How Many Billionaires Are There, Anyway?

In his book “Ages of American Capitalism,” the University of Chicago historian Jonathan Levy describes the era of capitalism we live in as the Age of Chaos: a time in which capital has become more footloose, liquid and volatile, constantly flowing into and out of booms and busts, in contrast to the staid order — and widely shared prosperity — that characterized the industrial postwar economy. Levy begins the story in 1981, the same year Forbes thought of his list. That was the year the Federal Reserve, under its chairman, Paul Volcker, raised interest rates to 20 percent with the goal of ending inflation. Volcker’s Fed succeeded at that, but the decision, Levy notes, had far-reaching consequences besides, accelerating America’s transition away from the production of goods to a form of capitalism never seen before. The dollar skyrocketed in value, making American exports even less attractive and imports even cheaper; many factories that remained profitable were closed, because compared with the incredible returns money could earn in such a high-rate environment, they simply weren’t profitable enough. When the Fed began to loosen its grip, the widely available credit unleashed a speculative bonanza, which benefited a newly empowered corporate class that felt little obligation to the work force and profound obligations to shareholders.

Typically the economy expands when investments are made in productivity, but this expansion was different: It was, Levy writes, “the only one on record, before or since, in which fixed investment as a share of G.D.P. declined.” In other words, our industrialists were investing less in productive stuff — ships, factories, trucks — while making more money doing so. In fact, they were often tearing that stuff up and shipping it abroad; this was the age of the corporate raiders, who would book enormous profits while putting Americans out of work. You can see this, in crude terms, as the birth of the Wall Street-Main Street divide: a severing of the finance industry from the “real” economy.

This shift to a highly financialized, postindustrial economy was helped along by the Reagan administration, which deregulated banking, cut the top income tax rate to 28 percent from 70 percent and took aim at organized labor — a political scapegoat for the sluggish, inflationary economy of the ’70s. Computer technology and the rise of the developing world would amplify and accelerate all these trends, turning the United States into a sort of frontal cortex for the globalizing economy. Just as important, the tech revolution created new ways for entrepreneurs to amass enormous fortunes: Software is by no means cheap to develop, but it requires fewer workers and less fixed investment, and can be reproduced and shipped around the world instantaneously and at practically no cost. Consider that the powerhouse of 20th-century capitalism, Ford Motors, now employs about 183,000 people and has a market capitalization close to $68 billion; Google employs about 156,000 people and has a market cap of around $1.8 trillion. This new economy would be run by, and for, knowledge workers, who would reap most of the gains, and therefore have more money to spend on services — a sector that would come to sort of, but never fully, replace the manufacturing this transformation did away with.

“During the Reagan years,” Levy writes, “something new and distinctive emerged that has persisted down to this day: a capitalism dominated by asset price appreciation.” That is, an economy in which the rising price of assets — stocks, bonds, real estate — would be, somewhat counterintuitively, a fuel for economic growth. It has been a good time, in other words, to own a lot of assets. And owning assets is mostly what billionaires do.

In his book “Capital in the Twenty-First Century,” the French economist Thomas Piketty notes that the new economic order has made it difficult for the superrich not to get richer: “Past a certain threshold,” he writes, “all large fortunes, whether inherited or entrepreneurial in origin, grow at extremely high rates, regardless of whether the owner of the fortune works or not.” He uses the examples of Bill Gates and Liliane Bettencourt, the heiress to the L’Oréal fortune. Bettencourt “never worked a day in her life,” Piketty writes, but her fortune and Gates’s each grew by an annual rate of about 13 percent from 1990 to 2010. “Once a fortune is established, the capital grows according to a dynamic of its own,” Piketty notes, adding that bigger fortunes tend to grow faster — no matter how extravagant, their owners’ living expenses are still such a small proportion of the returns that even more is left over for reinvestment.

Piketty was writing in 2013, while the economy was still recovering from the financial crisis of 2008. That recovery was buoyed by several years of near-zero interest rates, kept there by the Fed on the theory that, with credit widely available, the economy would regain its health. But low interest rates do two things: They push investors into riskier territory seeking better returns (and ideally creating jobs in the process); and they inflate the value of assets. Private equity and venture capital benefited greatly from this low-rate environment, helping both Silicon Valley and the financial engineers of Wall Street clean up once more. Even in less-dynamic sectors of the economy, the cheap money enabled an explosion in stock buybacks, some $6.3 trillion worth during the 2010s, or about 4 percent of our G.D.P. over the same period — more than we currently spend on defense. This, too, made asset owners richer.