Are Billionaires a BLACK HOLE for Wealth?

Billionaires. Should They Exist? Politicians and content producers love to say they are bad for the economy.

Attempting to debunk so-called myths, Wired launched a video, "Economists Debunk Top 5 Billionaire Myths" putting forth some misleading claims. It was so riddled with errors that we had to bring in Professor Antony Davies, Associate Professor of Economics at Duquesne University, to respond.

As always, his insight was clear, logical, and backed up with data.

►► More from Professor Antony Davies:

LEARN LIBERTY:

[Unsensitive]

This is why economics, along with financial responsibility, should be required learning at an earlier age.

[joseluisvazquez]

Black hole for money? That is the definition of government, right?

[ryaj]

Billionaires do spend it and a lot of times it’s on wasteful things everyone else can’t afford because they are in bed with big government ensuring no one else can compete their respective fields and shut down competition making sure to compete you’ll have to be as rich as them to begin with. This is why the bottom 95% in terms of the wealth gap as grown since the pandemic. Small business was shut down but big business remained untouched.

[Frankincensedjb]

As a college professor, within the first few years of teaching, I began to see a huge void in essential knowledge. My program covers five areas, one of which is economic basics. It's not rocket science, but it's also not common knowledge. We need to do everything in our power to learn economics and then pass on the good word, so that more and more people are informed with facts not propaganda and misinformation. Good luck.

[Pax_Veritas]

OK, Mr. Genius (pun intended), tell me how Apple storing $250 billion in a bank account in Ireland or the Netherlands does one single thing for any citizen on this planet, including Irish, Dutch and Americans. It's not being lent out, it's not being rehypothecated, Apple are still borrowing money from other sources, it's just sitting there to avoid paying taxes, or it was just sitting there. There are many similar examples in the corporate world which have been identified and classified as negative efficiencies on the economy when these companies just hoard money and raw materials. At several points in recent history, Apple as a single corporation had more cash in the bank than the US government (fiscal cliffs, etc)

What about the many trillions sitting in off-shore bank accounts that are in a similar state of splendid isolation?

It's a gross over-simplification and generalisation to claim the assets of billionaires are being spent by other sectors within the economy. NO, every billionaire is NOT giving their wealth to hedge funds or money managers or your local bank. Those activities contribute very little to the real economy anyway. The very richest, like Elon Musk, don't even tend to own things or put their billions in the bank, although Elon has recently diverged from this as he wanted to get some of his money out before Tesla's stock nosedived, which he timed perfectly (as did Zuckerbaby and Bozo)

The elitists simply borrow against their assets with lines of credit on them - e.g. Elon can borrow $10 billion against his Tesla shares if he wants to buy a new wife or take a joyride to space or whatever. Elon may not be the best example as he's not currently doing this but take generic billionaire X who takes out a line of credit for $10 billion against his portfolio and yachts. He then uses these funds to buy more yachts and a hotel, then takes a line of credit out on those assets, so on and so forth. No taxes are paid but plenty of cash is on hand for purchases. Incidentally this is the cycle of events that led to extremely wealthy people becoming bankrupt during the 2008 crisis as the value of the assets they used as collateral to book more lines of credit became worth less than their total liabilities.

The more money and assets you have the more favourable terms of credit you will receive. Thus during the last 14 years when interest rates were close to 0%, the billionaires were printing money and indeed became a black hole for wealth and financial instruments that could have been used by somebody else, or a whole city or country. The wealth of the richest billionaires has risen faster in the last few years than at any time in recorded history. The $5 trillion created by the Fed in the period 2020-22 essentially went directly into the black hole of the assets of the richest billionaires. It's sick

Their billions are not sitting in a bank account to be used as collateral to fund mortgages, nor are these billions lodged with a brokerage, very few assets are being used by other sectors of the economy. They don't in general pay (fair or any) taxes and they don't in general contribute their wealth to the real economy. They hoard and they take out loans (debt) against their assets specifically to avoid paying taxes and contributing to the real economy

[knightcode]

The claim specifically mentions wealth, and you respond with a cash flow argument. I believe the claim is stating that wealth begets more wealth. And even if new value is conjured from growth, it becomes owned almost exclusively by those at the top, causing greater disparity, which ultimately bifurcates markets.

[pamelabanner]

If a billionaire is Saving it he’s Not Loaning it… it’s the banking institutions that are, and it’s the banking companies Owned by Billionaires that are making astronomical interest off that money.

[dfjpr]

... in return for repayment plus interest

[paulsalterego]

Lending, with interest, which in turn causes the billionaire to absorb more capital from the system. And that's only billionaires who engage in venture capitalism. If the billionaire was consuming the capital would circulate back into the system, not simply running a circuit back to the lender. What a dishonest take.

[ZelenoJabko]

What is the difference between billionaire lending out a billion dollars, or a goverment prinitng a billion dollars?
Both create the same amount of currency inflation.

[hag]

Billionaire= black hole....no I don't think so....

[spider]

This is the dumbest argument in history. Its not being spent below a certain economic threshold. Billionaires capital, remains with high net worth individuals and hardly flows down into the general economy. Yacht money doesn't get down to a mom working at McDonalds . investment into venture capital goes to other CEOs or high net worth aspects of companies. that's what they mean by black hole, capital trickles UP towards higher and higher net worth individuals and then has no escape velocity from that class. thats whats ment by black hole, its not that it vanishes, its that it never can escape the pull of the wealthy class, and thus gets sucked away from middle and low income people permanently.

[okwaho]

But they make more money of the people they lend it to? So what effect does that have? Overtime it grows and grows and grows.... Like a black hole.