In a recent interview, author Ta-Nehisi Coates asked newly elected Democratic Congresswoman Alexandria Ocasio-Cortez whether we “live in a moral world that allows for billionaires.” He clarified, “Is that a moral outcome, in and of itself?” Representative Ocasio-Cortez (henceforth AOC) answered that it is not moral and went on to say, “I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong.”
Her statement made it sound as if she thinks there’s a strong connection between the two. The uncharitable interpretation of her statement is that she thinks the people making billions are preventing poor people from getting good health care, as if the rich people took it from the poor people. Although AOC didn’t make clear whether this is what she meant, she did say that she doesn’t believe that multi-billionaires Bill Gates and Warren Buffett are immoral. So the uncharitable interpretation is probably too extreme. The charitable interpretation is that failing to impose the high tax rates she would like on billionaires means there is less money for public health. But what if the connection between allowing billionaires to exist and making poor people better off is the opposite of what she contends? What if allowing people to keep a large percentage of what they earn is one of the factors that makes poor people better off? AOC doesn’t consider that possibility. But she should, because it’s true.
This is from my article published this morning on Hoover’s Defining Ideas, “AOC versus Adam Smith,” February 5, 2019.
I connect her statement with the Microsoft ad played during the Super Bowl and then write:
Microsoft put engineers to work on the adaptive controller in 2015 and introduced it in September 2018. Why? Was it just a public relations move rather than a business proposition to make money? Possibly. If so, notice that Microsoft had the wherewithal to do that. In that case, the same company that made billions for some of its executives also used some of its money for that cool technology. More likely, though, Microsoft saw a chance to make money. It’s possible that not only disabled people, but also others, will find the new technology attractive. So the incentive to make money led Microsoft to develop a cool technology that will probably help hundreds of thousands of people.
And my ending:
Ironically, therefore, the important question and the one Ta-Nehisi Coates should have asked AOC is not whether a moral world allows for billionaires. It is whether a moral world allows for politicians whose policies will not only reduce the number of billionaires, but also make poor people worse off.
READER COMMENTS
Alan Goldhammer
Feb 6 2019 at 2:21pm
The big issue IMO are the billionaires who have adversely impacted our society. I’m thinking mainly of the private equity guys who loaded companies up with debt, looted pension funds, and then spun the companies off while they were destined to fail. These efforts led to bankruptcies, people losing pension benefits and worse, their jobs. I have no arguments with the billionaires who made their money the hard way, building businesses from the ground up.
Vivian Darkbloom
Feb 7 2019 at 3:41am
Billionaires (and millionaires) are, by definition, people who have shown enough foresight and restraint to have not consumed all their savings and wealth on a current basis. I like to ask myself (and others) “if they are not benefitting from current consumption from their wealth, who, if anyone, is”? “Can you follow the trail of money, for example, deposited in a bank account”? When I ask others to think about that question, they usually find it, if not instructive, at least puzzling. The problem is the beneficial effects of making savings available to others through investment, more and cheaper credit, etc, are too mundane and diverse for most folks to comprehend. Sure, there are other benefits of savings and wealth than current consumption, for example, increased status and influence and the possibility of increased future consumption; however, I have a hard time imagining how Buffett, Gates, Schultz, et al are going to manage to personally *consume* all their wealth during their lifetimes, even if they wanted to. They won’t. And, in the meantime, the rest of us are benefitting from their wealth even if we don’t forceably take it from them.
And, speaking of morality:
https://www.econlib.org/library/Columns/y2013/Leescrooge.html
(borrowing, I think, from Steven Landsburg)
But, whether it is wise or not, taxes on the “rich” are going to go up. It would behoove reasonable and rational people to think about how that could be done with the least amount of economic damage.
Alan Goldhammer
Feb 7 2019 at 8:19am
Vivian Darkbloom writes,
“But, whether it is wise or not, taxes on the “rich” are going to go up. It would behoove reasonable and rational people to think about how that could be done with the least amount of economic damage.”
Isn’t the best solution to this a VAT as lots of other countries have enacted? The corporate income tax generates a much smaller percentage than it did several decades ago and is full of tax preferences. Though I am on the left side of the political spectrum, I continue to favor ‘radical’ tax reform. Eliminate all the preferences reduce rates and put a VAT in place (I view it as a consumption tax of sorts).
robc
Feb 7 2019 at 8:53am
Best?
Seems unlikely.
The best tax, IMO, would be one with the lowest (or zero) deadweight loss. So I would go with the (single) land tax.
The “problem” with an SLT is that it limits government revenue. My back-of-envelope calculation suggests if we instituted one, it would raise about 1/3 of the fed/state/local taxes currently raise.
I would split the money evenly between the 3 levels (county/cities can fight over their 1/3).
MG
Feb 7 2019 at 9:00am
I know you all are focusing on the philosophical issues behind class warfare. But what about the basic “economic case” seemingly being made: apparently, that there is a trade off between having the resources to fight ringworm and allowing billionaires to, well, exist. (In which I am reading between the lines.) Maybe AOC should consider this.
