Friday, October 1, 2010

Richest Americans and Income Inequality

I'm thinking more about the "income inequality" issue in the U.S. What seems like it is always missing from discussions about income inequality across countries is where the baseline starts in each country. Politicians and liberal economists will say, "The rich are getting richer, and the poor are getting poorer" or "The rich are getting richer, and the middle class is stagnating."

Any statement that starts "The rich get richer ..." makes it seem unseemly that the rich are getting richer. So what? I don't care if the rich get richer as long as they aren't doing it at the expense of the poor or the middle class. I want them to get richer.

In looking at Forbes' American billionaires list, I was struck by how many people on the list are self-made. Seventeen of the top 25 have made their own fortunes. Two of the top 25 (the Koch's) massively increased the fortunes they inherited (more than 100-fold), and in that sense could be considered at least partially self-made too. Of the remaining six, four are heirs of Sam Walton (another self-made billionaire), of the others, one is the the daughter and other is a granddaughter of self-made billionaires.

The fact that so many of the richest Americans have made their own fortunes rather than inherited them speaks volumes about America being the land of opportunity. People from all around the world do not immigrate to America so that they can be the beneficiaries of tax policies that redistribute income from the super rich to the middle class. They come to America so that they can have a shot at becoming super rich themselves.

Wikipedia says this about socialism: "[Socialists] generally share the view that capitalism unfairly concentrates power and wealth within a small segment of society that controls capital and derives its wealth through a system of exploitation." Studying the list of the richest Americans shows why the socialist view of capitalism is not true.

Wealth in America is not a zero sum game in which wealth needs to be transferred from the rich to the middle class via government fiat. Seventeen of the 25 richest Americans created massive wealth in their own lifetimes. These people were not born with power and wealth. They earned it themselves. Most of them did it by creating goods and services that didn't exist before they created them. They literally created something out of nothing: Microsoft, Oracle, Google, Amazon, Dell, and Nike. Along the way they created hundreds of thousands of good jobs. In the case of the high tech companies, they helped create thousands of other millionaires. There was no system of exploitation. Quite the opposite. The goods and services they have created have served to enrich the lives of Americans across all economic classes. These people got rich in the first place because their creations made other people's lives better. Before you disagree, be sure to remove the Nike shoes you bought on Amazon using Microsoft software.

These people are American heroes. Why any politician would want to tax these people's incomes punitively or transfer their wealth by fiat to the middle class is beyond my comprehension.

Here is the list of the 25 richest Americans:

Bill Gates - self-made, Microsoft
Warren Buffet - self-made, Berkshire Hathaway
Larry Ellison - self-made, Oracle
Christy Walton - inherited, Wal-Mart
Charles Koch- inherited, Koch Industries
David Koch - inherited, Koch Industries
Jim Walton - inherited, Walmart
Alice Walton - inherited, Walmart
S. Robson Walton - inherited, Walmart
Michael Bloomberg - self-made, Bloomberg media
Larry Page - self-made, Google
Sergey Brin - self-made, Google
Sheldon Adelson - self-made, casinos
George Soros - self-made, hedge funds
Michael Dell - self-made, Dell
Steve Ballmer - self-made, Microsoft
Paul Allen - self-made, Microsoft
Jeff Bezos - self-made,
Anne Cox Chambers - Daughter of found of Cox Enterprises
John Paulson - self-made via hedge funds
Donald Bren - self-made in real estate, Marine
Abigail Johnson -  Granddaughter of founder of Fidelity
Phil Knight - self-made (Nike),
Carl Icahn - self-made via leveraged buyouts (grew up middle class)
Ron Perelman - self-made via leveraged buyouts (son of buy-out artist)

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