The next time somebody asks me why there have to be billionaires, I will point that person to this tweet from Elon Musk:
Musk went ahead and invested about $100 million in SpaceX and $6 million in Tesla — totaling about half of his proceeds from the sale of PayPal, in which he was an early investor.
Who invests $100 million in a project that has a 10% chance of success? Answer: Essentially nobody who doesn’t believe that success will bring a reward of at least $1 billion.
Agreed, but what about Musk’s children? Why shouldn’t inheritance taxes be significantly higher than they are today?
To the extent that Musk’s statement is true, and not just some self-mythologising, it make the case for individual billionaires nearly as strongly as you seem to feel. This same investment could be achieved by a fund that has >$100 million to invest, aggregating money from many people who have the appetite to take that sort of risk for ten fold their money with a strong chance of it going to zero.
Note, I’m not making an argument for which of these solutions is more desirable, merely saying that the evidence you’ve presented doesn’t prove the point you’re asserting.
Good point, Steve!
People don’t do everything for money. Maybe he just thought it would be a fun way to spend half his money.
F. E. Guerra-Pujol (#1): One argument against inheritance taxes is that Musk might have been gambling as much on behalf of those children when he decided to make these investments; without the children, the incentive to take this kind of risk could be substantially reduced.
I think a more important argument against inheritance taxes is that once Musk makes his billion, we’d rather not have him spend it all, scooping up a billion dollars worth of resources that might better be available to other entrepreneurs (both Musk-like and more traditional).
I share the instinct that inheritance is fundamentally unfair, but I’m well convinced that any cure is sure to be worse than the disease.
Jim (#2): You make a good argument for why we need capitalism as well as we need billionaires. But for projects like this one, which depend so very heavily on the vision of one individual, I’m not sure that capitalism alone can solve the problem. Once Musk is sharing his returns with a bunch of investors, his incentive to implement his vision is greatly diminished, and contracts won’t solve this problem because there’s no way for an outsider to determine whether he’s really doing all he can or just going through the motions.
Harold (#4): Maybe. But I think it’s more likely that knowing his rewards were limited would have taken a lot of the fun out of it for him.
Steve,
if you think Musk is gambling his money on behalf of his children then you don’t know anything about Musk.
Money is not his top priority, not by a long shot.
When he started SpaceX and Tesla, he thought that it was highly likely that both would fail.
He has repeatedly said that if he had wanted to make money, he would have invested in some kind of internet startup (he made his first bundle as an investor in Paypal).
It is perhaps hard to remember now, given his enormous success, just how CRAZY it was, in 2002, to invest your money into a rocket startup, and a car startup.
The last time anyone had successfully started a car company in the US was Chrysler in 1925. Many had tried since, all had failed.
Either of these companies would have looked like a hopeless bet in 2002; and yet Musk decided to invest in and lead both of those companies, simultaneously.
That wasn’t rational, profit-oriented thinking.
If you look at Musk’s investment ventures, you’ll see that what he truly wants is to solve all of mankind’s problems – single-handly.
The scale and towering arrogance of his ambition are as stunning as they are inspiring.
I definitely bristle when leftists say we don’t need billionaires… it seems like just another case where a group with a lot of power tries to use a minority group as a scapegoat and then exterminate them.
Your argument about Musk is not so strong though: in the absence of billionaires, a group of 10 smaller investors can still come together to provide the capital needed to make a risky investment in SpaceX, under Musk’s leadership. Also, leftists will just say that the government could have created SpaceX or Tesla.
I see now that Jim already made the point I was making and you responded to it.
“the government could have created SpaceX or Tesla.”
In a way, the government did. Neither company has ever been able to make a dime in the free market, and both are entirely dependent on government subsidies and contracts. Telsa announced its first profit in the last year, but the profit was still less than the clean-air electric vehicle subsidies it gets. And SpaceX gets most of its money from NASA contracts.
It’s also worth mentioning that SpaceX is as successful as it is because it could draw on several decades of government-funded rocket research and engineering as well as trained personnel.
If SpaceX had had to develop rocket science from scratch and train the first generation of rocket engineer on a learning-by-doing basis, the whole thing would have taken twenty years longer and been considerably more expensive.
“Who invests $100 million in a project that has a 10% chance of success? Answer: Essentially nobody who doesn’t believe that success will bring a reward of at least $1 billion.”
This is the act of a rational investor. If it is rational, and the estimated rewards are reasonable, then a consortium or fund could arrive at the same investment choice. Invest $1 for a 10% chance of gaining at least $10.
So why would this not happen without a single risk taker behind it?
I presume it is because the 10% chance to make $1 billion is a “hunch” rather than a rational, demonstrable argument. It was not possible to make a good case for the project, but Musk believed it could work for reasons.
Many people have wrong hunches. We have no real way to estimate how good Musk is at knowing this stuff. The benefits for society I speculate accumulate not from the hunch providing the expected returns, but the occasional case where the returns are way larger than anticipated.
James Watt invented the separate condenser for steam engines. He did make a reasonable return eventually, but the contribution was far greater than his personal gain. He was struggling to fund the development of his engine and had stop work on it to take other jobs.
The role of “Musk” in this story is played by Matthew Boulton, who accepted a share of Watt’s patent from Watt’s previous business partner in settlement of a debt. Boulton had the money to invest in actually making the steam engine, which was very difficult given the technology at the time. Boulton was wealthy and his hunch that the steam engine would be successful turned out to be correct. Without this wealthy investor the steam engine would have come along much later.
An interesting aside, he was aggressive with patents and had to invent a more complictaed “sun and planet” gear to get around a patent held by Pickard on the simpler crank to convert back and forth into circular motion. This illustrates the benefits and problems of patents. The patent allowed the initial investment to be profitable, but Pickard’s crank patent necessitated wasted resources on a “get around” to avoid infringing another patent.
Harold (#13): see my comment #6.
Billionaires should be left alone. Their right to exist doesn’t rest on their benefits to others, as real as those benefits are. Their right to exist rests upon the right of each person to live for his or her own sake.
.
Who receives the proceeds of the increased inheritance tax – First it is government and then it is (typically) poor.
Did government’s productivity increase to justify the receipts ?
Did the poor people’s productivity increase to justify the proceeds that they will receive ?
—
What value is added to the society by those who receive the proceeds of the taxes paid by the tax-payers ?
I think we need very high progressive taxes on consumption. We collect money from Trump not Musk.
I agree with commenters who said that Elon Musk seems to get a kick out of changing the world rather than making money. Tesla will probably bring about positive externalities that don’t benefit Musk — in particular, showing that something can be done profitably, so that other companies follow suit. (He also made the decision to give away a lot of Tesla’s patents for free.)
So, that is at least an argument for why we need Musk — because he made investments that a “rational” aggregate of investors would not have made collectively, even given the same odds.
On the other hand, it also seems like an argument for reforming the patent system, so that even purely profit-motivated investors will end up funding innovations where the benefits spill over to everyone. This of course is something Steve has been arguing for a long time:
https://slate.com/culture/2000/01/the-mother-in-law-of-invention.html
I’m sure not every billionaire is the same in this regard, but generally speaking I don’t quite buy that billionaires are driven by leaving their massive wealth to their children. In fact, I’ve seen several speak of how they worry that the money/wealth will actually handicap their children in certain ways. It’s a touchy subject. Too much wealth can actually be bad sometimes. Of course, one might ask, why not give the wealth away until the optimum level is reached if there’s too much? Good question, but I think we see this happen actually amongst lots of billionaires. It actually can be somewhat difficult to give away that just wealth though.