Filed under: American politics, book, economics, Legacy Systems, Speculation, Uncategorized
Time to use the blog to take a break from real life. With our overheating hot local economy, there are numerous and problematic developments going through. Since I work on conservation issues for an NGO, I’ve my energy the last three months dealing with all these projects, writing letters and testifying. It’s basically something new every week. I won’t get a serious break until the next recession, looks like. Or until I write a blog entry.
Anyway, I haven’t been completely busy, and I have had time to read. This isn’t a book review, more of an impressionistic rant based on some of the stuff I’ve been reading. In part as opposition research, in part as research for how to write a wealthy villain, in part because it sounded cool in a radio interview, a few months ago I read (and recommend) Brooke Harrington’s Capital without Borders. It’s a sociological study of wealth managers, the profession that helps the super-rich hide their money through offshore financial centers. Prof. Harrington did a really neat study: she embedded herself in the community by taking (and passing) the wealth management training and certification course, interviewing as she went. She was quite open about what she was doing, but because she has exquisite people skills and put in her time in the trenches studying with the rest of the students, passing the tests and getting credentialed, she got wealth managers to open up to her and to talk about their world and the clients they serve. Her book is a very lucid exploration of an industry that prides itself on discretion and secrecy. This book necessarily is about the nuts and bolts of how things work. Anecdotes are used to illustrate more than titillate, and all of the identifying details are stripped off.
The “bible” of intergenerational wealth management (at least to the extent that some wealth managers buy it by the box and give it out to clients) is James Hughes’: Family Wealth: Keeping it in the Family. This is a book designed to educate members of wealthy families about how to go about keeping their wealth in the family. Mssr. Hughes (he’s a lawyer) comes across as a thoughtful and caring man–if you’re one of his clients. He also has a rudimentary knowledge of physics which he uses to justify his form of wealth management in a way that is quite horrifying if you think through the implications and know a tad more about physics than he does.
So…what is intergenerational wealth, and how does it relate to anarchy and liches? The wealth part is fairly straightforward: it’s hard for a family to stay wealthy more than the proverbial three generations. Apparently the wealthy around the world in many cultures, have an aphorism equivalent to “one generation to build the wealth, one generation to experience the wealth, and one generation to lose the wealth,” except that often it doesn’t take even three generations. Keeping massive wealth (more than about US$50 million) from being taxed, spent, litigated, and scammed into oblivion is harder than it might seem, especially since the heirs of the magnate who made the original fortune tend to be less talented than the original magnate (a great example being the current US President and his acknowledged offspring, compared to the business acumen of the president’s father). As a result of the centuries of battles over control of the money, a whole industry of wealth managers has grown, especially since the 1980s, to oversee the recondite webs of trusts, corporations, and foundations that hold wealth in ways that seek to avoid all debts, spendthrift heirs, taxes, litigation settlements, business losses, scams, begging charitable organizations, and the like. Thus, the families that strive to grow their wealth across generations necessarily also depend on a large trove of documents that define and protect their wealth. These documents become essentially (or an essential) part of the family. Along with the documents come the faithful knights who defend their lords’ fortunes–at least, this is how many wealth managers see themselves, for their business is built entirely on trust, and they see their relationship as almost feudal.
The lich in Dungeons and Dragons is an undead creature whose soul is hidden in a “phylactery,” an object holding magical texts. While I’ll hasten to add that I know perfectly well what a phylactery is in the real world, and I cringe at the crypto anti-semitism of using it in this context, the analogy to the D&D version is quite apt: these fortunes, and the people who depend on them, depend on documents and relationships that aren’t quite real. They’re literally pieces of paper and computer files, yet they are the core of modern families practicing intergenerational wealth generation, and they control much of the world at this point. The life of the family depends on these “phylacteries” and the people who protect them.
