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I wanted to return to fashionable economist Thomas Piketty’s refusal to consider data from the Forbes 400 list, because I find it symptomatic of tendencies in our intellectual life to ignore data that seems too, well, obvious.
From perusing the Forbes 400 back in the 1980s, I noticed that the rich were getting richer quite fast, which was a big change from when I was a child. In 1969, I had pored over the Guinness Book of World Records during a long driving vacationm and recall it pointing out that the richest businessman of the day (oilman J. Paul Getty, I believe) was relatively significantly less rich than Henry Ford or John D. Rockefeller had been before the 1929 Crash. (In general, the modern money section of the Guinness Book in 1969 was less than galvanizing: e.g., the highest salary in America was earned by the Chairman of General Motors at a little over a million dollars per year.)
But even though the Forbes list supports Piketty’s general point, he’s agin it on both ideological/conspiratorial grounds and, I suspect, out of wounded professional amour propre: if any nobody can look up the richest folks on the Forbes 400, how much do we really need Thomas Piketty and his army of grad students to know that the rich are getting richer?
Here’s Matthew Yglesias interviewing Piketty over how much he hates the Forbes 400 list.
Matthew Yglesias: Right now, people have the impression in the United States, that wealthy people are mostly like Bill Gates — founders of enterprises rather than inheritors.
Thomas Piketty: Well, when you take the top 50 or top 100 list, you have a lot of inheritors as well. The Walton family, the Koch brothers, etc.
The quick answer is that we don’t really know because the wealth rankings of magazines
He’s correct in using the plural: Bloomberg/Business Week now offers a Bloomberg Billionaires list to compete with the Forbes 400.
are very much biased in favor of entrepreneurs. First, they are biased in an ideological sense. They have been created in order to celebrate the entrepreneur, although Steve Forbes himself is a grandson of the founder of Forbes.
They were also created to sell magazines because readers are interested in rich people, including heirs and heiresses. People who are rich from working hard are interesting, as are people who are rich without working hard. Indeed, probably more people fantasize about being the latter than the former. For instance, the happy ending in Dickens’ novels is usually somebody becoming a surprise heir to a great fortune. A century ago, Americans were fascinated by the hereditary rich who summered at Newport. They were major celebrities, far more than today.
But in addition, the methodology is biased simply because it’s much easier to spot large entrepreneurial wealth than large inherited wealth. Large inherited wealth typically takes the form of a more diversified portfolio, whereas large entrepreneurial wealth, when you have created a Microsoft or Facebook, it’s difficult to hide.
When people have a more diversified portfolio, it’s harder to spot. When I’ve tried to see how the journalists at Forbes or in other magazines in Europe get their numbers, basically they make phone calls, and they try their best. They don’t have any systematic registry from which to draw.
I think they are missing the bigger part of top inherited wealth and top entrepreneurial wealth.
Wouldn’t Piketty’s argument be more persuasive if he had a list of people who are now recognized to be billionaires but evaded attention for decades?
I can come up with a couple to get him started. But that’s because when overlooked billionaires turn up, there is widespread attention given them. Last year, for instance, Bloomberg pointed out that New Hampshire grocery wholesaler Richard B. Cohen had gone unrecognized on rich lists despite owning all of a business probably worth multiple billions of dollars. The Daily Mai l and other periodicals with a healthy nose for what the public wants were soon all over this story. Even more attention was devoted in the press to Cornelius Gurlitt, an elderly recluse in Munich, who was discovered living with his trove of art that his part-Jewish modern art dealer father had bought cheap from Jews leaving Nazi Germany.
Matthew Yglesias: In other words, we’re not going to be able to count Bill Gates’ grandchildren’s money?
Gates has three children. He’ll likely have a half dozen or so grandchildren, none of whom will ever dwell in obscurity, to divide what’s left of his fortune after the Gates Foundation gets the lion’s share.
Thomas Piketty: It will be harder to spot, yes. Already today, you have the Walton family, you have the Koch brothers, you have a number of people with inherited wealth, but frankly we don’t know from this data.
