What will you do with your billions? Or will you even choose to accumulate them?

12 Oct

Post by Ezra Roizen

Bart and I have launched weover.me as a venue to discuss matters that can have an impact on the decisions we make, priorities we set, and ultimately, the lives we lead.

The format: We select a topic, post a blog (or two), set an evening for us all to discuss the topic, and then post a follow-up blog with a summary of the collected thoughts on the topic, from the weover.me community.

For our first event (on Thursday November 10th), we’ve decided to bite off more than we can probably chew. But, so be it!

The Topic:  What will you do with your billions?  Or, will you even choose to accumulate them?

Warren Buffett has put plans in motion to give 85% of his fortune to charity.  Bill Gates has famously said he only plans to leave a tiny amount of his wealth to his kids and has already begun in earnest the process of deploying his billions for social good. Why then did they accumulate all this money in the first place? What does this tell us about wealth and how we share it, if at all? What can we learn about our own lives from these extreme examples?

Harvard political philosopher John Rawls is credited with the following concept (which I lifted from Wikipedia):  Any system of social and economic inequality should satisfy two conditions: first, it should offer favored positions and offices open to all under conditions of fair equality of opportunity; and second, it should maximize benefits to the least advantaged members of society.

The second standard is the really interesting one to me (I think we all get the first part, that opportunities should be equally available): social and economic inequalities are OK, so long as they operate “to the greatest benefit of the least advantaged members of society.”  What that means is if you have a system where the richest person has 1 million units of wealth and the poorest person has 5 units of wealth, that’s a better system than one where the richest person has 10 units of wealth and poorest person has 4 units.  Even though in the first system the difference between richest and poorest is 999,995, and in the second the disparity is only 6 units.  A narrower wealth gap is less important than the poorest person having the most he can have.

Our modern American, capitalist, democratic architecture is essentially Rawlsian in nature. We allow for massive disparities in wealth and tell ourselves that’s the best way to do things, and if you don’t believe us, look at all those rusty Soviet tanks.

Then guys like Buffett and Gates send a message that seemingly turns the current processes for wealth distribution on its head with their decision to give their fortunes away. Fascinating.

Clearly acts like these are almost unfathomably generous. But several questions come to mind:

Are Buffett and Gates our role models?  Did they lead socially optimal lives?  If the end result of their labors is the betterment of society at large – which it appears to be – and did they set an example we should all follow (at whatever scale we can)? Or is this generosity more of an afterthought, like having more leftovers than you have fridge space once the party is over?

If the next billionaire knows she is going to give 85% of her money away once it’s all accumulated, would she design a slightly different life? One that systematically redistributed vs. one that waited until the fourth quarter.

There’s an argument that these guys could have designed a different kind of model for their lives, one where they didn’t build such giant fortunes, but where they built organizational models that distributed that money back into the system along the way.  Or even more simply, where a greater number of people in their respective ecosystems saw a greater amount of wealth.

Then again, would that distribution be as effective in affecting world crises? Or is it better to deploy a massive amount of money toward a single purpose, such as the cure for AIDS? An argument could be made that amassing that kind of capital is the only way to really move the needle on some major challenges.

Maybe the only way libraries get built is if an Andrew Carnegie does it himself.  Maybe we *want* the economically fittest among us to amass great fortunes and then give them away. Maybe that’s the best way for some big things to get done.

Chris DeVore, a Seattle entrepreneur/investor, recently wrote a great post bemoaning the fact that Seattle’s millionaires tended to come from the middle ranks of a few large companies (Microsoft, Amazon, etc.). They were unlike the Silicon Valley-styled “frontline” entrepreneurs.  They don’t self-identify themselves as entrepreneurs, according to Chris. To that end, they tend to buy Maseratis rather than “give back” by investing in the next generation of Seattle startups.  This gets me thinking that just making a lot of people rich along the way may in fact *not* lead to broader-based good behavior. Maybe we’re all better off if a few well-intended and enlightened folks get to keep most of the wealth we collectively create. Those people would then get to invest in specific problems that plague society as a whole.

Our government is based on a representative democracy; maybe we also need a representative economy?

