May 30, 2014

The Clippers Challenge: Piketty v. "Forbes 400"

I like lists, so I've been a fan of the Forbes 400 list of richest Americans since it started in 1982. Economists, however, have been reluctant to include this data in their analyses. Personally, I think they mostly don't want to risk peeving the extremely rich, who could be nice friends or very nasty enemies.

But Thomas Piketty, for example, claims he is very much against looking at the Forbes 400 data on methodological grounds. He doesn't believe there is really so much churn among the superrich. Like people who write to tell me that Forbes undercounts the secret wealth of the Rothschilds, Piketty believes there are large numbers of hidden Old Money billionaires out there. Matthew Yglesias sums up Piketty's argument:
Piketty's interesting point on entrepreneurial wealth turns out to be that the famous Forbes 400 list of the richest people in America (and similar lists in other media outlets) is probably mistaken. 
Not just mistaken, in fact, but systematically biased to overrepresent entrepreneurs and underrepresent heirs and heiresses. This isn't a matter of ideology (though Piketty does think the publications in question are ideologically biased toward valorization of entrepreneurs) but of the limits of data. After all, the task of estimating the net worth of a major entrepreneur is relatively straightforward. Mark Zuckerberg is rich because as the founder of Facebook, he owns a lot of shares of Facebook stock. ...
But consider Zuckerberg's hypothetical future grandchildren. These grandchildren will, presumably, inherit a lot of money. But it's also reasonably likely that they won't play a management role in Facebook. And the prudent thing for them (or the creators of their trust funds) to do would be to hold a diversified portfolio of wealth rather than a large block of Facebook shares. They would be broadly invested in domestic and foreign stock markets, probably own a bunch of real estate, and maybe include some alternative investments (a hedge fund here, a commodity index there). 
Tracking it all down would be possible, though perhaps difficult, in the course of a contentious lawsuit in which someone has the power to issue subpoenas. But a merely curious journalist has no real way of finding out how the holder of a diverse portfolio of inherited financial assets is doing. 
In other words, we are almost certainly overcounting entrepreneurs among today's super-rich and undercounting the descendents and past entrepreneurs. And a generation or two from now we are very likely to underestimate the wealth of the descendants of today's entrepreneurial billionaires.

Okay, but if say, Zuckerberg has 3 children and they have 3 children each, that is 9 heirs to divvy his fortune up among.

The average member of the Forbes 400 has, last I checked, 3.6 children. Rich men tend to have children with a couple of wives over the course of a lifetimes. Heiresses probably don't have as many children as male heirs, but it seems likely that today's great fortunes will be divvied up an average of 3 to 10 grandchildren. If heirs marry heiresses, then wealth would be combined, but that doesn't seem all that common these days.

Another way to approach the question of Hidden Rothschild (or whomever) Wealth is too look at trophy purchases. Are scions of ancients fortunes buying up the Los Angeles Clippers or homes along the 18th fairway at Pebble Beach? Are they building their own personal golf courses? Golf courses are visible from the air, so they show up on Google Maps. I'm more or less familiar with most of the personal golf courses in Southern California, and they tend to have been built by rich guys you've heard of like Bob Hope, Walter Annenberg, and Jerry Perrenchio.

What about bidders on the Clippers?
Ballmer, who was chief executive of Microsoft for 14 years, beat out other bidders that included Los Angeles-based investors Tony Ressler and Steve Karsh and a group that included David Geffen, Oprah Winfrey, Larry Ellison and executives from the Guggenheim Group, the Chicago-based owner of the Los Angeles Dodgers.

You've probably heard of Ballmer (#21 on the Forbes 400), Geffen (#68), Ellison (#3), and Winfrey (#168). Ressler is an old Mike Milken guy who teamed up with Leon Black; he's now married to actress Jami Gertz. He's not on the Forbes 400, although Black is #85. I don't know who Steve Karsh is, but Bruce Karsh is an L.A. billionaire who is #296 on the Forbes 400 list, so "Steve Karsh" is likely a typo. Other reports have Bruce Karsh teaming with Ressler and retired basketball player Grant Hill.

It could be that Piketty would respond that only tawdry arrivistes wanted to overpay for the Clips (who don't even own their own arena). As a Southern Californian, perhaps I'm not aware of real old money. But Los Angeles has had a fair number of rich people since it became accessible by railroad in 1887. For example, Larry Niven, Jerry Pournelle's co-author, is the great-grandson of Edward Doheny, the original for the I-drink-your-milkshake oilman in There Will Be Blood who was involved in the Teapot Dome scandal 90 years ago. But a lot of dramatic and mundane stuff has happened to Old Man Doheny's money over the years. 

So this suggests a methodology to test Piketty's assumption that he is justified in ignoring Forbes 400 data: track the purchasers of trophy properties in the 21st Century and the donors of trophy gifts such as art museums and concert halls.

Are they typically Astors and Vanderbilts or are they Ballmers and Geffens?
        

70 comments:

Rob said...

When was the last book on economics that generated as much discussion as Piketty's? I think it was probably Freakonomics, assuming you'd call the latter a work on economics.

Anonymous said...

Sure, Thomas Piketty can make his math fit your case -- or anyone's case really. You see, Piketty comes from the "make shit up" school of economics.

Anonymous said...

Well, when you make up numbers and use phoney math to validate what Progressives already believe, the Progressives who run the media give your book a lot of attention...

Liz Warren/Thomas Piketty, 2016 baby...

Jokah Macpherson said...

