In a world in which Gordon Gecko’s tagline “greed is good” has become more of a mantra than a funny off-hand comment, America’s rich are finding new ways to get even more wealthy — and fast. Since the financial crisis and recession kicked in, a huge amount of economic gains — 116%, in fact — have gone to the nation’s wealthiest citizens. As a result, an entire new wave of millionaires and billionaires have been christened, while the vast majority of Americans have continued toughing it out under some of the harshest economic conditions since before the first World War.
Without question, the increasing numbers of individuals holding fortunes in the seven, and even ten figures, has grown. This has come as a result of a number of different things, among them policies that favor the rich like market deregulation and favorable taxation rates. While the creation of wealth and lifting of individuals to high levels of prosperity is really the ultimate goal, it is it really the best thing for the economy?
Since the financial crisis, the number of billionaires in the world has nearly doubled, according to a report from charity Oxfam International. In March 2009, there were 743 people in the world who were certified billionaires. As of March this year, that number is 1,645, an increase of more than 45%. That is an incredibly high rate of growth, in only five short years.
So, who are these people, and how are they making all of that money?
According to Forbes, the world’s richest people command wealth totaling $6.5 trillion. Of all that money, 13% of those billionaires inherited it, 21% received a huge sum of money and simply added onto it, and the remaining two-thirds built their fortunes themselves, through business ventures or investing.
With those figures in mind, and the rapid rate of new entrants to the billionaire club, we come back to the question of whether or not having so much wealth concentrated in the hands of so few is a good thing. As with almost everything, there isn’t an easy answer.
There are those that argue that the world’s economies are dependent on billionaires. There are plenty of people who earn their fortunes, and then turn around and put that money back into the economy through investments or expanding their business ventures, which provides jobs and wages for everyone else. Then there are those who purchase yachts and sit on their fortunes, enjoying life to the fullest. While it’s hard to blame them, you can question whether or not doing that is of any actual value to the economy.
But the fact remains that many of the world’s wealthiest do add significant value, and hold incredibly important roles in the economy. A report from the American Enterprise Institute holds fast to the notion that while America is plagued by a myriad of issues, an overabundance of billionaires is not one of them. The basic argument is that while giant companies like GM used to employ huge numbers of people 50 years ago, the world’s biggest and most profitable companies can now get by on a fraction of that amount. Therefore, we need more entrepreneurs with plenty of capital to go into business and building successful companies.
“America needs more Mark Zuckerbergs, not fewer, writes the report’s author, James Pethokoukis. “How to create them? There is no magic formula, but Henrekson and Sanandaji find the rate of billionaire entrepreneurs correlates positively with nations that have lower taxes, more venture capital investment, and less regulation. High capital gains taxes seem particularly harmful.”
“While inequality hasn’t made it harder to get on the success ladder, it does make it more costly to stay stuck at the bottom. A more entrepreneurial U.S. economy generating more high-paying jobs will ensure more people are making that climb to the top rungs,” he concludes.
There may be something to Pethokoukis’ argument, but then again, the very things he is arguing for are widely considered to be the catalysts behind growing inequality and other problems in the economy. Not that his argument is without merit, but the idea that inequality hasn’t made it finding success any more difficult is shaky.
For one, the cost of access to education is wildly out of control, and shutting many in the poor and middle class out altogether. This creates barriers to entry for those looking to even climb into the middle class from poverty, and only goes to widen the inequality gap even more. Of course, there are exceptions, but rags-to-riches stories are hardly the norm in America.
“Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance,” writes Tom Hertz of American University, in his report Understanding Mobility in America, written in 2006. You’d have to imagine those odds have worsened following the recession, and college tuition has risen 15% on average between 2008 and 2010 across the board, according to USA Today, making it even more unaffordable to those who need it most.
But those are just problems with getting an education. As billionaires have widened their influence in the political system, policies are being passed that are likely augmenting any problems the country was already experiencing. By using arguments for job creation, the wealthy have been able to successfully get rid of certain regulations, utilize tax loopholes and push money into political campaigns, leading to fears of a plutocratic future. The effects of cronyism, as opposed to free market capitalism, along with stagnating wages and other factors, have contributed mightily to the growth of many of the nation’s wealthy individuals, likely helping bump them up into the billionaire’s club.
While that’s good for a small slice of the overall population, whether or not its a good thing for everyone else brings up some serious questions.
Again, there are plenty of arguments as to why more billionaires is a good thing, and why it could be a bad thing. The fact of the matter is, we’re living in an age where we’ll get a more definitive answer relatively soon, with some data to prove it. With the world’s population of billionaires effectively doubling every decade, according to the current growth rate from 2009-2014, the effects should become even more pronounced and obvious.
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