The first paragraph says:
> The popular view of America's upper class is that of an ossified aristocracy. But research from the National Bureau of Economic Research shakes up this view, at least among America's richest individuals.
Not much has shaken up this view. Half of the list inherited $400 million or more upon turning 18. Even the other half of the list are from among a small percentage of America's upper middle class.
#1 Bill Gates. Father a wealthy lawyer. His grandfather was a national bank president. He went to an elite private grammar school, which had teletypes and computer timesharing back in the 1960s. His mother was on the board of United Way with the CEO of IBM - a helpful thing for a son who became a billionaire by riding IBM's coattails. Despite all of this, he is still on the bootstrapped, self-made side of the F400 list. He is not one of the heirs.
Next is Warren Buffett. His father was a congressman. His grandfather owned a string of stores. And so on.
The rest of the top ten are the Waltons, who inherited Wal-Mart on birth, the Koch brothers, who inherited an oil company on birth, plus Larry Ellison and Michael Bloomberg. Ellison and Bloomberg are the only middle class people on the list.
I do think there are new trends happening at this level, but they don't point to what the blog post authors are pointing to.
During the period the researchers investigated, the number of individuals on the Forbes 400 who were the first in their family to run a business rose from 40% to 69%. Sixty percent of individuals on the list grew up wealthy in 1982 while only 32% did in 2011.
This strikes me as likely to be just a delayed propagation of the increase in upward mobility seen in the post-war years. It seems entirely reasonable for that to take a couple of generations of people building on their parent's wealth accumulation to propagate upwards to the very top.
How many of those people's success could you trace back to the GI bill? Gates' father attended university because of it, for example.
Gates's maternal grandfather, a multimillionaire bank president, left him a million dollar trust fund; his mother was on the a United Way board with an IBM exec which is how he got the contract for DOS.
The GI Bill had little or nothing to do with Gates's success.
How much of that trust fund - which Gates never asked for and had nothing to do with - did Bill Gates invest into starting Microsoft? All I'm seeing here is Bill Gates bashing with no actual substance.
If Gates didn't have the trust fund, and didn't invest it into Microsoft, then why are you referring to it as somehow indicting his success?
In fact, the IBM exec is not how Microsoft got the contract for DOS. Microsoft was already a very successful software company by the time the deal with IBM was signed, they had millions in profit in 1980 (in 1980 dollars).
They already had the equivalent of $60 to $80 million in sales (2013 dollars) in fiscal 1980, with 40 employees. They did the equivalent of $130 million in sales in 1981 (DOS 1.0 was first released in August 1981). If you understand anything about the software market's history, you understand how already substantial that was at the time for a stand-alone software business. Fact is, Microsoft was already one of the biggest software companies before they ever signed that deal.
IBM was looking to compete with Apple and others in a very important, fast growing market for personal computing. A multi-billion dollar market opportunity at the time (1980 dollars at that).
Your claim is that IBM would have just given that opportunity to any 'kids' with a half-way connection to an IBM exec (that one of the most powerful companies on earth would rest a multi-billion dollar, critical, opportunity with somebody just over one modest connection). It's an absurd position to put it nicely.
> How much of that trust fund - which Gates never asked for and had nothing to do with - did Bill Gates invest into starting Microsoft? All I'm seeing here is Bill Gates bashing with no actual substance.
This is specious reasoning. The safety net provided by a trust fund (even if you didn't ask for it), is quite significant and allows you to take significant risks.
Let's take the analogy of FU money. The whole point of having it is that you can take risks or breaks in the future (saying F-U to any/all VCs/Investors/bosses without impact to your financial security). You don't need to invest any/all of it, since you can generate more, but if you choose paths that don't generate that wealth, you haven't squandered your financial comfort.
It's more than the money, it's elite socialization: Rich kids learn to believe that they are pre-ordained to be leaders/rulers. That outlook helps them get there.
Well, Gates' mother and father may not have gotten together at all were it not for his father making something of himself with the help of the GI bill, so it's definitely somewhat involved. It's not clear from internet searching if William Gates I was wealthy or just had a pretentious approach to naming his kids, so it could be that he'd have gone to university anyway.
That said I wasn't trying to point to it as the sole contributing factor for Bill Gates, just one of many that may play a part in the overall trend and noting that one of the most obvious has it in his family's history.
From a broadly macroscopic point-of-view, it most definitely is. A child in Nigeria born to dirt poverty has near zero chance of, for example, having a stable, respectable salary (of our definition) in his or her future. I think microscopically it might be a little controversial to call it deterministic, but my personal anecdotes certainly point that way. I attended a public school in the inner city when I was young, and later moved out of there to a suburbun school. Looking at where the two sets of folks are now with a little Googling and a little Facebooking, the former are not doing well at all; the latter are doing very well. What's more, the folks I expected to be doing well from the inner city crowd are not doing well, and conversely a lot of the slackers from the suburban school are actually doing remarkably, surprisingly well in some cases.
Bill Gates shouldn't be listed as someone who inherited his wealth: he did not inherit it.
The $100 billion he'll give away was of his own creation, spurred from effort of his own mind, from a company born of his own fingers and imagination.
