What Happens If We Redistribute Bill Gates Wealth to the Poor?

Today’s column might anger some people on the right AND the left. Try not to react emotionally. Instead consider this as a way to point out some obvious truths to your ideological opposites.

Take a look at the Robin Hood Index chart at right (via Bloomberg). It shows the effect of confiscating all of the wealth of each country’s wealthiest individual and redistributing it to the poorest 15 percent of the nation’s population:

The impact of taking all of the wealth from one person varies by country, based largely on population size and the wealth of the richest person. Consider what happens if we took all of the wealth ($80 billion) of Microsoft co-founder Bill Gates and redistributed it to the poor. According to an analysis by Bloomberg News, the poorest 15 percent of Americans would get a one-time payment of $1,736 each.

Using Bloomberg Billionaires Index, we see that adding Warren Buffett’s $60 billion would bring the  payment to about $3,000. My back-of-the-envelope calculation of adding the next few billionaires — Charles and David Koch ($98.7 billion), Jeff Bezos ($48.9 billion), Mark Zuckerberg ($41.8 billion), Larry Ellison ($40.8 billion), Larry Page ($35.2 billion) and Sergey Brin ($34.3 billion) — brings the total to about $450 billion and would make the payment about $10,000 per person. It takes the next 20 or so billionaires on the list to move that to $20,000.

While a one-time payment of $20,000 might be nice for a few weeks or months, it solves precisely none of the long-term problems facing the poorest Americans. It does not:

 — Improve education and career training.

— Help create more job opportunities.

— Enhance health care, including lowering infant mortality.

— Increase availability of fresh and healthy food.

— Improve infrastructure and ground transportation.

— Increase longevity.

— Create safe, integrated local policing.

— Update the reliability of the electrical grid or improve access to broadband.

— Ensure voting rights.

This list includes many of the basic needs and important rights and civil liberties that the poor have demanded for decades. Any deficiencies in these areas can’t be resolved through a giant wealth transfer.

The trouble is, there are few signs that our elected leaders are willing or capable of providing the conditions so that the poor are in a better position to help themselves. Indeed, partisan wrangling in Washington has so paralyzed the government that many of its basic function have been seriously degraded. Regardless of your political views, these are: A common defense, the legal system, emergency police and fire services, infrastructure and basic education. (Yes, the private sector can provide some of these services, but not for the entire nation’s population and not without gross excesses and failures that exceed the shortcomings we see in government).

Almost everyone except for small number of extremists (who would rather there be no government) say they want the business of government to be done efficiently and without rancor. But how is this to be accomplished, when today’s leadership seems unable to do anything except raising enough money to get re-elected to continue the paralysis for another congressional term?

Let’s take just one example — the tax code. Leave aside for the moment that it has been heavily tilted during the past 30 years to favor the wealthy. Rather, focus on what everyone knows to be true regardless of ideology: the code is absurdly complex and subject to being gamed by those with the best accountants and tax lawyers. So if everyone knows this, why does reform never seem to happen? That suggests (at least to me) that it is the lobbyists and not elected officials who are truly running Washington.

The bottom line is simply this: There are enormous problems facing the nation, and as long as we keep electing the same people, and allowing the same influencers to fund their campaigns, there is unlikely to be any significant change from the status quo anytime soon. This paralysis seems to have made some billionaires very nervous. But the last thing we should do is delude ourselves into thinking that making the rich less rich does a lot for the poor in the absence of better government.

 

 

Originally published as: Hurting the Rich Won’t Help the Poor

 

 

What's been said:

Discussions found on the web:
  1. VennData commented on Sep 28

    What if you swapped “the Wealth” into a tax free ROTH no one could touch for ten twenty, theiry years depending on their age?

    No stocks change hands. No transaction costs.

    Gates, Kochs et al have to immediately get back to work. The average Citizens retirement is instantly doubled.

    https://smartasset.com/retirement/average-retirement-savings-are-you-normal

    Half the people without retirement would get buy-in to American-style capitalism.

    Sounds like a good idea, putting aside the unconstitutional taking. But I hate those guys.

  2. Concerned Neighbour commented on Sep 28

    Who advocates seizing wealth and redistributing it? There is a big ethical difference between doing that and making the tax system more progressive, such as by eliminating loopholes and raising the top marginal tax rates.

    One circumstance I am strongly in favor of redistributing wealth – not income – is at death. If we don’t have hefty estate taxes, an aristocracy will emerge (it already has) and grow ever more powerful over time.

    I agree with many of your listed goals, however.

