This article originally appeared in The New York Times on February 21, 2019.
Billionaires are in notably bad odor with many people on the left. Socialists have long held that large stores of private wealth are tantamount to violence against those in need. But regular nonradical folks not on the left are fed up, too. Howard Schultz’s potential independent White House bid is simply infuriating, and it’s maddening to feel helplessly tangled in the gilded web of global intrigue emanating from the president, his plutocrat dictator pals and America’s retail overlord, the philandering Jeff Bezos.
Thanks at least in part to Bernie Sanders and the sizzling rise of Alexandria Ocasio-Cortez, this dry wick has met a spark. Enthusiasm for radical leveling is whistling out of the hard-left fringe and blossoming into a mainstream mood.
Ms. Ocasio-Cortez’s policy adviser, Dan Riffle, contends that “every billionaire is a policy failure” (that’s the tagline on his Twitter handle) because “the acquisition of that much wealth has bad consequences” and “a moral society needs guardrails against it.” He’d like to see the 2020 Democratic primary contenders answer a question: Can it be morally appropriate for anyone to be a billionaire?
It’s a compelling litmus test. I’d also like to watch would-be Democratic nominees take it. However, I hope that they would stick up for the idea that it can be morally kosher to bank a billion and that the existence of virtuous three-comma fortunes is a sign not of failure but of supreme policy success.
The empirical record is quite clear about the general form of national political economy that produces the happiest, healthiest, wealthiest, freest and longest lives. There’s no pithy name for it, so we’ll have to settle for “liberal-democratic welfare-state capitalism.” There’s a “social democratic” version, which is what you get in countries like Sweden, Norway and the Netherlands. And there’s a “neoliberal” (usually English-speaking) version, which is what you get in countries like Canada, New Zealand and the United States.
You may prefer one version over the other, but they’re not all that different. And in comparative terms, they’re all insanely great. The typical citizen of these countries is as well-off as human beings have ever been. These places are the historical pinnacle of policy success.
But guess what? There are billionaires in all of them. Egalitarian Sweden, an object of ardent progressive adoration, has more billionaires per capita than the United States.
Prosperity for Billionaires and Non-Billionaires Alike
Six countries outrank the United States on a well-being index and also have more billionaires per capita.
So what’s the problem? Preventing billion-dollar hoards guards against the bad consequences of … having the best sort of polity that has ever existed? The progressive idea here is usually that people with vastly more wealth than the common run of citizens wield vastly disproportionate political power and therefore imperil democracy and the equal worth of our basic rights. It’s a worry we’ve got to take seriously, but it’s based more in abstract theorizing than empirical analysis. Inspect any credible international ranking of countries by democratic quality, equal treatment under the law or level of personal freedom. You’ll find the same passel of billionaire-tolerant states again and again. If there are billionaires in all the places where people flourish best, why think getting rid of them will make things go better?
It can be tempting to think that there’s no morally decent way to accumulate that much wealth. And it’s true that scads of the filthy rich got that way through theft, exploitation and the subtler corruption of anti-competitive rules in politically rigged markets. (You may have heard of Donald Trump.)
But there’s a big moral difference between positive-sum wealth production and zero-sum wealth extraction — a difference that corresponds to a rough-and-ready distinction between the deserving and undeserving rich. The distinction is sound because there’s a proven a way to make a moral killing: improve a huge number of other people’s lives while capturing a tiny slice of the surplus value.
Consider Dr. Gary Michelson, a spinal surgeon and inventor worth an estimated $1.8 billion. He lives in Los Angeles. Dr. Michelson holds hundreds of patents on medical devices and procedures that have made spinal surgery more effective. He got rich by making it so that people with spinal injuries could walk again or suffer less debilitating pain.
According to William Nordhaus, the Nobel Prize-winning economist, innovators capture about 2 percent of the economic value they create. The rest of it accrues to consumers. Whatever that is, it’s not a raw deal. The accumulation of these innovations over time is the mechanism that drives compounding economic growth, which accounts for a vast improvement over the past 100 years in the typical American standard of living. Some people may have made an ungodly sum in the course of helping make this humanitarian miracle happen, but that’s O.K.
This isn’t to say that the deserving rich deserve every penny they get. In a better world, billionaires like Dr. Michelson would probably have less. Policy failure is rife, and it’s bound to account for a portion of even the best-deserved fortunes. Patents, for example, are government-granted monopolies meant to incentivize innovation. But the evidence suggests we’ve overshot the mark, and the pace of innovation would quicken, and many of America’s biggest fortunes would shrink, if patent protections were weakened.
Along similar lines, few of us object to J.K. Rowling making a mint entertaining billions of kids (and adults), but much of her net worth is because of merchandising profits built on unjustifiably ironclad intellectual property rights, which have deprived billions of the joys of knockoff Harry Potter toys and stories. Nearly every real-world market is defined to some extent by rules that limit competition, concentrate wealth and leave the rest of us poorer than we might have been. A small number of people have too much housing wealth because we’ve made it too hard to build. Financial innovation makes new markets and improves the allocation of resources, but Wall Street tycoons also reap huge rewards from winning wasteful arbitrage arms races, skimming off transactions and nickel-and-diming consumers with inscrutable fees.
Fixing these policy failures might create a system that produces fewer billionaires. But that shouldn’t be the point. It might also produce more morally worthy 10-figure fortunes. That’s great, because we should be aiming to channel entrepreneurial energy into productive wealth creation that lifts us all up and away from the extraction of wealth through unjust rules that close off opportunity and deprive us of the blessings of innovation.
There is a possible America where routes to extractive wealth have been closed and barriers to productive wealth have been cleared; where the wealthiest have somewhat less, and the rest of us have a great deal more. In this America, our economy and democracy are more equitable and less corrupt, and the least well-off fare better than ever. We should dearly want to live there, in a place where, if you can manage to become one, it’s more than “morally appropriate” to be a billionaire.
Will Wilkinson is a contributing opinion writer and the vice president for research at the Niskanen Center.