Growth in the Combined Net Worth of Billionaires from 2000-2013

An Interesting Limits to Growth is Revealed

Summary
According to the Forbes 2013 Billionaire list, the number of billionaires, worldwide, is now a record high 1426, with a combined net worth of $5.4 trillion. Let us introduce the symbol UN for this quantity where the subscript N denotes the number of billionaires. Thus, we can compute the average net worth, U = y/x = UN/N. The numerator y = $5.4 trillion = UN and the denominator x = 1426 = N, the number of billionaires. The average net worth U = y/x = $3.787 billion per billionaire club member. The Forbes billionaires data for the years 2000-2013 is analyzed here and shows that the average y/x has increased year after year. Will this continue to increase indefinitely? As shown here, the data reveals a nonlinear increase in U and an asymptotically rising limiting value of $4.282 billion. This means the average net worth U cannot increase beyond this value without significant changes in the global environment in which these billionaires create their wealth. Mathematically speaking, the average net worth U of all billionaires is similar to the profit margin of a company, which is also a ratio m = y/x, with y being profits (similar to total net worth UN ) and x the revenues (similar to the number of billionaires, N). As the revenues x increase, we expect the profits y to increase. However, as we all know, the profit margin, the ratio m = y/x, can either increase or decrease as revenues x increase. Hence, if we can understand why the average net worth U of all billionaires will soon plateau off, and why there is a limit to its growth, we will also appreciate why exactly the same problem is faced everyday by hundreds and thousands of CEOs of companies who cannot
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beat Wall Street estimates, all of which are based on the computation of the ratio y/x without a fundamental appreciation of the limiting behavior as discussed here, using the analogous concept of all of the wealth of the worlds billionaires.

**************************************************** Table 1: Growth in the combined net worth of the worlds billionaires (2000-2013)
Year Number of Billionaires, N=x Combined net worth, y = UN ($, trillions) Ratio 1000(y/x) Average net worth, U ($ B per club member)

2013 1426 5.4 3.787 2012 1226 4.6 3.752 2011 1210 4.5 3.719 2010 1011 3.6 3.561 2009 793 2.4 3.026 2008 1125 4.4 3.911 2007 946 3.5 3.700 2006 793 2.6 3.279 2005 691 2.2 3.184 2004 587 1.9 3.237 2003 476 1.4 2.941 2002 497 1.5 3.018 2001 538 1.8 3.346 2000 470 0.898 1.911 Example, for 2010, the average y/x = (3.6/1011) x 1000 = 3.561 Source: Forbes 25th anniversary timeline of the first Forbes 1987 Worldwide Billionaires list and Wikipedia article. The total number of billionaires N in the world has increased from N = 470 in 2000 to a record high of N = 1426 in 2013, according to the Forbes 2013 Billionaires list, published on March 4, 2013, Ref. [1]. Correspondingly, their combined net worth has increased from $898 billion ($0.898 trillion) in 2000 to $5.4 trillion in 2013. Let us introduce the mathematical symbol UN for this
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quantity, with the subscript N being used to call attention to the rising number of billionaires each year. The UN versus N data for all fourteen years is summarized in Table 1 and was obtained from the data compiled by Forbes magazine in 2012, see Ref. [2], to commemorate the 25th anniversary of the creation of the worldwide billionaires list, see also the Wikipedia article, Ref. [3].

Combined Net Worth, y [$, trillions]

7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 0 200 400 600 800 1000 1200 1400 1600

