The Alluring Myth of Passive Income

“Financial gurus” are selling a get-rich-quick scheme for the digital economy.

Passive income is income that requires little to no effort to earn and maintain.

It’s easy to see the appeal of this concept. Every person on Earth would love to get money in exhange for little to no effort. But if everyone wants passive income, what’s stopping them? Nearly all of us are still either working or looking for work, yet there’s thousands of books, articles, podcasts, etc. explaining how we can start building passive income streams. Maybe if we all follow their advice, each of us could retire to some post-work utopia.

The problem with this notion, however, is that someone has to be working to actually produce and deliver the good or service on which your passive income rests. There’s no perpetual motion machine for economic growth. For every one person who truly makes a living passively, a multitude of others has to work to provide it.

In truth, to earn a living wage with passive income is possible only for those who are already wealthy.

There are two categories of earnings that the IRS distinguishes from active income—which are passive income and portfolio income. In casual use both are considered passive, and includes…