Why the super-rich have too much money

This piece in the New York Times by economist Austan Goolsbee is a nice antidote to the puff piece, My Dinner with Conrad, that appeared on the cover and a full page in the main section of today’s Globe and Mail. In that piece, the author lowers the standards of journalism even further by submitting as evidence her dinner with Black, which led to the conclusion that he is innocent … because he said so. Presumably Black will remember in the future those who supported him if he is acquitted, so the author may get invited to an A-list party as a future reward.

But as Goolsbee reminds us, the super-rich have so much that they cannot possibly spend it all in their, or their heirs’, lifetimes. It is accumulation for the sake of accumulation, where money is just a marker that shows how you rate on the ladder at the [insert your local posh, elitist institution here] Club. The coup de grace, unfortunately, is missing: rather than rely on enlightened philanthropy, we need to have wealth or inheritance taxes to put some of this accumulated wealth to work in the interests of the rest of us.

For the Super-Rich, Too Much Is Never Enough

… The rational economic argument for accumulating wealth says that people want to use it for something: to spend, to give to their families to enhance their future standard of living or to do something philanthropic.

When you look at the Slate 60 list, however, you see that philanthropy can’t be the main reason. For all of their amazing generosity, the super-rich typically do not give away their entire fortunes, or even a big share.

… Professor Carroll says the super-rich can’t be accumulating the money with the intention of spending it, either, because no one could spend that much.

To see his point, take Oracle’s founder, Lawrence J. Ellison. Mr. Ellison’s net worth last year was around $16 billion. And it will probably be much bigger when the list comes out in a few weeks. With $16 billion and a 10 percent rate of return, Mr. Ellison would need to spend more than $30 million a week simply to keep from accumulating more money than he already has, to say nothing of trying to spend down the $16 billion itself.

He spent something like $100 million on his Japanese-style mansion in Woodside, Calif., making it among the more expensive private residences ever built. But that is only about three weeks worth of the interest he earns on his wealth. And a house doesn’t actually spend down his net worth because it is an asset that can be resold. At least part of the $100 million is just a different way of saving.

Mr. Ellison would have to spend that $30 million a week — $183,000 an hour — on things that can’t be resold, like parties or meals, just to avoid increasing his wealth. …

The last of the seemingly rational explanations is that the billionaires want to pass it on to their children. But, again, their fortunes are growing far faster than their number of heirs, so each of the children will have the same problems spending the money that their parents had.

Sam Walton’s fortune is now divided among his family, and the Forbes list will probably show that his children account for 4 of the 10 richest Americans in the world (with his wife being No. 11). The children are in their 50s and 60s, and if they live to be 80, and their wealth grows at 10 percent a year, their fortunes will rise by four to eight times and they will each have more than they can ever spend or their children can spend, and so on.

Further, the data, according to Professor Carroll, just doesn’t indicate that children make much of a difference. He found in the government’s 1992 Survey of Consumer Finances, for example, that only 4 percent of the richest Americans said that providing an inheritance ranked in their top five reasons for saving. On top of that, he says, the data shows that elderly super-rich people who do not have children save just as much as the ones who do.

If it isn’t to spend, to give to their children, or to give to charity, then why do the rich save so much? Professor Carroll says maybe they love money, not for what it can buy but just for its own sake. Perhaps they get something different from having money — clout, power, the ability to dominate an industry. … They accumulate more so they can lord it over the other families who have less — a bit like having enough nuclear weapons to blow up the world several times but making more to stay ahead of the other guy.