Talmon Smith: Assessing the Greatest Wealth Transfer in History

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Our guest on the podcast today is New York Times economics reporter Talmon Smith. Before joining the Business desk, he was a staff editor for the Times Opinion section covering public policy, economics, and culture. He began his career as a researcher and visiting scholar at NYU’s Journalism Institute and was assistant to the editor in chief at GQ magazine. He graduated from Tufts University with a major in history.

Background

Bio

Twitter handle: @talmonsmith

Economy, Inflation, and the Great Wealth Transfer

“ ‘I’m in Hot Demand, Baby’: Nebraska Thrives (and Copes) With Low Unemployment,” By Talmon Joseph Smith, nytimes.com, April 1, 2022.

“Job Openings Rose in April, Defying Cooling Trend,” by Talmon Joseph Smith, nytimes.com, May 31, 2023.

“Companies Push Prices Higher, Protecting Profits but Adding to Inflation,” by Talmon Joseph Smith and Joe Rennison, nytimes.com, May 30, 2023.

“Wages May Not Be Inflation’s Cause, but They’re the Focus of the Cure,” by Talmon Joseph Smith, seattletimes.com, April 7, 2023.

“Even a Soft Landing for the Economy Might Be Uneven,” by Talmon Joseph Smith, buffalonews.com, Jan. 8, 2023.

“As the Fed Raises Rates, Worries Grow About Corporate Bonds,” by Talmon Joseph Smith, nytimes.com, Nov. 11, 2022.

“What Will Happen to Black Workers’ Gains if There’s a Recession?” by Talmon Joseph Smith, nytimes.com, Aug. 24, 2022.

“Hiring Remains Strong Even as Fed Tries to Cool Economy,” by Talmon Joseph Smith, Lydia DePillis, and Jeanna Smialek, nytimes.com, June 3, 2022.

“The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners,” by Talmon Joseph Smith, nytimes.com, May 14, 2023.

(Please stay tuned for important disclosure information at the conclusion of this episode.)

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.

Jeff Ptak: And I’m Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Our guest on the podcast today is New York Times economics reporter, Talmon Smith. Before joining the business desk, he was a staff editor for the Times Opinion section covering public policy, economics, and culture. He began his career as a researcher and visiting scholar at NYU’s Journalism Institute and was assistant to the editor in chief at GQ magazine. He graduated from Tufts University with a major in history.

Tal, welcome to The Long View.

Talmon Smith: Thank you so much for having me.

Benz: Well, thanks for being here. We want to start by talking about your work as an economic reporter for The Times. Can you talk about how you define your beat so that you’re not bumping into the work that your colleagues who are also working on the economy are doing?

Smith: I’d say that broadly I cover macro, labor markets, and financial markets whenever financial markets intersect with those other two topics. But what’s really nice about our newsroom, both virtually and in person, is our collaborative nature. For example, having Ben Casselman by your side on a job’s day NFP release is a cheat code, because that man could probably work for the BLS himself if he wanted to. He’s just brilliant with data. Joe Rennison was a great get for us from the FT and he’s been lovely to talk about markets with. I’ve learned a bunch from him. I’ve learned a bunch from Lydia DePillis who has come over from ProPublica recently. And with Joe, I just paired on a story rounding up Q1 earnings season, which showed how corporate profitability continues to hold up at much higher levels than anticipated. It may now, in fact, reaccelerate by some measures, which as I’m sure we’ll get into, that’s really bullish for investors in our 401(k)s going forward. But of course, a lack of margin compression or less profit margin of pressure than people like Lael Brainard at the Fed before and now at the NEC had hoped for.

We don’t get as much as some were predicting or hoping there, then that could be tough for us as consumers directly and indirectly be pretty bearish for the macro environment, because of course, that could keep the Fed higher for longer than markets even priced in or anticipated. And so, that’s an example of a story where my real economy and macro focus paired very well with Joe’s really in and out knowledge of markets and what they’re expecting and what firms large and small are doing. So, there’s definitely times where I have to respect that the D.C. Burrow is going to be chasing a debt ceiling story and they’re going to be best positioned to do that. And so, there’s no need for me to be that extra cook in the kitchen. And other times, it’s like the more the merrier because this is an incredibly large country. We are the largest economy on earth. We are the center of global financial markets. There’s 50 states. There’s plenty of work to go around in another sense. So, I find that when I do bump into colleagues on stuff, it’s not typically a problem. We’re a pretty interactive bunch.

Ptak: In your work, you often try to bring in the lived economic experiences of real people, not just economists and other experts. How do you find people to interview for your stories, especially a diverse group of people you might not naturally run across in your work or within your social circles?

