Why wealth may have been more fleeting and dynamic in the past, compared to stasis today

Re-tweeted by Taleb. This is Taleb’s obligatory ‘defend the rich’ re-tweet about wealth being dynamic, as if this is some sort of profound insight or justifies wealth inequality:

Of course, people grow old and retire, and moving up the corporate hierarchy and attaining degrees and other necessary credentials takes time. It’s not surprising or unexpected that one’s ‘peak productive years or earnings’ is relatively short compared to one’s entire lifetime.

Also, this is based off of old data (old data, as I said many times, tells a much different story and picture compared to today; a lot has changed, generally favoring winner-take all markets, IQ, and outsized returns , etc.). Wealth may have been more fleeting in the past, because wealthy people were not as smart at saving their money, and or the IQ threshold to becoming wealthy was lower (such as textiles in the 1800s vs. Ai, software, or apps today). It stands to reason that smarter wealthier people are better at saving and investing compared to less intelligent rich people, as shown by how average-IQ celebrities and athletes tend to go broke so easily.

‘Old money’ was not that smart and squandered its fortunes on rapidly-depreciating luxuries and extravagances and charity, compared to high-IQ, high-income people today such as in tech or finance, who are better at saving and investing their money, as evidenced by the huge recent popularity of the “FIRE movement”, in which the preservation of capital is the objective.

Today’s wealthiest people are miserly to a fault; e.g. Warren Buffet. Except for the occasional private jet or yacht, today’s top-20 billionaires do not spend that much, especially compared to the super-wealthy of the past and relative to individual net-worth. The Rockefellers, Kennedys, and Vanderbilts, etc. spent lavishly whilst alive, as did their heirs. Instead of building hospitals and libraries as the Rockefellers did, today’s richest have pledged to give away their fortunes after dying, which never happens given that these people tend to live forever too (Munger died at 100, and Buffett going strong at 93). [Munger is a notable exception, having donated the bulk of his wealth while alive, including for the construction of the infamous windowless dorm.]

As discussed in the 2017 post Will Silicon Valley’s Tech Fortunes Dissolve like the Rockefeller, Carnegie, and Vanderbilt Fortunes? No, ‘old industries’ (e.g. commodities, shipping, etc.) were also more vulnerable to adverse, unforeseen macro conditions, which can also explain why wealth was more fleeting or dynamic in the past.

The rise of automobiles and the interstate highway system, for example, hurt the railroad industry. Tobacco fortunes were hurt by the decline of smoking. American auto fortunes were hurt by the rise of foreign competition, hastened by the late ’70s oil crisis. Airlines were on life support after 9-11. Oh, and 2008, which gutted almost the whole housing sector, and almost took the auto sector with it too. Uber, Amazon, Meta/Facebook and other tech companies boomed during Covid, as other industries and sectors struggled. Tech was also nearly unscathed by the Great Recession, and saw a v-shaped recovery soon after due to the rise of apps, ‘cloud’, delivery, Ai and other initiatives. In 2006-2010 during the housing bust it was average-IQ ‘home flippers’ and contractors who were ruined. Those people never recovered, similar to businesses that were ruined due to Covid.

As shown by the examples above, riches-to-rags stories seemed so common in the past, compared to riches-to-more-riches trajectories in tech today. Every month it’s higher valuations and funding founds for the biggest of tech start-ups, such as Open Ai, which a few weeks ago raised capital at a valuation of $80 billion–a substantial gain from $30 billion earlier this year. Tech people seem to always fail-forward, such as being ousted from a position only to be soon rehired for more pay elsewhere. By comparison, only Jamie Dimon
survived 2008 unscathed and is still on top; many of the old people are gone (remember Angelo Mozilo?). Bill Gates has been in the top five of the Forbes 400 list for as long as I can remember, going back to 1996 after the blockbuster debut of Windows 95. By comparison, the richest Saudi, Prince Alwaleed Bin Talal Alsaud, cracked the top 20 for a year or so in the early 2000s, until the 2008 crisis and commodities crash knocked him out for good. Same for Carlos Slim, a Mexican magnate, who in 2007 briefly topped the list. Now the top 20 is all tech, usually the same people, save for Warren Buffett or the occasional non-tech mogul who makes a fleeting appearance until being undone by the next economic crisis or scandal, as always happens.

Tech benefits from being less volatile and susceptible to competition and macro factors, scales better, and has higher profit margins. Winner-take-all markets means less risk from competition once a threshold of size and market saturation is attained. In high or low inflation, demand for mobile ads is high, and Facebook usage does not fall. There are many more alternatives, hence competition and lower margins, when it comes to clothes, toothbrushes, cars, food, or suppliers of ore, compared to top social networks, search engines, Amazon, or Uber.

Apple, Meta/Facebook, Visa, Mastercard, Google, Amazon, and Microsoft are bigger and more dominant than ever even after many decades. Apple and Microsoft are almost half a century old, but have growth and stock price appreciation that rivals start-ups and penny stocks, and have defied all predictions by the media of decline or ‘business school’ nostrums about businesses cycles. Such cyclicality has been obsoleted by a forever-upward trajectory of size and growth absolute and relative to GDP.

Regarding studies of Florence and old European money, family wealth is not the same as individual wealth. Just because a dynasty retains its wealth collectivity over many centuries does not mean the individuals who comprise the extended family are wealthy. Fortunes get diluted fast due to rapidly growing headcount even if there is a lot of money pooled.