This article was originally published by Lipton Matthews at The Mises Institute.
Thinking that billionaires are a policy failure has become pervasive in the United States. Politicians like Alexandria Ocasio-Cortez and Elizabeth Warren are leading the charge in the demonization of billionaires. Left-leaning politicians and their allies think that billionaires corrode society by accumulating large fortunes, which amplifies inequality.
As such, many propose taxation as a tool to promote fairness by redistributing resources, yet such intentions are not always virtuous and could instead be guided by envy.
When proposals to tax billionaires are couched in compassionate terms, they are more likely to elicit sympathy. Usually, we think that suggestions to tax billionaires are motivated by notions of justice and fairness. Most people are appalled by acts of injustice and unfairness, and the thought of people earning billions when others barely struggle to survive could strike some as unfair and unjust.
However, a shocking research finding is that envy and self-interest play a pivotal part in explaining support for redistribution. According to evolutionary psychologists in a 2017 paper: “evolved motives for navigating interpersonal interactions clearly predict attitudes about redistribution, but a taste for procedural fairness or distributional fairness does not.” More recent evidence also points to the influence of malicious envy in initiating support for redistribution.
That envy motivates support for redistribution should not surprise readers because those who fail to succeed in the marketplace often develop contempt for winners. Intellectuals, for instance, find it scandalous that entertainers and influencers make more money despite the intellectuals’ greater education and expertise. By attacking wealth creators, underachievers elevate themselves at the expense of society because their proposals to penalize billionaires will make society worse off.
People become billionaires by creating value for society. If the inventions and services delivered by billionaires were useless, then billionaires would not have accumulated riches. Becoming a billionaire is a reward for generating immense value. Moreover, most benefits of technological innovations are passed on to consumers rather than appropriated by innovators. Billionaires are net value generators since their investments in society are greater than their rewards.
Microsoft made Bill Gates a billionaire, but its impact on boosting the productivity of organizations across the globe and stimulating economic activity is greater than the wealth Gates has obtained. Market-based innovations fueled by the ambition of billionaires have lowered costs for consumers and brought luxury goods to the masses. Despite the benefits of billionaires, some argue taxing them would provide the government with more resources to fund welfare for the poor.
This assumption is misguided because billionaires on average are philanthropic, and many signed a pledge declaring that most of their wealth will go to charity. Other than philanthropic involvements, billionaires are committed to using their wealth to solve some of the world’s most pressing challenges. Ninety-five percent of surveyed billionaires believed that they should use their wealth or resources to tackle global challenges, and over two-thirds asserted that it’s their responsibility to drive change, according to a UBS report.
Billionaires have a greater reach than national governments and are positioned to maximize the welfare of people across the globe. Furthermore, when governments fund welfare, they are using tax dollars, but billionaires are using their own funds. Ideally, if government policies encourage more billionaires, then private philanthropy can become a greater source of funding for welfare. With less government reliance on tax dollars, taxpayers will have more funds that can be diverted to saving and investing, thereby increasing the stock of capital assets to spur future innovations.
A society with fewer billionaires is less dynamic and efficient; countries that cultivate hostile climates for entrepreneurship by imposing taxes and costly regulations struggle in the long term. Sweden’s leftward lurch during the late 1970s and 1980s stymied entrepreneurship to such an extent that among the top one hundred firms in that country with the greatest revenues in 2004, only two were entrepreneurial firms established after 1970, compared with twenty-one founded before 1913.
Clearly, the assault on entrepreneurship during this period deprived Sweden of potential innovations that would have made the society more dynamic and prosperous. Ordinary people were also prevented from netting profitable investments in stocks that they would have gained if government policy had enabled the success of entrepreneurial firms.
Working people derive substantial benefits from the value-generating activities of billionaires, as philosophers Jessica Flanigan and Christopher Freiman expounded in an article defending billionaires:
To the extent that billionaires make their money through investments in productive companies, they have powerful incentives to produce goods, services, and useful public infrastructure, which benefits everyone, including the poor. . . . Overwhelmingly, large retail companies benefit low-income consumers through economies of scale, even if they also produce billionaires.
Planting seeds of contempt for billionaires will lead to dangerous consequences. Billionaires are a sign of progress and prosperity. Therefore, attempts to thwart the emergence of new billionaires will diminish living standards and hurt the prospects of the people left-wing politicians claim to defend.