  3. BillG commented on Sep 28

    “While a one-time payment of $20,000 might be nice for a few weeks or months, ”

    A few weeks? The bottom 15% of earners in this country make less than $10000/yr. An extra $20K would be life changing for someone like that.

  4. pekoe commented on Sep 28

    Seems like a straw-man argument to me. There are 300 M + people in the USA. Talking about the impact of the wealthiest three billionaires (that would be fractionally 0.00000001) seems a silly way to frame the debate. If you talk about the impact of redistributing from only the wealthiest 0.001, then the impact would be substantial for poor people. At the end of the day, the rule of 1 and 40 prevails in the US: 1% of the population has garnered about 40% of the wealth and the bottom 40% of the population has garnered 1% of the wealth. It is shocking that 40% of the population has almost nothing. And the only viable solution is to take it from the top, because as they say in that old spiritual, “that is where the money is”.

    • Liquidity Trader commented on Sep 28

      The column discusses the wealthiest 30 or so billionaires and 0.5 trillion dollars — but I took it as a thought exercise, and not a suggestion for a solution!

    • KDawg commented on Sep 28

      Words like “confiscating” are quite loaded and we were just told not to be emotional… hmm. And as you point out, the numbers are not telling of much as we are a big country with a lot of very rich people. Anyone that reads Ritholtz regularly already knows that he knows this. He is good with data and with context. So, this has to be to get a response, right?

      My response is that I do personally know people that are more obsessed with punishing people they see as villains than actually doing anything to improve people’s lives. These people exist all over the political spectrum. Since I haven’t been able to change the people I know, I assume it is difficult to change any of these people. Therefore, the best thing appears to be to figure out how to use them as useful idiots to enact policy that will benefit most people. Unfortunately, that means one must vilify some group in order to market good policy.

      Hence, Elizabeth Warren’s tactics. She also has the benefit of using the truth, but note how much more time is spent on the vilifying part than the policy part. I don’t blame her, that just seems to be what you have to do to get anything done.

  5. Clif Brown commented on Sep 28

    You are looking at it the wrong way. It would be pointless to make one time payments to many people. The way that great weath should be looked at is in what it would buy that would serve many people.

    Suppose, for example, a state-of-the-art health clinic were built that would serve 1000 people. Take that $10,000 per person x 1000 and you have $10 million to built the clinic, or make it a $5 million clinic and fund operation with $5 million.

    Of course it could be said that billionaires often create foundations that do this anyway, but the very wealthy first satisfy every possible material desire and only then become philanthropic. The philanthropy is a self-serving glorification that comes at no real cost to the billionaire, since it deprives him of nothing, simply turning on yet another spotlight to illuminate the glorious me.

  6. constantnormal commented on Sep 28

    A Great Many Possibilities are denied the poor, because they simply do not have the cash to try them. How many of those receiving a one-time shot of twenty grand would stumble into a series of increasingly better opportunities (the way that most of the wealthy have done)? Probably not many, because they have no framework for dealing with excess cash, and a lot of pleasantries that have been denied them are now open possibilities, and for most, this would drive them into simply spending the additional cash — which is what most of the middle class does with windfalls of one sort or another.

    The thing is, when a rich person gets a windfall, it likely buys them nothing that they could have already purchased, and so it is quite easy for them to make the no-brainer decision and invest it — probably using the help of a (paid) professional.

    Most middle class people (and nearly all poor people) see paid professional help as someone else helping themselves to their money … and there is plenty of anecdotal evidence to support such thinking (else we would not be in need of Consumer Protection). And they also have a lot of things that they have been unable to provide for themselves (new car, 70″ TV, a week at Disney World, new eyeglasses, dental work, …), but really would like to have. So most likely, $20K to non-wealthy folks goes straight back into the economy, and delivers no useful structural changes in the lives of the recipients.

    So one cannot just hand out twenty grand to middle class and poor folks, unless the intent is to spur consumer spending. It would need to be dispensed as a fund that offers opportunities (home insulation, a college stipend, health insurance … those sorts of things) that represent sensible ways for the recipients to deploy such funds, and things that they would not have had the money to purchase on their own.

    Perhaps we could organize the distribution as a kind of contest, where neighborhoods would send their best youths to compete in some sort of games, with only a single winner, whose neighborhood would receive significant benefits for the coming year. Maybe call it “The Younger Games”. Did I mention it was a fight-to-the-death competition?

  7. constantnormal commented on Sep 28

    “… But the last thing we should do is delude ourselves into thinking that making the rich less rich does a lot for the poor in the absence of better government.”

    But how does one go about changing a system of government that is controlled by the lobbyists on behalf of the wealthy?

