Ultra-liberal ultra-rich

The heirs to the Rockefeller fortune are divesting their philanthropic fund of fossil fuels.

This demonstrates a point I’ve made many times before, which is that even when the ultra-rich are conservative, their children are almost always liberals, and if not their children then their grandchildren. Thus the billions of dollars made by the richest Americans almost always winds up being used to fund liberal causes in the long run.

This is why conservatives, if they had any common sense, would support high estate taxes and would also eliminate tax deductions for charitable contributions.

Parents moving to be near their kids’ boarding school

Leaving Home, but Not the Folks:

In towns like Lakeville, Washington Depot and Sharon, Conn.; Millbrook, N.Y.; Deerfield and North Andover, Mass.; and Newport and Middletown, R.I., some families are buying or renting houses and apartments to be close to their children, who are living in dorms.

It’s a practice nearly unheard-of in decades past, although it is the case that Gen. Douglas MacArthur’s mother followed him to college at West Point, renting a suite at a hotel overlooking the school. While Pinky MacArthur exhibited a 19th-century version of helicopter-parent behavior — nudging her son to study, writing a chief of staff to encourage him to promote her boy — these parents’ choices, they say, reflect a confluence of factors: a new emphasis on family life and new realities regarding work flexibility and longevity.

I think this is an example of the modern trend of high-investment parenting. In the past, boarding school was a way for the rich to enjoy themselves and not have to devote time to taking care of their children the way poor people had to. But apparently, those attitudes are changing.

A million dollars for a parking space

At a condo development in Tribeca, the parking spaces sell for one million dollars.

The only way to afford to park your car is if you have a high-paying value-transference job in investment banking or something similar.

Young and in Debt in New York City

That’s the title of the NY Times article that people have been talking about.

Most of the young people who are successfully living in New York City either have high-paying elite jobs in investment banking, management consulting, etc., or their parents are giving them financial support. Since only a few people are lucky enough to get those high paying jobs in investment banking, the majority of young people have financial support.

The problem for young people with middle class parents who don’t give them financial support, and in fact have to pay off student loans in addition to rent, is that they don’t realize that their peers are debt-free and their rent is paid for by mom and dad. Young people with wealthy parents don’t wear t-shirts proclaiming that they have wealthy parents, so those with non-wealthy parents are clueless about how the world really works.

Business is booming at butler schools

There’s a Wall Street Journal article about how business is booming at butler schools.

This is exactly as I predicted a year ago, “the rich will return to the old ways of having a large staff working for them so that they have more time to self-actualize”

I’ve also previously pointed out that providing personal services for the rich will become an increasingly common middle-class jobs as other jobs are replaced by automation and robots.

World’s youngest billionaire

Perenna Kei, a Chinese woman who lives in Hong Kong, is the world’s youngest known billionaire at the age of 24.

How did she become a billionaire? Her multi-billionaire father gave her a big stake on one of his companies, and that stake is valued at $1.3 billion.

Apparently most children of multi-billionaires don’t get legal ownership of any real money until after their parents are dead, so that’s why there aren’t more young billionaires.

As I explained in my previous post on how to get rich, marrying into money and inheriting money are two really great ways to become rich.

Prices for positional goods are increasing

The Wall Street Journal reports that the price of luxury goods has been soaring:

In the past five years, the price of a Chanel quilted handbag has increased 70% to $4,900. Cartier’s Trinity gold bracelet now sells for $16,300, 48% more than in 2009. And the price of Piaget’s ultrathin Altiplano watch is now $19,000, up $6,000 from 2011.

. . .

The U.S. price of a basket of luxury goods tracked by market-research firm Euromonitor International rose 13% last year, while the consumer-price index increased just 1.5%.

This is exactly as I predicted in my recent blog post about scarcity in a post-scarcity economy. I predicted that “In the next stage of the post-scarcity economy, we will see positional goods become even more prominent and expensive.”

The good news for my blog readers is that unless you are receiving an award at the Oscars, no one, not even the rich, will care or even notice if you are wearing a $19,000 watch or a $16,300 gold bracelet.

(On the other hand, a cheap watch like a Timex may be noticed in a negative way, even though the Timex tells time just as well as the $19,000 watch. That’s why I wear a Hanowa Swiss Military Watch. I spent less than $200 for it, but it looks a lot nicer than a Timex, and it’s an obscure-enough brand so no one will immediately identify it as a cheap watch. I also have a $100 Citizen eco-drive watch [I replaced the cheap canvas strap with a classier leather strap], which is awesome because it never needs batteries, but it doesn’t look as expensive as the Hanowa. [Be careful with Citizen, 90% of their watches are garish and prole looking, even though they all keep excellent time. Timex watches tend to be conservative and therefore classier, despite being cheap. Actually, if you can only afford $20 on a watch, a Timex will provide excellent value and look middle-class rather than prole. You could do a lot worse.])

