the Decline of the Millionaire, May 24 2011

Wealth Cycles
Last week we blogged about John Law, an infamous character that helped France find and lose illusory wealth in the span of a few short bubble years. During his infamous heyday, a new term came about—one that described the amount of wealth that was floating around.

“The combination of millions of paper notes and wildly inflated share prices gave birth to a new word that was on everybody’s lips—millionaire.”

Just as paper currency has devalued the notes that central banks print, it has devalued a word—millionaire. A millionaire used to refer to someone that was unquestionably wealthy. Today, a million dollars is hardly enough to quit your job, throw caution to the wind, and retire to a sandy beach.

NPR’s Planet Money blog asks readers to think about a 65-year-old single woman with $1 million dollars in the bank. She could lend it to the government and earn interest of $31,000 a year ($1 million times 3.1%, the current 10 year yield) or earn $71,000 for the rest of her life through an annuity (which would expire at her death and yield no additional benefit to her children or beneficiaries). Sure, she is a millionaire, but could those figures really be considered wealthy?

A million dollars in 1971 was worth five times more than it is today, according to the Bureau of Labor Statistics—meaning that a million dollars in 1971 would buy you 5 times more stuff than it does today. But according to Shadowstats.com, which measures prices the same way they were measured in 1971, a million dollars was worth an astonishing 19 times more in 1971 than today.

Regular WealthCycles.com readers know that supply and demand determine the value of something. In the United States, there are literally millions of millionaires; an estimated 8.4 million have assets of over $1 million (in addition to the equity in their homes). The more millionaires there are, the less importance is placed on being a millionaire.

When the value of currency falls, millions give way to billions and then who knows. Zimbabwe’s dollar was worth more than the U.S. dollar in 1980, but by 2008, it took trillions of Zimbabwe dollars to buy a single U.S. dollar. With 96% unemployment, millions of trillionaires were living in abject poverty. The lesson is not that the United States’ situation mirrors Zimbabwe’s, but that value always trumps the price of something.
Even though there are many times more millionaires today, that doesn’t mean that society is more prosperous or that we have more wealth (as Mike’s video here illustrates). The decline of the millionaire recalls the famous words of Bunker Hunt:
“A billion dollars isn’t what it used to be.”