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Recently the CEO of Patagonia
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got widespread media attention
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for donating his company to charity.
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While Jeff Bezos announced that he'll give away
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most of his fortune, close to $120 billion.
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We have this idea that rich people
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are wealth creators,
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you know, because their invest their money.
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60% of Americans polled think
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billionaires like Elon Musk are good for the economy,
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but the economic data reveals something very different.
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These people become a black hole for wealth,
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and they start to suck the wealth out of the economy.
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Where is all this wealth actually going?
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"Wired" spoke to a former trader
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and an economist from Princeton
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to debunk the top myths about the ultra-rich.
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I'm not a moralist here, I'm an economist.
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Now, my job is to look at the economy.
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We currently exist in a situation where the super-rich
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are getting massively richer very, very quickly.
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But didn't that massive wealth
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often start off humbly?
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Didn't Microsoft and Amazon start out in a garage?
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Aren't billionaires self-made?
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As you become a billionaire,
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you need to make a million dollars
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every single day for three years.
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There are some self-made billionaires,
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but if you look at the statistics,
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increasingly more and more of them inherited their money.
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That's certainly the case for the Waltons, the Mars,
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and the Trump dynasties.
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In fact, according to "Forbes,"
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most of the ultra-rich grew up in wealthy families
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or in the upper middle or middle class.
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It is becoming more important
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how wealthy your parents are if you want to be successful.
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And you're seeing this all over the world
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because you are competing with the very rich
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for the ownership of assets.
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And these guys have a passive income
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of billions of dollars every year.
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How are you earning $50,000 a year
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ever gonna compete with that?
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The share of income going to the top 1% of households,
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that share has almost doubled since the early '80s.
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But although the world's richest
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are earning twice as much money as before,
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it doesn't mean they're investing twice as much.
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When you go and look at the data,
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real investment has actually gone down
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since inequality has started to rise up.
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According to research done
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by Professor Mian and his colleagues,
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real investment by the ultra-rich is down by 2 to 3%
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over the past few decades.
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So even though billionaires have been earning a lot more
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compared to everyone else,
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they haven't been reinvesting that cash.
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In fact, the top 1% saves an average of 50 cents
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for every dollar of disposable income they receive.
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And that's not good for the economy.
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So if an important part of the economy is not consuming,
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that money is not going into investment,
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that will ultimately lead to
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a shrinking or a smaller economy than before.
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When rich people invest,
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they don't necessarily have to create new resources.
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They don't need to necessarily just build new factories.
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They can use that money to buy the existing houses.
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They can use that money to drive
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you and your government into debt.
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And that doesn't lead to investment.
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What it does lead to
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is the impoverishment of the middle class.
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But how can you say that
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when high-profile billionaires are behind
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some of the largest employers in the country?
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Don't billionaires create new jobs?
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That is when they aren't laying off workers
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like Amazon, Twitter, and Facebook just did.
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The billionaires,
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they own the corporations, they own the land,
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so of course they get to control who works on them.
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The very rich, while they are saving a lot,
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those savings are not going into new business creation.
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That saving is not creating new jobs.
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There has been this slow down in business creation,
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a slow down in sort of more competition in the economy.
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That slow down in competition
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from smaller businesses doesn't necessarily mean
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that larger companies like Walmart or Amazon
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will increase their workforces as they become more dominant.
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Increasingly,
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a big part of the thing they own is technology.
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And increasingly because of automation,
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they don't even need that many workers.
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They don't need human workers
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because they're replacing them with robots.
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By some estimates,
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automation is on track to eliminate
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close to 20 million jobs worldwide in manufacturing by 2030.
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But aren't billionaires like Jeff Bezos, Bill Gates,
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George Soros, and Michael Bloomberg making up for it
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by giving away tons of wealth through charity?
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Whatever they give, they report on their tax returns.
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So based on all of that data,
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we know that even after they give for philanthropy,
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they are saving a lot more.
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We should, obviously, acknowledge anyone who gives money
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for philanthropic reasons,
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but it's not large enough to actually negate
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the negative effects of extreme inequality.
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I think it's also worth looking seriously
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into actually how they give to charity,
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and I think in many cases
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these guys give to charities which they own.
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In the case of Patagonia,
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the $3 billion company was transferred
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to a specially designed trust
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overseen by the Chouinard family.
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Moves like this could be seen as a tactic
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to perpetuate wealth and avoid taxes.
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Often only a small percentage of certain charities'
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operating budget is actually given directly away.
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Philanthropy, charity is fantastic.
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Well done if you do it.
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It is not gonna prevent this economy
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from going off the edge of the cliff.
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The only thing that can do that
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is serious reformation of the tax system.
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But some billionaires like Elon Musk
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famously complain that the government
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already takes too much in taxes.
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It's actually not true that the very rich pay a lot
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as a fraction of their income in taxes.
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It is remarkable how flat a tax system the US has.
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And so by and large, people are paying roughly similar
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cents on the dollar of income
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whether you are in the middle class, the upper middle class,
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or the billionaire.
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We have a tax system that is very, very good
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at taxing working people.
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But rich people,
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because their income comes in a variety of different ways,
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capital gains, inheritance,
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and those are forms of income in which it is very easy
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to legally avoid tax.
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So although high earners
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in the top income bracket may pay up to 37% in taxes,
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billionaires like Warren Buffet,
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whose income is from the stock market,
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use loopholes to wind up paying very low tax rates.
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But at the moment, for the very richest,
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it's effectively a 0% rate of tax.
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I think Elon Musk paid zero tax
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for a couple of years in a row,
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and he's the richest man in the world.
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Very, very wealthy people,
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like the Duke of Westminster in my country,
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they get billions in income over their lifetime
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and pay nothing.
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So what's the solution
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to widening income inequality?
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A so-called wealth tax?
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Wealth tax on very high levels of wealth,
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that would actually be a good thing in this economy
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because that will take away some of that excess
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in savings and channel that back into the economy
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through spending.
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In the '50s, '60s, and '70s,
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top rates of tax, estate taxes and income taxes
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were massively higher.
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And that was a period where the economy was growing,
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where ordinary families could buy houses, you know,
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where standard of living was good for ordinary people.
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In fact, during the post-World War II era
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up until the '80s,
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there was actually a decline in income inequality.
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The gap between the haves and have nots was narrower.
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According to Professor Mian,
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total factor productivity,
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which measures production output efficiency, was higher too.
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The economy's growth was more equitable and more robust.
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So we now live in times
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where growth has been more unequal,
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the taxation has been less progressive,
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and this fundamental measure of growth,
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which is total factor productivity,
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has actually slowed down as well.
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If you put money in the hands of ordinary people,
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ordinary families, they will spend it.
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That will drive the economy.
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If you put all of the money in the hands of the very rich,
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then there will be no spending
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and they will use that money to buy the rest of the assets
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which will make the middle class poorer still.
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So given that data,
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why does the misperception that tackling income inequality
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will damage economic growth persist?
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You need to understand that these people,
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they have political influence, you know.
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And in many cases they own, you know,
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their own newspapers and their own news channels,
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so they're gonna try to convince you that it is good.
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There's an unbelievable power imbalance,
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and they are using that power
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to get more of the existing resources
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and more of the existing power.
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So if we don't take action,
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that power imbalance is only going to get worse over time.
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[intense music]