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Thursday, August 16, 2018

Bezos’s Billions Are a Sign of Social Progress

We should be thrilled that some people are billionaires, not determined to tear them down.

In September of 2017, the New York Times reported that Amazon “employed 300,000 people globally by its 20th year as a public company, the fastest any American company has reached that mark.” This stat came to mind while contemplating Annie Lowrey’s recent effort to cast Jeff Bezos’s immense wealth in a negative light.

While she takes care to acknowledge some of Bezos’s herculean achievements, Lowrey contends that Bezos didn’t build an amazing corporation staffed by the wildly talented as much as policy failure, taxpayer generosity, and worker exploitation combined to make Amazon great.  

There’s Nothing Wrong with Working for a Billionaire

If Lowrey is to be believed, Amazon corralled its workforce through intimidation, near-indentured servitude, and poverty-inducing thrift, only to leave the bill for employees who endure pay that is below the U.S.’s “living wage” to taxpayers in the form of “policies like the Earned Income Tax Credit, Medicaid, and the Supplemental Nutrition Assistance Program.” Bezos’s supposed parsimony is the driver of Amazon’s sweatshop-style conditions for workers who, according to Lowrey, suffer a pay gap relative to Amazon executives that is “shocking.”

Life is a quite a bit more certain when your boss is a billionaire. 

Apparently, Amazon’s employees aren’t as shocked. As of this writing, there’s no evidence that those in the company’s employ are trailed by the gun-toting on the way in to work each day.

Considering the excitement within North American cities when Amazon announced plans to create a 2nd headquarters, city mayors and councils are similarly not taken aback. They see winning HQ2 and all the opportunity it represents for their job-hungry constituents as the path to electoral permanence. The clamor for HQ2 is a reminder that the immense gap between the “richest” and their allegedly exploited employees obscures how well those at the wrong end of the curve are compensated in a relative sense.

Lowrey knows rather well how privileged are those who get to work for the superrich as her employment at The Atlantic attests. Maybe she forgot. Needless to say, much of the rest of the world’s population (and just about every journalist) would give anything to work for Amazon or her employer. Life is a quite a bit more certain when your boss is a billionaire. 

Different People Are Good at Different Things

Rather than celebrate how billionaires like Bezos have transformed commerce while saving a print media sector that was once in freefall, Lowrey pursues insults. She laments that the hectobillonaire in Bezos “has given away only a fraction of his fortune” to charity. Ok, but what’s her point? Could Lowrey run Amazon if placed in Bezos’s seat? It’s not a knock on her to say that she couldn’t. Just the same, it’s not a knock on Bezos to say that he may lack Lowrey’s undeniable ability to artfully put words together on the way to popular columns. Neither can swing a golf club like Tiger Woods.  

For him to give billions away would be for him to blithely throw away wealth. Charity is not a skill he can necessarily claim.

The point of all of the above is that everyone brings different skills to the table that are hard for others to duplicate, but it’s assumed that the rich, because they’re rich, automatically possess the skills necessary to effectively give to charities. And if they don’t give, they’re supposedly miserly. More realistically, Bezos is simply being wise.

For him to give billions away would be for him to blithely throw away wealth. Charity is not a skill he can necessarily claim. Better for Bezos to focus on Amazon, and per Lowrey change “everything from how we read, to how we shop, to how we structure our neighborhoods, to how our postal system works.” Notwithstanding the picture Lowrey paints of a corporation staffed by desperately underpaid workers, Amazon’s history indicates that Bezos is improving the world and opportunities for those living in the world most when he’s feverishly improving the world’s second most valuable company. Jobs beat charity any day of the week.  

If Working for Amazon Is Awful, Why Do Workers Stay?

