How much money is enough?
A thought experiment can lead the way.
Diogenes the Cynic, it won’t surprise you to know, didn’t much like people. He was famed for carrying his lantern through the streets of Athens, during broad daylight, in a vain and endless search for an “honest man.”
His point is well taken. It can be notoriously difficult to find people’s true opinions on certain subjects. We’re all affected by prejudices and conflicted interests, which makes it hard to devise questions for political surveys or psychology studies that won’t taint the results.
I once asked my friend what amount of money he thought should be ‘enough’ for any single person. He returned me an arbitrary, eight-figure number, and I suggested a lower arbitrary number of my own. We were at a stalemate. While we agreed broadly that there is indeed such a thing as being excessively wealthy, we couldn’t agree on where that line should be drawn.
One’s response to this question comes down to one’s political philosophy. A libertarian would say that you’re entitled to keep all the fruits of your labour as a matter of principle, meaning no one has the right to cap the amount of money you can possess. (And by the way, “taxation is theft,” they remind you.) They might then follow up with a pragmatic criticism, borrowed from the sort of dispute I had with my friend, pointing out that since any ‘wealth limit’ we might create would be seemingly arbitrary, it’s impossible for a democratic society to agree on where to set that threshold.
A liberal thinker could reply that the important thing is to achieve reasonable outcomes for everyone, at minimum, and curb excesses that lead to an inefficient use of society’s resources. Individuals have various talents and levels of ability, and effort should be rewarded commensurately, but those rewards shouldn’t be so exorbitant that they jeopardize society’s economic or political wellbeing.
The philosopher John Rawls famously and forcefully argued on behalf of this liberal point of view using a thought experiment known as the “original position.” The experiment asks you to design a hypothetical society, including its laws and cultural norms. The catch is that you can’t know what place you will occupy in this new society (i.e. your sex, race, age, intelligence, income level, education level, physical ability, political stance, spiritual beliefs, etc.) until after you have set its rules in stone — a stipulation he called the “veil of ignorance.” Rawls’ point is that an objective creator, even if acting purely in self-interest, will design a just society whose rules forbid unfair advantages. Opulence that’s inimical to the common good arguably qualifies as an unfair advantage.
In the same spirit, there’s another experiment that will help define how much personal wealth is enough. You can carry out this experiment with your friends and family, but even just thinking about it is useful.
Name your price
Suppose you’re one of five people who have been selected by a mysterious philanthropist to participate in a contest. The five of you all have comparable debt-levels and costs-of-living, as well as similar, middle-class financial situations. You’re all roughly the same age, equally healthy, have the same number of children, and you all live moderately low-risk lifestyles. Privately, and one by one, a representative of the donor approaches each of you with a blank cheque and a pen, and poses the following question:
How much money would you have to be paid, right here and now, to retire today and never receive another dollar of income (from any source) for the rest of your life?
The catch this time is that whoever among the five players writes the lowest amount on the cheque will be paid that sum. The other four players will get nothing.
There are no strings attached here, no debt you will owe for submitting the successful bid, no obligation to be in the public spotlight. The winning player gets the exact sum of money they requested, no questions asked. The money will also grow at the rate of inflation, meaning that if you lock it away it’s value won’t erode over time. Lastly, it’s a secret ballot: you cannot know the answer anyone else gave, and they can’t know yours. And remember, if you win, you have to live off that sum forever.
So, how much do you ask for?
Enough is enough
The game’s auction format is intended to slice through our biases. Without competition, you’ll be tempted to ask for the moon. Competing with the other contestants forces you to seek an amount that’s satisfactory but not unreasonable. You’re not going to ask for too little — you have to live off this money, and only this money, for the rest of your life. But you also won’t ask for an amount you know is excessive, for fear of being undercut by someone more realistic.
Repeated over many trials, the winning bids from multiple games would yield an average that reflects the market’s verdict of ‘enough money to retire comfortably’. In other words, any amount of personal wealth beyond that number (allowing for adjustments based on the unique cost of living in a given region) could be considered excessive, and could potentially serve as the basis for setting a ‘wealth ceiling’ above which income would be taxed at a 100% marginal rate.
You and I both know that your answer — to say nothing of the average winning bid — will be well under $1 billion. It will almost certainly be less than $10 million. My guess is that most people would bid no more than $5 million because, unless you live in an outrageously expensive city, you could live out your days comfortably on that amount. Indeed, a middle-class annual income of $60k nets you $2.4 million over a forty year career. Incidentally, Americans surveyed in 2018 responded that one needs a net worth of $2.4 million to be considered “wealthy,” and $1.4 million to be “financially comfortable” — a standard that only the richest 10 percent of Americans enjoy.
