
How the .0001% Made Its Money - ruswick
http://priceonomics.com/how-the-0001-made-its-money/
======
firstOrder
The first paragraph says: > The popular view of America's upper class is that
of an ossified aristocracy. But research from the National Bureau of Economic
Research shakes up this view, at least among America's richest individuals.

Not much has shaken up this view. Half of the list inherited $400 million or
more upon turning 18. Even the other half of the list are from among a small
percentage of America's upper middle class.

#1 Bill Gates. Father a wealthy lawyer. His grandfather was a national bank
president. He went to an elite private grammar school, which had teletypes and
computer timesharing back in the 1960s. His mother was on the board of United
Way with the CEO of IBM - a helpful thing for a son who became a billionaire
by riding IBM's coattails. Despite all of this, he is still on the
bootstrapped, self-made side of the F400 list. He is not one of the heirs.

Next is Warren Buffett. His father was a congressman. His grandfather owned a
string of stores. And so on.

The rest of the top ten are the Waltons, who inherited Wal-Mart on birth, the
Koch brothers, who inherited an oil company on birth, plus Larry Ellison and
Michael Bloomberg. Ellison and Bloomberg are the only middle class people on
the list.

I do think there are new trends happening at this level, but they don't point
to what the blog post authors are pointing to.

~~~
adventured
Bill Gates shouldn't be listed as someone who inherited his wealth: he did not
inherit it.

The $100 billion he'll give away was of his own creation, spurred from effort
of his own mind, from a company born of his own fingers and imagination.

We're having this conversation thanks to the Internet, probably via relatively
inexpensive tools/gadgets. Which means we've all inherited an extraordinary
privilege - courtesy of the immense efforts of countless others and countless
invested wealth - that I would argue is drastically beyond anything Gates had
the benefit of despite his family. What have you done with it? (rhetorical)

The privilege we're all enjoying right now - all of this easily accessible,
relatively cheap, amazing technology - is beyond anything being born to a
successful Seattle lawyer is worth. Why aren't we all millionaires N times
over? If you understand that point, then you understand why Gates deserves
credit for his wealth.

His mother didn't make the deal with IBM (in fact Ballmer was arguably most
instrumental in the nuanced legal structure that gave Microsoft its position),
and his mother didn't execute and build software for 30 years against
tremendous odds and competition either. Is your theory that Bill Gates should
be penalized for being born into a family and situation that was not of his
own choosing? Such that you pretend his wealth wasn't of his own creation and
is null and void, because his father was a lawyer (remind me again what making
$100k a year as a lawyer in 1970 has to do with your son generating a $100
billion fortune in 2000, seems to me there are a lot of extraordinary steps
required to get from one to the other no matter how good your first step is,
whether you're Steve Jobs or Bill Gates).

There are 9 million millionaires in the US currently, and this country has
been rich for a long time now. Why aren't we drowning in Bill Gates clones?
The answer is obvious.

Any idea how many successful lawyer sons didn't generate $100 billion in
wealth the last 40 years? All of them but one. Gates is one in a million even
by that narrow-down.

I'd counter argue that Buffett would have been successful regardless of his
father being a Congressman (it's absurd to think that a one term trip to DC is
what made Buffett what he is). Indeed, using Buffett as an example is the
absolute worst thing you could do: the market doesn't care if your daddy was a
Congressman, it was his massive results that spoke volumes, got people to
invest with him over time, and made him rich. Some of his shareholders held
for decades. It was his understanding of how to make money, and his ability to
sell that vision, that scored his first investments. Even doctors don't like
to lose $100k to some idiot kid, no matter who their father is (his father
wasn't that important, and his grandfather's stores weren't that wildly
successful).

Or did you think people were buying Berkshire at $100 because his daddy was a
a borderline irrelevant Congressman for one term?

~~~
dustinrodrigues
It's not that he inherited his wealth, it's that he grew up in a privileged
environment that gave him opportunities most other people didn't have.

~~~
adventured
Are you suggesting his privilege wrote his software for him? Much less had the
vision to start a software company in the 1970s - which his parents thought
was a bad idea. They did not like the idea of him dropping out, he did it
anyway.

Paul Allen didn't come from any kind of privilege. So is the theory that he
should be robbed of his amazing success and effort also, by association with
Gates' association with his father and his father's association with Gates'
grandfather? He did go to the same school as Gates after all.

