The Billionaire Class
Discussing Steven Taylor’s post yesterday that concluded, “I fear that we are seeing a significant shift toward direct oligarchic power in our elections which is not healthy in the least,” regular commenter @Beth observed,
I think Billionaires are a whole class of rich that is new, different, and way more destabilizing. I don’t have time now, but it would be interesting to compare say the Gilded Age Rich vs the Billionaires now. Or even just the growth of Billionaires in the U.S. I suspect that prior to about 1990 the number of Billionaires could be counted on 2 hands max. Now we have dozens if not hundreds of them and they can effect things more than the ordinary rich can because the difference between say having 100 million and having 1 billion is HUGE. Most people don’t understand how huge.
I remember being fascinated by the Book of Lists as a kid and at that time (the first edition came out in 1977), there were something like four or five billionaires on the planet. There are now so many of them in the United States alone that we can’t count all of them. The folks at Statista provide this handy dandy chart:
Certainly there has been considerable inflation of the 34 years covered–$1000 in 1990 has the same buying power as $2476 today—but that only gets us to 164. Ditto population growth—we only had 250 million people in 1990 and are up to 335 million now. But, again, that only accounts for a fraction of the growth. My guess is that the dot com boom of the 1990s created that initial spike; most of the growth since then looks much more natural.
A NYT Magazine feature from April 2022 titled “How Many Billionaires Are There, Anyway?” gets at the question. It starts with Malcolm Forbes’ idea in 1981 to create a now-famous list.
The resulting reporting project took a year, dozens of flights and thousands of interviews. At the top of the very first Forbes 400 list was Daniel K. Ludwig, a shipping magnate, estimated by the magazine to be worth more than $2 billion.
If you simply adjusted for inflation, that’s now at least $5.8 billion, a fortune that would land Ludwig in a seven-way tie for the 182nd spot on the last Forbes 400 list, alongside Fred Smith, the founder of FedEx; Gary Rollins, chief executive of Rollins, Inc., which owns several pest-control companies; and who could forget Peter Gassner, the head of a cloud-software company called Veeva. Fortunes at this tier hardly seem to merit media coverage anymore.
Indeed, one of the things that always surprises me about these lists is how anonymous most of the members are. Elon Musk, the current World’s Richest Man and the subject of Steven’s observation, is rightly a household name. For that matter, most have heard of Fred Smith and everyone has heard of FedEx. But neither Rollins nor Veeva ring a bell with me.
How can someone amass that kind of money in an enterprise that doesn’t even register with the public? I’m reminded of an old Chris Rock joke :*
In my neighborhood, there are four Black people. Hundreds of houses, four Black people. Who are these Black people? Well, there’s me, Mary J. Blige, Jay-Z and Eddie Murphy. Only Black people in the whole neighborhood. So let’s break it down, let’s break it down: me, I’m a decent comedian. I’m a’ight. Mary J. Blige, one of the greatest R&B singers to ever walk the Earth. Jay-Z, one of the greatest rappers to ever live. Eddie Murphy, one of the funniest actors to ever, ever do it. Do you know what the White man who lives next door to me does for a living? He’s a f**king dentist! He ain’t the best dentist in the world…he ain’t going to the Dental Hall of Fame…he don’t get plaques for getting rid of plaque. He’s just a yank-your-tooth-out dentist. See, the Black man gotta fly to get to somethin’ the White man can walk to!
But I digress.
Almost everyone at the top of the list is easily recognizable for what they or an ancester did:
The process has become easier in one sense, because our access to information is so much better; and harder, because there are so many more billionaires. The 2022 World’s Billionaires list, for example, grew by 573 names compared with the last prepandemic list, in 2020. That year, the world was minting new billionaires at a rate, Forbes noted, of about one every 17 hours. At the top of the new list is Elon Musk, with an estimated net worth of $219 billion; behind him is Jeff Bezos, with $171 billion. From there, it goes like this: Bernard Arnault and family ($158 billion), Bill Gates ($129 billion), Warren Buffett ($118 billion), Larry Page ($111 billion), Sergey Brin ($107 billion), Larry Ellison ($106 billion), Steve Ballmer ($91.4 billion) and Mukesh Ambani ($90.7 billion), the richest man in Asia and, I confess, the highest-ranked person on the list I’d never heard of.
Not only are those numbers staggering but they’re volatile. Two years later, Musk’s wealth has reportedly almost doubled. He’ll make more money as I’m typing this sentence than I’ll make in my whole life—and I’m doing pretty well.
