ForumTouchy Subjects ► Ethics of the Existence of Billionaires
TwoCans poll results for "No one should be able to become a billionaire" (final):
Strongly disagree: ========================= 25 (37%)
Disagree:          ======                    6  (9%)
Neutral/unsure:    =======                   7  (10%)
Agree:             ================          14 (21%)
Strongly agree:    ===============           15 (22%)
Is it possible to become a billionaire by ethical means? Why or why not? Is it a failure of government that billionaires are allowed to exist? If so, by what means should the government prevent people from becoming billionaires?

Discuss. (∩`-´)⊃━☆゚.*・。゚
  
There's a tweet that floats around a lot demonstrating just how rich billionaires are by pointing out that if you paid no tax, and earned 2000/hr since the birth of Jesus you would still not be in the top 30 most wealthy Americans.

Owning billions by ethical means is an interesting puzzle because it represents two interesting quirks of our current form of capitalism:

1) money begets money. If you make several million dollars, you can essentially only succeed in making more, this isn't good for competition necessarily nor necessarily fair when the common assumption is that capitalism rewards hard work.

2) Money is a house of cards. Tesla stock tanked when Elon Musk hit a blunt on a podcast, no qualitative difference in Tesla's books, just Musk doing something personally that in no way affected the company. Amazon stock could vanish, Jeff Bezos' worth could disappear and yet the infrastructure of purchase, shipping and wages of Amazon could remain in place.

The ethics of owning billions of dollars is usually a calculation on the fairness of the above two being true while people who work more than 40 hours a week in difficult circumstances can utterly fail to see their lives improve or even receive basic services.
  
Are we defining billionaires as cash or net worth? If you start a business and give yourself a salary of $80,000/year, but the business becomes Amazon, you are a billionaire by net worth standards even though that wealth actually belongs to the company.
  
Here’s how I think about it: are these people using any of this money to help others? Bill gates has the gates foundation, and he is constantly donating to charity. I’d say he’s pretty ethical.
  
All good points. I'd like to go by net worth. Bezos, who has almost all his wealth in Amazon, usually comes up in these discussions (although he still has > 2 billion USD in cash, I think).
From Anonymous:
Strongly agree with the notable exception of a company-wide vote on it. If every worker at Amazon got together and decided that Jeff Bezos is just so incredible that he should have hundreds of billions of dollars of their money, fair enough. That would never happen, though. Otherwise, no one can possibly earn one billion dollars at the same time that another person cannot get by with a full-time job, so no one should receive a billion dollars.
  
This really depends on what you define as ethical behavior. I don't think Amazon became Amazon by behaving ethically, I think it became Amazon by behaving by market principles.

I think I'd like to diverge from the question slightly, though. If our goal with a free market economy is to provide incentive for innovation, that's already happened well before an individual becomes a billionaire. By the time you're pushing billionaires out, you're probably stifling innovation because you're preventing competition. Amazon has no significant competitors because it buys or suffocates every company that could compete before it gets there. That means they don't need to treat their low-skill workers well, they don't need to innovate as fast, they don't need to improve the lives of their customers or localize their offerings. They just need to exist because nobody can replace them.

So I'd ask if there's even a market advantage to the existence of billionaires.
  
I think in the first post you've labeled "Strongly agree" twice.
  
(Sorry, fixed.)
  
Thanks. :)

I was one of the people who voted 'strongly agree,' just so y'all know my stance.

Regarding Bill Gates's philanthropy, it's true that he's given $45 billion over 25 years, which is a lot! He's certainly an outlier in terms of percentage of giving, but let's set that aside for now. We'll use him as a case study for "charitable billionaire," and examine how he uses his wealth.

The Bill & Melinda Gates Foundation describes itself as a leader in Venture Philanthropy - the idea that a charity can fund non-profits like investments, hoping to spend money to make money, and at the same time hopefully doing good work.