We're having this conversation thanks to the Internet, probably via relatively inexpensive tools/gadgets. Which means we've all inherited an extraordinary privilege - courtesy of the immense efforts of countless others and countless invested wealth - that I would argue is drastically beyond anything Gates had the benefit of despite his family. What have you done with it? (rhetorical)
The privilege we're all enjoying right now - all of this easily accessible, relatively cheap, amazing technology - is beyond anything being born to a successful Seattle lawyer is worth. Why aren't we all millionaires N times over? If you understand that point, then you understand why Gates deserves credit for his wealth.
His mother didn't make the deal with IBM (in fact Ballmer was arguably most instrumental in the nuanced legal structure that gave Microsoft its position), and his mother didn't execute and build software for 30 years against tremendous odds and competition either. Is your theory that Bill Gates should be penalized for being born into a family and situation that was not of his own choosing? Such that you pretend his wealth wasn't of his own creation and is null and void, because his father was a lawyer (remind me again what making $100k a year as a lawyer in 1970 has to do with your son generating a $100 billion fortune in 2000, seems to me there are a lot of extraordinary steps required to get from one to the other no matter how good your first step is, whether you're Steve Jobs or Bill Gates).
There are 9 million millionaires in the US currently, and this country has been rich for a long time now. Why aren't we drowning in Bill Gates clones? The answer is obvious.
Any idea how many successful lawyer sons didn't generate $100 billion in wealth the last 40 years? All of them but one. Gates is one in a million even by that narrow-down.
I'd counter argue that Buffett would have been successful regardless of his father being a Congressman (it's absurd to think that a one term trip to DC is what made Buffett what he is). Indeed, using Buffett as an example is the absolute worst thing you could do: the market doesn't care if your daddy was a Congressman, it was his massive results that spoke volumes, got people to invest with him over time, and made him rich. Some of his shareholders held for decades. It was his understanding of how to make money, and his ability to sell that vision, that scored his first investments. Even doctors don't like to lose $100k to some idiot kid, no matter who their father is (his father wasn't that important, and his grandfather's stores weren't that wildly successful).
Or did you think people were buying Berkshire at $100 because his daddy was a a borderline irrelevant Congressman for one term?
Buffet made his initial nut by raising a sort of "Friends & Family" round for a mini-hedge-fund type thing. You can read about his wealthy Aunts and extended family in Snowball.
He was doing this on the side while working at his daddys Buffett-Falk & Co as an investment salesman. He did well and after stalking Graham was able to get a gig in NYC for a few years before returning to running "mini-hedge-fund" type partnerships in his hometown.
So being a son of a congressman surely helped in raising many many millions of dollars from the Nebraska elite. I would even argue its almost a necessary but insufficient condition for making his initial fortune - he got dealt a great hand but he also played it very very well.
Connections aren't results. Getting an introduction won't help you one iota if you can't deliver.
The only thing that ultimately matters in investing is results. Buffett is the absolute worst example you could use to claim privilege results. Unless your theory is that his father's friends made all those investment decisions for him.
Just about the hardest thing to do in business would be to generate a $300 billion company on the back of one man's dozens of investment decisions. Trying to rob Buffett of that stunning success because his grandfather owned some tiny stores in Omaha, is beyond ridiculous.
There are four grid squares here, and you're ignoring two, and insisting that they are not important to consider.
here are the variables:
father is a congressman (yes/no)
took good advantage of opportunities (yes/no)
to combine them we have:
yes/yes, yes/no, no/yes, no/no.
so you are saying that it didn't matter that his father was a congressman because he took advantage of his opportunities.
But imagine a warren buffet who didn't have a well positioned family, and didn't have the opportunities he had- Still a wiley person- our no/yes.
Where is he on the forbes 400?
Warren Buffet is not exactly a rags to riches story. It's more of a riches to unimaginable riches story.
Buffett is a perfect example of the problem: to be in the position to have those opportunities, you need a base and you need seed money. Having a family and friends round means you don't have the same type of pressure (they are generally far more willing to tolerate risk, give more room for experimentation, and are willing to write off lots of losses)
How is it "robbing" Buffett of his success to accurately describe the conditions of his success? When he writes about his own biography, it's along similar lines; he doesn't try to portray himself as a poor kid who pulled himself up by his bootstraps with nobody's help.
I wouldn't dream of robbing Buffet of his success - I'm describing the lengthy period of his life that occurred prior to his irrational obsession of buying a small textile company by the name of Berkshire. :)
The Snowball I read said that Buffett had a difficult time raising money because no one took him seriously. Once word started spreading around that "the kid" knows what he is doing that is when people started approaching Buffett.
Buffett was running his own business even when he was a kid and was earning more than his teachers.
> Bill Gates shouldn't be listed as someone who inherited his wealth: he did not inherit it.
According to Philip Greenspun, Bill Gates started off with a million-dollar trust fund:
"William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle's National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III."
Are you suggesting his privilege wrote his software for him? Much less had the vision to start a software company in the 1970s - which his parents thought was a bad idea. They did not like the idea of him dropping out, he did it anyway.
Paul Allen didn't come from any kind of privilege. So is the theory that he should be robbed of his amazing success and effort also, by association with Gates' association with his father and his father's association with Gates' grandfather? He did go to the same school as Gates after all.
Where I live, the wife of an oil & gas billionaire recently started up a donut shop. As for the location of her shop, she casually chose a quaint little shopping center in the heart of the most expensive and historically rich neighborhood in the entire surrounding metropolitan area and possibly the whole state. While having a shop in this area would be a dream for most, for her it was a given.
It's been a nice little success. It might be the most successful independently owned donut shop in the area.
