Contributor Post Created with Sketch. The ‘Billionaire Effect’ That Wealth Worriers Never Mention

 

The “billionaire effect” isn’t how the mere existence of the super-rich seems to cause great alarm in some people. Well, it isn’t just that, obviously. UBS defines the “billionaire effect” as how entrepreneur-led businesses “have tended to outperform others financially” due to “long-term vision, smart risk taking, business focus, and determination.”

UBS analysis of more than 2,000 global billionaires finds that over the past 15 years, billionaire-controlled companies returned almost twice the annualized average performance of the market and generated a 50 percent higher return on equity. Moreover, while the billionaire effect is seen globally, the effect was strongest in the United States.

Well, good for them, right? But also good for the users of the products and services sold by those companies, not to mention their investors and workers. UBS describes the ability of these billionaires “to transform entire industries, to create large numbers of well-paid jobs, and to rally the world to find cures for diseases such as malaria.”

Why point this out? One reason is that some critics argue the mere existence of billionaires, at least in the US, as prima facie evidence of deep dysfunction in American public policy. Yet, as my colleague Michael Strain argues in a recent podcast chat with me, “It is very difficult to argue that the world would be better off if we didn’t have Jeff Bezos and Bill Gates. And we should want there to be more of them, but you’re not going to have them if people can’t amass significant amounts of wealth.” (The rise of the superrich, a 2018 Credit Suisse global wealth report notes, “is often seen as a sign of a country’s economic health and its ability to generate opportunities for wealth creation.”)

Of course, every billionaire isn’t a superentrepreneur. Plenty of these folks are, as the Financial Times puts it, “heirs and heiresses to fortunes, and oligarchs who seized their wealth.”

But the FT also points out that “the world’s billionaire super league is more meritocratic than in past decades” with more American billionaires than ever before starting their lives as middle-class kids who made good. That, while also acknowledging the fortunate circumstances in which those fortunes are grown, how “globalization and technology … allows businesses, such as Google and Facebook, to span markets, help the most successful entrepreneurs to profit faster and at greater scale.”

Maybe none of this matters, or perhaps it is all overwhelmed by the supposed negative impact of billionaires on American democracy and societal cohesion. But the trade-offs from treating wealth as a bad thing to be dealt with through punitive policy is worth noting.

Published in Economics
Like this post? Want to comment? Join Ricochet’s growing community of conservatives and be part of the conversation. Get your first month free.

There are 20 comments.

  1. Stad Thatcher

    James Pethokoukis: And we should want there to be more of them, but you’re not going to have them if people can’t amass significant amounts of wealth.”

    It doesn’t even have to be “significant amounts of wealth”. If anything interferes with the ability of even average folks to accumulate wealth (think income tax), it’s a bad thing.

    Bezos is the only billionaire I keep making rich (Gates to some extent, but I hold on to and use his older software as long as I can). Amazon helps me find exactly what I want, provides reviews which helps me gauge the quality of the product (but you have to be smart about interpreting online reviews), and has an easy return policy and system when something fails to live up to expectations – or is damaged, which does happen.

    Good post, James.

    • #1
    • November 14, 2019, at 12:31 PM PST
    • 6 likes
  2. CarolJoy, Above Top Secret Coolidge

    Between 2010 and 2012, one third of my neighborhood was foreclosed upon. Good hard working people. I don’t think any of my neighbors were flipping houses.

    Billionaires did this to us. And meanwhile the media slammed the middle class with its endless meme of how we and the lower classes had held guns to the bankers and forced them to sign off on mortgages we couldn’t afford.

    No, actually the COD’s, default credit swaps and derivative gambling on Wall Street did this. Of course in some cases, like that of Bernie Madoff and Lehman Brothers, there were real billionaires who went down. But for most of that time period, the people at the top got bailed out. With Main Street’s money.

    I keep thinking there are some billionaires out there who might have done some really good things, but right now can’t think of who that would be.

    Basically the billionaire class keeps on destroying the middle and lower classes.

