By Prashon PendyalaDemocrat representative of New York’s 14th District Alexandria Ocasio-Cortez echoed a rising view in societal economics when asked if it is possible to live in a moral society that includes billionaires. “No, it’s not” [1] – a prevailing opinion that has been resonated across the globe. Labour MP Lloyd Russell-Moyle shares a similar sentiment (“the unfathomable wealth of billionaires is morally unacceptable” [2]). This notion is based on the axis of excess, where those with three commas in their net worth have excess monetary supply, and it cannot be morally and economically acceptable for the 1% to capture 54% of new wealth in the past decade [3]. The implication of this seemingly radical policy has the potential to not only reform the distribution of wealth, reduce monopolistic markets and change the attitudes of the base economic agent – consumers [4] – but also affect political and environmental issues.
Recent empirical reports revealed that the 1% earned twice as much the other 99% combined, displaying the vast disparity of wealth present globally. This is often a result of the exploitation of monopolies, which can lead to a monopolisation of labour – with fewer employers requiring fewer employees [5]. Indisputably, this can lead to a slew of catastrophic consequences imposed upon macroeconomic objectives, with unemployment and standard of living experiencing the most downturn. Wealth inequality is propelled by the capitalisation of new wealth by billionaires, so it can be postulated that the supposed ban will have significant impacts in the reduction of this disparity. For example, without the ability to exceed the one billion mark in lucre, new wealth cannot be captured by a minority, increasing affluence distribution, and allowing cash flow to more economic agents. These can help improve another key macroeconomic objective – equality.
Opposingly, the desired effect that may be thought to be derived from banning billionaires may not provide such relief for those on the worse end of the inequality divide. Currently there are 25,490 centi-millionaires [6] across the globe, in which a centi-millionaire is defined as one with over USD 100 million in investible assets [7]. With the implementation of this ban, this number could increase, as they will now be promoted towards the epitome of wealth. This can mean centi-millionaires can take advantage of this current gap and capitalise upon the labour and retrieving the maximum amount of new capital. From this prism, while billionaire may not be able to secure two thirds as they are not present, the rising ultra-high-net-worth of centi-millionaires may take over this role, so instead of an extreme concentration of wealth with billionaires, there will perhaps be a larger concentration between centi-millionaires, not benefiting the extreme wealth divide that might of originally be thought of.
The various consequences of this economic restriction will hinge upon the methodology utilised to carry it out. US Senator Bernie Sanders resonated the most common methodology – for income to be taxed over $1 billion [8]. Under the basis “People can make it on $999 million”, Sanders’ proposition will generate large sums of government revenue, which can result in economic growth and stimulate economic activity. Real GDP can be measured through Aggregate Demand, which has 4 key components – Consumption, Investment, Government Expenditure and Net Trade. Through this significant increase in revenue for the government, this money can be pumped back into the economy through government expenditure, such as increasing welfare or towards the health and education sectors. Not only will this improve standard of living and positively impact the Misery Index, but in aggregate, improve real GDP through an increase in AD, and the effects of this can be seen in the diagram below [9]:
As shown in the diagram above, through an increase in AD (AD1 to AD2), Real GDP will increase (Y1 towards Y2). Through this proposition, there may be economic prosperity – a positive outcome from the seemingly radical decision.
However, the net positive outcome that analysis yielded initially may only breach the surface level of consequences, and underpinning this line of reasoning is the assumption that billionaires in their original state are not already stimulative for economies. Through empirical work completed at Columbia University by Prof. Jan Svejnar and Sutirtha Bagchi, findings discovered that inventors and innovators who become billionaires often tend to stimulate economic growth, while those who gain the title from inheritance or exploitation of monopolistic or political power hinder competition and hurt economic growth [10].
Statistics spotlights that there are almost 6 times as many self-made billionaires in comparison to inherited ones. Therefore, a removal of these stimulative economic agents through the ban can negatively affect growth and prosperity, negating the initial positive effects thought to have been derived from banning billionaires.
From a microeconomic perspective, the technological sector may be subject to harsh consequences with the proposition to ban billionaires. As a sector, it has the third highest number of billionaires, with the highest total worth of $2.1 trillion [11]. In addition, it is an industry that is driven by research and development, and innovation is a core trait within technological companies – as opposed to in the financial sector, which holds the highest number of billionaires. With the supposed ban, it can be postulated that the incentive to innovate may be lost, as the reward for the innovation (in this scenario becoming a billionaire) is no longer present. This can lead to a lack of research and development in the technological sector, and as it is an element so quintessential towards this industry, there may be stagnation with regards to current technological feats, rather than surpassing the pre-existing limits. This can have drastic consequences on supply of goods, as with technological innovations, output per worker per hour increases, thus productivity increases. Supply chains have benefitted tremendously from innovations [12] – which leads to an increase in profit – contributing positively towards most sectors. However, without the incentive to innovate, this rise in supply will not be possible, allowing for stagnation, hindering growth in the tech industry.
