I've been thinking about the discussions going on in the news these days about the economy. The number 1 billion gets tossed around in a manner that strikes me as way too casual. I think there is a good chance that a lot of people don't really understand how big 1 billion is - a 1 with 9 zeros like this: 1,000,000,000.
Today I visited one of my favorite websites, SamHarris.org, and read Sam's latest blog post entitled "How Rich is Too Rich?" The number 1 billion came up and I was inspired to write Sam a response, which I am going to post here on my blog as well since I'm sure it won't get posted on Sam's blog.
Sam,
In your article on wealth and taxes you gave some examples of how much money the richest Americans have, but you compared them to another group of fabulously wealthy people. Given that many (most) Americans have poor math skills it might be more instructive to describe how much a billion is relative to a number the average American can understand.
As best I can tell it looks like the median American family income is somewhere around $40,000.00 to $45,000.00 per year. That means that half of Americans earn less than $45,000.00 per year and half earn more. People who earn $250,000.00 per year are easily in the top 2 or 3% of income earners in America, but $250,000.00 is still a number that most people can get their heads around.
If a person or a family earning $45,000.00 per year were to get a raise to $250,000.00 per year this would be a really big deal – more than a fivefold increase in income that would clearly change their lifestyle. If that person continued in the same job making $250,000.00 per year indefinitely it would take them four years to earn $1 million, but it would take them 4000 years to earn a billion dollars! Not many Americans will ever get their hands on a billion dollars.
The people earning average incomes are people that our society absolutely depends upon. They are police officers, firefighters, nurses, teachers, garbage collectors, postmen, construction workers, and other typical jobs that make our communities run smoothly. When these people stop doing their job the impact on the rest of us is immediately noticeable. How quickly would you notice that garbage collectors had stopped picking up the trash in your town?
On the other hand there are hedge fund managers earning between 2 – 5 billion dollars per year (remember, it takes 4000 years to earn 1 billion dollars at $250,000.00 per year). Who would miss any of these hedge fund managers if they disappeared tomorrow? What indispensable service do they provide for our nation? What could they possibly do that makes them 8,000 to 20,000 times more valuable than a medical doctor with ten years of specialized training after college? What do they do that makes them 20,000 to 50,000 times more valuable than a nurse or a school teacher?
Doctors and nurses pay income tax at a rate between 25 - 33%, but hedge fund managers pay income tax at a rate of only 15% because their income is classified as capital gains. If a hedge fund manager earning $2 billion per year were charged a tax rate of 50% that would provide the federal government with a billion dollars per year to use for schools and roads (or, sadly, bombs and bullets). Of course, the poor hedge fund manager would have to figure out how to survive on a paltry $1 billion per year, or to put it another way, slightly less than $3 million per day! It’s easy to see why they would be upset.
Monte Ladner