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Date: 2024-12-21 Page is: DBtxt003.php txt00017699

Thought Leaders
Paul Krugman

Opinion ... Bursting the Billionaire Bubble ... No, America isn’t waiting for a tycoon savior.

Burgess COMMENTARY

Peter Burgess
Opinion Bursting the Billionaire Bubble No, America isn’t waiting for a tycoon savior. Credit...Getty Images Immense wealth isn’t good for your reality sense. Billionaires aren’t necessarily bad people, and most of them probably aren’t. However, some are, and my unscientific sense is that billionaires are more likely than the rest of us to exhibit bad judgment warped by runaway egos, especially in the political sphere. It’s not hard to see why: Great wealth attracts people eager to tell an extremely rich man (or woman, but political egotism is mainly a male thing) what he wants to hear. In the political arena this means telling billionaires both that their lavish financial rewards are a mere fraction of the vast contribution they have made to society, and that the public is clamoring for them to take their rightful role as leaders. Put it this way: These days, many political factions are accused, with varying degrees of justice, of living in some kind of bubble, out of touch with American reality. But few live as thoroughly in a bubble as the billionaire class and its hangers-on. And now the billionaires in the bubble find themselves in an environment in which concerns about soaring inequality, about the extraordinary concentration of wealth in the hands of the few, finally seem to be getting political traction. And they’re not handling it well. Sign Up for Debatable Agree to disagree, or disagree better? We'll help you understand the sharpest arguments on the most pressing issues of the week, from new and familiar voices. SIGN UP ADVERTISEMENT Continue reading the main story Obviously I’m going to get to Michael Bloomberg in a minute. First, however, let me talk about the economics and politics of billionaires in general. So, do billionaires in general make vast contributions to society? To make that case, you don’t just have to argue that they’ve earned their wealth by doing productive things. You have to argue that their wealth is just part of what they’ve added to national income. And that’s a hard argument to make when you look at how most billionaires have made their money. After all, many of them struck it rich in finance and real estate. Now, not that long ago the world economy was brought to its knees by the collapse of a huge real estate bubble, which destabilized a financial system that had been drastically weakened by “innovations” that supposedly made us richer — and that certainly enriched some wheeler-dealers — but that had, it turned out, greatly increased the risk of crisis. Do you really want to make the case that financial industry billionaires have been great benefactors? The next biggest group of billionaires, by the way, made their money in fashion and retailing. Technology comes in only fourth — and as anyone following the news knows, some serious questions exist about the extent to which big fortunes in tech are modern versions of the monopoly spoils grabbed by old-fashioned robber barons. Editors’ Picks Not Yet Ready for Retirement? Give Us One Week … When It Comes to Money, Silence Is Rarely Golden Keano Is N.Y.’s Most Famous and Mysterious Subway Psychic. I Found Her. Continue reading the main story ADVERTISEMENT Continue reading the main story It’s also worth noting that the U.S. economy used to get along fine without nearly as many billionaires as it has now. American economic history since World War II falls fairly neatly into two halves: a first era, ending roughly in 1980, during which progressive taxation, strong unions and social norms limited extreme wealth accumulation at the top, and the era of soaring inequality since then. Did the new prosperity of plutocrats “trickle down” to the nation as a whole? Not according to any measure I know. For example, “multifactor productivity,” the standard economic measure of technological progress (don’t ask), has risen only half as much since the 1980 turning point as it did in the previous era. What about politics? Many people on Wall Street and a significant part of the punditocracy are socially liberal but economically conservative, or at least leaning that way. That is, they are for racial equality and LGBTQ rights, but against major tax increases on the wealthy and big expansion in social programs. And that’s a perfectly coherent point of view. Inside the billionaire bubble, however, people also imagine that it’s a view with broad popular appeal. Well, it isn’t. Most people, including many self-identified Republicans, want to see higher taxes on the rich and increased spending on social programs; however, quite a few people combine these sentiments with racial hostility and social illiberalism, which is why they seem to vote against their own economic interests. As best we can tell, the constituency for social liberalism plus fiscal conservatism comprises only a few percent of the electorate. When Howard Schultz — remember him? — ran that combination up the flagpole to see if anyone saluted, only about 4 percent of voters approved. And early indications don’t show Bloomberg doing much better, even though as someone who successfully ran New York he has a much better case to offer. I’m not saying that the U.S. public is necessarily ready for the likes of Elizabeth Warren or Bernie Sanders. I worry in particular about the politics of Medicare for All, not because of the cost, but because proposing the abolition of private insurance could unnerve tens of millions of middle-class voters. But the idea that America is just waiting for a billionaire businessman to save the day by riding in on a white horse — or, actually, being driven over in a black limo — is just silly. It is, in fact, the kind of thing only a billionaire could believe. PAUL KRUGMAN’S NEWSLETTER Get a better understanding of the economy — and an even deeper look at what’s on Paul’s mind. Sign up here. An activist dressed as ‘Monopoly Man’ listening to testimony by Mark Zuckerberg on Capitol Hill.Chip Somodevilla/Getty Images

