Someone, somewhere, really needs to have a word with Oxfam about the way that economies work. They are now reviving the claim from their recent report that the world might have its first trillionaire in only 25 years time. And that, given current circumstances, it might be Bill Gates who is that first trillionaire. The problem with this is that they've simply no concept at all about how economies work nor about wealth and its concentration. In the proper jargon they are confusing a cycle in the economy with a structural feature of the economy. And we really don't get to do that--if we did, if they were always the same thing, or if there were no cycles, then we wouldn't have recessions nor Keynesian economics. Given that we do have both, both recessions and the Keynesian economics that tries to deal with them then we have to, must, distinguish between cyclical effects and structural.

But they are pointing journalists once again at their report:

The report also finds that, given the exponential growth of existing wealth, the world could have its first trillionaire in the next 25 years, when Gates would be 86.

When Gates left Microsoft in 2006, his net worth was $50 billion, according to Oxfam. By 2016, his wealth had increased to $75 billion, "despite his commendable attempts to give it away through his Foundation," the report says.

Bill Gates is indeed a remarkable investor and given that the figures are drawn from the pages of this very magazine I'll certainly not argue with them.

The report stated that the Gates fortune has risen 50% or $25 billion since he left Microsoft in 2006 and considering the fact that fortune of Bill Gates fortune is growing at 11 per cent per year since 2009, there is a chance that he could become the worlds first trillionaire.

Aaah, well, there's one of those little signs of when we shouldn't be taking people seriously. Note how they use two different sets of years? Always a marker of some fiddling going on. A 50% rise over 11 years is, including the compounding which Oxfam is obviously using, rather less than an 11% per year rise. Actually, it's a 4% rise since 2006, compounded. which, if we start with the original $50 billion means that 25 years later Bill has, assuming he hasn't given more away, $133 billion.

Or we start with this year's $75 billion and give him 25 years at 4% and we get to $200 billion. Sure, more than you or I will ever have but it's not a trillion, is it?

Bill Gates to Be World's First Trillionaire Soon?

Most likely, in fact almost certainly, the answer here is "No."

And here's what Oxfam have actually done as their calculation, from their own report:

Once a fortune is accumulated or acquired it develops a momentum of its own. The super-rich
have the money to spend on the best investment advice, and the wealth held by the superrich
since 2009 has increased by an average of 11% per year. This is a rate of accumulation
far higher than ordinary savers are able to obtain. Whether via hedge funds or warehouses
full of fine art and vintage cars, the highly secretive industry of wealth management has
been hugely successful in increasing the prosperity of the super-rich. The fortune of Bill Gates
has risen 50% or $25bn since he left Microsoft in 2006, despite his commendable efforts to
give much of it away. If billionaires continue to secure these returns, we could see the
world‟s first trillionaire in 25 years. In such an environment, if you are already rich you have to
try hard not to keep getting a lot richer.

That really is it. And it's going to come as a heck of a surprise to an awful lot of billionaires that they can get such great returns just by hiring the right money managers. After all, after fees and management costs, the majority of hedge funds don't make investors money, over and above simple no load index funds, nor do the majority of actively managed bond or equity funds. As far as anyone at all is aware there is no simple secret to outsized investment returns. Even Warren Buffet underperforms the market at times.

It's entirely true that Thomas Piketty put this in as a speculation in his book Capital, that the super rich really did gain outsized returns. It's also the part of the theory that has been the most relentlessly mocked. For it's simply one of those things which does not accord with reality.

But yes, this is Oxfam, it gets worse than this. For over and above that they're picked a year, 2009, where the influence of the recession will be at its greatest. We do all recall that we've just had the mother of all recessions, yes?

And what happens as we go into a recession? The price of financial assets falls--that's rather what caused the problems on Wall Street in fact. So too does the capital share of the economy--this falls much more than the labour share in those economic bad times. So much so that if you want to reduce either income or wealth inequality then the thing to engineer is a nice great big recession--Depression if you really want to get the numbers down.