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Zak writes in a comment:

This is good, no? If only positional good go up, then the goods that increase the standard of living stay flat. So we’ll get higher standard of living for everyone.

Also, this diminishes the left-wing redistribution agenda. While there may be a case for certain redistribution (arguments such as: the society owes to educate everybody, even provide minimal health care, etc), it’s hard to make an argument for redistribution so that the poor people can buy Chanel bags and Piaget watches.

It’s stupid to buy a really expensive handbags and watches unless you have so much money that you don’t know what to do with it. So smart people, like my blog readers, will avoid wasting money on such things. On the other hand, there are many stupid people in the world.

Stupid positional goods do provide a sort of redistribution of wealth from rich people who have too much money to spend to middle class people working for these luxury companies. But I also think it would be psychologically healthier for everyone if there wasn’t such a huge disparity of wealth in the first place.

How to become rich

I previously wrote about how to become rich through entrepreneurship. That topic needed its own post because it’s the most complicated and confusing.

In addition to entrepreneurship (which I described as finding and exploiting hidden monopolies), here are the other ways.

Inherit wealth
Marry into wealth

Libertarians hate hate hate when people mention those two ways of becoming rich, because it so directly contradicts their belief that the amount of money people have is exactly equal to the amount of value that they created. They have to explain it as the “right” of rich people to do whatever they want with the money they righteously earned through value creation.

Rise to the top in a winner-take-all field

J.K. Rowling, the author of Harry Potter, is a billionaire, and so is Oprah Winfrey. And there are many wealthy athletes and sports stars.

The important thing to remember is that these people didn’t become rich because they personally created all of that value, but rather because they work in a field that is structured so that all of the profits go to a very small number of people. There are many rich football players, but how much money did Walter Camp, the guy who actually invented the game, make from it? The answer, as far as I can tell, is nothing. He did it for free.

Remember the book that J.K. Rowling wrote pseudonymously? Hardly anyone bought the book at all, until it was revealed who the real author was, and the next day it was at the top of the bestseller list. This proves that an author can be just as good as Rowling but not sell any books.

There is some overlap between winner-take all and entrepreneurship. I cited the developers of WhatsApp as entrepreneurs, but where is the dividing line between trying to create a cool iPhone app or writing a novel? Tens of thousands have tried to write iPhone apps (there are hundreds of thousands of apps at the app store), but only a tiny percentage succeed and become rich from it.

Like entrepreneurs, the people at the top of a winner-take-all field also have an element monopoly power about them. J.K. Rowling has a monopoly on Harry Potter, and Oprah Winfrey has a monopoly on being Oprah Winfrey.

Career tracks

Going to an elite college, and then getting hired into a good career track like BIGLAW or investment banking can lead to wealth. Or a good corporate job can lead to a high level executive position such a CEO where you can make ungodly amounts of money.

The career tracks mentioned above have a large element of winner-take-all about them. The number of CEOs is tiny compared to the much larger number of corporate workers hoping to climb the ladder to the top. The thing to remember about CEOs is they are not rich because they personally create so much value, but because the corporation is structured so that the CEO can extract the most money from it.

A career track that’s NOT winner-take-all is medicine. Go to medical school, become a specialist, and make lots of money. Some readers may not consider an income of a mere $500,000/year to be rich, but it’s a darn good salary for a field that’s not winner-take-all.

Theft and other criminal activities

The guys who stole half a billion dollars of bitcoin are rich.

Crime is very much a winner-take-all profession. A lot of criminals are in prison, or barely making much more than minimum wage, but a few super-criminals like the bitcoin hackers are rich.

How NOT to become rich:

Value creation as an engineer.

You don’t want to do this. The value you create will be transferred to people higher up in the corporation, the investors, the investment bankers, the BIGLAW partner on retainer, etc.

How to become rich through entrepreneurship

Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich. Both people and companies make money by having a monopoly, or at least by having monopoly power.

The advance of technology, which has accelerated significantly since the invention of the integrated circuit and Moore’s Law which doubles their power every eighteen months, has created various hidden monopolies. The first person or company to discover and exploit one of these hidden monopolies becomes rich. It’s especially exciting when a lone individual or small group of individuals discovers and exploits a monopoly worth hundreds of millions of dollars. When a huge corporation like Apple discovers a new monopoly worth hundreds of millions of dollars, it’s just a small blip because Apple is already worth hundreds of billions of dollars, so an extra few hundred million doesn’t appear to be very significant.

