I'm learning economic concepts so some of my notions and questions end up being naive. Would appreciate if someone could clarify/answer this.
It's a fair guess that vast majority of Bezos's wealth is in Amazon equities. Which are valued as such by the participants in US equity market. A thought exercise, what would happen if he were to liquidate all of that $180+B in equities? Safe to say he will get less than $180B in cash that could he could use for charities, moonshot projects etc.,
There's also a matter of confidence. How will the markets react if the founder of Amazon were to liquidate his Amazon holdings? So it seems to me that not all of his wealth is usable. Does it mean we need better ways of gauging wealth? Especially when trying to assert things like "X% of his wealth is enough to house all homeless veterans for an year". His wealth is locked up in some form which though is valued in USD won't translate 1-1 to other forms of wealth.
You're hypothesizing that he might want to spend 180 billion dollars in a single day?
If you don't assume that it makes no sense to assume he'd want to liquidate it all at once.
Liquidity != wealth
Illiquid wealth != unreal wealth.
It's really odd how many people seem to have been led to believe it is equivalent though... I'm curious to know where they all picked up this misconception.
I mean that is broadly how we come to compare wealth, we don't spend much time going into the weeds of how that number came into being and what assumptions were made there. So I'm not surprised that some people think that of money.
That being said he has gone through a divorce, he did lose a good chunk of his assets pretty quickly. Sure it was just a reallocation of assets, but unless you specifically want all of that money in cash you don't need do actually sell it. Banks for example will give you cash against the value of shares, allowing you access to liquid funds while you're slowly selling the equity.
Anything specific cause you want to spend all of that money on will probably have a limit at which you can spend at, there just isn't enough stuff in the world or people offering services to absorb all that wealth instantly. Trying to cure all the world's diseases will very quickly consume all lab and relevant researcher capacity, which will only grow at the rate people start skill retraining to this new lucrative career.
So I'm not sure it matters? I mean assuming the underlying share value doesn't freefall for some reason.
>we don't spend much time going into the weeds of how that number came into being
Because number of shares owned x current market price on an actively traded public corporation just isn't all that complicated. Where are the weeds?
Using $ as a measure of wealth whether liquid or not is absolutely normal in all sorts of contexts. I struggle to see why anyone would object
>absorb all that wealth instantly.
I asked before why anybody would want to spend $180 billion in a single day. You seem to have tacitly assumed that he would but I'm uncertain why. Or, alternatively, why this unreal hypothetical matters in this context.
Bill Gates is in the slow process of liquidating his entire MSFT fortune and spending it/rebalancing it, proving that being rich on that level is no impediment to actually using your wealth. Bezos is doing the same with a billion sold here and there to build rockets too. Where are the weeds?
I've been describing them? "number of shares owned x current market price on an actively traded public corporation" doesn't mean that you can execute it. So it's not perfectly valid, to the point where you need specialist knowledge to even know at what rate you can expect to get that turned into liquid cash, or convince the seller to accept shares at their market value, which not all sellers will be willing to do. I'm sort of confused why you don't see any issues with that definition of wealth, when the simple act of attempting to exercise that wealth suddenly means you have less of it? The same is not true of cash for example...
A more accurate measure might be, "number of shares owned x current market price on an actively traded public corporation with a rate of loss over a specified time period, where if you wish to access the money faster, the rate of loss will increase based on this model" or something to that effect. I'm sure someone who actually knows the intricacies of this will be able to chime in with the expected amount of money you will end up with given that size of equity stake to some specified error margin.
> I asked before why anybody would want to spend $180 billion in a single day.
Well if you take spend as a transfer of wealth, then I mentioned a divorce which would fit as a significant wealth transfer that happens the instant the document is signed, Inheritance would be another.
> Bill Gates is in the slow process
The fact that you are describing it as slow is an impediment it may not be much of one, but it is an impediment. These are those weeds.
I really dont think you have. You've been describing a hypothetical weed that doesnt manifest IRL.
>doesn't mean that you can execute it.
Coz you defined "execute it" in such a wildly unrealistic way that in no way resembles how any person actually or would want to "execute" that level of wealth.
>I'm sort of confused why you don't see any issues with that definition of wealth
Coz I'd never want to spend $180 billion of wealth in a single day either. The more wealth I have the more I'd want to draw out spending it.
>the simple act of attempting to exercise that wealth suddenly means you have less of it?
That is the point of liquidating your wealth and spending is it not?
>Well if you take spend as a transfer of wealth
They aren't the same. "Spending" wealth typically requires liquidation.
>divorce which would fit as a significant wealth transfer that happens the instant the document is signed
You are confusing liquidity and wealth again, I think. Bezos's wife wasnt given ~40bn in cash. No monetary transaction took place.
>The fact that you are describing it as slow is an impediment
It's slow because Bill Gates wants to spend the rest of his life spending his fortune. Your presupposition is seemingly that although he is doing this the wealth he is and will spend "isnt quite real" or "should be discounted" because he can't squeeze all that spending into one day.
Is that correct? Please, indulge me by answering this question directly.
You're making a lot of short points without actually describing any reasoning behind them.
