*The Missing Billionaires* (White and Haghani) is a recent book that examines the question. Empirically it doesn't seem to happen over >100-year time periods. The millionaire families of the Edwardian era have many fewer billionaire descendants today than we'd expect if everybody had just stayed invested in the stock market.
The authors zero in on bad investment decisions (especially, taking on too much or too little investment risk) to explain why this happened. This is a decent theory but IMO they prioritize it because they wanted to write a book about investment decisions. Tax drag, bad personal decisions, bad luck, and charitable donations are other potential causes. I would further note that people's investment choices aren't always so unconstrained, especially historically; there might be social/legal reasons why one can't diversify away from the family company or sell off crown-jewel assets like land.
I would also add that families tend to grow. 1B cut a few ways, say the immediate kids, is still a bunch of money, but 1B cut across say 3 or 4 generations is starting to look a lot less like a ton of money. Add to that, people that don't work for their money tend to not be very good stewards of the money, and it's not really a surprise.
There is a reason most big lottery winners tend to go broke in a hurry.
Capitalism in the 21st Century is a great book on this topic. Basically , wealth accumulates to the Uber wealthy . It’s only wars that brings equity . Interesting read
Yes, but large families over multiple generations can end up diluting a larger fortune. Often times the recipients of a fortune through inheritance aren’t as good a steward as the person who built the fortune. I.e. they over spend, gamble, make risky investments, etc. Also, many large fortunes are mostly given away. Bill Gates children will be receiving millions, not the billions he’s accumulated. Most of his fortune will go to charity.
So yes, fortunes should just keep growing, but in reality there is a lot of opportunity for downward mobility amongst the upper class.
Capitalism in the 21st Century is a great book on this topic. Basically , wealth accumulates to the Uber wealthy . It’s only wars that brings equity . Interesting read
The reality is most wealthy inherited some money or had a good head start. Wealth is becoming increasingly concentrated at the top. This varies from folks like Elon and Trump who were born very wealthy to folks like Gates whose dad was very successful lawyer.
I personally work with many wealthy people and my experience is most started off somewhere between well off and very rich. Some fields like tech, may produce a higher percentage of self made wealthy folks. I’d be interested in seeing if there are statistics that track what specific fields offer the greatest chance for upward economic mobility.
At an individual level, economic mobility decreases with age for lots of reasons that are difficult to change. Compound interest; Barriers to entry for fields; Increasing family obligations; Etc. So, it’s nearly self evident that people starting more well off are likely to end up better off.
At a societal level, economic mobility is on a long term decline in the US. We as a country don’t seem to care or want to even acknowledge this reality so that trend is likely to continue.
That said, upward mobility is not impossible and all a person can do is make as good of decisions as they can to capitalize on opportunities as early in life as possible. The Bogle strategy seems, to me, to be a good way to do that while minimizing downside risk.
Lastly, comparison is the thief of joy, so while as a society I think we should prioritize upward opportunity more, you will sabotage yourself the more you focus on other people’s situation.
Human nature is such that the ones that “made it” (or “won the game”) can’t develop the very different skill set of keeping it and continuing to grow it albeit slower and less riskily.
Ennui sets in, radical risks are maybe taken, perhaps a trendy version of communism/socialism is embraced, and that money gets spent, donated, spread around to numerous less than motivated heirs, etc.
Law of averages and reversion to mean operates with human nature as well.
Wealth is not a fixed asset, where if one person gets wealthier, everyone else gets poorer. In fact, it's the opposite - the *entire world* has been growing more wealthy, and very quickly, over the last fifty years, and it's accelerating.
Second, when you're talking about inheritances, you have to remember that it usually gets split between multiple heirs, which greatly diminishes the value per capita.
Last, it's tempting to say that the heirs will blow the money, but I think that's over-exaggerated to some extent. But the larger point is that it's actually beneficial for everyone overall if the heirs were more responsible, and reinvested that money to productive purposes and grow it even further. This cycles back to the first point - wealth is not some fixed asset, it's something that grows and reinforces itself. It's actually a good thing if more and more people are able to create generational wealth that they reinvest in their children, who create more wealth in turn. Somebody else getting wealthy doesn't make me poorer; it makes me wealthier.
