Holy Dow! What a Surging Stock Market Means for Big Philanthropy

Photo:  Stuart Monk/shutterstock — Photo: Stuart Monk/shutterstock

Never has the cliche that the “rich get richer” seemed more true than in the United States over recent decades. The combined net worth of the Forbes 400 has soared by around 2,000 percent since the mid-1980s. And the wealthiest have scored remarkable gains just since 2005—with fortunes that are now ballooning even further thanks to a bull market, with the Dow hitting 22,000 last week.

I’ll say more in a moment about that run-up in stock prices and what it means for philanthropy. But first, let’s consider the broader picture of wealth expansion over the past decade or so, looking at the net worth of some of America’s top mega-givers.

The numbers are pretty remarkable. In 2005, Bill Gates was worth $51 billion; now he’s worth $89.9 billion. Warren Buffett was worth $40 billion; now he has $77.3 billion. Charles and David Koch had a combined net worth of $9 billion in 2005; now they’re worth $96.6 billion. George Soros had $7.2 billion; now he’s worth $25.2 billion. Michael Bloomberg was worth $5.1 billion; today, his fortune stands at $52.8 billion.

It’s not surprising that Jeff Bezos has begun to think more about philanthropy given the spectacular rise in his wealth. In 2005, he was worth $4.8 billion; today he’s the third richest person in the world, with a fortune of $84.3 billion. Less well known is how the rise of Amazon’s share prices has greatly boosted the wealth of Jackie and Mike Bezos, Jeff’s parents, who run the Bezos Family Foundation—an institution that’s fueled with contributions of Amazon stock from the couple. Last month, the foundation made one of its biggest gifts ever—$25 million to the NYU Langone Hospital – Brooklyn for research on early brain development. Anyone else who acquired lots of early Amazon stock is now in a much better position to make big gifts.

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Meanwhile, the rising value of stock in another famous company, Berkshire Hathaway, has lifted multiple philanthropic boats. Buffett's gifts of shares to the Gates Foundation, as well the four foundations controlled by his children, have turned out to be much greater in size than anyone anticipated in 2006, when he announced his plans to give away all his wealth. Since then, Buffett has given away 40 percent of the Berkshire Hathaway shares that he originally held in gifts worth about $27 billion. His latest round of annual gifts to the five foundations, announced last month, were worth a record-breaking $3.17 billion. Yet today, Warren Buffett is nearly as wealthy as he's ever been.

If you look further down the Forbes 400 list to examine gains by philanthropists with far less wealth, you’ll find that many of them have also grown much wealthier. Google’s Eric Schmidt was worth $4 billion in 2005; he’s now worth $12 billion. Some Giving Pledge members, like the young billionaire founders of AirBnB, hadn’t even started their businesses yet. Dustin Moskovitz was a college junior on leave from Harvard in 2005, working on a startup called thefacebook.com. Now he’s worth $13.5 billion, and with his wife Cari Tuna, will give away tens of millions of dollars this year.

When Mark Zuckerberg and Priscilla Chan pledged to give away 99 percent of their Facebook fortune in December 2015, those shares were worth $45 billion. Today, they’re worth $70.5 billion.

Of course, it's not just billionaires who have more spare cash these days. In 2015, it was estimated that more than 70,000 U.S. households have assets of at least $30 million, excluding their homes. Many of these people, and those a few tiers below them, are also doing better than ever. Soaring giving through donor-advised funds is one indication of how that's playing out in philanthropy.

The historic bull market of recent years only partly explains why so few people have come to have so much money, fortunes that defy comprehension and rival the GDPs of some countries. A confluence of factors—globalization, technological change and public policies favoring capital—have worked together to create this second Gilded Age. Meanwhile, the incomes of ordinary Americans have barely budged for decades—even as costs for things like healthcare and college tuition have soared. The scandal of this growing economic chasm has rightly gotten much attention. But the question of what will become of today’s great fortunes is also very important.

At some point, when there’s a correction to the stock market, the net worth of many of the wealthiest people will fall—perhaps substantially, in some cases. But the overall picture is unlikely to change that much. The financial crisis of 2008 led to some of the largest declines in the stock market ever, with the Dow sinking to 6,449 in March 2009. Most U.S. billionaires not only later recouped all their losses, but went on to become far richer than they were in 2007.

So what does the run-up of stock prices and wealth in recent years mean for the philanthropy of America’s far, far upper class?

Most obviously, it means the rich have more money to give away—not just for philanthropy, but for related political contributions. The way that the Koch brothers have stepped up their activist giving in recent years makes more sense when you consider that they’re ten times richer today than they were in 2005. Tom Steyer wasn’t even on the Forbes 400 list in 2005. But he became a billionaire after his hedge fund scored big gains with risky investments in distressed assets. He’s since retired from finance and emerged as a major political and philanthropic donor. John Arnold wasn’t on the Forbes 400 in 2005, either. Now, he’s a billionaire and he and Laura are giving away large sums through their foundation. Seth Klarman is yet another hedge fund billionaire who wasn’t on the Forbes list in 2005. Now, he and his wife Beth are among the top philanthropists in Boston, as well as giving in other areas.

One interesting aspect of all this is that even the most active top donors are making money faster than they can give it away.

In 2012, when John Arnold closed his hedge fund, Forbes pegged his wealth at $3 billion. Now, it lists his net worth at $3.3 billion. Yet, in the intervening five years, he and Laura have given away some $700 million through their foundation—and engaged in political giving outside his foundation. Few philanthropists have scaled up their giving more energetically than the Arnolds. Still, they literally can’t move money out the door fast enough to not get keep getting richer.

Neither can George Soros. In earlier year, Soros was determined to give away all his wealth while still living. But this goal became less realistic over time, and he abandoned it in 2005—a wise move, since his fortune has subsequently tripled in size.

It wouldn’t be surprising to see other top philanthropists who favor “giving while living” throw up their hands in similar fashion. Mike Bloomberg is a strong proponent of giving sooner rather than later, and he’s been doing exactly that for years. Even as Mayor of New York City, he gave away hundreds of millions of dollars annually. Last year, his giving crossed the $600 million mark—a new record.

Yet, Bloomberg has been steadily losing the battle to make any real dent in his fortune, which has soared since he left office in early 2014 and stepped up his giving. With over $50 billion in assets at the age of 75, it’s hard to see how Bloomberg can avoid leaving behind a giant foundation.

I’ve been arguing for a while, now, that America’s top billionaire donors, and especially the Giving Pledge members, need to approach their philanthropy with more urgency—especially those taking on time-urgent challenges like climate change. In particular, they need to figure out how to invest larger sums of money in organizations that are trying to solve social problems and that don’t tend to have the absorptive capacity of major research universities or cultural institutions. Hopefully, recent research by the Bridgespan Group laying out a series of $1 billion bets to reduce inequities is finding its way into the right hands.

Of course, there are other ways to relieve the wealthy of the burden of giving away so much money and also generate more resources to solve social problems—like raising taxes on capital gains, which is how the richest of the rich make much of their income.

More by David Callahan