Yet I can’t shake this underlying feeling that there’s a better way than the Gates and Buffett model, their model seems like the 1.0 version.  Is it really best to architect our existence around amassing huge personal fortunes for eventual redistribution?  Or is there instead some yet-to-be created design based on a more holistic life, where the fruits of our labors are more actively shared, and enjoyed, along the way?

I’m also completely open to the notion that there isn’t a better way.  That this is the way it should be, that somehow holistic social/business/life models will take the edge off of healthy competitive forces, create inefficient systems, and in the end we’re better off keeping our professional games sharp and sharing our profits as a second step.

This is the topic of our first discussion, and I think it’s completely fitting with the founding notion of weover.me: is the ultimate outcome of our labors and lives to amass the largest fortune we can, and maybe give some of it away as a second step? Or should we be seeking new holistic work/life models that combine an integrated and “gradual” distribution of our resources along the way?

Please leave a comment below and Bart and I are looking forward to seeing you on November 10th.

_______________________________________________

Follow on perspective posted by Bart Garrett:

Giving Money Along the Way

What to do with my billions? An answer is sure to remain in the hypothetical realm, unless my middle school girlfriend’s locker combination eventually secures a winning lotto ticket! But, Ezra asks a great question: Should you amass much wealth over time, and then give most of it away with 2 minutes left on the clock, or, do you give some away as you go, a decision that will certainly keep you from making as much and from having as much to give?

I will *argue* for the latter, though I agree with Ezra that deploying massive amounts of money might be the best way to move the needle on some global social issues. Still, creating practices and rhythms for ongoing sharing and giving can be both humanizing and soul-saving.

Sharing and giving “as you go” is…

1)    Humanizing because “out of sight is out of mind.”

2)    Soul-saving because “the love of money is the root of all kinds of evil.”

Humanizing because “out of sight is out of mind.”

I cut my teeth on the political philosophy of John Rawls. But, were he writing today and not fifty years ago, I think he would adjust his paradigm. To pay less attention to the disparity of wealth in a society and more attention to increasing the wealth of the poorest people in that society might seem noble on the surface, but might prove wrong in the end.

Robert Reich served as Secretary of Labor during the Clinton administration and now teaches in the Goldman School of Public Policy at Berkeley. He often begins his lectures with this illustration: “What if I were a genie that could increase the capacity of the American economy, that could provide more wealth and income for everyone? But, here is the catch: 90% of that increase will go to people who are already in the wealthiest top 5%. The rest is going to be distributed to everyone else. And, because of this, everyone is going to do better including the people at the very bottom. There will be less poverty! The increase in the income and wealth of people at the bottom will no be insignificant! How many of you are in favor of me snapping my fingers and granting you that wish?”

In academic settings, around ½ of the crowd raises their hands. Reich then goes on to say that this scenario is actually what has played out in the American economy over the past 25 to 30 years, and then asks, “Are we better off as a society today?” Reich is pointing out that a gross disparity of wealth is not good for society, even if it increases the “bottom line” for everyone. Kate Pickett and Richard Wilkinson make a similar argument in “The Spirit Level: Why Greater Equality Makes Society Stronger.” In fact, they argue that the income gap between a nation’s richest and poorest is the most powerful indicator of a functioning, happy, and healthy society.

This premise will set-off a political debate with myriad questions: What is justice? Should it be grounded in equality (utilitarianism) or freedom (libertarianism)? What do we do when those to things are at odds with one another? Further, what role should the “state” play in orchestrating equality, mitigating inequality, protecting freedom, and/or limiting freedom? Recognizing the political contours of the question, one critic of The Spirit Level posed the question: Is a primitive aboriginal tribe living in absolute poverty and equality to be preferred to a modern society with income disparities of 2 to 1 or even 100 to 1? This reviewer concluded her review by writing: “Thankfully mankind has generally moved away from stagnant societies where all wealth was controlled and redistributed by political force (kings, dictators and socialist commissars), to societies where wealth went to those who actually created it. Historically the greatest creators of wealth…are a remarkably small number of entrepreneurs and inventors. That of course has led to ‘income disparity’. I’m all for it.”

