Are billionaires getting more liberal?

It seems to me that some factor or combination of factors, by they structural/macroeconomic, tax policy related, or other, have had in recent decades the effect of disproportionately rewarding a class of ultra-rich people who happened to be more politically progressive than the previous generation's billionaires.

My main piece evidence for these trends is the increase of self-made billionaires, and decrease in inherited wealth among the Forbes 400 over recent years, as documented by Forbes. It stands to reason that the more self-made prominent billionaires you have, the less relative power inheritance billionaires have, who will tend to be relatively more conservative. This tendency may be shown in recent studies such as "Stealth Politics by US Billionaires", which attempts to document the political leanings of those at the very top of the economic hierarchy.

I thought it was an interesting hypothesis, and one that may predict significant political and social impact due to outsized political power of billionaires for years to come. It also has other interesting implications, including a potentially difficult pill to swallow for conservatives: that the most bootstrapping among us may in fact tend to be liberal and disavow key parts of the ideology that lobbied for their success.  Can you be the party of both bootstrappers and old money when they are by default fighting for power and influence? Hillary, when asked if Wall Street banks should love her responded by saying something like "everyone should love me". I don't think many agree with her that everyone's aggregate interests are so mutually compatible with each other.

How?

As is often the case in economics, it is difficult or impossible to separate a signal from the noise, which in this case would mean separating the effects of tax policy and macroeconomic conditions from each other, and determining how each affects the trend of more self-made billionaires. Despite the difficulty in achieving falsifiability, I suggest some possible causes. You can come to your own conclusion, if conclusion is what you desire:

Tax policy:
Consider for a moment an alternate universe where low capital gains taxes actually have been empirically shown to encourage investment. So the most recent wave of billionaires, comprised disproportionately of tech industry scions, who are themselves disproportionately self-made, tend to require more capital investment than many other types of startups. Finance billionaires are also much more likely to be self-made than other industries' leaders. These two groups depend on each other for their growth, and have experienced more recent growth than any industries besides healthcare. This suggests that common factors may be responsible for their success. For financiers, capital gains tax sometimes affects their income directly, and for capital-intensive tech startups, the willingness of financiers to roll the dice is all important. This is quite speculative, and the effects of tax policy on investment are controversial. However, if tax policy explains the ideological shift of power that I posit, this policy, championed by conservatives, would be an interesting and ironic culprit.

Macroeconomic factors:
It could be argued that the recent wave of entrepreneurship and cooperation between finance and tech is a macroeconomic trend that is relatively unaffected by tax policy, in which case the trend of increasingly self-made billionaires would have happened anyway even without low capital gains taxes. There are other possible reasons why billionaires would be increasingly self-made: increasing educational achievement and early intervention welfare programs may have exposed a higher percentage of the public to entrepreneurial and financial career paths. Entrepreneurship was high during the period before 2000, during which most of the Forbes 400 tech billionaires became wealthy, and the financial industry has also experienced huge growth in the recent period. While studies show that overall economic mobility has been decreasing in developed countries of late, extreme cases of rags-to-millions or billions are difficult to study, and they seem, based on the Forbes data, likely to run against the larger trend of decreasing mobility.

Similarly, the progressive high capital gains taxes may hurt the creation of high status left-leaning wealth, and help the old money inheritors stay at the top of the food chain. Bernie Sanders plans to increase capital gains significantly on households with over 250,000 in income. This could have the unintentional effect of decreasing the political power of new money down the line. This could be accentuated by a high estate tax or moderated by low estate tax.

A  caveat of this theory is that it is based on a small number of individuals. However, this may not negate its significance,  as the very wealthiest individuals wield grossly disproportionate power, even compared to other extremely wealthy people. Also, some trends in the same direction may be present among larger groups.

Other possible factors:

-Reduced intergenerational wealth transmission. This is however the opposite of what seems to be going on.

-Large increases in new wealth independent from capital gains tax rates. The increase in wealth inequality seems synchronous with falling capital gains rates, and we know that capital gains has been a major source of income gains for the top earners. However, perhaps there would be a huge amount of new-money billionaires even without a low capital gains rate.

-Another alternative hypothesis to be discussed in a future post about secular stagnation: as the wealthy sector of the populace as a whole gets wealthier, diminishing marginal utility could cause risk tolerance to fall off slightly, so that today's inheritors are less likely to take risks to grow their wealth.

Questions for the future:


-The whole hypothesis is contingent upon the idea that self-made billionaires are more liberal than others, and that this trend is large enough to have political consequences, but is it real?

-Is this trend self-sustaining, at a given level of capital gains tax, primacy of entrepreneurial risk taking, or level of inequality? Will low capital gains taxes cycle back to favoring old-money once this current generation of self-starting billionaires has children of their own?  Does this trend require inequality to stay at current levels or even increase? If you have tax policy targeting a level where wealth inequality is static, then in order for new wealth to be created, you either need lots of new economic growth, or old wealth needs to be destroyed. It may not be sustainable unless wealth inequality is steadily increasing, GDP is rapidly increasing, or you have a high estate tax to destroy old wealth.

-Does this trend generalize to lesser extremes of wealth or income taxes? Are this generation's multimillionaires generally more self-made and therefore liberal because of low taxes? What about the upper middle class? Presumably those that make the transition from poor to upper middle class are outnumbered by those that were born in the middle class.

-It is quite likely that this effect of liberal overrepresentation at the very top merely counters but does not overcome a larger trend in the opposite direction - of billionaires being more conservative, especially economically conservative, than other people. Still, if true, it is a change with possibly large effects.