    Over the years, I’ve known some millionaires I liked and respected. But once an individual person becomes the croupier at the gambling table, and he or she has bought and paid for Congress such that as croupier, they get the proceeds of the rigged game, it is hard to have respect from me.

     

    • #2
    • November 14, 2019, at 1:07 PM PST
    • 1 like
  3. Mark Camp Member

    Very good article, James. Mises would be proud of you.

    Yours,

    Mark the Misesian

    • #3
    • November 14, 2019, at 1:47 PM PST
    • 2 likes
  4. Mark Camp Member

    CarolJoy, Above Top Secret (View Comment):
    Between 2010 and 2012, one third of my neighborhood was foreclosed upon. Good hard working people.

    This is what it sounds to me that you saying

    If

    • someone is, in your opinion, a good, hardworking person
    • that person wants a nice house, but he or she doesn’t want to work and save long enough to pay for it–not even a quarter that much!
    • he borrows a large amount of money, compared to his income, to make up for his lack of work and saving, promising to pay it back on a schedule
    • uses the money to buy that house
      then
    • he should not have to fulfill his end of the bargain

    But I don’t think you could be saying that, are you?

    • #4
    • November 14, 2019, at 2:01 PM PST
    • 3 likes
  5. MISTER BITCOIN Coolidge

    The poorest person in the world is just as greedy as the richest person in the world. 

    poverty doesn’t mean virtue. 
    Wealth doesn’t mean theft. 

    • #5
    • November 14, 2019, at 4:29 PM PST
    • 3 likes
  6. CarolJoy, Above Top Secret Coolidge

    Mark Camp (View Comment):

    CarolJoy, Above Top Secret (View Comment):
    Between 2010 and 2012, one third of my neighborhood was foreclosed upon. Good hard working people.

    This is what it sounds to me that you saying

    If

    • someone is, in your opinion, a good, hardworking person
    • that person wants a nice house, but he or she doesn’t want to work and save long enough to pay for it–not even a quarter that much!
    • he borrows a large amount of money, compared to his income, to make up for his lack of work and saving, promising to pay it back on a schedule
    • uses the money to buy that house
      then
    • he should not have to fulfill his end of the bargain

    But I don’t think you could be saying that, are you?

    Here is part of what happened in California:

    A great many people went out and became house flippers. Perhaps as much as one third of Calif’s economy from 1995 to the housing collapse that began here in 2006 was about the real estate boom. Real estate agents were envied by many professionals. I remember on a dr’s visit, the dr mentioning that his brother in RE was making a killing.

    Most of the people in my immediate neighborhood were school teachers, accountants, cafe owners, computer repair people or techies. One neighbor, who weathered the housing crisis was someone who worked way south of here in a natural gas drilling rig and was only around on weekends.

    But when the housing crisis hit, and deepened and became the Economic Collapse of 2008, the state went bankrupt. Arnold Schwartzenegger realized by summer of 2009 that we were in trouble, so he went hat in hand and asked Tim Geithner for a loan fort he state of 20 billion dollars. Geithner said it would add way too much debt to the nation’s deficit, and gave us nothing. (Oddly enough, Tim Geithner turned around and gave, not loaned, 20 billion to Israel some weeks later.)

    So everyone suffered. Our school district went from 15 million a year to a bit over 9. People who never thought they’d be laid off were. A teacher loses a job; so does a police officer. Magnify that by a hundred more people and soon the local diner and barber shop closes.

    It was a really crappy time. And people in other places or who lived in Calif but were of above average means can be all snide and principled about how it could never happen to them. However when people get like that, I sort of chuckle to myself, because a lot of the snidest people in Cal live atop the most active earthquake faults in the nation. So it all could literally come toppling down upon them any day now. (And when they get pennies on the dollar in terms of home insurance, we will see how snide they are then.)

     

    • #6
    • November 14, 2019, at 6:37 PM PST
    • 1 like
  7. CarolJoy, Above Top Secret Coolidge

    Mark Camp (View Comment):

    CarolJoy, Above Top Secret (View Comment):
    Between 2010 and 2012, one third of my neighborhood was foreclosed upon. Good hard working people.