Funny how the swarming ranks of Pritzkers, of whom there are 11 on the Forbes 400, never seem to get mentioned when Piketty and friends discuss hereditary billionaires.
My guess would be that there are lots of individuals with 9-digit inherited fortunes that are inconspicuous. But 10-digit fortunes are harder to slip under the radar. Divorce lawyers, for example, are less dismissive than Piketty is of the possibility of finding out how much wealth rich people have stashed away.
Similarly, as a commenter noted, heirs to great fortunes have a tendency to make themselves conspicuous, such as William Randolph Hearst did.
Another quiet 1946 day for Howard Hughes in Beverly Hills
For instance, when I was young the most famous rich guy in America was Howard Hughes. He was a recluse and barely had seen him in decades, but that made him and his money all the more fabulous. Hughes’ father patented a vastly improved oil drilling bit, which was the basis of a gusher of money from the oil services business. When Hughes inherited his father’s estate as a teenager, he dropped out of Rice and moved to Los Angeles to make airplanes and movies. Here’s a brief cinematic depiction of Howard Hughes’ low-impact life flying under the radar in Los Angeles.
Perhaps Piketty’s conspiracy theories are right about numerous hidden billionaires who shun the limelight, but wouldn’t human nature suggest that not all their heirs would be as attention averse?
So, Professor Piketty, where is your evidence?
Here’s Forbes’ description of the methodology behind their 400 list in 2011:
This is the 30th year we have published our flagship Forbes 400 list of the richest Americans. While we’ve been at it a long time, it is never an easy task. Our reporters dig deep. This year we started with a list of 570 individuals considered strong prospects and then got to work. When possible we met with list candidates themselves; we spoke with at least 97 billionaires this year. We also interviewed their employees, handlers, rivals, peers, attorneys and ex-spouses. We pored over hundreds of Securities & Exchange Commission documents, court records, probate records, federal financial disclosures and Web and print stories. We took into account all assets: stakes in public and private companies, real estate, art, yachts, planes, ranches, vineyards, jewelry, car collections and more. We also factored in debt. Of course, we don’t pretend to know what is listed on each billionaire’s private balance sheet, although some candidates do provide paperwork to that effect.
Some billionaires who preside over privately held companies are happy to share their financial figures, but others are less forthcoming. To value these businesses we couple estimates of revenues or profits with prevailing price-to-sales or price-to-earnings ratios for similar public companies.
We have not included dispersed family fortunes (as those of the Du Ponts) when individual net worths are below our minimum –this year the minimum was $1.05 billion. But we do include wealth belonging to a member’s immediate relatives if the wealth can be traced to one living individual; in that case, you’ll see “& family” on our list as an indication.
Our estimates are a snapshot of each list member’s wealth on Aug. 26, when we locked in net worth numbers and rankings. Some of The Forbes 400 will become richer or poorer within weeks—even days—of publication.For more information on The Forbes 400, including board memberships, political donations, bios and, for the first time, details on their charitable giving, check out the complete list and profile pages here.