~~~
vidarh
Many people wrote software in the 1970s and started software companies in the
1970s.

He is not suggesting his privilege wrote Gates software for him, but that
privilege gave Gates a substantial advantage over the large number of other
people writing software and starting software companies at the same time.

His privilege is unlikely to have been a sufficient condition to explain his
success, but it is also entirely unrealistic to assume that his privileged
background did not provide him with a number of benefits, down to even basic
stuff like growing up in an environment where success and ambition is expected
and normal.

~~~
gbhn
Something I think often is left out of success accounting is an advantage
almost everyone born in a large, well-functioning society enjoys: access to a
large, well-functioning society.

If the civilization into which Bill Gates sold software were 1/10th the size,
it would have generated 1/10th the value with almost the identical amount of
work on his part. There's an enormous lift given to fortunes just by the fact
that they are built in the context of a civilization which is large enough to
support them.

None of that is to say that either specific inherited status or personal hard
work aren't huge contributors to success as well, but it takes an enormous
amount of work and attention to make sure that a large, well-functioning
civilization remains large and well-functioning, and that's an oft-neglected
factor in how big these large fortunes become.

------
programminggeek
> The economic story of the past decades is supposed to be the death of the
> American Dream. Income inequality has risen, the wealth of the middle class
> stagnated, and stories of the poor working their way to prosperity became
> just stories.

I think the article doesn't really do a good job to change that view. The
inequality has risen and the wealth of the middle class has stagnated. This is
absolutely true.

Things like raises are no longer the norm, bonuses in many jobs have
disappeared, prices and debt have risen much faster than the rise in income.
At the same time, wealthy people continue to grow their wealth.

The fact the top 0.0001% gained their wealth not by inheriting it doesn't
change what is happening to the poor, middle class, etc. as a result.

~~~
Samuel_Michon
> The top 0.0001% gained their wealth not by inheriting it

How did you come to that conclusion? I looked for that in the figures, but I
couldn’t find what percentage came into money from an inheritance. Perhaps
it’s placed in the 12% ‘Diversified/Other’ category, but the impression I got
from the article was that they tallied how the money was earned in the first
place, not where the ones holding the purse got it from.

I believe your interpretation of the article in this aspect is incorrect. For
instance, 4 of the top 10 spots are taken up by members of the Walton family.
Those people inherited their wealth from Bud and Sam Walton, the founders of
Wal*Mart.

[http://en.wikipedia.org/wiki/Walton_family](http://en.wikipedia.org/wiki/Walton_family)

~~~
alnis
From the article:

> Kaplan and Rauh find that America’s wealthiest are no longer a collection of
> Rockefellers and Carnegies. During the period the researchers investigated,
> the number of individuals on the Forbes 400 who were the first in their
> family to run a business rose from 40% to 69%. Sixty percent of individuals
> on the list grew up wealthy in 1982 while only 32% did in 2011.

> Although being born into wealth is less and less necessary for admission to
> the club of America’s wealthiest individuals, ...

~~~
Samuel_Michon
Thanks for your input, but the comment I was responding to was:

> The top 0.0001% gained their wealth not by inheriting it

Your contribution does not cover that.

~~~
thwarted
That's the assertion from the priceonomics.com article, covered by the
paragraphs from the article quoted by alnis.

------
sigil
It's also hard to stay on top, and it gets harder the closer you are: the
turnover of individuals in these extreme upper brackets is high [0].

 _The composition of the very top income groups changed dramatically over
time. Less than half (39% or 42% depending on the measure) of those in the top
1% in 1996 were still in the top 1% in 2005. Less than one-fourth of the
individuals in the top 1 /100th percent in 1996 remained in that group in
2005._

[0]
[http://ntj.tax.org/wwtax/ntjrec.nsf/F95C00D9840D35F2852575F4...](http://ntj.tax.org/wwtax/ntjrec.nsf/F95C00D9840D35F2852575F40047B159/$FILE/Article%2005-Auten\(F\).pdf)

~~~
humanrebar
Year-to-year income of the top 1% is probably a poor measure of "staying on
top".