But we all know that her donut shop, despite the significant amount of cash necessary to purchase the building and jumpstart the business, is just a hobby for her, the same way sewing quilts is a hobby to my mom. My mom doesn't fret about the few hundred bucks she may put into her quilts, even if she doesn't make a dime off of them. And the billionaire's wife won't fret if the hundreds of thousands of dollars necessary to even test the business all go to waste because nobody buys their donuts. They will barely notice the money has been spent. If my mom wanted to just start up a donut shop here for fun, well, that would be absolutely impossible--it wouldn't even be an option.
Why do I bring any of this up? Because context matters. Bill Gates is self-made, yes, but you have to interpret "self-made" in context. His little jumpstart, which appears minor in the shadow of Microsoft, constituted more success than most people in America will ever enjoy over the course of their lifetimes.
The privilege of having a well-to-do family gives you the ability to take more risks, knowing that if they fail you have a cushion to fall on.
I worked with someone who failed businesses over and over, each time going back to live off his family's wealth for a bit until trying the next businesses, until finally one of them hit and made tons of money. If you ask him, he'll tell you he didn't inherit a cent, and was a self-made millionaire. Technically accurate, but doesn't tell the full story.
Many people wrote software in the 1970s and started software companies in the 1970s.
He is not suggesting his privilege wrote Gates software for him, but that privilege gave Gates a substantial advantage over the large number of other people writing software and starting software companies at the same time.
His privilege is unlikely to have been a sufficient condition to explain his success, but it is also entirely unrealistic to assume that his privileged background did not provide him with a number of benefits, down to even basic stuff like growing up in an environment where success and ambition is expected and normal.
Something I think often is left out of success accounting is an advantage almost everyone born in a large, well-functioning society enjoys: access to a large, well-functioning society.
If the civilization into which Bill Gates sold software were 1/10th the size, it would have generated 1/10th the value with almost the identical amount of work on his part. There's an enormous lift given to fortunes just by the fact that they are built in the context of a civilization which is large enough to support them.
None of that is to say that either specific inherited status or personal hard work aren't huge contributors to success as well, but it takes an enormous amount of work and attention to make sure that a large, well-functioning civilization remains large and well-functioning, and that's an oft-neglected factor in how big these large fortunes become.
I think you miscategorize the opposition here. The argument isn't that Gates didn't work hard. The issue is that by din of his family's socioeconomic status, he was presented with opportunities that most people didn't have.
If you want to put it in numerical terms: going from 100M to 100B is arguably easier than going from -10K to +100M (even though there is less money involved)
Everyone has unique opportunities. We'll never have perfect equality of opportunity or social connections. Buffett and Gates weren't born into the lower strata of society, but nor were they born into the very upper elite. How many of Gates's classmates at his prep school or at Harvard did nearly as well as he? How often do children of congressmen/women become multibillionaires? We can divy up privilege endlessly (for having a lawyer dad, for having decent parents at all, for being born in the first world, for surviving infancy), but the only point of the article was to show whose wealth was inherited and whose was not.
What was the unique opportunity of that kid some streets down here that got gunned down when he was 10 years old?
What was the unique opportunity of the record amount of slaves worldwide? (by the way, did you knew the world has more "traditional" slaves now than any other time in history?)
Or... what is my unique opportunity? Being in debt? Not having a single important connection? Going to shitty university? Yes, I am intelligent, I make games, but I see lots of people with less skill than me earning millions, just because they were friends of someone somewhere or their dad was the minister of something in the government. Ultimate example: Eike Batista, that CLEARLY is incompetent, since none of the business he started on his own had profits, yet his father that was the mining minister obviously had a hand in Eike 90% accuracy in finding minerals in areas previously surveyed by the goverment during his father tenure while this information is "secret" and private companies should not know, and the government recently happily handed him billions and kicked out thousands of people from their homes so he could make his lastest failure project.
Sure, but the fact that only a tiny minority of highly privileged people have the skill and extraordinary drive to move into the stratosphere doesn't change the fact that people like Gates[1] took advantage of opportunities that don't remotely resemble the opportunities that normal people get. Their billions may be self made in the sense they were unlikely to have been achieved by anyone else in their position, but not in the sense that they were likely to have had comparable success in any position but the one they found themselves in.
[1]and perhaps others like Zuckerberg more so than Buffet, who could probably have somewhat more slowly honed his investment skills and found patrons whilst working the sort of day job people with ordinary middle class backgrounds can easily get.
I don't know, I think the point of the article was to show that the uber-wealthy of America is more of a meritocracy than most think.
While that's somewhat true, the fact remains that almost all of the people on that list might not be there if they weren't born into at least the upper middle class. They took advantage of the privileges given to them, so it's not like they don't deserve it. But there are likely those from poverty and the lower middle class who work their ass off setting up businesses in things they have access to, mainly restaurants/stores, and only ever move into the upper middle class as hard as they try and as gifted/intelligent as they may be.
This is a gross misunderstanding of the concept of privilege. The idea is not that Gates or Buffet's work had nothing to do with their success but that their work got them farther, per unit (if you could define such a thing), than would someone with less access to privileged parts of society.
Someone who's parents can't send them to college will obviously have to work harder than someone for whom a college education is assured. Someone who lives in a connected family will have to work less hard to be connected themselves.