Smith: I suppose if I have a certain brand, for lack of a better term, it’s definitely that I’m a guy that at least partly tries to put human anecdotes and stories into my features or even some of the shorter-run database stories that I do. I think the goal there for me is twofold. I think that people tend to be visual learners and so they love visual aids and charts. I love charts. I’m sure we all spend time on Econ, Twitter, and Fintwit. It’s almost like the very matter of the communication there in some sense. But also, sometimes people need human illustrations to understand what the data is communicating. And just to briefly make that more concrete, we’ve all been seeing these hockey stick-shaped charts for particularly lower-income workers. If you’ve been paying attention, you might see that in some cases in leisure and hospitality, there’s charts flying around showing that people are getting pay raises in excess of 20%, 25%, on and on. And yet, I might find the person that has experienced 30%, maybe even 35 % in terms of pay raises in percentage terms. However, peeling apart that chart and those percentage terms and finding that, oh, this person was making $10 an hour and now they’re making $14. That’s nothing to sniff at. It’s modest, but meaningful. That could be the difference between this person being able to pay a light bill or being able to take their kid out for an extra meal—a little treat like that. But $14 an hour isn’t going to rocket somebody into the middle class by any means. So, that’s the point of it.

I also think it’s important to do on a secondary level because if I am truly a (capital R) reporter who presumably should be objective going into most issues, then it’s important for me to be open-minded, to have an open notebook. And I’ll have a hypothesis for a story. Often that’s how I pitch it and get it greenlit and either start making phone calls or travel someplace. But I try to keep my mind open to what exactly I find out. And oftentimes I’ll have an idea in my head of a certain trend and how somebody might be experiencing it. And it turns out that after doing the work of identifying an actual person right in the midst of that phenomenon that, oh, well, I had this idea of what was going on there and actually it’s the opposite. Or that was partially true, but we should be complicating this narrative a bit more when we speak about it.

So, to, again, ground that in something specific, I went to Nebraska in early 2022. And I expected that bosses there, employers there, would sort of hate the sub-2% unemployment they had. Because if you’re hiring in that tight of labor market, then you’re likely having to convince somebody who’s already employed that you’re offering a better opportunity. But turns out, not really. Most of the employers, and I spoke with a ton there, found some things to be annoying. There’s also a lot of supply chain mess still going on. The war in Ukraine made transport far more expensive, because we saw diesel shoot up. And yeah, it was a bit of a challenge to find staffing. But most businesspeople I spoke to in Nebraska had the attitude of preferring to deal with the headaches or side effects that come with a booming local economy over the downsides of a sluggish one, where there’s plenty of people that’ll take a job, but there’s not enough work to go around. And so, in that case, being on the ground there for a full week, let me suss out the precise hues of the picture there. And so, part of my thought going into that was, oh man, I might end up writing a story that quietly underlines the potentially combative nature that comes into play when labor markets are tight enough to give workers an unfamiliarly high degree of leverage over capital holders. But instead, I wrote a story, one of the more rare, feel-good stories, I think, in the industry last year, about how actually this community was thriving, warts and all, with this hot economy and with this hot labor market. Of course, since then, I’ve written some sad stories about other subjects related and unrelated. But I think that was important.

And in terms of the sausage-making and the raw process, yeah, sometimes I do classic shoe-leather reporting where I just show up and I convince my editor to just let me go there and I’ll figure it out. And other times, either because of time constraints or because of just simplicity, there’s plenty of nonprofits that advocate for people in a pinch, what type of pinch is—there are numerous ways to be challenged. And they are very happy to work with you and see which single mother that works in the airline industry or which person recovering from drug use or something that is now trying to get back into the workforce. You can actually pretty quickly find those folks through organizations. But other times, you don’t want to do that because you can end up with cookie-cutter stories, whether those are really bad sob stories that don’t necessarily give people the dignity they deserve, or a PR person’s dream where it’s like the smaller midsize or large corporation that gets to brag about how great they are and put it in The Times. You don’t want to get people that freebie either.

So, sometimes, I cold call, which makes you feel ridiculous sometimes because people hang up on you more than they pick up. But when they do pick up, sometimes you just get the best stories. Like just very quickly here, I remember, I think I was doing a coverage for nonfarm payrolls, jobs day, and ahead of time, it won’t come as a surprise to anybody. We do some pre-writing. Obviously, we leave open space what the actual numbers are, but generally, you have a pretty good sense of where the economy stands that month going in. And so, to the extent you want to illustrate what it feels like in the economy in, say, May of 2022, you have these anecdotes that are going to support and help color the data. And I remember I called this gentleman who was an electrician in Tennessee outside of Nashville. And he was just the perfect encapsulation of what was going on at the time. He was very understandably upset about not having a lot of parts, whether it’s replacements or new orders, because you all know anything related to electronics was a mess for quite some time. And you could argue it’s still a bit wonky. He was so busy that he actually had to work more hours, and he wasn’t super happy about that because he had done already well enough to where he didn’t exactly need the money. He was actually hoping to retire soon. Business was so good for him that he actually had some of his employees leave, some young men that worked for him, who are also electricians, figured out, wait, yeah, business is so good for us right now. I’m going to go start my own thing, because you’re paying me a wage, but why don’t I just do my own independent business, and in some ways end up competing for market share with you.

