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BILLIONAIRES ARE A BARGAIN

By Pete Moore On November 7th, 2019

The Labour Party is trying to whip up hate against the wealthy in this election. Not wealthy politicians like them of course, but people who have made their money in the productive economy. Typical of the approach is Owen Jones, a notorious Labour activist, tweeting the other day that “billionaires scrounge off the exploited labour of others”. Such is the dire state of economic education and understanding out there.

In truth, the (self-made) wealthy are a bargain and it’s the rest of us who are exploiting them. Let’s take one well known billionaire, Bill Gates, as an example. Wikipedia tells me he’s worth $106 billion. Let’s go with that. The point is, he’s worth a bundle.

We can immediately dismiss the “no-one should be worth that much” argument. It’s infantile and immoral. What someone is worth is not your business, not mine and none of the state’s business, as long as it was not earned immorally.

Bill Gates became that wealthy because his work, his ingenuity and entrepreneurship have made us all more wealthy. His products have revolutionised offices, factories, schools, universities and homes around the world. The way we work, shop, learn and play has been fundamentally changed.

The value added to the global economy of his efforts far outstrips his $106 billion. He might only have earned 1 percent of that value added. It might be even less than that. Whatever, his earnings are a tiny fraction of the value added to the world of his efforts. I’m pretty sure most of us in the productive economy earn more, as a percentage of the value we add in our work, than he does.

Far from “scrounging off the exploited labour of others”, Bill Gates, worth $106 billion, is a bargain for humanity.

32 Responses to “BILLIONAIRES ARE A BARGAIN”

  1. I have no problem at all with the existence of billionaires, esp those who are self made billionaires who have created great and lasting companies like Gates or Bezos.

  2. In truth, the (self-made) wealthy are a bargain and it’s the rest of us who are exploiting them.

    What about those like Trump and Paris Hilton who inherited their money?

  3. What about those like Trump and Paris Hilton who inherited their money?

    None of my business. Good luck to them. Someone else inheriting money doesn’t make me worse off in any way.

    Really, you don’t want to live in a society where people can’t bequeath and inherit wealth. Just think about it.

  4. What about those like Trump and Paris Hilton who inherited their money?

    It would seem that inherited money make you an obnoxiously vile airhead?

  5. Paris Hilton has some minor merits.

    Can’t say what they are but I am sure that they exist.

  6. In truth, the (self-made) wealthy

    But the truth is that most billionaires aren’t “self-made”. Like Trump they inherited a fortune on which tax was evaded legally avoided, and most of them stash their wealth in tax-havens, which makes them spongers on the rest of us. Trump is going to the Supreme Court to keep his tax returns secret from the voters, unlike the past six presidents. I wonder why? Surely he has no shameful secrets as a billionaire?

    But it’s instructive to see the extent to which Rightworld licks their asses. Thank for the honesty Pete.

  7. I agree with the basic gist, it is not zero sum and “billionaires” are not getting wealthy at the expense of others, and it’s not exploitative. It’s not that if they weren’t billionaires, we’d all have our slice of that money, it’s that that wealth (and more besides) wouldn’t exist at all.

    However Microsoft, a convicted monopolist, is perhaps not the best example to pick to illustrate this. 🙂

    Also IMO nobody is really ‘self made’, pretty much all wealthy people are morally equivalent to lottery winners or those who inherit money (and I also agree that this is none of my business, and no skin off my nose). The greatest predictor of one’s life outcomes is not innate ability, it is where and when you are born. If Bill Gates had been born any other time and probably anywhere else, it would have been different. (Realising this leads to a view like that of John Rawls, see https://en.wikipedia.org/wiki/Veil_of_ignorance). Nor is it that these guys “worked hard”, tell that to the nurse or the junior doctor doing the night shift in the local A&E, or the people working several low pay jobs.

    Bill Gates is not really responsible alone for the “revolution” anyway, much of it was swiped from Apple, who in turn swiped it from Xerox, and countless others were involved. Plus it all happened to coincide with the semiconductor revolution and some bad moves by IBM, who seemed invincible at the time. In the same way Jobs didn’t really make the Mac or the iPhone on his own. Gates also missed entirely, as he admitted himself, the significance of the internet (see famous internal MS memo sent by Gates regarding this back in the day). And MS also cottoned to the significance of the iPhone very late, though that was not Gates’s fault. Still, the common idea that Gates is some kind of genius programmer etc and nobody else could have done it is not really the case, in my opinion. He was just in the right place at the right time, and several large dollops of luck were involved (as well as a lot of very sharp business practice, and the whole convicted monopolist thing as I mentioned).

  8. I agree with the basic gist, it is not zero sum and “billionaires” are not getting wealthy at the expense of others, and it’s not exploitative. It’s not that if they weren’t billionaires, we’d all have our slice of that money, it’s that that wealth (and more besides) wouldn’t exist at all.

