Magerman: How 'instant billionaires' threaten America

Philly.com
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Super-rich can "drown out every other voice," says the Penn Valley computer scientist, was suspended from hedge fund Renaissance Technologies after challenging co-CEO Robert Mercer's patronage of Breitbart News, Donald Trump, and Breitbart boss-turned-Trump adviser Steve Bannon, and their impact on American democracy.

David Magerman, the Penn Valley computer scientist, was suspended from hedge fund Renaissance Technologies after challenging co-CEO Robert Mercer's patronage of Breitbart News, Donald Trump, and Breitbart boss-turned-Trump adviser Steve Bannon, and their impact on American democracy. His status at the firm remains unresolved.  

I asked Magerman about what he calls the "Instant Billionaire" phenomenon — the role people with big fortunes like his Renaissance bosses play in shaping America, and what he's learned on a smaller scale, giving away $10 million a year for his Koheleth school, Jewish private-school scholarships, and other causes:

You sound like the experience of building and funding your vision of education, and the pushback you got, humbled you ... What I saw was that people love their institution. Schools are like family. They don't want to see anything happen to them, regardless of what the intent appears to be. They are not very forgiving or thoughtful about it. They see something threatening their institutions and they want to stop it. ...

Given that I was willing to give away a lot of money, in the realm where there were things they needed done, I thought I could overwhelm them with generosity to get them to offer the solutions they would have wanted. 

In the case of Perelman, it made me want to make the school more Orthodox. Which was not what the school was. ... Who am I to come in and say I have the right to own their mission and push them in my direction?... I realized hands-off is better. I can give them scholarship money and do arm's-length things. ...  

I can't get other schools to do what I want. I can open my own school, from the grass-roots up. We've been full up since we opened... I do compete with other schools. But that's constructive. That's the way the country works. 

Your experience mirrors what you see in the larger American society? We have this phenonmenon I call the Instant Billionaire. In five or 10 years, a person can go from being a person of above average means, to close to a billionaire. 

In the past the ultra-wealthy had similar characteristics. There were families that made investments in manufacturing, in transportation, in the infrastructure of this country... They were partners with the government.  hey had a strong investment in the status quo.

But today the instant billionaires (who have made money in intangible businesses -- finance, software, liquid investments) have almost no personal investment, no ailgnment, with the status quo. They're more like lottery winners.  Even if they've actually worked quite hard to earn it, they don't have the same relationship (to American society).

And they haven't developed a lifestyle to need the money... That can be a good thing, or not...

Imagine Bill Gates (Microsoft's founder, now a philanthropist) running the government. He's done very healthy things with his money. Solving health problems in Africa. Addressing water pollution. I think that's an unusual success story.

But what if I don't like democracy -- I'll go out and buy authoritarianism? That's not a good thing. Can you imagine Steve Jobs (Apple's intense, opinionated late founder) running the government? 

A lot of this kind of wealth can go to very idiosyncratic projects. And not necessarily be good.

When you are that wealthy, you can make a platform to drown out everyone else's voice.

There is I think a similarly large issue: the way people are hoarding wealth is starving out the rest of us.

You're saying, rich people don't spend on individual needs like poor people do, but on personal projects? And so the excess wealth becomes depriving other people.

You see a difference between tangible and intangible enterprise --  factories good, finance not so good? Yes. When you build up Nike you're building a huge company (with many employees and contractors in many countries).

But when you have a trading company or a hedge fund, you have a few dozen key employees at most. Your have desks, computers, tech infrastructure. You put money in. You get it back as profits.

You don't have a lot of employees. You don't share the profits. There's no one involved other than a few other rich white people. You are pulling money out of the economy.

If financial billionaires are a threat to democracy and the real  economy, what should the U.S. do about it? A lot of people blanch at a 90 percent tax rate. But I think, if you make millions of dollars a year, do you think being taxed at 90 percent above that level will affect how you do your work?  

It would cause you to invest more of your earnings back in. You might take you that money and pay your people more. You might enhance your facilities. 

As things stand, there's no disincentive for people in my industry to take every  dime as profit. People want maximum leverage. They want to take everything out so they can get whatever luxuries they buy. Or other investments...

I know, economic life is not a zero-sum game. But I see the damage done when an industry that's supposed to be just a service industry, finance, becomes 34 percent of the economy, putting a lot of wealth into a few people's hands.