Regarding Lowrey’s lament that half of Amazon’s employees make less than $28,446 a year, and that warehouse wages fall wherever Amazon sets up shop, once again what’s her point? If Amazon is really and truly stingy, logic dictates that this will soon enough reveal itself through a reduced customer experience in concert with major difficulties for Amazon when it comes to attracting workers. And if Amazon’s arrival in a town truly correlates with reduced opportunity for workers, logic dictates that mayors will soon enough erect all kinds of barriers to the arrival of that which fosters poverty. That’s there’s little evidence supporting the previously imagined scenarios should at least have readers questioning Lowrey’s attempts to draw straight lines of causation.

After that, seemingly ignored by Lowrey is that we all start somewhere. Judging by the earnings potential for long-term employees at Amazon, this is a great company in which to start at the bottom. Along those lines, it’s a safe bet that Lowrey herself wasn’t always compensated at Atlantic-style levels for her writing. Did she feel wronged when her pay was little to nothing? Has she ever asked an unpaid intern (eager to be the next Lowrey, perhaps?) to do work for her? Lowrey’s indignation about compensation within Amazon is rather overdone. Who among us wouldn’t be thrilled to be working for one of the world’s most dynamic companies, and its richest man?

The Presumption of Greed and Policy Failure

Has Lowrey stopped to think about the years of sleepless nights when Bezos wondered if the next day would be Amazon’s last?

Instead, Lowrey presumes greed on the part of Bezos. And policy failure on the part of the federal government. About Bezos’s fortune, Lowrey sadly concludes that “[I]n some ways, we gave it to him.” That’s really too bad. Someday she’ll want those words back. We “gave it to him”? Even if what’s ridiculous were true, does Lowrey remember Amazon’s lean years, particularly after 9/11 when the shares fell into the single digits? Did we give the immensely troubled times to Bezos too? Assuming his experience was at all like those of most entrepreneurs pursuing an idea that’s roundly ridiculed (does anyone remember “”?), has Lowrey stopped to think about the years of sleepless nights when Bezos wondered if the next day would be Amazon’s last? Does Lowrey remember the agonizing collapse of internet companies in the early 2000s; Amazon one of the very few to miraculously survive?

In Lowrey’s defense, she just doesn’t know. She would never have written what she did were she aware of how many times the shares of Amazon corrected in double-digit fashion to reflect investor skepticism about its ability to continue. Needless to say, “we” gave nothing to Bezos despite Lowrey’s analysis which suggests otherwise. The analysis doesn’t get any better when Lowrey pivots to taxes.

If governments could enable so much wealth, then so much of the world wouldn’t be so desperately poor. 

She writes that the “top marginal tax rate was 92 percent as recently as 1953,” and indicates that it should still be there so that the rich are paying “higher tax rates than poor workers.” Lowrey’s view is that if taxes on individuals were higher, Bezos happily wouldn’t have as much wealth. Ok, but why do the rich owe more? Lowrey would surely write negatively about a government that crafts policies meant to penalize minorities of the gender or race variety, but it’s somehow ok for the tax code to penalize minorities of the economic variety. Why?

Just once it would be interesting to hear lefties like Lowrey explain what people like Bezos, Steve Jobs, and Michael Dell have done that means they owe more. About this, the line about federal policies having enabled their great wealth just won’t do. It won’t, given the basic truth that behind every great business success is frequently years of anxiety relating to the likely death of that same business. If governments could enable so much wealth, then so much of the world wouldn’t be so desperately poor. 

Progress and Innovation Don’t Happen by Government Mandate

Considering Amazon alone, judging by its share price it’s apparent that more and more Americans use the internet giant on a regular basis in order to purchase the world’s plenty at competitive prices. Of those reading this piece, when’s the last time you bought something on Amazon? How frustrated would you be without it? Ok, so what if there were 100 entrepreneurs with commercial achievements and wealth similar to Bezos? Would any of you look askance at such a development that would boost living standards immeasurably even though inequality would substantially increase?

