“Billionaires should not exist,” argues Vermont Senator Bernie Sanders, who has long described himself as a democratic socialist. Indeed, “every billionaire is a policy failure” is a relatively common slogan among American progressives.
Unsurprisingly, the economic populists and nationalists on the political right find themselves in agreement with the progressive left. A few months ago, Steve Bannon, former US President Donald Trump’s former chief strategist, called for “massive tax increases on billionaires” because too few of them are “MAGA.”
These nationalists and progressives have it backwards: we should want more billionaires, not fewer.
Billionaire innovators create enormous value for society. In a 2004 paper, the Nobel laureate economist William D. Nordhaus found “that only a minuscule fraction” – about 2.2% – “of the social returns from technological advances” accrued to innovators themselves. The rest of the benefits (which is to say, almost all of them) went to consumers.
According to the Bloomberg Billionaires Index, Amazon founder Jeff Bezos is worth $170 billion. Extrapolating from Nordhaus’s findings, one could conclude that Bezos has created over $8 trillion – more than one-third of the United States’ annual GDP – in value for society. For example, Amazon has reduced the price of many consumer goods and freed up an enormous amount of time for millions of Americans by eliminating the need to visit brick-and-mortar retailers. Bezos, meanwhile, has received only a tiny slice of those social benefits.
Of course, not all billionaires are innovators. But the same logic can be applied to billionaires from any professional background. For example, Wall Street titans create value by efficiently allocating capital throughout the economy. Over time, this lowers costs and spurs productivity and innovation, all of which benefit millions of households and businesses.
Entrepreneurship and hard work, not dynastic inheritance, is the primary path to a nine- or ten-figure net worth. Around three-quarters of the wealthiest 1% of American families own privately held businesses (compared to 5% of families in the bottom half of the wealth distribution), with business assets accounting for more than one-third of their balance sheets. A 2013 paper found that around seven in ten of the wealthiest 400 Americans were self-made, and that two-thirds did not grow up in wealthy families.
Overall, America’s system of democratic capitalism is working. In a democracy, unequal market outcomes are accepted by society if they reflect differences in work effort, risk tolerance, or skill. The evidence shows that the primary determinant of worker compensation is productivity.
To be sure, there is room for improvement. But rather than tearing down billionaires, the focus should be on providing the poor and the working class with on-ramps to economic opportunity. Opportunity abounds in the US. For example, consider America’s many excellent two- and four-year colleges and low structural unemployment.
Similarly, the furor over billionaires is misplaced in the debate about income inequality, which assumes that income is distributed to households and questions the share going to the top. But in a market economy, income is earned, not distributed. Moreover, when measured using the income of all households – not just billionaires – inequality has been stagnant or declining for well over a decade.
More fundamentally, billionaire-bashing sends young people the terrible and perverse message that success is bad. This could lead them to lower their aspirations, put in less effort, and become less tolerant of risk. Precisely because hard work pays off – productivity drives compensation – such a message could exacerbate inequality, the problem that anti-billionaire advocates purportedly want to fix.
Ironically, many of the loudest voices promoting this message are from upper-income households. Their children are the least likely to be affected by it (they will be enrolled in high-quality schools and colleges, often with expensive tuition, regardless), whereas many children from lower-income households who listen attend relatively lower-quality schools and are less likely to go to college.
It is morally appalling to treat any group of Americans the way populists and nationalists treat billionaires. Authoritarians on the right want to use the state’s power to punish them for being insufficiently loyal to Trump. And many on the left want to impose special taxes on them as well. Senator Elizabeth Warren’s “ultra-millionaire tax,” for example, would apply to only 0.05% of households. Rather than treating billionaires as full participants in a shared social enterprise, such proposals reduce them to revenue generators who need to be taken down a few pegs. The tax system should not be weaponised to penalise any group of Americans, including the rich.
Take a look at the top ten billionaires on Bloomberg’s index. They are largely self-made innovators who have changed the way we live: Bill Gates and Steve Ballmer revolutionised personal computing; Jeff Bezos upended retail; Larry Page, Sergey Brin, and Larry Ellison elevated web search and database software; and Elon Musk disrupted the automotive industry and space commerce. Mark Zuckerberg is a social-media pioneer, Bernard Arnault a skilled CEO, and Warren Buffett a legendary investor.
None of them are “policy failures.” Rather than wishing they did not exist, we should be thrilled that they do. The value they have created for millions of people around the world dwarfs their net worth. Some will be in the history books long after today’s blustering politicians are forgotten.