We talk about the socialism of the wealthy, that those of us with enough wealth have a safety net of health care, lawyers, and the respect of the police, that those less fortunate do not. And the richer people get, the more society protects them. For example, a self-described billionaire who is the scion of a wealthy family can go bankrupt four times and still fail upwards, while a wage-earner or veteran who goes bankrupt even once can be made homeless and die of a perfectly curable disease. Yet there’s a level beyond this. The super-rich, those whose wealth equals or surpasses the GDP of small countries, have a different relationship with the law entirely. For them, citizenship is a matter of advantage, not loyalty, and laws are only to be followed to the extent that they are beneficial. Problematic laws can be avoided via the intercession of loyal attorneys. So if we have the harsh justice for the poor, the laws constraining the middle class, and socialism for the wealthy, the super-rich are effectively anarchists. This isn’t new. As Harrington noted (p. 290):”[I]n 1909, G. K. Chesterton wrote: ‘The poor man really has a stake in the country. The rich man hasn’t; he can go away to New Guinea on his yacht. The poor have sometimes objected to being governed badly; the rich have always objected to being governed at all. Aristocrats were always anarchists.'”
That’s why I’m beginning to think of the super-wealthy and their multigenerational trusts (google “STAR trust”) as anarchistic liches. And yes, this hugely moneyed aristocracy is as anarchistic as their predecessors ever have been.
As for the cultish aspect, I’ll point to Hughes and his lawerly take on physics (p. 7): “As described by the laws of physics, energy comes together to form a new creation, undergoes a period of stasis or balance, and then moves by way of entropy or decay toward disorder. The energy, however, never disappears; it ultimately becomes part of a new creation, and the process begins again. Apparently all forms of life, which can be seen as organized forms of energy, must go through this cycle. The issue for families is whether they can extend the period of creativity through many generations, and thus postpone the periods of stasis and chaos for as long as possible.” In his view, the promulgation of intergenerational wealth is a noble battle against entropy itself, with things like taxes and debts being part of the forces of entropy. He and much of the wealth management industry promulgates these ideas as the noble cause that the wealthy must embrace, to better themselves, and, through their charities, the world.
Sounds good, but it’s incomplete. For those familiar with Ilya Prigogine’s work on dissipative structures, even glancingly (in my case), knows that it’s not a matter of order eternally against chaos. Order can be imposed through work, but that work generates its own entropy. So the toil of creating and maintaining a system across the decades actually generates more entropy on a global scale than not doing it at all. Perversely, Hughes’ attempt to bring some nobility to wealthy families attempting to become more wealthy only increases entropy for them and everyone else. In the end, his story is one of belief, not physics, and while he isn’t an overtly evil man (judging from his writing), beliefs like his are causing enormous harm to the world. It might even be that the world wouldn’t need so much charity if the wealthy didn’t exist.
The amount of money managed this way is eye watering. Per Harrington (p. 201): “There are now about 14.6 million individuals in the high-net-worth category worldwide, and their wealth amounts to just over $56 trillion—triple the GDP of the United States, and greater than the sum of the world’s fifteen largest national economies.” This is what warps our politics, land use battles around the world, our efforts to combat climate change, just about everything. We may technically live in a world of nation-states, but within our system is an aristocracy, some of whom are individually wealthier than over half the world’s nation states, who protect their wealth by employing experts to arbitrage the differences among the world’s 190-odd countries to protect and grow their wealth. These experts even write the laws for offshore financial centers that cater to them. The impact of these people on the world is staggering. Indeed, climate change can be seen as one result of a huge spike in global entropy generation, and the way it has risen since the 1980s seems to parallel the rise of both wealth management as a sophisticated profession and the rise of wealth managed to avoid debts in the same time frame.
What to do about it? It’s both as simple and as complicated as taxing the wealthy. Unfortunately, they’ve spent decades hiring the brightest minds they can find to make that as difficult as possible, so simplistic attempts will not work. It’s much, much harder than the fantasy quest of finding where the sorcerer hid his heart and destroying the “phylacteries.” Harrington suggests, as an alternative, corrupting the wealth managers by finding them more lucrative work handling things like the payrolls of multinational companies (managing taxes for a company that employs citizens from many other companies uses the same skill set as does managing the wealth of one person by spreading it among many countries), so that they’re less inclined to aid the super-rich. Idiots might even suggest nuking all the offshore financial centers, as most of them are small islands, generally former or current British dependencies. Alas, the biggest OFCs are Switzerland, the City of London, Singapore, and other places with high populations, so it’s impossible to use brute force to kill these systems without starting WW3. But they are one of the biggest problems we currently face, and we don’t really know how to deal with them. In many ways they’re worse than the megacorps of 90s cyberpunk, and we really do need to figure out how to deal with them as swiftly as possible.
