Should Paul McCartney and Other Billionaires Be ‘Abolished’?

As left-wing populists and progressives ascend in the Democratic Party, they are laying down new dogma, none more heartfelt than the idea that billionaires are evil, rotten, and not to be tolerated. For the Bernie Sanders, Elizabeth Warrens, and Alexandria Ocasio-Cortezes of the world, billionaires are what witches were to Salem congregationalists and kulaks were to Lenin: a threat to they system that must be eliminated.

Ocasio-Cortez’s economic policy adviser Dan Riffle has changed his Twitter name to “Every Billionaire Is a Policy Failure.” Lefty blogger Tom Scocca declares “Billionaires are bad. We should presumptively get rid of billionaires” (he graciously adds, “they may go on living…[but] they must not be allowed to possess a billion dollars”). A research director at the proggy Roosevelt Institute says simply, “We do not need billionaires.”

Then there’s former Clinton administration Labor Secretary Robert Reich, who believes that with great wealth comes great culpability.

Anyone who has a billion dollars either exploited a monopoly that should have been broken up, got inside information unavailable to other investors, bribed some politicians, or inherited the money from their parents (who did one of the above). https://t.co/pzVOxr1K7m

— Robert Reich (@RBReich) February 7, 2019

Reich links to a column by The New York Times‘ Farhad Manjoo with the eliminationist title “Abolish Billionaires: A radical idea is gaining adherents on the left. It’s the perfect way to blunt tech-driven inequality.” The column makes two large points that undergird the anti-billionaire movement. First is the idea that nobody deserves or needs a billion dollars. “Why should anyone have a billion dollars,” asks Manjoo, “why should anyone be proud to brandish their billions, when there is so much suffering in the world?” Second is the notion that “inequality is the defining economic condition of the tech age.”

Did, say, Paul McCartney (net worth: $1.2 billion) make his pile through theft, as Robert Reich would contend? Would there be less suffering in the world if his money is expropriated and transferred to the wretched of the earth via higher taxes rather than through his own charitable donations and investments? Probably not, especially when you think about how much suffering, especially in the developing world, is the direct result of government action. More important, the creation of billionaires is a lower-order effect of a relatively free-market economy. Recall Joseph Schumpeter on this:

The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.

Schumpeter’s basic description helps to explain the ubiquity of all sorts of technology, from cell phones to pharmaceuticals, all around the world. Because of massive increases in global trade, more people have more stuff and are living longer than ever before. If one indirect consequence of this is that there are more billionaires than there used to be, so be it. It’s become fashionable to assert that inequality is back at Gilded Age levels and that the concentration of power and wealth and everything good and decent is in smaller and smaller hands. This is simply not a good description of the world. For the first time in history, report researchers at the Brookings Institution:

The majority of humankind is no longer poor or vulnerable to falling into poverty. By our calculations, as of this month, just over 50 percent of the world’s population, or some 3.8 billion people, live in households with enough discretionary expenditure to be considered “middle class” or “rich.”

About the same number of people are living in households that are poor or vulnerable to poverty. So September 2018 marks a global tipping point. After this, for the first time ever, the poor and vulnerable will no longer be a majority in the world. Barring some unfortunate global economic setback, this marks the start of a new era of a middle-class majority.

Income inequality among countries has been declining as well. The GINI coefficient, a measure of income inequality, of 146 countries that account for 95 percent of global production, declined from 67 percent in 1988 to 57 percent in 2015. Over the same time frame in the United States, it rose from 35 percent to 38 percent, an increase, to be sure, but a relatively modest one. China and India saw bigger increases, but the growth in inequality within those countries is more than overwhelmed by the absolute increases in wealth, especially among the poorest inhabitants. Click through image below for a fully functioning graph.

Within the United States, both the right and the left like to tell a story about wage stagnation, the end of upward mobility, and the death of the American Dream. Conservatives will tell you it’s all liberals’ fault and you need to roll with Trump or the Republicans if you want to make America great again. Liberals make the opposite case and push wealth taxes, Medicare for All, Free College for All, Guaranteed Jobs for All, and more. Both sides are describing a false version of reality.

As Russ Roberts has shown, mobility is alive and well in the United States. The most stunning indicator comes from a study that looks at income changes for individuals between 1980 and 2014. If you simply measure statistical averages, writes Roberts,

the average income of the top 1%…went from $189,000 to $843,000, which seems to confirm the view that most of the gains from economic growth go to the richest of the rich while people in the middle or the bottom make no progress at all. But the people in the top 1% in 2014 are not the same people in 1980. What happens when you follow the same people?… The richest people in 1980 actually ended up poorer, on average, in 2014. Like the top 20%, the top 1% in 1980 were also poorer on average 34 years later in 2014. The gloomiest picture of the American economy is not accurate. The rich don’t get all the gains. The poor and middle class are not stagnating.

As libertarian economist Steve Horwitz writes, over the past 45 years, the consumption patterns of the poor and rich have become more similar. That’s a point that gets lost if you’re fixated on people in the top 0.001 percent:

Looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument.

Neither Horwitz nor Roberts are panglossian; each details areas (particularly housing, education, and health care) in which outcomes could be vastly improved, typically by moving in a more free-market direction. As Schumpeter might put it, capitalism might make more billionaires, but it’s achievement is creating many more things that virtually everyone can afford.

“Abolish Billionaires” is a smart slogan, but that’s all it is. Figuratively lopping the heads off of the richest of the rich will not make life easier for the poor and dispossessed, and it won’t increase economic growth and living standards. It might sate the bloodlust of left-wing populists for a while, but certainly that outcome can be purchased for lower cost.