Counting to a Billion

by Alex Cuadros


Last week, Forbes published its list of the richest people in the world. This list, in the suggestive words of Peter Bernstein and Annalyn Swan, is “the big-banana index — simple, primal, direct” — a purely objective measure of who has more money than whom. But it’s more than that too. In their book about the Forbes 400, which ranks the richest Americans, the two financial journalists go on to describe it as “a powerful argument — and sometimes a dream — about the social value of wealth.”

There are a few problems with this narrative. Like the numbers, which are a lot more subjective than Forbes lets on. I know this because I spent two years working on a similar list, the Bloomberg Billionaires Index, which was created by two Forbes alums, Matt Miller and Pete Newcomb.

Calculating someone’s net worth is a mix of reporting, math, intuition, and unwritten tradition, because very few are willing to turn over anything so precise as bank statements or tax returns. And without access to these, some information is simply unknowable. The easy part is tallying up shares in companies that trade on the stock market. It’s a matter of public record that Warren Buffett owns nearly three hundred and ten thousand shares of Class A Berkshire Hathaway shares, and that each of these shares trades for $205,000. Multiply the two numbers and you get $63 billion. Most of a typical billionaire’s net worth exists only on paper, but I also spoke to analysts who could put a value on assets in the physical world — like Ralph Lauren’s $250 million classic-car collection, or Steve Cohen’s art. The task of pegging someone’s holdings in cash and stocks and bonds is trickier; Bloomberg created a calculator to simulate the appreciation of an imaginary portfolio, and if we changed one allocation, the net worth could fluctuate by tens or hundreds of millions, if not billions, of dollars.

Some numbers even the billionaires themselves don’t know for sure. According to Forbes, Charles and David Koch are each worth exactly $39.6 billion. But most of their fortune comes from their ownership of companies that don’t trade on any exchange, so they lack any consensus market value. In these cases, we compared whatever metrics we could dig up — refinery capacity, fertilizer sales — to those of public companies that seemed similar. Even when we got hold of exact revenues and profits, though, changing one assumption could make the number vary wildly. This helps to explain why Bloomberg’s number for the Koch brothers — $48 billion each — is so far from Forbes’s.

Of course, the biggest difference between the two lists is that Forbes says Mike Bloomberg is the world’s eighth-richest person, worth $41.7 billion. On the Bloomberg Billionaires Index he isn’t listed at all, because Bloomberg News doesn’t cover its owner.

We always ran our numbers by the billionaires. Most didn’t mind warning us when we got something wrong. A spokesman for Amancio Ortega, the founder of Zara (net worth $67 billion), once told me our number looked a little too high. But some dispute their place on rich lists entirely. A Mexican chemicals tycoon named Antonio del Valle Ruiz, perhaps concerned about his safety, once told me he didn’t control the fortune that we were attributing to him. Others hope to avoid drawing attention to shady dealings. Others still, even the seemingly press-averse, actually want a larger number. When I relayed our initial estimate of around $10 billion for Joseph Safra, the secretive scion of an old Jewish banking dynasty from Syria, his people assured me that we were too low by several billion. They wouldn’t offer any proof, though, because they claimed that some of his assets couldn’t be revealed publicly.

More often, when someone wanted a higher number, he — always a he — would provide extensive evidence to make his case. Eike Batista, who used to be Brazil’s richest man, once sent me photos of his various yachts and private jets. Donald Trump is most famous for this, though he’s less successful than he’d like. He says he’s worth $10 billion; Forbes says he’s worth $4.5 billion; and Bloomberg says he’s worth $2.9 billion. He once sued a journalist who pegged him at a mere $250 million. The lawsuit was interesting because it revealed the squishiness of Trump’s own calculations, which attribute great value to his brand — his Trumpness. In a deposition, he said, “My net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings — even my own feelings.”

Trump is sometimes ridiculed for this idea, but it’s not actually as crazy as it seems. His mood-calculation is a hundred percent arbitrary, but this is an error of degree, not of essence. It took me a while to realize that even the value of Warren Buffett’s Berkshire shares is not objective: If he tried to sell them all at once, their price on the exchange would plummet, and he wouldn’t end up with anywhere near $63 billion in his checking account. In a way, ranking billionaires is an enterprise like Trump’s own. His credibility — in business and politics — depends on the popular belief that he is successful. Similarly, rich lists are only as true as the perception of authority behind them.

Taking these numbers as truth is something of a leap of faith. Uber, for instance, has never turned a profit, its full financial details have never been disclosed, and it doesn’t trade on the public market. As with Snapchat and Pinterest and Airbnb, its alleged value is based almost entirely on what a handful of big investors were willing to pay for a stake. This, in turn, is based partly on some kind of business plan, partly on guesses about the future — and mostly on what competing venture capitalists are willing to pay, a calculation that often grows from little more than fear of missing out on the next big thing. That’s not science; it’s not art; it’s emotion. But Forbes and Bloomberg usually rank the founders of these so-called unicorns based on precisely such valuations.

