Why Billionaires Are Actually Ruining the Economy

[Narrator] Recently the CEO of Patagonia

got widespread media attention

for donating his company to charity.

While Jeff Bezos announced that he'll give away

most of his fortune, close to $120 billion.

[Gary] We have this idea that rich people

are wealth creators,

you know, because their invest their money.

[Narrator] 60% of Americans polled think

billionaires like Elon Musk are good for the economy,

but the economic data reveals something very different.

These people become a black hole for wealth,

and they start to suck the wealth out of the economy.

Where is all this wealth actually going?

[Narrator] Wired spoke to a former trader

and an economist from Princeton

to debunk the top myths about the ultra-rich.

I'm not a moralist here, I'm an economist.

Now, my job is to look at the economy.

We currently exist in a situation where the super-rich

are getting massively richer very, very quickly.

[Narrator] But didn't that massive wealth

often start off humbly?

Didn't Microsoft and Amazon start out in a garage?

Aren't billionaires self-made?

As you become a billionaire,

you need to make a million dollars

every single day for three years.

There are some self-made billionaires,

but if you look at the statistics,

increasingly more and more of them inherited their money.

That's certainly the case for the Waltons, the Mars,

and the Trump dynasties.

In fact, according to Forbes,

most of the ultra-rich grew up in wealthy families

or in the upper middle or middle class.

It is becoming more important

how wealthy your parents are if you want to be successful.

And you're seeing this all over the world

because you are competing with the very rich

for the ownership of assets.

And these guys have a passive income

of billions of dollars every year.

How are you earning $50,000 a year

ever gonna compete with that?

The share of income going to the top 1% of households,

that share has almost doubled since the early '80s.

[Narrator] But although the world's richest

are earning twice as much money as before,

it doesn't mean they're investing twice as much.

When you go and look at the data,

real investment has actually gone down

since inequality has started to rise up.

[Narrator] According to research done

by Professor Mian and his colleagues,

real investment by the ultra-rich is down by 2 to 3%

over the past few decades.

So even though billionaires have been earning a lot more

compared to everyone else,

they haven't been reinvesting that cash.

In fact, the top 1% saves an average of 50 cents

for every dollar of disposable income they receive.

And that's not good for the economy.

So if an important part of the economy is not consuming,

that money is not going into investment,

that will ultimately lead to

a shrinking or a smaller economy than before.

When rich people invest,

they don't necessarily have to create new resources.

They don't need to necessarily just build new factories.

They can use that money to buy the existing houses.

They can use that money to drive

you and your government into debt.

And that doesn't lead to investment.

What it does lead to

is the impoverishment of the middle class.

[Narrator] But how can you say that

when high-profile billionaires are behind

some of the largest employers in the country?

Don't billionaires create new jobs?

That is when they aren't laying off workers

like Amazon, Twitter, and Facebook just did.

[Gary] The billionaires,

they own the corporations, they own the land,

so of course they get to control who works on them.

The very rich, while they are saving a lot,

those savings are not going into new business creation.

That saving is not creating new jobs.

There has been this slow down in business creation,

a slow down in sort of more competition in the economy.

[Narrator] That slow down in competition

from smaller businesses doesn't necessarily mean

that larger companies like Walmart or Amazon

will increase their workforces as they become more dominant.

Increasingly,

a big part of the thing they own is technology.

And increasingly because of automation,

they don't even need that many workers.

They don't need human workers

because they're replacing them with robots.

[Narrator] By some estimates,

automation is on track to eliminate

close to 20 million jobs worldwide in manufacturing by 2030.

But aren't billionaires like Jeff Bezos, Bill Gates,

George Soros, and Michael Bloomberg making up for it

by giving away tons of wealth through charity?

Whatever they give, they report on their tax returns.

So based on all of that data,

we know that even after they give for philanthropy,

they are saving a lot more.

We should, obviously, acknowledge anyone who gives money

for philanthropic reasons,

but it's not large enough to actually negate

the negative effects of extreme inequality.

I think it's also worth looking seriously

into actually how they give to charity,

and I think in many cases

these guys give to charities which they own.

[Narrator] In the case of Patagonia,

the $3 billion company was transferred

to a specially designed trust

overseen by the Chouinard family.

Moves like this could be seen as a tactic

to perpetuate wealth and avoid taxes.

Often only a small percentage of certain charities'

operating budget is actually given directly away.

Philanthropy, charity is fantastic.

Well done if you do it.

It is not gonna prevent this economy

from going off the edge of the cliff.

The only thing that can do that

is serious reformation of the tax system.

[Narrator] But some billionaires like Elon Musk

famously complain that the government

already takes too much in taxes.

It's actually not true that the very rich pay a lot

as a fraction of their income in taxes.

It is remarkable how flat a tax system the US has.

And so by and large, people are paying roughly similar

cents on the dollar of income

whether you are in the middle class, the upper middle class,

or the billionaire.

We have a tax system that is very, very good

at taxing working people.

But rich people,

because their income comes in a variety of different ways,

capital gains, inheritance,

and those are forms of income in which it is very easy

to legally avoid tax.

[Narrator] So although high earners

in the top income bracket may pay up to 37% in taxes,

billionaires like Warren Buffet,

whose income is from the stock market,

use loopholes to wind up paying very low tax rates.

But at the moment, for the very richest,

it's effectively a 0% rate of tax.

I think Elon Musk paid zero tax

for a couple of years in a row,

and he's the richest man in the world.

Very, very wealthy people,

like the Duke of Westminster in my country,

they get billions in income over their lifetime

and pay nothing.

[Narrator] So what's the solution

to widening income inequality?

A so-called wealth tax?

Wealth tax on very high levels of wealth,

that would actually be a good thing in this economy

because that will take away some of that excess

in savings and channel that back into the economy

through spending.

In the '50s, '60s, and '70s,

top rates of tax, estate taxes and income taxes

were massively higher.

And that was a period where the economy was growing,

where ordinary families could buy houses, you know,

where standard of living was good for ordinary people.

[Narrator] In fact, during the post-World War II era

up until the '80s,

there was actually a decline in income inequality.

The gap between the haves and have nots was narrower.

According to Professor Mian,

total factor productivity,

which measures production output efficiency, was higher too.

The economy's growth was more equitable and more robust.

So we now live in times

where growth has been more unequal,

the taxation has been less progressive,

and this fundamental measure of growth,

which is total factor productivity,

has actually slowed down as well.

If you put money in the hands of ordinary people,

ordinary families, they will spend it.

That will drive the economy.

If you put all of the money in the hands of the very rich,

then there will be no spending

and they will use that money to buy the rest of the assets

which will make the middle class poorer still.

[Narrator] So given that data,

why does the misperception that tackling income inequality

will damage economic growth persist?

You need to understand that these people,

they have political influence, you know.

And in many cases they own, you know,

their own newspapers and their own news channels,

so they're gonna try to convince you that it is good.

There's an unbelievable power imbalance,

and they are using that power

to get more of the existing resources

and more of the existing power.

So if we don't take action,

that power imbalance is only going to get worse over time.

[intense music]