In particular, this:
> The privilege we're all enjoying right now - all of this easily accessible, relatively cheap, amazing technology - is beyond anything being born to a successful Seattle lawyer is worth.
Seems anything but given to me. And you don't really make a compelling argument for it. That said, Bill Gates clearly had access to both technology and connections beyond average means, so I'm not sure what it has to do with anything.
>> His mother didn't make the deal with IBM (in fact Ballmer was arguably most instrumental in the nuanced legal structure that gave Microsoft its position)
Just for the sake of discussion: if his mother and her relation to the IBM top executive had a critical part in IBM's biggest business mistake ever - doesn't it make sense that they won't want to share those details ?
The story that I've read was that IBM had the hardware but didn't think they could make software on time so they went shopping for the OS. First they went to Digital Research who didn't want to do it. Microsoft jumped in and promised to deliver what would become MS-DOS. The rest is history.
In no way was Gate's mother instrumental in the process.
"In 1980, she discussed with then-IBM Corp. Chairman John Opel, who was also on the United Way committee, the business IBM was doing with Microsoft. Opel, some accounts say, knew little about the venture, but mentioned Mary Gates to IBM executives who introduced Microsoft at a meeting of IBM's top-level management committee a few weeks later."
hershel is not claiming Gates mother was involved. He is playing devils advocate and pointing out that there are reasons why neither IBM's CEO at the time or Gates mother might want it known if she pulled strings: IBM ended up getting the short end of the stick; it would not look good for either one of them (or Bill Gates for that matter).
That does not mean she interfered. It's just a reminder that we should be careful about blindly accepting published accounts of events where the full details are only known by a small number of people all with their own agendas. This of course applies to everything.
> The economic story of the past decades is supposed to be the death of the American Dream. Income inequality has risen, the wealth of the middle class stagnated, and stories of the poor working their way to prosperity became just stories.
I think the article doesn't really do a good job to change that view. The inequality has risen and the wealth of the middle class has stagnated. This is absolutely true.
Things like raises are no longer the norm, bonuses in many jobs have disappeared, prices and debt have risen much faster than the rise in income. At the same time, wealthy people continue to grow their wealth.
The fact the top 0.0001% gained their wealth not by inheriting it doesn't change what is happening to the poor, middle class, etc. as a result.
The widening wealth inequality as it relates to inheritance can be explained mostly by one simple concept, something Buffett himself call the most powerful force in the universe: compounding. Wise people with money, given enough time, will rocket to become insanely wealthy. Compounding does nothing for the middle class who generally spend most of their income, and it works the opposite way for the poor who are debtors. Over time this force will make the wealth gap worse and worse, which is exactly what's happened.
"wise people with money" or did you mean "people who are wise with their money" - America seems to have a default setting of rich people = good, poor = stupid.
I don't think the commentor implied that people without money couldn't be wise, but just that people who are both wise and posess money will be able to make it grow.
Just run a little experiment in Excel to see what I mean. Plug in 100 numbers representing wealth in a normal distribution. Then fast forward these over say, 25 years. But the key here is that the top ~20% grow at 15%, the bottom 20% grow at 0%, and everyone in between grows at inflation so about 3%. This is generally what happens in the real world, for the most part. Watch how skewed that normal distribution becomes over 25 years.
So, what would you call people that continually make poor life decisions over and over and end up in large amounts of debt for the foreseeable future? Smart?
I believe it's a combination of a necessarily present (as opposed to future) bias, and stress reducing available concentration for good decisions, because that's what the studies on the matter support.
The last sentence is the most important point of the article and probably should have been a separate article on its own:
> America’s .0001% is becoming more meritocratic, but the means of a middle class background remain a necessary launching board.
So in other words the most important aspect is to be from the middle class to be successful otherwise your chances are much less. Makes sense on many levels such as chances of personal development due to financial and psychological stability. Poverty has been in the news lately and I read an article on how being poor impacts IQ simply because it becomes the mind's obsession of finding means to survive.
> being poor impacts IQ simply because it becomes the mind's obsession of finding means to survive.
While that's poetic, I'm very skeptical that you could even prove that empirically.
It's much more likely (because it is empirically demonstrable) that IQ is more strongly impacted by genetics (IQ of the parents), prenatal care (especially with respect to smoking and binge drinking), and childhood (mal)nutrition. I'm not sure how you would even test "obsession with survival" controlling for those things, all of which are much more common in poverty-stricken households.
I'm not saying that worrying about the next meal isn't terrible, but I am saying that we need to make sure we're not getting our causes and effects mixed up here. We can't just emulate "middle class" advantages for poor kids and expect the playing field to be level.
In other words, it's not as simple as saying being middle class is necessary to be successful, because to some degree, having minimally successful parents is necessary to be middle class in the first place. And why are parents successful? Probably things like good impulse control, general responsibility, mental health, and innate intelligence. Many of those things have certain genetic components.
So how do we make sure every kid has a fair shake at being rich? I'm not sure there's a good answer to that since it seems like so many of your cards are dealt in who your parents are. If you're really worried about it, I suggest you support substance-abuse recovery programs and food banks. Keeping kids healthy, well-fed, and free of birth defects are things we should be doing anyway.
I read that article. While those studies are interesting, they are definitely limited and far from conclusive. For example, they didn't control for genetics as far as I can tell. It's entirely plausible that "rich" people are rich in the first place because, statistically speaking, innate intelligence lets them make better financial decisions even under duress.