Steve, back in 2010 or 2011 I made a spreadsheet (since lost) to determine whether super-rich people had more kids than the average American. I used Wikipedia supplemented with web searches to get a best guess for number of children for the top 100 on the list. Perhaps the biggest surprise was that Carlos Slim, #1 at the time, also had the most children.

But the answer was no; no, they don't. It seems anecdotally that trust funds dry up wombs as much as graduate degrees - just look at Michael Bloomberg: one grandchild for two adult daughters.

Anonymous said...

I've been doing a lot of historical reading on attempts to define and then control the JP Morgan Money Trust that ran the economy and country in the Gilded Age. The dialogue was much more sophisticated than the current dialogue on the new Money Trust now running the economy and country. The focus was on HOW they did it rather than the statistical approach found in the Piketty book. I especially recommend Louis Brandeis book, "Other People's Money and How They Use it". It was written in 1912 and still available. Nothing has changed. The new Money Trust aggregates obscene power and wealth through networking, insider trading, and vertical combines. We can put the blame for most of this at the feet of the Clintons who undid the legislation designed to control the original Money Trust. Brandeis' thesis: Loose the investment bankers on the economy and they will soon own the means of production as well as the government.

Anonymous said...

That the forbes list does not fully reflect megawealth or even wealth seems like a no duh, uninteresting idea to me. Lots of old money is in hiding, and we aren't going to find it because it doesn't want to be found, and it has, wait for it, tons of money to spend on not being found.

But so what? Who cares?

What is Piketty's point with all this?

Anonymous said...

Is it just to support more fake left wing "rich (white) people mostly inherited their money (privilege) so therefore there need to br higher taxes on low six figure earners"?

Why does Yglesias call Piketty's point "interesting"? Is it just because he's personally slow and hadn't thought of this himself?

ATBOTL said...

I know for sure this is true. I've seen statements and records with my own eyes. Also, a close relative manages money for super rich individuals, some of whom are totally unknown despite billions in assets.

When you know people in super wealthy social networks, you find this out pretty quick. Lots of people with 8 figure investments in many large funds and massive real estate holdings who don't show up on these lists or are underestimated.

Don't underestimate the amount of wealth that the super wealthy rich tie up in art, antiques, jewels and precious metals. Many people hold enormous assets of this sort. Art is hard to keep track of, especially as Forbes or whoever can't really track down what art someone owns easily. Lots of five and six figure pieces add up.

I know people who have over a billion worth of art alone who are not known as billionaires to Forbes or whoever.

Inherited money types are more paranoid than the self made.

Anonymous said...

This is a sound analysis to me although if a superrich heir wanted to be secret, they would avoid the trophy purchases.

Realistically, this would hardly ever happen. There may be a couple secret billionaires, not many more. Not enough to justify Piketty's claims, but enough to whet the appetite of conspiracy theorists.

Anonymous said...

"Okay, but if say, Zuckerberg has 3 children and they have 3 children each, that is 9 heirs to divvy his fortune up among."

The fabled Irish-Catholic fecundity is why I'm clinging precariously to the bottom of the middle class instead of living comfortably but modestly as a gentleman of leisure off of my entrepreneurial great-great-grandfather's money. Then again, I'm not on the senior-most line, so if they'd had fewer children, I'd probably be among the never-born. Besides, I'd rather have the cousins than the money- they're more fun, and a lot more useful when SHTF.

Anonymous said...

Gates, Buffet, the Waltons don't seem very interested in owning a team. Some people are, some people are not.
Robert Hume

Anonymous said...

Look at the history of the Guggenheim family, Steve. From superrich, to just rich, and now maybe back again.

Anonymous said...

http://stuartschneiderman.blogspot.com/2014/05/the-french-protest-for-big-macs.html

Now i've seen everything.

Anonymous said...

I think of low-key billionaire guys like Ned Johnson and how they've essentially disappeared from the world. His driver comes in to the coffee shop I frequent and talks about how Johnson is the most normal, down-to-earth guy you'd ever meet. He still goes to the office most days.

I remember drinking with the boys in the Financial District in Boston 30-some years ago debating who the most beautiful girl in the city was, and I said Abigail Johnson, and there were 15 billion reasons why.

Anonymous said...

Gondo:

"Julia is excellent. What I like most about her is not just her knowledge, but she understands the relationship between betting and game strategy (although she made a MAJOR math boo-boo in one of early games). She is also quick on the trigger. That said, some of her recent opponents have been short bus material--really bad. Even my wife said it seemed they might setting her up with some tin cans.

Now here is a dumb paragraph:

"Another place where there seems to be a differential: the Jeopardy! publicity machine. Chu’s 11-game streak earlier this year became a big news story that drew a broad range of attention, including a blog post on the The New Yorker website and an appearance on Fox and Friends after just four wins. By contrast, Collins’ 18-game-and-counting streak is only now beginning to draw some notice and, thus far, only local TV interest. Some of that is due to circumstance — Chu displayed a brash persona and an unkempt appearance that irked some of the more genteel fans of a game seen more as a white-collar affair than a blue-collar street fight."

Uh, no--what intrigued many Jeopardy fans was his wildly unorthodox game strategy, which somehow does not even get mentioned here. But since that would explain his fame without resort to patriarchy, male privilege, rape culture or some other tired feminist cant, well, we just cannot have that."

http://www.vulture.com/2014/05/women-are-dominating-jeopardy-this-year.html

anony-mouse said...

