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?