I would like to see those numbers controlled for wealth. Some of those people
whose _incomes_ move in and out of the top 1% are just in boom-or-bust jobs or
own boom-or-bust businesses or investments. Others are big earners who
recently retired to extremely comfortable fixed incomes.

Neither category really fits what I would think of as someone losing his or
her "on top" status.

On the other hand, moving from a high-income high cost-of-living area (SF or
NYC) to a lower-income, low cost-of-living area (Boulder, KC, or Charlotte)
will technically move you out of the 1% while _improving_ your standard of
living.

------
Florin_Andrei
> _The popular view of America 's upper class is that of an ossified
> aristocracy. But research from the National Bureau of Economic Research
> shakes up this view, at least among America's richest individuals._

> _The individuals of the Forbes 400 List are the wealthiest people in America
> - the top .0001%_

Am I the only one who sees the contradiction? On one hand, they say things are
not that bad. But then they turn around and start talking about the 0.0001%.

In other words, it's not too bad - if you're one of those 1 in 1 million.

~~~
pg
They're talking about these people's origins, not their current wealth.

~~~
Florin_Andrei
Let me emphasize it again - perhaps by sheer repetition, the main point will
become obvious:

It's not something relevant to the general population, the middle class in
general, or the concept of social mobility, IF IT ONLY APPLIES TO 1 PERSON IN
1 MILLION.

~~~
pg
Please don't use uppercase for emphasis.

[http://ycombinator.com/newsguidelines.html](http://ycombinator.com/newsguidelines.html)

(It's especially unnecessary when replying to someone who already understands
the point you're making.)

------
sgloutnikov
Personally, the "Finance" growth part of the graph over the years worries me.
Creating wealth from thin air and lobbying :|

~~~
gcb1
like putting a fence on some land?

like having rights to some nation natural resources (energy on the graph if
not clear)

all wealth is created out of thin air for the 1%. they just adapt every time
the not 1% comes closer to their turf.

~~~
NhanH
I might well be very wrong here, but the main difference is that the other
type of wealth-creation process actually creates more wealth (more products
for everyone). While finance seems more like wealth-accumulation without the
creation process - I'm aware that redistribution of resource in an efficient
way is supposedly the part finance does in the wealth creation process, I'm
just unconvinced of how much does that help, in relation with the return the
finance sector on average get.

~~~
seferphier
I agree.

Finance created lots of value for the British Empire when they were colonizing
countries - where they could raise money to buy navy ships and soldiers.

Finance does create value in the long run. However, it creates minimal value
in the short run. Debt being traded in the short run is a zero sum game which
does not create any value for the society. Considering that we allocate the
best and the brightest people in finance, I would consider it creates negative
value to society.

~~~
count
Aside from the VC's in the valley, what business in America runs without using
debt in the short term today? Finance enables the day to day operations of the
entire economy - I'd say it creates a ton of new wealth, in _every segment_.

~~~
NhanH
This is kind of a circular argument, business runs with debt in the short term
nowadays because our current system is being set up this way. It doesn't mean
with some other settings, debt is an absolutely necessary (it also doesn't
mean that the "other setting" won't be just Finance 2.0, however).

~~~
count
Finance is a circular argument, due to the nature of finance (see what I did
there?).

It's fiat currency and fractional reserve banking - the initial bootstrapping
of the system is a giant 'just trust us' and 'go with it' moment for society.
Debt is easiest way to grow an economy, as loaning money helps create new
wealth. It allows banks to turn $5 actual dollars into $15 actual dollars,
without having to take $10 actual dollars from anybody. It's magic, but it
only works when people trust the system to not disappear/default, and _borrow
money_. Without debt, there is no growth of the overall economy, there is only
shifting of reserves from point a to point b.

~~~
NhanH
To make my point clearer, if we have a one world communist government, and the
government can dictate exactly which resource goes where and which human does
what, we probably wouldn't need debt for economic growth, right? (And to avoid
any confusion, no I'm not advocating for anything like that, not even within a
hundred mile close).

And in any case, I'm not saying that finance is absolutely useless, I'm just
saying that the focus on finance (and the return they get) _might_ be too much
for our society/ market nowadays. Thinks of it similar to the manager and
developer situation, you need product manager to make a bunch of developers to
work together, but if you have a 10:1 ratio of managers/developers, then you
probably can use a few more developers.