So, I tried to reach out to electricians of America, I don’t know, some trade group. I wasn’t going to get this very colorful crotchety old guy breaking down what the market was like for a small businessperson in the trades in the South at that time. So, I’ve gone on about this for a bit because I do think it’s really important. And I don’t know that as journalists, we always communicate like how and why stories end up being shaped that way and how it’s done. Because I think it’s pretty interesting and pretty important.

Benz: So, that’s super helpful color, and I think nicely sets the stage for what we’re going to talk about. But I wanted to stick with jobs and the economy. We are getting these still strong jobs reports, yet we’re still hearing that recession is right around the corner. So, from where you sit, can you characterize the state of the economy today?

Smith: The cheesy line I’m using right now when I speak to people about this is, “an annoying economy is not a contracting economy.” There’s a lot of good reasons people have to be frustrated all the way up and down the income spectrum. All sorts of investors have been challenged as well on the financial market side of things. But the economy is growing, unevenly and confusingly, but growing nonetheless. And I think part of what’s going on is that it’s very important to inflation-adjust data. And there’s walks that are far more informed than me that could get even further into the weeds.

Sometimes I think real GDP, which is our go-to measure for economic growth, is imperfect and confusing. And so, you get things like, was it a technical recession or was it not? And the first half of 2022, where if you take this number and make the other number, the numerator and this the denominator and deflate things this way, then, yeah, with an economy as wacky as the one during COVID and immediately post-COVID, you can get things like negative inflation-adjusted growth, while also millions and millions of jobs being added. And so, I think that’s a sign that, not we should throw away real GDP as a measure. I wrote a story in the fourth quarter, I believe, of 2021, when nominal GDP was still so strong that it was outpacing and overpowering the inflation adjustment. And so, I’d be a hypocrite to then say that, well, we should only pay attention to real GDP when I think it makes sense.

But I think it’s broadly a sign that we should be humble about all this data. And I think there’s been a lot of really interesting conversations, almost like in the academic space, on the left and the right of, maybe GDP isn’t the end all be all of what we are aiming for as a society with our communities and with our markets.

On the basics of it, a recession could be around the corner. And I suppose the nature of business cycles is that recession calls are never wrong, they’re just early; eventually we’ll get one. But it appears that we are no longer secularly stagnant, which was our problem last decade. And I suppose austerity policies or future mismanagement of the economy in general could change that. We flirted with a completely voluntary debt crisis that could and ultimately did not cause a recession. But ultimately, if you zoom out, it seems like for now, between the animal spirits of economic reopening, the stimulus that butcheressed businesses and household balance sheets before, during, and after the crisis, and the strategic longer-term bills that Congress has passed that aim to crowd in private investment have all combined to give us some escape velocity from that sluggish 2010s era, so that even if we do have a dip in the business cycle that the NBER decides to classify as a recession or maybe we’ll just keep arguing for eternity about what exactly is a recession or not. But it does seem like a different general economic feel.

The last thing I’ll say there is that people’s politics can sometimes lead them astray in their analysis of the business environment or the macroeconomic environment. I’ve spent a good decent amount of time, like many of your listeners, I’m sure, and maybe you all watching Bloomberg surveillance in the morning and some of the CNBC shows, and then I get to my own work. But I just see a lot of commentary and not from politicians that are being interviewed or other more naturally politically occurring creatures, but PMs, portfolio managers, making calls and positioning portfolios of institutional clients based on this idea that there’s a biblical decree that we must pay for the sins of our perceived profligacy in terms of supposed overspending with a massive or even a mild downturn. Yeah, maybe we will have a massive or a mild downturn, but seeing people talk about the business environment and the macro outlook in these ways where they seem to be frustrated that according to a textbook that they trust or a leading economist that they trust that has a certain ideological color, and then when that doesn’t play out, almost blaming reality and getting upset with reality, that just doesn’t seem helpful. But everybody has their biases and it’s also frustrating to spend a lot of time building a set of knowledge or building an investing strategy and having that not go as planned based on what you might see as mismanagement in terms of public policy.

The last thing on that that I’ll say is that the inverted yield curve as a recession indicator, I think got bailed out by COVID or maybe it predicted COVID, I don’t know. But even the father of the yield-curve inversion indicator, like recession indicator, says that things are so weird right now that it may have broken just the absolute trustiness of the indicator going forward. And in a similar sense, Claudia Sahm, a former Fed staffer who was my writer and I was her editor when she was a contributing writer at The Times, has said that her Sahm Rule, which is a different recession indicator, might also not apply. And so, I think those two folks are a great example of the really necessary humility that this moment calls for.