At one time Rockefeller offspring used to use politics as trophies. Two of John D's grandsons became Governors, another became a bete noire of conspiracists, and one great-grandson is now retiring from the Senate.

But the more plentiful recent Rockefellers have mostly avoided such prizes-I'm guessing (relative) lack of money may be an issue.

Jefff W. said...

One factor is that the regressed-to-the-mean offspring have their assets managed for them by professional managers vs. the entrepreneurs who manage their assets themselves.

The job of the professional trust fund manager is not to put his clients' names on buildings, it is to preserve wealth.

Also the heirs do not have any accomplishments of their own to brag about; they are likely to be more self-effacing than an Ellison or a Ballmer.

slumber_j said...

Old-money types generally don't much go out of their way to buy sports franchises, etc., because:

a) Continually splashing the pot is obnoxiously vulgar--see Larry Ellison;

b) They've already done the capex and are now mostly focused on operational maintenance, which is why various Phippses keep pumping money into and serving on the boards of the Am. Museum of Natural History, the Frick Collection, etc.;

c) They already have all the trophies they can reasonably use and are sick of getting kidnapped, which is why the Hearsts with the Castle (which they still get to use, amazingly), huge chunks of Big Sur, WRH's super-secret NoCal redoubt Wyntoon etc., plus Patty's history, aren't buying Malibu like Larry Ellison;

D) They're no longer rich enough, e.g. the Phippses again, who made the first Forbes list but I doubt have been on it for years. Not that they're not rich, mind you...

This last point isn't just because of dynastic dilution, although that's of course part of it. I'd say it's mostly because risk-adjusted investment returns are mean-reverting, and if your family already hit the grand slam a few generations ago, why would you keep risk ratcheted up to Larry Ellison levels? You wouldn't. You'd let your returns revert to the mean, coast comfortably, and enjoy the ranch: you've got nothing to prove anyway.

Anonymous said...

There are many under the radar rich people. Maybe they aren't as rich as the Forbes 400 but their presence is proof of....something. What that something is, I leave to Steve Sailer to categorize.

BB753 said...

If I were a billionaire, I'd be sure nobody knew. Posing as a plain millionaire is safer. Not just for tax purposes. And the Forbes list is just so " nouveau riche", it's almost tasteless. Some old money in it. Declass├ęs, I tell you! There's no way Gates is richer than the thousands of rich people who inherited billions the moment they turned 18, in trust funds and real estate. You'd think at least some of them must have made good money on their investments.

in ohio said...


Steve's thesis may be true, but looking at pro sports team ownership doesn't prove it so. Remember that such teams are essentially tax shelters; the salary depreciation write-off is HUGE.

Presumably old money employs different tax avoidance strategies than new money does, in recognition of a very different situation.

Mike said...

A lot of wealth is public but it is very naive to think that genuinely old money has any interest in trophy assets. I grew up around the edges of this world in a foreign country and old money rich specifically train their children to stay off the radar. Over time displayed wealth gets targeted.
I personally know very rich people that you would mistake for homeless on the street. All the world is not America where "if you've got it, flaunt it" is a virtue. Families that have been wealthy over decades and centuries don't share your view that trophy assets are a good idea. They may indeed own them but will go to huge lengths to distance themselves from the investment.

Anonymous said...

Mere billionaires aren't going to tip the scales. It takes 1,000 of them to make $1 trillion.

Tax them @ 100% and you could pay off a year or two of deficits. Then people would have to shut up about it.

I wonder how many ultra rich (over $20 billion) are really interested in dynastic wealth. Andrew Carnage used the huge bulk of his wealth to build public libraries in every city and small town in America. Carnage thought libraries was the internet and said he could spend his entire life in one.

Right now, Buffett and Gates are going to give away most of their fortunes.

And isn't the real issue consumption? Buffett may have a zillion times the wealth of the median American, but likely spends about 20x as much as the median income.

The debates seem to switch effortlessly from wealth to income to consumption when convenient.

There is a good argument that the bottom 20% or so of American society should have their income supplemented to the extent that their standard of living (consumption) is above mere subsistence to a level appropriate for the richest country in the world.

But there is zero rationale that Americans that receive income/consumption supplements should have ANY wealth. Wealth only matters to the extent that it effects future consumption, and the poorest Americans need it now.

The 'working rich' or service providers (doctors, lawyers, working level financial service professionals), especially those that live in extremely expensive cities then to work very long hours and are far from the stereotype of rich. And they get nailed by Alternative Minimum Tax at a couple of hundred thousand.

The importance of collecting tax revenue from the "working rich" can be inferred from the fact that EVERYONE, including Democrats agree that it is unfair. But EVERYONE recognized that it accounts for too much tax revenue to simply repeal.

A surprising number of 'working rich' don't do their own taxes and don't know the pain of the AMT. And it is bad enough that they are taxed at marginal combined rates of 50%, but they are also vilified.

Anonymous said...

Sorry but trophy purchases won't help anything. For example lets look at someone who wins a lottery. What do they do - buy a big house, an expensive car and go to Vegas.

Look what happens when an Indian band gets a bunch of oil royalties. What do they do: Build a big house, buy some expensive trucks and go to Vegas. Now look at something like the UAE. Dubai is a palace, they drive big expensive cars and yachts, and go to Monaco.

Now look at the Royal Family. If you were born in a palace why would you build another one?

Anonymous said...

"I remember drinking with the boys in the Financial District in Boston 30-some years ago debating who the most beautiful girl in the city was, and I said Abigail Johnson, and there were 15 billion reasons why."

