Home > Uncategorized > The gilded age: a tale of today*

The gilded age: a tale of today*

from David Ruccio

billionaires

The timing could not have been better, at least for me. It just so happens I’m teaching Thorsten Veblen’s Theory of the Leisure Class this week. It should become quickly obvious to students that, as I have argued before on this blog, we’re now in the midst of a Second Gilded Age.  

This is confirmed in a new report by UBS/PwC, according to which, after a brief pause in 2015, the expansion in billionaire wealth around the world has resumed.

Thus, billionaire wealth rose 17 percent in 2016 (up from $5.1 trillion to $6 trillion), far more than the 5.8-percent nominal GDP growth figure and double the rate of the MSCI AC World Index.** There was also a 10-percent rise in the number of billionaires globally to 1,542. Despite a period of heightened geopolitical uncertainty, the world’s ultrawealthy are flourishing.

The United States still has the world’s largest concentration of billionaire wealth. It grew by 15 percent from $2.4 trillion to $2.8 trillion as billionaires prospered, far outstripping the MSCI AC World Index. Thirty-nine Americans entered the billion-dollar plus wealth band and 14 dropped off.

asian

Europe’s billionaire population was static in 2016. Twenty-four entered this wealth band, while 21 dropped off.*** There were 342 European billionaires at the end of 2016.

The biggest jump occurred in Asia. Three quarters of the newly minted billionaires are from the region’s two biggest economies—China and India. China had by far the highest number, adding a net 67 to total 318. India’s billionaire population climbed 16 to 100. Taken together, the wealth of Asian billionaires grew by almost a third (31 percent) in 2016, up from $1.5 trillion to $2 trillion.

So, what do the world’s billionaires do with their vast wealth? Most of it is used to capture even more income and wealth. Thus, the 1,542 billionaires in the UBS/PwC database own or partly own companies that directly employ at least 27.7 million people worldwide—roughly the same as the UK’s working population. And, via an array of financial instruments and “club deals,” they manage to siphon off a large part of the surplus created by the rest of the global working-class.****

sports

Apparently, the world’s billionaires are also becoming major patrons of sports, such as football (both global and American), hockey, baseball, and basketball. According to the report, more than 140 of the top sports clubs globally are owned by just 109 billionaires.*****

One European entrepreneur explains why he owns a sports club in the following way. “Sport is my life and my dearest hobby,” he says. “Further, the publicity you get from the broadcasting is global. The business works according to the theme ‘you win on Sunday and sell on Monday.’ People always identify themselves with winners. A er all, I not only sponsor, whatever I do in this eld must be sustainable and needs to make commercial sense.”

It should come as no surprise that Veblen held a quite different view:

Addiction to athletic sports, not only in the way of direct participation, but also in the way of sentiment and moral support, is, in a more or less pronounced degree, a characteristic of the leisure class; and it is a trait which that class shares with the lower-class delinquents, and with such atavistic elements throughout the body of the community as are endowed with a dominant predaceous trend.

Clearly, the Gilded Age today shares with its historical predecessor a “dominant predaceous trend” that enables the world’s billionaires to accumulate more and more wealth and leaves the rest of us behind.

 

*The title of this post is from the collection of short stories by Mark Twain and Charles Dudley Warner, published in 1873. Apparently, the name chosen by Twain and Warner was inspired by William Shakespeare’s The Life and Death of King John (Act 4, Scene 2):

Therefore, to be possess’d with double pomp,
To guard a title that was rich before,
To gild refined gold, to paint the lily,
To throw a perfume on the violet,
To smooth the ice, or add another hue
Unto the rainbow, or with taper-light
To seek the beauteous eye of heaven to garnish,
Is wasteful and ridiculous excess.

**The MSCI AC World Index is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets.

***Germany, Europe’s largest economy, also has the most billionaires, at 117. The United Kingdom comes a distant second, at 55, followed by Italy (42), France (39) and Switzerland (35).

****One high-profile example of clubbing together occurred when Warren Buffett’s Berkshire Hathaway group backed the ill-fated Kraft Heinz $143-billion bid for Unilever in February 2017. Buffett has a record of helping the 3G private equity vehicle behind the bid to nance its deals. 3G is controlled by Jorge Paolo Lemann, Brazil’s richest man, and his partners. Buffett has added his financial fiepower to 3G’s acquisitions of doughnut chain Tim Hortons as well as Kraft Heinz.