While it's possible and interesting, I certainly wouldn't make policy recommendations or support charities based on that kind of evidence.
In the meantime, while independent parties come up with something more conclusive, let's try to affect known vectors for stunted childhood development like parental substance abuse, prenatal care, and malnourishment. And, again, these are real problems we should be doing something about anyway.
I don't think you can control for genetics, at least not directly. There is no intelligence genetic marker as far as I know which only leaves testing the IQ/intelligence of the whole family tree as the only option. However getting access to ancestors might not be feasible. On the other hand having a large pool of people is good enough since the distribution of intelligence is usually uniform and not restricted to things like class or parental income.
Here's one way to control for genetics - compare orphans who were adopted early (Pre 1yo) and then see what the correlation between their IQ and both the parents and adoptive parents IQ. (Or use income as a proxy for intelligence; it might be hard to get the dead parents to take an IQ test)
> I don't think you can control for genetics, at least not directly.
That's my point, really. My conclusion is that these studies are interesting, but the body of evidence isn't scientifically rigorous enough that it should affect policy decisions.
Are you seriously asserting poverty is not a known vector for stunted childhood development?
Do you realize there are millions of impoverished people in this country who can't afford to eat healthily? You are aware of the effect nutrition has on childhood development right? Do you realize there exist impoverished parts of this country which simply don't have access to fresh healthy food?
There's literally hundreds of ways poverty stunts childhood development...
If you actually read the thread, he's asserting the same thing you are asserting. What he's disputing is the idea that one of the chief reasons poverty is hard to get out of is that, once there, the mind is too fixated on survival for higher intellectual achievements.
Technically, I'm asserting that we don't have enough evidence to say one way or another and that we shouldn't let studies like these affect our decisions or worldviews yet.
I do know that I felt less intelligent when I was more worried about money, as though some fixed cognitive reserve were depleted by worrying about uncertain near-term survival, leaving fewer intellectual resources for long-term planning and development.
Same here. I think the same phenomenon is observable in middle class and below: a person's main concern becomes surviving, leaving less/little time for introspection and learning.
To be clear, I don't deny it's plausible. I deny that the science is convincing. With all due respect, the combination of a few anecdotes and a couple limited studies should not carry much weight.
The strongest indicator of a child's ACT score is the INCOME of the parents. Increasingly IQ tests are being revealed as being culturally-based, too. And the things that you list; things like impulse control, general responsibility, mental health, are strongly influenced by the environment that the subject must contend with.
Eugenics always seem so seductive, but, like phrenology, much is revealed about the outlook and tendencies of the practitioner rather than the subject.
Don't make the really vapid errors in logic of trying to dismiss something by name-calling it "poetic", followed by the really vapid claim that IQ "strongly impacted by genetics", followed by failing to link to a single fucking legitimate study showing that "strong impact".
You're not proving cause and effect here. IQ and earning power are correlated but the relation has been proven to run both ways. Low IQ may or may not lead to low income but low income has been shown to lead to low IQ scoring.
Barring occupations like professional sports, though, common sense would tend to suggest that that a higher IQ would tend to lead to a higher salary in the majority of cases.
> The top 0.0001% gained their wealth not by inheriting it
How did you come to that conclusion? I looked for that in the figures, but I couldn’t find what percentage came into money from an inheritance. Perhaps it’s placed in the 12% ‘Diversified/Other’ category, but the impression I got from the article was that they tallied how the money was earned in the first place, not where the ones holding the purse got it from.
I believe your interpretation of the article in this aspect is incorrect. For instance, 4 of the top 10 spots are taken up by members of the Walton family. Those people inherited their wealth from Bud and Sam Walton, the founders of Wal*Mart.
> Kaplan and Rauh find that America’s wealthiest are no longer a collection of Rockefellers and Carnegies. During the period the researchers investigated, the number of individuals on the Forbes 400 who were the first in their family to run a business rose from 40% to 69%. Sixty percent of individuals on the list grew up wealthy in 1982 while only 32% did in 2011.
> Although being born into wealth is less and less necessary for admission to the club of America’s wealthiest individuals, ...
Do some math. According to Wikipedia the population of the USA is 316,856,000. The 0.0001% of the population is 31685 after removing partial human beings caused by mathematical division. If the Forbes 400 list is used as a sample space for the rest of the 0.0001% then the numbers seem plausible. Note that I'm just playing "mathematician" and I haven't analyzed the 400 people in the list or did anything deeply scientific.
It's also hard to stay on top, and it gets harder the closer you are: the turnover of individuals in these extreme upper brackets is high [0].
The composition of the very top income groups changed dramatically over time. Less than half (39% or 42% depending on the measure) of those in the top 1% in 1996 were still in the top 1% in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.
Year-to-year income of the top 1% is probably a poor measure of "staying on top".
I would like to see those numbers controlled for wealth. Some of those people whose incomes move in and out of the top 1% are just in boom-or-bust jobs or own boom-or-bust businesses or investments. Others are big earners who recently retired to extremely comfortable fixed incomes.
Neither category really fits what I would think of as someone losing his or her "on top" status.
On the other hand, moving from a high-income high cost-of-living area (SF or NYC) to a lower-income, low cost-of-living area (Boulder, KC, or Charlotte) will technically move you out of the 1% while improving your standard of living.
> The popular view of America's upper class is that of an ossified aristocracy. But research from the National Bureau of Economic Research shakes up this view, at least among America's richest individuals.