Lowrey gets a paycheck that is derived from the remarkable commercial exploits of the endlessly brilliant Steve Jobs. The late Jobs’s billions were an effect of him putting a nearly-bankrupt Apple on the path to becoming the world’s most valuable company. Were policy and tax code failure the source of Jobs’s wealth too? Or more realistically, don’t we all yearn for countless entrepreneurs possessing the skills of Jobs and Bezos?

Was the same private sector that created the airplane incapable of coming up with WiFi absent the federal government’s wise guidance?

Bringing this back to Lowrey’s frustration about taxes, it would be great if she would devote a future column to how she thinks companies get started. Within such a column, she would ideally answer definitively if she thinks untaxed wealth is a prerequisite for entrepreneurial endeavor. Assuming yes on Lowrey’s part, she might then consider where the investment for America’s great businesses came from, and if there would have been more start-ups over the years and decades absent all the taxation.

Does she believe Walter Isaacson was lying in The Innovators when he noted that the money behind Silicon Valley’s original VCs was of the Phipps, Rockefeller, and Vanderbilt variety; meaning people with the means to risk ample funds on businesses that die 90 percent of the time?

Lowrey is way too smart to believe that Amazon, Apple, and others were creations of federal investment, so imagine if those with great wealth were taxed even less. Unless intent on stuffing it under mattresses or spending it, they would have to invest it. In that case, readers might consider the unseen; as in all the intrepid starts-ups that would have better odds of being matched with capital if the tax code were less progressive. Does Lowrey think it’s fake news that the top 1 percent account for a substantial portion of federal revenues?

Short of attracting untaxed wealth, how else do businesses get started? Are there innovative businesses today that began in a federal-government sponsored incubator? Assuming Lowrey buys into the laugh line that Bezos would be unknown absent the federal government “creating the internet,” can she really believe that entrepreneurs, tirelessly working to expand market share, wouldn’t have created the internet quite a bit sooner minus all the waste of precious capital by rapacious politicians? Was the same private sector that created the airplane incapable of coming up with WiFi absent the federal government’s wise guidance?

The Problem with Taxes

About taxation more broadly, missed by Lowrey is that in those allegedly halcyon days of 92 percent tax rates, the effective rate was actually 36 percent. Still way too high, but did she really believe that the elite paid anywhere close to 92 percent? That they didn’t was a good thing. Wealth isn’t something that should be penalized through more of it flowing to the political class, thus compounding the penalty. Politicians invariably use precious capital to start wars, hand out favors to the well connected, all the while “investing” in bad ideas that are never allowed to die. Paying more taxes wouldn’t improve Bezos, and it surely wouldn’t improve the lot of other Americans. 

The corporate tax amounts to a double taxation of individual wealth, and a penalty placed on investors for having the temerity to save.

Corporate wealth shouldn’t be penalized either. Lowrey plainly disagrees. She doesn’t like that Amazon “paid no federal corporate income taxes last year,” but she forgets that as taxpaying entities, corporations are a fiction. They’re owned by individuals. Individuals already paid income taxes last year. The corporate tax amounts to a double taxation of individual wealth, and a penalty placed on investors for having the temerity to save. Bezos is obviously a size owner of Amazon shares, so the lack of corporate tax plainly redounded to him, much to Lowrey’s dismay. Ok, but why? Why should Bezos have to hand so much of his wealth over to the federal government? If we ignore that it’s immoral for the federal government to play favorites, it’s also harmful to the rest of us when the federal government arrogates to itself the allocation of precious resources through excessive taxation. 

Lowrey once again doesn’t see it that way. Government must tax more aggressively to redistribute wealth precisely because Amazon got to where it is today through stinginess. According to Lowrey, Amazon “is profitable and has money to invest in operations and expansions because its labor force is so cheap.” The latter would surely raise eyebrows on college, law, and business school campuses around the world (where Amazon is viewed as one of the places to work post-graduation), but Lowrey has a story that she’s sticking to: Amazon is basically a gleaming façade propped up by sweatshops. 