Assume a billionaire is an individual whose wealth is $1 billion. Assume a billion dollars in wealth allows him/her to spend about 4% to 5% annually if he/she wanted to remain billionaires. Thus, a billionaire spends, say $50,000,000 a year on his/her own gratification, probably not always fighting ringworm. Doesn’t the Federal and State Governments spend about $1 trillion dollars annually on social services/welfare, whose aims are to counteract all sorts of “bad outcomes”, one of which must be fighting ringworm. Our taxes (and our kids, and their kids+++ taxes) are already paying for the equivalent of 20,000 billionaires devoted to fighting more than just ringworm. (There are fewer than 700 billionaires in the US.)
Todd Ramsey
Feb 7 2019 at 9:47am
AOC should consider the reality that many billionaires help poor people through charity, the Gates Foundation being one example. By concentrating resources and applying them in a considered manner, the Gates Foundation likely does more to help the world’s poor than the bureaucracy that his tax dollars would have funded.
And the billions the Gates Foundation will bestow among the world’s less fortunate pale next to the untold human-hours saved through Microsoft’s productivity tools and standardization.
AOC might argue that Microsoft would have created those tools regardless of the tax rate. Her argument would need to account for the fact that Bill Gates cared deeply about money, enough to demand that best friend Paul Allen give him a bigger share of the equity of fledgling Microsoft, since Gates had to drop out of college.
Billy Kaubashine
Feb 7 2019 at 11:38am
Very difficult to become a billionaire without creating a whole lot of jobs that help a whole lot of non-billionaires.
The greatest fallacy of the Left is that success, wealth, power, or some combination of them, implies moral deficiency. (Unless legitimized by open support for Leftist causes.)
IVV
Feb 8 2019 at 3:03pm
The real problem doesn’t appear to be the existence of billionaires as much as the existence of people who can’t pay for their health care. What can be done about that? Why can’t they afford health care?
How can we ensure they can afford it?
(That’s a different question than where do we get the money to pay for it.)
Mark Z
Feb 8 2019 at 9:03pm
Billionaires seem like a distraction. There’s almost certainly far more waste being siphoned off by hundreds of thousands or even millions of people who work in healthcare and education that get paid far above the market value of what they produce than by a few billionaires in finance or tech (especially tech, where most billionaires can trace their fortunes directly to highly productive innovations that created far more value than they captured). And the former groups make their surplus through state coercion rather than voluntary transaction. Major hospital systems and public school systems are also actual monopolies sustained by cartels, unlike Facebook and Apple. From a social welfare perspective, it should be a far greater concern if healthcare and education prices are being inflated to someone’s benefit than if consumers are overpaying for laptops.
The big lesson, it seems, of this billionaire hatred is that the most durable kinds of rent-seeking are those that are spread out among a large enough number of voters that politicians can’t risk alienating. 100,000 people can enjoy $5 billion in rent-seeking proceeds and spread it among themselves with impunity while one person who manages to capture $5 billion out of the value created from an invention that created an enormous consumer surplus has to constantly look over his shoulder.
Tom DeMeo
Feb 11 2019 at 9:54am
A billionaire is a market defect. A person cannot contribute that level of value. They come to obtain an ownership stake in something, and circumstances become such that the marginal value of that stake grows out of proportion to its natural value. They may make very important contributions, or they may not, but either way, they receive a windfall out of proportion to their real contribution.
Bill Gates was smart and tough and made some brilliant strategic decisions. But ultimately, his wealth derived from a lucky break where an asset of limited value became an asset of immense value due to circumstances he did not arrange. He made a series of decisions that continued to leverage that advantage, but the true value he added was a sliver of the windfall that he received.
Hazel Meade
Feb 11 2019 at 3:13pm
This is an important point.
One of the key tenets of liberal political philosophy is that rights are universal. They apply equally to rich and poor alike. Thus the same laws which protect the rights of billionaires also protect the rights of the poor.
Many progressives respond that property rights protect people who have property, but the wealthy don’t need such rights. The rich have always been able to manipulate the state to protect themselves. What universal rights do is ensure that the powerless are given the same legal protections as the powerful. In other words, people who have a little bit of property are protected from people who have a lot. We see in cases like eminent domain how a small loophole gets exploited by wealthy developers to take property from the relatively poor. Robust property rights prevents that. But in order to be robust, they have to be universally and equally enforced.
If rights start to become contingent on political decisions in the moment. If we say, let’s make an exception for billionaires, then other exceptions start to be made. Look at civil asset forfeiture, where it started with a thing that was only supposed to be intended for drug kingpins, and within 30 years it was smart phones being confiscated from people traveling on the highway.
Having an environment in which people are secure in their property enables people at all income levels to make long-term investment and life decisions that they can’t make in an environment where property rights are insecure. When rights are insecure, people will make their wealth illiquid and hold it in assets that they can secure from the government, whether that be gold bars in the basement or offshore accounts. And all that means they won’t be investing it in themselves or in businesses at either a large or small scale.
In other words, Henderson is exactly correct that laws which protect billionaires ultimately make it easier for impoverished people to make it out of poverty. Because robust universal property rights are a necessary prerequisite for economic development at all levels.
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