If you continue down, keeping your eyes on the Americans, most are familiar, names you know from the vast fortunes cast off by Silicon Valley, or Walmart (the wealthiest Walton heirs have around $65 billion each), or Nike ($47.3 billion), or divorcing Jeff Bezos ($43.6 billion), or living longer than Sheldon Adelson ($27.5 billion). But eventually, you start to encounter less-familiar names: Thomas Peterffy, who immigrated from communist Hungary and pioneered computerized stock trading (No. 80, $20.1 billion); Robert Pera, who founded something called Ubiquiti Networks and — this was fun to learn — went to the same state college that I did (No. 127, $14.6 billion); speaking of college, there’s Dustin Moskovitz, who was roommates at Harvard with another guy who had a cool idea for a social network (No. 167, $11.5 billion). Before long, you’re down with the Peter Gassners of the world, and there are a lot of them — America has some 735 billionaires now according to Forbes, collectively worth more than $4.7 trillion. A decade ago, Forbes counted only (“only”) 424. A decade before that, 243. They keep multiplying, and their collective wealth grows, even, or especially, as the rest of us fall behind.
Editorializing aside, the question is How? If someone earned $100 million a year—which is a lot!—it would take ten years to earn a billion and four thousand years to get to Musk’s number. And few people, indeed, can sustain that kind of income over four thousand years.
The NYT billionaires feature spends several paragraphs ranting about policy changes initiated during the Reagan administration, notably a huge cut in the top marginalized tax rate and the Fed’s prioritization of reining in inflation. While both doubtless help explain the accumulation of wealth in the United States, the fact that the explosion of the billionaire class is a global phenomenon suggests that Republican policies are not the chief explanation.
Regardless, this makes sense:
In his book “Ages of American Capitalism,” the University of Chicago historian Jonathan Levy describes the era of capitalism we live in as the Age of Chaos: a time in which capital has become more footloose, liquid and volatile, constantly flowing into and out of booms and busts, in contrast to the staid order — and widely shared prosperity — that characterized the industrial postwar economy.
[…]This shift to a highly financialized, postindustrial economy was helped along by the Reagan administration, which deregulated banking, cut the top income tax rate to 28 percent from 70 percent and took aim at organized labor — a political scapegoat for the sluggish, inflationary economy of the ’70s. Computer technology and the rise of the developing world would amplify and accelerate all these trends, turning the United States into a sort of frontal cortex for the globalizing economy. Just as important, the tech revolution created new ways for entrepreneurs to amass enormous fortunes: Software is by no means cheap to develop, but it requires fewer workers and less fixed investment, and can be reproduced and shipped around the world instantaneously and at practically no cost. Consider that the powerhouse of 20th-century capitalism, Ford Motors, now employs about 183,000 people and has a market capitalization close to $68 billion; Google employs about 156,000 people and has a market cap of around $1.8 trillion. This new economy would be run by, and for, knowledge workers, who would reap most of the gains, and therefore have more money to spend on services — a sector that would come to sort of, but never fully, replace the manufacturing this transformation did away with.
“During the Reagan years,” Levy writes, “something new and distinctive emerged that has persisted down to this day: a capitalism dominated by asset price appreciation.” That is, an economy in which the rising price of assets — stocks, bonds, real estate — would be, somewhat counterintuitively, a fuel for economic growth. It has been a good time, in other words, to own a lot of assets. And owning assets is mostly what billionaires do.
Whether a direct result of government policy or merely helped along by it, we simply have a radically different economic system. This isn’t new news, of course, but it does lead to the concentration of wealth.
In his book “Capital in the Twenty-First Century,” the French economist Thomas Piketty notes that the new economic order has made it difficult for the superrich not to get richer: “Past a certain threshold,” he writes, “all large fortunes, whether inherited or entrepreneurial in origin, grow at extremely high rates, regardless of whether the owner of the fortune works or not.” He uses the examples of Bill Gates and Liliane Bettencourt, the heiress to the L’Oréal fortune. Bettencourt “never worked a day in her life,” Piketty writes, but her fortune and Gates’s each grew by an annual rate of about 13 percent from 1990 to 2010. “Once a fortune is established, the capital grows according to a dynamic of its own,” Piketty notes, adding that bigger fortunes tend to grow faster — no matter how extravagant, their owners’ living expenses are still such a small proportion of the returns that even more is left over for reinvestment.