Children should see these people’s careers as worthy of emulation, stirring their imaginations and fueling their aspirations. This would benefit not only those children when they reach adulthood – but all members of society, who would reap the fruits of their ideas, skills, and efforts.
Michael R. Strain, Director of Economic Policy Studies at the American Enterprise Institute, is the author, most recently, of The American Dream Is Not Dead: (But Populism Could Kill It) (Templeton Press, 2020). This content is © Project Syndicate, 2024, and is here with permission.
36 Comments
Even if the employee is a world class negotiator, their remuneration for work done to innovate within a company will always be less than the major shareholders' cut of the value captured by a system that creates extreme leverage through supports such as access to proprietary knowledge and trade secrets, built and coded infrastructure, relationships, political favour, resources, IP protection, strategic land holdings, restraints on trade and anti competitive behaviour.
The author argues for mass value capture by billionaires in a monetary sense.
This is not the same as value creation which happens inside a person as they express what they value.
And neither of these terms or the article itself speaks to the non-financial effects of creating these systems, and whether the ends justify the means.
There's a lot of value destruction as a result of Amazon existing, but much of that isn't gdp so isn't measured
A lot of rem packages in these companies include options/shares. There is still advantages to being innovative and an early member of these companies.
As with anything - stolen ideas, rights etc all play a part. But if you look at the way some of these products have enhanced productivity, should we be attacking the billionaires who own them or the beneficiaries of workers who use them?
If I develop a new skill which makes me 10% more productive during my work day, let's say by using AI assistance. Who should be rewarded for that boost in productivity?
re ... "A lot of rem packages in these companies include options/shares."
But for the vast majority of workers - maybe as high as 99.9999% - options/shares are never offered, or given if asked for.
Even at startups that employ 50 people or less you'll find very few on the employment roll that have them.
Yours is a silly strawman argument. Sorry.
Can confirm Amazon do offer shares after 2 years of permanent employment for them. Colloquially called the 'golden handcuffs' as they have a contractual stipulation where if you ever sell them and leave the company any time after, they will never employ you ever again.
The statement "Wall Street titans create value by efficiently allocating capital throughout the economy." is interesting.
I wonder if we can read between the lines that 'allocating capital to governments i.e. paying taxes is the least efficient way of allocating capital in an economy?'
Taxes don't finance governments such as ours or Americas, taxes only return money to be cancelled after its spending. We spend the governments money and it doesn't spend ours. https://www.levyinstitute.org/publications/can-taxes-and-bonds-finance-…
Many things undertaken by governments are done far more efficiently than having them done by the private sector, healthcare as an example and who would wish for private militaries or police.
U.S. politics is controlled by wealth — the number of dollars that are owned and spent on politics — NOT on the number of voters: America is an aristocracy (of wealth) instead of a democracy (that represents the majority of the public). It’s based on deceit (such as this). (America’s war against China is based on deceit, and so is America’s war against Russia — both of which wars, America’s ‘news’-media lie about.) And so, too, is the widely touted claim that today’s American Government is, itself, a democracy, a lie: a conclusively disproven lie. A democracy is controlled by its majority. America’s Government is anything but that. Only the super-rich control this Government.
On 31 October 2018, three political scientists documented that the wealthiest 1% of the wealthiest 1% of Americans — the wealthiest ten-thousandth of Americans — donate 57.16% of all the money that funds U.S. political campaigns. The “Top 400 Donors” (all of whom are multi-billionaires, not merely billionaires) donate 29.86%, or virtually 30%, of all political money, in the U.S. But, actually: only billionaires (and an occasional mere centi-millionaire) who are among the ten largest donors to U.S. politics in a Presidential-election year, have any real impact in determining whom America’s next President will be. Only those ten ultra-rich Americans do. And, from one Presidential ‘election’ to the next, many of those ten people will be the same both times. All of the other 332 million Americans are their subjects, not any country’s “citizens” (except, perhaps, on passports, etc.). But America isn’t a kingdom; it’s an aristocracy. (Of course, some kingdoms are representing their aristocracy and/or their theocracy, but, in any case, America is an aristocracy.)
