Cheapskate Billionaires

There are now hundreds of people in the United States with so much money that they will never be able to spend their net worth, no matter how many Picassos or mansions or personal jets they buy.

Last year, for the first time, everyone in the Forbes 400 index of the super-wealthy was a billionaire. Sales of 200-foot-plus yachts and other indulgences of extreme wealth are at record highs. Income for the top 1% of Americans has more than doubled in the last quarter of a century, while that of the bottom fifth barely budged. The rich, in short, are getting steadily richer, both in absolute terms and compared with the rest of society.

Yet with the sainted exception of Warren Buffett and maybe Bill Gates, virtually all of them refuse to give any meaningful fraction of their wealth to the less fortunate—or even to give a decent fraction to such endeavors as art or medical research, which they’d benefit from.

Consider the numbers (which are based on current estimates in the recent Slate 60 index of the year’s leading philanthropic donors and the net-worth estimates in the Forbes 400). The 60 leading American donors gave away $51 billion in 2006, according to Slate. They were led by Buffett, whose spectacular $44-billion donation—mainly to the Bill & Melinda Gates Foundation, whose primary cause is healthcare in the developing world—was the largest gift anyone has ever given. These donors had an estimated combined net worth of $630 billion last year, meaning that they gave away 8% of their money, on average. Sounds magnanimous, until you consider that the Dow Jones industrial average rose 16% in 2006—which suggests that, as a group, the leading donors contributed less than they gained.

Now subtract Buffett and his generous gift from the group, and the rest of them begin to look downright miserly, handing to others a mere $7 billion of a combined net worth of $584 billion—or just over 1%. Numbers from the philanthropy watch organization Giving USA show that Americans as a whole annually give away about 0.5% of their net worth. So, except for Buffett, society’s top givers donate to others at only a tad higher rate than the population as a whole. That’s, well, pathetic. And that’s just counting top givers, not the super-rich who give away little or nothing.

Microsoft mogul Paul Allen, net worth $16 billion, gave away $53 million in 2006, according to Slate—one-third of 1% of his fortune. Software magnate Lawrence Ellison, net worth $20 billion, gave away $100 million—half of 1%. Pierre Omidyar, founder of EBay, net worth $7.7 billion, gave away $67 million—less than 1%. Nike tycoon Philip Knight, net worth $7.9 billion, gave away $105 million—slightly more than 1%.

Donations of this sort, in the multimillion-dollar range, inevitably mean a lot to charities or schools, and of course it is certainly preferable that the super-rich give millions rather than nothing at all. But for those whose net worth soars into the billions, even $100 million is a pittance compared with what they have the means to give. Financier George Soros, net worth $8.5 billion, in 2006 gave away $60 million, which sounds like a lot until you reflect that it is less than 1%. Soros rails against the inequities of capitalism. Yet when it comes to his own disproportionate stash, that’s another story.

Bill Gates, one of history’s richest men, has so far given $26.2 billion to the Gates Foundation, according to a spokesperson, and for this he has been widely praised. Gates and his wife were two of Time’s Persons of the Year in 2005, exalted in a cover story as grand philanthropists. Yet $26.2 billion is crumbs from the table compared to what Gates might give. Even after the donations, his net worth is about $53 billion, according to Forbes. This means Bill and Melinda Gates have kept for themselves twice as much as they offered to others.

For the average person to keep much more than he or she gives is understandable; for the super-rich, it’s a different matter. The $53 billion that Gates keeps for himself is money he could not possibly spend even by buying entire islands; it exceeds the gross domestic product of Costa Rica.

Converting to today’s dollars, during his lifetime the industrialist Andrew Carnegie gave away $8 billion of his $10.3 billion net worth, or 78%, according to Carnegie Corp. figures. Suppose Gates followed suit: He would have to give away an additional $36 billion and go from being the world’s richest man to exceeding Buffett as the world’s greatest benefactor—and he would still have $17 billion. Conservatively invested, $17 billion would yield, after taxes, about $700 million a year for life. So Gates could show history-making generosity and still remain richer than Croesus. Instead, it’s mine, mine, mine.

Why do the super-rich hoard? Certainly not because they need money to spend. As economist Christopher Carroll of Johns Hopkins University points out in an upcoming paper, the super-rich save far more than they could ever spend, even with Dionysian indulgence. Gates’ fortune must throw off, even by conservative estimations, about $6 million a day after taxes. You couldn’t spend $6 million every day of your life even if you did nothing all day long but buy original art and waterfront real estate. The fortunes of Allen, Knight and others mentioned here throw off at least $1 million a day after taxes. Nobody can spend $1 million every day.

Carroll speculates that the super-rich won’t give away money they know they will never use for two reasons: because they love money, and because extreme wealth confers power. We know already that people who give their lives over to loving money surrender their humanity in the process. As for clout, Carroll quotes Howard Hughes: “Money is the measuring rod of power.” That $53 billion ensures Gates will be treated with awe wherever he goes. If he gave away 78% of his wealth like Carnegie did, he might be universally admired, but he would no longer be treated with the same degree of fawning reverence. He might even, someday, find himself in the same room with someone who has more money!

Runaway wealth accumulation by zillionaires, combined with the rising share of national income claimed by the top 1%, often inspires calls to soak the rich. But I disagree. Ideally, the top federal income tax rate and capital-gains tax rate should be increased a few percentage points while the payroll tax (which funds Social Security and Medicare) is reduced. Reasonable increases of taxes on the well-off—if done to reduce taxes on the average—would make the U.S. a fairer place.

But society ought to think twice before trying to legislate away extreme wealth entirely. The super-rich may be gluttonous, but bear in mind that the same economic machinery that brought them excess also brought broad benefits to the rest of society. The last two decades have seen a rising share of income at the top—but they’ve also seen unprecedented prosperity for average Americans. Middle-class income is today the highest it has ever been. Living standards are too. Longevity, healthcare quality and education levels are all at historic highs.

The magnificent productivity and innovation of the U.S. economy is fostered by the same market forces that cause big fortunes. Tamper with the mechanisms of fortunes and we might inadvertently tamper with the mechanisms that generate prosperity overall. Better to pressure the rich to be more public-spirited—there’s enormous room for improvement on that score—than risk disrupting economic growth.

This leaves us with one final question: What is the effect of wealth on the wealthy themselves? And here the research suggests that commanding inexhaustible sums of money does not give the rich a sense of well-being.

Psychologist Edward Diener of the University of Illinois interviewed members of the Forbes 400 and found them only slightly happier than the population as a whole. Meanwhile, many of the super-rich spend much of their time in litigation over money, divorce proceedings and other misery-inducing pursuits.

Once, on a television show, I was asked if I’d like to be rich. My answer was that I’d really, really like to have $1 million, but having $100 million would ruin my life. With $1 million I could pay off my house and concentrate entirely on serious writing. (Note to the super-rich: Please don’t hesitate to endow a chair for me at the Brookings Institution. You’d get your name on my articles!) But $100 million, I said, would be awful. My life would be ruled by money. Of course, giving most of it away would be a lot of fun and cause people to admire me. Hoarding unneeded money does not make the wealthy happy; yet many wealthy people miss out on the delightful experience of giving more away.

A longer yacht, older cognac, another Gulfstream—for the super-rich, there is no material thing they don’t already possess, and thus their money has no utility as a means of acquisition. Their money does, however, have tremendous utility as a means to bring themselves happiness—but only if they give it away. The rich should give money away for selfish reasons! Ebenezer Scrooge discovered that giving money away is life’s most pleasurable act. Why do today’s super-rich devote so little of their wealth to engaging in life’s most pleasurable act?