I think being married to a woman far richer than you would be my idea of a living hell. I'd rather be poor and living in a cabin somewhere than go through that.

Anonymous said...

Gates, Buffet, the Waltons don't seem very interested in owning a team. Some people are, some people are not.

Stan Kronke married into Walton money and he owns the Nuggets, Rams and Arsenel

DR said...

I think if there's hidden billionaires, it's likely new money, not old money. Particularly ones from finance. It's possible to amass a fortune in the markets without ever interfacing with any clients, major vendors, or even investors. You might make billions and no one is ever aware. Below is one such case:

http://www.businessweek.com/articles/2014-05-08/three-mysterious-philanthropists-fund-fourth-largest-u-dot-s-dot-charity

Anonymous said...

I think of low-key billionaire guys like Ned Johnson and how they've essentially disappeared from the world. His driver comes in to the coffee shop I frequent and talks about how Johnson is the most normal, down-to-earth guy you'd ever meet. He still goes to the office most days.

In Hank Stram's autobiography he tells the story of riding with Lamar Hunt in a beat up old pickup truck on the Kansas Turnpike. They get to a toll booth and neither of them have any cash and have to search thru the truck to find the $.25 toll

Anonymous said...

A friend of mine is a TV producer/blond surfer dude from the Valley who serially dates actresses and heiresses. He got invited by model Lydia Hearst (Patty's daughter) to the family's ranch house at the base of the famous San Simeon property, only to be diverted at the last second to an even bigger, more secluded Hearst property up by Mount Shasta. Now what does a family like that need with a trophy property or a sports team? They have them already!

It's like the old joke about the new money heiress bragging to the English royal that she got her jewels from Tiffany, only to have the royal reply "I get mine from my grandmother."

Karl said...

Clippers sale price suggests publicaly NY knicks are undervalued.

http://finance.yahoo.com/news/heres-why-steve-ballmer-buying-143747154.html

I jumped on this one after the MSG plunged on earnings miss [but revenue beat] and am already about +10%.

There are only so many NY NBA teams and this is the best one and only one that an ordinary guy can be an owner of. With QE and unknowable monetary madness to come, owning the Knicks is a great hedge since they aren't making anymore flagship franchises with 60+ yrs of emotional investment from wealthy fandom.

Portlander said...

Paging Mr. Lion...

Though, I'm sure both he and Mr. Fussell would explain that old money doesn't buy anything so vulgar as trophies.

I'm sure they teach in finishing school that clipping coupons to the tune of 2% on a $100 million nest egg ain't a bad income... just don't do anything to shame the family name and your seat at the gravy train is safe. The down side is knowing there is no upside from here. Nothing one can do will move the needle up, but f-ing up and losing your standing in the will means you are nothing more than an unskilled, unemployable nobody with very expensive habits. It was all covered in that movie the Johnson heir made.

Steve Sailer said...

The Hearst fortune goes back to 1859. But Forbes has four of them on the 400, and a few years ago there were five. The current Hearsts live pretty quietly, but some in the past attracted attention (William Randolph) or had attention thrust upon them (poor Patty).

Steve Sailer said...

Charity fundraisers devoted a lot of effort to identifying rich people, so I think Piketty is naive to assume that lots of billionaires are unknown.

Last year Bloomberg News discovered a grocery wholesaler in New Hampshire whose family business has been so successful that he might be as rich as Mark Zuckerberg. He'd been totally under the radar. But, he was pretty much of a self-made man, and now he and his wife are starting to donate generously, which has finally attracted attention.

ATBOTL said...

"Charity fundraisers devoted a lot of effort to identifying rich people, so I think Piketty is naive to assume that lots of billionaires are unknown."

Many rich people strenuously avoid that whole scene.

Anonymous said...

I think if there's hidden billionaires, it's likely new money, not old money. Particularly ones from finance. It's possible to amass a fortune in the markets without ever interfacing with any clients, major vendors, or even investors. You might make billions and no one is ever aware.

A subclass of Japanese hikikomori did manage to amass fortunes in precisely that way, with no off-line social contact at all. I wonder what educrats think of that?

Anonymous said...

As usual Pilketty is talking out of his hat, look at the Rockefellers, Fords, Kennedys, du Ponts, Mellons, etc... the fortune keeps getting divvied up every generation, and some of those generations are overlapping as well. The older money elite such as the Astors, Roosevelts, and Vanderbilts are even further down the list than first group I mentioned.

Anderson Cooper is a Vanderbilt, and although certainly well off, he doesn't come anywhere near the fortune of someone like Jeff Bezos or Mark Zuckerberg. Additionally most of Cooper's wealth is due to CNN paying him $10,000,000 per year, so I'm guessing a lot of his wealth is not even family money, just like his mother's fortune which was due more to her individual business savvy than the money left by her family which was almost completely gone by the time she was an adult. Certainly very few of the descendants are poor, but they are not the movers and shakers there ancestors were.

Regarding sports franchises, plenty of blue bloods own sports teams: the Ford family owns the Detroit Lions, and Johnson family ( Johnson & Johnson fortune ) owns the New York Jets, and the Hunt family owns the Kansas City Chiefs and those are just NFL teams, but what is also evident is that self made guys own a lot more franchises. The teams owned by nouveau riche just off the top of my head: The Falcons, Ravens, Patriots, Seahawks, Redskins, Texans, and Buccaneers, and again that is just the NFL.

Anonymous said...

so what? Who cares?

What is Piketty's point with all this?


Try clicking through the links.