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Putting the life back in science fiction 
My best thought on how to challenge/correct the problem was to allow bounties on hoarded wealth. I mean, governments should go though with official taxing and confiscation. But if the problem is hidden wealth, I bet people could find it if they were motivated. If people could keep a bounty from any wealth they found and turned in to their governments, they would turn their own genius and initiative to the problem.
Comment by OtPR June 10, 2019 @ 11:23 pmIt’s worth looking at the nature of wealth, specifically trusts and corporations. For example, would the world be a better place if Bill Gates’ share of Microsoft was liquidated and spread equally among all people? That’s what we’re talking about. With trusts, it gets even more complicated, because the question isn’t who owns the property, it’s who is in control of it. For example, in its simplest form, a trust is where you turn your property over to a trustee, who manages it for you and, if requested, gives you disbursements from it. A billionaire can scatter his wealth among hundreds of trusts. If you want his stuff, you’ve got to not only find the trusts, you’ve got to get control of them somehow. That’s what makes it difficult. Since governments and billionaires have been playing this game for most of a century now, the measures they go to to hide their wealth and to find it get complex indeed. If, say, someone owns a piece of land that they’ve used as collateral for money to buy a corporation whose profits were used to buy the yacht they are sailing in, but the yacht is rented from a company that is owned that is in turn owned by a trust that is based in British Virgin Islands and responds to the billionaire who (through a similar maze of cutouts) owns the original property that provided the collateral, who owns the yacht, where did the money go, and how do you claw it back?
Comment by Heteromeles June 13, 2019 @ 9:18 pmwould the world be a better place if Bill Gates’ share of Microsoft was liquidated and spread equally among all people?”
Yeah, a more egalitarian world would be better, in my opinion, but egalitarian societies, I suspect also don’t generate as much excess wealth as non egalitarian societies and would therefore fall prey to the likes of the US.
People, left to their own devices, will work just enough to survive in a society where everyone has just enough. It’s the people who want more than enough who figure out ways to make others generate wealth for them.
Comment by loboyjuanita July 3, 2019 @ 1:20 pmAnother problem is that if Bill Gates’ net worth can be converted directly to dollars ($103 billion) and we can give an equal share to every person on Earth (7.53 billion), then everybody gets around $13.67. That’s immensely useful for the abjectly poor in the slums, for a couple of weeks, but a day’s expenses in most US cities. Also, while I’m for a jubilee, I don’t think the evidence suggests that wealth always stays equally spread, even if it starts that way. Bad decisions and bad luck tend to dissipate it for some, while others accumulate through good decisions and especially good luck. These tend to propagate over time until there are rich and poor again, which is why the ancient jubilee happened every few decades, to keep things from breaking down into revolution. Massive redistribution is a temporary fix, albeit one we need right now.
Comment by Heteromeles July 3, 2019 @ 4:48 pmRedistribution does at least shake up the possible end result. If luck and smarts are important, they can overcome inherited advantage, thus breaking the long term stagnation of the social system. We don’t even have to redistribute equally. Start with the poorest in teh nation, or even with the poorest countries’ poorest populations to try to bootstrap their economies, while at the same time cutting the head off the 0.01%. A global redistribution to stop kleptocracy would also be nice. So world government?
Comment by Alex Tolley July 3, 2019 @ 4:56 pmOT. As you are a promoter of the ammonia fuel economy, I thought this piece in the Guardian about ammonia releases from farms was relevant. As I have said before, ammonia is toxic, which means that the inevitable spills and leakage will be potentially dangerous, let alone the pungent smell. Anyway, food for thought.
https://www.theguardian.com/environment/2019/jun/13/ammonia-health-problem-rising-air-pollution
Comment by alexandertolley June 13, 2019 @ 4:13 pmYeah, I saw that. Ammonia was a bright idea while it lasted, but I’m no longer a fan, simply because, as you and the article note, the producers aren’t being honest and the consequences are pretty dire. I think one of the emerging themes of the latest round of climate change fights is that lack of honesty and transparency really is putting civilization in danger.
Comment by Heteromeles June 13, 2019 @ 9:11 pm