What's Worse than Billionaires?

In a TV debate in 2019 to pick the Democratic Party candidate for president, Bernie Sanders said that “billionaires shouldn’t exist.” Democratic socialist Zohran Mamdani echoed this sentiment in his recent campaign to be mayor of New York City. But I wonder why anyone would actually say that. Given the disastrous outcomes of previous socialist and communist regimes (such as the Soviet Union, Venezuela, Cuba and a host of African countries) people should realize that these economic models don’t work. But surely in the wealthiest most powerful country in the world (the United States) can’t we share the wealth a bit?

But even the current US welfare state (although far short of the socialist ideal envisioned by Sanders and Mamdani) is doomed to failure. Let me explain. In the United States about 21.5% of the population is under 18. This segment of the population produces very little but consumes a lot. It’s not their fault. That’s just the nature of children. Another 19% of the population is over 65 years old. This segment of the population also consumes more than it produces. If we look at the economy as a whole, the remaining 60% or so must then produce more than they consume so that the children and old folks can consume what they need to survive. It’s not that we don’t cherish our children or respect our elders, it is just from the viewpoint of economics they consume more goods and services than they create.

And don’t forget government. A government is necessary to bind a society together. It provides national defense, domestic security and a justice system for criminal and civil procedures. Local and state government also builds roads, canals and other infrastructure to promote commerce. The consuming segment of the population cannot afford to fund the government so the bulk of this cost again falls to the productive work force.

However, the work force of people between 18 and 65 is further reduced by people not participating in the economy whether by infirmity (mental or physical), choice (for example stay-at-home moms), or unable or unmotivated to work for other reasons. The total work force in the US is about 170 million people which is about 52% of the total population. That 52% must produce enough surplus for everybody else. But the surplus cannot be dedicated only for consumption and the cost of government. Economic growth and along with it progress and advancement comes from investment. The more surplus that is invested instead of consumed, the faster the economy will grow and that benefits everybody.

But a certain percentage of that 52% produce only a little more than they consume and receive a low compensation for their labor. They are poor. They cannot afford all that they want and must make sacrifices in order to get by. Surely the wealthy among the 52% could share some of their earnings (in the form of taxation or charitable donations) to help out those poor people among our population. But receiving taxpayer paid entitlements or charitable donations increases the consumption of poor people but comes at the cost of reducing the amount available to fund economic growth.

The wealthy can afford it but the wealth available for redistribution is the result of the productive workers saving a portion of the surplus they created. It is true that the very wealthy spend insane amounts on luxury goods, fancy cars and huge mansions but most of their wealth goes to investments. And it is those investments that drive economic growth. In fact, my Building Blocks series of essays published in 2019 show that human civilization (for what its worth) depends on this saved surplus. Poor countries create very little surplus and poor people create very little surplus. Socialism doesn’t work because it is designed to generate very little surplus. The United States is wealthy and prosperous because it generated surplus that could be invested in economic growth.

Welfare states that seek to redistribute surplus reduce the surplus available for economic growth, harming not only the wealthy that are accused of hoarding all the surplus generated, but also the poor who have jobs and salaries because of the industry created by the surplus. The United States, which redistributes less surplus than other developed economies, has had pretty strong economic growth in the twenty-first century despite a powerful recession and a pandemic. European welfare states that redistribute more surplus have fallen behind the US, not only because they have wasted their surplus by investing it in government mandated projects instead of market generated projects, but also because they have less surplus to direct toward investing. France spends 14% of its GDP on pensions, double that of the United States. No wonder they have less money to invest in economic growth.

There is not just an economic cost to this welfare state. There is also a social cost. The net consumers become dependents of the government, dependents on the political party offering entitlements. Dependents lose agency and with it their freedom. Entitlements come at the cost of liberty. In addition, there is growing animosity between the net producers and the net consumers as the ever growing welfare state places an ever increasing burden on the producers.

Deficit spending and with it increasing public debt is not the answer because the wealth being depleted to fund the welfare state is also the wealth that invests in government bonds. So the surplus that could have been invested in economic growth is redirected toward investing in government bonds to fund more consumption. Keynesians believe that surplus redirected to consumption will drive economic growth to meet demand. But if there is insufficient surplus available in the US to build the factories needed to meet that demand then that demand will be spent on imported goods (driving up the trade deficit that President Trump hates).

It would be wonderful if more billionaires lived frugally like Warren Buffet so that there would be more surplus available for other uses (although most of Mr. Buffet’s surplus generated by his frugal lifestyle was invested in other productive projects). But people are people. Many billionaires waste much of their surplus on frivolous luxuries. But much of the surplus appropriated by government is also wasted frivolously as proven by the billions of dollars stolen through welfare fraud in Minnesota.

So the welfare system in the United States is dependent on billionaires and other relatively wealthy people who pay the bulk of taxes raised by government for the purpose of redistribution. Increasing their “fair share” of taxes would only reduce economic growth making everybody worse off . That economic growth has given us smart phones, flat panel TVs and free overnight deliveries. Even the poorest Americans have smart phones.

But much of the current entitlements being consumed in the United States comes from our enormous public debt which must be repaid from the surplus of future generations. But while American economic growth has outpaced that of the European welfare states (and much of the rest of the world), the growth of debt to fund entitlements has far outstripped growth of the economy overall. In 2000 US GDP was $10.3 trillion while public debt was only (!) $5.7 trillion. By the end of 2025 our economy had grown to $30.6 trillion but our debt had ballooned to $38.4 trillion. Billionaires alone cannot solve this problem. This is an unsustainable system.

In the runup to the 2026 elections it is unlikely that any candidate will run pledging to reform entitlements. Entitlements, once granted, are almost impossible to reform let alone get rid of (although the Swedes were able to do it in the 1990s and included a “braking system” to prevent overspending- also their pension system routinely runs a surplus unlike ours which is practically broke). Our American politicians running for office can’t bribe voters by just continuing current entitlements -there is continuous pressure to increase entitlements and subsidies as politicians place their political careers ahead of the public good. This is the insidious nature of the welfare system. It is politicians buying votes with entitlements funded by other peoples’ money that shouldn’t exist.

President Trump ignores our massive debt problem and refuses to consider reform of the most costly entitlement programs. I am very worried that President Trump will solve the massive debt problems of the United States the same way he did for the debts of his business ventures before he became president. He declared bankruptcy six times. Donald Trump survived those bankruptcies okay – but everybody else got screwed. As I look at the pictures of my grandkids on the shelf in my office, I am ever more determined to vote for any politician that has the courage to reform the welfare state that jeopardizes my grandkids’ future.