> The individuals of the Forbes 400 List are the wealthiest people in America - the top .0001%
Am I the only one who sees the contradiction? On one hand, they say things are not that bad. But then they turn around and start talking about the 0.0001%.
In other words, it's not too bad - if you're one of those 1 in 1 million.
If it only applies to 1 in a million, it is not even demonstrably useful information about the upper class itself.
From a matter of plain definitions, Bill Gates started in the upper class from the moment of his birth. His circumstance did not require him to work a single day, in order to live comfortably for his entire life; ergo, he is upper class.
It may be true he rose from "upper class" to "very upper class" based on 99.9% his own achievement, but it is a non-argument regarding the ossification of the aristocracy in general. Guessing about the other 99% of the aristocracy based on the particulars of the most extreme 1% of the aristocracy is not logical.
Let me emphasize it again - perhaps by sheer repetition, the main point will become obvious:
It's not something relevant to the general population, the middle class in general, or the concept of social mobility, IF IT ONLY APPLIES TO 1 PERSON IN 1 MILLION.
The article presents that caveat straightforwardly:
The popular view of America's upper class is that of an
ossified aristocracy. But research from the National
Bureau of Economic Research shakes up this view, at
least among America's richest individuals.
And elaborates:
Over the last 30 years, income inequality has grown and
intergenerational mobility has decreased. The rich are
getting richer and drawing up the ladder to the upper
class with them.
The story differs for the members of the Forbes 400 List.
So I'd say you're in violent agreement with the author.
The problem is that on one hand the try to talk about "America's upper class", on the other hand they restrict themselves to looking at members of the Forbes 400.
In other words: They're seemingly trying to make the story sound more relevant than it is, by framing it as if they have something to say about "America's upper class", when the data they look at consists only of a tiny subset of extreme outliers.
Bill Gate entered the upper class based on birth. His own efforts brought him yet higher. But Bill Gates proves exactly nothing about how hard working people move into the upper class, because he never ever did so himself.
Alright, pg, I had enough. I looked at the list of Russia's billionaires. At least 5 of them had humble backgrounds. (http://en.wikipedia.org/wiki/Mikhail_Gutseriev) 1 has a Muslim father. Some have Jewish sounding last names. Some of them had no early data.
Well I'd think that Russia is rather unique in that their power structure semi-collapsed during the 90's and during the chaos of America trying to turn the country to capitalism there were some who were able to jump into the power vacuum and rise to the top.
Most of them have since been disposed (like the guy you linked to) or brought into the fold of the new power structure that arose around Putin.
I will do a more comprehensive study soon, but my comments about politburo members (especially late soviet ones) was meant to preempt such points as yours. If you look at the billionaires from other countries, it is also as diverse if not more so than the US. In fact it makes some sense (to me at least) that a survey of any extreme outlier populations should show such diversity, it is rather the opposite (a homogeneity) that is interesting...
I might well be very wrong here, but the main difference is that the other type of wealth-creation process actually creates more wealth (more products for everyone). While finance seems more like wealth-accumulation without the creation process - I'm aware that redistribution of resource in an efficient way is supposedly the part finance does in the wealth creation process, I'm just unconvinced of how much does that help, in relation with the return the finance sector on average get.
Finance created lots of value for the British Empire when they were colonizing countries - where they could raise money to buy navy ships and soldiers.
Finance does create value in the long run. However, it creates minimal value in the short run. Debt being traded in the short run is a zero sum game which does not create any value for the society. Considering that we allocate the best and the brightest people in finance, I would consider it creates negative value to society.
Aside from the VC's in the valley, what business in America runs without using debt in the short term today? Finance enables the day to day operations of the entire economy - I'd say it creates a ton of new wealth, in every segment.
This is kind of a circular argument, business runs with debt in the short term nowadays because our current system is being set up this way. It doesn't mean with some other settings, debt is an absolutely necessary (it also doesn't mean that the "other setting" won't be just Finance 2.0, however).
Finance is a circular argument, due to the nature of finance (see what I did there?).
It's fiat currency and fractional reserve banking - the initial bootstrapping of the system is a giant 'just trust us' and 'go with it' moment for society. Debt is easiest way to grow an economy, as loaning money helps create new wealth. It allows banks to turn $5 actual dollars into $15 actual dollars, without having to take $10 actual dollars from anybody. It's magic, but it only works when people trust the system to not disappear/default, and borrow money. Without debt, there is no growth of the overall economy, there is only shifting of reserves from point a to point b.
To make my point clearer, if we have a one world communist government, and the government can dictate exactly which resource goes where and which human does what, we probably wouldn't need debt for economic growth, right? (And to avoid any confusion, no I'm not advocating for anything like that, not even within a hundred mile close).
And in any case, I'm not saying that finance is absolutely useless, I'm just saying that the focus on finance (and the return they get) might be too much for our society/ market nowadays. Thinks of it similar to the manager and developer situation, you need product manager to make a bunch of developers to work together, but if you have a 10:1 ratio of managers/developers, then you probably can use a few more developers.
finance create more distributed wealth than real state, that is for sure.
And finance when done right is to generate business. That tech company wouldn't exist if it weren't for a loan, that weren't be if there was no money for the bank to invest...