    This is what it sounds to me that you saying

    If

    • someone is, in your opinion, a good, hardworking person
    • that person wants a nice house, but he or she doesn’t want to work and save long enough to pay for it–not even a quarter that much!
    • he borrows a large amount of money, compared to his income, to make up for his lack of work and saving, promising to pay it back on a schedule
    • uses the money to buy that house
      then
    • he should not have to fulfill his end of the bargain

    But I don’t think you could be saying that, are you?

    By the way, there is not now, nor has there been since around 1983, affordable housing for the middle class in California. So yes, people did tend to take on mortgages that would seem insane to someone living in any part of the known Universe.

    However people here have a Draconian choice: do I spend 45% of my income paying my landlord’s mortgage, plus pay taxes on that 45% of my income as well, or should I pay 48% of my income to my own mortgage, plus gain the mortgage tax deduction credit.

    • #7
    • November 14, 2019, at 7:15 PM PST
    • Like
  8. CarolJoy, Above Top Secret Coolidge

    A detrimental activity that was brought to the American people by the Big Wall Street interests (Who are billionaires)

    http://www.levyinstitute.org/pubs/wp_698.pdf

     

    • #8
    • November 14, 2019, at 7:16 PM PST
    • Like
  9. Mark Camp Member

    CarolJoy, Above Top Secret (View Comment):
    People who never thought they’d be laid off were.

    CarolJoy,

    I know how sad that is. I was a person who never thought he’d be laid off, and was.

    But you didn’t answer my question. Are you saying that I am not responsible for my promises as a man, just because I was a good hardworking man? If a man isn’t responsible for his promises, then some other man or woman is. 

    But then, who is responsible for fulfilling my promises when I renege on them? If I pledged my house against my debt, but am not held accountable for that promise, who is responsible to give me a handout so that I don’t have to give up that house?

    • #9
    • November 14, 2019, at 7:41 PM PST
    • 1 like
  10. CarolJoy, Above Top Secret Coolidge

    Mark Camp (View Comment):

    CarolJoy, Above Top Secret (View Comment):
    SNIP.

    CarolJoy,

    I know how sad that is. I was a person who never thought he’d be laid off, and was.

    Are you saying that I am not responsible for my promises as a man, just because I was a good hardworking man? If a man isn’t responsible for his promises, then some other man or woman is.

    But then, who is responsible for fulfilling my promises when I renege on them?SNIP

    Where did I say someone would get a hand out? A loan is just that – a L-o-a-n.

    Calif ranks as either the fifth or sixth largest economic engine in the world. (Slight variance depending on which source is ranking the state.) So a loan is a loan is a loan. The people of Calif would have made good on the loan if it had not been denied them. Especially given that Ahnold was smart like a fox and would have known where to put the money so that the middle class would not be bearing so much pain.

    It should be noted that the Fed government was on the hook for 28 billion dollars owed to the state of Calif, but then the Fed government offered amnesty and once that was the new status of immigrants, so the new status forbade any payments of the monies owed. That happened circa 1990 or so. (There is a formula based on how many people from foreign nations a state takes in and how much of the costs relating to the absorption of these new warm bodies state gets. We got the short end of things that time around)

    The Republican governor at the time did the right thing in asking Geithner for that loan. BTW, every single time I enter the city of Lakeport, I hear people discussing how “it all fell apart under Ahnold.” He is seen as the evil wizard behind cutting the school budgets and programs, destroying the various state and county agencies, when in fact it was Mr Geithner who did that.

    I see no reason for you to be so insistent the mortgage holders needed to be the ones who suffered and paid for the housing crisis and the resulting 2008 Economic Collapse. Why should it be on them? Glass Steagal was put in place to benefit the middle class, in the 1930’s after the First Great Depression indicated that the rich & powerful look out for only the rich & powerful.

