Opinion

Why America needs more billionaires

Perhaps the super-rich should pay higher taxes, but they aren't a sign of capitalist immorality. They're a sign of economic vibrancy.

Alexandria Ocasio-Cortez has an issue with the superrich. At at Martin Luther King Jr. Day event in Harlem, writer Ta-Nehisi Coates asked the new House member, a New York Democrat and democratic socialist, if a "world that allows for billionaires" has produced "a moral outcome in and of itself." Coates wasn't quite finished with his question when Ocasio-Cortez interjected: "No. No, it's not." She quickly qualified that sweeping statement by allowing that "not all billionaires were immoral," citing Bill Gates and Warren Buffett as examples, perhaps because of their philanthropy. Both have pledged to give away most of their fortunes.

So it's the game Ocasio-Cortez claims to hate — "a system that allows billionaires to exist" amid poverty — not the players, at least perhaps if they are charitable. Yet surely a billionaire can represent a "moral outcome" just by being good at business and selling a good or service that people value. Take Gates, for example. Microsoft, the company he co-founded with Paul Allen, helped revolutionize home computing, generated massive wealth for retirement plans everywhere, and created hundreds of thousands of jobs over the decades. (Indeed, the American tech sector, while producing lots of billionaires, also produces jobs with annual compensation twice the U.S. average). Surely, Gates' lifework wasn't a net negative for society until he decided to start the Gates Foundation and fund efforts to boost education and reduce global poverty.

And Gates' story is hardly the exception in the United States. Among the 400 richest Americans — all billionaires, according to Forbes — about 70 percent created their own fortunes. That's up from less than half in the 1980s. Indeed, the United States generates more billionaire entrepreneurs per million residents than all other advanced economies other than Hong Kong and Israel. If one wants to differentiate between the good and bad superrich for the purposes of public policy, are super-entrepreneurs really the same as those billionaires of inherited wealth or, say, sellers of opioids? But it gets more complicated: What if the born rich are dedicated philanthropists and the nouveau-riche like Amazon founder Jeff Bezos are merely serving consumers and creating jobs? Bezos, after all, has not promised to give away his billions. Who are the true characters of moral worth in the AOCverse?

Probably not Bezos, no matter how much Americans love Amazon. (One survey finds Amazon to be the second most trusted American institution in the United States, behind only the military.) You can't really have a fundamental problem with America's billionaire-generating economic system if you give a pass to its richest billionaire. And Ocasio-Cortez doesn't. In that same MLK Day conversation, she said "it's wrong that corporations like Walmart and Amazon can get paid, they can get paid by the government essentially, [and] experience a wealth transfer from the public for paying people less than a minimum wage ..."

This is a moldy argument also used by writer Annie Lowrey in a much-cited article in The Atlantic last year titled "Jeff Bezos' $150 billion fortune is a policy failure." Lowrey argued that Amazon is able to succeed because the government "ameliorates the effects of poverty wages with policies like the Earned Income Tax Credit, Medicaid, and the Supplemental Nutrition Assistance Program." But this reasoning ignores the economic and business reality that if you are going to have a private sector, then private firms simply aren't going to hire workers at a wage more than they are worth to the firm. It also ignores the fact that the Earned Income Tax Credit is a government benefit that promotes work and boosts living standards. And if Medicaid benefits corporations at the taxpayer's expense, then it's strange that leftists like Ocasio-Cortez don't view Medicare-for-all — which would let employers completely off the hook for health coverage — as a massive subsidy to business.

Another thing: Do populist progressives and democratic socialists have a plan to deal with the massive fortunes of multibillionaire entrepreneurs like Bezos or the Google guys, Sergey Brin and Larry Page? Should they be forced to sell their shares? If so, how many and at what price? And who could buy them? Are there any concerns about how that would impact corporate governance at America's most innovative and profitable firms? Or will DARPA pick up the innovation slack? Indeed, Ocasio-Cortez also complained that too many smart people are making apps rather than working for NASA. Apparently all the thousands of smart people working at Elon Musk's SpaceX or Bezos's Blue Origin don't count. Someone might also want to mention to Ocasio-Cortez that amid this bounty of billionaires, the poor have grown fewer. Using 1980 living standards, the consumption poverty rate — one looking at all the resources households have, including some government aid — has plummeted to 2.8 percent in 2017 from 13.0 percent in 1980.

Maybe billionaires should pay higher taxes, or at least their estates should. We can have that debate. But their existence isn't a sign of capitalist immorality. In America, at least, it's a sign of economic vibrancy.

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