Sunday, October 25, 2020

Should billionaires exist?

I participated in a written debate recently on the question "Resolved: Billionaires Should Not Exist." Unfortunately, the limit was 1000 words. I have a lot more than a thousand words to say about billionaires, and how much I don’t think they should exist. So here’s the uncut version for you guys.

To be clear, I don’t actually want anybody to try to get rid of billionaires right now. Even Bernie Sanders and Elizabeth Warren, both of whom said billionaires should not exist, didn’t propose tax plans that would come close to putting them back in the millionaire bracket. The influence billionaires have on our political life would make this almost impossible to achieve. And it isn’t really necessary, because much (not all) of the good you can do by eliminating billionaires could also be done by taxing them just a wee bit more. But if I could wave a wand and transfer the wealth of America’s 700 billionaires into the bank accounts of the 40 million Americans in poverty, I would do it.

I will start with a caveat: I do not intend to argue that in a future, poverty-free world, billionaires should not exist. I intend to argue that in the world of the present, in which poverty does exist and inequality is constantly increasing, billionaires should not exist.

My argument is that happiness would be increased if the wealth of billionaires were redistributed and they were taxed to prevent them from earning more than one billion dollars, while no serious disadvantages would result.

Utilitarian argument

I will pass over any question of deserving money, since that relies on a sense of justice not everyone can agree on, and consider only utilitarian goals. Would America be a happier place if the money of billionaires were redistributed to the lowest income tiers?

The folk saying that money can’t buy happiness is untrue. Scientists have calculated that money increases happiness, but only to a point. Up to $70,000 a year, every increase in income correlates to an increase in happiness. That’s unsurprising, because much suffering is caused by poverty or anxiety over falling into it. An individual who makes $70,000 can afford a house where he doesn’t have to listen to his neighbors screaming at one another; he can afford to travel to visit family; he can afford a healthy and varied diet and a meal out from time to time; he can afford entertainment and art and time with friends. An individual making the minimum wage of $15,000 a year or less, which includes over 13% of Americans, can afford none of these. Naturally he will be much less happy.

A billionaire, however, enjoys no utility from all that money. A person who possesses $900 million can already purchase anything a person might reasonably want: a mansion with grounds and a beautiful view convenient to a large city; a yacht, a private jet, employees to handle every need. A billionaire has passed, long ago, the point of diminishing returns, where more money can truly increase happiness. The same money will purchase a much greater utility when it is redistributed to the rest of the nation.

The 400 wealthiest Americans have, collectively, 3.6 trillion dollars. Distributed among the 34 million Americans in poverty, it would give each poor American $103,000. That’s enough for a modest house, owned debt-free, or a four-year degree at a public college. The gain in net happiness would be massive.

By distributing this money more carefully, through a long-term basic income or poverty-reducing programs, the increase in happiness could go on for years. As families pull themselves out of poverty, they will increase both production and spending, boosting the economy and reducing social ills like crime and homelessness.

So, once we acknowledge that redistributing money would increase happiness, we can start asking what other consequences such a move could have. Is there good billionaires do that we would miss? Or is there additional harm we could prevent by abolishing billionaires?

Argument from power

Once a person has satisfied all happiness-related desires, the only thing left their money can buy is power. When you have more money than most other people, you can influence society in a direction you choose. Some exercise that desire by giving to charities related to the world they want: whether, like Gates, to vaccination research, or, like Cordelia Scaife May, to causes like restricting immigration and population control because she wanted to preserve America’s open spaces.

Others exercise that desire politically, by donating to candidates, hiring lobbying firms, or bribing politicians directly. They can also fund media favoring their preferred worldview, as the Kochs or Michael Bloomberg do. Even in our court system, the rich always have a massive advantage over the poor, because they have better lawyers. Large companies can trample small ones in patent lawsuits, and rich people avoid jail time for crimes that would lock up a normal person for years.

