Monday, January 16, 2017

The Wealth of 8 People and 3.6 Billion People: Utilitarianism Applied

As of the end of 2016, eight people held as much wealth as the 3.6 billion people who make up the world’s poorest half. Just a year earlier, a similar study had “found that the world’s richest 62 people had as much wealth as the bottom half of the population.”[1] Part of the difference in these findings is due to new data gathered by Credit Suisse. Put another way, the richest of the rich were richer than had been thought. In this essay, I want to call attention to the sheer magnitude of the wealth involved, as it pertains to the richest.
Forbes’ 2016 list of billionaires has Bill Gates, the founder of Microsoft, with a net worth of $75 billion, followed by Amancio Gaona, the founder of Inditex, at $67 billion. Warren Buffett came in third with $60.8 billion.[2] I could go on, but these three figures are sufficient to raise the question of how much is enough. By the calculus of greed, which is the love of gain itself—as in more and more ad infinitum—this question can only be extrinsic. In terms of use, however, the question is ripe, for there is indeed a limit to how much a person can realistically consume.
In terms of declining marginal utility, wherein a person does not get as much pleasure out of the fourth or fifth ice-cream cone in a row as from the first, it takes a lot more money added to $67 billion to trigger pleasure than to $100. Add $1,000 to $100 and you have made the guy’s day, but add $1,000 to $67 billion and you might get a yawn. Pareto claimed that no such interpersonal comparisons of pleasure can be made, but I think Bentham was correct in making this point. Whereas Pareto relies on the valid point that pleasure itself is not quantifiable, Jeremy Bentham (whose 18th century mummified body absent his head sits in an open closet in a university-building’s hallway in London) stressed the declining marginal utility as it pertains to very different quantities of wealth.
Bentham, whose utilitarian ethics gives primacy to the greatest good (i.e., pleasure, which he viewed as happiness) for the greatest number of people. Distribution from the rich to the poor is in line with this ethic, given the fact that a poor person would get more pleasure, or utility, from $1000 than the pain of the rich man who is now without the $1000.
Even just the gigantic sums of accumulated wealth themselves, such as Warren Buffett’s $60.8 billion—holding aside the question of added utility/pleasure from adding more wealth to the base—are not efficient, so to speak, in terms of utility/pleasure. “In my entire lifetime,” Warren Buffett said, “everything that I’ve spent will be quite a bit less than 1 percent of everything I make. The other 99 percent plus will go to others because it has no utility to me. So it’s silly for me to not transfer that utility to people who can use it.”[3] Because other people could use the money to derive more pleasure/utility, there is indeed an opportunity cost in the rich holding such vast sums. In other words, the retention of billions of dollars does represent a harm in that people who could really use it are deprived of it.
Admittedly, Buffett’s invested funds have led to pleasure from added productive enterprise and even innovation. The assumption of added productive uses can be questioned, however, as presumably alternative means of raising capital exist. An enterprise strategically oriented to expanding could go to a bank, for example, were Buffett’s invested funds depleted by voluntary or involuntary redistribution. In fact, banks would presumably have more money to lend to the extent that people receiving the redistributed funds deposit some portion (even the added consumption would go to existing businesses, thus giving them more retained earnings to invest in expansion and innovation). Furthermore, Buffett could have redistributed some wealth to the poor in the form of stocks and bonds, which would give the poor more economic security given the dividends and bond payments are on a base of wealth. In general, such means of increasing productive enterprise and innovation would be more in line with the greatest good for the greatest number of people, given declining marginal utility.
To be sure, Bentham warns that if redistribution crosses a threshold, the rich will not be motivated to create more wealth by work or investing more funds. The total “pie” would thus decrease; other things equal, there would be less pleasure/utility all around. We humans react more to losing $1,000 than to gaining $1,000, Bentham points out. Additionally, a rich person may be emotionally agitated if he or she feels that the redistribution is unfair—even stealing. This is in spite of Buffett’s point that very little utility relative to billions of dollars accrues to a rich person. However, Buffett’s statement suggests that losing a lot of money to redistribution—admittedly voluntary in his case—need not trigger the pain of loss. Even considering such pain to exist and be material, it must surely be less than the pleasure on the other side of the redistribution, given declining marginal utility. In Buffett’s words, other people can get more use out of the funds, and this added pleasure (which was not in Buffett’s holding of the wealth) is more than any pain in losing the wealth (given the pleasure that Buffett would still have from even just 1 percent of his wealth!).
From another perspective, owning tens of billions of dollars can be deemed to be excessive in not being justified in terms of property-rights theory. I have in mind John Locke’s labor theory of wealth. A person gains a natural right of ownership by “mixing” his or her labor with the asset, such as land. If you till the ground and plant the corn, you have earned a property right, or exclusive claim, on that land and its corn. It would be unethical for other people to trespass and consume from the corn.
Applied to founders such as Gates, Gaona, and Buffett, the question is whether having wealth of tens of billions of dollars is proportioned to the labor (and even risk of loss) put into the respective foundings. This question pertains to executive compensation—are CEOs who are also founders paid inordinately because of their power and status in their respective organizations?—and to stock ownership—is there a public interest in limiting the amount of stock-value one person holds in a company?  The public interest, if one exists, would presumably borrow from the Bentham’s point that billions of poor people would get more pleasure, or utility, from the redistributed surpluses than all the pain (if any) inflicted on the richest of the rich from the loss of some of their stock-wealth. Given that only so much wealth can be consumed by any single person, there would presumably be more than enough wealth remaining such that the richest would not suffer.
In conclusion, sound theoretical reasons support the claim that the eight richest people in the world should not have as much wealth as 3.6 billion of the poorest. Just as it is difficult for the human mind to conceive of billions of people, the same applies to billions of monetary units. Accordingly, it is difficult to grasp the sheer vastness of the imbalance. From this basis alone, the inequality can be deemed problematic. As this point is itself in dispute—perhaps in part because some people simply hate government—I have not gone on to prescriptions on how the problem can or should be solved. In other words, just establishing that there is a problem is a task in need of theoretical justification and argumentation. My essay here is a flawed (e.g., too limited) attempt to fortify the position that the massive inequality of wealth is indeed a serious problem, ethically speaking. That is to say, the holding of such huge sums as I’ve cited above is not justified by the efforts expended to “get the ball rolling.”

[1] Gerry Mullany, “World’s 8 Richest Have as Much Wealth as Bottom Half of Global Population,” The New York Times, January 16, 2017.
[2] Ibid.
[3] Jonathan Stempel, “Gates Charity to Sell 60 Million Berkshire Shares, as Buffett Urged,” Reuters, January 18, 2017.