As the Davos World Economic Forum starts, Oxfam has released a report calling for “billionaires busting policies.” Such policies should help to reduce the number of billionaires back to levels of 10 years ago, and ideally should contribute over the long run to “abolishing billionaires.” The report claims that “every billionaire is a policy failure,” as their existence reflects a growingly unequal worldwide economic system with adverse environmental effects. Increased taxation of the wealthiest is presented as the main tool to reach this goal, but other instruments are also commanded: reforming labor laws, reversing the process of privatization of public assets, or regulating the mechanisms of compensation received by CEOs. Unsurprisingly, the report and its abolishing call have received a strong echo in France, where political parties at the left (parti socialiste, Europe Ecologie les Verts, La France Insoumise) have embraced the idea.
From an economic point of view, the general idea does not make much sense. Of course, Oxfam has many of the facts right. True, the number of billionaires has increased. True, inequality levels within most countries are rising. True, the Covid pandemic has mostly burdened the poorest. But Oxfam doesn’t have, nor anyone has, a model showing that all these facts are tightly connected and that, at the bottom, the increased number of billionaires is responsible for all the troubles that are rightly pointed out. To speak in plain language, the fact that billionaires are growing in number may eventually be a symptom that something is going wrong, but it’s surely not the cause – not among the major ones at least. In this perspective, the focus on taxation really is problematic: increased taxes will not as such contribute to solving the structural problems that are at the roots of the current crisis.
Just to be clear: there may be a case for increasing taxation on some parts of the population – rather by increasing the progressivity of income taxes than by taxing capital more in my opinion. Independently of pure distributive justice considerations, there is an economic rationale for that. It is just easier to implement some costly policies (like a carbon tax) when the level of economic inequality is contained because the worst-off segments of the population will have more alternative options at their disposable to adjust their tradeoffs at the margin (assuming of course that the reduction of inequalities is not pure leveling down). But this will not solve the major problems, structural (e.g., the diminution of the rate of innovation, the decline of productivity, the aging of populations) and more conjectural ones (e.g., the current inflation).
What is even more problematic is the poor choice of wording. “Abolishing billionaires” is surely intentionally used to make a parallel with the abolition of practices that many will regard as repugnant – slavery and the death penalty come to mind. But the semantic trick does not work because while slavery and the death penalty are practices (i.e., sets of rules that people follow by forming specific expectations and behaving in specific ways as expected), being a billionaire is a state of affairs. Within practices, people make choices (often very constrained ones) that are constitutive of the very practice they are participating in. If you want to change or abolish a practice, then you know what you have to do: you have to change the behavior and the beliefs that are constitutive of the practice. This is easier said than done,[1] but at least the target is clear. To change or “abolish” a state of affairs, you have first to clearly identify the mechanisms that lead to it. Of course, at the bottom, these mechanisms are realized in individual behavior. But the path is here far more indirect. The taxation motto is a simplistic shortcut and as economists well know, you have to account for the incentive-compatibility constraints. Taxes change economic incentives, and the final effects are not all supported by the agents that are taxed. The point is that you can’t abolish a state of affairs like you abolish a social practice. Indeed, it doesn’t make sense. What would make sense would be to say that we want to abolish practices that result in the fact that some are earning huge amounts of money.
To be fair, people at Oxfam know that, and actually, their report is a bit more specific than a simple call for abolition. But then, why politicians are so keen on spreading the idea in its most simplistic version? There are potentially many explanations, some more general than others, but an especially appealing one comes from Anthony Downs’s economic theory of democracy.[2] Downs’s positive theory emphasizes the importance of uncertainty in the strategic behavior of political parties and the voting behavior of citizens. Basically, there are many unknowns faced especially by voters. Partly because they only have weak incentives to gather information about political programs and the economic and political background in which the elections are taking place, voters don’t have a fine-grained knowledge of what political parties are likely to do once elected, nor of the effects that their decisions could have. As a means to compensate for this lack of information and the general uncertainty in which democratic interactions take place, political parties build on ideology to provide simple and clear-cut representations of their views about what a good society is. As Downs insists, it is most of the time rational for voters to vote ideologically, that is without proceeding through careful comparisons of political programs and policies. This is the case at least as long as ideologies are somehow correlated with the parties’ actual behavior when they are elected.
The “abolishing billionaires” call is I think the perfect case of an ideological claim, in Downs’s sense. It captures in a very straightforward way a basic idea that everyone can understand and that gives a sense – very rough – of what the parties could do if they had the democratic tenure. The Downsian account of democracy also helps to understand why a normally functioning democracy in a realistic setting has an inherent populist component. It favors the use and the spread of simplistic ideas that appeal to people’s intuitions, if not emotions and prejudices. Such ideas operate as signaling devices partitioning the world into good and bad people, just and unjust states of affairs, and helping rationally irrational voters to locate parties on the political map. No need to say that a lot is lost in the process. Most will not take the time to read Oxfam’s report, even less critical discussions of it. And many – those who identify with leftist ideologies – will just retain that billionaires are bad people. This is the essence of – harmful – politics.
[1] A very enlightening account, both theoretically and practically informed, of how to change harmful social practices is provided by Cristina Bicchieri in her book Norms in the Wild (OUP, 2016).
[2] Anthony Downs, An Economic Theory of Democracy (Harper, 1957).