Extreme Wealth

It is a problem, and yet popular solutions are worse

Aaron Renn writes,

America’s divide into the haves (top 10%) and have nots (everybody else) has exploded in news coverage. It’s very warranted, as this divide is having fundamental and profound consequences for our country. For example, when the top 10% is no longer seen simply as a luxury segment but as the market itself, a result of that group having about 50% of all spending power, it upends much of the model of American institutions. The new true luxury segment is the ultra-rich.

I remember Michael Lewis’ first book, Liar’s Poker, which came out in 1989, near the end of the “decade of greed.” He described several big shots (Lewis used a more colorful expression), notably John Gutfreund. I asked a few AI’s to estimate Gutfreund’s peak net worth, adjusted to 2025 dollars. The answers ranged from $200 to $500 million dollars.

That is more than two orders of magnitude less than the net worth of today’s titans of finance. It was reported that one of the multi-billionaires recently gave $100 million to UATX, where I will be a visiting faculty member in the January-March term. On the balance sheets of today’s big shots, $100 million is rounding error. For Gutfreund, it was close to half of his net worth.

There is a new tier of wealth that is unlike anything we have ever seen in history. Renn cites various news articles that describe the exclusive lifestyles that this tier leads, as well as the lengths its members are willing and able to go to avoid contact with ordinary people (other than personal servants).

This class exclusivity runs counter to the American creed: All men are created equal.

Actually, I am not bothered by the consumption of the top tier. I am content with the goods and services that I can buy. As Scott Sumner points out,

societies become progressively richer by producing lots of stuff that rich people like—things that are “unaffordable” to average people. Places that understand this (Switzerland, Singapore, UAE, etc.), do much better than places that obsess with producing lots of stuff for poor people. If you don’t want to gentrify slums, then you’ll end up with lots of slums.

What bothers me about the ultra-rich is the parasitism that accompanies them. Instead of earning an honest living, more and more people sponge off the rich by going into government or non-profits. If you think that the rich should pay more taxes or contribute more to non-profits, to me that seems backwards. Having us all become dancing minstrels in a billionaire’s show is a solution that is worse than the problem.

Philanthropy, as opposed to charity, means giving to a cause, not to a community. I dislike philanthropy, as I have said before.

People assume that because non-profits do not seek profits, their intentions are good. And good intentions are sufficient to make them morally superior to profit-seeking enterprises. The intention heuristic ignores the possibility that the outcomes of profit-seeking businesses can be—and often are—more socially beneficial than the outcomes of nonprofits. We should evaluate enterprises based on outcomes, not on intentions.

Then there is the issue of accountability. A profit-seeking business is ultimately accountable to customers, who are in the best position to gauge the value of what the business provides. If customers do not pay more than the cost of what the firm provides, the firm loses money and goes out of business. In contrast, a nonprofit only has to keep its donors happy. If the services it provides are not worth the cost, it can continue to operate by maintaining good relationships between the executives of the nonprofit and the providers of funding.

A lot of supposed public goods turn out to be public bads. Take higher education. Please. Or government’s propensity to subsidize demand and restrict supply, turning health care, education, and housing into never-ending crises.

We need a better solution to the problem posed by having so many people relying on government or philanthropy for support. My preference would be for a different set of norms. Those with the potential to amass great wealth should exercise restraint. And the rest of us should have more pride than to rely on government and philanthropy for our livelihoods.

Resist Megalomania

All men are created equal.

Perhaps all men are created with an equal propensity for megalomania. But only a few wind up in a position of staggering power in comparison to others. J.P. Morgan had a high ratio of wealth to that of the average household in his time, but AI’s tell me that it was less than half of that ratio for Jeff Bezos or Warren Buffet today.

All men are created equal.

But The Washington Post reports,

In the past decade, billionaires have been more empowered than ever before to spend money to influence American elections.

…While some billionaires have given similar amounts to both parties, the most prolific donors gave almost exclusively to one party. In federal races, LinkedIn co-founder Reid Hoffman gave just under 90 percent of his total donations to Democrats and liberal committees; all the other top 20 donors were even more lopsided.

Do not tell me that the answer to financial megalomania is to tax wealth. That would only feed the politician-megalomaniacs, who are worse. If $100 million seems like rounding error to a rich individual, $100 billion is rounding error as far as our leaders in Washington are concerned. The last thing we need to do is add to the money available to politicians to allocate.

All men are created equal.

But I worry that in the megalomania game, a handful of men are players, and everyone else is a Non-Playing Character, or, worse, a player whose only role is to toady to a billionaire.

I think that we see massive individual fortunes today because of the scale of the economy. The increase in the size and specialization of the economy creates opportunities to build great concentrations of wealth. You cannot crush those opportunities without making the economy much less rewarding for everyone.

But perhaps we can learn to behave differently. Perhaps we could cultivate the virtue of exercising restraint. If George Washington were alive today, would he be trying to make it to the top of the Forbes 100?

Imagine what the virtue of restraint might imply. Build the most profitable enterprise that you can, but do not extract such large personal rewards from it. Don’t accumulate more personal wealth than you can use.

In politics, don’t exercise power in every realm. Don’t take public spending to stratospheric levels.

The rest of us can do our part by refraining from flattering the megalomaniacs. Avoid becoming a rich man’s flunky. Don’t turn into a politician’s sycophant.

All men are created equal.

How well are we doing in living up to that creed? In some ways better than in Jefferson’s day, when there was slavery. But perhaps not as well as we could, if we had some different approaches to virtue.

substacks referenced above:

@

The Rich, the Poor, and the Ultra-Rich

@

Output is abundance is affordability