As of late, I’ve been involved in some interesting financial debates, and from the progressive point of view, billionaires have become a dirty word, something evil to be banished.
I wanted to address the topic of money, but before I do, take the time to watch the video below. My response, as I would have responded to them is below it.
The ideas they have are actually really wrong, and while I understand the progressive point of view, but the pitch isn’t exactly objective.
Let me show you something cool.
According to financial experts, (quoting from the Wiki page):
“Essentially, the wealthy possess greater financial opportunities that allow their money to make more money. Earnings from the stock market or mutual funds are reinvested to produce a larger return. Over time, the sum that is invested becomes progressively more substantial. Those who are not wealthy, however, do not have the resources to enhance their opportunities and improve their economic position. Rather, “after debt payments, poor families are constrained to spend the remaining income on items that will not produce wealth and will depreciate over time.”
What gives the wealthy those opportunities is a results of differences in income.
Again quoting, “Economic inequality is a result of difference in income. Factors that contribute to this gap in wages are things such as level of education, labor market demand and supply, gender differences, growth in technology, and personal abilities. The quality and level of education that a person has often corresponds to their skill level, which is justified by their income”
When we actually dig into all of the causes, there are productivity and compensation gaps, market factors (including globalization, education, incentives, etc.), and tax and transfer policies.
There are other factors on top of that too like the decline of unions, immigration, corporatism, and so on, but what we know for sure that impacts wealth inequality are the ones that I first quoted.
Actually being wealthy isn’t a cause of poverty.
To give you a perspective of that statistics, there are about 3.5 million homeless people in the US. That is about 0.5% of the population – and don’t hold your breath yet.
While there are some states experiencing a rise in homeless rates, overall, it’s been decreasing since 2007. 2017 was the first year the numbers ticked up in a while. Source.
Here’s something else that is interesting. There are 14.5 million millionaires in the US. That’s about 12% of the US households.
And according to the census bureau, about 12.3% of US households live in poverty.
So the number of households between millionaires and poverty is about the same, or relatively close).
And, there are 540 billionaires in the US.
So to recap:
1. billionaire isn’t a dirty word, since being wealthy in and of itself isn’t the cause of poverty. Lack of opportunities are.
2. Homelessness is actually decreasing not increasing.
The solution progressives are looking for isn’t to take away the money billionaires have and give it to everyone else. That’s literally theft.
The solution is to correct the bad policies and faults in the system that create wealth inequality.
And I say that because while taxation has an effect on budgeting, just taking away the money from billionaires will have a devastating effect on the economy.
For example, if we take away Jeff Bezos’ money, the 300,000 plus families that rely on a paycheck from Amazon will be unemployed and lose their health insurance. Because he wouldn’t be able to keep the company afloat.
Not only that, but the money he invests in companies that change our lives every day will be gone.
Also, he’s a philanthropist that funds companies that research and develop life extending treatments. That will be gone too.
To give you an idea of how much value Bezos puts into the economy, without him, Amazon wouldn’t be the only company that disappears.
Without Bezos there wouldn’t be Amazon, Alexa, Juno, Audible, Twitch, Zappos, Whole Foods and HomeTown Grocer, Twitter, Business Insider, StackOverflow, IMDB, LivingSocial, Twilio…
Oh yeah, there probably wouldn’t be a Google either, because Bezos helped invest to get them off the ground.
Just him operating his businesses pours millions every year into the economy.
How much does he spend buying resources to run the company? Office supplies, furniture, building maintenance, utilities.
There are a few hundred thousand people working because they buy cars. That private plane he has, they didn’t built it themselves. There’s a manufacturer out there with employees getting paid to build those, and maintain them.
There are thousands of families in the energy sector that has to drill, process and distill the fuel.
There are shipping companies that have to move the stuff they buy from point A to point B.
He has a multi-million dollar home and estate. He didn’t built it himself. A lot of people went to work, and a lot of people still work to keep it up.
That’s the thing about being wealthy. They put a lot of money directly into the US economy just to maintain everything they have.
And the elephant in the room?
We take their money away – what happens after the money is gone?
They can’t maintain everything they built so there is significantly less money they will be making. It’ll run out in a couple years.
The problems that cause wealth inequality will still be there.
And you know who will benefit? The people with the skills and education to capitalize on making more money, and make more money.
Everyone else will still be in the same boat.
As someone who was working as a farm hand and living in a plywood shack for a time, and is working his butt off to become one of the wealthy, let me share three rules about how the wealthy spend their money.
1. All money is someone else’s money.
2. Money has no value unless it’s traded for something else.
3. The only time the wealthy spend money, outside of necessities is when it falls into 3 categories.
- There is a tax benefit
- It makes them more money
- It has the potential to make them more money
That’s the only time they spend money.
If you don’t understand how money works, it doesn’t matter how much money you take from the wealthy. The problems that cause inequality will never be solved.
And yes, I hear you. “They’re hogging all the wealth!“
That’s also factually wrong.
They employ people by the hundreds of thousands. They are they investing in other businesses, and they are funding charities and research. That’s not counting the amount of money that goes directly into the economy to maintain their lavish lifestyles.
They aren’t hogging it.
The mindset that wealth can somehow run out, is wrong as well. That’s thee lack of financial education rearing it’s head.
Do you know how our government works?
The US Treasury decides when to print money, but the Federal Reserve controls the supply, and it uses a balance of credit and interests rates to moderate supply and demand, backed by reserve requirements.
You know what determines the value of the dollar? Supply and demand. There is no direct mechanism for establishing the value of the U.S. dollar, which means the whole thing only works because people believe it has value.
The Federal Reserve can, at any time increase their balance sheets and increase the amount of money available to be borrowed by increasing their reserve requirement.
That means the amount of money made available has no set limit.
When things tend to get out of hand, banks intercede to stabilize it. That’s how the whole thing works.
There is no limit on how much money there is or can be as long as people believe it has value. What they use as collateral? Gold, silver and precious metals.
Take gold for example, we aren’t running out of gold anytime soon.
Right now, as collateral backing for our currency, the US has 8,000 Tonnes of gold.
It is estimated that there is about $35 BILLION tons of gold on dry land, which means in all of human history, we’ve mined roughly 0.00047% of the world’s surface gold.
AND as long as there are stars in the sky, there will always be gold for as long as the universe exists.
And that’s just gold. We’re not talking about the other things we use as collateral backing for our currency.
Money can literally never run out. As I said, it’s just an idea. If the dollar disappeared today, it would be replaced by something else that we assign value to and trade in that.
I get this was a ridiculously long post.
I took the time to write it because the focus on billionaires *is* the distraction, and a pointless one at that.
As long as the US constitution exists, nobody can tell anyone how much, where, when or how to spend their money. It’s just not going to happen.
What we need to focus on is Congress. They make the laws. They are the ones that will have to change it.
Hopefully those of you who really care about wealth inequality will learn from the post about how money works.
CREDIT: Super Yacht Concept image by Digital Trends feature.