I side-step the political debate and the cost-benefit analysis of giving just before the buzzer Vs. giving along the way. Instead, I want to simply point out that societies with a great disparity of wealth are societies that are becoming less and less human by the moment. How? Why? First, they are societies where people of socio-economic, cultural, and ethnic diversity do not overlap and connect as often as they should. Second, they are societies full of people that assume money will fix all of the problems, and assumption is often made at the expense of relationships.

(1) Robert Putnam, a Sociologist at Harvard, in his ground-breaking work, Bowling Alone, demonstrates that the greater the disparity of wealth in a society, the fewer interactions there are in that society between the “rich” and “poor.” This means that the poor are “out of sight, and out of mind,” thus creating a dehumanizing reality for both rich and poor. The poor lose human dignity, cast aside as less-than-human discards (Scrooge’s “decrease the surplus population”), and the rich become less and less human in becoming more and more godlike under assertions that they “made money the old-fashioned way—they earned it!”

(2) This inability to connect across the lines of massive socio-economic disparity ultimately causes the rich (and yes, that is you and me!) to feel guilty for not knowing or caring for anyone who is poor. Thus, we assuage the guilt by throwing money at social issues rather than throwing our lives into relationships with people that are most unlike us. You know, people that don’t wear “smart guy” glasses (guilty!), and say things like, “The bouquet is fruity, but the finish is kind of earthy and gritty” (guilty again!).

Because religion is viewed today a primitive conversation between a bunch of people and their imaginary friend, allow me to put an extra olive in the martini of religious practice. Robert Putnam, in his newest work, American Grace, argues that, “Strikingly, religiosity is correlated with greater class bridging, especially downward bridging…. We also find some evidence that upward bridging is more common among religiously involved lower-class Americans, but that pattern is much less robust…. In short, religious social networks seem to serve as a counterweight against growing class segregation.” What is more, he argues that religion has fought against the disparity of wealth and not for it: “Many contemporary secular progressives have forgotten that the history of religion in America is replete with powerful examples of evangelical revival promoting social reform and equality. Indeed, it is harder to identify purely secular progressive movements in American history than to find progressive movements infused with deep religious commitment and undergirded by religious institutions. The First Great Awakening, the wave of Protestant evangelical revivalism that swept from England through the colonies from about 1730 to about 1760, was thoroughly infused with egalitarian ideology and formed part of the background to the American Revolution. Revivalist ministers in this Awakening were, observed historian Gordon Wood, ‘eager to promote the idea of equality that became so important in the Revolution’ and ‘became deeply involved in reform movements of the early Republic.’”

When poor people are not “out of sight and out of mind,” but rather share our tables and neighborhoods, then they receive dignity and the rich receive humility; both become more fully human.

Soul saving because “the love of money is the root of all kinds of evil.”

Shouting “Jesus!” in a crowded theater will scare people more than shouting “Fire!” But, pick up the hot potato for a moment, and ask people, “What is the most famous quote uttered by Jesus?” Answer: “Judge not lest you be judged.”

OR “The love of money is the root of all kinds of evil.”

Notice that Jesus did not say that “money is the root of all kinds of evil,” but that the love of money is. Whether or not you believe Jesus was nothing more than the son of a Jewish carpenter, a figment of the collective imagination, a raving lunatic, a Tinker-bell without wings, or God incarnate, this is perceptive counsel.

It is very easy to attach our status or our security to money—how much we spend or save determines who we are. Like the ring was for Gollom, our money can quickly become “my precious” as we clutch it and count it. Practicing the profane by giving money away along the way might just end up saving your soul.

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32 Responses to “What will you do with your billions? Or will you even choose to accumulate them?”

  1. Alex Roizen October 12, 2011 at 12:36 pm #

    Guys- great name/logo!

