2016 Forbes 400 and source of wealth

The following statistics are from the above chart.

Forbes 400 aggregate net worth: $2,398 billion

Finance & Investments as source of net worth: $291 billion or 20.5% of the total.

This is inconsistent with Chrystia Freelanld’s assertion that “… the majority of the super-rich have made their money out of finance not manufacturing.” In fact, if you remove Warren Buffett from the list then finance & investments as a source of net worth drops to 18.4% from 20.5%.

It is widely accepted that one is more likely to become wealthy from finance & investments in US than in other countries, so this statistic is likely to be even less in other countries. As economies move from manufacturing to a service based economy, it is not surprising that manufacturing contributes less to the overall net worth.

Amazon is a good example. It doesn’t manufacture anything but has a lock on cloud-based hosting and online retail which places Bezos in third-place on the Forbes 400 list. The top-5 in that list exemplify the overall list. Technology is the source of wealth for three of the top five, with finance and manufacturing rounding out the list.

Also see, “Has our economy become too ‘financialized’?” which was written in 2016. In particular the assertion that “In the United States, finance, insurance and real estate (known as FIRE) now account for 20 percent of gross domestic product, compared with only 10 percent in 1947.” Technology and Natural Monopoly might be a better explanation for the rise of Gini coefficient.

It is also instructive to note this fact: When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks.

Another explanation for the increase in wealth concentration might be the rise of passive investing in which disproportionate amount of money is invested in companies without regard to merit.

The rise of passive asset management threatens to fundamentally undermine the entire system of capitalism and market mechanisms that facilitate an increase in the general welfare, according to analysts at research and brokerage firm Sanford C. Bernstein & Co., LLC.

In a note titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism,” a team led by Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins, says that politicians and regulators need to be cognizant of the social case for active management in the investment industry.

“A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write.