Pity for the Super-Rich

Who can resist the tragic tale of a fabulously wealthy tech entrepreneur who managed to lose all but the last few million through a series of borrowed money bets on risky real estate? The NYT builds a three part story on the decline of the super-rich on John McAfee's misadventures, claiming that it represents a vast turnaround in the fortunes of the super-rich as a class. That may make for a more dramatic title ("Rise of the Super-Rich Hits a Sobering Wall") than "How I Lost $96 Million in Real Estate") but is it real?

The real numbers don't exist yet for the decline in fortune of the top 0.01% and the top 1%, but the guesses cited in the article look more like a speed bumps than a wall. Between 1973 and 2007, the share of the national income garnered by the richest 0.01% went from a bit less than 1% of the total to 6% of the total - from roughly 90 times the average to 600 times the average. The great recession of 2008-2009 has knocked that back to something closer to the 3-4% they were making in 2000. Recessions do hit their incomes disproportionately because so much of their income comes from stock market capital gains, which don't exist in the midst of recession. During the 1999-2000 recession, for example, they went from 5% share to 3%, but bounced back to 2007's all time high of 6%.

No doubt some rich people, like McAfee, lost a bundle, but calling the current reversal a new trend is ridiculous. The losses of Bill Gates and the Waltons are paper losses, and the declines in their stock market valuations are very likely to be quite temporary.

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