By A. Gary Shilling
updated 3/29/2007 2:01:45 PM ET 2007-03-29T18:01:45
An unprecedented number of Americans have received unprecedented incomes and accumulated unprecedented net worth in recent years. Sure, the gains are tempered by the reality that while the top tier is gaining, the income shares of the rest are falling. Many Americans have seen no purchasing power gains in decades, and they've only recently advanced because of the big fall in energy prices.
But lack of income didn't deter spending. In aggregate terms, spending has risen a half percentage point per year faster than after-tax incomes for 25 years, pushing the saving rate from 12 percent in the early 1980s to -1 percent today. Many financed their excess spending growth by tapping stock appreciation during the long 1982 to 2000 rally and, more recently, their house appreciation.
While Washington politicians and even Fed Chairman Ben Bernanke wring their hands over income polarization, we’re more interested in how the rich get rich. There are many strategies. A number are far from new, but have been pursued much more vigorously and with much more spectacular results in an era when extraordinary liquidity is readily available due to low volatility and low perceived risks. We've identified 11 different strategies that have stood the test of time.
Before examining each, however, we must point out that luck is often paramount, regardless of how sound or flawed the game plan. Being in the right place at the right time has made fortunes for idiots. Think of the dot-com speculator who only sold out in late 1999 because he was buying a McMansion for his new wife, and that house then doubled in value over the next five years.
Conversely, "the best laid schemes o' Mice an' Men, Gang aft agley, An’ lea’e us nought but grief an’ pain, For promis’d joy!" as Robert Burns put it. Bad luck can turn a surefire strategy into a disaster. Elisha Gray had the misfortune to arrive at the U. S. Patent Office to patent the telephone a mere hour after Alexander Graham Bell.
Furthermore, none of these strategies are surefire. As we’ll discuss, all of them have pitfalls, sometimes because they are so successful that they invite their own demise.
1. Government subsidies
Perhaps the most time-honored and surest way to make big money is the old fashioned way — skill, brains, luck, clairvoyance, hard work — and so much government support you can’t miss. Benefiting directly from direct government spending is obvious. What’s more subtle and therefore more interesting are the vast government subsidies.
