Billionaires are Different — Part 3

James Buchanan proposed a simple test to distinguish economists from non-economists. It was that economists would not agree with the old adage that “whatever is worth doing, is worth doing well.” If you’re confused by that, you aren’t an economist.

Economists know that everything has costs and benefits. Not just this or that thing but everything. That includes good things and bad things. Even good things have costs, and bad things have benefits. Furthermore, economists “think at the margin.” And finally, there’s such a thing as “sunk costs.”

To keep this brief, let’s just say that an economist would stop before reaching that nebulous “well done” stage. He would stop when the marginal cost exceeds the marginal benefit. If something is worth doing, it is worth doing as long as the net benefit is positive. And then stop.

Back to our topic at hand on billionaires (the previous bits are part 1 and part 2.)

Politicians and social justice warriors pretend to be social justice worriers. They worry about inequality and want to eradicate it for the sake of humanity. Or so they claim. But their motivation for beating up on the extremely wealthy may be self-serving. The extremely wealth are few, and the people who envy them number in the millions.

Envy is a powerful universal human emotion. It arises naturally in everyone and can easily be transformed into hatred of the envied. Politicians easily manipulate the envy of the masses to gain political power by promising to use the coercive powers of the state to confiscate the wealth of the super rich. Bernie Sanders and Elizabeth Warren are prime exhibits in this regard.

It is so easy to evoke the envy dormant in everyone that even opinion piece writers use the tactic to appeal to their readers. Michael Tomasky’s Nov 11th opinion piece in the NY Times pushes all the right buttons to elicit hatred toward “the billionaire class.” The multi-billion fortunes are not just excessive or decadent but also anti-democratic, he opines. To the average American, being anti-democratic is as evil as denying the sacredness of motherhood and apple-pie.

{Click on the above image for the NY Times piece, which unfortunately is behind a paywall.}

And why is the existence of multi-billion dollar fortunes anti-democratic? Because, Mr Tomasky writes, “any democracy needs a robust and thriving middle class, and we have spent the last 30 or so years transferring trillions of dollars from the middle class to the people at the very top.”

Note how the wealth of the extremely wealth is framed as a transfer from the middle class by some unspecified “we.” We somehow transferred trillions of dollars (I didn’t know that I had that kind of money) to some who then became people at the top. An unsupported and therefore incredible claim.

Here’s how it works, as per Tomasky. There is a certain fixed amount of wealth which exists and which is “distributed” among all the people by someone. Then someone else — unspecified precisely who — somehow takes a part of the wealth that rightfully belongs to the middle class and transfers it to some particular few who then end up being excessively and decadently rich.

It’s a sneaky, dastardly move, this transfer from the middle class. This cannot be tolerated. This has to be stopped.

Tomasky is probably not a retard because even the NY Times, low though it has sunk, has some standards. Most likely he is ignorant about how the economy works. Don’t be like Tomasky, is my advice to my friends.

The fact is that the process of accumulating wealth is not mysterious. Broadly speaking, there are only two ways: one, create wealth, and two, steal wealth from others. The second way was quite popular in the past and is still popular in the poorer countries of the world today.

Politicians in poor countries amass massive wealth by stealing. Here are a few examples from African countries: Robert Mugabe of Zimbabwe ($1.4 billion), Ali Bongo Ondimba of Gabon ($2 billion), Daniel Arap Moi of Kenya ($3 billion), Sani Abacha of Nigeria ($5 billion), Mobutu Sese Seko of Democratic Republic of Congo ($5 billion), Zine El Abidine Ben Ali of Tunisia ($17 billion), Jose Eduardo dos Santos of Angola ($20 billion), Ibrahim Babangida of Nigeria ($22.7 billion), Hosni Mubarak of Egypt ($70 billion), and Muammar Gaddafi of Libya ($200 billion.)

Saudi Arabia is another example of a country with leaders who have massive unearned wealth. The Saudi family aka the House of Saud is worth an estimated $1,400 billion.

