A Hundred Million Millionaires?

In the past I’ve often touted Singapore’s high saving model.  Last year I noted that 15% of Singaporeans were millionaires in 2010, and I predicted that the number would rise sharply over the next few decades.  The numbers for 2011 are in and the share of millionaires is up to 17.1%, nearly twice as high as the next “real country.”  (Although I suppose one could argue that Singapore, Hong Kong and Switzerland are also not real countries, as they attract the rich from elsewhere. That would make the US number one among the bigger economies.  But the number of millionaires in the US declined 2011.)

I would argue that this table actually understates Singapore’s success:

1. These numbers exclude housing wealth (which seems reasonable) but also excludes investor-owned businesses and luxury goods.  So the actual number is somewhat higher–probably around 20%, even without housing wealth and luxury goods.
2. Many older Singaporeans grew up in a period where Singapore was much poorer.  Thus if the current steady-state is maintained, the number of Singaporean millionaires should rise to 25% to 30% of the population, even without further rapid growth.  The younger generation will eventually include many more millionaires.
3. This number ignores life-cycle effects, as do almost 100% of discussions of income inequality.  These are huge.  The number of very young millionaires will generally be much lower that the percentage of millionaires who are 50 or 60 years old, at least in the steady state (This is obviously less true of fast-changing countries like China.)  So if Singapore ends up with a steady state of 25% to 30% millionaires, that steady state will imply that roughly half of all Singaporeans will be millionaires at some time during their lives.

This will make the Singaporean electorate much more “conservative” i.e. anxious to have government policies that preserve wealth.  It will also allow Singapore to get away with a smaller set of social welfare programs, and lower tax rates.  A virtuous circle of growth creating good economic policies, which will create even more growth.

Could the US do something similar?  Should it try to create a country where 100 million people will become millionaires at some time in their lives?  And another 100 million will at some point become $500,000 aires, or $600,000 aires, or $800,000 aires?

I’d say the answer is yes, but I would caution that it would be much more difficult to do.  In addition to all the practical problems that will be listed in the comment section, I’d add that I expect rates of return on safe investments to remain very low going forward, even if the US government doesn’t force Americans into a Singapore-style high saving model.  And of course if it does, then real interest rates will plunge even lower.

But I also think there is something to be said for going this way, even if it did depress real interest rates further.  (I won’t insult your intelligence by explaining why Keynes’s fear that saving leads to depression is nonsense.)  The advantages to conservatives are obvious–a more sensible electorate that is self-reliant, not dependent on government programs.  But there are also huge advantages to liberals. This massive pool of saving would need useful outlets. There’s only so many more car factories or office buildings or shopping centers that could plausible be built. At some point the money would flood over (perhaps through public–private partnerships) into infrastructure, medical research, new energy alternatives, education, environmental cleanup and lots of other forms of “investment” that liberals favor.

What’s not to like?

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