Arguably one of the most dynamic finance writers of the modern era, Michael Lewis (author of Liar’s Poker and more recently Flash Boys) is at it again with a thought-provoking essay entitled “Extreme Wealth Is Bad for Everyone – Especially the Wealthy.”
In his essay Lewis discussed major points raised by Darrell West, a scholar at the Brookings Institution who published his research about billionaires and how they affect society. West concluded that rich people have no ability to influence the outcome in “major” spheres of our modern world. For instance, in the realm of politics, we’ve seen wealthy candidates pour substantial amounts of money down the drain with campaigns that simply don’t resonate with voters, demonstrating that money has no direct effect on political results and ultimately cannot bring about changes in the democratic structure.
But if the rich are not that influential on an individual basis, are they able to exert some weight as a collective? Again, this is not supported. One of the issues here is in identifying the collective interests of the rich. And, of course, there is the possibility that they have no desire to change the world as it benefits them quite well just the way it is. In most cases, the class of wealthy people has little effect on the world in general.
According to Lewis, the bigger question is: To what degree are the rich influential? He reminds us that they are less influential in electing politicians than in the past and that more money does not lead directly to creation of great literature, works of art, or even scientific breakthroughs.
Some will argue that there are super-wealthy people who have had enormous influence on the world, such as Mark Zuckerberg of Facebook and Sergey Brin of Google. Lewis counters by pointing out that money is the effect of their contribution to the world, and certainly not the cause.
Another interesting angle discussed in Lewis’s critique is the effect that gaining more wealth has on those who are already extremely rich. He emphasized that the rich are rarely satisfied with what they have, based on a survey in which wealthy respondents indicated that their happiness will come from the money they have yet to earn.
However, Lewis also pointed out that there is conflicting behavior with the rich, as some wealthy people also find happiness in spending their money. A study of a game in which participants were awarded cash prizes revealed that players were more likely to cheat as they became wealthier in the game. Perhaps this behavior was tied to the anticipated joy the individual expected from having more to spend. Other studies revealed that the rich gave away a smaller percentage of their income.
In the end, Lewis says that the growing inequality between the wealthy and poor segments of society not only harms the poor, but also the rich.
Continuing on a philanthropic theme, the former Head of TD Bank, Ed Clark, recently stated that the rich are contributing less to charity and urges them to do more by spreading the wealth.
Clark stressed that there are two areas to focus on in regard to needy Canadians: providing affordable housing and helping the homeless. According to Clark, the rich should donate more money in order to address these two important goals.
He noted that approximately a tenth of Canadians are earning $100,000 while the rest are making much less. It is up to the higher-income earners to help uplift the lives of those who have lesser incomes.
“The people who have been the beneficiaries of this significant shift in wealth and income have to seriously look at themselves and say, ‘Am I doing enough?’ ” Clark said.
But many criticized Clark’s call for the rich to give more money to the poor. The rich did not get wealthy by asking others to give them money, critics stated.
Some critics have argued that giving away money is not the solution to poverty. Some have suggested that Clark echoes the calls of Warren Buffett, the world’s second richest person, to raise the taxes paid by the rich. A progressive tax regime and not charity, they say, is the key to get people out of poverty.