Ptak: Another oddity about the time that we’re in right now is this round of rate hikes. It hasn’t really knocked down the housing market all that much in part because of low inventories in so many parts of the country. Do you have any thoughts on why that is and what would be likely to change it?

Smith: I am sure that you all will eventually have, if you’ve not already had, somebody that is a policy expert in the housing space in particular. And I’m not that. So, I want to preface everything I’m saying by acknowledging that—I’m learning about this along with everyone else. But I do think that the natural incumbency of homeownership and the many incentives that homeowners think they have to limit supply or if there’s going to build, not build in their backyard, which is the root of the not in my backyard, NIMBY movement, and the counter, yes in my backyard, YIMBY movement. I think those NIMBY forces are powerful and not in a way I find when I’m reporting that comes across as malicious, as muahaha, let’s make society unaffordable for first-time homebuyers and folks trying to get a leg up. But ultimately, the Fed rate hikes will not build more housing supply. The thing about problems is, usually, you have to solve problems.

And so, I do think it was sort of odd—at least exceptional—when the Fed was buying MBS mortgage-backed securities, well into, I think even early 2022. And to what extent that affected mortgage spreads is something that I know is also of debate, but directionally, it seems pretty aggressive. However, whatever your take is on QE and all those extraordinary actions that the Fed took on before, during, and after the peak of the COVID crisis—if you step back, getting mad at Jerome Powell about it all seems a bit silly because ultimately, we have to decide if, when, and how we expand our housing supply for a country that is not growing as quickly as it used to, but it’s still growing and that has millennials. I just turned 29 and I’m sure that soon enough I’ll be a first-time homebuyer. But my generation is nowhere near as much of a baby boom as the baby boomers, but we are actually now the largest demographic group, millennials, and a lot of folks are unavoidably going to be in that stage of life where they need places to live and part of the American dream, most people’s primary investment is their house. And so, we have to balance the vagaries of supply and demand with affordability and with the odd situation we have in this country where we have all agreed that homeownership is going to be one of the main vehicles of wealth accrual.

So, it’s tough, but I think the solution, and it’s not my job to offer prescriptions, but whatever the solution people prefer, whether it’s more single-family homes or higher-density mix-use stuff, whatever it is, folks should work on figuring it out because I think whether it’s the Fed or some other institution, as long as we direct our anger at these secondary functions of trying to manage a larger problem, then we’re not actually going to focus on that primary problem. So, I’ll leave it at that. And I look forward to listening to whoever you all have on that is more expert on housing that maybe can help me learn about some more creative solutions in that space.

Benz: Yeah, that’s good food for thought, and it’s a good segue to the main topic that we wanted to discuss with you today, which is this in-depth piece that you wrote for The Times in May, where you looked at the enormous amount of wealth that will transfer from baby boomers to their children and grandchildren over the next couple of decades. Some of that will be housing wealth. So, before we get into that story, can you just talk about why this is happening? Why have baby boomers done so well?

Smith: Baby boomers just sort of hit the jackpot in terms of timing of when they were born. Of the 73 million baby boomers, they were mostly born in the midcentury, in the heart of midcentury, as U.S. birthrate surged, as there was this huge leap in prosperity after The Depression and World War II. Boomers had the great timing of getting into the housing market at the time where the government creation of the 30-year fixed mortgage was really coming into mature form, in part backed by more government maneuvering that helped make 30-year fixed mortgages a lucrative investment once it was securitized on Wall Street. Because before—and it’s almost a side point, so I won’t go that deeply into it—but there’s nothing inherently attractive about a boring old 30-year fixed. There was a lot of intentional involvement by the government to make this something that was a symbiotic public good and a really, really profitable investment for the financial-services world, which helped then spur more crowding in of housing investments.

And so, when you add up the numbers, a key reason why there are such large, soon-to-be inherited sums is how I framed it in the story, is that incredible way that boomers benefited from price growth in the financial and housing market. So, just to rattle off the two main stats that were associated with this passage, the average price of a U.S. house has risen by about 500 % or so since the early to mid-’80s, when boomers were in their 20s and 30s. And that’s, as I just said, prime years for household formation. And we’ve all witnessed and have all benefited—we can get into the major downsides that might have come with this transformation as well—U.S. corporations becoming just these countries unto themselves, these global behemoths. And so, if you were invested early on, and there are plenty of middle-class, upper middle-class, and certainly affluent boomers that were invested early on in the stock market, then you’ve experienced incredible returns. If you just buy and hold, park it, don’t think about it, which is a major investment strategy that many people do, quite smartly I’d add, then the stock market by the S&P 500 index is up by almost 3,000% since the beginning of the ‘80s, which again is around the time index funds took off as a mainstream investment for regular folks, not just corporate employees in the C-suite. So, it’s this weird mix of timing, the maturation of certain investment vehicles that combine to give boomers so much wealth.

