Back in the old days, and by the old days I mean the 1980s, there were a handful of ways in which you were likely to get rich. You either inherited it, or you made it in oil or real estate. The Forbes list of the 100 richest Americans was first published in 1982 and, at that time, 60 of the people on this list had inherited their wealth. Of the 40 new fortunes on the list, about 60% were primarily related to oil or real estate. If you couldn't inherit your money, these two industries were a good place to start.

But as Paul Graham explains in this recent essay about "how people get rich now," this is no longer the case. On the 2020 list, there were 73 new fortunes, but only 4 stemmed from real estate and only 2 stemmed from oil. As you might imagine, today's biggest driver is what we call tech and, more specifically, it is people founding tech companies (there are also a couple of examples of early employees doing very well). Of the 73 new fortunes last year, approximately 30 came from tech, including 8 of the top 10 fortunes on the list.

Given how many people are starting new companies today (it has become easier and cheaper) and given how many of these companies are quickly growing to big valuations (things are scaling faster), it is perhaps tempting to think about this period of time as being entirely unprecedented. Never before have we seen so many young people getting rich by starting their own company. And never before have we seen such inequality.

However, Graham argues in his essay that this period of time is the default. What we saw in the second half of the 20th century was actually an anomaly. Indeed, if you go back to the end of the 19th century, the richest people in the US were mostly people who were starting their own companies and taking advantage of new technologies, such as that of mass production.

His claim is that for the most part it wasn't really viable to start your own company in, say, the 1960s. Instead, most people simply went to work for a big company that had some sort of oligopolistic positioning in the market. And it turns out that was pretty good for maintaining a strong middle class. Less people were getting fabulously rich. I'd like to see some more data points around entrepreneurship and wealth during this era. But regardless, I think it's pretty clear that the dominant sources of wealth have changed.

I just came across this post by Paul Graham called, "modeling a wealth tax." It's from last year, but it recently resurfaced. In it, he paints a scenario. Let's say you're a successful entrepreneur in your twenties (i.e. you make some money) and then you live for another 60 years. How much of your stock would the government take with various wealth taxes?

With a 1% wealth tax, it means that you would get to keep 99% of your stock each year. But assuming the wealth tax gets applied every year, you would be left with 0.99^60, which equals 0.547. Put more simply, a 1% wealth tax would mean that over the course of the 60 years after you built your company, you would be giving the government 45% of your stock.

How did this number get so big?

The reason wealth taxes have such dramatic effects is that they're applied over and over to the same money. Income tax happens every year, but only to that year's income. Whereas if you live for 60 years after acquiring some asset, a wealth tax will tax that same asset 60 times. A wealth tax compounds.

Of course, Paul also points out that giving away a portion of your assets each year doesn't necessarily mean that you're becoming net poorer, so long as your assets are increasing in value by more than the wealth tax rate.

Still, these are massive numbers. A 2% wealth tax would translate, over this same 60 year time period, into the government taking 70% of your stock. A 5% wealth tax works out to 95%. For more on this, check out Paul Graham's post.

Back in 2006, Paul Graham penned an essay about how to be Silicon Valley. Since then, it seems like every city on the planet has tried to replicate the successes of the Valley. At the time, his argument was pretty simple. Geography used to be destiny when it came to cities. New York City, for example, is arguably what it is today because of its geography and its deep harbor, which created a natural competitive advantage compared to other east coast cities such as Boston and Philadelphia. But this, he argues, has become far less relevant. Now, you can create a great city pretty much anywhere. So what are the necessary ingredients?

Paul argued that you only really need two kinds of people to create a technology hub: rich people and nerds. You need people creating new things and you need rich people to fund those new ideas. That's it. So in theory, if you could just dump a bunch of these kinds of people in one place -- Nunavut? -- you'd perhaps get unicorns coming out the other end. He goes on to say that Miami is a perfect example of a city that has lots of the former, but very few of the latter. It has lots of rich people, but, in his words, it's not the kind of place that nerds like. So it is/was not a good startup city. (I'm a nerd and I like Miami.)

But the year is now 2021 and a global pandemic seems to be helping to change this dynamic. Every tech entrepreneur and/or investor now seems to want to move to either Austin or Miami. To that end, SoftBank recently announced that it has earmarked $100 million for startups that are based in Miami or that plan to be based in Miami in the near future. It's perhaps a good testament to the momentum that seems to be developing around the startup scene in the city, which is something that their mayor has been incredibly vocal about.

But here's something to consider. Was Paul right about the two requisite ingredients for a successful startup hub? And if so, does Miami now have enough nerds? Maybe this recent influx of people was just what it was missing.

Photo by Cody Board on Unsplash