BCPRESS

1. Introduction

Before their departure, this trip to the Titanic might have been just another adventure for the two “billionaires” on board the OceanGate submersible that exploded underwater in June 2023 (Figure 1).^[i] Since people with capital have been able to expand their wealth faster than the rate at which the general economy has grown,^[ii] the $250,000 ticket that could have satisfied the two businessmen’s thirst for an “immersive” Titanic experience was an effortless purchase for them. As of now, 2638 more in the world are just like the two: worth over one billion USD.^[iii] But, are their merits worth such fortune? Is “laissez-faire” still the best strategy for the wealthiest on earth? To “let it be”, or not to “let it be”, that is the question; seeking to flatten the top of the wealth pyramid became the answer to some.

In the past decades, multinational corporations have enabled billionaires to move holdings across countries and evade potential restrictions in specific countries, such as tax,^[iv] so implementing the billionaire ban in one or a few countries would likely cause significantly reduced capital inflow and skyrocketed capital outflow, and the ban would not achieve its goals. Thus, this essay assumes the policy to be implemented worldwide.

In addition, we will also assume a policy implementation in the form of calculated and well-enforced progressive income and capital taxes that set a ceiling of maximum individual net worth to under 1 billion USD.^[v] Generally, the goal of this resolution is to limit the riches’ personal wealth to a certain amount, so policies such as taxes and market monitoring will be sufficient, and most “dekulakization” sorts of policies that eliminate the riches’ existence will be superfluous.^[vi]

Under these preconditions, this essay will attempt to walk through the ban’s important effects that would shape the world after it is successfully implemented. Section 2 will focus on how the economic consequences of a billionaire tax could foster the establishment of a more equal and stronger society; Section 3 will highlight how the change in incentives caused by a billionaire sanction can alter the business landscape; Section 4 will establish the impact of these economic consequences on governments and bureaucracies. Finally, Section 5 will evaluate these potential changes and conclude.

2. People and Markets

If the richest are restricted from accumulating wealth, one most direct consequence would be a restructuring of national income. For those countries where billionaires are more prevalent – US, Britain, France – it is almost certain that the proportion of national income going to the hands of the less-than-1% richest will decrease dramatically. As a consequence, the poorer now earn a larger share of national income. This change would move the Lorenz curves of countries away from convex and more toward linear distributions of wealth (as shown in Figure 2). It would also reduce their respective Gini coefficients, both of which imply more equal societies. Probably because humans under conditions of ‘status anxiety’ are analogous to other animals in packs under threat of losing their status, inequality could influence public health by creating hostile environments and stimulate cortisol production. It is also due to this effect that, when societies have lower Gini coefficients and lower income inequality, there would likely be more trust amongst people and a higher life expectancy.^[vii]

Aside from the benefits brought about by the taxes, how we deal with the billionaires’ wealth is also an important factor to consider when assessing the policy’s market consequences. On one hand, governments in recession or low economic growth could support deficit spending with these now-public-private assets. However, releasing the money and assets back into private hands could also help the underprivileged and impoverished while boosting the economy, provided this was done in a progressive way.

In one aspect, should billionaires be taxed, their incentives to participate in markets could diminish. The tax rate could go to the prohibitive range within the concave Laffer curve (as shown in Figure 3), which can trigger a decrease in tax revenue over time.^[viii]  Nevertheless, making billionaires’ private assets public would empower governments and political institutions to a few consequences: on the positive side, central banks can better maneuver influential enterprises for macroeconomic stability through billionaires’ company assets;^[ix] on the negative side, however, governments would face an ever-heavier obligation to satisfy the public’s will, which can put authorities at risk of illegitimacy. This drawback would arise because the consequences will emerge in a context where former billionaires retain much sway over public opinion:^[x] it is not likely for ex-billionaires to become penniless, or to lose their social influence. An existing example of such suppressed billionaires is the Chinese e-commerce pioneer Jack Ma, over half of whose $48B net worth evaporated in the year 2021-2022.^[xi] This sanction did not make Ma’s words less influential – especially for the Chinese: his sensei-like position in the Chinese e-commerce industries remained even after his disappearance from the public. Hence, it would be safe to infer that, if all billionaires are to be banned, in the short term, former billionaires could still have the ability to turn the public against billionaire-sanctioning policies, and that may escalate into a dispute between the government and the majority’s will.

However, there remains another choice, which is to distribute the enormous wealth of a few individuals to a larger group in need. This means establishing a progressive/pro-poor subsidy system alongside the progressive taxation system that would provide more disposable income for the poor.^[xii] With such, the billionaire-limiting policy could benefit those in the lowest-income quartile of the US population who are harmed under the current system,^[xiii] creating similar effects as a negative income tax (NIT) would. Specifically, if implemented with policies that improve labor market regulations and/or balance the bargaining power of lower-wage employees, NIT free resources and strengthen the overall economy by increasing the sense of economic security of employees.^[xiv] Through similar pathways, it is reasonable to anticipate a billionaire ban would also increase availability of resources and/or make the overall economy more resilient to fluctuation.