If you just want to disagree that's fine, but I was actually looking for a discussion? For example:
>>I'm sort of confused why you don't see any issues with that definition of wealth
>>the simple act of attempting to exercise that wealth suddenly means you have less of it?
>Yes, that is kind of the point of spending.
I don't understand why you're trying to say here, I'm saying in a situation I want to give someone $100 cash, I would be upset if the process of handing them the money results in them getting $80 cash. When I say "suddenly means you have less of it?" I don't mean I have less money, that's obvious, I mean the recipient receives less money than I expected or they expected. I can absolutely hand over the equity, but as I said it may not be accepted.
>>Well if you take spend as a transfer of wealth
>They are actually not the same thing at all.
Ok, how would you describe spend? How is a wealth transfer specially distinct from spending.
You keep handwaving away the fact that there is a difference between an equity valued at X and cash of X value. There is a difference, such that you can't treat them as the same thing. We merely use the current market value as a way of computing it, but it is in no way pinned to that value.
-- EDIT as responding to parent edit --
> Your presupposition is seemingly that although he is doing this the wealth he is and will spend "isnt quite real" or "should be discounted" because he can't squeeze all that spending into one day.
> Is that correct? Please, indulge me by answering this question directly.
I'm merely pointing out that the numbers we bandy about aren't accurate.
Ultimately wealth is buying power.
If we're talking about someone who owns $100k in Amazon stock at the current market value, I think we'd be happy to say that the person in question has $100k in buying power, they could sell all of that stock and then buy $100k worth of goods with it.
Someone who has $100B in Amazon stock can't do that, they're buying power isn't $100B. Now what exactly it is, is a fascinating question. I'm saying that based on different specified timescales it's different, if that person wanted to get their hands on $10B in 1 month, 6 months and 1 year, they would have to sell a different quantity of their equity stake to achieve that. In fact if the underlying asset goes up in value over that time period then it may even be worth more. However I'm talking in terms of "discounting" because a lot of assets value goes down if you try and trade them, primarily because the seller wants to buy them at less than their "current value".
So to summarise, I'm not questioning the "realness" of his wealth, I'm simply stating that at those quantities of illiquid wealth, how to actually utilise the buying power of your wealth is not that straightforward. The fact that we use "number of shares owned x current market price on an actively traded public corporation" is just a way to get a nice easy number that hides a lot of interesting detail.
On this topic, there was a really interesting money stuff article that went into how private equity firms were selling small stakes of their company to "price" their equity suddenly allowing their owners to declare themselves billionaires. They sold some of their assets, but by allowing the market to "price" them we accept they now have more wealth.
>It's slow because Bill Gates wants to spend the rest of his life spending his fortune. Your presupposition is seemingly that although he is doing this the wealth he is and will spend "isnt quite real" or "should be discounted" because he can't squeeze all that spending into one day.
>Is that correct? Please, indulge me by answering this question directly.
You did not answer the question.
If you aren't at all concerned with the central point of this discussion and simply wish to abstractly discuss the nature of liquidity and wealth then I will leave the discussion here. There are economics textbooks that explain the topic to the layperson better than I would.
Regrettably you still did not commit to a direct answer.
"I'm merely pointing out" was a response of evasive prevarication in spite of me asking you to be direct.
Three comments later all I'm reading is a very strong implication of disagreement with no concrete reasons mixed with a lot of sowing of doubt based on ancillary points.
I think this is a good time to end this discussion. If you do truly still disagree with me and wish to start again, please could you write a response to the parent comment with specific reasons? Thanks.
> there is a difference between an equity valued at X and cash of X value.
Indeed, based on my readings and thought exercises this is absolutely correct.
In case of equity it is the market i.e., the collective belief of participants in the market is what is backing the value. As we see once in a while market for specific stocks could vanish leaving nothing backing that value. Where as in case of cash it is backed by the US government. That is a big difference.
For a day-to-day retail equity trader you could assume there is close to 1-1 correspondence between equity and cash. But at scale that 1-1 mapping breaks down.
> So it seems to me that not all of his wealth is usable
Bezos is the richest, so we don't have examples quite at that scale. That said, we have some pretty big (eg gates, buffet) announcing liquidation & donation without anything bad happening. So, he probably could sell his amazon shares and do something else with them.
You are approaching some "it's complicated" questions that occur at scale though. It's true, for example, that if Bezos wanted to liquidate immediately, that volume of shares is probably more than the market could buy. It might temporarily crash the stock, if handled wrong. Finance people know how to do this right though, so I think we can say that all of that wealth is usable.
There's also the other side, what Bezos would spend that wealth on? You can only buy what exists. Say Bezos decides to solve homelessness and housing scarcity in his state forever. He sells his amazon shares (slowly, carefully) and buys half a million houses. There aren't that many houses for sale, so rices would skyrocket. Say he decides to build instead, to avoid that. The state only has so many builders, roofers, cement shops, cranes... only so much capacity to produce houses. Building or buying half a million houses in Washington quickly is probably near impossible. You might cause detrimental side effects by trying. Normal people couldn't buy a homes, because Bezos has bid up the price of everything. OTOH, builders and pre existing property investors will get rich. Inflation probably happens.
