How many billionaires are there anyway?

In his book “Ages of American Capitalism,” University of Chicago historian Jonathan Levy describes the age of capitalism we live in as the age of chaos: an age when capital has become more mobile, liquid and volatile, constantly moving in and out. booms and busts, in contrast to the stable order – and widely shared prosperity – that characterized the post-war industrial economy. Levy begins the story in 1981, the same year Forbes thought of his list. It was the year the Federal Reserve, under its chairman, Paul Volcker, raised interest rates to 20% in an effort to end inflation. Volcker’s Fed got there, but the decision, Levy notes, also had far-reaching consequences, accelerating America’s transition from goods-producing to a form of capitalism never seen before. The dollar has soared, making US exports even less attractive and imports even cheaper; many factories that remained profitable were closed, because compared to the incredible returns that money could earn in such a high rate environment, they were simply not profitable enough. When the Fed began to loosen its grip, the widely available credit triggered a speculative bonanza, which benefited a newly empowered business class that felt little obligated to labor and deep to shareholders.

As a rule, the economy expands when investments are made in productivity, but this expansion was different: it was, Levy writes, “the only one on record, before or since, in which fixed investment as a part of GDP has declined. In other words, our manufacturers invested less in the production thing – ships, factories, trucks – while earning more money. In fact, they would often tear this material up and ship it overseas; it was the era of corporate thieves, reaping huge profits while putting Americans out of work. You can think of this, in crude terms, as the birth of the Wall Street-Main Street divide: a separation of the financial industry from the “real” economy.

This shift to a highly financialized, post-industrial economy was facilitated by the Reagan administration, which deregulated the banking system, cut the top tax rate from 70% to 28%, and targeted organized labor – a scapegoat policy for the sluggish and inflationary economy of the United States. the 1970s. Computer technology and the rise of the developing world would amplify and accelerate all of these trends, turning the United States into a kind of frontal cortex of the globalized economy. Equally important, the technological revolution has created new ways for entrepreneurs to amass huge fortunes: software development is by no means cheap, but it requires fewer workers and fewer fixed investments, and can be reproduced and shipped worldwide instantly and at virtually no cost. Cost. Consider that the powerhouse of 20th century capitalism, Ford Motors, today employs around 183,000 people and has a market capitalization of nearly $68 billion; Google employs around 156,000 people and has a market capitalization of around $1.8. trillion. This new economy would be driven 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 somewhat, but never completely, replace the manufacturing sector of this transformation. . makes it disappear.

“During the Reagan years,” Levy writes, “something new and distinctive emerged that has persisted to this day: a capitalism dominated by asset price appreciation.” In other words, an economy in which rising asset prices – stocks, bonds, real estate – would, somewhat counterintuitively, be fuel for economic growth. It’s been a good time, in other words, to own a lot of assets. And owning assets is primarily what billionaires do.

In his book “Capital in the 21st Century”, French economist Thomas Piketty notes that the new economic order has made it difficult for the super-rich do not to get rich: “Across a certain threshold, he writes, all great fortunes, whether inherited or of entrepreneurial origin, grow at extremely high rates, whether the owner of the fortune works or not”. He takes the examples of Bill Gates and Liliane Bettencourt, the heir to the L’Oréal fortune. Bettencourt “never worked a day in his life,” writes Piketty, but his fortune and that of Gates each increased by around 13% per year between 1990 and 2010. “Once a fortune is established, capital grows according to a dynamic of its own,” notes Piketty, adding that the biggest fortunes tend to grow faster – as extravagant as they are, the living expenses of their owners still represent such a small proportion of the returns that there is still more for reinvestment.

Piketty was writing in 2013, when the economy was still recovering from the 2008 financial crisis. This recovery was spurred by several years of near-zero interest rates, held there by the Fed on the theory that, with a widely available credit, the economy would regain its health. But low interest rates do two things: they push investors into riskier territory in search of better returns (and ideally creating jobs in the process); and they inflate the value of assets. Private equity and venture capital have largely benefited from this low rate environment, helping both Silicon Valley and the financial engineers of Wall Street to clean house once again. Even in less buoyant sectors of the economy, cheap money has enabled an explosion in share buybacks, worth about $6.3 trillion during the 2010s, or about 4% of our GDP over the same period – more than we currently spend on defence. This too has enriched the asset owners.