Part 1: Why focus on billionaires?
Note: I am not an economist. I am not even sure what my views are on the subject, but I’m sure my biases will come across. If you have any disagreements or points to make, please leave a comment and I’ll use it to inform my thinking :).
Though it’s been mostly overshadowed by recent world events, there has been an ongoing debate in the media concerning the morality of billionaires and their existence. These debates often turn into proxies for capitalism vs. socialism. I find this frustrating because the answers will no doubt be complicated and we’ll never answer them if we just retreat to our political and ideological tribes. In much of the western world, we already live in mixed economies. How we combine these two economic systems is where the tough questions show up. What are those tough questions, and is this question about billionaires a distraction?
The debate about billionaires is mostly a debate about economic inequality (income and wealth). The argument for taxing billionaires out of existence is that the tax revenue generated would fund government social programs to help those in need. The rhetoric, however, often comes across as resentment rather than a concern for the most needy. It can sound like getting rid of billionaires is the end goal and not just a means to reduce poverty.
Shouldn’t eliminating poverty be the desired end goal? We could eliminate inequality by reducing everyone’s wealth to zero, but that would not be a better world. There will always be some inequality from luck and the lottery of birth, but eliminating poverty is an achievable goal. A goal that humanity has been making serious progress towards over the last two centuries.
Dismissing the focus on billionaires as class resentment, however, is a straw man. The focus on the extremely wealthy comes from a moral argument. It is greedy and amoral to hoard so much unneeded wealth when there are those in need for whom it could go a long way. In economic jargon, additional wealth for the very rich has diminishing marginal utility.
Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.Paul Krugman, NYTimes Opinion
But the economy is not zero-sum. A billionaire making an extra dollar does not mean someone else is losing that dollar. The wealth of the average person has been growing over the last few centuries thanks to economic growth fueled by capitalism. There is disagreement here on whether the existence of billionaires (and/or the incentives to become one) has a vital role to play in continuing that economic growth. “Capitalists” will argue that billionaires mostly earn their wealth by creating much more wealth and value for society as a whole. The “socialist” crowd views billionaires as greedy and corrupt, gaining their wealth by exploiting workers and consumers.
Apart from inequality, there is also a legitimate grievance about the out-sized political power that billionaires have. Policies that further enrich the very wealthy (e.g. tax cuts, government subsidies, and obfuscated regulations) reduce dynamism and social mobility which increases inequality. Just about everybody wants money out of politics. The values of capitalism are hindered by it. Crony capitalism reduces competition and entrepreneurship, and increases the amount of economic rent-seeking (gaining wealth without adding any value to society). “Socialists” tend to blame the greed of billionaires and the corrupting influence of capitalism. “Capitalists” tend to blame the corrupting influence of politicians and excess government regulation.
It seems like there could be a broad coalition for reducing the political power of billionaires. But, even if we could reform the politics, there is the fact that money can buy more resources – more publicity and ads, more people, labour, and technology. Is this unequal power dynamic too unjust to let stand, or is it equalized over time as people rise and fall out of wealth and income classes?