Whilst the technological sector may be hindered and lose incentive by this ban, the proposition will allow for a reduction of the monopolistic influence present in the industry. This sector is rife with monopolistic dominance from brands such as Amazon, Apple, Facebook, and Google [13] and allows for “
Big Tech Abuses”. For example, in the ecommerce sector specifically,
empirical data shows Amazon holds a majority market share in the US and significant proportion of control. With a $239 billion turnover in 2023 [14], it is this exploitation of monopolistic power that allows for such a significant proportion of tech billionaires. In addition, it also allows for procedure of crushing industry competitors, such as
a report in the Wall Street Journal on the 22nd of December 2020 which reported on the variety of anticompetitive practices carried out by Amazon. With the proposed ban, it opens opportunity to reduce the power of such monopolies. As it will no longer be desirable to obtain profits exceeding $1 billion, and as there is a
significant proportion of wealth in the ecommerce market, new companies and entrants into the market may be allowed place and be able to fill the empty void manufactured by this ban, reducing the monopolistic aspect of the technology industry, and allowing for a greater diversity in suppliers.
Another aspect that might be drastically affected from the proposition to ban billionaires is the
environmental consequences and reduction in climate change. Research from
empirical dataspotlights billionaires contribute one million times more to carbon pollution than the average
human. Similarly, the Koch brothers of the Koch Industries routinely released 24 million tonnes of
carbon dioxide [15]. This is funnelled through investment into fossil fuel industries, and while that
may provide economic stimulus (as a factor of Aggregate Demand), it is not a sustainable method of
growth. If viewed from the lens of an externality, it become irrefutable that such type of investment
will lead to market failure. The emissions from the fossil fuel powered investments are pollutants,
damaging the environment and increasing the marginal social cost well above the marginal private
cost – demonstrating a negative production externality. This can be seen in the diagram below [16]:
The marginal social cost (MSC) is above the marginal private cost (MPC) and within this context the MSC is the cost of climate change paid by society from the private which in this scenario is the billionaire investment which causes the pollution. Triangle ABC represents welfare loss, in which allocative inefficiency of the billionaire investment is demonstrated and could lead to market failure. However, with the proposition, billionaires will have less investments into fossil fuel production, which will reduce protection around polluting industries and can help bring MSC back to the socially acceptable point where there is minimum welfare loss. This will reduce the number of emissions produced, and through alternative investments a more sustainable path to economic growth can be discovered through this ban on billionaires.
Holistically, this proposition may not be sustainable to maintain in the long run.
Empirical data hotseats a $103 trillion increase in World GDP (1820-2020) and World GDP per capita has increased from $5,559 in 1990 to $20,645 in 2022 [17]. Irrefutably, due to globalisation, increasing population and other factors, the average wealth is increasing. With a ban on billionaires, income distribution may gradually obtain a smaller divide – allowing for World GDP and average income to rise at abnormally high rates. This sudden shift towards higher incomes may build up, and perhaps in a century there may be a scenario where there is not just the 1% at the top end in the centimillionaire bracket, but a large percentage of the population. As real GDP per capita increases, prices increase to match with it, so if there comes a point where an average GDP perhaps breaks the centi- millionaire mark, then luxury goods in that economy would have to be priced in the billion-dollar range. But due to the banning of billionaires, that sale cannot happen, breaking the scenario down to a point where consumers may no longer be able to buy certain goods, which would be undesirable and an unintended consequence of the ban. Therefore, in the short run, it may create net positive effects (climate change reduction, increased income distribution, etc.). However, in the long run, it may yield that the very functions of a market may break down with the imposition of such a ban, a consequence which would not be desirable on any front.
End notes:
[1]: https://www.youtube.com/watch?v=q3-QvoIfpxc&t=931s&ab_channel=TheRiversideChurch
[2] https://twitter.com/bbc5live/status/1189857638160293888?lang=en
[3] https://www.oxfam.org/en/press-releases/richest-1-bag-nearly-twice-much-wealth-rest-world-put-together-over-past-two- years#:~:text=The%20richest%201%20percent%20grabbed,half%20of%20all%20new%20wealth
[4] https://study.com/learn/lesson/economic-agents-objectives- function.html#:~:text=Households%20and%20individuals%20are%20the,roof%20who%20share%20common%20resources
[5]https://en.wikipedia.org/wiki/Effects_of_economic_inequality#:~:text=Greater%20income%20inequality%20can%20lead,and%20relati vely%20higher%20real%20prices
[6] https://www.henleyglobal.com/publications/centi-millionaire-report-2022
[7] https://hubbis.com/video/the-rise-of-the-centi- millionaire#:~:text=Centi%2Dmillionaires%20are%20individuals%20with,of%20Europe%20and%20the%20US.
[8] https://fortune.com/2023/05/02/bernie-sanders-billionaire-wealth-tax-100-percent/
[9] https://www.economicshelp.org/blog/486/uncategorized/ad-as-diagrams/
[10] chrome- extension://oemmndcbldboiebfnladdacbdfmadadm/https://academiccommons.columbia.edu/doi/10.7916/D8T442R2/download
[11] https://www.forbes.com/sites/rachelsandler/2022/04/05/here-are-the-richest-tech-billionaires-2022/?sh=51adccd45e37
[12] https://link.springer.com/chapter/10.1007/978-3-319-74304-2_12
[13] https://www.economicliberties.us/big-tech-abuse-tracker/
[14] https://financesonline.com/amazon-statistics/
[15] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://cssante.com/wp- content/uploads/2019/11/181011_les_milliardaires_principale_cause.pdf
[16] https://www.economicsonline.co.uk/market_failures/externalities.html
[17] https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?end=2022&start=1960&view=chart
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