If Mark Zuckerberg had been born two hundred years ago, he probably would have been a big nobody because it was a time when hidden monopolies were fewer in number and less valuable.

What are the factors that increase the chance that an individual can discover and exploit one of these hidden monopolies? I believe that one factor is that these people usually have very high IQs. At this point, some longtime blog readers are remembering that I’ve previously stated that IQ has nothing to do with making money except for getting you into a good college so you can get into a good career track. That part is true for the vast majority of smart people. The 0.1% of people with IQs higher than 140 who stumble upon one of these hidden monopolies are such a small number of people that they don’t show up at all on samples like the General Social Survey or the cohort of college graduates studied by Stacy Dale and Alan Krueger.

Let’s assume that the founders of WhatsApp are pretty smart guys. As pointed out by Steve Sailer, before WhatsApp they were just regular staff engineers at Yahoo who were presumably not thought of as worthy for promotion to executive-level positions, and they applied for jobs at Facebook and weren’t even hired. Their high IQ didn’t help them make any significant amount of money in their careers. The irony for FaceBook is that they paid $19 billion for a company founded by two guys that a few years earlier they didn’t even think worthy of hiring. Most high-IQ people are like the founders of WhatsApp before their app hit it big, but they never hit it big, they just keep on working at whatever career track they started out on, and if it’s a lousy career track like being a staff engineer at a big corporation, then they never amount to much.

The second factor in entrepreneurial success is having the resources to exploit the hidden monopoly once it’s discovered. And this is the main reason why smart computer programmers are overrepresented among centimillionaires and billionaire entrepreneurs. The best computer programmers are said to be ten times as efficient as the average computer programmer. It’s a lot more viable to start developing the hidden monopoly if you can do the work of ten computer programmers yourself instead of having to hire a team of ten people.

Furthermore lone individuals, or a small group of two or three individuals, are able to exploit the 80-20 principle. By that I mean that at most corporations, 80% of the time spent at work is wasted and only 20% is spent doing anything valuable. The lone entrepreneur, however, can spend 100% of his time doing only the 20% of the stuff that’s valuable, and skip useless 80% work which includes things like paperwork (now typed into Word documents but still the same thing) and all other unnecessary documents, time-wasting meetings to build consensus, and all work done on stupid projects that are doomed to fail but are the pet of someone higher up in the organization.

A guy who majored in history and doesn’t know how to program is at a disadvantage here, because he can’t do any of the work himself. However, if our history major has access to venture capital, then he can still found a company and become rich. How does one get looped into the venture capital markets? I’m not sure, but I suppose that attending a prestigious university and a prestigious MBA program can help you meet the right people.

Or you can do things the Steve Jobs way, which is to find a clueless high-IQ nerd like Steve Wozniak to work for you for free.

Robots and the declining importance of non-human capital

A post about robots in the Financial Times Alpha Blog makes an interesting point that’s not directly related to robots:

Simply owning capital is not a ticket to long-term wealth.

I know that sounds crazy looking at the list of billionaires in the world. Aren’t they all capitalists of one sort of another? Here is the key, though. Being one of the first capitalists in a new industry or revolutionizing an existing industry can get you rich. But old money doesn’t pay like new money. The relentless march of commoditisation eventually drives profits to a pittance. In 1960 General Motors was the largest for-profit corporation in history and second only to Soviet State Industries as the largest economic concern of any form. But if you had bought GM stock in 1960 and held it until the company’s demise in 2008, your return — in the form of dividends — would have been less than the return from buying treasury bills.

This sounds like something right out of my blog! Last year, I wrote a post titled The declining importance of non-human capital. In that post I explained that you no longer get rich from owning stocks because “returns that should go to shareholders are instead gong to CEOs and other highly compensated employees, and to Wall Street types such as investment bankers and hedge fund managers.”

I explained that in the modern economy, in order to pass down your wealth to future generations you need to ensure they attend elite schools so that they can enter elite career tracks, and you should marry a spouse with high-IQ genes.

And that’s what rich people are actually doing these days. Despite talk on “game” blogs about the benfits of hot trophy wives, real-world rich people marry women from their own social class. Male doctors no longer marry nurses, they marry female doctors or women with other upper-middle-class careers.

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And on the topic of robots, iRobot (IRBT) is up another 7% today. Is it up because people are reading my blog? Or because it’s being hyped at the Motley Fool? Probably the latter, but maybe the Motley Fool people are reading my blog?

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During the past few weeks, I definitely feel like a lot of my ideas are suddenly being talked about. Yet I don’t get any credit for any of it. I should be widely acknowledged as a great futurist.