India, the land of my ancestors, provides an illustrative example of hundreds of millions of very poor people and thousand of extremely rich politicians and bureaucrats. The two are connected: the extreme wealth of the politicians and bureaucrats is to a great extent the cause of the poverty that the millions suffer.

Even in otherwise civilized countries, there are people with massive unearned fortunes. The British Royal family’s net worth is estimated at $88 billion.

Let me quote from a 2011 Forbes article:

Forbes has long separated rulers and dictators from our annual rankings of the World’s Billionaires, distinguishing between personal, entrepreneurial wealth and wealth derived largely from positions of power, where lines often blur between what is owned by the country and what is owned by the individual. That is why rulers such as the King of Thailand, the Sultan of Brunei and Dubai’s Sheikh Mohammed Bin Rashid Al Maktoum are not listed among the world’s billionaires, though we have estimated that each controls an 11-figure fortune.

Alright, so now on to the matter of those who become super wealthy as a consequence of producing super wealth. Jeff Bezos and Bill Gates feature prominently in the NY Times piece. Let’s focus on them.

Bezos and Gates are wealthy because they created wealth, not because they stole it from the American middle class. Not just middle-class Americans, but every class of Americans willingly bought stuff from Amazon and from Microsoft. And not just Americans, but people around the world willingly parted with their hard-earned money.

Both parties to any voluntary exchange gain. Therefore it logically follows that Bezos’s wealth is a proxy measure of the wealth that his employees and his customers gained. That is why I claim that the number of super-wealthy people in a developed economy is a healthy sign, just as the number of super-wealthy people in an underdeveloped economy is a sign of sickness.

Tomasky cites numbers: “The 400 richest Americans — the top .00025 percent of the population — now own more of the country’s riches than the 150 million adults in the bottom 60 percent of wealth distribution. The 400’s share has tripled since the 1980s.”

That’s sick. Or awesome, depending on how you look at it. Did the rich create the wealth that they eventually took a part (and only a small part) of it for themselves? And what did they do with the part that they took? Did they blow it all on frivolous status goods or did they plow it back into productive ventures that will further enrich them and the economy at large?

I believe that the wealth that they have they cannot ever consume themselves. Their wealth has to be invested. That means the wealth will only grow and continue to benefit the world at large.

Envy, as previously noted, is a powerful human emotion. It is normal to envy the wealthy their wealth. And it is also normal and understandable that many people would signal their virtue by demanding that the wealthy must be made to share their wealth with the less fortunate. It’s a natural tactic to disguise their envy as a form of altruism. I call bullshit on that.

If one is really dedicated to altruistic “redistribution” of wealth from the “undeserving rich” to the “deserving poor,” then there is a really simple test to separate cheap talk from real intent. Let those who want equality of wealth start with themselves. They are free to demonstrate their sincerity by giving away any wealth they have that is in excess of the average wealth first. And only after that demand that those richer than they are share their wealth.

Moreover, where do they draw the line? Average American wealth is around 100 times the world average. Should Americans be forced to give up their wealth so as to equalize global wealth? If not, why not? Why should this equalization process stop at political borders?

Michael Tomasky, the author of the opinion piece, is undoubtedly wealthier than the average resident of the US, and certainly wealthier than the average resident of the world. Before demanding that Bezos’s wealth be confiscated, should he demonstrate his sincerity by offering to share his wealth with the less fortunate in the US and around the world?

Tomasky writes:

This is carnage, plain and simple. No democratic society can let that keep happening and expect to stay a democracy. It will produce a middle and working classes with no sense of security, and when people have no sense that the system is providing them with basic security, they’ll make some odd and desperate choices.

That’s a threat that Tomasky plainly hints at. He implies that unless the super rich are forced to surrender their wealth, those who are not rich would make “odd and desperate choices.” That people in America — arguably richer than the majority in the world — lack a sense of security and would destroy the system that made them the envy of the world. The socialist revolution is coming and the super-rich better beware!

It’s time to draw this to a close. You may wonder why I stared this with not doing things well. I will get to that the next time. Be well, do good work and keep in touch.

Author: Atanu Dey

Economist.

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