How Many Billionaires Are There, Anyway?

In his book “Ages of American Capitalism,” University of Chicago historian Jonathan Levy describes the age of capitalism we live in as the Age of Chaos: a time when capital has become freer, more liquid, and more volatile. , constantly dipping in and out of booms and busts, in contrast to the sober order—and widely shared prosperity—that characterized the postwar industrial economy. Levy begins the story in 1981, the same year Forbes thought of listing him. That was the year that the Federal Reserve, under the direction of its chairman, Paul Volcker, raised interest rates to 20 percent with the goal of stamping out inflation. Volcker’s Fed was successful in that, but the decision, Levy notes, also had far-reaching consequences, accelerating America’s transition from producing goods to a form of capitalism never seen before. The value of the dollar soared, making US exports even less attractive and imports even cheaper; many factories that were still profitable were closed because, compared to the incredible returns that money could earn in such a high-rate environment, they simply weren’t profitable enough. As the Fed began to loosen its grip, widely available credit unleashed a speculative bonanza, benefiting a newly empowered business class that felt little obligation to the workforce and deep obligation to shareholders.

Typically, the economy expands when investing 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 percentage of GDP declined.” In other words, our industrialists were investing less in productive activities. stuff —ships, factories, trucks—while making more money doing it. In fact, they often broke those things and shipped them abroad; this was the age of corporate raiders, who would make huge 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 separation of the financial industry from the “real” economy.

This shift to a highly financialized post-industrial economy was aided by the Reagan administration, which deregulated banking, lowered the top income tax rate from 70% to 28%, and targeted organized labor, a political scapegoat for the sluggish inflationary economy. The 1970s Computer technology and the rise of the developing world would amplify and accelerate all of these trends, turning the United States into a kind of frontal cortex for the globalizing economy. Just as important, the technological revolution created new ways for entrepreneurs to amass huge fortunes: software isn’t cheap to develop, but it requires fewer workers and less fixed investment, and it can be replicated and shipped around the world instantly and at virtually no cost. . cost. Consider that the powerhouse of 20th-century capitalism, Ford Motors, now employs some 183,000 people and has a market capitalization of close to $68 billion; Google employs around 156,000 people and has a market capitalization of around $1.8 trillions. This new economy would be run by and for knowledge workers, who would get most of the profits and thus have more money to spend on services, a sector that would come to replace, though never completely, manufacturing in this transformation. . finished with

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

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