“We examine characteristics of the 400 wealthiest individuals in the U.S. over the past three decades as tabulated by Forbes Magazine… They are more likely to have started their businesses and to have grown up upper-middle class, not wealthy. Today’s Forbes 400 were able to access education while young, and apply their skills to the most scalable industries: technology, finance, and mass retail.”
“With the large improvements in information technology and the substantial increase in value of the securities markets over the last 30 years, skilled individuals can now apply their talent to much larger blocks of capital and pools of assets… Having extensive wealth and inheriting family businesses have become much less important. Having access to education has become more important. Future research should aim to understand what facet of educational access is driving its increasing importance for wealth generation. Specifically, education provides skills but it also provides access to networks.”
So a couple of observations. First, note the importance of finance - i.e., these may be new business creation efforst but they are in a field that isn’t really producing anything except wealth and oftentimes, this wealth is created by exploiting technology that permits trading behavior that serves no one but the top 400! . Thus I don’t agree with the authors’ comment that this result is not due to broken governance as I would argue that permitting such wealth to grow under-taxed, often the result of rapid trading that does not benefit the customers - surely better governance could play an important role here.
I also like the mention of “access to networks.” This is a point I have made previously on college confidential, only to be shot down (woe is me). One reason to attend so-called elite universities is to rub elbows with others who will become movers and shakers if they are not already born into that status. What better way to make a ton of money in finance than to hit up all your college friends for investments? (Disclaimer - my kid is headed to Brown, NOT to major in finance but rather, engineering. But she’d be awful good at this finance gig!)
Prof- the reason you got shot down is that most jobs in finance do not involve hitting people up for investments- whether they are your college friends or not. If you get an entry level job at Goldman Sachs or Credit Suisse, there is ZERO expectation that you will know rich people, and moreover, the role that you will play at your company will have nothing to do with soliciting investments from individuals. If you work in municipal bonds- yes- you are soliciting investments. But from the folks in Albany who make investment decisions for the state of NY, or the people in Springfield who want to finance a new bridge in Illinois. Relationships are important- but these are institutional relationships, not personal relationships. A very small number of entry level jobs are in private wealth management, and again- you don’t get hired because you know rich people, you get hired because you have a flair for modeling and creating investment algorithms which over time prove to be successful.
You get shot down because you have a weak understanding of what folks in finance do, not because your “elbow rubbing” is factually incorrect.
Back in the 1950’s, a dumb rich kid could get hired by a top Wall Street firm to rub elbows with daddy’s friends from the club. That world is gone, gone, gone. And many of those jobs are now taken by first gen college kids (wooden spoon, not silver spoon) and they hired for their ability to think, not play tennis. And the serious money in finance is NOT on the retail side (i.e. hitting up your friends for investments) but the institutional side- taking Snapchat public, doing a merger of two huge pharmaceutical companies, recapitalizing Pfizer’s debt, helping the government of Malaysia finance construction of a new airport.
I thought the serious money in finance was, as @profdad2021 suggests, in proprietary trading. For most of my career, trading desks have been eclipsing underwriting and advisory functions as the profit centers for investment banks, although maybe Dodd-Frank as slowed or even reversed that trend. The other “serious” money source is wealth management for the ultra-wealthy (including institutions) and private equity / hedge funds. Those management fees and 20% carried interests really add up.
The proprietary trading is all about tech skills. The underwriting and fund formation/wealth management is absolutely about relationships as well as skills, and in a world where more and more of the rich people were not born rich, rubbing shoulders with them in elite colleges or in elite post-college institutions that draw from elite colleges is a good way to form relationships.
@blossom Accidentally posted this on wrong thread. Go figure. But this gives me the chance to add on what I had said earlier - keep in mind that the original article is about 400 super super high earners. So among those 400, the ones that are in finance…well, it is unlikely there is much variety in the kinds of jobs those super high earning finance folks are working.
On your above comment to me: Thanks for your attempt to nail down why, in my words, I got shot down in that earlier post. You say I have a weak understanding of what people in finance do…it’s possible that you are being kind in that assessment.
But fortunately, my reference to being shot down in a previous thread was NOT in about finance. It was a thread about the general issue of whether there really is a good reason to go to an “elite” university. I believe that there are LOTS of reasons to go to these universities. One reason is that it is a great crowd.- a good crowd that I’m grateful my kid will join in the fall.
In case you are wondering, my earlier comment is below:
“I’d argue that one of the many good reasons to attend an Ivy League school is to rub elbows with the elite, where elite is proxied as very high income. After all, these are the folks who will be running huge companies one day, running for elected office, becoming partners with corner offices at major law firms, etc. This exposure helps builds social networks that last a lifetime.”
And the “shoot down” was an insult to the kids who attend those schools – those kids got there due to their parents’ accomplishments, not their own, so no reason to want to rub elbows with them.
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Some of the elbow-rubbing that goes on at elite schools has little or nothing to do with parents’ wealth. Rubbing elbows at Harvard with some lawyer’s kid from Seattle did an awful lot for Steve Ballmer (and rubbing elbows with a moderately well-to-do kid from the Detroit burbs wasn’t such a bad deal for Bill Gates, either). Mark Zuckerberg got a lot out of rubbing elbows (and maybe some other things) with the child of Vietnamese refugees, in addition to some ultra-privileged types whose ideas inspired him, and whose family wealth helped a little, too. And they . . . well, they’re probably glad they met Zuckerberg, most of the time. If intelligence, not inheritance, is the principal source of wealth, then why not hang out in the most target-rich environment you can find?
Plus, it’s not always such a bad deal to rub elbows with people whose parents’ wealth got them admitted. For instance, I think it’s pretty clear that President Trump’s father bought his son’s transfer into Wharton, and that The Donald’s children got extra-special consideration there, too, Robert Mnuchin’s father may have helped him get into Yale, and Jared Kushner’s certainly helped him get into Harvard. Yet . . . it would have been a mistake to write any of those people off as excess baggage. The combination of family wealth with a little intelligence and a lot of drive is a good formula for success, still, even if it’s not the only one.
In my experience, very few people get much out of college elbow-rubbing alone, But I have one college friend, a middle-class Catholic school boy from the Chicago suburbs, who rubbed elbows assiduously and systematically from the day he started college, and he absolutely built a wonderful career on that basis. He never got to be President, but he has had some really cool jobs, and gotten pretty rich in the process.
My grandparents both attended U of C on scholarship. Especially for my grandmother thus meant she was among the very wealthiest people you could imagine (99 percent of the girls at school came from the very wealthiest homes, who else was willing to send a girl to private college in 1919. ) My grandfather certainly knew some wealthy boys but there was more of a cadre of those not at the very tippy top. It was my grandmothers frienships that helped her husband in his practice.