    Mitt Rmoney & his Bain Capital found various ways around Glass Steagal provisions. Rather than being called out by greed meisters of the world, they emulated him. By the late 1990’s, US Congress voted for a Banking Remodernization Act eliminating Glass Steagall. A Sen Dorgan of Nebraska was the only Senator who voted against it. He stated that once passed, it guaranteed economic collapse within a decade.

    Banks create $$ thru fiat money system. They win; everyone else loses.

    • #10
    • November 14, 2019, at 8:13 PM PST
    • Like
  11. Mark Camp Member

    CarolJoy, Above Top Secret (View Comment):
    I see no reason for you to be so insistent the mortgage holders needed to be the ones who suffered and paid for the housing crisis and the resulting 2008 Economic Collapse.

    I also see no reason that I should pay for the any housing crisis or any economic collapse.

    My question is, should I be accountable for my own promises?

    • #11
    • November 14, 2019, at 8:18 PM PST
    • Like
  12. Frank Monaldo Member

    All,

    Some on the left would like to argue that billionaires do not deserve what they have. This article suggests that those companies run by billionaires perform better. I am sympathetic to the conclusion that these companies have benefited from good leadership.

    However, what we see is correlation. One explanation is that the companies have performed better because of leadership by billionaires. It is also possible that some billionaires are billionaires because they happen to have a large number of shares in better-performing companies.

    The study is suggestive, but not dispositive. If offers circumstantial evidence that billionares’ wealth is largely the product of their exertions.

    Frank

    • #12
    • November 15, 2019, at 3:16 AM PST
    • 1 like
  13. Stad Thatcher

    CarolJoy, Above Top Secret (View Comment):
    Basically the billionaire class keeps on destroying the middle and lower classes.

    Billionaires don’t wake up every morning thinking “How am I going to destroy the middle class today?”

    Okay, maybe George Soros does.

    The point is government makes the laws which allow lending institutions to foreclose on delinquent homeowners. Now, you can argue billionaires have undue influence on lawmakers, but there have been too many elections where the winner was sigificantly outspent by the loser.

    If anyone is out to destroy the middle and lower classes, it’s Democrats and the people who elect them . . .

    • #13
    • November 15, 2019, at 6:33 AM PST
    • 1 like
  14. Henry Castaigne Member

    Stad (View Comment):
    If anyone is out to destroy the middle and lower classes, it’s Democrats and the people who elect them .

    Some billionaires are responsible for that as much as poor gullible people. 

    • #14
    • November 15, 2019, at 10:16 AM PST
    • 1 like
  15. Randy Weivoda Moderator

    Banks are not exclusively owned by billionaires. If you have money invested in mutual funds, odds are you are part-owner of at least one bank, railroad, airline, hotel chain, oil company, tractor manufacturer, etc. It’s foolish to think that only the very rich benefit from profitable companies.

    Stad (View Comment):

    CarolJoy, Above Top Secret (View Comment):
    Basically the billionaire class keeps on destroying the middle and lower classes.

    Billionaires don’t wake up every morning thinking “How am I going to destroy the middle class today?”

    That’s right. Billionaires didn’t get to be billionaires by selling products only to other billionaires, and they didn’t do it by selling to the destitute. There is no sensible reason that someone would wish that the bulk of their customers were poorer. 

    • #15
    • November 16, 2019, at 11:33 AM PST
    • 1 like
  16. CarolJoy, Above Top Secret Coolidge

    Mark Camp (View Comment):

    CarolJoy, Above Top Secret (View Comment):
    I see no reason for you to be so insistent mortgage holders needed to be the ones who suffered SNIP

    I also see no reason that I should pay for any housing crisis or any economic collapse.

    My question is, should I be accountable for my own promises?

    If I earn some $$, & I think it’s safely on my person, and I am attacked by someone who rapes & robs me, and soon those of us in the know realize that this criminal is doing this to so many people that they are a billionaire, but my neighbor is upset with me for my wanting leniency from my landlord, but now he expresses great admiration for Mr Billionaire, as after all Mr B has the PR cover from RINO’s that billionaire is wealth creator, I would be upset abt living in that world!