Peter Akuleyev said...

I had a conversation with a very wealth fund manager not long ago. We got onto the subject of sports franchises and he scoffed at the idea that any intelligent investor would put there money into such a thing. Probably lots of old money heirs feel the same way.

Anonymous said...

You might take the reverse approach--identify known wealthy families from the society pages of a few generations ago and try to get an idea of arc of the wealth of their descendants.

Crockers, Vanderbilts, and the like have pretty clearly come down in the world relative to the new finance and tech moguls.

Piketty's thesis is that managed wealth grows at a rate faster than the economy as a whole, so if it is true one would expect that the wealthy from the 1950's still hold the commanding heights of the American economy. That's pretty clearly not true. There isn't that much missing mass.

Whitehall said...

"The debates seem to switch effortlessly from wealth to income to consumption when convenient."

Indeed, a very common weakness in the debates.

In my job, I'm on a team that is spending billions of dollars on vital, private infrastructure. That wealth comes from somewhere and is at risk so that it can pay its own way, ie have income. Somebody is putting up the money and I thank them.

Here's a gedanken experiment. What's the difference from a poor farmer stirring the dirt with a stick and that same farmer with a metal hoe? Two things - the amount of food he can grow in a season and CAPITAL.

Steve Sailer said...

When the Forbes 400 started it had more Old Money scions on it than it does today. I suspect that Piketty has mostly gotten Forbes' methodological bias backward: Forbes started out with the names of lots of Old Money heirs and then laboriously added the quieter New Money as they stumbled upon them.

mikes2653 said...

Steve Sailer wrote: "I suspect that Piketty has mostly gotten Forbes' methodological bias backward: Forbes started out with the names of lots of Old Money heirs and then laboriously added the quieter New Money as they stumbled upon them."

This seems very likely to me. For all this talk of Forbes "valorizing the entrepreneur" and downplaying the importance of old fortunes, we should remember that the Social Register Association is effectively part of the Forbes publications group. The Forbes people have good insights into the worlds both of old money and new.

Several tendencies militate against the survival of old fortunes, at least at the level they may once have existed. Primogeniture and entail are long gone in the United States - estates tend to be divided amongst heirs of the next generation roughly evenly. Then estate taxation, and finally,folly or bad luck, typically leave the grandchildren or great-grandchildren of some grandee of the gilded age with assets that may still be comfortable, but not on a par with those of nouveau-riche entrepreneurs of the Zuckerberg type.

The Internal Revenue Service has a pretty good idea of who has wealth, and how much. Although an enormous amount of money and effort is put into the minimization of estate tax liability, the combined gift and estate tax is almost impossible for a person with substantial assets to avoid completely. Evasion, similarly, is likely to be a rather penny-ante affair, relative to the size of an estate - one might (for example) forget to itemize the family silver or mama's diamond ring on Form 706, and get away with it - but not so with a meaningful investment, business asset, or real estate.

Even in 2010, when there was no Federal estate tax liability, executors of a 2010 decedent's estate that would have been taxable under 2009's rules were required to file a Form 706, listing the estate's assets and their distribution. Why? Because the heirs of a 2010 estate retain the basis of the decedent, and are obliged to pay capital gains tax on any inherited asset they might in future sell. I filed such a Form 706 myself, as the executor of the estate of my mother, who died in 2010.

The assets of a probated estate are matters of public record; probate notices can be read in any newspaper of legal record. Surely a researcher of the calibre of Thomas Piketty, were he really interested, should be able to use search engines such as Nexis to find data about persons leaving probate estates larger than (say) $5 million during the past 30 years.

And, while trusts are often used to exclude assets from decedents' probate estates, they do not exclude those assets from the combined gift and estate tax. Typically, a gift in excess of the exemption to an irrevocable trust will trigger the gift tax; whereas if the assets are placed in a revocable trust, they remain part of the decedent's taxable estate. The IRS publishes an extensive statistical abstract every year - and, again, a serious researcher should be able to analyze the numbers there presented to determine the number and size of taxable gifts and estates that come to IRS notice each year. While public information does not tell the academic researcher whose gifts and estates they were, a comparison of the IRS data and the probate data could yield many clues.

Of course, such concerns would not impede government's own analysis, since it is privy to much that is not on the public record. And the IRS is not the only agency that collects such data about the holders of wealth. The Federal Reserve System, for example, maintains a list of every individual or family that holds more than 10% of the stock of a financial institution subject to its jurisdiction. Such data could be mined to determine the "churn" among the top holders of wealth - without trying myself, my guess is that Forbes is more reliable than Piketty on this point.

Anonymous said...

Wealth dilution is very real. I used to know a family that included a Roosevelt, and they were outdoorsy buddhist SWPLs who lived in a modest home. Maybe they were sitting on some hidden wealth, but they seemed like ordinary, slightly WASPy Californians to me.

-The Judean People's Front

David Davenport said...

The job of the professional trust fund manager is not to put his clients' names on buildings, it is to preserve wealth.

But many hedge funds underperform market averages. Idiot heirs don't know how to invest ... Some of them use their inheritance to start hedge funds.

Wealth only matters to the extent that it effects future consumption, and the poorest Americans need it now.

No, wealth matters more to the extent that it is well invested in the future.

The poorest need it now? Jesus Christ Himself said that the poor will always be with us.

With QE and unknowable monetary madness to come, owning the Knicks is a great hedge since they aren't making anymore flagship franchises with 60+ yrs of emotional investment from wealthy fandom.