For example, their largest category of donations is over 5 billion dollars to infectious disease research funding over those 20-odd years. This is a lot of money - America spends about that much annually on infectious disease & allergy research.
But crucially, that money given doesn't come with the same sorts of regulations and rules that government money does. It doesn't go only to non-profits, but also to for-profit businesses, like GlaxoSmithKline (conflict-of-interest disclaimer: my work is partially funded by GSK). Some of these businesses the foundation holds stock in.

Some other investments are more questionable, like giving $80 million to the private school that Gates's children attend.

Some of the things that the foundation do may in fact be harmful. The foundation regularly funds business-friendly, anti-regulation, lobbying groups. It also uses its influence to push policy abroad, especially in developing nations:
From https://www.thenation.com/article/society/bill-gates-foundation-philanthropy/:
Microsoft’s bottom line is heavily dependent on patent protections for its software, and the Gates Foundation has been a strong and consistent supporter of intellectual property rights, including for the pharmaceutical companies with which it works closely. These patent protections are widely criticized for making lifesaving drugs prohibitively expensive, particularly in the developing world.

“He uses his philanthropy to advance a pro-patent agenda on pharmaceutical drugs, even in countries that are really poor,” says longtime Gates critic James Love, the director of the nonprofit Knowledge Ecology International. “Gates is sort of the right wing of the public-health movement. He’s always trying to push things in a pro-​corporate direction. He’s a big defender of the big drug companies. He’s undermining a lot of things that are really necessary to make drugs affordable to people that are really poor. It’s weird because he gives so much money to [fight] poverty, and yet he’s the biggest obstacle on a lot of reforms.”


Funding is also allocated by the whims of the foundation, and not subject to broader oversight. Philanthropic funding is not especially reliable for research institutions - important grants might be pulled or not renewed simply because the billionaire has different priorities, and promised follow-ons are less likely to materialize. It is risky to put all your research efforts into something that may dry up suddenly.

As "venture philanthropists," much of the funding does not go to helping people directly - rather, it goes to businesses who hope to make money from selling to people in need. Research funded by this money usually belongs to the company who did the research, who, now owning patents, turn around and charge whatever price the market will bear.

It turns out that this phenomenon, of philanthropic donations going to other rich people, isn't limited to the Gates Foundation. Intuitively, this makes sense - wealthy donors are more likely to care about causes that affect them or people they know. Consider the case of donating to your local school district: wealthy areas already have well-funded schools (higher property taxes), and adding donations on top only widens the gap between poor and wealthy schools.

From https://www.theatlantic.com/politics/archive/2014/03/the-conservative-myth-of-a-social-safety-net-built-on-charity/284552/:
But it isn’t just about the business cycle. A second issue Salamon identified is philanthropic particularism. Private charity has a tendency to focus only on specific groups, particularly groups that are considered either “deserving” or similar in-groups. Indeed, in one telling, this is the entire point of private charity. The largest single category of charitable giving in the United States goes not to caring for the poor but for the sustenance of religious institutions (at 32 percent of donations). Using very generous assumptions, Indiana University’s Center for Philanthropy finds that only one-third of charitable giving actually goes to the poor. Almost by definition, there will be people who need access to social insurance who will be left out of such targeted giving.

The third element of voluntary failure relevant here is philanthropic paternalism. Instead of charity representing a purely spontaneous response by civil society, or a community of equals responding to issues in the commons, there is, in practice, a disproportionate amount of power that rests in the hands of those with the greatest resources. This narrow control of charitable resources, in turn, channels aid toward the interests and needs of those who already hold large amounts of power. Prime examples of this voluntary failure can be seen in the amount of charitable giving that goes to political advocacy, or to elite colleges in order to help secure admission for already privileged children, even as the needs of the truly desperate go unmet.