    Yes Frank, but for some strange reason you omit to mention that the internet and much of the tech revolution was funded by the state, i.e. by taxpayers, whereas we now have the likes of Google and Amazon and the rest of the gang paying ****-all tax on their monopoly profits anywhere on this planet.

    But you seem to be cool with that?

  9. Bloomberg and Bezos, Who can both buy and sell the likes of Donald Trump any day of the week, came from middle class backgrounds

  10. Phantom

    It looks like Bloomberg has declared he’s running for POTUS.

    https://twitter.com/srikanta07/status/1192611970987499521?s=20

  11. Peter,

    “Yes Frank, but for some strange reason you omit to mention that the internet and much of the tech revolution was funded by the state, i.e. by taxpayers”

    I have mentioned this many times in the past but that’s not the full story – in the early days some key components came from the American military/DoD so funded by the US federal gov. The initial idea for the World Wide Web came from Tim Berners-Lee at CERN, so yes state money involved there also. Since about 1993, not so much. Since then much of what we know as the modern internet has been developed and sponsored by private individuals and corporations. The modern internet started to take off in about 1995, when Netscape (a private company) commercialised the idea of a web browser (ultimately to be killed off when MS started giving away its browser for free and including it in windows). In any case nobody can say with a straight face that the taxpayers did not get value for money and then some from all that.

    Google and Amazon are not quite monopolies though they are getting there, Apple too in some respects. Netflix and Facebook also perhaps. We have laws against that anyway, and in the past seemingly invincible monopolies (MS/IBM) were blindsided by some upstart before the anti trust stuff even properly came into play. Perhaps that will happen again. It’s difficult to imagine how, but it was once impossible to imagine a world not in the grip of IBM, and then MS.

    I have no problem with tax but as far as the corporation tax, no I don’t care so much about that. This is a tax which (when it is paid) is either paid by workers or shareholders (or maybe land owners) and nobody really knows which or what mix of these is really paying it. If you want to tax capital then tax capital, if you want to tax workers then tax workers, rather than use some blunderbuss without knowing who gets hit. Ultimately companies, even huge ones, are made up of individuals (shareholders and workers) and they get paid by corporations where they live, that’s where they get taxed, and that’s how it should be. Because the owners and workers in multinational public companies live all over the world, the clue is in the name.

  12. Yes, there is a whole lot of chatter about that around here

    Bloomberg will have a tough time in some of the Democratic primaries, But in a general election I think he would wipe the floor with Donald Trump

    He would be such a breath of fresh air after Trump

  13. I have a high opinion of Bloomberg and would probably vote for him. But, this is not the first time he made moves to run for president and who knows if he actually will. Still, if he somehow became president he would do a very good job, especially compared to the idiot presently holding that office.

  14. Frank O’Dwyer

    I agree with you about ‘right place right time’ on billionaires. I would consider that luck and see it along with all the other types of luck they had. It is also true that the environment they grew up in, learned in and operated their business in is responsible for their ‘success’ and a good reason they should pay appropriate tax.

  15. Frank ODwyer

    Bill Gates is not really responsible alone for the “revolution” anyway…….

    Very comprehensive post there Frank.
    Bill gates and Steve Jobs were not technically brilliant, but they were both very savvy businessman. They knew what product to market at a particular time.

  16. Well as the post alludes to, people like Owen Jones have to criticise billionaires because to do the same to millionaires would mean criticising their mates. Mates like Ed Miliband and Tony Blair. Can’t be seen doing that now can we ?

    😉

  17. I have no problem with tax but as far as the corporation tax, no I don’t care so much about that. This is a tax which (when it is paid) is either paid by workers or shareholders (or maybe land owners) and nobody really knows which or what mix of these is really paying it.

    No Frank, that’s the anti-tax lie myth put about by Rightworlders like Pete Moore. Corporation tax is paid on profits, i.e. after wage costs have been deducted, but before dividends to shareholders. So it is clearly a tax borne by shareholders because it reduces the amount available for dividends. And it effectively reduces the cost of wages because they are tax-deductible, so if the rate is 20% the cost of wages is 80%, whereas the cost of dividends is always 100%.

  18. The modern internet started to take off in about 1995, when Netscape (a private company) commercialised the idea of a web browser

    Yes, I have fond memories of Netscape Navigator 🙂

  19. Peter –

    No Frank, that’s the anti-tax lie myth put about by Rightworlders like Pete Moore. Corporation tax is paid on profits ..

    But the profits will be returned to shareholders, labour or customers, or a mix of them. In the end the incidence is borne by someone.

  20. But the profits will be returned to shareholders, labour or customers, or a mix of them. In the end the incidence is borne by someone.