y = 0.0043x 0.667 = 0.0043 (x 155.7) r2 = 0.987

2013

2000

Number of billionaires, x
Figure 1: Combined net worth of all billionaires worldwide has increased following a remarkably linear law, of the type y = hx + c. Because of the nonzero intercept c, the ratio y/x = h + (c/x) is NOT the same as the slope h = dy/dx = y/x, the rate at which the combined net worth increases with each additional billionaire added to the worldwide list. The number of billionaires has increased year after year, the only exception being the drop between 2008 and 2009, which can be attributed to the financial crisis experienced in the US in 2008, in late summer and early fall of
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the year, just before the US 2008 Presidential election. The number of billionaires then started increasing again and is now actually higher than the peak number of 1125 billionaires for 2008. The net worth of many billionaires declined during that year, forcing many to fall off the billionaires list, see Refs. [4, 5]. One noteworthy example is Maurice Greenberg, the former chairman of AIG, whose net worth was tied to his companys stock. Although individual fortunes, such as those of Greenberg, may or may not have fully recovered, the billionaire group as a whole has recovered and their combined net worth in 2013 is now $5.4 trillion versus $4.4 trillion in 2008. The graphical representation of the data in Table 1 reveals a remarkably simple and linear relation between the number of billionaires x (plotted on the horizontal axis) and the combined net worth y of all the billionaires, worldwide, for each year of interest. The linear law is of the type y = hx + c, where the slope h = dy/dx = y/x is the rate of increase of the combined net worth (y) as the number of billionaires increases (x). The numerical values of h and c can be deduced using linear regression analysis, or the least squares method, see Refs. [6, 7]. The slope h of the graph is remarkably constant and tells us, quantitatively, how the net worth increases with each additional billionaire. The slope h = dy/dx is similar to the marginal tax rate, the additional tax y that is owed when the taxable income increases by the amount x. The marginal tax rate is constant for a range of income levels and then increases (step change), because of the progressive nature of the tax code in most countries. What we see here is a similar constant rate of increase in the additional net worth contributed by each billionaire, in the present global economy, in spite of the large country to country variations in the cultural, social, political, financial, economic, and yes, tax environment in which these billionaires generate their wealth. From h = 0.004282 trillion per billionaire, it follows that additional billionaire contributes a net worth of $4.282 billion. This is clearly NOT the same as the
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ratio y/x, which is also listed in the last column of Table 1. The ratio y/x is the average net worth of all the billionaires, the combined net worth divided by the number of billionaires. This has increased as the number of billionaires has increased. The billionaires near the top of the Forbes ranking (the rank numbers in 2013 go from 1 to 1342 because some of the 1426 billionaires share the same rank) will have a net worth that is significantly higher than this average. For example, Carlos Slim, the worlds richest person, has a net worth of $73 billion in 2013. The billionaires who share the lowest rank of 1342 all have a net worth of $1 billion; see the list for Spain with the Forbes No. 3 Ortega heading the list, with four Spaniard billionaires holding the rank number 1342, two with rank 1107, and two holding the rank 527. However, this average U = UN/N, or the ratio y/x, can be less than or greater than the slope h = UN/N, because of the nonzero intercept c. Since the numerical value of the nonzero intercept c, determined by the linear regression analysis, is negative (c = - 0.66662), the ratio y/x < h for all x. This is illustrated in Figure 2 where the y/x ratio multiplied by 1000 is plotted (to convert to billions, instead of trillions used for y). The slope h is also converted to billions equals $4.282 billion as already noted. The ratio y/x = h + (c/x) = 0.004282 (0.66662/x) with y in trillions The fundamental significance of the slope h, or the rate of increase of the net worth with increasing N, as opposed to the average net worth U, or the ratio y/x, can now be appreciated. As the number of billionaires N increases, we expect the average net worth U to increase. However, the rate of increase of the average is nonlinear, as illustrated in Figure 2, and will eventually level off and cannot exceed the numerical value of the slope h, which is indicated by the horizontal red line. Hence, when the number of billionaires increases 2000 in the future, the additional net worth, measure by the slope h, will be roughly constant (if there is no significant change in current global environment). However, if one
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computes the average y/x it will be seen to increase and then level off. In other words, one cannot expect indefinite increases in the ratio y/x. Exactly similar considerations apply for the familiar profit margin of a company where y is profits and x is revenues. The earnings per share is another widely used ratio which is affected by both the earnings (just another name for profits) and the number of outstanding shares (often overlooked). Many other problems, analyzed using simple y/x ratios exhibit the same limiting behavior revealed here.

Asymptotic limit y/x = h = 4.3 billion per billionaire Average Net Worth, y/x [$, billions]
4.50 4.00 3.50 3.00

2.50
2.00 1.50 1.00 0.50

y = 4.3x 667 y/x = 4.3 667/x r2 = 0.987

0.00
0 200 400 600 800 1000 1200 1400 1600 1800 2000

Number of billionaires, x
Figure 2: Leveling of the average net worth, the ratio y/x, with increase in the number of billionaires. Although the average has increased, it is also increasing at a lower and lower rate and will eventually level off and can never exceed the slope h (the horizontal red line).
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This has been discussed elsewhere, see Refs. [9-11], using the profits, revenues, and profit margins data for Google and Apple, two of the most successful companies of the modern era. The current troubles with Apple, and also Microsoft, for example, were predicted more than a year ago, see articled cited, long before they have now come to the fore and indicate the limits to the growth note here and the (unreasonable) expectations of an indefinitely rising profit margin with increasing revenues.