Why does any of this matter, beyond the egos of a few Silicon Valley entrepreneurs? Perceptions have real-world effects. Donald Trump recently bragged that, back in his days of serial bankruptcy, he had successfully tricked Forbes into making him appear richer than he actually was. His pride was on the line, sure, but so was his business. “It was good for financing,” he said. Thanks to Forbes’s number, bankers lent him more money at lower rates than they would have otherwise. Similarly, friendly estimates for some of today’s unicorns can serve to promote the interests of their owners.

Forbes’s list of the world’s richest people grew from a separate list, the Forbes 400, that ranks only the richest Americans. Both were born in the nineteen-eighties, when Reagonomics unleashed the id of capitalism and newly minted billionaires showed off their wealth as perhaps never before. It was during this time that Tom Wolfe coined the term plutography, defining it as “the graphic depiction of the acts of the rich.” For publisher Malcolm Forbes, however, the list represented “a marvelous meritocracy of money,” as the journalists Bernstein and Swan put it. Though he had inherited the magazine from his father, Forbes saw the ranking as a celebration of enterprise over aristocratic privilege.

Even as the gap between rich and poor has grown, this narrative has only deepened. “The American dream is still very much alive,” editor Luisa Kroll wrote upon releasing the Forbes 400 a few years ago. As evidence, she pointed out that, in the eighties, more than half of the list’s members had inherited their fortunes, while now seventy percent are classified as self-made. This interpretation isn’t exclusive to Forbes. “It’s not just a list of privilege,” writes Drake Baer at Business Insider. “These rags-to-riches stories remind us that through determination, grit, and a bit of luck anyone can overcome their circumstances and achieve extraordinary success.” What Baer failed to note is that many of those said to be self-made benefited from sizeable inheritances, or that social mobility otherwise remains abysmal. These perceptions of merit and opportunity also have real-world effects, influencing public support for policies that redistribute income between rich and poor.

The message being promoted here is that the economy isn’t rigged after all. On releasing its latest list, Forbes claimed to have registered “huge upheaval” among global billionaires. “Volatile stock markets, cratering oil prices and a stronger dollar led to a dynamic reshuffling of wealth around the globe and a drop in ten-figure fortunes for the first time since 2009,” Kroll wrote. This conveys an image of capitalism functioning in its mythic form, with competition and creative destruction constantly shaking up world markets. Of the two hundred and twenty-one who fell off the ranking, though, we aren’t told how many simply slipped to $999 million or thereabouts.

Some of Forbes’s own numbers undermine the idea of meritocracy at work. “It’s never been so easy to get rich so young,” trumpets one story on the world’s sixty-six billionaires who are under forty years old. But thirty of them inherited their fortunes, and the other three dozen make up just 1.4 percent of the world’s more than eighteen hundred billionaires — hardly the picture of a new era of precocious young wealth creators. Other numbers are even more inconvenient for Forbes’s narrative. To much less fanfare, the magazine recently started a separate list tracking America’s richest families. Some of the highest ranked are very old money: the Du Ponts, the Hearsts, the Mellons, the Rockefellers. Yet Forbes doesn’t take this as a sign that American wealth is calcified; instead it’s a lesson in how to “preserve family wealth.” Likewise, even though just twelve billionaires in the entire world are black, I have yet to see a Forbes story on the existence of deep structural racism barring entrance to the ranks of the world’s richest people.

What these lists highlight, and what they leave out, hint at embedded persuasions about the value of wealth. Forbes and Bloomberg both allow you to filter billionaires by country, industry, and age, and tell you whether they made their own money or inherited it. But you can’t sort billionaires by the money they spend to influence the world through politics or philanthropy. When it comes to Bill Gates, his foundation’s $40 billion endowment isn’t counted as part of his fortune, even though he and his wife have near-total discretion over how that money is distributed. Whatever you think of his causes, that discretion represents great power — and means that in some sense, he’s even richer than the lists let on. The official measures of power take for granted the truth of Gates’s selflessness.

Beyond these calculations is a more fundamental issue: Ranking people solely by their financial value obscures a proper sense of their social value. By adopting the logic of a “big banana” contest, these lists help make someone like Donald Trump — beneficiary of an accident of birth and merely average returns on capital — inherently important. The same logic extends to the self-made. Is Bill Gates “worth” more than anyone else in the world because the company he built is history’s greatest contribution to the advancement of human progress? Or because he turned a mediocre operating system into a monopoly, systematically protected it from competition, and extracted economic rents for years? The notion that his philanthropy is selfless might lead you to the first conclusion.

The media should, of course, investigate where the wealth of our plutocrats comes from. Given the power they wield, it’s a matter of vital public interest, and it would be far worse to have no sense of their power at all. But these rankings aren’t neutral measures of influence; they’re sold in a way that confuses money with merit. There’s a reason Forbes unironically calls itself “The Capitalist Tool.”

Photo of Warren Buffett by Aaron Friedman