Or maybe basketball will fall out of fashion in the future.

And what do you mean, "with 60+ yrs of emotional investment from wealthy fandom."? Is that an allusion to the 1940's-'50's when many basketball "cagers" were Jewish?

As recently as the 1970's, NBA basketball wasn't much bigger than NHL hockey.

Anonymous said...

Forbes publishes it methodology. It includes:

"We do our best to value everything, including stakes in privately held companies, real estate, art, yachts and planes. We spend time traveling the country looking for billionaires who would prefer we left them off our list.

We interview employees, competitors, customers, attorneys, ex-spouses and securities analysts. We dig through Securities & Exchange Commission documents, court records, probate records and newspaper articles. We also take a hard look at debt."

Ex spouses? SEC filings. Sounds a lot more rigorous than anything Piketty did. Ten million or maybe even $100 million could slip by, but not a billion.

The "development" staff at all nonprofits are always sniffing around for large donors. And if relatives go to private schools or elite colleges -- they will be found. On the other hand, it is possible they don't talk.

Whiskey said...

What Piketty, being a socialist and French, cannot understand, is that old money will always earn a below-market return. Even if a money manager (they don't do it themselves) earns a market return (and previous commenters are correct, money mangers for the wealthy avoid undue risk) the management fees bring that below the market average. Over the long run, fees and management costs don't even keep up with inflation, certainly a big fortune can last generations, but each generation it gets smaller and smaller as inflation and money management fees eat the fortune like water eroding a rock.

Managed wealth goes DOWN not Up, the exact opposite of Piketty's idiot theories. Principally because the managers are in it for their money, not making money for the wealthy old line families. Classic Agency problem.

This is why you see major trophy estates donated, to public concerns, charities, etc. The wealthy old money families can no longer keep the thing up.

If you want to track the fortunes of old money, look to how many keep their familial estates and how many have to sell.

[Buffett and Gates I assure you anon are not giving away their fortunes. They are spending money to buy social approval and their offspring will tax-free control their assets as governing directors of the Gates Foundation. In other news, despite being a failure to mediocrity in managing various funds, Buffett's kid is in line to succeed him as head of Berkshire Hathaway. Sell! Same with Fox/News. Can you imagine Lachlan Murdoch running things?]

Mr. Blank said...

I don't doubt that there are more than a few hidden fortunes out there -- I've been around enough rich people to know that many of them are extremely publicity-shy. There are probably more than a handful of wealthy folks who manage to duck the Forbes 400. But I doubt there are enough to make that much of a difference in the long run.

Even if one avoided trophy purchases, there are too many uncontrollable variables to keep giant fortunes completely invisible. (Well, unless you're prepared to go Full Paranoid and keep all your wealth in gold bars buried in a nuclear-proof vault in your backyard or something.) If there were whole flocks of anonymous billionaires out there, you'd expect at least two or three of them to be "exposed" each year, through things like divorces and lawsuits -- not to mention the occasional reckless heir who goes off and blows half the family fortune the second Daddy croaks.

Anonymous said...

A classmate is a partner with one Houston-area billionaire. He notes that Forbes undercounts some of his equity holdings in tech, and they are grossly unaware of his hundreds of millions in art quietly purchased over the years. It wouldn't put him much higher on the list if they did know. I'd imagine that pretty much most of the 400 who have been on their for 20 years or more have some wealth that's impossible to assess. But it likely scales equitably across the group.

ATBOTL said...

I'm surprised how naive many here are being. Don't yall think a guy like Pickety knows stuff yall don't?

Forbes does not get to examine the jewel stashes inside the walls of Prague apartments.

Also, lots of heirs manage their own money well. These people are not morons.

Lots of the hidden fortunes are originally from patents BTW. High IQ genes abound in these families.

Anonymous said...

Piketty's thesis is that managed wealth grows at a rate faster than the economy as a whole, so if it is true one would expect that the wealthy from the 1950's still hold the commanding heights of the American economy. That's pretty clearly not true.


Yes and no. It's certainly possible that the wealth of 1950's rich person Joe Smith grew at a rate faster than the economy as a whole - and also that his wealth is now divided among a larger number of people than it was sixty years ago.

It might be worthwhile to compare the number of people on the current Forbes 400 who are related to one another to the number who were relatives on the list thirty years ago. If there are more people there today who are relatives it would suggest Piketty is correct.

Anonymous said...

There's a branch of the Rockefeller family in Brazil. They keep a very low profile. The matriarch rides the subway or bus, with no identifying marks or jewelry or fancy clothes. They do this because they want not to have to hire armies of bodyguards or be at risk for kidnapping, but for another reason too. They don't want to be in spotlight of the govt. for taxation.

Steve Sailer's somewhat socialist bent makes him overlook this problem. The very rich want to escape govt. taxation, which is very onerous. Since 1800's govts. have been determined to break up any great inter-generational wealth. Such wealth is a threat to govt. absolute power, and govts. won't allow it. So these old families have probably gotten very good at hiding how much money they have, and at keeping it in strange places. If I was very rich I would do the same thing.

They don't buy the Clippers but maybe they buy factories you've never heard of in Canton or Vietnam or Indonesia; maybe they own warehouses at Mombasa airport in the free trade zone where they keep crates of gold and platinum anonymously. Stranger things too. But they don't want to come out in the public eye and scrutiny by the West's demagogic politicians.

Anonymous said...