    I think the most efficient way to donate and make a difference (for the Gates and Buffets of the world) is to amass uber amounts of wealth, which they are proven good at, then pump a charity/cause of their choice full of capital in the 4th quarter, in the hopes to actually solve a ‘real’ problem or two. I think we have realized giving money to the wrong people does no good, which is most people 🙂

    -A

  2. Matt Malden October 12, 2011 at 3:02 pm #

    Pretty insightful. I believe the examples set by Gates and Buffett are only possible because they achieved extreme wealth. Up until that point, most people would answer the question “How much money do you need?” with “Infinitely more than I already have.” I believe that it is only once you have excessive wealth that you can aggressively part with it and I believe that to effect significant change, just like any marketing message, your charitable contributions need to be focused on a single goal/purpose.

    These billionaires may have also realized that the best way to ruin your children and grandchildren is to give them excessive wealth so that they feel entitled, and don’t know how to work and make their own contributions in this world (see any reality TV show for examples). So, by giving most of it away, they are doing their children a huge favor.

    • ezra roizen October 12, 2011 at 3:48 pm #

      It’s interesting that people only think about inheritance in terms of leaving money to their kids. Why not leave it to your employees? Or people you just like who you think will use it wisely? Or the guy on the corner? Microsoft has 100,000 employees (I think), you take $30b and divide it across them, that’s $300,000 each! That moves a lot of needles! Matt – I might just work you into my will for leaving this comment 😉

      • Tim Musgrove (@tmusgrove) November 10, 2011 at 11:15 am #

        Ezra, now you’re putting your finger on a key point — distributing corporate windfall profits across the employees. Micro$oft has done that partly in granting stock options, of course — and the options pools have been growing in size in our industry as years pass. But BOD’s do this because they are convinced it will help them amass even *more* enterprise value — so it’s a win-win, in theory.

    • Tim Musgrove (@tmusgrove) November 10, 2011 at 11:12 am #

      The 15% Buffet is keeping is *more* than enough to ruin his children. I had to learn once that just giving a $20 bill to my ten-year old was enough to “ruin” him (when I saw that it *all* went to Pokemon cards, and meanwhile he still didn’t take out the trash like I’d asked him.)

  3. Andy Kurtzig October 12, 2011 at 7:00 pm #

    Some people don’t amass huge amounts of wealth as the end goal. Some people just enjoy growing a business, winning and/or making a difference in people’s lives. Bill Gates and Steve Jobs have impacted millions (or billions) of lives. They clearly love business and winning as well. Money is part of it, but it’s clearly not the most important part as Bill Gates and Warren Buffett are proving by donating so much of their fortunes.

    I am currently donating a significant part of my money to Juvenile Diabetes related causes, and IF I became a Billionaire, I would accelerate my giving.

    • ezra roizen October 12, 2011 at 10:36 pm #

      Andy – I agree – money is the scoreboard, not the game.

  4. ronroizen9 October 13, 2011 at 8:48 am #

    The super-wealthy who become massive philanthropists may harbor some illusions about their quotient of wisdom beyond the fields in which they made their money. For example, one has to wonder how much Bill Gates actually knows about society, population, economics, land use, land tenure, etc. in Africa. Harsh as it may sound to say so, improved infant mortality and infant health measures, without birth control, may rapidly occasion a Malthusian disaster for the continent in terms of too much population for what the agricultural and food distribution system can sustain. Big money philanthropy from sources with narrow knowledge, wisdom, or even life experience can also create big-money-seeking institutions that will bend over backwards to curry their favor. This can result in, among other things, (a) institutions diverting their course in order to do what the wealthy patron wants – thus potentially following out ill conceived and counter-productive projects, and/or (b) institutions amping up their self self-promotional rhetoric so as to “educate” (i.e., persuade) rich patrons of the many good results associated with their own enterprises – this latter consequence can produce a seas of BS coming out of NGOs or non-profits. So much do-gooder rhetoric can be crafted to sound good or sound plausible rather than reflect any actually true state of affairs. So this kind of philanthropy, I’m saying, risks both bad plans and a waxing tide of BS in our society. I have had similar concerns, incidentally, about the potential long term consequences of all the lotteries we have all over this county. They, in time, may create a new power elite who have little other claim to competence than random luck. Then again, does anybody actually know what their doing in this seemingly going-to-Hell-in-a-hand-basket world economy?!  Nevertheless, I like your project and wish it well. Good start.

  5. Traver Hutchins October 14, 2011 at 8:31 pm #

    First- let me agree “great name-great logo”!