In 2014, a Princeton study surveyed the effects of money on politics by measuring how often government policy follows the interests either of the economic elites or of the people at large. Their conclusion was that when the majority of economic elites disagree with the majority of average people, the elites were far more likely to get their way--45% of the time, rather than 18% for average people.

It would be nice to say that billionaires having money doesn’t affect the rest of us. But, since we’re all affected by politics, it absolutely does. This also casts a worrying light on our odds of ever changing the uncomfortable status quo.

Argument from charity

We are sometimes told that billionaires do good because they can donate large quantities to charity. But billionaires give a lower percentage of their income to charity than others. Even the biggest givers in the nation, Bill Gates and Warren Buffet, give less than 5% of their income annually. If we discount those two, the rest of the richest 20 Americans give about .3% of their combined income--less than the average American.

Even that charitable work isn’t necessarily helpful. Much charitable giving exists for a tax write-off rather than actually doing good. Money given to foundations can stay within the foundation forever. Donations can be used to strongarm nonprofits into whatever a billionaire wants, or to start organizations promoting a political interest. The Kochs, for instance, give to charity, but those charities are largely climate change denialist media.

If we are to spend funds wisely to help the needy in this country, we shouldn’t leave the distribution of it to billionaires. This money is better administered by smaller owners, nonprofits, and government.

Argument from investment

The next defense of billionaires is that they invest capital in the market. But that isn’t specific to billionaires. Wherever money is, it is active in the market. However, investment patterns are different at different income brackets.

The poor primarily spend their money on their needs. This fuels business at the level of demand: whatever businesses best satisfy the needs of people prosper when people have money to spend.

People of middle income invest money in mutual funds, government bonds, and banks. This fuels the market in general, making capital available for business and government.

Billionaires, however, have more money than they can easily spend. Some goes into the stock market, of course, in the same way as smaller fortunes. Some is spent on venture capitalism--investment in prospective businesses. And some goes to investing in real estate.

How much good is this capital doing, compared to the capital that is simply spent? Funding new businesses is good, but billionaires may not be the best placed to decide what ventures are worth investing in. For instance, the ridiculous juice subscription company, Juicero, was fully funded by the Silicon Valley wealthy, while diabetics are forced to hack insulin pumps because of a lack of innovation in the ones available. Assigning capital to causes is an important job, and having it done by a few super-rich eccentrics might not be the best way.

Money invested in real estate may be the worst for the common good. When a person of moderate means flips a house or buys an apartment building to manage, they usually do add some value. Real estate speculation, or buying large tracts on the promise the price will rise, can do harm. The mere fact that people use real estate for investment makes the price go up, causing housing to become less affordable and driving homelessness. Housing bubbles are an example of this.

Properties owned by large investors are 18% more likely to evict tenants than those owned by smaller landlords. This is because they can easily afford the loss of letting a unit stand empty. In some areas, many units remain empty because the market can’t fill them at that price. Large investors will buy up entire neighborhoods and drive up the price as high as they want, because they have no competition.

Another method of expanding wealth is to extract more resources. The urge for constant growth is a driver of environmental destruction: the pumping out of aquifers, burning of rainforests, fracking. Without the political advantages billionaires have, millionaires aren’t often able to exploit the environment on the same scale. But, since these are not necessary activities we need billionaires to do, we’d be better off with smaller investors.

In short: capital exists, and if there were no billionaires, there would still be capital. But that capital would be assigned by a larger number of people, and thus more accurately aligned to what the market needs rather than the quirks of a few people who need nothing.

Argument from innovation

Another argument for billionaires is that they fund great innovations. But in reality, most innovators do whatever they are known for before becoming billionaires. Once they are billionaires, they may appear to innovate, but more often, they use patent law and buyouts to suppress other innovations.

Bill Gates and Tim Allen weren't billionaires when they started Microsoft. Jeff Bezos started Amazon with $250,000. Elon Musk wasn't a billionaire when he started his first company either. It requires basic financial security to make an invention, but not billions of dollars. After becoming billionaires, these men mostly have not invented anything personally, but rather funded other people's research. This research could have been funded by government or jointly-owned associations.