Two prior studies, one in 2016, and the first one in 2014, had already demonstrated that, as I headlined about both of them in 2018, “America Is One-Dollar-One-Vote, Not Really One-Person-One Vote.” The breakthrough first study, in 2014, was brilliantly summarized and explained in a 6-minute video here. So: anyone who says that America’s Government is better than other Governments because it is a democracy is either a fool or else a liar. This myth has, by now, become buried so deep that only a second American revolution might be able to resurrect it to some sort of reality again. Link
Dont tell the MAGA crowd - they think god is on their side
If this were true the election would consistently be a one sided race and for president at least it has not been for a long time
you could also argue that lots of money on both sides is a feature not a bug
The Greens have continued to advocate for a wealth tax in NZ. We can see the result of such a tax by looking at what has happened in California and New York with their introduction of wealth taxes. Professional people and those who had paid the most in income tax have been fleeing those states in the tens of thousands. In California this has resulted in a U.S. $68 billion dollar government deficit for the last 12 months. With such a very low threshold for the wealth tax proposed by the Greens (including the family home), NZ would see many dentists and professional people leave for Australia. Moreover, there would be no incentive to start or maintain a small business, which already pay half their revenue in taxes. Small business is our biggest employer. A wealth tax in New Zealand is an envy tax that would set back our economy big time and cause the loss of our most productive people
Nearly all governments run budget deficits and so spend more of their currency into the economy than they tax back out again but taxation is needed needed to control the quantity of money on issue and so protect the value of the currency. Billionaires like all of us are only currency users and not currency issuers. A county's currency is a public utility and so should be used for the benefit of all of its citizens.
Did you know the USA had a wealth tax up until recently?
It's purpose? ... "The AMT ensures that certain taxpayers (the very rich) pay their fair share or at least a minimum amount of tax."
https://www.investopedia.com/terms/a/alternativeminimumtax.asp
Are we supposed to believe that if Jeff Bezo's didn't create Amazon that large scale e-commerce sites wouldn't exist? In an alternative universe we wouldn't have an alternative version made by somebody else?
Assume the incentive for Jeff Bezos to create Amazon was to become a multi-billionaire, say society makes it impossible for people to become billionaires, so Jeff has no incentive to create Amazon. Guaranteed there'll be other people who don't strive for billions, but maybe millions, that could fill that hole?
Maybe instead of hundreds of billions of dollars of e-commerce infrastructure concentrated in few hands, we'd have a few hundred multi-millionaires all providing the same number of jobs and value to society.
At the end of the day, we have billionaires and that's fine by me, but I don't think they should be put up on a pedestal as much as they are. All that serves to do is reinforce the lack of trickle down economics and this perverse idea that these billionaires alone are responsible for and deserving of this enormous amount of wealth.
Are we supposed to believe that if Jeff Bezo's didn't create Amazon that large scale e-commerce sites wouldn't exist?
FYI, Lazada announced mass layoffs in Asia - 30% of staff. Lazada is partly owned by Alibaba. Amazon is not really a player in the markets they play in.
https://www.techinasia.com/latest-layoffs-lazada-reduces-staff-30
Agree Nzdan, these billionaires are at the extreme end off capitalism. The capital system works fine in the production sense as it increases goods required with a profit to those who work hardest at producing the goods.
There always has to be an incentive to innovate.
But when it comes to the following generations who live off the wealth and expect respect, I don't buy in to that.
If Jeff Bezoz cashed in all his chips and gave every cent of his wealth away, each person in the USA would get $515 USD. Not the answer to solving poverty. Not even close.
If every one of the Forbes 40, worth in aggregate $4.5t USD did the same, every person in the USA would get a windfall of $13,600. Then all the money would be gone (spent on Amazon products, second hand cars or 1/3 of an appendectomy in the US healthcare system. It would be interesting to see if the Forbes 40 would use their $13,600 to make themselves billionaires again.
The argument is weak, because it argues from how income has been earned, to how capital is held. Even a watertight moral argument on those lines would leave the questions of how high income is taxed, how wealth is taxed, inheritance law and the like -- all the things that affect the link between high income and being a billionaire.
Yet I agree that billionaires are a good thing, on a different argument.
A society needs a very large amount of capital. If the average return on investment is 5%, it has capital of 20 times its GDP. Capital can be held in three ways: by the state, by corporations, and by individuals. The state is a good holder of capital for purposes where the common good is the main return on investment, but are limited by political considerations. Not everything that is for the common good can be funded. Corporations are bound to the interests of their stake holders, and have their own politics. It's hard to think beyond how things will look at the next AGM. Of the individual capital holders, a few can be characterised as wealth managers. They can invest large sums as they see fit. The question here is not how wealth has been gained (earned/inherited) but how it is used now and in the future. It is obvious (to me) that a society with a mix of the three kinds of capital holders will be more liveable than a society where only the state or corporations decide how capital will be used.
I am tempted to argue that a progressive consumption tax should be the socialist goal, rather than a wealth tax. But I don't, because how would the tax assessor distinguish between consumption and investment in a goal so idealistic that no financial return can be expected. When Carnegie built libraries, was that investment or consumption?
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