🌟 [Post of The Day] How People Get Rich Now
If we compare the 100 richest people in 1982 to the 100 richest in 2020, we notice some big differences.
In 1982 the most common source of wealth was inheritance.
The reason the percentage of heirs has decreased is not that fewer people are inheriting great fortunes, but that more people are making them.
In 2020 roughly 3/4 by starting companies and 1/4 by investing.
Fund managers discovered new ways to generate high returns,
and more investors were willing to trust them with their money.
The main source of new fortunes now is starting companies
In 1982, there were two dominant sources of new wealth: oil and real estate.
By 2020 the biggest source of new wealth was what are sometimes called "tech" companies.
Arguably it's slightly misleading to treat tech as a category.
at the moment at least, there is definitely something they share in common that distinguishes them.
The tech companies behind the top 100 fortunes - these are mostly companies that win by having better technology, rather than just a CEO who's really driven and good at making deals.
To that extent, the rise of the tech companies represents a qualitative change.
People who don't look any deeper than the Gini coefficient look back on the world of 1982 as the good old days, because those who got rich then didn't get as rich.
Is that really better than a world in which the richest people get rich by starting tech companies?
We shouldn't be asking why people are starting companies, but why they're starting companies again.
When you investigate the sources of the new fortunes, 1892 looks even more like today.
By 1970 the rigid structure of the economy was full of cosy nests that various groups had built to insulate themselves from market forces.
If you only look back as far as the mid 20th century, it seems like people getting rich by starting their own companies is a recent phenomenon.
But if you look back further, you realize it's actually the default.
it's getting easier to start a startup is social.
The decreasing cost of starting a startup
changed the balance of power between founders and investors.
increases the number of rich people in two ways:
more people start them,
those who do can raise money on better terms.
The companies themselves are more valuable,
because newly founded companies grow faster than they used to.
Fast growth has a double effect on the value of founders' stock.
The value of a company is a function of its revenue and its growth rate.
Of course the Gini coefficient is increasing. With more people starting more valuable companies, how could it not be?
Respond: Just Be Rich
It's less a tutorial or analysis and more a thinly veiled attempt to ease concerns about wealth inequality.
What he fails to mention is that concerns about wealth inequality aren't concerned with how wealth was generated but rather the growing wealth gap that has accelerated in recent decades.
This golden age of entrepreneurship hasn't benefitted the vast majority of people and the increase in the Gini coefficient isn't simply that more companies are being started.
Most people don't have the safety net or mental bandwidth to even consider entrepreneurship. It is not a panacea for the masses.
This essay is less about how people get rich and more about why it's okay that people like PG are getting rich.
They're better than the richest people of 1960.
And we can join them.
We just need to stop complaining and just be rich instead.
Barrin92: at least old money understands the concept of noblesse oblige.
The real sinister psychological thing going on behind the Graham argument is that it's not at all about meritocracy, it's that this mentality of earned wealth completely rids the owner of any sort of responsibility.