Ptak: A key point of your piece is that most baby boomers will not be dying with vast sums of wealth. They may leave a few thousand dollars or their homes to their heirs. Instead, the wealth is quite concentrated with the wealthiest boomers. Can you expand on that?

Smith: So, high-net-worth and ultra-high-net-worth individuals, those with at least $5 million and $20 million in cash or easily cashable assets, make up only 1.5% of households. Together, high-net-worth and ultra-high-net-worth individuals constitute 42% of the volume of expected transfers through 2045. So, that’s $36 trillion of money. And it is highly, highly concentrated. The sort of tongue-in-cheek passage that I have in part of the story that addresses this is illustrating through Succession, the HBO show, that, yeah, that is what that sort of wealth looks like. And while absolutely there are more, I guess, you could say run-of-the-mill wealthy families, a third generation family of doctors or somebody that was involved in an IPO in the ‘90s and invested their money well and maybe got into investing a little bit of real estate around their Midwestern town or city, that’s absolutely there. And that’s also trillions and trillions of dollars of wealth. And much of it will get passed on, though healthcare expenses will eat up a good bit of it. And yet, it’s not a side story, but that wealth, that upper-middle-class and normally affluent wealth still is dwarfed by high-net-worth and really ultra-high-net-worth individuals. So, when people get into debates about wealth taxes and these sort of things, and I assume that might come up now, I think it’s equally important to note that there are some folks like Morris Pearl, who I profiled in the story, who was a Wall Street money manager for many years, got started at Salomon Brothers, he says he supports reforming the tax system to avoid jeopardizing social stability and economic growth. Freddie thinks that we’re in danger of becoming secularly stagnant again in a few years if this level of wealth inequality continues to go forward because of a lack of dynamism. Morris Pearl is also in the camp that we don’t necessarily need the money of the magnificently wealthy. I guess one way to talk about it, my pal Nathan Tankus made this joke that, you can’t cut up a yacht and eat it. Abundance for the middle class and working class isn’t necessarily this eye-for-an-eye trade-off, but it is true that as people have become magnificently wealthy, thanks to the booms, especially in tech, banking, and so on, that they’ve also been taxed less than they otherwise would have been with old tax rules. So, it’s this winners-take-all compounded by government policies and regulations for sure, and then just through the natural physics of how money works, compound interest is of a great help to anybody that already has a very large pile of assets, which all of these people in the ultra-high-net-worth category do.

Benz: Right. I wonder if you can discuss the role of race in all of this, which you did discuss in your piece as well. In a graphic, you show how wealth in the U.S. is disproportionately concentrated in the hands of white families. Is that getting any better?

Smith: Slowly, but surely. I think going back to what I just said, just the very nature of compound interest means that there is no … And I know this is a very sensitive topic. I am a Black American myself, so I don’t mean to be dismissive. But if you just follow the money and understand the data and understand how money begets money, wealth begets wealth, then there is no catching up in terms of absolute terms between whites and Blacks in this country. And it’s not for me to decide what we ultimately do with public policy and how much we factor in racial wealth inequality to talks about wealth equality and income inequality. But I do think there was a very well-intentioned focus, over the last decade, on the racial wealth gap. And it was really remarkably in a way that I think shows a lot of societal progress. It was a very key part of the 2020 Democratic primary talking about this. And I think directionally that is all positive. But I think part of what I tried to do in this article was show that this country is still mostly white. Most people in this country are not wealthy. And yet, most white people are not necessarily wealthy, but most rich people are absolutely white. And so, there’s this weird sort of thing where, to go back to the ultra-high-net-worth individuals, that is a very homogeneous group. You can find literally a couple of Black billionaires in that group, maybe. Certainly, Asian families and Hispanic families and others that have done well, but it is very much not a diverse group. And a lot of that wealth—not all of it, but a lot of it, if you trace it back far enough—is absolutely directly connected to an apartheid society that we had for most of this country’s history. And yet, I think if we added, let’s say, like Jay-Z is a billionaire, if we created 100 more Jay-Zs with just as much wealth as Jay-Z and Beyoncé have, well, then in the data, the racial wealth gap would shrink substantially. It would still be huge.

I’m doing a little bit of a bit here, but it would shrink a lot. And I would just tell people that spend a lot of time focusing and talking about closing the racial wealth gap is that what you want to see. And I think they’d probably say, no, no, no, what we want is to have better opportunities and better outcomes for the Black community and other historically disadvantaged communities. And I think that leads you to a suite of solutions that, in a super corny way, could be framed as a rising tide lifts all boats. But if the goal is to make sure that there is a higher standard of living for the Black community, and for all communities of color, for people of all colors, then you might in a way that I think ends up helpful for this conversation have less pie-in-the sky debates about reparations and things of that sort and maybe have a broader set of considerations and policy reforms that will help not just Black folks who are disproportionately in poverty, but everybody who’s in poverty or everybody who’s struggling to afford a home for the first time, and so on, and so on.