This isn’t shocking, of course. The Gates-Bettencourt illustration is a useful one. During all but the last two years of the period in question, Gates was the CEO of Microsoft. In that capacity, he generated a vast amount of wealth for the economy at large and has share of it, mostly in the form of Microsoft stock, while tiny as a percentage, was nonetheless enormous. An heiress, meanwhile, would earn the same return simply buying a ton of Microsoft stock in 1990 and holding on to it. In both cases, their wealth came from their money working, not their own labor.
Piketty was writing in 2013, while the economy was still recovering from the financial crisis of 2008. That recovery was buoyed by several years of near-zero interest rates, kept there by the Fed on the theory that, with credit widely available, the economy would regain its health. But low interest rates do two things: They push investors into riskier territory seeking better returns (and ideally creating jobs in the process); and they inflate the value of assets. Private equity and venture capital benefited greatly from this low-rate environment, helping both Silicon Valley and the financial engineers of Wall Street clean up once more. Even in less-dynamic sectors of the economy, the cheap money enabled an explosion in stock buybacks, some $6.3 trillion worth during the 2010s, or about 4 percent of our G.D.P. over the same period — more than we currently spend on defense. This, too, made asset owners richer.
The Trump years supercharged another bull market that would be supercharged again, paradoxically, by the Covid pandemic. When the Fed and Congress stepped in to prop up markets and assist the economy, they fueled yet another boom in asset prices — this time with more everyday Americans trying to get a piece of it, investing in everything from Tesla options to JPEGs of apes. The retail investors have seen winners and losers among them, while the billionaire class as a whole has absolutely flourished. Over the last five years, Jeff Bezos’ fortune has more than doubled; Elon Musk’s, fueled in part by retail investor exuberance, has grown by a factor of 20.
In fairness, 2019 was something of a trough year for Bezos, what with a $38 billion divorce settlement. That he’s managed to not only recoup that but significantly increase his pre-divorce net worth since is staggering.
But the more mundane cases are really more interesting than the famous ones.
I asked Dolan what her profile is of a billionaire whom she’d never find. She told me it’s someone who quietly sold a stake in a business for, say, $250 million in the ’90s, then invested it well. Today, a guy like that could use his wealth to do whatever he wanted: buy truckloads of Nazi memorabilia, try to persuade your mayor to privatize the city’s sewers or maybe both, and you’d be none the wiser. And in fact, he wouldn’t even have had to be all that smart with his money. If he parked $250 million in an S.&P. tracking index fund in 1992 and left it alone, he’d be worth more than $4 billion today. (Dolan cautioned that no one would be quite crazy enough to put all his money in the market; nevertheless.) He would have slipped through the billion-dollar barrier like an Olympic diver. And now he’s just a guy with an insane Schwab account, some interesting ideas about sewage treatment and the world’s largest collection of authentic Totenkopf rings.
The sneering tone notwithstanding, this re-emphasizes the key variable: having a large pile of money that can be left alone to grow into a massive pile of money while still enjoying a nice lifestyle. The quarter million in 1992 dollars would be worth $571 million in today’s money. But thirty years of compounded returns increases that seven-fold.
And, of course, the larger the pile the easier it is to increase it. If you have a few billion laying around, you can invest a few million in a couple hundred startups and, if even one of them makes it big, you come out ahead.
Here’s the top twenty on the Bloomberg billionaires list as of this writing:
Rather obviously, it’s dominated by people who call the United States home, including South Africa-born Musk. And almost all of the “new” money is in the technology sector (although, in fairness, Amazon started as, and in some ways still is, a retail company).
That Musk’s estimated net wealth has doubled this year—indeed, it has increased almost as much as Bezos’ total net worth—just boggles the mind.
That the three Waltons, all of whom inherited their money, are worth a combined $340 billion is noteworthy. Two others make the list at #40 (Lukas, at $39.6B) and #120 (Christy at a measly $18B).
Circling back to the subject of Steven’s post, it’s actually remarkable how few of these folks are front-and-center in American politics. Musk seems to have emerged in that role only in the closing weeks of the campaign. Charles Koch, the remaining living Koch brother, is ranked #22 ($65.8B) and has obviously been heavily influential for decades. But I recognize far more of them from their investments in professional sports than I do politics.
*There are multiple variants but this was the only one I could find a decent transcription of. The one I was looking for the punchline, “I had to host the Oscars to get that house — a black dentist in my neighborhood would have to invent teeth.”