    No Pete, the taxable profits are after labour costs have been deducted but before dividends. If there was no tax charge all of the profits would be available to shareholders so it is shareholders who pay it. I can’t make it any clearer than that.

  21. Peter,

    “Corporation tax is […] clearly a tax borne by shareholders”

    If it was clear as all that, this paper would be a lot shorter than it is and feature a lot fewer equations, graphs and references.

    And this is from a multinational tax expert arguing against the notion that the burden of CT is on workers, I.e it’s a paper from your side of the aisle. Why didn’t she just write that it’s clearly a tax on shareholders if it’s so simple? Why does she even entertain the idea that it might be borne by workers?

    And please look especially at her conclusion.

  22. Peter –

    So you’re saying that shareholders bear the burden of corporation tax. I’ve always said that. I also think that others do too. But one thing we agree on is that “corporations” do not pay corporation tax. People do.

  23. Why didn’t she just write that it’s clearly a tax on shareholders if it’s so simple? Why does she even entertain the idea that it might be borne by workers?

    Thanks for the link Frank, I read the conclusion. As I have posted above, if pre-tax profits are £1 million and CT is 20% that leaves £800k for dividends. If CT is 0% that leaves £1 million for dividends, so it’s fairly obvious why the wealthy and their fellow-travellers want to see CT abolished. Also it’s arguable that if CT is 0% there is less incentive for employers to increase wages since the cost will be borne 100% by sharehoders, whereas if CT is 20% the cost to them is reduced to 80%.

  24. But one thing we agree on is that “corporations” do not pay corporation tax. People do.

    Yes Pete, see my point above.

  25. Peter,

    “if pre-tax profits are £1 million and CT is 20% that leaves £800k for dividends. If CT is 0% that leaves £1 million for dividends, so it’s fairly obvious why the wealthy and their fellow-travellers want to see CT abolished. Also it’s arguable that if CT is 0% there is less incentive for employers to increase wages since the cost will be borne 100% by sharehoders, whereas if CT is 20% the cost to them is reduced to 80%.”

    No, that’s not right. The point of increasing wages is to either hire more people or attract and keep current staff, by meeting the market for wages. And all of this is in the end to increase revenue and profit. If it does that then it is worth doing with or without a tax, and no incentive is needed. In fact with a tax the incentive to do it is reduced by 80%, but they would still do it.

    Whereas your point is only true if the hires/wage increases are NOT profitable, as measured against the real gross cost. In that case the net losses due to the payroll increase would be 80% of the loss in the absence of the tax. If for example you hired staff costing £200k and the additional revenue generated as a result was only 100k, your net loss is 80k, whereas you would lose 100k in net profit at a 0% CT rate.

    If on the other hand the hires are profitable then they would also be profitable with a 0% tax except the net would be at 100% rather than 80%. In other words the company ought increase wages anyway, tax or no tax, but especially with no tax.

    There would arguably be a mild incentive in that the risk of a payroll increase would be reduced, i.e. if you weren’t sure a payroll increase would be profitable or not, then the downside of having a punt is less, but then so is the upside. In any case the paper i linked failed to find any robust effect on wages, plus or minus, so that’s evidence that higher CT rates don’t mean higher wages.

    Anyway the whole point of posting that link was only an attempt to convince you that it’s not that simple, not to argue that corp tax should be abolished. In other words this expert with her black belt in economics and statistics went looking for an effect of CT on wages and found none, but she’s still not sure there isn’t one, or that there wouldn’t be a real response if things changed. If that doesn’t convince you it’s not straightforward I don’t know what else to say to you.

    One of the possible explanations she offers is that it is the ability of corps in an open economy to structure themselves differently to avoid tax, while leaving real investments as they are, that insulates workers against the expected effect on wages. In other words, the very thing you are whinging about all the time may be what has prevented the effect on labour from happening.

  26. Frank

    I’m an accountant with decades of experience in both running and advising real businesses. That doesn’t make me right and your black belt professor wrong, but I am very sure of the immediate effects of tax rates on businesses. Let’s remember that 90% of employment is in businesses that are locally owned and do not export. In my experience, whether the CT rate is 20% or 22% is utterly irrelevant to those businesses.

    Of course you are right that wage increases will only happen if the business expects to benefit or at least not decline. But as I posted before, the fact is that if CT is 20% only 80% of the cost of a pay rise will be borne by shareholders, just as they will gain 80% of any increase in profits that result. And no, I am not arguing that higher CT rates will result in higher wages. But nor is there any clear link between lower CT rates and higher wages, unless I missed something from your black belt pal.

