Billionaires, Surplus, And Replaceability
The typical neoliberal defense of self-made billionaires goes: entrepreneurs and other businesspeople create a lot of value. EG an entrepreneur who invents/produces/markets a better car has helped people get where they’re going faster, more safely, with less pollution, etc. People value that some amount, represented by them being willing to spend money on the car. The entrepreneur should get to keep some of that value, both because it’s only fair, and because it incentivizes people to keep creating value in the future.
How much should they keep? The usual answer is that the surplus gets distributed between the company and the customers. So suppose that this new type of car makes the world $200 billion better off. We could have the company charge exactly the same price as the old car, in which case customers get a better car for free. We could have the company charge enough extra to make a $200 billion profit, in which case customers are no better off than before (they have a bit less money, and a bit better car). Or they could split it down the middle, and customers would end up better off than before and the company would make some money. Which of these distributions happens depends on competition; if there’s no competition, the company will be able to take the whole surplus; if there’s a lot of competition, all the companies will compete to lower prices until they’ve handed most of the surplus to the customers. Then once the company has some portion of the surplus, it divides it among capital and labor in an abstractly similar way, although with lots of extra complications based on whether the labor is unionized, etc.
This seems to me pretty hard to argue with - if someone creates a surplus, who doesn’t want them getting to keep some large fraction of it as a reward?
Most arguments against involve a claim that the company’s capitalists must be oppressing labor. Regardless of whether capital generally oppresses labor, this doesn’t seem like a strong argument against billionaires getting rich off of innovation. Suppose the old mediocre car company paid its workers $50,000 per year. Now someone invents a new better car company, and its workers do the same job as the workers at the old car company (ie their advantage isn’t more skilled workers, it’s equally-skilled workers making a better-designed car). It seems pretty fair to also pay their workers $50,000, which means that the big surplus created by the better car should mostly go to the capitalists.
(as an intuition pump, if Google and Bob’s Tools produce the same amount of value per employee in 2000, and the janitors at both get paid the same, and then in 2020 Google produces 1,000x more value per employee, should a janitor at Google get paid 1,000x more than a janitor at Bob’s?)
But here’s an anti-billionaire argument that makes more sense to me.
Suppose Amazon creates $1 trillion in extra value for the world, it gets split 50-50 with consumers, Amazon makes $500 billion, that gets split 50-50 with labor and other stockholders, and Jeff Bezos ends up with $250 billion. The standard argument would say that this is fair compensation for the $1 trillion Amazon provided to the world.
But suppose that we go back in time and prevent Jeff Bezos from ever being born. Does this mean Amazon wouldn’t exist today? Probably not by that name. But does it mean that we wouldn’t be buying things online today? That we would have to walk to the brick-and-mortar store every time we wanted a book? Does it mean that Internet retail would be split across a hundred different storefronts, none of which had a good selection or was easy to use?
It might mean that. But I think “Internet retail giant which dominates the market through economies of scale” is a natural niche which Jeff Bezos won the race to fill. When I say “natural niche”, I don’t want to discount Bezos’ accomplishment - I certainly didn’t notice that niche in 1994, and even if I had, I wouldn’t have had the business acumen to fill it effectively. I just mean that, probably sometime between 1994 and today, someone with business acumen would have noticed that niche and filled it successfully. Maybe not quite as successfully as Bezos. But successfully.
(It’s like that old joke about how if Thomas Edison had never existed, we’d all be browsing the Internet in the dark; no, we would have waited another few years, and then some other genius would have invented electric light.)
Suppose that if Jeff Bezos had never existed, someone would have founded pseudo-Amazon two years later. That means Bezos gets credit for Amazon being two years more advanced than it otherwise would have been. That’s actually still worth quite a lot of surplus value - maybe still enough to make him a billionaire many times over! But probably not enough for him to have $200 billion or however much he has right now.
The problem with the neoliberal argument is that it gives the first person to fill a niche credit for the niche’s entire existence, not just for filling it earlier than it otherwise would have been filled. Just because Jeff Bezos solved Internet retail two years earlier than the person who would have done it if he was never born, he gets to collect rent on all transactions forever, while that other guy gets nothing.
(as an intuition pump, consider an archaeologist who spends years narrowing down the location of a pirate treasure to a beach in Florida, then digs there and finds it. Whatever the finders-keepers law, we would feel like in some sense she had earned the treasure. But consider another world where God announces on 1/1/2023 “THERE IS A TREASURE ON THIS BEACH IN FLORIDA!”, and everyone rushes there, and whoever ran the fastest got it. Again, regardless of the actual finders-keepers law, we would feel like that person hadn’t really earned the treasure, just beaten the next person by a couple of seconds. Or maybe there are some weak qualifications - you have to be a strong person who owns a shovel - but there are many strong people with shovels and it’s mostly luck that one of them was closer than another. )
This . . . maybe still isn’t a good argument to tax Jeff Bezos or distribute his money to his employees? Taken seriously, it implies that the only person who Bezos has “stolen” any money from is the second-best entrepreneur.
But that isn’t exactly right. Suppose that if Bezos hadn’t existed, the next potential Amazon founder would be two years later, the next founder one year after that, the next founder six months after that, and so on (we assume Amazon becomes more obvious and easier to found as the Internet revolution continues). A few years after Amazon was founded, the number of counterfactual founders reaches the thousands - at some point the tech space is so saturated, and the idea of founding a big store is so obvious, that each counterfactual-founder is only shaving days or hours off of the next one’s time.
So one way of thinking about this is that of the $250 billion portion of the surplus that the system has allocated to Bezos, Bezos “deserves” two years’ worth, the second-best entrepreneur “deserves” one years’ worth, and then a whole bunch of other people “deserve” a few dollars. But this doesn’t really make sense, because all the other entrepreneurs didn’t (non-counterfactually) do any work.
(you could argue that Bezos is being paid not just for his idea, but for the hard work of serving as CEO of Amazon over many years. I’m skeptical of this because it seems like the fair wage for that would be the going rate for top-tier CEOs, which is very high but not hundreds of billions of dollars. So fine, subtract that small amount out, but the rest still seems to be some sense of paying Bezos for his idea.)
But another way of thinking about this might be to imagine these people in some kind of abstract counterfactual competition with Bezos; in a world where they were all able to found their giant retail sites (because there was no natural monopoly), they would have driven down Amazon prices and given more of the surplus to consumers - they might also have competed for workers and driven wages up. So in this sense, maybe Bezos’ extra portion of the surplus is in some sense coming from ordinary people. This would be surprising, because Amazon already has very low prices. But given that Jeff Bezos has $200 billion, there must be some world in which $200 billion more could have gone to consumers through lower prices.
I don’t know what a fair economic system that takes this model into account would look like. It wouldn’t look like “billionaires shouldn’t exist”, because it might be that pushing Amazon forward by two years is indeed worth several billion dollars. It wouldn’t even look like “higher taxes on all billionaires in the hopes of having them have less money and maybe that will bring them closer to the fair level”, because plausibly some billionaires aren’t replaceable - I’m not sure anyone else would have started SpaceX if Musk hadn’t. But this model convinces me that “taxing billionaires a lot” and “taxing billionaires not at all” are at least two different unfair failure modes with their own advantages and disadvantages from a desert point of view.