this is a reminder of the power of inheritances. In your life, things passed down to you, ranging in scope from the things you are led to believe are food, to unfathomable sums of money.
The subject is worthy of analysis for all sorts of reasons that could fill many books or AI machines. Here are but a few aspects that are hugely consequential to life as we know it, cleaved into three broad strokes, more or less, that you may or may not have thought about. There are many, many variations on the theme, such as where on the spectrum does land an inheritance of four cats and a 40-year old Buick, but we’ll park the peculiar for another day.
Let’s start at the bottom end of the spectrum. It sounds disparaging to say “at the bottom end”, but in the cold hard world of economics, that is what it is, the rungs of life that are not awash in abundance. For these societal strata, even modest inheritances can be a godsend. Many bequests are not massive financially, but regardless can be very meaningful sums in the lives of the recipients. For example, imagine a low income person inheriting ten or twenty or thirty thousand $. It could be a chance to get out of consumer debt, or start a retirement nest egg, or some other stepping-stone that is material and otherwise hard to achieve on a relatively low income. These inheritances are generally just good news, because of the potential to change someone’s life, if the inheritor happens to be at the lower end of the socioeconomic spectrum.
In the middle are middle class inheritors, those whose parents may have owned outright a suburban house and a not immaterial pool of savings or investments. Boomer kids. Enhancing their haul is the fact that families tended to be smaller for the boomer generation compared to those before (in Canada, parents had on average 3.1 children in the mid-sixties, a number that dropped to 1.6 in the mid-eighties). And those boomers are dropping a cash load like never seen before; a 2019 Forbes article pegs the estimated boomer wealth transfer at $30 trillion. Yes, that’s a “t” not a “b”.
Boomer kids then might well have received inheritances of a substantial size, and that’s where trouble starts.
The word ‘trouble’ of course is conditional on which chair you’re sitting in when the money starts flying around. There’s no trouble at all if you’re a recipient, and there is no suggestion here that there is anything at all wrong with such inheritances. The trouble manifests itself in areas like the housing sector, whereby significant inheritances are cleaving the world into two: those who can afford to enter the housing market, and those who cannot. It’s not clear there is much that can be done about it.
It is obviously awesome that middle class parents can help their children enter the world of home ownership. The problem is that outside of the suburban boomer home-owning class, many people do not have the wherewithal to help children enter the housing market, particularly if the parents were not homeowners and had not built up that now-sizeable chunk of equity. The size of the inheritances dropping down is helping fuel high housing prices that shut out virtually everyone else. The issue becomes even a bit circular then, spiralling out even more; the higher home prices get pushed, the more aging boomers’ houses are worth, and the more their kids inherit, and the more they can afford to pay for houses.
There are wide swaths of society that are being eliminated from the prospect of home ownership, which is extremely unfortunate. The problem becomes multi-generational, because those that cannot afford home ownership will not have similar equity to hand down to their children.
In other times, maybe this wouldn’t be a problem if the pricing signal was significantly strong that new home construction increased to capture all that profit. But is isn’t working that way, for numerous reasons. Fundamentally, it is getting harder and harder to build anything. Regulations only get more cumbersome every year, at every level of government. There is a shortage of tradespeople. Inflation and long-lead times are chipping away at the ability of constructors to construct. I don’t pretend to know the nuances of the housing market, but it is quite evident to the dullest of observers that affordable supply is not keeping up with what society needs.
A lack of affordable housing is creating a serious problem in our society, unrolling before our very eyes. The high cost of houses is pushing up rent costs as well, making it a distinct challenge to find living accommodations of any kind (at this point you may jump up and down about immigration til your heart’s content, and you won’t be wrong, but I’m not going there, I can’t handle any more analysis of governmental insanity for one year (good lord and it’s only February…)).
A housing crisis is bad enough, but now, climbing up the pile of $ bills for a better view, we see a more subtle, but far more potent, consequence of inheritances: the trail of destruction left in the wake of guilt-ridden trust fund billionaires.
Imagine you’ve grown up in the world of the elite of the elite, children of the billionaire set (or even paltry nine-figure types), and have lived a life accordingly. One day you find yourself eighteen or twenty-one or some-other-age-but-standing-at-pop’s-funeral and in control of sums of money few could ever dream of.
The sums are mindblowing. A Fortune article via Yahoo, in 2023 “newly-minted billionaires” got more of their fortunes from inheritances than new billionaires got from entrepreneurship ($151 billion vs. $141 billion).
You look at the size of your bank account and realize you couldn’t spend this if you wanted, and you’ve spent your whole life trying anyways. You feel guilty and want to help the world, and want to do good. So what would you do? Send all the money to a starving country? Give it to charities? University scholarships? How many, and given to whom? (No less than Warren Buffett acknowledged both the challenge and his inability to deal with it when he announced plans to give away much of his fortune to the Gates Foundation because Bill and Melinda were “better equipped to deal with it”.)
The problem is exacerbated if the inheritor has never known anything else. How do they even know what ‘a good cause’ is? How can they relate to any real world problems? Going camping with the family in the Range Rover is not the same as living out of your car because you can’t afford to rent a place.
Giving people money is not the same thing as helping them. Glamour tours to build houses in a faraway impoverished land is not the same as experiencing six months of life in those impoverished conditions. And even if one chose to do that, immerse their wealthy self into an impoverished society and actually live like true poor people do to catch the full experience, it’s still not the same, because of the sure knowledge of the lifestyle waiting back home.
This cross-divide abomination is why we get bizarre knuckleballs like the California billionaire inheritors bankrolling the Climate Emergency Fund which bankrolls the “Just Stop Oil” campaign. It’s a scheme that can only make sense to someone that feels justified in flying in a private jet because they gave some guy in Africa a million bucks to plant some trees. (Their hubris is astounding; one of the main backers is Aileen Getty, heiress of oil tycoon extraordinaire J. Paul Getty, and her Just Stop Oil group sent an ultimatum to the British government in which they “demand that the UK government makes a statement that it will immediately halt all future licensing and consents for the exploration, development and production of fossil fuels in the UK.” They demanded this happen by March 2022. Since no sane government or citizen would take such a pledge, they’ve been tantruming and throwing soup and paint ever since. Billionaire wants a toy! NOW!)
Whatever, we’ll leave the billionaires and their weird foundations to do what they do, because who is going to stop them anyway. We should focus more on the large segment of our society that is paying a big price because housing is unaffordable.
The working class is hurting. Everything is more expensive, and the importance of housing can’t be underestimated.
As a sad closing note, if you’re looking for something prescriptive here, something to make these odd side effects work better for humanity, I got nuthin’. In a capitalist society, where private property is respected, there is no alternative path. Seizing all that wealth and redistributing it is an old communist dream that will work as well as the Soviet Union did.
There is not a lot that can be done other than be aware of what’s going on. Who can argue against people trying to help their kids buy houses, or against rich people trying to do good in the world with money they did not earn? All we can hope is that governments have the wisdom to channel things wisely, like meaningfully encouraging new home development, or putting in place constructive industrial policy that can accommodate wealthy people with too much money. In other words, there’s no hope at all. And when all hope is gone, all one can say is, might as well pass the squash.
Energy conversations should be positive, grounded in reality, and…funny! Life depends on it, both the energy and the humour. Find out more in “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks!
Read more insightful analysis from Terry Etam here, or email Terry here.