The richest 0.1% - Are they really rich?

So what about those richest 0.1% that seem to be spoiling it for everyone else?

There seems to be many articles right now about seemingly impoverished teachers or farmers that leave millions to charities or Universities. The core of the stories are often something like, "Gee, why would someone with so much money live like a pauper until they died". Often they don't live in squalor but just regular working class or lower middle class comfort. Many of us watching have a sneaky suspicion that we know why. We remember our own indoctrination from our mothers or fathers. A penny saved is a penny earned, waste not want not and essentially wasting money unnecessarily is the work of the devil, and saving it will somehow help us get into heaven although we are not sure why. (I call this potato famine insecurity). Many of us can solve modern day mysteries in this way. One example is: why does someone like Warren Buffet live in the same house he bought 3 decades ago for $31,500 when he could buy out his own street for a whisper of his fortune?

But here is an interesting question. If you have the legal right to spend millions, or billions but don't, have you ever really been rich, other than in your own head? It may seem like a silly question but a man that has the right to spend billions but leaves it all with money managers until the day he dies hasn't really left any mark that he has owned the money at all. His money could have been owned by anyone else in the world and, so long as they didn't withdraw the money, the effect would have been the same. His main contribution to the economy was choosing which money manager to use. This is not a trivial decision since one money manager could have a bias towards real estate and distort prices there, while another may have a bias towards hi-tech stocks and create a different distortion in the economy.

What is in essence happening is that the "rich man" is giving his money into investments and hence letting it ride in the economy. That money, if invested directly in a company goes to salaries, capital expenditures etc. The money, if invested very well in established securities correctly could help towards market efficiency (buying the right stocks/assets low and selling high) but all the gains remain in the hands of the market. In essence, the investor is putting his money to work to help the economy as an investor in a way that will usually increase the wealth of the economy although not himself until he starts spending his money directly on himself.

So here is my premise. It is not your income every year that matters to the economy. It is the amount you spend directly on yourself that actually changes the economy and hence the only thing that really matters. A person is not rich until he has taken a chunk of Production for himself. The Pharaohs of Egypt were rich because they took a huge chunk of labour out of the market every year to build great big near-useless pyramids (in the days before tourists from Nebraska). That same labour could have been planting fields or building houses. When Warren Buffet lets his massive gains every year ride on his investments, it is almost the same as his not owning it at all, nevertheless his hand is seen more indirectly by having some control in the investments although a theoretical efficient market would suggest that someone else would make similar investments if he weren't there (Efficient markets are always a sticky point for Warren).

Making a huge assumption that all passive investments are relatively efficient (one money manager for you money isn't that much different than another) then the only thing that should matter to the economy is not how much a person earns, but how much they consume, ignoring the taxman for a minute. That Bill Gates being rich doesn't really take any bread from the mouths of the needy in the world until he starts buying up all the bread. Ironically, it is only now that he is spending his money on world charity that one can argue that he is redirecting production away from others.

So lets get back to the "wealth charts" and consider how much more there would be for everyone if it wasn't for the richest 0.1% families that earn much more than they can spend. I would guess, there wouldn't be that much more, until the crazy grandson decides to blow it all on a party in Las Vegas.