3. Business in the Future

As they are amongst the greatest stakeholders in the business world, one perspective regarding billionaires is that they are deeply rooted in the soils of our world that clearcutting them would inevitably cause “erosion”: a diminution in business and investments. For themselves, the returns to continue operating would be so little that the billionaires are going to prioritize securing and saving their current wealth over struggling on product innovation. This means a decline in scale for privately held giants such as SpaceX (under Elon Musk) and LVMH (under the Arnault family). For start-ups and small-to-middle-sized firms, since billionaires are forced to not hold as much capital or currency, private investments could decrease, resulting in a shortage in funds for these businesses. Eventually, as they exhaust their funds, smaller businesses could also lose the ability to continue operating.

The outcomes described above cannot be dismissed altogether. Yet, the civilians and working class can potentially outweigh the deadweight loss induced by billionaires. This is not only because the policy won’t directly decrease civilians’ income, but also due to the irrelevance of the billionaire tax in their psychology toward self-enhancement. If we implement redistribution of income (mentioned in Section 2), commoners will have access to more disposable income, which boost consumption and aggregate demand, and national savings. This would in turn boost the supply of loanable funds. In a typical loanable funds market, this would drive down interest rates and increase the quantity of loanable funds (i.e., quantity of capital) demanded by firms. According to the Solow-Swan model, let this demand be met and we will see faster economic growth (because capital K(t) positively relates to output, Y(t)). But who could meet these demands if billionaires stopped participating? The answer still lies in the people. Individuals tend to compare to those similar to them in order to evaluate and enhance themselves(outlined by Festinger^[xv] and demonstrated by Wood^[xvi]), those unaffected by the billionaire tax will not have reduced incentives for work because their framework for upward and downward comparisons changed minimally. Therefore, in the long run, even if there is a possibility of having decreasing tax revenue, business, especially those emerging, small-to-medium-sized ones, could still survive in a future with a global billionaire tax, and make their way into the eyes of the public.

4.  The Political Spectrum

A single economic action can have consequences extended into various fields. Income and energy consumption are observed as positively related (income elasticity = 0.63)^[xvii], and unnecessary carbon emissions are especially significant if one opts for the “billionaire lifestyle” (private jets and yachts over economy class).^[xviii] Thus, banning billionaires can even have an added benefit to the environment. However, compared with this carbon emission reduction for some, a billionaire ban could impact harder on the existing political orders: modern billionaires gather political power with their money, so in exchange for kicking money out from politics, banning billionaires could also pose threats to authorities and political structures.

A billionaire sanction would most likely be brought about by Alexandria Ocasio-Cortez (a left-wing U.S. politician and activist) than by Margaret Thatcher, not only because there are many more billionaires in the U.S. than in the U.K., but also because the aforementioned rapid changes, which could reduce inequality while establishing a new financial order, would be favored so much more by a liberal or a radical than a conservative politician. Inasmuch. as left- and right-wing political opinions are often balanced in modern governments, a considerable portion within these governments would be perturbed if one is to propose something like a billionaire sanction. From that, countries’ politics and internal affairs could be more vulnerable to international intervention. Nevertheless, ironically, this would be the less catastrophic case. In the worst-case scenario, billionaire-led dissidents (mentioned in Section 2) could lead harsh boycotts, grand demonstrations and violent revolts against the authority – “and which is best for mankind, that the people should be always exposed to the boundless will of tyranny, or that the rulers should be sometimes liable to be opposed, when they grow exorbitant in the use of their power, and employ it for the destruction, and not the preservation of the properties of their people?”^[xix]

For those that managed to survive the crisis, governments would be different. The first difference is in political decisions. While the New York Times has described billionaires as being “more equal in an equal society” (an allusion to George Orwell), banned billionaires could no longer rely on their wealth to control policy decisions – for instance, prioritizing budget deficit reduction and tax cut over securing minimum wage and insurance for those in need.^[xx] The second major change would occur in government demographics. Effective monitoring and taxation – both identified as important aspects of the policy – would act as instruments to discourage large-scale corruption by increasing its risk and decreasing its potential returns. This would mean the alleviation of issues like bribery and nepotism, as well as a boom of meritocracy. That aside, those recruited to reinforce the billionaire sanction are also likely supporters of socioeconomic changes. This is to say, to accommodate this policy, governments’ favor could be shifted toward the left.

5. Is It Worth the Effort?

Ultimately, then, banning billionaires has mixed effects: it would bring about some positive changes, such as a more equal society and a more sustainable environment; it would also cause some negative consequences along the way, such as market and political instability. The relative magnitude of these positive and negative effects will depend on the nature of the country in which it is implemented. If, for example, it was implemented in a context where the policy was unpopular, the political and market instability arising from backlash would likely outweigh the positives. If, however, the policy was popular and billionaires’ companies were structured with enough non-billionaire stakeholders to keep the business running, the net effects would be positive.