In fact, in many cases, it already has been. GPS, digital assistants, touchscreens, and WiFi come from government research. Elon Musk's companies Solar City, Tesla, and SpaceX have received billions in government funds, and much of his money came from PayPal, which he didn’t invent at all.

We also have to consider how many innovators and inventors never get a chance to make their big breakthrough because of a lack of opportunity. No billionaires are entirely self-made; they generally come from comfortably well-off families and have college degrees. They have the leisure to work on their ideas and the ability to raise funds through impressing investors or getting loans.

One wonders how many Americans have been just as talented, but held back by circumstances. Maybe they were forced to drop out of high school to make a living, or they were too busy struggling as a single parent, or they had their credit destroyed by medical bills, and never had a chance to invent anything or start a business. It is wildly implausible that all the talent just happens to be found among the well-off. Perhaps we would have many more life-changing inventions if every creative person were financially secure and able to access education and necessary funds.

What would happen to the money?

So, imagine a system wherein it become impractical to become a billionaire. High wealth taxes force billionaires to divest their wealth. Where would that wealth go? Would it vanish? Would billionaires stop doing whatever it is that produces so much value?

Most likely, many of them would choose to donate large quantities to charity--better to at least control where your money goes. Many would divest stock, perhaps by offering employees joint ownership or finding family members to hold some of it. Some would continue as they are, passively earning wealth which goes directly to taxes. And more people would choose to stop at the eight-figure level of wealth rather than the nine-figure level--making business choices that produce a steady level of income rather than constant high growth.

Would it have been a bad thing if Amazon had chosen to stick to books instead of trying to devour the market share of every kind of product that can be shipped? Would it have been so awful if Microsoft hadn’t bought XBox, LinkedIn, Skype, and Mojang? Did the market ever benefit from Warren Buffet owning so many properties? Not at all. If billionaires stopped doing what they do, which is increasing their portfolios through the investment of capital, smaller investors would own those assets. We do not need to “motivate” people to innovate and invest with the golden carrot of becoming a billionaire, because there is nothing only billionaires do that has any value. Motivating people to run reasonably-sized businesses with reasonably-sized fortunes has exactly the same benefit.

None of this would end poverty overnight, but the tax revenue brought in could do a great deal of good. The wealth of billionaires could fund universal health care, subsidized college, rent assistance, better elementary schools, and so on. While billionaires’ efforts to divest money would reduce tax revenue, many billionaires simply can’t help continuing to earn money, and the public coffers would benefit.

The result of this would be a nation both economically and politically more equal than what we have today. The gains of the poor would result in widely increased happiness, and the only suffering caused would be the temporary disappointment of billionaires at not being so rich--though, to be clear, with 999 million dollars each, there would still be little they couldn’t afford. There is no reason we need billionaires.


ficino4ml said...

Good points and information. Lots of things I hadn't thought of!

We're usually told that the billionaires would just move somewhere else where taxes are lower.

Maybe another reason to be a billionaire: pleasure over one's self-image as a "winner" and as better than others? The desire to be good is displaced by the desire to be "great" and to be seen as great. Isn't this the reason why Trump is so eager to be thought of as a billionaire - Trump, who seeks power for the attention it brings him?

Sheila said...

Unfortunately true.... billionaires do keep money in tax shelters, and with many countries poorer than they are, there's always going to be someone willing to accommodate them. I could go on and on and ON about the harm they do in developing nations, stuff like land grabs and draining aquifers and slave labor. (On this topic, Fred Pearce books BLEW MY MIND, highly recommend them.)

I hope someday we figure out ways to cooperate between nations to stop this kind of thing, but we're clearly not there yet. So while "billionaires not existing" is a nice end goal, the first steps are likely to be not even taxes, but campaign finance reform and things like that.

I definitely see that people who become billionaires are often those who are obsessed with winning and domination. You don't get to that point by being nice. Which makes it extra unfortunate that they have so much power...

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