What you are trying to describe the closed network banks use to scam everyone bypassing regulation and what not. such as dark liquidity and such. or microtrading.
anyway, illegal actions exist on all markets. not just finance. as mentioned above, finance is just the market the big criminals (0.0001%) are chosing at this time. Or do you think they dealt land, oil, etc under all the regulations as well in the past?
You somehow forget that less than 20% of Americans live, or are born into poverty. With 20% of Forbes list having poverty background, this kind of, means that if you are poor in childhood, you have higher chances to get to Forbes list than if you are middle (well, really middle) class. Hard to explain.
Maybe because poor have nothing to lose so they are more prone to risky things that stand at the root of their business? Or reverse, they have medicaid so can afford more risk being less dependent on employers paying for their health insurance?
I think i understood why is this. Middle class kids are usually taught by their parents to obey the rules, learn and work hard and be loyal. Which is a way to keep in the middle class but hardly a way get to upper class. Most poor kids are probably not taught by their parents anything because parents are busy drinking and smoking pot, except the very valuable teaching of not trusting anyone at all.
They make it sounds it should be comforting somehow. But I don't think it makes any difference. Does it matter whether they won the lottery, inherited, or "earned" their money? the fact is that very few people own much of the wealth.
It could be argued that VC involves the building of technology businesses, rather than simply investing in a hands off manner. It's a fine line, but the famous VCs that come to my mind (Doerr, Andreessen) help mentor and grow a company, and similar financiers (Buffett, Soros) are more industry analysts and money managers. It's a gross simplification, but it may be what they were thinking.
That doesn't say where they made their money - it shows where their money went, meaning where the highest profits were possible. Of course you can recycle those profits into those high-profit systems. Important distinction to make if you're wanting to understand these systems.
Needs a lot more granularity - in particular, the "Finance" bar needs its own bar graph ie. what exactly does making money in Finance entail - working for a retail/commercial bank ? IB ? Prime Brokerage ? Wealth Management ? Equities ? Derivatives ? FX ? Algorithmic Trading ? Mutual funds ? StatArb ? LBO ? ...
> the rising share of the Forbes 400 List accounted for by technology and finance supports theories that explain America’s rising income inequality by how technology has favored the accumulation of wealth and made certain sectors more scaleable. Tech moguls like Mark Zuckerberg and Sergey Brin account for a rising share of new fortunes.
It's kind of alarming how in recent years, "Finance" pulled ahead of "Tech & VC", according to the second graph. But there's one line on the graph that's missing from the legend. Sloppy.
Surest way is real estate. Just buy real estate and rent it. Repeat over 3 or 4 generations. Congratulations. You created a rich family. All other ways involve luck.
What you're saying is "The surest way to get rich is to be rich."
Real estate is just a way to invest money you already have. It doesn't generate wealth unless you have access to capital and can put deals together to develop properties and take a chunk. But that might as well put you in the "Finance" category.
You can build real estate gradually, starting with one, two, three apartments paid for with your job and rent your tenants pay. At some point, pretty early you could stop working but if you don't you can buy additional apartments faster. During first generation, I think, you could buy around 10 if you have a good job. Your children will be able buy faster, their grandchildren even faster.
A friend of mine from college had parents that started from scratch and bought and rented ~1200 homes in Indiana during their working years. So, it can be done.
I wonder when we will have the first dollar trillionaire. (Rockefeller doesn't count) It's likely that some people will own entire planets in the future.
I remember a documentary by a wealthy persons son who interviewed one of the founders of Kinkos who makes a comment something along the lines of wanting to look down on Earth from the Moon someday and being able to say, "I own (part?) of that."
> America’s .0001% is becoming more meritocratic, but the means of a middle class background remain a necessary launching board.
Doesn't this directly contradict the preceding statement that those "born into poverty stayed level at 20%?" Maybe I'm being too pedantic with my interpretation of "necessary" but 20% seems a sizable chunk.
I am curious on this articles definition of poverty. The statement that 20% of the forbes 400 was born in poverty is insufficient on it's own. More telling would be that percentage compared to the percentage of poor in America. That number could be very favorable (or very unfavorable) depending on the metric for poverty used.
The 0.0001% made their money from oil, tech, and the stock market. Simple. If you want to make that kinda money these days, then you have to get into the tech industry.
Exactly my opinion. And even though I normally lean towards free market related views when it comes to regulation and government, I think a high inheritance tax would be justified in western countries. With it universities & infrastructure could be funded and possibly enable more people to get a university degree.
My underlying reasoning: Every new generation is a giant possiblity for mankind. Now who do we want to command the most resources? If we had kings, it would be the kings heir, no matter if he is clever or not. Thats bad obviously. If we have capitalism without a high inheritance tax, we might have people like Paris Hilton commanding massive fortunes even though some poor kids might have done a lot better with it if they had a chance of acquiring wealth in the first place.
By having a high inheritance tax one would avoid unbelievable fortunes being handed down to people that are not qualified at all.
Another aspect is obviously that the state needs to motivate people to work better than their peers. If - like in communism - it doesn't matter anymore if I work harder than my peers, so I don't work hard. Assuming that most people work for personal gain, wealth, and so that they children have it better than themselves, you need to leave them their wealth during their lifetime and enable them to hand down some part of their income to their kids, and not give all back to the public. If they would have to give everything to the public, the really bright people might stop working at 35 when they accumulated enough wealth for themselves, knowing their children won't benefit from it anyways.
