I’ve spent a lot of time defending the government on this website. And I’ve also spent a lot of time defending capitalism on this website. To me, they are both good when they work together. Recently, I’ve discussed how this might not be occurring optimally and the political left has pilloried billionaires as the primary culprits. This is true to some degree. And it also taken out of context to some degree.
The following things are all true in my opinion:
- Billionaires are good in the sense that most of them exist because they’ve created a good or service that added value to society and the firm they created was valued higher by the market.¹
- Government is good in the sense that it will spend on social needs that do not have an expected positive net present value (NPV). Ie, the government will fill the void in socially beneficial public spending that capitalists cannot capitalize on (war, putting out fires, etc).
- Capitalists spend more “efficiently” in a NPV sense because a capitalist system necessarily destroys unprofitable firms and rewards profitable firms. Ergo, it should not be controversial to say that capitalists spend more efficiently, from a NPV perspective, than governments.
- Governments are inefficient spenders in a NPV sense because they often engage in programs that cannot or should not generate a profit. This is not necessarily bad. In fact, it is often good.
- Billionaires can hurt the economy if they obtain too much power, hoard excess money, fail to invest in +NPV projects, etc.
- Government can hurt the economy if they spend recklessly on -NPV projects that lead to excess inflation.
I don’t think any of that should be too controversial. There is an important role for the private economy and profit motivated spending as it generates the +NPV capital base of the economy that allows us to leverage our social capital into public policy. The fact that people get rich along the way is not a bad thing. It is a good thing! And there is an important role for the government in the context of understanding that there are certain policies that cannot and should not have a +NPV. Those policies are often best handled by a government that is not run as a for profit entity.²
The recent direction of public discourse appears to have swung in the direction that leads people to believe that billionaires or capitalists are always good or bad. These are lazy generalizations that lead to unproductive policy discussions. Yes, there are strong arguments for inequality presently and I personally believe that there are good arguments for higher capital gains taxes and personal income taxes. But we should disavow political commentaries based on vague generalizations such as “banning billionaires” or Ayn Randian style commentaries about government always being bad. And while the “both sides” police will surely accuse me of trying to see both sides, I am afraid to inform you that that’s precisely what’s needed right now because there is a lot of truth in both sides of this discussion.³
¹ – A common response to this is that billionaires only got rich by exploiting the system in some way. If that’s true then that is a policy failure and politicians have to be blamed as well. Also, ths generalization is factually wrong. Most billionaires got rich legally creating products that people use every day that made society better.
² – Some examples include national defense, police, fire fighting, etc. I think you can probably add healthcare in there as well.
³ – Some people will surely argue that this is not a pragmatic view. That is fine. And I’d like to understand your argument if you want to reach out.
NB – One frustrating aspect of this conversation is when people use specific examples to try to argue that one side is better than the other. For example, people often defend the government by claiming that they invented the internet. What does that even mean? Does that mean the government is responsible for all the Ferrari engines on the roads? Did the government fund all of that spending independent of private taxes and wealth contributions? No. Likewise, it is equally ridiculous and misleading when people talk about billionaires as if they’re self made and independent of the many benefits that a regulated and developed institutional framework provides. There is, as I mentioned above, more overlap than our competing political enemies want us to believe.