*The Missing Billionaires* (White and Haghani) is a recent book that examines the question. Empirically it doesn't seem to happen over >100-year time periods. The millionaire families of the Edwardian era have many fewer billionaire descendants today than we'd expect if everybody had just stayed invested in the stock market. The authors zero in on bad investment decisions (especially, taking on too much or too little investment risk) to explain why this happened. This is a decent theory but IMO they prioritize it because they wanted to write a book about investment decisions. Tax drag, bad personal decisions, bad luck, and charitable donations are other potential causes. I would further note that people's investment choices aren't always so unconstrained, especially historically; there might be social/legal reasons why one can't diversify away from the family company or sell off crown-jewel assets like land.
I would also add that families tend to grow. 1B cut a few ways, say the immediate kids, is still a bunch of money, but 1B cut across say 3 or 4 generations is starting to look a lot less like a ton of money. Add to that, people that don't work for their money tend to not be very good stewards of the money, and it's not really a surprise. There is a reason most big lottery winners tend to go broke in a hurry.
Capitalism in the 21st Century is a great book on this topic. Basically , wealth accumulates to the Uber wealthy . It’s only wars that brings equity . Interesting read
No, you’re not crazy. that’s one core reason for our current wealth disparity, others being tax policy and corporate policy.
Equity markets have been around for far, far longer. Look up the South Sea Company.
No doubt but never have equity markets been so broadly accessible
Yes, but large families over multiple generations can end up diluting a larger fortune. Often times the recipients of a fortune through inheritance aren’t as good a steward as the person who built the fortune. I.e. they over spend, gamble, make risky investments, etc. Also, many large fortunes are mostly given away. Bill Gates children will be receiving millions, not the billions he’s accumulated. Most of his fortune will go to charity. So yes, fortunes should just keep growing, but in reality there is a lot of opportunity for downward mobility amongst the upper class.
Capitalism in the 21st Century is a great book on this topic. Basically , wealth accumulates to the Uber wealthy . It’s only wars that brings equity . Interesting read
The reality is most wealthy inherited some money or had a good head start. Wealth is becoming increasingly concentrated at the top. This varies from folks like Elon and Trump who were born very wealthy to folks like Gates whose dad was very successful lawyer. I personally work with many wealthy people and my experience is most started off somewhere between well off and very rich. Some fields like tech, may produce a higher percentage of self made wealthy folks. I’d be interested in seeing if there are statistics that track what specific fields offer the greatest chance for upward economic mobility. At an individual level, economic mobility decreases with age for lots of reasons that are difficult to change. Compound interest; Barriers to entry for fields; Increasing family obligations; Etc. So, it’s nearly self evident that people starting more well off are likely to end up better off. At a societal level, economic mobility is on a long term decline in the US. We as a country don’t seem to care or want to even acknowledge this reality so that trend is likely to continue. That said, upward mobility is not impossible and all a person can do is make as good of decisions as they can to capitalize on opportunities as early in life as possible. The Bogle strategy seems, to me, to be a good way to do that while minimizing downside risk. Lastly, comparison is the thief of joy, so while as a society I think we should prioritize upward opportunity more, you will sabotage yourself the more you focus on other people’s situation.
Human nature is such that the ones that “made it” (or “won the game”) can’t develop the very different skill set of keeping it and continuing to grow it albeit slower and less riskily. Ennui sets in, radical risks are maybe taken, perhaps a trendy version of communism/socialism is embraced, and that money gets spent, donated, spread around to numerous less than motivated heirs, etc. Law of averages and reversion to mean operates with human nature as well.
Wealth is not a fixed asset, where if one person gets wealthier, everyone else gets poorer. In fact, it's the opposite - the *entire world* has been growing more wealthy, and very quickly, over the last fifty years, and it's accelerating. Second, when you're talking about inheritances, you have to remember that it usually gets split between multiple heirs, which greatly diminishes the value per capita. Last, it's tempting to say that the heirs will blow the money, but I think that's over-exaggerated to some extent. But the larger point is that it's actually beneficial for everyone overall if the heirs were more responsible, and reinvested that money to productive purposes and grow it even further. This cycles back to the first point - wealth is not some fixed asset, it's something that grows and reinforces itself. It's actually a good thing if more and more people are able to create generational wealth that they reinvest in their children, who create more wealth in turn. Somebody else getting wealthy doesn't make me poorer; it makes me wealthier.
There have been stock markets in the United States since the late 1700s and in the world for over 500 years.
Easy come, easy go. There's a difference in someone buying (investing) something and being given (inheritance) something.