While on vacation last week in the Caribbean, one of our guides explained to me that on the islands, a lot of homes are constructed over time. The nicest houses there are built one floor at a time, over many years, often over many generations. An islander works to earn enough money to build the first floor. Then, after having saved for many years or relying on the next generation, subsequent floors are built on top. That’s emblematic of the estate planning process. Assets, personal values and cumulative advantages are passed down allowing each successive generation to build on the work, success and thrift of prior generations.
I had time to read The Fractured Republic (2016) by Yuval Levin while travelling. Levin observes (not opines – these are facts) that people in the U.S. are increasingly, culturally and economically polarized or fractured. Our nation’s institutions have deconsolidated but the differences among Americans have bunched together at the high and low ends, hollowing out the middle. Levin calls it bifurcated concentration and details how and why it is happening. This economic phenomenon makes family cohesiveness more critically important now than at any other time in U.S. history.
The book concludes with public policy recommendations but the sobering, really fascinating chapters are his explanations of current economic structural transformations. Four powerful trends make economic warfare more acrimonious now and raise the stakes for everyone:
- Globalization – the U.S. increasingly specializes in higher skill jobs, exporting middle and lower skill work to other countries where labor is cheaper.
- Automation – faster and better computers leave fewer opportunities for low skill jobs and increased productivity for higher skilled work.
- Immigration – immigrants are either low skill (crowding out domestic low skilled jobs) or very high skill (exacerbating the polarization trend) – non U.S. middle skill workers stay home because the opportunities in America are not worth the risk and effort to relocate.
- Consumerization – there has been a dramatic shift in the balance of power between workers and employers reducing the bargaining power of workers, particularly low and middle skilled workers (protections like powerful unions and generous benefits and pensions are going away, never to return).
It’s a brutal economy, forcibly cleaving the population into haves and have nots. The growing, enormous underclass in America has those of us floating just above it a bit nervous but also very grateful because neither we nor are descendants are likely to sink into the sad, hopeless spiral of poverty. Successful families create personal safety nets protecting their well-being and security. You cannot rely on the federal Government and, in fact, must beware of its misguided public policy. Economic immobility is a structural political dilemma (not income or wealth inequality per se, as Levin explains). Politicians (on both the Right and Left) are oblivious to what’s happening and the federal government will only make it worse if it attempts to “fix it”. Estate planning war chests keep us safe from the economic abyss with a legacy of success (even if it’s a fortuitous birthright), good decision making, awareness and hard work. Build and maintain capital while standing on your parents’ shoulders so your descendants can stand on yours.