Richard Spady's account of economic growth reminds us of the tensions between domestic growth and development abroad, but the path forward isn't clear.
A new argument for high rates of taxation on the rich or the yearly confiscation of some portion of their wealth is that such exactions are a political necessity, because the very rich pose a threat to democracy. But the advocates for soaking the very rich or indeed abolishing billionaires offer no realistic mechanism by which the very rich threaten democracy. Nor do they account for the real benefits that the rich provide for democracy—even in additions to the incentives that the prospect of wealth provides for innovation and economic growth.
The very rich, like everyone else, have but one vote. They are a tiny minority whose voting power cannot sway elections. It is true that some minority groups can have more than the influence of their numbers. The most important avenue to wielding disproportionate power is for some relatively small group to have a common interest and a mechanism for avoiding the danger that members of the group will shirk from the common effort. Examples of such groups include unions, which rely on labor law to prevent free riding, and trade associations, which have very strong common material interests and are small enough in number to punish free riding.
But the very rich do not share substantial common interests in influencing government policy. They make their money from very different businesses—often competing ones. They have much less reason to make common cause. And thus not surprisingly, while concentrated interested groups are to blame for many policy disasters, as public sector unions are for unfunded pension obligations and trade associations of big banks for the too-big-to fail structure of financial regulation, it is impossible to identify any specific policy disasters in the United States perpetrated by the very rich. Some might argue that the rich do have an interest in avoiding taxation, but if so (and given their disparate ideologies, they really do not) they have been singularly unsuccessful. The top one percent in income pay almost 40 percent of all income taxes in the United States.
Sometimes it is said that the rich have undue influence because they can use their money to broadcast their views. But as I have noted before, the very rich have divergent ideological views. It is a benefit to democracy that we hear more about the candidates, no matter what the source. And, in comparison, journalists have more influence and far more uniform views. Yet no one suggests that we should take away resources from them because they exercise their First Amendment Rights. Indeed, given the rise of digital disruption, many journalists have to thank the rich for their jobs, as when billionaires like Jeff Bezos buy publications that may otherwise disappear.
And this last point underscores the benefits that the very rich provide to democracy. They have the money to support the crucial infrastructure of democracy that might otherwise be underfunded. It is too simplistic to think of democracy as a matter of mere voting. For instance, it also requires knowledge about the effects of policies if these policies are to improve over time. And the very rich are in large measure responsible for funding that infrastructure, by giving to universities, think tanks and now by supporting journalism. Democracy also only works if the mass citizenry has the skills to understand the information and the rich are in the forefront of K-12 reform. It might be thought that government can do all this itself, but it lacks the information to choose the best infrastructure and in many cases like K-12 education its efforts are distorted by groups that in fact have concentrated influence like public sector unions.
To be even more concrete, this website would not be possible without the decision of a very rich couple—Pierre and Enid Goodrich—to endow Liberty Fund with most of their worldly goods. We should feel gratitude, not envy, toward such people.