Social media is combative. The intelligentsia is a passive aggressive but rough-and-tumble place. So, maybe that’s too hopeful of me. But I think one thing that this piece might have quietly done, though maybe I’m being biased because I’m just hoping that my own story has a desired effect, I think it hopefully helped push people into that latter set of concerns that I mentioned. Since once we get into race and things get very personal, then I think we often end up having unproductive conversations, even if it’s absolutely important to keep our eye on the ball of all the ways that racial inequality is still something that this country deals with in a very ugly sometimes way.

Ptak: Wanted to shift and talk about one policy consideration, which is tax policy. In your piece you discuss how tax policies contributing to this great wealth transfer, specifically the fact that a lot of stock and other assets transfer tax-free due to the step up in cost basis that families get when someone leaves them assets. Can you expand on that?

Smith: I should be somewhat careful here. I don’t want to get in trouble with my editors. But one of the great quotes I think, at least I enjoyed it, was this wealth strategies advisor at Bank of America Private Bank, noting in this conversation with his colleagues that, “Inheritances are income tax-free to the children with very few exceptions.” There are so many ins and outs when it comes to tax policy concerning wealth. One thing that didn’t make the final cut in this story is the wild nature of family foundations, which technically is a family giving up the money to charity, and yet the family can run this family foundation charity themselves, get amazing tax benefits on it through the endowment and other means. And that didn’t even make it in. And you mentioned the estate tax and step-up basis taxes as well or lack thereof. And the merits of them, that’s not for me to say, but I think the very fact that there are so many different specialized tax attorneys and wealth managers that operate in the space, it shows that it’s a good business. It’s increasingly a good business.

It’s almost funny in a way. Wealth management, you all are more experienced than me, but I certainly don’t remember it having the sort of glamour that it does now. I think it was a bit more of a, maybe not sleepy backwater, but maybe not the most exciting or lucrative space. And now, we’ve seen many of the biggest Wall Street banks really pivot to focus on this because they know there’s plenty of opportunities for them to save their clients’ money and for them to make money by aggressively pursuing these means of preserving as well as creating wealth. It is absolutely true that individuals can transmit up to $12.9 million to their heirs during life or at death without any federal estate tax. That’s $26 million for married couples. And that’s a change. It wasn’t always that way. Just as not as long ago as some folks might think, we had a top tax rate in terms of income, that was even during the early Reagan era, well above 50%. I’m not sure whether that’s compatible with the modern economy we have, but I think it is an important indicator that the status quo is never a given. When folks get together and have their elected officials come around to an idea, a solution, they can do that. If we want to give a carrot to this sort of investment and hit another investment or another area of the economy with a stick, then you can hit that with a stick. I think we saw that with the IRA that President Biden signed into law, that that was a very carrot-heavy strategy. And we’ll see if it works. That’s up for debate. But I think the analogy there is just that whether we’re talking about crowding in strategies for macroeconomic policy or whether we’re talking about fairness in our tax system, it’s all up for grabs. None of this is a coincidence. These changes that were incredibly helpful for high-net-worth and ultra-high-net-worth individuals were put into place by Congress people and state-level officials that they were very close with, and some populist movement from the right or the left or somewhere in between could come and modify those changes. So, it’ll be interesting to see.

I would go back to the idea that through my reporting, I’ve truly come around to, which is that, we are not so dependent upon the ultrawealthy for making whatever future investments that we decide to do, whether it’s a more cultural one centered around dignity, which is definitely what I’d consider preserving if we want to preserve them, Medicare and Social Security. There’s not a lot of bang for the buck in terms of productivity gains by helping the elderly have a respectful end to their twilight years. But we’ve considered that important. Or if it’s having a military buildup to defend ourselves against the Chinese Communist Party, Beijing; or that same money that can go to adapting or fighting against climate change. The numbers really start adding up very quickly. And I think that’s just important for macro-focused reporters like me to warn folks that, one, there’s a lot of brilliant lawyers I cite, or at least hyperlink to one Harvard lawyer that points out that a wealth tax may be at risk, particularly with the current makeup of the Supreme Court. But even putting that aside, the legality, there’s not enough Elon Musk and Jeff Bezos’ to pay for all this stuff. It’s much more likely that some creative vehicle, I don’t know whether it’ll look something like some version, some democratically approved version, of what the Fed did with its facilities during the height of the crisis or not. It might be something hybrid. Or it could just be through the plain old issuance of debt. We do a lot of that right now anyway. That will be a part of the mix. There is no cheat code where we read articles by Talmon Joseph Smith at The New York Times that lays out how deeply unequal this country is in terms of wealth as well as income. And then, it’s like, well, let’s just take their money and all of our problems will go away. One, there will always be problems. Two, despite how much money these individuals and these families, these households have, it still wouldn’t cover it.

