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Dhaka Tribune

THE LAST WORD

Selfless billionaires give so much to the world

While each of us get to use $600 worth of Facebook a year for free, Zuckerberg gets to buy anything his heart desires. So, who’s the real winner here?

Update : 21 Jan 2024, 09:07 AM

It's Davos time, so we've got Oxfam whining about the wealth distribution again. Some small handful of Americans have hundreds of billions of dollars each and we should go steal that off them because equality. That is, basically, the argument. 

It's time to remember that this capitalist entrepreneur stuff is the greatest bargain in all history -- and we out here are on the right end of it. Yes, they've got a couple of hundred billion and we collectively have much, much, more than that from the same activities. 

The crucial research paper is William Nordhaus and “Schumpeterian Profits In The American Economy.” Schumpeterian here means that we're not talking about capitalism. That is, this isn't about rich folk collecting rents and interest from us who have to work for a living. This is about the vast piles of cash -- or more accurately, shares -- that people who set up successful businesses get. This is the profit from being an entrepreneur.

Now, obviously, those who successfully do this become vastly rich and end up with private jets to enjoy. Which does sound pretty unequal really. But we do end up with something too -- we get that new product, those new things, that this new company now produces. So, how do the benefits pan out? Do we get more from the new things than they get in private jets? 

The answer is that the entrepreneurs gain about 3% of the value created. Near all the rest comes to us out here. We get to use and enjoy the products, that's the vast, near all, portion of the value created. We -- the rest of us seven billion people -- get 97%, while Zuckerberg, Musk, Bezos, get perhaps 3%. That’s not a bad deal, really. 

There's something called the “Amazon Effect.” Amazon's cheaper than most other retailers, the mere existence of Amazon has meant everyone else has had to keep their prices low. The standard calculation is that this has lowered inflation by perhaps 0.1% to 0.2% each year for two decades. So the general inflation rate of everything is lower than it would have been without Amazon. After those 20 years that means that prices -- of everything -- are 2 to 4% lower than they would have been. In just the American economy alone that's $400 to $800 billion a year that consumers are better off. Sure, Bezos has $200 billion too but that's still a deal. A deal for us that is.

Except we get that every year, Bezos gets his pile of money just the once. Once we capitalize our annual gain we're talking that we get $8 to $16 trillion and Bezos gets just that $200 billion.

Or Zuckerberg, he's got that couple of hundred billion in Facebook stock. But 3 billion people have Facebook. Even if we only consider WhatsApp there're a billion people getting free telecoms. And we do get it all for free too. One estimate has it that Facebook is worth $600 a year to a user. Again, that's tens of trillions of value that has been created and the creator gets some tiny fraction and we get the rest.

These numbers have also been run over past events and yes, Walmart has an annual benefit to customers greater than that pile of cash the owners sit upon. Capitalize it and the consumer benefit is, again, hugely greater than what the children of the founder enjoy.

The point being that it is this entrepreneurialism that makes the whole system tick over. That has raised us all -- some parts of the world higher than others -- from abject poverty over the centuries. Oxfam then whines about this insisting that it isn't solving poverty -- when this is the one and only thing that has solved poverty over the generations. People invent new stuff in the hopes of getting wildly rich. Some do get wildly rich and we get to enjoy nearly all the benefits of their inventions. 

  

 

Tim Worstall is a senior fellow at the Adam Smith Institute in London.

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