------
anovikov
You somehow forget that less than 20% of Americans live, or are born into
poverty. With 20% of Forbes list having poverty background, this kind of,
means that if you are poor in childhood, you have higher chances to get to
Forbes list than if you are middle (well, really middle) class. Hard to
explain.

Maybe because poor have nothing to lose so they are more prone to risky things
that stand at the root of their business? Or reverse, they have medicaid so
can afford more risk being less dependent on employers paying for their health
insurance?

~~~
anovikov
I think i understood why is this. Middle class kids are usually taught by
their parents to obey the rules, learn and work hard and be loyal. Which is a
way to keep in the middle class but hardly a way get to upper class. Most poor
kids are probably not taught by their parents anything because parents are
busy drinking and smoking pot, except the very valuable teaching of not
trusting anyone at all.

------
yodsanklai
"America’s .0001% is becoming more meritocratic"

They make it sounds it should be comforting somehow. But I don't think it
makes any difference. Does it matter whether they won the lottery, inherited,
or "earned" their money? the fact is that very few people own much of the
wealth.

------
CoachRufus87
Why doesn't 'VC' fall under 'Finance'?

~~~
aspir
It could be argued that VC involves the building of technology businesses,
rather than simply investing in a hands off manner. It's a fine line, but the
famous VCs that come to my mind (Doerr, Andreessen) help mentor and grow a
company, and similar financiers (Buffett, Soros) are more industry analysts
and money managers. It's a gross simplification, but it may be what they were
thinking.

~~~
yummyfajitas
You could make the same argument about a lot of private equity - that tends to
involve the restructuring/managing of various brick&mortar.

------
loceng
That doesn't say where they made their money - it shows where their money
went, meaning where the highest profits were possible. Of course you can
recycle those profits into those high-profit systems. Important distinction to
make if you're wanting to understand these systems.

------
dxbydt
Needs a lot more granularity - in particular, the "Finance" bar needs its own
bar graph ie. what exactly does making money in Finance entail - working for a
retail/commercial bank ? IB ? Prime Brokerage ? Wealth Management ? Equities ?
Derivatives ? FX ? Algorithmic Trading ? Mutual funds ? StatArb ? LBO ? ...

~~~
alexmayyasi
The original paper breaks down finance between 3-4 categories. (If you google
the title you can find free pdfs.)

We combined them to make it more clear for the casual reader.

~priceonomicist

------
Yhippa
> the rising share of the Forbes 400 List accounted for by technology and
> finance supports theories that explain America’s rising income inequality by
> how technology has favored the accumulation of wealth and made certain
> sectors more scaleable. Tech moguls like Mark Zuckerberg and Sergey Brin
> account for a rising share of new fortunes.

Reading that reminded me of this:
[http://www.theonion.com/articles/economists-advise-
nations-p...](http://www.theonion.com/articles/economists-advise-nations-poor-
to-invent-the-next,33573/)

------
balsam
My favorite use of extreme statistics to justify the superiority of one
culture over another is Nobel Prizes per capita. #sarcasm

[http://en.wikipedia.org/wiki/List_of_countries_by_Nobel_laur...](http://en.wikipedia.org/wiki/List_of_countries_by_Nobel_laureates_per_capita)

------
mmagin
It's kind of alarming how in recent years, "Finance" pulled ahead of "Tech &
VC", according to the second graph. But there's one line on the graph that's
missing from the legend. Sloppy.

~~~
jfoutz
Blue, retail; orange, real estate; yellow,finance; green, energy; purple,
tech. I only count five lines.

------
scotty79
Surest way is real estate. Just buy real estate and rent it. Repeat over 3 or
4 generations. Congratulations. You created a rich family. All other ways
involve luck.

~~~
cylinder
What you're saying is "The surest way to get rich is to be rich."

Real estate is just a way to invest money you already have. It doesn't
generate wealth unless you have access to capital and can put deals together
to develop properties and take a chunk. But that might as well put you in the
"Finance" category.

~~~
scotty79
You can build real estate gradually, starting with one, two, three apartments
paid for with your job and rent your tenants pay. At some point, pretty early
you could stop working but if you don't you can buy additional apartments
faster. During first generation, I think, you could buy around 10 if you have
a good job. Your children will be able buy faster, their grandchildren even
faster.