Though I'm attracted to the idea, inheritance tax was always a concept that I see (probably due to ignorance) as extremely vulnerable to "an extra layer of indirection". You see, I'm not actually transferring the company to my son, I'm transferring it to a trust in Switzerland that is controlled by my daughter-in-law.
Well, true, somebody that wants to game the system will find a way.
However, you could still say that everything up to 20 Million* has a lower tax on it and you can give that to your kids in legal ways. I think Warren Buffett and Bill Gates want to give most of their wealth away with a similar reasoning anyways.
That amount of money is still enough to buy a Ferrari and never work again while taking loads of drugs in Monaco every day.
The extra layer of indirection might be enough to guide people in the right direction. I am not sure many people would bet their fortune on their son/daughter in law being good to their kids indefinitely. That would probably provoke some very annoying lawsuits between your kids and their spouses sooner or later.
*= With some correction for inflation over the years, but lets say 20 Million of todays Dollars for example.
That's certainly a possibility, and it certainly is done by the wealthy all the time. At least in the US it is very difficult to transfer large sums of money out of the country without accounting for it, so these end-arounds of taxation are quite difficult to pull off.
Inheritance taxes are better because they force the rich out of a hording mentality - either leave your family with sustaining businesses, which help the middle class by providing jobs, or lose half and have that reallocated. Right now, without an inheritance tax, there's no appeal to take risks on building anything. Just invest at moderate returns and the family fortune will never run out (except in extreme circumstances).
I certainly feel your sentiment, werner38 (Re: Paris Hilton - right?), but I disagree with your conclusions.
And I agree with you that it is not necessarily a positive outcome that a king's heir would assume the wealth of the king. However, I think the trade-off of using law to essentially plunder property (again, assuming the property was acquired through no act of injustice), undermines the purpose of law - to defend against injustice.
Property (acquired or created justly) is typically an outcome of liberty, and often fate (birth, luck, etc). I don't believe we can alter either of these conditions through tax law (force) without undermining the justice of law itself.
Furthermore, in my view, I don't believe an individual's property is something that anyone else has a claim to dispense with, especially a political organ such as the 'the state' (an entity which bears very little responsibility for the outcome of it's economic and financial actions).
That doesn't mean I necessarily like the idea of people amassing or acquiring resources without work. But the reason I work hard is to benefit the things which I choose to value: my family, my community, the erasing of Star Wars Ep. 1-3 from history, etc.
I want to give my kids a better shot at life than myself. Property may be a component, but is far down the list from things like values, and work ethic. But these are my choices for my life. That to me, is the American Dream - to be free live how I choose - not wealth and things. Whether I am very rich at some point, or not - I don't believe force should be employed to negate or alter my choices, nor do I wish to use force to alter your's or someone else's.
Maybe I'm way out of my gourd, but the fact that Paris Hilton has a huge amount of wealth, and no values is a total failure of her parents - not the inheritance itself.
The idea of property as legitimate is pretty much arbitrary - others have indeed come out on the other side of the fence: Considering the enforcement of property rights to land akin to theft (e.g. Proudhon) or illegitimate use of force, on the simple premise that it deprives others of use of a shared resource.
The libertarian fetish for accepting the use of force to protect one arbitrary artificial construct as somehow critical to liberty, while rejecting the use of force to protect other artificial constructs strikes me at the same time as deeply comical, and ridiculously hypocritical on the other.
Well, I believe that people should be left alone as often as possible and should only be interfered with when urgently needed.
But I also believe that commanding wealth comes with responsibilities, and if some people are not willing to act responsible, they might need someone(the public) to remember them and take some of that wealth to build schools, universities or the like.
I am not saying that Mr. Hiltons wealth should be seized and randomly given to people on the streets. I am certainly not of the opinion that todays western governments are super effective either. But if I have the choice of having Paris spend that massive fortune or the government, I would opt for the government I am afraid.
If Larry Ellison decides to build himself a big pink bouncy castle the size of Oklahoma with his Oracle money he is free to do so and thats fine by me. He earned that money, he is free to do with it what he likes, I don't have to like his choices, but I won't interfere(not that I could anyways).
If someone earns his money by being born and decides to spend it on the big bouncy castle I am not fine with it. If most of what he would have inherited was taken by the public and he still manages to amass a fortune that is enough to build himself that bouncy castle, he is free to do so, and I won't interfere. He made the money,its his choice, not mine.
I was thinking this too, but also the population has risen and so has the average life-span so I think the amount of new people joining the wealthy class is about the same as it always has been if not even less due to the old wealth never dying off.
Not much has shaken up this view. Half of the list inherited $400 million or more upon turning 18. Even the other half of the list are from among a small percentage of America's upper middle class.
#1 Bill Gates. Father a wealthy lawyer. His grandfather was a national bank president. He went to an elite private grammar school, which had teletypes and computer timesharing back in the 1960s. His mother was on the board of United Way with the CEO of IBM - a helpful thing for a son who became a billionaire by riding IBM's coattails. Despite all of this, he is still on the bootstrapped, self-made side of the F400 list. He is not one of the heirs.
Next is Warren Buffett. His father was a congressman. His grandfather owned a string of stores. And so on.
The rest of the top ten are the Waltons, who inherited Wal-Mart on birth, the Koch brothers, who inherited an oil company on birth, plus Larry Ellison and Michael Bloomberg. Ellison and Bloomberg are the only middle class people on the list.
I do think there are new trends happening at this level, but they don't point to what the blog post authors are pointing to.