This is the kind of problem governments often face. At some scale, common sense economic concepts/abstractions like the cost of building a house break down and underlying realities leak in. Only so many houses exist.There's only so much labour, materials, capacity to produce.
A rung or two higher up the meta ladder, a common demonstration of macroeconomic weirdness is the "paradox of choice." What would happen to an economy if everyone saves 100% of their money? All shops & restaurants are empty. There's no work. Businesses fail, default on loans. Share prices crash. It's simply impossible for a whole economy to save. Saving (and more controversially, borrowing) doesn't exist at macroeconomic scale. An economy can't save or borrow. Shutting down car factories today doesn't make it produce more cars tomorrow. So, we can't all save for a car this year to buy one next year.
Thank you for a detailed and informative response.
> ....only has so many builders, roofers, cement shops, cranes... only so much capacity to produce houses....only so much labour, materials, capacity to produce.
IMO the underlying problem to solve is mobilisng this capacity. And the $$ to do so needn't come from rich people. The US anyway has been running budget deficit, there's also this ~$2T infrastructure bill. Some of that money could be used to solve housing/health/education problems and as an added benefit it'll provide jobs to the US citizens. I'm sure this will have 2nd order adverse effects but they I guess they won't be as disruptive.
I am not saying inequality is a problem; but taxing rich doesn't seem to solve it. It will lead to endless debate and lost time. It will take the focus away from the underling problems which is rotting basic human needs -- food/health/housing/education. The government should address underlying causes that lead to inequality and spend on infrastructure in a big way.
So... I don't think there's a universal "underlying problem." Everything has a context. Mobilising the capacity of an economy is, IMO, a macroeconomic question. Besides being big and involving the whole economy, macroeconomics is almost synonymous with monetary economics... the economics of money.
So, I don't think you can seperate it from tax and monetary policy.
His wealth is locked up in some form which though is valued in USD won't translate 1-1 to other forms of wealth.
You should also consider that Bezos can access his wealth in more ways than simply selling his stock. It can be used as security against debt for example. Should Bezos decide he wanted to he could borrow many billions of dollars secured against some of his Amazon stock today (assuming his contracts with Amazon don't preclude doing that). Bezos could also donate stock to a charitable trust, which could then sell it with much less market disruption. Or he could use dozens of other financial mechanisms available for accessing his wealth.
People are keeping wealth in holdings because they are not taxed. If they would liquidate they would have to pay let's say for the sake of the argument half of it as tax. I don't think market is a problem here.
The bigger problem is what are you going to with that money? Obviously not consumption. You are not going to buy more tshirts and burgers.
You are going to invest in pet projects, like google glass or Bezos cockrocket [1]. Or finance some causes, like Gate's attack on malaria - good stuff.
He'd certainly get much less than $100B, but he'd still get a lot. The share price of amazon is mainly driven by the revenue/expenses/growth opportunities of the company, which will not have changed just because bezos is cashing out, so it won't collapse completely.
That's not unique the the ultra rich, though. Many people have most of their wealth locked in a house. If they needed to sell at very short notice they would have to sell at a significant discount.
There's a pretty big difference between owning $180bn and owning Amazon. At this scale he's more like the monarch of Amazonland than the owner of Bob's Dry-cleaning.
I'm not sure that implies there should be a regime change in Amazonland, though. In some ways it implies the opposite. Annex Amazonland, overthrow King Bezos, and you're faced with the challenge of administering the damn thing yourself.
You are focusing on numbers which will lead you nowhere. The reason the US has a struggling population is that the US has a population that didn't have a good education and training. If you want to make a population richer, you need to train people to do things (ie: Plumbing, installing an Air Conditioner, becoming an ophthalmologist, etc...). As evidenced by the latest stimulus checks, giving people money will only create inflation and a shortage of low-wage workers. The US is very rich and connected, so lack of raw resources is not one of its issues.
Jeff Bezos can have $200bn+ in the bank without affecting the economy. The effect of seizing these $200bn and distributing them is the same as quantitatively easing them into the economy. Some people exert power through work or politics. Some people have none and want to exert power through "journalism" and "shaping opinions". It's all fun and games until these people are elected (through populism probably coupled by a recession); which is when you need to prepare your luggage and get the hell out of such a place.
I'm talking about the hypothetical scenario where swapping $200bn worth of equity will generate $200bn worth of cash without disturbance to the market.
Obviously, this couldn't be less true and the market will collapse even before the selling starts.
It's a fair guess that vast majority of Bezos's wealth is in Amazon equities. Which are valued as such by the participants in US equity market. A thought exercise, what would happen if he were to liquidate all of that $180+B in equities? Safe to say he will get less than $180B in cash that could he could use for charities, moonshot projects etc.,
There's also a matter of confidence. How will the markets react if the founder of Amazon were to liquidate his Amazon holdings? So it seems to me that not all of his wealth is usable. Does it mean we need better ways of gauging wealth? Especially when trying to assert things like "X% of his wealth is enough to house all homeless veterans for an year". His wealth is locked up in some form which though is valued in USD won't translate 1-1 to other forms of wealth.