My column today was devoted to debunking the idea that Democrats need a billionaire savior, so it was largely about the political delusions of the super-wealthy. I didn’t have much space to talk about the somewhat different question of how some people get that wealthy. So today’s newsletter tries to fill in some of the gaps. In Economics 101, we teach the “marginal productivity” theory of income distribution: workers are paid what their activities add to the economy. That is, a worker whose work raises the total value of output $60,000 over the course of a year will get paid $60,000. Why? Competition. Employers would compete to hire such workers if they were paid less than $60K, replace them with other, comparable workers if they were paid more than $60K. And some workers surely do have special talents that make them worth considerably more — in a pecuniary, not a moral sense — than the average. But how do we explain why some people make many times this amount, say $60 million? Are they really a thousand times as productive as the average worker? That’s extremely doubtful. In fact, the most plausible stories about how individuals get very rich are also stories in which their compensation greatly exceeds the benefits they generate for the economy. First of all, a large fraction of the world’s billionaires made their wealth through speculation in financial and real estate markets. Now, speculation serves a useful purpose: we want the market to anticipate likely future events, and someone has to be rewarded for the task of anticipating those events. But as the great economist Paul Samuelson noted more than 60 years ago, speculation offers huge rewards to those who are just slightly quicker off the mark than others, even though society gains very little from the speed of their reactions: “Suppose my reactions are not better than those of other speculators but rather just one second quicker. (This may be because of the flying pigeons I own or quickness of my neurons.)” (Or, though he doesn’t mention it, because of insider trading.) In such a case, Samuelson pointed out, the speculator gets very rich even while adding little to G.D.P. Another way to get very rich is to found a company that gets even slightly ahead of the curve and manages, thanks to the winner-takes-all nature of many markets, to establish a lucrative monopoly position. As billionaires go, Bill Gates and Jeff Bezos aren’t especially terrible people. But if Gates hadn’t existed, someone else would surely have come up with widely used computer operating systems about as good as Windows; if Bezos hadn’t existed, someone else would surely have created online retail platforms comparable to Amazon. So big fortunes from founding companies, like big fortunes based on speculation, may bear little relationship to social contribution. Finally, a lot of big incomes go to C.E.O.s of large companies. Who decides how much these executives are worth? Compensation committees appointed by the C.E.O.s themselves. Good leadership matters; but over the last half century C.E.O. compensation has risen from around 20 times average pay to a ratio of almost 300 to 1. Has the importance of leadership really increased that much? Now, even if billionaires really did make extraordinary contributions to society, that wouldn’t make them morally entitled to keep all their money; it might still make sense to tax them heavily. But the fact is that they probably don’t contribute nearly as much as they make. Quick Hits The big increase in wealth inequality isn’t about the rise of the 1 percent — it’s about the rise of the 0.1 percent. Who are these people, anyway? Billionaires who seek office are rare. Mostly they exercise their political influence stealthily — on behalf of a very right-wing agenda. People who think Elizabeth Warren is too radical in her critique of the rich should read Teddy Roosevelt. Feedback If you’re enjoying what you’re reading, please consider recommending it to friends. They can sign up here. If you want to share your thoughts on an item in this week’s newsletter or on the newsletter in general, please email me at krugman-newsletter@nytimes.com. Facing the Music Money makes the world go roundYouTube Liza Minelli and Joel Grey explain it all. IN THE TIMES As Bloomberg’s New York Prospered, Inequality Flourished Too Critics and supporters discuss the legacy of a mayor who may now run for president. By Emily Badger And Luis Ferré-Sadurní Article Thumbnail If People Were Paid by Ability, Inequality Would Plummet Some may argue that top earners are simply super skilled, but that’s not what the evidence suggests. By Jonathan Rothwell Article Thumbnail Warren Would Take Billionaires Down a Few Billion Pegs Elizabeth Warren’s tax proposals would significantly curb the gigantic fortunes of America’s richest families over time. By Patricia Cohen Article Thumbnail Europe Is Toughest on Big Tech, Yet Big Tech Still Reigns There is a lot to learn from mistakes that the Continent’s regulators have made, say consumer groups, lawyers and rival companies. By Adam Satariano Article Thumbnail Read the full Opinion report here. Continue reading the main story Need help? Review our newsletter help page or contact us for assistance. You received this email because you signed up for Paul Krugman from The New York Times. To stop receiving these emails, unsubscribe or manage your email preferences. Subscribe to The Times Connect with us on: facebook twitter instagram Change Your Email|Privacy Policy|Contact Us The New York Times Company 620 Eighth Avenue New York, NY 10018
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