WEALTH EDITORS
Luisa Kroll and Kerry A. Dolan
SENIOR WEALTH REPORTERS
Steve Bertoni
Keren Blankfeld
Clare O’Connor
LISTS EDITOR
Bruce Upbin
WEALTH REPORTERS
Edwin Durgy, Brian Solomon, Jessica Chen
ADDITIONAL REPORTINGVictoria Barret, Elena Berezanskaya , Morgan Brennan, Jon Bruner, Meghan Casserly, Brian Caulfield, Brendan Coffey, Daniel Fisher, Russell Flannery, Jenna Goudreau, Zack O’Malley Greenburg, Christopher Helman, Vanna Le, Kym McNicholas, Caleb Melby, Joann Muller, Andrea Murphy, Robert Olsen, Nicole Perlroth, Dorothy Pomerantz, Jessica Sheft-Ason, Nathan Vardi, Xu Wang
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I believe that Piketty can make a compelling case that many billionaires go unnoticed for the simple reason that visibility into wealth creates tax and other liabilities. The objective is to hide your wealth in off-shore accounts. By some estimates, up to $21 trillion dollar equivalents are hidden offshore by the world oligarchs, potentates, and banksters. They are not inclined to make public what they have, where it is, and how they got it. The Forbes list tends to focus on billionaires captured by the tax authorities in a very small set of First World countries who are force to make elementary disclosures associated with publicly held companies. Ever then, it is unlikely that the disclosures disclose the full picture. A singular example: Western intelligence agencies have been trying for years to track Putin’s alleged billions so that they can embarrass him politically. This could be a red herring, but if he is hiding it, they can’t find it. Then, people like George Soros occasionally explode on the scene with billions of dollar equivalents of private wealth sufficient enough to corner the market on national currencies. Where did he make his billions? He is not telling.
I think Piketty is not suggesting that there are completely unknown billionaires, but that heirs are much richer than we think. They may look like they have a hundred million, but actually they have a billion. At that level of wealth, the difference is not necessarily conspicuous.
Howard Hughes? Read Harold Robbins ‘The Carpet Baggers’ Or at least that’s how I first got the outline of his life story.
R > G ???? Shouldn’t it be, (R-T) > (G+I) ? Growth is nominal growth, so if the announced (real) growth rate is 2 or 3%, then G becomes more like 4% or 5%. More than 10 year Treasuries have paid in a long time. G+I is the only way National Debt can decrease (as it has from time to time) as a ratio of DGP. Running a 3% deficit has been the norm for decades under Democrats and Republicans. It took something like the catastrophe of 2008 to significantly damage that trend.
Meanwhile, the Forbes methodology seems rigorous to me. The whole argument is really aimed at the US. In the rest of the world, old money gets tripped up by things like WW I and WW II and the various and frequent demise of currencies, political instability, and all the other forms of Economic and Political instability that eliminates dynastic wealth in countries other than the US and Switzerland. I suppose in the remainder of Europe, dynastic wealth would have either been hidden or taxed to zero over the last 50 years.
It seems like he should be able to find an example or two of hidden wealth. And inherited wealth didn’t just arise from the ether. Someone made some money at one time that was entrepreneurial. Or at least publicly well known. And their descendants are carefully tracked by the Social Register and people that know and care about that sort of stuff.
Piketty needs to either find some of this mysterious hidden wealth other than Southern Europe or STFU about it. Everyone in the US is constantly sniffing around any wealth. Financial advisors, ‘Development’ departments of every non profit in the US, people that want to work from them, steal from them, or persuade them into giving them their money.
It would be impossible to be a multi billionaire without leaving some trails — especially if they consume a non trivial portion of their wealth. If they never spend it, then the returns on capital are simply reinvested in other schemes to increase it further.
So …. he needs ANY evidence that his belief is correct. Unless he is simply making an unfalsifiable argument that hidden wealth exists but can never be found because it is hidden.
It seems like an empirical question. The example of Richard B. Cohen shows that it’s possible to get in the billionaire range while maintaining a low profile for a decade or so, but he’s largely a self-made man. Piketty’s idea that there are lots of billionaires who inherited money from their superrich ancestors, and the world has somehow or other forgotten about their families seems dubious. I’m sure it’s true in instances but as an excuse for rejecting use of the elaborate Forbes 400 database seems wrongheaded.
I think a general problem is that people have a hard time remembering what the world was like in the past. Media is so overwhelming today that it’s easy to just assume that the 24-year-old intern at the website must know what he or she is talking about and not test assertions in the press against their own memories because they’ve become so blurry. My recollection is that people were always interested in the rich, maybe more than they are today because the rich lived more differently from us (e.g., dressing for dinner) than they do today. 1930s movies were absolutely crammed with heirs and heiresses. So, Piketty’s assumption is pretty implausible when you think about how much attention was devoted to the rich in the past, the people who would have built the fortunes that his hidden billionaires of today inherited.