    It’s refreshing to contemplate “what’s it all about”…There comes a time, usually a bit later in businessdom after a few wins when you realize that you rarely see “Lifetime ebitda” on an epitaph. You learn that time is your most precious gift and you start to create order around that- who you will do business with, whether a meeting is going to be useful, making more time for your family and friends and engaging in giving back.

    In terms of giving back, “Wealth creators” have the best opportunity to make a difference because they…well they…yes, they create wealth. They can choose whether to concentrate their giving on targeted needs (most effective in my view) or they can spray & pray. I’m not personally aware of a lot successful entrepreneurs that don’t give back. The ones I honor most are the ones that also give of that precious commodity-their time.

    It wasn’t specifically stated but it should be said that redistribution strategies (Taxing) is not the same as giving. You won’t see a lot of that humanizing effect, or enhanced unity across socio economic classes because of more taxation of the entrepreneurial class. Giving of your own resources is different than having your government determine where your wealth should go…the odds are pretty small that they will choose and be effective in benefiting the cause(s) of your choice.

    It probably doesn’t need to be highlighted that those that have created wealth are much more likely to create additional wealth rather than the case where resources are taken away to be redistributed to someone who hasn’t had that track record. Avoiding this scenario by being an active societal participant creates another reason, perhaps less noble as to why the entrepreneur should indeed be very giving (either in pent up Buffett mode or pay-go).

    If we choose not to be more giving when we clearly have the means then we will see forced redistribution mantra flourish… everyone will be of similar strata and Ayn Rand will roll in her grave saying “I told you so”. Where would giving be in that world?

    Class society works well overall as long as their is a vigilance around fairness in opportunity. Wealth disparity in that environment isn’t to be banished nor is it shameful. It doesn’t need to be corrected.Rather it serves as a beacon that tells all that there is something to strive for…a higher opportunity can be had if you are willing to make that sacrifice. Governmental giving has shown to take away that spirit for many. Far better to show the man how to catch a fish than to just give him one. Dignity comes from making your own living, not being given enough to subsist on.

    Today’s wealth disparity pushes the class society model to the breaking point. Those that have pent up resources should release a greater percentage and they should do so because of a call from within. Corporations who are recording record profits would serve themselves well to amp up their giving. Together, they can make a real difference in people’s lives.

    By far the most “giving thing” that can be done to get more balance in our society is to get job growth on track. Its hard to see how placing a redistribution strategy on the groups that create the jobs is a step in the right direction (and I’m not a Tea Party guy). Our government hasn’t been adept at creating jobs outside of the public sector. Perhaps then an equitable solution is to have those with the means “give to causes or create jobs”…take your pick. Either are massively more beneficial than corporate profit that chooses to do neither. Given the alternative to have the wealth redistributed I would think we would see some uptake on doing what’s right.

    • ezra roizen October 15, 2011 at 10:04 am #

      Traver – really good stuff. One of the key points you touched on above is the contribution of *time* – many great people have amazing skills, talents and it’s their time that is really needed, not a few more bucks. If the venture capital industry has proven anything, it’s that innovation is not a function of money (the industry invests only $20B a year in venture capital, that’s a tiny sum in the grand scheme of things). Innovation comes from brain power. So the greatest gift many of us can give is our time and creativity.

      I also like your point about the freedom to choose, I agree increasing taxation and directing larger, and larger sums to the government is not necessarily the way to go.

      I also agree that dignity comes from making your living. That’s a profound point.

      But, one question missed in this thread and even not directly addressed in the blog, is the question of business model architecture. The top line of business is driven by pricing and the bottom line by expense, and what’s left is the profit.

      Let’s say I ran a cafe in a part of town which sat right between a nice part of town and a less desirable area. We’ll call it weovertea – Let’s also say at this point in time this is the only cafe in a 3 mile radius – and it’s a pain to get to the next one. It turns out the folks on the rich side of town are happy to pay $15 per cup of tea because they don’t want to drive anywhere else. Let’s also say, it’s easy for me to hire really inexpensive workers from the lower income side of town right next door.

