The super-rich have more money than they can possibly spend, so why do
they give so little?
By Gregg Easterbrook
Gregg Easterbrook is a fellow of the Brookings Institution. His recent
books are "The Progress Paradox" and a novel, "The Here and Now."
March 18, 2007
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. [not to
mention their income: after all, buying Picassos or mansions or
personal jets add to net worth, all else constant.
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
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
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. [the poor
dear!] 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,
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. [I'm shocked! I'm shocked!] 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
[enter the violin section, to start playing...]
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
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
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? [perhaps because Scrooge was fictional?]