Piketty's theory--the rich get a safe 5% return on capital, which is above the rate of growth of GDP, and that this wealth is passed on to their heirs--should be directly testable. The Forbes 400 may or may not be a complete list of the wealthiest people in the world, but surely it's a reasonable sample of them. So what happened to the sample?

Do a longitudinal study of the members of the members of the original 1982 F400 list. This period is in the heart of the period Piketty claims the rich developed the techniques to become permanently ever more rich.

From Forbes in 2002, about the original 1982 list: "A dozen or so rich-listers later went bust, and a similar number ran seriously afoul of the law." That's a bankruptcy rate of about 3% over 20 years.

In 2012 there were 36 original members of the list still on it. (Deaths of the original members over 30 years figured into the low number.) The Forbes data on net worth then and now are here: http://www.forbes.com/sites/seankilachand/2012/09/20/the-forbes-400-hall-of-fame-36-members-of-our-debut-issue-still-in-ranks/

First column is name, second their original 1982 net worth, third is 1982 net worth adjusted to 2012 (CPI), fourth is the Forbes estimate of net worth in 2012, and the final is the ratio of 1982 to 2012 net worth (inflation adjusted).

Name Original Inflation Adj 2012 net worth
------ ------- ----------- -------------
Adams 152 361.6384 1150 3.18
Allen 100 237.92 2000 8.41
Anschutz 1000 2379.2 7600 3.19
Bass 1000 2379.2 1800 0.76
Bechtel 200 475.84 2900 6.09
Bren 350 832.72 13000 15.61
Buffet 250 594.8 46000 77.34
Chambers 500 1189.6 10700 8.99
DeVos 275 654.28 5100 7.79
Getty 1400 3330.88 2000 0.60
Hillman 500 1189.6 2200 1.85
Hunt 200 475.84 5200 1 0.93
Kerkorian 133 316.4336 2900 9.16
Knight 275 654.28 13100 20.02
C Koch 275 654.28 31000 47.38
D Koch 266 632.8672 31000 48.98
W Koch 266 632.8672 4000 6.32
R Lauder 125 297.4 3400 11.43
L Lauder 125 297.4 7700 25.89
Lucas 125 297.4 3300 11.10
McGovern 100 237.92 3900 16.39
Moore 1000 2379.2 4800 2.02
Murdock 125 297.4 2400 8.07
D Newhouse 400 951.68 6600 6.94
S Newhouse 600 1427.52 7400 5.18
Perot 325 773.24 3500 4.53
Redstone 100 237.92 4100 17.23
D Rockefeller 1000 2379.2 2700 1.13
Scaife 500 1189.6 1300 1.09
Smith 100 237.92 1800 7.57
Solow 100 237.92 3500 14.71
Stern 220 523.424 4200 8.02
Taubman 150 356.88 2900 8.13
Trump 100 237.92 3100 13.03
Turner 200 475.84 2000 4.20
Zuckerman 150 356.88 2400 6.72

On average these 36 had 12.5 times as much money as 1982 (10.65 ex-Buffett) which corresponds to a compound rate of return of about 8-9% per year. (assuming I haven't fat-fingered too many numbers, always a risk.) A 5% rate of return over 30 years would mean a ratio of about 4.3. About a third of the 36 got returns of less than 5%.

There are obvious selection bias issues here--we're looking at only the successful F400, and ignoring those that dropped off the list. The stdev of the ratio is a very high 15. This is ignoring intergenerational losses as well, if the objective is to look at inherited wealth (and Piketty is).

From January 1982 to January 2012 the S&P was up 1,158%. The best-performing (and longest-lived) group of the original F400 was, over 30 years, about matching the market returns.

I think Piketty's "5% safe return" number is pretty implausible.

Anonymous said...

Another thing, a lof the "new money" is fake. They have assets on paper but no real assets. Real assets are first of all land, then gold and other precious metals, and so on. Eike Batista was one of the world's richest men until all his wealth evaporated a year ago. A lot of people in the dot com bubble thought they were rich, but they weren't. Zuckerface and Google guys are rich at the discretion of USgov.

jody said...

i also disagree that there are lots and lots of undisovered old money billionaires. maybe a few here, a few there, definitely not dozens and dozens. nothing that would put the forbes 400 totally out of whack. it's more likely there are unknown new money billionaires who have only had it for a decade or so. and eventually they get found out. a few years ago i pointed out that forbes was missing gabe newell, and last year, he finally showed up in the forbes numbers.

"There is a good argument that the bottom 20% or so of American society should have their income supplemented"

there is no good argument for this. although that might be what we end up getting thanks to liberals, who are clearly insane. some of them want to pay all citizens a living wage by virtue of being born. in their world, you'd automatically get a check for 30 grand a year, every year, for breathing.

the bottom 20% is already getting close to being 100% subsidized anyway, even today. they pay no federal income tax and are actually net recipients thanks to EITC. not accounting for all the other free money they get from the central government by way of various other programs. record EBT, record WIC, record disability, and proper welfare, in the specific usage of the word, not the general usage, is on it's way back from it's 90s lows, thanks to the obama administration, which lifted the requirement that you be actively looking for a job in order to recieve it. the workfare era of the 90s republicans has ended. for the most part, the only taxes they pay are consumption taxes on their gasoline, cigarettes, and beer.

jody said...

"analysts at Albert Fried believe the Knicks are "intrinsically" worth 40% to 50% more than the Clippers."

so it seems that my initial question has been answered. if you buy a 1995 honda accord for 100 grand, that makes all other 1995 honda accords more valuable, rather than just making you the owner of a 5 grand car you overpaid by 95 grand for.