Reference list
1. The Worlds Billionaires: The Richest People on the Planet 2013, by Luisa Kroll and Kerry A. Dolan, http://www.forbes.com/billionaires/ 2. The Worlds Billionaires: 25th Anniversary Timeline http://www.forbes.com/special-report/2012/billionaires-25thanniversary-timeline.html 3. Forbes list of billionaires, Updated March 6, 2013, http://en.wikipedia.org/wiki/Forbes_list_of_billionaires 4. Americas Biggest Billionaire Losers, by Andrew Farrell, September 25, 2008, http://www.forbes.com/2008/09/24/billionaires-aig-greenbergbiz-billies-cx_af_0923losers.html 5. In Pictures: Americas Biggest Billionaire Losers (financial crisis of 2008) http://www.forbes.com/2008/09/24/billionaires-aig-greenbergbiz-billies-cx_af_0923losers_slide_4.html?thisSpeed=undefined 6. Legendre, On Least Squares, English Translation of the original paper in French, http://www.york.ac.uk/depts/maths/histstat/legendre.pdf 7. Line of Best-Fit, Least Squares Method, see worked example given here http://hotmath.com/hotmath_help/topics/line-of-best-fit.html The formula for h used in this example is an actually approximate one and was used, before the advent of modern computers, since it only involves the determination of x2 and xy and the sum of all the values of x, y, x2 and xy.

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The exact formula, is given below, with xm and ym denoting the mean or average values of x and y in the data set, and ym = hxm + c since the bestfit line always passes through the point (xm , ym). h = (x xm)(y ym)/ (x xm)2 Determine the deviations of the individual x and y values from the mean, or average, (x xm) and (y ym). Determine the product (x xm)(y ym) and their sum. This gives the numerator in the expression for h. Determine the square (x xm)2 and the sum. This gives the denominator in the expression for h. This also fixes the intercept c via ym = hxm = c . Then, using the regression equation, determine the predicted value yb on the bestfit line and the vertical deviation (y yb) and the squares (y- yb)2. The sum of these squares is minimum. This can be checked by assigning other values for h (using any two points) and allowing the graph to pivot around (x m, ym). The regression coefficient r2 = 1 - { (y- yb)2 / (y- ym)2 } is a measure of the strength of the correlation between x and y (or y/x versus x). For a perfect correlation, when all points lie exactly on the graph, r2 =+1.000.

Related Articles on the Forbes Billionaires List

1. Growth of Billionaires Worldwide and in the USA: Analysis of the number of billionaires data since 1982, Published March 14, 2013, http://www.scribd.com/doc/130377891/The-Growth-of-BillionairesWorldwide-and-in-USA-Analysis-of-the-data-since-1982 2. Countries with the most billionaires in the 2013 Forbes Billionaire List, Published March 9, 2013, http://www.scribd.com/doc/129406030/Countrieswith-Most-Billionaires-in-the-Forbes-2013-Billionaires-List 3. Average worth of the Top 10 Billionaires in a Country, Published Mar 11, 2013, http://www.scribd.com/doc/129863162/Average-Worth-of-theTop-10-Billionaires-in-a-Country
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4. Per Capita Trends for Ultra High Net Worth Residents in US Cities, Published March 11, 2013, http://www.scribd.com/doc/129722844/PerCapita-Trends-for-the-Ultra-High-Net-Worth-UHNW-Residents-in-USCities 5. Europe and Asia-Pacific billionaires in the Forbes 2013 list: Whats the difference? Published March 10, 2013 http://www.scribd.com/doc/129634796/Europe-and-Asia-PacificBillionaires-in-the-2013-Forbes-List-What-s-the-difference 6. The Rate of Creation of Billionaires: Analysis of the Forbes 2013 Billionaire List, Published March 6, 2013, http://www.scribd.com/doc/128944910/The-Rate-of-Creation-ofBillionaires-Analysis-of-the-2013-Forbes-Billionaire-s-List 7. Billionaires and Calculus: Ratio versus Rate of Change Is Einsteins Work Function Observed In this Problem? Published March 5, 2013. http://www.scribd.com/doc/128610494/The-Forbes-Billionaires-andCalculus-Is-Einstein-s-Work-Function-Observed-Here 8. Billionaires and the Population Law: Analysis of the 2013 Forbes Billionaires List, to be published shortly. 9. Google: A Lovable One-trick Pony, Published July 1, 2012, http://www.scribd.com/doc/98825141/Google-A-Lovable-One-TrickPony-Another-Single-Product-Company-Analyzed-Using-the-NewMethodology See Figures 3, 4, 7 and 8 in this document which illustrate the profits-revenues graphs for Google and Apple and also their profit margins versus revenues graphs. 10. The Perfect Apple II, Taking a Second Bite, Published July 30, 2012, http://www.scribd.com/doc/101503988/The-Perfect-Apple-II 11. The Perfect Apple and how it can be destroyed, Published June 6, 2012, http://www.scribd.com/doc/96228131/The-Perfect-Apple-How-itcan-be-destroyed See Figure 15 on page 36 of this document. 12. A Little Known Mathematical Property of a Straight Line: Strange, but true, there is one, Published August 4, 2012.
http://www.scribd.com/doc/102000311/A-Little-Known-MathematicalProperty-of-a-Straight-Line-Strange-but-true-there-is-one

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the groundbased experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced
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by Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Finally, during my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report

Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and to photograph it.

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