This is the only paragraph in the article relevant to this thread:
Early last year, two scientists studying the process of aging agreed to a $500 million bet on the world record for a human lifespan, now at 122 years old. University of Illinois at Chicago biologist Jay Olshansky bet that at least one person now alive will live to be 130, but no older. Steven Austad at the University of Idaho countered that the longest-lived person born in 2000 will make it to 150. If any 2-year-old today lasts till January 1, 2150, then Austad wins. Since neither Olshansky nor Austad expects to be around that long, a panel will adjudicate the contest and bequeath the prize to the bettors’ heirs. And since neither scientist had $500 million on hand, each started a trust fund with $300, which according to their calculations should top $500 million in 150 years if the compounding is left undisturbed.
I’m willing to bet someone has asked about this before because it seems so worth commenting on. The relatives that stand to inherit this amount aren’t semi mythical people lost in the future mists of time are they? They could be your great-grandchildren. Why wouldn’t this work for everyone? What would be the consequences if most people tried it? Are these scientists stupid to even mention it? Thank you for your answers.
compounding is a wonderful thing. However, a billion dollars in 150 years will probably buy a cup of coffee. What is important is wealth accumulation, and that ain’t going to happen when the trust puts $300 in the bank. In financial terms, the billion is future value whereas the $300 is present value, which means the two are equivalent values.
The money in the bank can never be worth more than the society that owns it.
If you have a society with billions and billions invested in the bank, through compound interest or any other reason, then interest rates would plummet to as near 0% as makes no difference and the value of the money itself would fall through inflation.
But if everyone tried the scheme as you suggest it then, sure, everyone would be millionaires. But a million dollars (or whatever currency) would be worth next to nothing.
The rule of thumb about money, and everything else, is that if most people have lots of it then it’s not worth much.
By the way, I did a quick calculation - it seems these guys are relying on 10% appreciation per year. Perhaps this is overly optimistic.
Slight hijack, but I’d be curious to see how they set up these trusts. It seems to me they might run into problems with the Rule against Perpetuities. (yeah yeah, I know there’s a “life in being”)
Well, clearly, NOT everyone is going to try this scheme. In fact, let’s face it, almost NO ONE is going to try it.
Since only a remnant will (thereby making little impact on the US economy), would it work for us if one of us tried it?
Also, as a side note, shouldn’t the institution accepting the dough be thrilled at having that money for such a long time? What’s the longest long-term investment out there? Treasury bonds? Is there a 50-year CD anywhere?
Thank you for the replies especially Futile Gesture’s which seems to explain everything. I used “billionaire” instead of millionaire because of exchange rates. One dollar U.S. is equal to 48 cents NZ. Last year it was worth 36 cents. If you take that into consideration as well as the possibility that the investment could be increased (to $700 for instance) the idea starts to take on a kind of intelligence stifling appeal. In NZ dollars literally billions of dollars could apparently be accumulated. Also, in the last twenty years prices have stayed relatively stable and a lot of things have got cheaper. Oil prices over the next 100 years would be the deciding factor in how much the investment would buy in 2150 - is that right?
The idea has a kind of Friends of the Earth feeling about it though when you think about it. It would be a real attempt to consider the fates of future generations rather than the present ones although it may have the potential to fuck them up as much as global warming.
Bottom line----if these guys do get 10% interest, and our inflation stays significantly below 10% per year, then the $300 will be worth more, in constant dollars, than it is now. But it certainly won’t have the buying power of $500 million in 2002 dollars.