So, I think the society that we live in, this incredibly complicated and inspiring global economy that we are in, even if it’s incredibly scary at times, it will require a much more creative public finance state, I think, going into the rest of the 21st century. I just wanted to make that, I think, very important point that was mostly left subtle in the piece, but that I think in this audio format is maybe a helpful tidbit to highlight.

Benz: Yeah, that is helpful. I wanted to talk about some of the feedback on the article. I was reading through it yesterday and the article was circulating among a bunch of financial people on Twitter as well. You had about 1,600 reader comments before they closed off the comments. First, I guess, do you read the feedback? And second, was there any feedback that was surprising to you?

Smith: I do read the comments. I can’t read all of them, definitely not when there’s 1,600 of them. And you’re always some mix of flattered and relieved when you spend months working on a story and then it actually does get millions of views based on our internal data. And because the fear is always, what if I spent all my time on this and it just flops or is like a quiet little dud. So, I always have that baseline level of appreciation.

At the end of the day, I joke with my girlfriend that all journalists are essentially still those little kids with a crayon and a white piece of printer paper, making a little drawing and then showing it to mommy and daddy and hoping it’s good enough for it to be on the fridge. So, even if people had problems with the article, I’m thankful for their readership. I think most of the comments that I wouldn’t say surprised me, but I think let’s say that frustrated me were, people pointing out just something that I outlined and saying that there’s even more detail behind that. Or, well, you mentioned this, why didn’t you mention that? And it’s like, I hear you, brother, like I hear you sister, but you’re also going to be upset with the times if we took the original length of this, which was 6,000 and left it there. Of course, some people would have loved that. I think there’s definitely a certain type of reader that this is catnip for. Breaking down and assessing wealth and income and the various ways it moves, like this massive river delta with all sorts of tributaries and wines and curves. It’s all incredibly interesting and it has all these social implications. So, maybe a really lengthy version of the story that touched on every single aspect that people brought up in the broader conversation that followed, maybe that would have been fine. But The Times has also been reassessing how long we make stories.

And it was a painful cut for me as well, but we had to take it from almost 6,000 words down to closer to 3,000. And it meant that it was a quicker read that just hit the highlights and weaved in the personal aspects, the human illustrations. And then, it cut to the chase and then let readers very intentionally stew on it in the comments and on Twitter. I think now it’s understood, though I think there will definitely still be room for long form and hopefully, I’ll be one of the writers still doing long form. But I think now that there’s so many formats, I’m speaking to you for a podcast, and I frequently do Twitter threads, especially for some of the stuff that gets complicated so that more lay readers can interact with charts that really break things down in a bit more plain English and not maybe have a meme or two connected to it. There’s all these various ways now for us as journalists to get our message out. And so, I apologize to those that brought up one aspect or two aspects or three aspects of the wealth transfer that I did not note in the final cut. But I would just encourage people to know that I was generally aware of the granular-specific that you pointed out. It’s just there was not room for it in the story as constructed by the end. So, that’s my one PSA.

Ptak: That’s a good segue to the next question that we had, which is, I think you’ve indicated that your article about the great wealth transfer is an opening salvo on this topic of how wealth is dispersed in our country. What follow-on articles do you expect to pursue?

Smith: Without giving too much away or promising too much, always better to under-promise and over-deliver. Right now, I’m funnily enough, looking at the housing aspect here. So, I really meant it when I said that this is something that I’m learning about. It’s funny, I was such a procrastinator in school. And now, I realize it’s my job to go pretend to be an anthropologist and then write essays about that for the public. And it’s like you couldn’t pay me to turn in an essay before midnight when it was due before. So, it’s funny how life works.

On that housing aspect, I’m in Colorado right now and Colorado increasingly—it’s booming here and it’s understandable why it’s booming. In the 2010s, the minute the housing market and the broader economy recovered, Colorado started outperforming compared with the rest of the states. I mean, why not? You have the entire Rockies and the western half of the state, beautiful water, all sorts of recreation for adults and kids. It’s a beautiful place to raise a family and to move as a young person. But the thing about people finding out about something becoming a hot commodity is that the price of things, especially assets like housing, can go up. And I’ll say that some things are a little bit TBD and so I’m sure we’ll email or interact about the final form of that story, but COVID really supercharged the boom here in Colorado because many affluent people have the ability to work hybrid or completely remote. And if you can work completely remote or hybrid for a part of the month or a part of the year, then why not have a primary or a secondary home in the Rockies in Colorado? And a lot of people did that. And you saw, in some cases—for example, in Steamboat Springs, housing prices went from around $400,000 or so, on average, I think—though I should double check myself later—in the mid- to late-2010s, and now, a little over five years later, the average house there is $1.2. And I actually just hung out the other day with a realtor who I just saw a house that was for sale along this mountainside, and I’d opened one of the pamphlets and gave her a call and so ended up hanging out. She very nicely gave me a tour of a place I would never be able to afford. And she was like, “Oh, $1.2, that’s still what Redfin or Zillow says?” She’s like, “That’s going to be dated soon.” And I was like, “Even with interest rates?” And she was like, “Interest rates? Half the people that I’m dealing with are cash buyers.” So, 3%, 7%, they are completely rate insensitive and price insensitive in that sense.

