To Disney, no controversy exists. The wealth tax is a no-brainer, even a nonstarter. After all, the wealthy can’t possibly spend it all, so why not trim a little from the edges? Disney reasons that “a 2% (or) 3% tax, it will in no way inhibit first of all, your buying power, and second of all, the growth of your buying power."
The wealth tax is more than egalitarian, it’s therapeutic, if you believe Disney’s incantations. The tax alleviates the horrible burden of perpetual, unbridled wealth compounding and its corollary, exploding wealth inequity that Thomas Piketty famously rails against.
Disney claims that "if you have a billion dollars and (you're worried you won't) make a hundred million dollars a year just by sitting on your couch at home, truthfully you're kind of an idiot. Money just makes money. It's one of the hardest things in the world not to let it grow."
The name rings familiar, the lineage less so. Abigail Disney is the granddaughter of Roy Disney, brother of Walt. Roy was the business side of the brothers’ eponymous creation. Ms. Disney is the lucky heiress to Roy’s fortune. Walt Disney Co. stock is what Grandpa Roy left to the generations to come.
How sharper than a serpent's tooth it is to have a thankless child, Shakespeare tells us is in King Lear. Enter Abigail Disney stage left. Her attitude toward her good name and good fortune is, at best, ambivalent. "I’m kind of a lefty, New York City, Manhattan, pointy-headed intellectual type,” she confides to New York Magazine. “Those are the people who hate Disney and think it's the worst thing on Earth, and that's where I probably would be if I weren't actually related to it.”
Perhaps the Walt Disney Co. isn’t the worst thing in the world to Ms. Disney, but it’s at least a thing deserving of derision. “When I brought my baby home from the hospital and Mickey Mouse was on her first diaper I wanted to vomit,” Disney confessed to the Financial Times. “I used to call him ‘that f ***ing mouse.’”
Media outlets have reported Disney’s net worth at $500 million. Disney talks down the number. She says $120 million is more like it. Whether $500 million or $120 million, we’re talking real wealth, which most of us would appreciate if it were left to us.
Disney might despise the origins of her good fortune, but she willingly exploits it. Take education: undergraduate degree from Yale, graduate degree from Stanford, doctorate degree from Columbia. The income generated by that f***ing mouse” (to borrow Disney’s vernacular) covered the $400,000 retail cost (minimum) to acquire her blue-blood diplomas.
To be sure, the educational institutions are impressive; the course of study less so. Disney’s diplomas all relate to English literature, a hobby study more cost-effectively pursued through the self-guided autodidact approach or a Meetup.com social group.
The income generated by Disney’s inherited wealth funded her education. It likely funded her avocation: documentary film making. Disney’s company Fork Films indulges her passion to produce and direct sparingly watched social-justice documentaries: Do The Armor Light or the “award-winning” Pray the Devil Back to Hell ring a bell?
Disney’s education would cost nearly half a million dollars on the open market. I have no idea the costs associated to start and run Fork Films. I suspect that Fork Films is more cash consuming than cash generating. Disney and cash-consuming enterprises go hand in glove. She claims to have given $70 million to sundry charities and liberal causes over the years.
Despite all the largess diverted to the left, nine digits are still required to tally Disney’s net worth. She’s been able to deplete her wealth with a degree of profligacy few of us can match. She’s been able to recharge it with equal proficiency.
Is her wealth on perpetual motion, as she claims? Invest a billion dollars, generate $100 million year after year doing nothing more than couch-sitting?
We know the answer, and it’s no.
The claim is ridiculous on first inspection: inorganic heterogeneous business or financial capital directing itself is no more possible than stones, shrugs, trees, and flowers self-directing into an orderly, luxurious landscape.
Capital must be owned; it must be directed by the human hand. That hand must anticipate the future and decide where best to allocate the capital to meet customer demands while generating an adequate risk-adjusted return.
The Disney family has benefited immensely by the Walt Disney Co.’s capital being directed by well-honed entrepreneurial hands.
Former Walt Disney Co. CEO Michael Eisner was one, a fact Ms. Disney herself unwittingly acknowledges: “When I went off to college, Michael Eisner came in and reinvigorated the company, and then the stock price, which was basically my family’s entire net worth, was ten times, 20 times, 50 times what it had been when I was growing up.”
I’ll argue that well-honed entrepreneurial hands direct the company’s capital to this day. Walt Disney Co.’s share price has increased sixfold since Robert Iger assumed the CEO seat in September 2005. Iger has directed Disney’s capital to keep revenue and earnings on an onward and upward trajectory since taking the lead chair 14 years ago.
And Abigail Disney’s attitude toward the latest well-honed hand? She bites it. She criticizes Iger for his “insane” pay.
Capital is anything but self-perpetuating, as anyone who has owned even a small amount will attest. Once under your control, the world seems to conspire to separate you from your good fortune.
Buy a stock that trades at historically low multiples to book value or earnings. New lows follow your purchase. Buy a stock with exceptional growth prospect. The company reports exceptional growth quarter after quarter that meets your expectations and yet the stock price trends only lower. You accurately anticipated the growth, and so did everyone else. No marginal investors were left to bid the price higher.
Business owners find consumers who once bought all the output the company’s capital produced suddenly want none of the output, or least don’t want to pay for it (see Kodak and most city newspapers). Capital that appeared intelligently allocated to historically profitable production is written off to nothing with one swipe of the pen because demand has disappeared.
The Walt Disney Co., thanks to its capital intelligently and successfully directed by competent hands, has avoided such a fate. I would bet dollars to pennies that Abigail Disney’s Disney stock, her other investments, assets, insurance, and estate planning are also directed by knowledgeable handlers. Should Elizabeth Warren’s dream of a wealth tax materialize, you can be sure that Disney’s handlers will organize her capital to mitigate the damage.
Shirtsleeves to shirtsleeves in three generations? Perhaps, but the record is mixed.
Some studies show that wealth entropy within three generations is real. One, in particular, claims that 90% of the third generation are back to shirtsleeves. Other studies refute the shirtsleeves-to-shirtsleeves axiom. Wealth can pass through multiple generations before it dissipates. No surprise here: The improvident couch-sitters saw their inheritance dissipate first. The vigilant and the prescient held onto their inheritance the longest.
To borrow a phrase from our English-lit-majoring, Ivy-League-educated scion, “truthfully you’re kind of an idiot” if you sit on the couch indifferent your capital’s allocation and expecting it to compound itself nonetheless.