“Exploitation” and Inequality

The previous presumption would doubtless give actual CEOs something to laugh about given how divorced it is from business realities. Could Lowrey really be so naive as to believe success can be had through poverty-inducing exploitation of crucial human capital? Seattle residents who’ve witnessed the city’s positive transformation in concert with Amazon’s rise might similarly be puzzled by Lowrey’s tale of Dickensian woe, but then market signals don’t seem to factor with the writer. Even though businesses become great thanks to the people who show up for work every day, and even though Amazon has people at all levels clamoring (again, did it lure its 300,000 employees to work at gunpoint?) to be a part of what is the world’s 2nd most valuable company, Lowrey can’t see beyond what she deems exploitation.

According to Lowrey, rising inequality “slows economic growth,” which means the growth of Bezos’s net worth will weaken the U.S.’s economic outlook.

Has she visited Seattle? Does she have any knowledge of what Seattle looked like before Amazon came along and put tens of thousands to work? What about the hundreds of thousands of jobs that are a direct effect of Amazon being headquartered in Seattle? Don’t worry, Lowrey has a study (there’s always a study) that shows how Amazon’s existence in a city correlates with lower, not higher wages. Pity the city or region that “wins” HQ2. If Lowrey is to be believed, it will soon enough resemble Aliquippa.

Indeed, according to Lowrey, rising inequality “slows economic growth,” which means the ongoing growth of Bezos’s net worth will actually weaken the U.S.’s economic outlook. Funny about Lowrey’s stats is that few stand up to observable realities. You see, Seattle used to be poor. As many readers know, it was Detroit in the 1970s, and there was even a billboard jokingly asking the last person to leave Seattle to turn out the lights. The city had no billionaires then, and it looked the part. Now it’s thick with billionaires, and job opportunities are endless. 

Come to think of it, the U.S. has long been a magnet for the world’s poorest despite being one of the most unequal countries on earth. Interesting about all this is that when poor people reach the U.S., they don’t migrate anymore to Aliquippa, Flint, Detroit, and other locales bereft of the unequal whom Lowrey claims bring on “economic sclerosis.” Oddly enough, the poorest generally migrate to where the billionaires are. Something about opportunity.

Technology will get better such that geniuses like Bezos will be able to serve more and more people. It’s called progress.

Lowrey would be loath to admit it, and perhaps hasn’t thought about it, but she would likely never live in cities, states, or countries bereft of the seriously unequal. Figure that her working world is a creation of the very unequal at whom she takes pot shots. For those of us not so disdainful, life would be brutal from a jobs and living standards standpoint absent the superrich. There wouldn’t be enough economic growth without the unequal and their innovations, notwithstanding the studies Lowrey cites. Thinking about Lowrey’s profession, much of journalism would have already disappeared judging by the billionaires who saved some of greatest names in the newspaper and magazine space from oblivion. 

Still, if Lowrey really thinks the world would be improved with reduced inequality, the answer is simple: abolish the internet, along with airplanes, cars, phones, and any other technology that shrinks the world each day in a figurative sense. If so, people like Bezos will only be able to serve the lucky few. The U.S. will be much more equal, and the legislated equality will be misery-inducing. 

Thankfully the above scenario will never happen. Instead, technology will get better and better such that geniuses like Bezos will be able to serve more and more people. It’s called progress. The freer the people, the more the inequality. Living standards will soar as inequality does, and Lowrey will get to do what she loves, including the production of commentary meant to besmirch the achievements of the commercially brilliant. This is what billionaires have given to her, but she’ll pretend that “others” made her critiques of the rich possible. Joseph Schumpeter predicted people like Annie Lowrey long ago.

Reprinted from RealClearMarkets.

  • John Tamny is Director of the Center for Economic Freedom at FreedomWorks, a senior economic adviser to Toreador Research & Trading, and editor of RealClearMarkets.