And if that’s not an illustration of the knock-on effects, the downstream effects of this massive wealth transfer, then I don’t know what is. So, there’s a lot of public policy debates here led by the governor about what to do about this so that not just the people that work the lifts or that act as tour guides or whitewater rafting guides and all those other sorts of things related to the recreation economy here, how do we ensure that nurses, pharmacists, mailmen, line cooks, waitresses and on and on can still live in Colorado? Because I think, again, without going too far into the details of the story, I’ve met people that are not realtors and that are not her buyers or sellers that are having to ask themselves and their family members, “Do we not just have to leave this county? Do we have to leave the state? Do we have to move to Kansas or move to Wyoming somewhere to be able to afford life?”

And I think one of the interesting questions there and one of the interesting questions that cuts across all of my reporting is what is the problem versus what is the problem of expectations? Because in some sense, you could argue, hey, this is free market. Sorry, the working world is changed in a way where now people from California and Seattle and places like this can now move here and you have now been priced out. But there’s plenty of other places that would love to have you as a community member, and you will go live there now. In a sense, a lot of our public policy in many states communicates that to folks. But I guess the question there is, are we OK with that as an equilibrium as we continue into this decade? Again, not for me to answer, but I think we should just all be aware of what we implicitly communicate about our values or how we want to structure certain markets just by keeping the status quo.

Benz: Really quick is a closing question. Since you do a lot of reporting in the field, I’d like to ask, is there an issue that you would say is a canary in the coal mine, something that we’re not hearing a lot about today but may hear more about in the future?

Smith: That is a very good question. I’ll say two quick things. The first one, which is the quicker one, is that I think people have been far too bearish about the economy. And I think that is again, in part to the way that ideological positions have maybe filtered into opinion surveys. I don’t think any of the main, whether it’s PMI or NFIB, as a reporter, sometimes those are great organizations, and they absolutely produce a lot of helpful data. But a lot of the survey sentiment data just has not been useful because I think there are a lot of businesspeople that are still doing so well that they’re struggling to keep up with orders or struggling to staff up, which is another way of saying business is so good, I can’t hire enough people to keep up with my current level of business.

There’s a way to frame that, that instead of sounding like labor shortage, it sounds like, oh, wow, things are so great, I’ve got to really juggle things in a way I’m not familiar with. So, while I don’t think that they’ve been as useful or as reliable as they’ve been in the past, I do think that if people get bearish enough, we actually can manifest a recession. And then, the second side of that is, a lot of debt, thank goodness, is long-term, cheap, and fixed, whether it’s folks holding mortgages or whether it’s businesses that took the opportunity to finance themselves at the very, very low rates of 2019, 2020, 2021, and early 2022. So, maturity walls, to the extent they’re anywhere nearby, are far out for many companies that have access to debt capital markets. But small businesses aren’t accessing debt capital markets. The business around the corner is not selling corporate bonds to get through the year. They operate on cash flow and business credit cards and through bank loans. And I do think that there is some black pool. We don’t know how big it is. We can’t. These are private firms a lot of the time, or almost by definition, they’re private firms.

There’s some amount of small businesses that are going to realize, oh, wait, well, the cash flow is not as good as it was last year. I think what we might need to lean a bit more into debt to get through this air pocket, and then they’ll get a quote from their banker and that person will say, “OK, well, we know that we were lending to you at 4% and 5%,” or whatever it is in the 2010s. “But, now I got to give you this loan for 10% at best,” or something like that. And then, I think you could see a deluge of business failures. But it could be a very small crop of businesses relative to the size of the economy, but we don’t know. So, that’s something that I don’t think we’ve been talking that much about in part because it’s so hard to know, but public companies are certainly doing well.

And then, the last thing—and this is more long term—is, I think that, whether you want to call it MMT or just this growing school of young bucks in the economists’ world that are thinking much more creatively about public finance. I think this decade, they will have their moment. They’ll be wrong, just like the Neo-Keynesians before them had been wrong about certain things, but I think that’ll be a really exciting thing for me to cover, just the changing way that younger economists and some of their older mentors who were not considered mainstream too long ago, or even now, how they’ll have their moment in the sun, which will also end up being a test, a very public test. So, I think for macro nerds, that’s something to keep an eye out on.

Benz: Well, more to come and we will keep an eye out for your work in The Times. Tal, thank you so much for taking part in this conversation. Lots of great food for thought today. Thanks for being here.

Smith: Thank you.

Ptak: Thanks again.

Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is, S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

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