  27. Of course, billionaires need to be defended from people like the Corbynite Labour MP below, and it’s good to see that Pete Moore and Frank are rushing to the barricades in Mayfair alongside this BBC presenter:

    “Lloyd Russell-Moyle, the Labour MP for Brighton Kemptown, on Radio 5 Live’s Emma Barnett Gets Answers. Barnett, who does get answers but rarely really listens to them, was quizzing Russell-Moyle about why Labour wanted to broaden the debate beyond Brexit. He steered the conversation towards inequality, saying of the rich: “You will have a decision. What side are you on? Are you on the side of the tax dodgers and the billionaires or are you on the side of normal working people?”

    “Some people aspire to be a billionaire in this country,” said Barnett. “Is that a dirty thing?” “I don’t think anyone should be a billionaire,” replied Russell-Moyle….

    When Russell-Moyle makes his point he is challenged doggedly. Barnett swaps the faux-outrage that fuels her drivetime shtick for what looks like genuine incredulity, pushing back instantly and insistently. Someone must speak up for billionaires, and Barnett defends them as though they are an oppressed group. “You are painting all billionaires as offshore, morally base individuals.”

    https://www.theguardian.com/commentisfree/2019/nov/08/jacob-rees-mogg-billionaires-labour-values

  28. Peter,

    “And no, I am not arguing that higher CT rates will result in higher wages.”

    Maybe you didn’t know it, but you were. You wrote:

    “it’s arguable that if CT is 0% there is less incentive for employers to increase wages since the cost will be borne 100% by sharehoders, whereas if CT is 20% the cost to them is reduced to 80%.””

    If there is more incentive to increase wages at 20% tax than there is at 0% then from that follows a clear prediction that higher CT rates mean higher wages, and lower rates mean lower wages. Which (like lower wages from higher rates) is not seen empirically.

    “Let’s remember that 90% of employment is in businesses that are locally owned and do not export. In my experience, whether the CT rate is 20% or 22% is utterly irrelevant to those businesses.”

    90% of employment is not even in businesses, since at least 15% is in the public sector. But in any case those business you are talking about are more like businesses in a closed economy. All of this is addressed in the paper I linked.

    “But nor is there any clear link between lower CT rates and higher wages, unless I missed something from your black belt pal.”

    The whole point of the paper is that there isn’t (currently) any “robust” link either way. As I mentioned before this is a paper from your side of the aisle. I guess you didn’t read it, that’s ok, nobody reads the links. I think it’s a very interesting paper though much of it goes over my head.

  29. The whole point of the paper is that there isn’t (currently) any “robust” link either way. As I mentioned before this is a paper from your side of the aisle. I guess you didn’t read it, that’s ok,

    No, I read the summary, as I told you last night. As I posted earlier, I am not a black belt economist, just an accountant with a lot of experience of the real economy and how the tax system works in the real world. So what the **** do I know? Obviously your guys with their doctorates and equations and algorithms know loads more than me, just like they correctly predicted the 2008 crash. Oh wait …

  30. “Obviously your guys with their doctorates and equations and algorithms know loads more than me, just like they correctly predicted the 2008 crash. Oh wait …”

    OK Pat Peter. This is starting to feel like a conversation with a climate change “sceptic”.

    Though that’s a bit unfair on them, as they probably wouldn’t argue with evidence in their favour, if ever they were to encounter it.

  31. Frank

    I have to stick to what I know from experience. My point was that almost no economist of repute predicted the crash of 2008. But a lot of accountants (including me) could see an unsustainable property boom being fuelled by stupidly low interest rates and crazy bank lending in 2008 and the stupid mantra that “it’s different this time!”. It’s never different, boom will allways lead to bust and stability is ultimately unstable as Hyman Minsky said decades ago.

    But it’s good to see that you agree with me, cheers.

  32. Peter,

    Pretty much nobody, economist or otherwise, predicted the crash of 2008, especially the depth and extent of it and its cause. I’m not aware that the accountancy professsion of Northern Ireland or anywhere else rose up to predict it either. I think that would have been on the news. If accountants were really good at predicting recessions they’d likely have been nominated for the Nobel prize by now.

    In general pretty much nobody reliably predicts recessions, except those that predict 10 of the last 1 recessions. According to fivethirtyeight, it would be more accurate to say that economists predictions lag the real recessions, by so much that by the time they revise the forecasts downwards, the recession is already underway. On this theory, i.e. that economists predictions (of recessions) are “predictably bad”, the US is in a recession right now and this will become be obvious in 2020, so we’ll find out soon if that is right.

    All of which is irrelevant as the paper in question has nothing to do with recessions or predictions at all, but is an empirical study of what actually happened. So, not a prediction. Comparing observations to those predicted by a theory, in an attempt to falsify the theory. Also known as science. And yes as an expert in multinational tax she has relevant expertise that you don’t. She also talks like a scientist, and you don’t, and she considers the ways in which she might be wrong, and you don’t do that either. Instead you say that the global economy is all very simple.

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