~~~
erichocean
A friend of mine from college had parents that started from scratch and bought
and rented ~1200 homes in Indiana during their working years. So, it can be
done.

------
Sagat
I wonder when we will have the first dollar trillionaire. (Rockefeller doesn't
count) It's likely that some people will own entire planets in the future.

~~~
arca_vorago
I remember a documentary by a wealthy persons son who interviewed one of the
founders of Kinkos who makes a comment something along the lines of wanting to
look down on Earth from the Moon someday and being able to say, "I own (part?)
of that."

------
pc86
> _America’s .0001% is becoming more meritocratic, but the means of a middle
> class background remain a necessary launching board._

Doesn't this directly contradict the preceding statement that those "born into
poverty stayed level at 20%?" Maybe I'm being too pedantic with my
interpretation of "necessary" but 20% seems a sizable chunk.

------
holograham
I am curious on this articles definition of poverty. The statement that 20% of
the forbes 400 was born in poverty is insufficient on it's own. More telling
would be that percentage compared to the percentage of poor in America. That
number could be very favorable (or very unfavorable) depending on the metric
for poverty used.

------
joeldidit
The 0.0001% made their money from oil, tech, and the stock market. Simple. If
you want to make that kinda money these days, then you have to get into the
tech industry.

------
ffrryuu
Off the rest of us.

~~~
AsymetricCom
No, no. "Finance"

~~~
ffrryuu
They print the money, we get the left overs! Trickle down!

------
brianbreslin
I would love to see this article applied to the .0000001% who control 35% of
Russia's wealth got their money. ;-)

------
anovikov
I wonder how are things going in U.K. in this respect? Their upper class must
be mostly still with roots from 1066AD?

------
adsr
Is 0.0001% really that useful for drawing any conclusions at all. I mean it's
one in a million.

------
Shivetya
the good take-a-way is that more people created than inherited

~~~
werner34
Exactly my opinion. And even though I normally lean towards free market
related views when it comes to regulation and government, I think a high
inheritance tax would be justified in western countries. With it universities
& infrastructure could be funded and possibly enable more people to get a
university degree.

My underlying reasoning: Every new generation is a giant possiblity for
mankind. Now who do we want to command the most resources? If we had kings, it
would be the kings heir, no matter if he is clever or not. Thats bad
obviously. If we have capitalism without a high inheritance tax, we might have
people like Paris Hilton commanding massive fortunes even though some poor
kids might have done a lot better with it if they had a chance of acquiring
wealth in the first place.

By having a high inheritance tax one would avoid unbelievable fortunes being
handed down to people that are not qualified at all.

Another aspect is obviously that the state needs to motivate people to work
better than their peers. If - like in communism - it doesn't matter anymore if
I work harder than my peers, so I don't work hard. Assuming that most people
work for personal gain, wealth, and so that they children have it better than
themselves, you need to leave them their wealth during their lifetime and
enable them to hand down some part of their income to their kids, and not give
all back to the public. If they would have to give everything to the public,
the really bright people might stop working at 35 when they accumulated enough
wealth for themselves, knowing their children won't benefit from it anyways.

Good article.

~~~
icebraining
Though I'm attracted to the idea, inheritance tax was always a concept that I
see (probably due to ignorance) as extremely vulnerable to "an extra layer of
indirection". _You see, I 'm not actually transferring the company to my son,
I'm transferring it to a trust in Switzerland that is controlled by my
daughter-in-law._

~~~
werner34
Well, true, somebody that wants to game the system will find a way.

However, you could still say that everything up to 20 Million* has a lower tax
on it and you can give that to your kids in legal ways. I think Warren Buffett
and Bill Gates want to give most of their wealth away with a similar reasoning
anyways.

That amount of money is still enough to buy a Ferrari and never work again
while taking loads of drugs in Monaco every day.

The extra layer of indirection might be enough to guide people in the right
direction. I am not sure many people would bet their fortune on their
son/daughter in law being good to their kids indefinitely. That would probably
provoke some very annoying lawsuits between your kids and their spouses sooner
or later.

*= With some correction for inflation over the years, but lets say 20 Million of todays Dollars for example.