"Managed wealth goes DOWN not Up, the exact opposite of Piketty's idiot theories."

how is gates absolutely smashing it then? knocking it out of the park in the most vulgar display of wealth generation in the history of the world? up to 80 billion now. he was at 60 billion just a few years ago. and this is WITH him giving away a couple billion a year. i acknowledge federal reserve QE is a component of this but still.

if this keeps up, he will be able to buy a controlling interest in any company. he will be able to buy entire sports leagues.

Anonymous said...

Piketty's thesis is that managed wealth grows at a rate faster than the economy as a whole, so if it is true one would expect that the wealthy from the 1950's still hold the commanding heights of the American economy. That's pretty clearly not true. There isn't that much missing mass.

In fairness to Piketty, I believe he says the 1930s through the 1970s were exceptional, and now we're back to the historical norm.

Anonymous said...

how is gates absolutely smashing it then? knocking it out of the park in the most vulgar display of wealth generation in the history of the world?

John D. Rockefeller made a lot more money than Bill Gates, adjusted for inflation.

Mark Plus said...

>John D. Rockefeller made a lot more money than Bill Gates, adjusted for inflation.

These kinds of comparisons mean less than they used to. The ancient Roman equivalent of millionaires probably enjoyed living standards similar to Renaissance Medicis', for example.

But then the 20th Century happened. We have all kinds of goods and services on the market today, affordable to ordinary people, that didn't even exist as ideas in John D. Rockefeller's time. That Rockefeller couldn't have bought, say, modern dental care during his life for any amount of money.

BTW, until fairly recent times, only unusually hardy people could live to their 80's and 90's like Mr. Rockefeller. Now a whole lot of weaker individuals can last that long as well, but in generally worse shape like my father because they probably started out with smaller reserves of biologically redundant components in their bodies (e.g., stem cells, nephrons, Islets of Langerhans, etc.) to draw down on as they aged.

Jan Rogozinski said...

You are missing the point that the relatively older rich don't want to be notorious by buying sports teams. Trillions of dollars possessed by Americans are not in America. The Tax collectors are trying to get at some of this, and recently came to an agreement of sorts with the Swiss. But until now, it has been easy to keep one's fortune in tax havens.

Obviously, if one has one's billions in a non-taxed account, then one's heirs will leave it in that non-taxed account.

Jan Rogozinski said...

The older rich don't want to be notorious, so they don't buy sports teams. Trillions of dollars are held overseas. The US is trying to get at some of that money with varying success. But its not easy to do. Piquetty obviously is correct that the top 0.1% now own the rest of us. All one has to do is to subscribe to the Financial Times, which is written for the very rich, and read the ads in their magazine "How to spend it." The difficulty in "proving" it is following the trail of the very rich, given their hidden wealth to avoid taxes.

Anonymous said...

but in generally worse shape like my father because they probably started out with smaller reserves of biologically redundant components in their bodies (e.g., stem cells, nephrons, Islets of Langerhans, etc.) to draw down on as they aged.

There are a good many other non-renewable or slowly-renewable body resources that come to a shortage in old age:

Hair cells. Not the hair on your head, but in your inner ear. Hearing is a destructive process, and hair cells, like nearly all neurons, do not renew themselves. Nature only gave us enough to last a fairly short "natural" (low noise) lifetime.

Cerebellar P-cells. These are a very special type of heavily-connected brain cell, that because of their large size and surface area, are vulnerable to damage (mechanical, chemical, thermal). Non-renewable P-cells control motor coordination and timing. Think about that next time you see oldsters driving under the speed limit.

Anonymous said...


I know people who have over a billion worth of art alone who are not known as billionaires to Forbes or whoever.



This is absolute nonsense. You're vastly overestimating how much their crappy art is worth. I've known several people who claim to be billionaire. The actual average net worth of these people? About $10 million. Money is like IQ. People lie by a mile.

If anything Forbes has OVERESTIMATED the number of billionaires.

Anonymous said...

Rich people are more likely to have hidden debt than hidden assets.

reiner Tor said...

Stiviano was also "racist", b/c she noticed something:

http://www.tmz.com/videos/0_0af9iv30

Anonymous said...

"I know people who have over a billion worth of art alone who are not known as billionaires to Forbes or whoever."

ROTFL. I know bullshit when I read it.

Anonymous said...

Krugman has said in his review of Piketty that in the US income inequality is the real issue rather than wealth inequality. At some point the income inequality will likely turn into some sort of greater wealth inequality, but it has not happened yet.

Anonymous said...

My gut feeling is there aren't many billionaires flying under the radar but I suspect that amongst the millionaires there are plenty of people hiding millionaire class wealth? Like a I said, just a gut feeling.

Anonymous said...

Perhaps, but dumb people having been throwing away their money on sports franchises ever since Donald Sterling bought the San Diego Clippers for 1/160th of what he sold them for.

Anonymous said...

"Rich people are more likely to have hidden debt than hidden assets."

The Reichmann's sure did. They were estimated to be worth $10-20 billion back in the early 90s, when that was still a lot of money. Their empire collapsed spectacularly during the real collapse, and they were discovered to have an empire of debt.

Anonymous said...

"[Bill Gates] was at 60 billion just a few years ago. and this is WITH him giving away a couple billion a year."

Bill Gates does not give away billions a year - his foundation does. Legally his foundation is obligated to spend 5% of its assets each year, or about $2 billion. The ~$35 billion in the Gates Foundation was discounted from his net worth long ago.