Have we reached Peak Wealth?

As President Trump’s re-election campaign starts to come off the rails, a question must be asked.  Have we reached peak wealth?

A newly-published Riding the Storm survey on 2,189 global billionaires by UBS and PwC sees reasons for them to be cheerful. 

It estimates their overall wealth hit a record $10.2 trillion at the end of July following a Q2 valuation surge of 25%, triggered by Federal Reserve action, which recaptured all the money they lost when Covid-19 struck, and added to it. The previous peak at the end of 2019 was $8.9 trillion.

Antitrust action could lead to a restructuring of large tech companies. Even if we haven’t hit peak wealth, we should see a peak for the NYSE Fang+ index which has trounced the S&P 500 index this year

Newly-minted billionaires have thrived after developing technology to bring a dazzling array of retail, entertainment, industrial and healthcare services to the global public.

Innovators grew their wealth far faster than established billionaires, equivalent to 42.5% in tech and 50.3% in healthcare over just under three years. According to UBS, billionaires have presided over “exceptional, Schumpeterian, creative destruction.” 

The US leads the way, with billionaires worth $2.96 trillion, ahead of China’s collective $1.19 trillion.

But voters can be an ungrateful bunch. They are more likely to be jealous of the money made by billionaires than appreciative of their business building. 

And it does not help that the US now has the greatest concentration of wealth since the Gilded Age of the late 19thCentury, when an assortment of robber barons enjoyed a monopoly over their industries.

Voters are prepared to put up with inequality if governments are competent and the economy delivers new jobs and stable prices. But the gap between rich and poor has grown too wide for comfort. Prices are steady, but Trump has neither delivered new jobs nor a consistent display of competence. 

21st Century Capital, a film based on the book by economist Thomas Picketty, reaffirms that modern capitalism enriches billionaires at the expense of everyone else. The disclosure of Trump’s low tax payments heaped petrol on smouldering resentment among individuals paying more.

The Democrat-controlled US House of Representatives has just produced a 449-page antitrust report targeted at Facebook, Apple, Amazon and Alphabet which implies that each of them have enjoyed an unfair trading advantage as monopoly providers.

Their stranglehold has been tightened by acquisitions of companies which were nodded through, even though their bid targets were future competitors. 

Antitrust action could lead to a restructuring of large tech companies. Even if we haven’t hit peak wealth, we should see a peak for the NYSE Fang+ index which has trounced the S&P 500 index this year.

A progressive Democrat party could also point to inequality caused by the way US corporations tend to be run by white males. It can, and has, argued that corporations which pollute are getting a free ride on the environment at the expense of everyone else. 

Broader anti-competitive practices and low taxes, which have boosted US company returns on equity to levels way above the rest of the world, at the potential expense of voters. 

All of which has been explored in a research paper by Gaurav Sarollya of Oxford Economics and a book called The Great Reversal by Stern professor Thomas Philippon.

Inequality has also resulted from the way the Federal Reserve slashed interest rates to zero and printed money to revive the economy following this year’s Covid-19 outbreak.

The measures stabilised the financial system but they produced stock market gains which have so benefited billionaires this year.  But corporations still lack the confidence to invest in the future.

Cheap money and low taxes have, however, boosted private equity returns, to the distaste of democrat Elizabeth Warren who bemoans their rationalisations, and enrichment. 

You can’t rule out a Trump rebound. But the smart money must go on a Biden administration and a crackdown on inequality, reinforced by higher taxes and public spending. 

It was a nice party, while it lasted.