What Everyone Is Missing About 2020: Wealth Creation

2020 Has Been a Year of Incongruous, Unprecedented Wealth Creation

Inspired by Bill Gates, who calls the practice his annual “Think Week”, I try to read a few intellectually stimulating books during the final two weeks of each calendar year. This year, my book choices ranged from racial inequality (Caste: The Origins of Our Discontent), history (China and Japan: Facing History by my Uncle Ezra Vogel, a scholar and mensch who suddenly passed away a few weeks ago at 90), autobiography (Obama: A Promised Land), and fiction (Philip Roth’s Nobel Prize-winning American Pastoral). Added to this year’s mix was a book my 18-year-old son insisted I read as he recently declared it is his favorite book of all time: Hermann Hesse’s Siddhartha, a novel about the journey of a young Indian boy who gives up a life of privilege to search for truth, leading him to become the Buddha.

It was a nice respite from the mess that was 2020. In wrapping up our year and looking ahead, many pundits and politicians have emphasized the four crises that we face heading into 2021: the pandemic, racial inequality, climate change, and a wounded economy.

Incongruously, in the face of these four crises, the stock market ended the year at a record high, largely driven by a surge in tech stocks. In fact, the hidden secret of 2020 is that it has been a spectacular year for wealth creation. A review of the numbers shows the staggering amount of new wealth that was created during this horrific year of death and disruption. A few examples of note:

  • The collective wealth of America’s 651 billionaires grew $1 trillion since the start of the pandemic: from $3 trillion to $4 trillion.
  • Jeff Bezos and Elon Musk alone have seen a surge of $200 billion in new wealth.
  • The IPO market had a banner year. Three recently public companies alone — Airbnb, DoorDash, and Snowflake — are now worth over $210 billion in value.
  • The combined market capitalization of Bitcoin and Ethereum grew from $140 billion to over $680 billion, a gain of $540 billion in value in just one year for their holders.
  • Even in my hometown of Boston, the degree of wealth creation has been stunning. Just look at five companies that have benefited from the pandemic’s digital acceleration and life sciences boom: DraftKings, Hubspot, Moderna, Thermo, and Wayfair. In March, the combined market capitalization of these five companies was approximately $130 billion. At the market close on 12/31/20, the combined market caps had soared well over 100% to nearly $300 billion, creating $170 billion of new wealth for their executives and shareholders.

All of this in a year where the country’s GDP is forecasted to contract by almost 4% and unemployment is nearly 7%. Economists and historicans will try to deconstruct this disconnect between Wall Street / Silicon Valley and Main Street, between the Winners and Losers, for years to come. What I want to reflect on, though, is what are the implications of this unprecedented situation.

How will this staggering amount of new wealth be applied in the midst of our four parallel crises? What will these few thousand individuals do with their newfound wealth in the coming year? Will we slip into a greater sense of malaise over the vast inequality and unfairness in our society?

Looking ahead, I predict three things will happen:

  1. A surge in philanthropy. I believe we are about to enter a golden age in philanthropic giving. The wealthy feel both a strong sense of obligation and a dash of guilt. The popularity of the billionaire’s Giving Pledge that Warren Buffett and Bill started is a strong indication of that — more are joining on (seven new ones signed up this year alone) and these (mostly) men and women are beginning to reach an age where they are ready to focus on their philanthropy. Jeff Bezos’ ex-wife MacKenzie Scott, quietly donated over $4 billion alone to charities in the final months of 2020. We are entering a golden age for nonprofits.
  2. A surge in money in politics. It’s hard to imagine more money in politics, yet that is what is about to happen. Every one of these billionaires and multi-millionaires has an agenda or cause they are passionate about — fighting climate change, protecting democracy, reforming public schools — and therefore they will seek to influence policy, and the politicians who make that policy, at an unprecedented level. The Georgia Senate race has seen well over $300 million raised, making them the most expensive and second most expensive seats in history. Get ready for more of the same: so long as money can continue to influence policy, money will influence politics (or is it the other way around?). Anand Giridhadaras covers this well in his book as well as this NY Times article on the Billionaire’s Election.
  3. A return to populist rage. Occupy Wall Street gave us a taste of it but I believe we are going to see more protests and populism tied to inequality in addition to people taking to the streets to protest against socialism (from the right) or racism (from the left). Occupy Wall Street was sparked by a single unpredictable incident — as was the Arab Spring, as were the George Floyd protests — and so we may see another unpredictable incident lead to another round of protests in 2021. When President Obama admonished the CEOs of banks in a 2009 White House meeting that he was the only one standing between them and the pitchforks, it was a foreshadowing of what can happen when the American people no longer believe their institutions as being fair. The handling of the pandemic, the vaccine distribution, and the way trillions of dollars are being pumped into the economy are all ingredients that suggest we may see an unpredictable ignite populist rage in America over inequality in 2021.

2021 will be defined by what we as a society do with this newly created wealth — how it is divided up and deployed? In a year where our system of both capitalism and democracy have been challenged to their core (something I was deeply worried about this time two years ago, as described in my Think Week blog post of 2019), I hope we can figure this one out. I am an optimist at heart and so will be rooting for all the good that can come from this — and hoping that our civic and business leaders are thinking deeply about these critical questions heading into the new year.

Happy new year to all!