The Misplaced Logic of Attacking the Rich

A couple weeks ago a post about Jeff Bezo being the second-richest person in the world went viral. Many were aghast that a singe person could have so much money…how unfair when that money could be put to better use, so the logic goes.

Why does Bill Gates need his billions? Well, technically, he doesn’t. No one really needs anything. But it’s in the best interests of the economy and society that everyone be allowed to keep their wealth.

As a hypothetical, if wealth were capped at, say, $1 billion, Bill Gates would have no incentive to keep working at Microsoft after 1985 or so, which is when he officially became a billionaire; he would have sold the company, pocketing his statutory $1 billion to live out the rest of his life on a beach or something (this is making the neoclassical assumption he is only motivated by wealth). Had Gates’ departure stunted Microsoft, it would indirectly cost more economic value to society than had he stayed and been able to keep all his money. Losing the contributions of Bill Gates, a genius who created a company and whose contributions are almost irreplaceable, is very bad for Microsoft and probably the economy, too.

Microsoft is a $400 billion company that in 2016 generated $85 billion in revenue, $53 billion in gross margin. Over a period of decades, that’s way, way more value than Gates’ own net worth. Denying Bill Gates the opportunity to grow his wealth possibly deprives the economy of the hundreds of billions of dollars, over many decades, of total economic value produced by the success of Microsoft.

Some are blind to the fact that the wealthy don’t have have nearly enough money to fund their social programs, even if one were to hypothetically impose a 100% tax the Forbes 400 list. In 2015, the federal government spent $4 trillion; half of that went to various social programs. And that is every single year. The combined wealth of the Forbes 400 list would just barely pay for a singe year.

The combined net worth of the 2016 class of the 400 richest Americans is $2.4 trillion, up from $2 trillion in 2013. The average net worth of a 2016 Forbes 400 member was $6 billion, and the lowest ranked member had $1.7 billion.

So given how the wealthy typically disproportionately produce more economic value than everyone else–and this value pays for the social welfare of the poorest, and that these companies-combined-both directly and indirectly employ millions of people–a utilitarian could argue that it’s in the best interests of the poorest if the wealthy are able to grow and mange their capital to their own accord. The wealthy pay the most in taxes and also consume the most, and this spending helps funds the welfare state–this is the reality the left doesn’t want to accept.

The point is, the economic value created by Microsoft (or any successful company) is many multiples higher than the wealth of its founder, so only going after the wealth of the richest is a drop in the bucket compared to the total wealth created by these companies, and hence is counterproductive if the goal is to boost total societal welfare.