Co-written by Brian Solomon and Caleb Melby
As a society, we love debating the relative standing of classes of people, perhaps too much. That discussion was revived with The Good Rich and What They Cost Us, a new book that examines wealth and how it has been perceived by the masses throughout American history. In full disclosure, we have not yet read it. But the ensuing debate, given frequent mentions of the Forbes 400, has piqued our interest — although some of it is patently unhelpful. Case in point, Gawker’s Hamilton Nolan, who has decided to ask the question, “Do ‘The Good Rich’ Exist?”
What Nolan’s really asking is: “Does the very fact that we have a system that allows such vast inequality hurt us all more than all of the billionaires' philanthropy will ever help us?” The answer is no. But from the beginning you can see why he would come to the wrong conclusion. Nolan talks about “the rich” as a monolithic group of people who have a “vast accumulation of wealth,” without understanding how they obtained that wealth in the first place or what it means to “have it” as a practical matter.
As a faulty premise, Nolan assumes that capital held by billionaires is inactive — sitting in a silo is the metaphor he conjures — and that capital is doing little more than replicating itself on the markets — making the rich richer still. But almost without exception, the billionaires that appear on the Forbes 400 don’t have, in cash, anywhere near the sort of dollars that we list alongside their names. Great wealth comes from ownership of enterprising entities. Capital invested can succeed and grow, as it did for Forbes 400 members, or it can fail.
Most billionaire capital is already at work. It is productive. Take Elon Musk, for instance, who just made news for finally buying a house. He had previously been leasing it (not unlike the rest of us plebes). While we estimate his wealth at $2.4 billion, nearly all of that comes from equity in Tesla Motors, SpaceX and SolarCity. Two of those companies are trying to solve the world’s energy problems. The third could, in the future, provide us an escape route in case we don’t solve those energy problems. Not every billionaire is engaged in such exciting pursuits, but by and large their capital is at work and it isn’t sitting in a vault.
Therefore, what Nolan asks that billionaires do: give away more of their capital, and give it away faster, is often an infeasible request. To accomplish this, most would need to harvest their companies for raw resources and then give the proceeds to charity, or sell their equity in these businesses and donate the proceeds to charity. The latter may sound like a good idea to some. But a whole school of economic thought suggests otherwise. Take Deirdre McCloskey, who speaks for a group of economists who she colloquially calls “Innovators:”
We say that the modern world got rich by (at a minimum) 1500% percent compared with 1800 not, as the sadly mistaken Accumulators say, because of capital accumulation, or exploitation of the third world, or the expansion of foreign trade. The world got rich by inventing cheap steel, electric lights, marine insurance, reinforced concrete, coffee shops, saw mills, newspapers, automatic looms, cheap paper, modern universities, the transistor, cheap porcelain, corporations, rolling mills, liberation for women, railways.
Innovation needs a lot of things, but it certainly needs innovators. And if we ever plan on colonizing Mars, we’d much rather have Elon Musk leading the charge — and not an odd assortment of new stockholders. Just as we preferred Apple in the hands of Steve Jobs, who created the world’s biggest company and jump-started mobile computing with a single-minded focus. Did Jobs build Apple and create those products without personal ego? No. He enjoyed the wealth, the fame, the power (and famously gave none of his billions to charity). The perks fueled him, as they did Bill Gates, Jeff Bezos, Michael Dell and hundreds of others.
McCloskey’s ideas were co-opted for a rather poorly thought-out segment on Fox News' Your World with Neil Cavuto, where guest-host Stuart Varney unhelpfully pointed out that 99.6% of “poor” households now contain refrigerators. “Now many poor families have homes with cable TVs, cell phones, computers, you name it,” Varney said, the implication being, for those who watch Fox News with a wary eye, “Stop whining poors, you’re not even that poor.”
That argument is idiotic, but its premise cannot be ignored. Quality of life for Americans has drastically improved throughout the years (including for the poor) and it’s not thanks to extra foodstuffs appearing at local food shelves. It’s due to the invention of the refrigerator and the cell phone, the mass production of those devices and the introduction of versions that can be obtained at lower prices. Now overseas, in places where there are no telephone lines, mobile broadband technology pioneered in wealthy countries like the United States and Japan is pulling entire areas into the 21st century. In short, innovation is vital for success — and you don’t get success without innovators, who yes, often become wealthy individuals.
(A disclaimer: some of the worlds’ billionaires are inheritors. Others don’t give significant sums to charity — or plan to. Some billionaires fall into both these categories. But there are many who are both innovators and givers. The world is a better place because of them.)
But let’s go back to Musk. The South African-native made a massive payday in 2002 when eBay snatched up PayPal for $1.5 billion. His stake as founder of the online payments company netted him hundreds of millions, more than enough to live comfortably for a dozen lifetimes. Should he have given it all away then? It certainly would have made a big splash and he could have helped thousands of people at that moment. Instead, he chose to re-invest, to seek more — recognizing, perhaps, that his millions could be leveraged to do more good when coupled with his innovative edge. With three groundbreaking companies and counting, it seems like he made the right move — and the world is set to benefit. First from the jobs and technology Musk creates, and second from his recent signature on the Giving Pledge. The personal gains Musk will eventually donate already dwarf what he could have given a decade ago.
But, for the sake of argument, let’s grant Nolan his idea. The world’s richest uninvest (no shock to the markets, assuredly) and suddenly have gobs of cash to deal with the world’s seemingly intractable problems. Good philanthropy requires innovation too. When Bill and Melinda Gates get press for the work that they’ve done, it’s not because they’re aimlessly tossing cash around, hoping something sticks. In a perfect world, philanthropy should be sustainable and cost effective – so it can help as many people as possible for as long as possible. Who better to solve those problems than those who have already proven to be the most successful problem solvers of our time? And even for them, it’s difficult. At the Forbes 400 Philanthropy Summit, held in New York City last June, AOL founder Steve Case perhaps said it best:
We’ve all learned that it’s hard. It takes a lot of work. But if all you do is write the check and then figure you’re done, it’s actually kind of like investing in a company. A venture capitalist writes the check, but then the real value they provide is the expertise they help to guide that investment, the network that surrounds those entrepreneurs in terms of people they can bring into the organization. Trying to take those same lessons and apply them to this role, I think, is very important.
Because Nolan doesn’t understand where the money comes from in the first place, he can’t see that simply writing a check — i.e. opening the doors to that metaphorical grain silo — isn’t an end in itself. Billionaire philanthropists, people who genuinely care about making the world a better place, have found that doing so is difficult. These problems are problems for a reason, and they need a plan of attack, not a glib push to hand out money. How should the Gates’ divide their charitable funds between fighting malaria and improving inner-city education? How best to combat malaria? Mosquito nets? Vaccine research? Health education? Who’s going to make sure the money isn’t misused?
And if, while Bill Gates is solving these problems, he derives some pleasure from owning, and always having access to, the Leicester Codex, let him have it. No human with expendable capital goes through life without indulging — be it in a nice car, a weekend brunch or a priceless artifact. And no one is asking Nolan to give up his Mac. Louis C.K., though, feels really bad about that:
People should give, and people who have more should give more. There are some billionaires in this world who are not worthy of admiration. There are others who are. They produce meaningful innovation in their work endeavors, and they give generously in their charitable endeavors. They are the good rich.