    Historically, there is only one way that I know of that this happens — and it is likely why thoughtful billionaires are nervous. Truth be told, people all the way down the economic ladder are nervous when it comes to revolutions — until you get down to the lower rungs of the ladder, where people have zero chance to move up, and know it. When there are enough people with no hope, change happens. It won’t be pretty, and has only a slim chance of working, but to those with nothing and no opportunity for change, a slim chance is all that they have.

    • KDawg commented on Sep 28

      The Great Depression showed that there was more than one way, but it was the threat of communism that did allow Roosevelt to push through the New Deal.

      One thing that always bothered me: Who cares how much money you have if everything around you is a slum? I personally don’t think you are rich if you have to hide behind fences and have a security detail every time you drive through town, but it seems that is how some billionaires want to live. Why else would they want to tear down every safety net? Are they trying to be slumdog billionaires?

    • DeDude commented on Sep 29

      There is a certain self-selection in who becomes a billionaire. If you believe the purpose of life is to find cures for terrible disease – you become a biomedical scientist. If you believe the purpose of life is to understand the universe – you become an astrophysicist. If you believe the purpose of life is to explore the universe you become a rocket scientist. If you believe the purpose of life is to make money – you become a hedge fund manager. Its not that the rocket scientist is too stupid to manage a hedge fund, he just have other priorities. Same with the hedge fund managers – they may be predatory evil scumbags, but they are smart with specific types of priorities and goal for their lives. The billionaires that live comfortably with slum around them are a self-selected group who do not care about the suffering of others, because if they did they would never have wasted their lives accumulated all that wealth.

  8. winstongator commented on Sep 29

    Let’s say you give the $1750 out in the form of a good. Say give it all in chocolate, cigarettes, alcohol. Lottery tickets? If it it is a mere consumable, they get a one-time boost and no real change. How about every person in that bottom 15% gets a $1750 credit towards their next car. Car is getting closer to investment, but is still a consumption good. How about use the money collectively towards better schools? That’s investment isn’t it. Take the $1750 x 500 students at an elementary school and you get $875k – enough to add one or two teachers or specialists for 10 years.

    Obviously we will not take the entirety of anyone’s wealth arbitrarily, but we do tax, and we do spend, so thinking about how gov’t spending is on consumption vs. investment, and primarily investment in human capital, is important.

  9. RW commented on Sep 29

    Narrow transfer exercises like this are a waste of time particularly in the absence of context.

    The problem has been understood for a long time and it lies solely in the power of the wealthy to skew the system ever more in their favor.

    In the case of the USA great wealth is less of an issue than wealth’s policy and laws, lobbyists, institutions (e.g., ALEC, think tanks) and advertisers to say nothing of their nasty personal habits.

    Too much cannot be said against the men of wealth who sacrifice everything to getting wealth. There is not in the world a more ignoble character than the mere money-getting American, insensible to every duty, regardless of every principle, bent only on amassing a fortune, and putting his fortune only to the basest uses —whether these uses be to speculate in stocks and wreck railroads himself, or to allow his son to lead a life of foolish and expensive idleness and gross debauchery, or to purchase some scoundrel of high social position, foreign or native, for his daughter. Such a man is only the more dangerous if he occasionally does some deed like founding a college or endowing a church, which makes those good people who are also foolish forget his real iniquity. These men are equally careless of the working men, whom they oppress, and of the State, whose existence they imperil. There are not very many of them, but there is a very great number of men who approach more or less closely to the type, and, just in so far as they do so approach, they are curses to the country. Theodore Roosevelt

  10. Slash commented on Sep 29

    I don’t want all their wealth. I’d settle for their wealth not giving them greater access to government services than anyone else and no more political influence than the poorest among us. No more gigantic apartments in cities where supposedly space is precious, like NYC. No more watering giant lawns in California because they can afford to pay the state to use more water than everyone else. No more getting the taxpayers to fund the construction of their football/baseball/basketball stadiums. No more automatic entry for their offspring into “elite” universities because dad (it’s usually dad) just gave the place a bunch of money. And no more automatically assuming that rich people know better than the rest of us about economic policy that affects us common folk, just because they’re rich (many of them the result of being born into an affluent family).

    All of which is just as unrealistic as fantasizing about redistribution, apparently.

  11. PhilW commented on Sep 29

    So who is arguing for this in the first place? Higher wages. Higher tax levels for corporations to support the government that makes it possible for them to exist. That’s what polling shows most folks want.
    Higher taxes on secondary residences is a great idea too. It hits the wealthy and opens housing for everybody else.

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