Teen Vogue complained this week about how billionaires made lots of money during lockdown, and argued something must be done about it. You know, tax it all away and all that. Managing to entirely miss certain fairly important points. Like the fall in fortunes just before the pandemic, that some billionaires did make money, true, and many more lost a lot. This is rather the point of our system: Those who produce what we need or desire at any one time make money; those who don’t lose it. This is the way a market-based economic system operates so that we out here, we consumers, do get what we need or desire.
The heart of the complaint is a report from the Institute for Policy Studies that says that America’s billionaires made $1.8 trillion during the pandemic. This is only true if you’re entirely biased in your measurements. The S&P 500 – just to use one stock market measure – was at 3380 on February 14, 2020, and at 2,304 on March 18, 2020. That’s a 32% decline in those billionaires’ fortunes on the stock market. Or, to be more accurate, a 32% decline in capitalist fortunes on the stock market. So when do they start measuring? On March 18, of course.
This is not just blind to reality, it’s an active insistence upon ignoring it. Financial markets are forward-looking. So the losses come when we’re all wondering how bad the pandemic might be. Will it sputter out like MERS? Do we have a real problem here? Ah, we do? Then the market craters. It’s when we know how bad it is, whether the government is going to do something about it, that the market starts to recover.
That’s just how stock markets react to all recessions – the drop comes when we’re all wondering about it. The recovery in prices comes before the recovery in the economy.
This also falls prey to survivorship bias. The folks who were billionaires at the end of this process weren’t necessarily the folks who were at the start. They’ve started counting by looking at who was rich at the end, entirely ignoring those who lost fortunes on cruise lines, airlines, restaurant chains and movie complexes – the things that really lost out from lockdown and still haven’t recovered properly even yet. They’re not including those losses at all so it’s a very biased counting of what happened.
Finally, there’s the bias against the basic idea of free market capitalism here. The aim, in so far as there even is an aim for the society as a whole, is that consumers gain what consumers need and desire. The incentive is that those who set up, own or run businesses that provide those things make money. Sure, it’s possible to dream of other methods but intensive experimentation over the centuries and millennia shows that this is the one that works best.
So, what has actually happened then? Those like Jeff Bezos, who spent decades building up a business that could deliver to us in lockdown, made money. Those who had the movie houses that we couldn’t go to lost money. Or Elon Musk made money by beginning to solve the cars-and-climate-change problem – something we want someone to do, sure enough – and those who still made the stinky old type lost. Oh, and the success and profit Musk made led to tens of other EV companies being able to gain finance to further solve the problem.
This is the way it’s all supposed to work. Those who provide what consumers want make money, those who don’t lose it.
Teen Vogue then goes on to say that perhaps all this money should be taxed away. Quite why we’d want to get rid of the incentive that makes the system work isn’t explained.