Why the new Forbes 400 list says something good about America

By James Pethokoukis

If you’re concerned that the American economy is becoming less dynamic — and the long-term trend in business formation, for instance, suggests it is  — here’s an encouraging data point: The best way to get super rich in America is to create something valuable for other Americans. And that’s more true than it used to be — although getting from the very bottom to the very top is still pretty tough.

At least that’s the obvious conclusion from the new Forbes 400 list of the wealthiest Americans. The magazine assigns a “self made” score to each individual on the list to show how the superrich got that way. As displayed in the below chart, the scoring system ranges from 1 to 10. Someone who inherited all their dough and is content to just live off it gets a 1. Example: “Alice Walton and Lukas Walton, the daughter and a grandson of Walmart founder Sam Walton, respectively.”

But someone born in poverty or the lower middle-class who overcomes substantial adversity gets a 10. Example: “Noubar Afeyan, chairman and cofounder of Covid vaccine-maker Moderna, is an example of this. Born in Beirut, Lebanon, to Armenian parents, he and his family fled the Lebanese Civil War in 1975.

From Forbes:

This year, only 118 people on The Forbes 400 scored a 1 through 5, which means that 70.5% of the list is self-made. It’s a significant shift from 1984, when less than half of the list was self-made. Still, much of the list—160 people—comprises people who scored an 8, indicating they are self-made, but came from a middle-class or upper-middle-class background. In other words, even many of the self-made members of The Forbes 400 grew up with at least some advantages in life. The four richest people in the U.S.—Amazon founder Jeff Bezos, Tesla CEO Elon Musk, Facebook CEO Mark Zuckerberg and Microsoft cofounder Bill Gates—all have 8s.

I would also note that nine of the top 10 all started and built companies. Indeed, generating this sort of “super-entrepreneur” is one of America’s superpowers:

But what should we think about the folks that score in the bottom half of the Forbes list based on the self-made metric, the 1–5 people? Back in 2019, I podcast chatted with AEI economist Michael Strain, during which I asked about wealth inequality and how he thought about inherited wealth. From that conversation:

Pethokoukis: You were talking about the outcomes that people find unjust. Wealth inequality, even more than income inequality, seems to be on the radar when it comes to that. Here are some stats that people throw my way when I talk about this: One study says that the 400 richest Americans — which is the top 0.00025 percent of the population — has tripled their share of the nation’s wealth since the 1980s. That led wealth concentration to levels last seen during the Roaring Twenties. Another study finds that the wealthiest one percent of American households own 40 percent of the country’s wealth, which has also increased markedly in recent decades. Do you have any moral discomfort with those two numbers?

Strain: No, I don’t. I think that there’s no question that there are some really wealthy people in the United States. And if you add up all the wealth in the country, you know, those people hold a disproportionate share of it. That doesn’t strike me as socially unjust, or morally offensive in any way. What I think about is how they make their money. And that’s where I think that we should be looking when we think about whether this is a just outcome.

The richest person in the United States is Jeff Bezos. Jeff Bezos has done enormous things for society and for the economy. Jeff Bezos is fabulously wealthy, but he has captured only a small, small share of the total value that he’s created for society. So that doesn’t strike me as unjust at all. You know, Bill Gates is incredibly wealthy, and he’s done amazing things.

Right, these entrepreneurs have built companies that obviously provide goods, services, and products that people value. It’s not as if we had some state–owned company that was suddenly privatized, and because they knew people in government they somehow got shares of it. It wasn’t some sort of crony capitalism like you might find in Russia. These are people who built companies.

Or they’re the heirs of people who built companies. And that’s fine too.

Isn’t that different? Don’t we have to think differently about heirs than we do about people who actually made the companies? The children of Jeff Bezos will be fabulously wealthy. How does that help most families that they get to keep all of that wealth?

When we’re thinking about whether or not the distribution of wealth is a socially just outcome, I think it certainly makes sense to think about inventors and entrepreneurs differently than their heirs. But when I think about their heirs, I’m quite comfortable with their heirs having inherited that money.

I mean, what’s the alternative? Should billionaires spend as much money as possible while they’re alive so that they leave less inheritance? I don’t know why that’s better. The money’s not sitting under the mattress, right? If they’re not spending it, it becomes available for people to borrow and that helps people, and the economy. Should the government reach in and take it? I have problems with that type of punitive, confiscatory tax. And so if it’s not being used for consumption and it’s not being paid for in terms of tax revenue, then it has to be saved. And if it’s saved it has to be given to somebody. I think it’s quite laudable that some billionaires want to give their money to philanthropic causes, but it’s their money — they earned it. If they want to give it to their kids, that strikes me as a perfectly reasonable thing to do.

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