*****The Glazer family, worth an estimated $4.7 billion in 2015, controls 83 percent of my own favorite sports team.

  1. charlie
    November 2, 2017 at 7:18 pm

    sports is out of control too. the highest paid public offices in Arizona are the coaches at the Universities … no even close competition in the salary no wonder college is so expensive lol

  2. charlie
    November 2, 2017 at 7:22 pm

    if we were to deduct billionaire maybe down to .1 billionaire from the GDP what would that show about the rest of us? What would the US GDP be?

    • Risk Analyst
      November 2, 2017 at 8:23 pm

      I’m not sure I understand your question. Do you mean what would happen if we eliminate the billionaires and review the result? Let’s say we took all of the Koch brothers, Waltons, Soros and such and left them naked, tarred and feathered on a desert island. Well, the week long party the rest of us would enjoy would likely cause an increase in consumption spending in that quarter. In addition, growth might pick up because the money that the exiled would have gotten would go instead to those with higher propensities to spend out of income.

    • November 3, 2017 at 12:02 am

      if we were to deduct billionaire maybe down to .1 billionaire from the GDP what would that show about the rest of us? What would the US GDP be?

      If society were to impose a steeply progressive income tax on the upper class—up to 99%, on gross income, no deductions—one important result would be that rich people would not experience any loss of purchasing power whatsoever in the marketplace.

      We know this because, in a market economy, all of the scarcest luxuries brought to market are auctioned off to the highest bidders. Even with a dramatic reduction in their disposable incomes, the billionaires would still have the highest disposable incomes in the land and in a market economy, that is all you need to claim the scarcest ‘desirables’ that are brought to market. They’d still be able to buy all that they used to buy from the economy, only at lower prices.

      What this means in real terms is that heavily taxing rich people would not impose any material sacrifice on them whatsoever; they would lose none of their material possessions and none of their purchasing power in the marketplace.

      With respect to GDP, if the government were to take all of that money collected from the upper class and spend it on real economic investments—infrastructure and human capital—the result would be a dramatic increase in GDP and a reduction in unemployment.

      The overall economy would finally begin to function on a level that is close to optimal.

  3. November 5, 2017 at 1:11 pm

    In an update to Gustavus Myers’ “History of the Great American Fortunes,” Kevin Phillips in “Wealth and Democracy: How Great Fortunes and Government Created American Aristocracy” describes what made American a fertile ground for the growth of great fortunes. Per Phillips, America includes a dichotomy that encourages and facilitates great fortunes and wealth concentration. The unusual political freedom in the U.S. is part of what made wealth more openly controversial than it was in Europe. Suspicion of aristocracy, officialdom, and inherited riches was a legacy of the Revolution. Like the earlier citizenry of the Greek and Roman republics, Americans could and did take issue with the abuses of the rich and powerful. In some matters voters could even bring the upper classes to heel. That was part of what republicanism was all about. Other facets of democracy, however, made wealth in the early United States less controversial. So long as they existed, those from poor backgrounds had a chance to share in Cornelius Vanderbilt’s scrappy, cutthroat New York waterfront or in John Jacob Astor’s rough-and-tumble frontier fur business. Self-made men were the best-known standard-bearers of wealth. A humble immigrant could become the richest man in America, because two did—French-born Stephen Girard, who came to Philadelphia as a merchant ship officer, and Astor, son of a poor German butcher. The egalitarian-minded working classes of New York or Philadelphia along with those in the frontier trade rallied quickly against the Federalist merchants and financiers of the 1790s, with their predilection for British manners and contempt for the common person. “Self-made” men had no such vulnerabilities. Both Girard and Astor were about as common as they come. Such men symbolized the New World’s promise, not some vague prospect of oppression. Unlike long stratified Europe the more fluid American society offered a double opportunity – to make money and become rich, while also to criticize its abuse by the rich, pointedly showing how excess wealth and stratification undercut the democracy that had nurtured them. This duality changed, was changed in the 18th, 19th, 20th, and now 21st centuries. Phillips describes his views of how it changed. What do economists have to say about it?

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