Everybody is under suspicion
But you don't wanna hear about that...
It is to two economists with the American EnterpriseInstitute, Steven Kaplan and Joshua Rauh, that we owe the meme that the Forbes 400 represents the fruits of social mobility, the rewards of an essentially meritocratic society..
But you don't wanna hear about that...
It is to two economists with the American EnterpriseInstitute, Steven Kaplan and Joshua Rauh, that we owe the meme that the Forbes 400 represents the fruits of social mobility, the rewards of an essentially meritocratic society..
Kaplan and Rauh have divided the individual who find places in
the Forbes 400 from 1982 to 2012 into three categories: that that come from
wealthy families, those that come from upper middle class families, and those
that come from working or middle class families. The claim to discern a
distinct change from 1982 to 2012 – the number of individuals coming from
wealthy families declines, while those from upper class families increases.
Thus, there is churn at the top, due to the meritocratic structure of American
capitalism.
Lets go into the ways Kaplan and Rauh are full of hooey.
A.
Granting, for the moment, that the
categorization, although a bit fuzzy, does actually represent three different
kinds of individuals, we have to trust Kaplan and Rauh on their judgments as to
which class individuals fall. They don’t include the list of all individuals on
the list – in Peter Bernstein’s book about the list, All the Money in the
World, there were 1302 people on the list from 1982 to 2006, which makes it likely
that there might have been fifty to one hundred more in the six years after
2006 – but instead give us representative names – which is how we know that
they included Bill Gates in the upper middle class group, because his father
was a well known lawyer. This tells us a lot about the laziness and bias of the
authors. Even a cursory glance at the numerous profiles of Bill Gates over the
years would tell you that he was endowed with a million dollar trust fund by
his maternal grandfather, who owned a Seattle bank. A million dollars back in
the sixties was a figure to reckon with. If one can’t trust the authors about
Gates, one of the five names they mention, how are we to trust them about the
rest?
B.
Of course, family money is a tricky subject.
Carl Icahn definitely came from a middle class family. On the other hand, when
Icahn was 32 and wanted to buy a seat on the NYSE, it was certainly convenient
that he had an uncle, Elliot Schnall, who was a Palm Beach millionaire and who
could loan him the money without questions.
C.
But even granting that there are meritocrats in
the purest sense on the 400, like Jeff Bezos, does this prove Kaplan and Rauh’s
point? By no means. Because we want to know that wealth is churning in response
to meritocratic pressure from below. One of the symptoms of a vigorous churn
would be the fact that few 400 figures remain on the list for long. If they do,
we have evidence of wealth stratifying in a hierarchical way – wealth is just
going to wealth. Go back to Jeff Bezos. He has been on the list since 1999 –
giving him a stretch of 15 years. This is not unusual – as is obvious from
Bernstein’s appendix in 2006. This fact should lead us to a deeper
contextualization about the 400. As almost all economic histories show, between
1932 and 1979, America experienced a great leveling. It wasn’t that the wealthy
went away; however, the labor and white collar wage class enjoyed incredible
gains in income and opportunity. When you look at the 1982 list, you are
looking at dynasts who made it through the leveling period plus that subgroup
that benefited ‘meritocratically’ from oil, building, manufacturing, and real
estate. In the years since, the list reflects the baby boomer years – year in
which, among other things, higher education was relatively cheap and available
for the ambitious. We have now reached the period when that group is going into
its sixties, and the wealth is definitely settling into place. Along with the
perrenial dynasts, there are the long timers – people who have been on the list 15 years or
more – who need to be broken out.
D.
As well, it is unclear from Kaplan and Rauh’s
charts if they double count these perennials. If Bezos is counted, each time,
as coming from the wage class in their compilation – rather than once, when he
entered the list – they are making an elementary error. I suspect they make it.
I suspect they know that they are making it. I suspect that they are working
for the American Enterprise institute.
E.
However, the larger criticism concerning how
well the 400 represents dynastic wealth. In fact, the very framework seems to
occlude it. In 1987, CBS news reported that, curiously, there was not a Dupont
on the list, even though the Dupont family was worth an estimated 10 billion
dollars. CBS resolved this anomoly by pointing out that if each of the 1500
Dupont relatives got a share of that money it would come to 5 million apiece.
However, this is a deeply misleading. The Dupont fortune operates as a unified
entity through family trusts. As an entity, it is as unified as the ‘Gates’
entity. In a list of individuals going from 1982, sheer mortality and
reproduction would naturally diminish the part of the inheritors, but this
would not really give us an idea of how much money is under dynastic control.
In 1937, a journalist named Lundberg published a book about America’s wealthy
dynasties, and the names in it seem foreign to us, who are used to reading
about tech barons and hedgefunders. But those families rarely lose their money.
The Pitcairns, for instance, who started PPG, have a private family investment
fund in which all the family participates. Individually, they would not be on
the list, but as an entity, it is a good bet they would be. The same is true
for the Weyhaeusers. There are many many families like this.
Forbes recognizes this in other lists – for instance,
they simply amalgamate all the Walton wealth into Walton Family on their world
billionaires list. But they are very inconsistent about it in the 400 lists.
Sometimes children and spouses appear separately, sometimes they don’t.
For all these reasons, Kaplan and Rauh’s 400 proof is a
farce. A farce that, I should say, is easily seen through. One doesn’t have to
go through some complicated mathematical proof, one simply has to apply
elementary social science reasoning. It is the kind of thing that is dogfood
for the dogs, rightwing columnists who can wave the paper about and claim to
have refuted the socialists and Stalinists once and for all. Only mooks would
fall for it.
This is, of course, why it gets an honored place in LarrySummers’ review of Thomas Piketty’s Capital. Summers, Obama’s favorite economist, the man who design the Clinton era
deregulatory architecture – or should I say, instead, wrecked regulation of the financial markets
and helped midwife the depression? -
inserts the following paragraph in gesturing towards other evidence that
American wealth is not becoming so unequal:
“A brief look at the Forbes 400
list also provides only limited support for Piketty’s ideas that fortunes are
patiently accumulated through reinvestment. When Forbes compared
its list of the wealthiest Americans in 1982 and 2012, it found that less than
one tenth of the 1982 list was still on the list in 2012, despite the fact that
a significant majority of members of the 1982 list would have qualified for the
2012 list if they had accumulated wealth at a real rate of even 4 percent a
year. They did not, given pressures to spend, donate, or misinvest their
wealth. In a similar vein, the data also indicate, contra Piketty, that the
share of the Forbes 400
who inherited their wealth is in sharp decline.”
A brief look here can be
defined as the look one gives the index card on which one has copied some “happy
facts” to share with the assembled plutocrats at one of Summers $50,000 talks. It is the index card that has the orange
sauce from the duck on the corner.
I am not shocked that
Summers would publish something this stupid. It is not that Summers is a stupid
man – he is, mainly, an “insider” – someone who knows how to “play” in DC, as
he famously told Elisabeth Warren. In
the economics profession, Summers is widely regarded as a genius. This says
less about the elevation of his intellect than the shallowness of his field – a
molehill is an Everest to a herd of aphids.
Like the overwhelming
majority of economists, Summers isn’t very good in thinking in broad terms, or
understanding the economy and what it is for. He is perpetually like a man
standing with his nose three inches from a pointillist painting – he can see
all the dots in detail, but he can’t see or imagine the picture. This is
fortunate for him – economics is the handmaiden of the plutocrats, and those
who step back and begin to see the picture are soon quietly sidelined.