Should We Even Allow Billionaires To Exist?

The following post is by former Labor Secretary Robert Reich: 

The UAW’s battle against the Big Three carmakers has centered on wages and the widening gap between the compensation of the automaker’s top executives and the wages of their average workers. Hopefully, the strike is about to lift the wages of autoworkers significantly. 

But Shawn Fain, UAW president, has an even larger vision for where America should be heading. “Billionaires in my opinion don’t have a right to exist,” he says.

What Fain is getting at is that if American capitalism was working as it should, it wouldn’t be producing billionaires — especially when the typical worker’s wages have been nearly stagnant for three decades when adjusted for inflation.

 

He’s correct. 

There are basically only five ways to accumulate a billion dollars and none of them has a legitimate role in free market capitalism. 

The first is to exploit a monopoly.

Jamie Dimon is worth $1.6 billion. That’s not because he succeeded in the free market. In 2008, the government bailed out JPMorgan and other giant Wall Street banks because it considered them “too big to fail.”

That bailout created a hidden, government-provided insurance policy for the biggest banks, still in effect, with an estimated value to the banks of $34.1 billion a year. If JPMorgan weren’t so big and hadn’t received that hidden insurance, Dimon would be worth far less than $1.6 billion.

What about America’s much-vaunted entrepreneurs, such as Jeff Bezos, now worth $114 billion? You might say Bezos deserves this because he founded and built Amazon.

But Amazon is a monopolist. The federal government and 17 states have charged it with abusing its position in the marketplace to inflate prices, overcharge sellers, and stifle competition. To be sure, the case hasn’t yet been decided by the courts, but evidence of Amazon’s monopoly power is significant. 

In addition, Amazon’s business is protected by a slew of patents granted by the U.S. government. They are very broad and have contributed to Amazon’s market power. 

If the government enforced anti-monopoly laws, and didn’t give Amazon such broad patents, Bezos would be worth far less than $114 billion.

A second way to make a billion is to get insider information unavailable to other investors.

Hedge-fund maven Steven A. Cohen, worth $17.5 billion, headed up a hedge fund in which, according to a criminal complaint filed by the Justice Department, insider trading was “substantial, pervasive, and on a scale without known precedent in the hedge fund industry.” Nine of Cohen’s present or former employees pleaded guilty or were convicted. Cohen got off with a fine, changed the name of his firm, and apparently is back at the game.

Insider trading is endemic in C-suites, too. SEC researchers have found that corporate executives are twice as likely to sell their stock on the days following their own stock buyback announcements — the timing of which they determine — as they are in the days leading up to the announcements. 

If government cracked down on insider trading, hedge-fund mavens and top corporate executives wouldn’t be raking in nearly as much.

A third way to make a billion is to buy off politicians.

The Trump tax cut was estimated to save Charles and the late David Koch and their Koch Industries an estimated $850 million to $1.4 billion a year, not even counting their tax savings on profits stored offshore and a shrunken estate tax. The Kochs and their affiliated groups spent some $20 million lobbying for the Trump tax cut, including political donations. 

Not a bad return on their investment.

If we had tough anti-corruption laws preventing political payoffs like this, the Kochs and other major political donors wouldn’t get the special tax breaks and other government subsidies that have enlarged their fortunes.

The fourth way to make a billion is to defraud investors.

Adam Neumann conned JPMorgan, SoftBank, and other investors to sink hundreds of millions into WeWork, an office-sharing startup. Neumann used some of the money to buy buildings he leased back to WeWork and to enjoy a lifestyle that included a $60 million private jet. WeWork never made a nickel of profit.

Elizabeth Holmes was convicted of fraud in connection with her blood-testing company, Theranos. Sam Bankman-Fried, former CEO of crypto-exchange FTX, is now facing federal fraud charges. Oh, and remember a guy named Donald Trump? He’s also now charged with fraud. 

At least they were caught. Presumably, if we had tougher anti-fraud laws, more would be caught and we’d have fewer billionaires. 

The fifth way to be a billionaire is to get the money from rich parents or relatives.

About 60 percent of all the wealth in America today is inherited, according to estimates by economist Thomas Piketty and his colleagues. 

That’s because, under U.S. tax law — which is itself largely a product of lobbying by the wealthy — the capital gains of one generation are wiped out when those assets are transferred to the next, and the estate tax is so tiny that fewer than 0.2 percent of estates were subject to it last year.

If unearned income were treated the same as earned income under the tax code, America’s non-working rich wouldn’t be billionaires. And if capital gains weren’t eliminated at death, many heirs wouldn’t be, either.

Now, don’t get me wrong. I’m not arguing against big rewards for entrepreneurs and inventors. The possibility of making a bundle has elicited innovations that benefit us all. 

The question is one of scale. Do entrepreneurs and inventors need the incentive of billions of dollars? Wouldn’t, say, a hundred million do?

The social costs of billionaires is substantial. Billionaires have purchased right-wing extremists on the Supreme Court, bought and either destroyed or subverted news organizations (such as the former Twitter), and turned their relationships with politicians into patronage troughs. 

All of this has undermined the common good. 

If capitalism were working as it should, billionaires wouldn’t exist. Shawn Fain is correct.