    And Oops, I guess there are so many here that share those opinions. So I really get tired of living in among the uninformed. Why admire Criminals whose claim to fame is their banks laundering drug monies, setting up a “prosperous economy” in which RE values will always go up & never go down, & they foolishly gamble using derivatives on this scam perhaps knowing all the while that as they own Congress, they will get re-paid for any losses, even after their losses are claimed to be over 16 trillions of dollars? Irregardless of their wealth.

    Please wake up. It is not only that the public & all the mom and pop stores were absolutely swindled during the Great Economic Collapse of 2007 to 2012 and not only that, then legislation passed under Obama to absolutely ensure that should the system crater once again, the public will again pick up the pieces. (Some people think there will be a major cratering of the economy within 9 months -especially if the PTB think that Trump will get in again.)

    I wrote this circa 2011 to 2012:

    Actually since many of biggest banks in the EuroZone have already helped their buddies at the US Fed Reserve dispense trillions of $$s of funds, I would say, let’s start having those banks lending to the small businesses in each country, instead of stockpiling the money.

    But that policy would make sense. Sense is no longer part of the equation. Naomi Klein’s “Shock Doctrine” explains everything anyone needs to know about the Banking World. The Shock Doctrine offers reasons why there’s a situation where governing officials in each land kowtow to the Grand Puhbahs of Banking.

    And the result of implementing the economic Shock Doctrine policies ended up spreading Mafia style governance in Post Soviet Union Russia, and of course, junta style regimes in Argentina and Chile in years gone by. Now it’s happening here in the US.

    Aaron Russo died trying to get Americans to “get it.” His “Freedom to Fascism” videos are still around on Youtube.

    • #16
    • November 16, 2019, at 12:23 PM PST
    • Like
  17. CarolJoy, Above Top Secret Coolidge

    BTW just for the record, I have nothing against any legitimate billionaires. A person I was buddies with some years ago went on to develop the signalling necessary to make the USB devices work. He went on to be a person always named as being on the team of folks that invented the original USB device. If he had become a billionaire, I would be happy for him.

    He did this while under contract with Intel, I think it was. So although he is prosperous, that company, not him, made the majority of the money.

    He allowed himself to be under contract with a corporation as he found out earlier in his life, as many smart, invention-oriented people do, all the time and the expenses involved in patenting an item, and how even those who undertake that enterprise can still end up having their invention(s) stolen out from under them.

    However most of today’s billionaires are banking or mass distribution connected. Actually they are crooks.

    There are things I do not like about Bill Gates, but perhaps he is a billionaire who made his money legitimately.

    • #17
    • November 16, 2019, at 12:42 PM PST
    • Like
  18. CarolJoy, Above Top Secret Coolidge

    A cartoon that makes sense to me about the Billionaire Class of Bankers:

    • #18
    • November 16, 2019, at 12:52 PM PST
    • Like
  19. CarolJoy, Above Top Secret Coolidge

    The United States of America has always had as guiding principle the idea of individuals being able to operate in a free and sovereign citizenry. But obviously this has changed.

    When did it start to change? In 1913, with the creation of the Fed Reserve.

    The Federal Reserve operates according to one of the major planks of the Communist Manifesto: having a Central Bank.

    Within just a few years of the creation of the Fed Reserve, the Congress approved a new law and Amendment: a Federal Income Tax. This Amendment was supposedly ratified via cooperation of the states, although there is enough evidence to disprove the idea it was ever ratified. The Fed Income Tax is the second protocol of the Communist Manifesto.

    • #19
    • November 16, 2019, at 2:14 PM PST
    • Like
  20. CarolJoy, Above Top Secret Coolidge

    BTW, if small mom and pop business owners could purchase a handful of Congress critters and Senators, and influence them via campaign contributions to swing things our way, we could probably come up with a 50% higher return ourselves.

    • #20
    • November 16, 2019, at 2:24 PM PST
    • Like