      I’m livin’ the dream! I have cheap labor, amazing prices and I’m raking in the profits. But am I doing right by the world? My employees’ friends can’t even buy a cup at weovertea because it would be 3 hours’ wages! (we do offer a 5% employee discount) What is the solution here, should I design a different business because some liberal says I’m not really serving *all* of the community, or should I just wait for the competitive forces to do their work on the healthy spread in weovertea’s margins? (maybe I can even get the city to change the zoning laws to not allow any more cafes – he says while wringing his hands!!!) 🙂

      • ezra roizen October 15, 2011 at 12:05 pm #

        Interestingly Mark Cuban has quite a bit to say on this last point on jobs/business models/taxes – etc:

        http://blogmaverick.com/2011/09/19/the-most-patriotic-thing-you-can-do-2/

        Excerpt:

        Bust your ass and get rich.

        Make a boatload of money. Pay your taxes. Lots of taxes. Hire people. Train people. Pay people. Spend money on rent, equipment, services. Pay more taxes.

        When you make a shitload of money. Do something positive with it. If you are smart enough to make it, you will be smart enough to know where to put it to work.

        http://blogmaverick.com/2011/10/14/my-soapbox-advice-to-the-ows-movement-and-then-some/

        Excerpt:

        I have a simple question. Why are profitable companies laying off people ? I can see if a company’s survival is at stake. If payroll can’t be met. If debt can’t be paid. Then layoffs are a necessary evil. Even if companies have created cash flow deficits through their own mistakes, that’s the nature of business. Mistakes are made. What I have a problem with is that discussion of executive pay never includes whether or not the executive has been good enough to pre empt or prevent layoffs.

        Executives are not stupid. Usually. They recognize that killing off employees can juice a stock price. Even in this market. Which in turn can juice the value of their options and compensation. At the companies I run, we have cut raises, put a freeze on hiring, done what we need to do, but we have done all we can to avoid layoffs. Why ? Because its the right thing to do. Its the patriotic thing to do. I’m selfish enough and arrogant enough to think that maybe if I pay attention to the big picture that I can impact the big picture.

        As a shareholder, where possible, I would prefer that the companies I own shares in do the same thing.

        I own stock in some firms whose backs are up against the wall because of debt. Unfortunately, they don’t have a choice but to cut jobs in order to save jobs. I understand this reality. It’s unfortunate, but a fact of life. I also own stock in firms that are profitable. Put a freeze on hiring. Put a freeze on all raises to employees of all levels, including yours. You don’t have to try to squeeze every nickel to the bottom line. I realize these are extrodinary times. I’m happy to accept a P/E ratio that is 20pct or 50pct higher (lower earnings vs the current price) . I want you to manage for the long term benefit of the company rather than manage to the stock price.

        I don’t have data, but I’m willing to bet that private companies are far less likely to lay off people than public companies.

        As the discussion on executive pay continues, my message is simple. Give credit to those executives who bust their asses to avoid layoffs except in cases where its an absolute necessity. Pay ‘em a premium vs those who cut jobs in profitable companies. Look to private companies as guides to what a well managed company can accomplish, and how executives are compensated.

        Capitalism isn’t about having the biggest bottom line for the current quarter. Capitalism is about individuals busting their asses to maximize value for shareholders. Sometimes you have to look at the bigger picture in order to reap the biggest returns. Not all rewards are short term.

  6. Bambi Franciso Roizen October 15, 2011 at 1:08 pm #

    IN DEFENSE OF WEALTH ACCUMULATION

    Should I give away my billions? Firstly, does this question have to come up for those who made billions? Rather than make a judgment on how rich gazillonaires spend their wealth – whether it to be through systematic distribution or one lump sum later in life — shouldn’t this be asked of all of us?

    That point aside, I generally lean toward the systematic distribution of “some” wealth with the amassing of great wealth to use more effectively in the long run as not only the right thing to do, but our responsibility: work ‘super’ hard, give ‘a lot’ back. And, as Traver pointed out, those who’ve accumulated a lot of wealth can more likely than not give more efficaciously. I would also argue that Gates is not giving his wealth away with two minutes left on the clock. He’s only 55. His wife is in her mid-40s!!!