If you don't go back to Renaissance -- what's next? Our tavern opens in a few weeks... 

I stopped working when I moved (to the Philadelphia area in 2010). But I found I need to be mentally active. I don't think the restaurant business will keep me mentally active. 

Start your own fund? It's not that I can, or would, start my own fund. I'm a programmer. 

Professor? I taught at Penn 2 years. That didn't go well. The kids didn't like me, I didn't like them. 

Do you want to put your own voice out there? I tried blogging once. It was a disaster. Weeks after I wrote, I went back and read it, and I didn't like what I wrote.

It represented a moment. It's a gift to be able to realize what is representative and what's just fleeting. Everyone has fleeting thoughts, in a stream where maybe one of every 1,000 strands is worth looking at. We are drowning ourselves with information (but not selecting the most useful information). 

My father-in-law worked for the New York Times. He was the Long Island section editor for 30 years. The Internet has forced them to speed everything up, almost like an AP news wire. They want to get news out as fast as they can. They do apologize for mistakes. 

Isn't that a question of resources? They need more editors, better tech... Yes. But would the people care?

I've become that old person who rants...

Maybe we are entering a circle of light. The kids get where this is heading. We don't.

I want to get it. I might work til I'm 90. 

What do you do with appeals from start-ups that want to pick your brain or spend your money?  I tried doing angel investing. Which I was a disaster at. I'm too generous in my valuations. People can snow me easily.

So I found a few good fund managers in private equity and venture capital -- fantastic, really. They are creating businesses, which is wonderful. Some go public. None of it is in physical companies (so far, unfortunately.) 

And also, I don't go anyplace where (a company like) Facebook is. I don't know how proud I'd be of creating that (commercializing personal information). 

Was your investing-software career successful, the way you see success? I felt I created something in my professional life. It isn't anything by itself. It's a virtual machine, that does things. It doesnt have a lot of customers. You cant look each year and see the things it's sold. 

My father was a taxi driver. He had some interesting areas he went into.  The rides were better when I went with him, as a kid five, six years old.

He told me stories about tourists from South America. The guy would promise to pay him $100 for a whole day. But then he'd give him just 100 pesos. Still, my Dad was doing something... 

What do you tell your own kids, about careers? There are such brilliant people who work in the financial industry.

People ask me, What should I study? I say, it's hard to know, just on that basis: What I studied (math) wasn't profitable 20 years ago and may not be in 20 years.

You have to find something you are passionate about. Become excellent at it. Someone will pay you a lot of money. But you have to be passionate.

If you try to shoehorn yourself into a field and fake the passion, you'll never get anywhere. Someone who is more passionate than you will get there first.

I was offering software to grammatically analyze text. I did it in grad school. It was the most useless field, it was never going t amount to anything. But I did it really well.

And I got published. I ended up around people who were smarter than me. They saw me working. They realized if you can be really good at something you can be good at something that requires similar skills.

And it worked, for me. But it's so hard to get people to do something other than for money. 

I've convinced my kids they are not going to (be handed) my quality of life. They're getting what they can afford. I won't let them live on the street. But they will have to make money. They won't get a lot from me. I'm giving it away. I want to make sure they're motivated.

The thing that drove me was, being in a lower-middle-class environment, I wanted better. I was driven. I was frugal. I was hyper-focused on education and reaching higher.

I was really bummed I got into Penn. I wanted Harvard.

I was rejected four times by MIT. Then MIT offered me a PhD. I with glee turned them down. (He got his Dr. at Stanford).

It showed how much of a chip I had on my shoulder!

How much are you giving? I'm on a level of around $10 million a year now. Give or take. This year will be more, I'm building the school. But that's a level I tend to find myself around. The things I commit to, and find for myself to do. 

I get the most constructive growth when I've done something wrong. It's not usually presented to me in the nicest way. But I get a lot of value from it. 

Who taught you the most? The Perelman School board. I give them a lot of credit. For teaching me.

Steve Cozen, the lawyer, he's taught me a lot. 

Philly isn't New York: This city hates change. No one likes change. But this city seems much more averse to change than others. 

We try to get people to move here for our schools. Finding jobs in certain technologies, executive titles,, senior engineers, doctors, it's hard to find technology jobs here.

The universities here train talent. But then they ship it out, and collaborate outside the area. 

 

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