Let’s face it: if someone offered you $10 million right now, you wouldn’t haggle for more. You’d take it and run.
The outcome of the experiment provides a damning response to anyone who would argue that Scrooge McDuck is necessarily entitled to whatever limitless plenitude he can manage to accumulate. Just because you can doesn’t mean you should, particularly if doing so has adverse effects on society.
I’ve written before about the harms of massive wealth inequality and the limits of market efficiency. umair haque, while writing for the Harvard Business Review a few years ago, also offered some compelling thought experiments of his own to demonstrate why societies shouldn’t permit any single citizen to be super-rich.
It’s high time to take corrective action. Canada, for instance, is missing an inheritance tax that could capture a piece of multi-million dollar estates, which will otherwise be passed down to heirs who have nothing more than an accident of birth to thank for the windfall. In the United States, most economists rail against the mortgage-interest tax deduction, which rewards rich homeowners and inflates the housing market at the expense of public revenue. And before you complain that someone making, say, $150k a year isn’t that rich (which happens to be true when compared to the super-rich, but that just supports my point), let me remind you that the median annual income for individual Americans is $32k. Half of all hard-working people make less than that each year. Use this interactive tool from the Wall Street Journal to figure out where you fit in.
Tricky in practice
There are some problems to deal with. Some are practical, like how you would enforce a wealth cap if the value of someone’s home appreciated to the point where their net worth was over the limit. In that case, it would be unfair and cruel to confiscate all their cash and leave them ‘house poor’ just for the sake of bringing them under the cap. One solution could be to levy a capital-gains tax only when they sell the house.
Another, even bigger issue concerns the profit motive. If the law forbade anyone from having a net worth of more than, say, $5 million, it could conceivably discourage innovation in the economy. An entrepreneur might decide not to take the financial risks required to start a business — and create jobs — if she’s limited in the amount of money she’s allowed to keep for herself.
There needs to be a balance struck that at once encourages innovation and outlaws needless extravagance. Perhaps you could take the average of the thought-experiment results and, as a precaution, double or triple that number to set the wealth cap. What kind of person would shelve their entrepreneurial aspirations with the reasoning that they can keep ‘only’ $10–15 million for themselves? Let’s face it: if someone offered you that much money right now, you wouldn’t haggle for more. You’d take it and run.
Another possible solution could be to separate corporate wealth from personal wealth. Productive business investment that provides useful services and products is always desirable. Personal enrichment, beyond a certain point, isn’t. It seems plausible that a personal wealth cap could be enforced while firms’ capital remains mostly untouched. As The Economist argues, taxation regimes are in need of an overhaul. Reducing tax on small businesses, eliminating it altogether for low-earners, and raising it dramatically on economic rents and excessive personal wealth would make for a healthier economy and a more just society.
Luxurious vanity purchases seem absurd when you consider the ways that society could be improved using that money. Why purchase a car for $150k when $50k would buy you a perfectly nice vehicle, and the other $100k could support famine victims? They need food. You don’t need a $150k car. Yes, part of the sale’s proceeds pays the employees at the dealership, but it’s still not nearly as effective a dispersion of wealth as it could be. And yes, there’s a slippery slope imbedded in the logic: why not forgo a car completely, along with everything else you enjoy, if every dollar would be better spent on charity?
It’s a matter of common sense. You’re allowed to be comfortable. You’re allowed to live your life. But like Justice Potter Stewart once noted of hard-core pornography in 1964, although it might be difficult to define what excessive wealth looks like, we know it when we see it.
Opulence is reminiscent of the closing scene of Schindler’s List. Oscar Schindler, despairing in shame at having failed to save more people from the Nazis, rips the swastika pin off his lapel and laments to Itzhak Stern:
This pin; two people. This is gold. Two more people. He would’ve given me two for it. At least one. He would’ve given me one. One more. One more person. A person, Stern. For this. One more. I could’ve gotten one more person [and] I didn’t.
Christie’s and Sotheby’s would shrivel up and die if the buyers at auction were shown the amount in emergency rations and life-saving medicine that could be purchased with the money they were about to spend on artwork for their living room. The same principle holds everywhere to various degrees, and it’s time something was done about it.
I write about politics, economics, and feminism. Check out my Table of Contents for a list of everything I’ve written on Medium.