R > G ???? Shouldn't it be, (R-T) > (G+I) ? Growth is nominal growth, so if the announced (real) growth rate is 2 or 3%, then G becomes more like 4% or 5%. More than 10 year Treasuries have paid in a long time. G+I is the only way National Debt can decrease (as it has from time to time) as a ratio of DGP. Running a 3% deficit has been the norm for decades under Democrats and Republicans. It took something like the catastrophe of 2008 to significantly damage that trend.
Meanwhile, the Forbes methodology seems rigorous to me. The whole argument is really aimed at the US. In the rest of the world, old money gets tripped up by things like WW I and WW II and the various and frequent demise of currencies, political instability, and all the other forms of Economic and Political instability that eliminates dynastic wealth in countries other than the US and Switzerland. I suppose in the remainder of Europe, dynastic wealth would have either been hidden or taxed to zero over the last 50 years.
It seems like he should be able to find an example or two of hidden wealth. And inherited wealth didn't just arise from the ether. Someone made some money at one time that was entrepreneurial. Or at least publicly well known. And their descendants are carefully tracked by the Social Register and people that know and care about that sort of stuff.
Piketty needs to either find some of this mysterious hidden wealth other than Southern Europe or STFU about it. Everyone in the US is constantly sniffing around any wealth. Financial advisors, 'Development' departments of every non profit in the US, people that want to work from them, steal from them, or persuade them into giving them their money.
It would be impossible to be a multi billionaire without leaving some trails -- especially if they consume a non trivial portion of their wealth. If they never spend it, then the returns on capital are simply reinvested in other schemes to increase it further.
So .... he needs ANY evidence that his belief is correct. Unless he is simply making an unfalsifiable argument that hidden wealth exists but can never be found because it is hidden.Replies: @Steve Sailer
“It seems like he should be able to find an example or two of hidden wealth.”
Yes, but the fact that Piketty and all his grad students can’t find examples to make his assumption more plausible-sounding just proves how hidden it is.
I think that Piketty has a point that for inheritance things can be murky. This relatively recent National Post article about Canada’s Thomson family shows that what people had thought about the Thomson wealth wasn’t correct:
http://business.financialpost.com/2013/12/17/james-pattison-takes-crown-as-canadas-richest-as-new-information-reveals-david-thomsons-fortune-smaller-than-thought/
“Thomson’s cousin, Sherry Brydson, owns at least 23% of Woodbridge. Through Westerkirk Capital, her Toronto-based family office, she also owns a turboprop manufacturer on Vancouver Island, the Moose FM radio network in Ontario, and a hotel developer in Nova Scotia. Together, the low-profile heiress has a fortune valued at US$6.5 billion, according to the Bloomberg ranking, making her the richest woman in Canada.
“Most people don’t know she exists,” Trevor Cole, a novelist and journalist who has written about the family, said in a phone call from his Toronto office. “People who read the paper know the name Thomson and know that they are rich people, but beyond that they have no sense of them.”
Brydson, whose age couldn’t be confirmed, is one of six members of the Thomson family who have never appeared on an international wealth ranking. She and four of her first cousins are the first Canadian women to be identified as billionaires, according to data compiled by Bloomberg.”
Taki, your patron, is actually not the first son of his illustrious and very wealthy family. You hear a lot about Taki because he is very talkative and a braggadocio. You don’t hear too much about his older brother who ended up most of the fortune and his probably very private family.
Also, you don’t hear too much about Howard Hughes’ heirs (there were about 16 distant relatives who got his money). They mostly went hiding.
Such is how it works after the first, more prominent member passes on.
I think that the examples of the Koch brothers is a bit misleading. The Kochs inherited a modestly successful company from their father. They seem to have done well with this, rather than just coasting on the inheritance, as opposed to folks like the Kennedy’s, who seem to fit the stereotype of the idol rich.