In one corner we'll put Bill Whittle, a person my Trotskyist friends have likely never heard of. He produces charming videos that appeal to people like me who believe in free enterprise and constitutional government. Unfortunately, like most of the Internet, he mostly just preaches to the choir. He argues that rich people aren't all that rich.
In the opposite corner is Andrew Gavin Marshal, a Canadian-based, independent researcher who authors an article entitled World's Top Billionaires, reprinted in the current issue of Socialist Viewpoint. He argues that rich people are nothing short of filthy, stinking.
Mr. Whittle makes his case in a video produced in 2011 entitled Eat The Rich (based on data from here). He was responding in part to the Obama campaign's efforts to make the millionaires and billionaires "pay their fair share". The federal budget in 2011 was $3.7 trillion, and Mr. Whittle imagines how that might be paid for by "eating the rich". He manages to cover the bill by confiscating all profits from all Fortune 500 companies ($391 billion), all personal income above $250,000 ($1.4 trillion), and the entire net worth of the plutocrats, all billionaires and near-billionaires ($1.3 trillion). That added together is still $600 billion short of the full federal budget, but Mr. Whittle cobbles together the necessary amount from humorous odds and ends.
To pay the federal budget for one year, Mr Whittle (in his imagination) has confiscated the wealth of all the plutocrats, and in so doing simply liquidated the assets of many or most American companies. Of course there is no encore--it is impossible to repeat that trick for a second year. Compared to the federal budget, or for that matter, state budgets or even many municipal budgets, the rich just aren't all that rich.
While I'm willing to accept all of Mr. Marshal's data, I think he has an unjustifiably narrow view of wealth. He is considering only financial assets, which really is a small part of the universe. The total market capitalization of all publicly traded companies worldwide is about $55 trillion. That's the extent of Mr. Marshal's gaze, and it sounds like a lot of money, but it isn't.
To see how big the US economy really is, think about it this way. We have a $15 trillion GDP--that is, our annual return on investment is $15 trillion. If you assume a 5% return on capital, that means total capital equals about $300 trillion. Since the US is approximately 30% of the global economy, we can, in round numbers, suggest that total global capital is $1 quadrillion. The total public market capitalization--the universe which Mr. Marshal considers--is only about 5% of the total wealth.
So where is all this extra wealth that Mr. Marshal can't see? I'll suggest three places: houses, benefits, and skills.
I live in an average home, worth about $200,000. I hope to have it paid off before I retire, in which case it will make up about 40% of my net worth. Twenty odd years ago, I recall reading about Bill Gates building his new house at a then unprecedented cost of $30 million. That is less than 1% of his net worth. I believe Mr. Marshal ignores home equity in his calculations (not sure), and so isn't giving credit to the 60% of people who own their own homes--the majority of whom have paid off the mortgage. And as my example illustrates, even though Mr. Gates' house is far nicer than mine, as a percentage of wealth it's less important. If you include home equity, the fraction of wealth owned by the top 1% is less--probably significantly less--than 40%.
When I retire I expect to receive about $2,000 a month in social security. Mr. Gates will get no more than that (though at his current salary of $1/year, he may not receive as much as I do). For me, social security is as if somebody just gave me a trust fund worth $400,000. Thus you really need to add that to my net worth in order to compare apples to apples. Social security pays out about $871 billion annually, wealth that goes overwhelmingly to the 99%, but which is not included in Mr. Marshal's statistics. That's equivalent to a trust fund worth $16 trillion. Similarly, Americans have trust funds associated with Medicare, food stamps, disability, etc.
Finally, there is human capital, namely the skills and attributes that we have all acquired that enable us to perform socially valuable labor. These range from getting out of bed and showing up to work on time, to being able to play NBA quality basketball. Gary Becker estimates that 70% of American capital is human capital--that's $210 trillion. This reminds of the middle-aged, slightly pudgy, Black woman I saw during my early morning constitutional along the Las Vegas strip last week: she ran up the stairs rather than taking the escalator. Now there's a lady who conserves capital! Mr. Marshal gives her no credit.
So looking only at the narrow world of financial assets, then yes, Mr. Marshal is correct. The rich really are rich, and wealth inequity really is obscene. But that's not the right picture. Instead, one needs to pull the camera back far enough to encompass all capital. In the larger view, financial assets (in the form of publicly held corporations) shrink to only 5% of the total. The big picture includes government benefits, such as social security, and amorphous but very important things, such as human capital. These are distributed much more broadly across the population--it is simply not true that the top 1% own 40% of all assets. They're lucky if they own 4%.
Are rich people rich? This judge rules for the negative, and declares Mr. Whittle the winner of our debate. But high kudos to Mr. Marshal for good effort. His article is worth reading--here's the link again.
Further Reading:
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