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Are billionaires ethical? Is it possible to be a billionaire without exploitation? How do people become so rich?
According to a survey, most Americans see billionaires as neither good nor bad for the country. However, there’s a growing number of those who doubt that it’s possible to be an ethical billionaire, claiming the ultra-wealthy unfairly influence policy-making and don’t use their riches for the greater good.
Read on to learn if billionaires are ethical, based on arguments for and against billionaires in the U.S.
Ethical Billionaires—Myth or Reality?
According to a 2021 Pew Research Center survey, 55% of Americans see billionaires as neither good nor bad for the country. Despite the majority being neutral, the percentage of those who have a negative view of the ultra-wealthy rose to 29% from 23% the previous year. In this article, we’ll explore both viewpoints, considering whether billionaires are ethical or unethical, and we’ll also explore how people amass wealth in the U.S. in the first place—from millionaires to billionaires.
Why Are We Turning Against Billionaires?
While the survey doesn’t touch on why there’s a changing perception of the rich, one possible reason is indignation over some billionaires’ self-interest. These billionaires include Elon Musk, who acquired Twitter ostensibly to safeguard free speech but who subsequently suspended journalists’ accounts; FTX founder Sam Bankman-Fried, who claimed he wanted to use his cryptocurrency billions for good but who allegedly diverted customers’ funds for personal use; and the Sackler family, who remain unapologetic despite growing their fortune by peddling OxyContin, the prescription painkiller that precipitated the U.S. opioid crisis.
Another reason for the negative perception may be the increasing wealth disparity between the rich and the poor: The 2022 World Inequality Report notes that billionaires hold 3% of the world’s wealth—a disproportionate amount concentrated in the hands of just 2,668 people. In the U.S., there are 728 billionaires while 37.9 million people live in poverty.
How Do People Actually Become Rich?
Before we begin our discussion of whether billionaires are ethical or unethical in the U.S., we’ll explore how people in America tend to become rich in the first place.
In the book The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko counter the popular image of a wealthy person in the U.S. as someone who has a high-income occupation, or who benefited from an inheritance or windfall. According to them, high-income people who spend freely and ostentatiously fit the Texas description, “big hat, no cattle.” In other words, they put on a show, but lack substance—they have very little accumulated wealth.
In contrast, those who are truly wealthy typically don’t flaunt it—for instance, they don’t wear expensive clothing or jewelry, or drive luxury or even late-model cars. They aren’t interested in status symbols.
The authors’ research paints the following picture of the average millionaire:
- They didn’t inherit their wealth: 80% accumulated their wealth in their lifetime.
- Many are self-employed. They’re entrepreneurs or professionals in non-flashy fields—for instance, they may be welding or paving contractors, factory owners, accountants, or auctioneers.
- They live below their means. For instance, they live in modest-looking, rather than showy, homes. They wear non-brand name clothing and accessories, and often drive used cars.
- They’re extremely frugal and budget their expenses. Their total annual realized (taxable) income is less than 7% of their wealth, meaning they spend less than 7% of their wealth a year.
- On average, they invest 20% of their realized household income a year. They pay for expert financial and legal advice, but also study the markets and make their own investment decisions.
- They’ve accumulated enough to live without working for at least 10 years.
How Do We Define Wealthy?
Most people would say someone with a lot of expensive material possessions is wealthy. But most people living high-consumption lifestyles have little accumulated wealth; they spend all they earn. Instead of acquiring material possessions, especially status symbols, the truly wealthy focus on building financial assets that appreciate or increase in value.
Net worth—the current value of your assets minus liabilities—is one way of defining wealth.
In this book, being wealthy is defined in two ways: 1) having a net worth of at least $1 million, and 2) having a high net worth for someone of your age and income.
(Shortform note: at the time this book was published, 3.5% of U.S. households had a net worth of at least $1 million. In 2018, the figure was 3%, or 11.8 million U.S. households.) About 95% of millionaires have a net worth of $1 million to $10 million. They are the focus of this book because their level of wealth is attainable by many Americans.
What About Billionaires?
To go from millionaire to billionaire is no small feat. One way billionaires are able to accumulate wealth is by taking advantage of a tax system that works in their favor. An investigation into tax filings from 2013-2018 found that the average American earning $45,000 paid 21% in federal income tax, while some billionaires paid little or no federal income tax at all. That’s because billionaires don’t make their money through income like most people do; rather, much of their earnings come from investments, which are taxed at a lower rate than income. Additionally, the super rich get big tax deductions by donating to charity.
What Are the Arguments in Favor of Billionaires?
Contrary to what many people think, not all members of the super-rich set are driven by greed—but does this mean that billionaires are ethical?
For all his highly publicized antics, Musk asserts that he’s more motivated by how he can help future generations than increasing his fortune. This dovetails with the argument that billionaires are necessary for innovation: They can fund ventures that would ordinarily be a pipe dream. For example, Musk’s car company Tesla revolutionized electric cars, and his rocket company SpaceX has opened up new avenues for space exploration.
Others contend that billionaires drive economic growth by creating jobs. One report notes that 12 billionaires are responsible for employing 2.3 million people worldwide. Another argument in favor of the ethical billionaire points out that they donate huge sums to charitable causes, and while cynics may argue that the wealthy only do this for the tax benefits, erstwhile richest man Warren Buffett asserts that he’s in a better position than the federal government to distribute his money to those who need it.
What Are the Arguments Against Billionaires?
Now, for those who doubt that it’s possible to be an ethical billionaire, they argue that billionaires should be abolished entirely. They claim that wealth on such a scale is only possible at the expense of workers’ welfare. Billionaires’ massive earnings don’t trickle down to the average worker—consider Jeff Bezos (net worth $108 billion as of January 2023) who makes more in 10 seconds than the median Amazon employee makes in one year.
Another issue that raises doubts over being an ethical billionaire is the matter of billionaires practicing “stealth politics,” wherein they make big contributions to committees and candidates who would safeguard their interests. Case in point: Peter Thiel’s $30 million contribution to some questionable midterm candidates who were aligned with his agenda. Such unfair influence threatens to turn a democracy into a plutocracy.
Where Does That Leave Us?
Perhaps the real issue isn’t whether billionaires are ethical or unethical; rather it’s the policies that allow for the continued increase of the wealth gap between the rich and the poor. That means we should fix the tax system which favors the rich and implement education and labor policies to reduce economic disparities. However, such drastic changes won’t happen overnight. For now, we’ll have to rely on billionaires to take it upon themselves to spread their wealth around.
TITLE: The Millionaire Next Door
AUTHOR: Thomas J. Stanley and William D. Danko
TIME: 22
READS: 119.6
IMG_URL: https://www.shortform.com/blog/wp-content/uploads/2020/11/the-millionaire-next-door-cover.png
BOOK_SUMMARYURL: the-millionaire-next-door-summary-thomas-stanley-william-danko
AMZN_ID: XYZ
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The minute you wrote that Musk is actually an ethical billionaire, I was out. You’ve got to be kidding. How does the Tesla, with the rape and pillage of the indigenous lands in Palawan, fall under ‘ethical’ and ‘good for future generations??