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A comment on Paul Krugman’s column last week: “Profits Without Production”.

People at the top have a problem to go with their wealth. In determining their available economic strategies, the time available to a wealth owner is as important a factor as their available capital. A 100M$-aire like Mitt Romney has a great quantity of capital, but very limited time per unit of wealth. That will determine his capital allocation and his time allocation. While the risk and returns of the abstract capital and financial markets aren’t all that good in the long run, those markets are excellent in their time-cost to the investor.

With money managers to offload the work to, a wealth owner can maximize time for leisure, family, and building relationships. They can cultivate influence and secure rent-seeking rights and other political favors. The wealth owner can simply leave behind any active concern for their wealth while reaping its practical advantages.

The chief advantage a wealth owner has is the status and time for other high-profile pastimes—like racing cars or seeking high public office— which the wealth owner may or may not be suited for. In the case of Steve Forbes, Carly Fiorina, Meg Whitman, or Mitt Romney, they were not suited to winning elections but that didn’t prevent them all from wasting enormous amounts of wealth and connections to pursue their political hobby.

Three of my examples are known for having real (as opposed to honorary) jobs as venture capitalists, CEOs and corporate board members. But as a job these don’t primarily have to do with operations. Fiorina and Whitman spent their time at the top of the corporate world operating their charges as if they were whales, as if their corporations were wealth owners whose wealth they were “managing”. HP’s leadership has all been down this road, as have most major corporations. And as those corporations get big, their wealth managers produce ever more abstract and narrow returns.

Wealth management by playing capital markets doesn’t have that good a return, long term. Much of the time, however, the risk and returns of the markets seem good enough for wealth owners to indulge their lazier options. For a competent individual to do a good job at growing wealth as a capitalist, the capitalist must demote himself to working very long hours doing real work and organizing real work. This is not to most capitalists’ liking, even to those who might have the competence to manage their capital applied to production. So wealth owners drift away from active economic activity toward reading monthly statements, learning to fly helicopters and visiting Iowa.

Perhaps the wealth owner trusts the wealth managers, perhaps they don’t. Either way, wealth manglers as a whole will suffer more scrutiny and skepticism in the future. If the day-to-day returns of abstract profits in the market casino were substantially cut by tax policy or some other mechanism, capitalists would have to do something more direct with their capital. To maintain and improve their position, wealth owners would need to change their workflows so that they would have them.