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Re: F6 post# 44581

Friday, 03/09/2007 11:18:41 PM

Friday, March 09, 2007 11:18:41 PM

Post# of 482238
Why do the rich give away so little?

Posted online: Saturday, March 10, 2007 at 0104 hours IST

For voyeurs of billionaires, a brief period from mid-February to mid-March serves up two of the juiciest glimpses they will get all year. In February, the Slate 60 list of the year’s biggest philanthropic gifts comes out, followed in March by the Forbes magazine list of the world’s richest people. This time, one name—Warren E. Buffett—will appear conspicuously on both. His fortune will probably rank second in the world behind only Bill Gates’, as it has for some years.

In philanthropy, however, Buffett is No.1 by a wide margin. Last year, he shook the world of billionaires by pledging more than $42 billion for charity—by far the largest philanthropic donation in history and close to the total of all the Slate 60 donations for the last six years combined.

You could almost see the editors at Forbes airbrushing the perplexed and stricken looks off the faces of their other billionaires. He’s giving away $42 billion? Is he crazy? Certainly that is not what most of them had in mind for their fortunes. But the move by Buffett raises the question of exactly what the other billionaires do have in mind for their money. According to the economist Christopher Carroll at Johns Hopkins University, in his article “Why Do the Rich Save So Much?,” the seemingly obvious question of why people would want so much money turns out to be a real puzzle.

The rational economic argument for accumulating wealth says that people want to use it for something: to spend, to give to their families to enhance their future standard of living or to do something philanthropic. When you look at the Slate 60 list, however, you see that philanthropy can’t be the main reason. For all of their amazing generosity, the super-rich typically do not give away their entire fortunes, or even a big share. That’s what makes Buffett so notable. For 2006, the Slate 60 not including Buffett pledged or gave a little over $7 billion to charity. Yet as of September 2006, the 60 richest Americans had an estimated $630 billion of wealth, up more than $62 billion (about 10 percent) from the year before. People are accumulating money much faster than they are giving it away. Carroll says the super-rich can’t be accumulating the money with the intention of spending it, either, because no one could spend that much.

To see his point, take Oracle’s founder, Lawrence J. Ellison. Ellison’s net worth last year was around $16 billion. With $16 billion and a 10 percent rate of return, Ellison would need to spend more than $30 million a week simply to keep from accumulating more money than he already has, to say nothing of trying to spend down the $16 billion itself.

The last of the seemingly rational explanations is that the billionaires want to pass it on to their children. But, again, their fortunes are growing far faster than their number of heirs, so each of the children will have the same problems spending the money that their parents had.

If it isn’t to spend, to give to their children, or to give to charity, then why do the rich save so much?

Carroll says maybe they get something different from having money—clout, power, the ability to dominate an industry. Or perhaps these are just competitive people who care about their position compared with other people on the list. They accumulate more so they can lord it over the other families who have less—a bit like having enough nuclear weapons to blow up the world several times but making more to stay ahead of the other guy.

—NY Times / Austan Goolsbee

© 2007: Indian Express Newspapers (Mumbai) Ltd. (emphasis added)

http://www.financialexpress.com/fe_full_story.php?content_id=157310


Greensburg, KS - 5/4/07

"Eternal vigilance is the price of Liberty."
from John Philpot Curran, Speech
upon the Right of Election, 1790

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