Not only do wealthy people have more money to donate, it actually costs them *less* to donate than poor people.
From https://ssir.org/articles/entry/a_failure_of_philanthropy#:
One may argue that the standard deduction rewards the charitable contributions of nonitemizers. But nonitemizers receive the standard deduction whether they make a charitable contribution or not. And so the standard deduction cannot be properly viewed as a reward for charity – let alone an incentive – because one need not be charitable to get it. Likewise, if the tax deduction is meant to stimulate greater giving, its availability should not depend on whether people itemize their taxes.

A second way that public policies regulating philanthropy may contribute to inequality is that the wealthiest people garner the largest tax advantages for philanthropy, and the poorest the smallest – what is known as an “upside-down effect.” Because the amount of the charitable deduction is based on the percentage at which one is taxed, those in the highest tax bracket (35 percent in 2005) receive the largest deduction, and those in each lower tax bracket receive an increasingly smaller deduction. In other words, “the opportunity cost of virtue falls as one moves up the income scale,” as two scholars wryly noted.

As a result, identical donations to identical recipients are treated differently by the state depending on the donor’s income. A $500 donation by the person in the 35 percent bracket costs the person less than the same donation to the same place by the person in the 10 percent bracket. Because the same social good is ostensibly produced in both cases, the differential treatment appears unjust. If anything, lower-income earners would seem to warrant the larger subsidy and incentive.
In this way, the government can be seen to subsidize donations - and the wealthier you are, the cheaper it is to give away your money. The renter donates $500 at a personal cost of $500 - those in a higher tax bracket only pay $325 to give that same $500. This only serves to amplify the effects of the aforementioned "philanthropic paternalism."

I probably have more to say on this subject, but I've drug on long enough already. In summary, not only is Bill Gates a rare (mostly positive) outlier in terms of philanthropy, but the system of philanthropy as enacted in the US will inherently favor the interests of the wealthy. This gives them yet another tool to enact outsized influence on public policy, all while garnering positive PR for doing so.

P.S: The three links I quoted are quite good reading, if a little dense. I recommend them for anyone interested in the subject.
  
I’m not very educated on the subject, but it is quite interesting. Thanks for revealing the underlying flaws with this system. (I just realized this sounds kinda sarcastic, I wasn’t trying to be.)
  
No worries. I went a little overboard with my response, I just think it's a pretty interesting topic. :)
  
As far as I know, everything Fwip said is true, but I would challenge slightly and say that if Gates is a capitalist, which he is, his foundation probably believes that strong intellectual property rights is a requirement for creating innovation incentive. Without that incentive, you don't cure diseases or invent new technologies at a significant rate.

I'm not sure that you can therefore argue that pushing for strong intellectual property rights in developing countries makes it a bad actor. You'd need to find a way to demonstrate that IP is itself bad.
  
Oh that's definitely true, good point.
  
To inject more direct stances into the conversation, I'd be curious if anybody here believes/wants to defend any of the following:

  • Billionaires are, at worst, a necessary evil because it's implausible to prevent them through regulations without doing more harm than good
  • Billionaires are ethically neutral and impact society at least equivalently positive to any other way their wealth would be used
  • That people can accumulate billions of dollars in wealth is ethically good, even if some billionaires may be unethical
  
I'm not certain whether an economic system that places no bounds on the potential for wealth inequality is better or worse than the alternative from a utilitarian standpoint. However, I find it at least plausible that a system that allows people to accumulate arbitrary amounts of wealth could result in greater overall economic efficiency and, as a result, greater average/median prosperity. So for your bullet #1 Gorgon, my answer would be "maybe". I certainly think it's a trap to think, as many apparently do nowadays, that wealth is a simple zero-sum game, i.e. that every dollar in a billionaire's portfolio is a dollar not in the hand of a struggling worker.

For bullet #3, on a very basic level, I think allowing individuals to keep the fruit of their labor and investments is a worthy goal, even if it needs to be balanced against the goal of enabling all people to achieve a reasonable standard of living.

My only concern about Amazon is (as Gorgon pointed out) whether it is or is becoming a monopoly. Putting aside that concern, I really don't have a problem with Jeff Bezos owning a sizable percentage of stocks in the (very valuable) company he founded.

With regard to philanthropy, I am very wary of granting the government more discretion in where our charitable giving should go. I think we should impose taxes only at the lowest level necessary for government services to function and to help those who truly need it (through the social safety net). In other words, it should not generally be a goal of government to decide how people spend their money.
  
Are you comfortable with any fiscal policy that affects how we can invest capital? IP laws, interest rates corporate tax rates, cuts and rebates etc arguably play a greater role in allowing the existence of billionaires than anything else. Although welfare allows billionaires to accumulate more capital by not paying a fair wage.
  
Yes, I think those are all knobs we can turn to try to strike a balance between fairness and efficiency.
  
As opposed to dictating how we spend? I would contend that existing IP and tax law heavily heavily favours protecting the wealth of the wealthy and stifles innovation.
  
That may be. IP law especially is a double-edged sword when it comes to innovation. Perhaps a better formulation of my question would be "under your ideal system of government, what do you suppose would be the level of wealth inequality?"
  
In other words, it should not generally be a goal of government to decide how people spend their money.
This is a common refrain from conservatively-minded folks, but I don't know that I'm convinced that it has a place in this conversation. I think the crux of this conversation is not deciding how billionaires spend their money, but rather deciding what is money which should belong to a billionaire.

Being a billionaire (or even a millionaire) requires an immense amount of subsidy from the collective us. Just using Amazon as an example, government subsidies of Internet infrastructure, maintenance of physical roads, government-provided shipping, government-enforced IP laws & general rule of law protecting businesses, and lots of other elements of society made it possible.

Then Amazon goes global, using the tools provided by the United States to bring in revenue from around the world. Amazon Web Services has more known data center facilities in the US than anywhere else on Earth, which powers up to 50% of global web traffic. How much of that revenue should belong to the United States for making this innovation possible?

Then there's people who make that possible with their labor, consultation and innovation, most of whom own no part of the company. Because Amazon has the money, it has the power to search for workers who will labor on its terms.

Short version, in my estimation the argument here is not whether people should keep as much of the money that they earn as possible. The question is how do we define what you've earned versus what we've earned as a collective society. I think there's a strong argument that no individual has ever done enough innovation on his or her own to have deserved a billion dollars.
  
I was replying specifically to Fwip's suggestion, as I took it, that billionaires should be allowed to keep less money because of the way they spend it. I don't think that's a good argument.
  
Ah, my apologies for being unclear. I was trying to argue against the point (mostly I've seen it elsewhere), that it's okay to not tax rich people as much, because some rich people give to charity, and that is an adequate or better replacement for progressive taxation.
  
That sounds like two sides of the same coin to me.
  
I don't think it's two sides of the same coin, because what about the rich people who don't donate to charity?

Also, "charity" could mean a wildlife sanctuary in Zimbabwe. Rich people donating to charity get to choose where their money goes. You may argue tax-payers get a vote on the government every few years which is indirectly a vote on where our tax goes, but to get our choice we need to win, and we only get two choices. It's not the same as having the discretion to fund any personal interest at will.

Equating charity and tax assumes they fund the same things, which isn't necessarily true. There are all kinds of esoteric charities channeling money all over the planet. Joe Billionaire donating money to his favourite orphanage in Nepal isn't doing the same thing a tax-payer is.
  
I was replying specifically to Fwip's suggestion, as I took it, that billionaires should be allowed to keep less money because of the way they spend it. I don't think that's a good argument.
I guess that depends on how they spend it, right? If billionaires were living in international waters and using their money to assemble large masses of killer robots with nuclear bombs, I'd assume we'd ethically say, "You know what? This money is a moral hazard in your hands so we're going to take it and do something good with it."

So there is a line somewhere where a billionaire is being irresponsible or dangerous and therefore voids claims to that money, or at least the right to use that money in that way.
  
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