    Ezra’s post, however, isn’t just asking this question about giving along the way vs. giving at the end. Ezra asks if corporations should change the way they distribute their profits. Even though Microsoft is estimated to have created some 10,000 millionaires, could it have minted more? After all, despite Microsoft’s decline in prowess due to the rise of tech behemoths, like Apple and Google, it still earns about $5b a quarter. Should that be distributed to more people along the way, and why should Bill Gates end up with $55 billion in net worth, only to give $40 billion to cure AIDS, malaria prevention, etc?

    Couldn’t others have helped create more value in society than Bill’s massive dump of money to his pet projects?

    Sure. There are stories of people, like Stephanie DeVaan who cashed out of Microsoft in 1995 and started volunteering at charitable institutions (1). (Aside: She also, however, worked on her own pet project like “abortion rights” causes. This is for anyone questioning the value of Bill or Warren’s pet projects — e.g. spreading pro-choice values and preventing the proliferation of nuclear weapons.)

    One Google millionaire asked President Obama (while Obama was visiting Silicon Valley) – Would you please raise my taxes? (2)

    Clearly, there are socially-conscious people who want to give back in some ways – through charity or government – two ways to distribute the wealth for hopefully and theoretically the betterment of mankind.

    But can we really count on all those 10,000 millionaires to spend the money wisely, judiciously and generously? Have they reinvested that money to create more jobs? As an entrepreneur, I’m all for supporting them. But even if it’s a commercial endeavor, is it something life-saving? As Bill Gates said once at a TED conference: “More money is spent on finding the cure for baldness than finding drugs to combat malaria.” (3)

    When there’s nearly 3 million people affected with this disease, can we individually help cure this with our small amounts of charitable giving? Maybe if we all had the same desire.

    OUR DESIRES TO MAKE A DIFFERENCE

    I’ve interviewed many people before they became successful, billionaire technology CEOs – Larry Page of Google, Mark Pincus of Zynga, Mark Benioff, and many more. If you ask them what drives them, which I have, they will say it’s because they want to make a difference in society. And for many of them, the only way to make a difference is to have enough cumulative wealth to “move the needle.”

    Now Mark Pincus is making a difference – something he could never have done in such a way before. In January 2010, Zynga gave $1.5 million to help relief efforts in Haiti. Salesforce has consistently given 1% pre-tax income to charities and has given upwards of $3.5 million annually to charities around the world.

    To the extent these donations made an impact, these acts reflects Adam Smith’s cardinal doctrine: “it is self-interest, not the action of government, that has brought about the improvement of economic conditions.”

    Should Zynga, Google, Salesforce etc give more to its employees? I don’t think Google – with its free WiFi-enabled busses, gourmet food, volleyball courts and 20% downtime – is being stingy with its profits. Google has even gone ahead and hired 1000 more employees in the past year.

    But this type of “giving” has to be balanced with the act of creating a defensible and competitive company. If Google has to retrench next year because it expanded too fast – was it doing the right thing for employees and shareholders last year? Was it being wise by just hiring? Smith argues for the virtues of parsimony.

    “Parsimony, or saving, leads to an increase of the capital available for the employment of productive labor; while spending consumes funds which otherwise might have been given such employment.” – In other words: Don’t hire unproductive people. At some point – despite how bright people are – there’s just so many people you need to run a company. I don’t need five people to make me a late.

    THE VIRTUES OF WORKING FOR THE GOOD OF SOCIETY

    There are a few things that guide my life and many of them come from drinking Bart’s martini. So let me put several olives in that drink. One is Proverbs 31 – The Wife of Noble Character.

    Some excerpts:
    She selects wool and flax and works with eager hands.
    She sets about her work vigorously; her arms are strong for her tasks.
    She considers a field and buys it.

    What this means is that is she’s a productive contributor of this society. It means I have to be wise about my finances.

    Here’s another olive. Even those who don’t ascribe to the tenets of Christianity are familiar with the Parable of the Talents.

    Here it is from Wikipedia: The parable in Matthew 25:14-30 tells of a master who was leaving his home to travel, and before going entrusted his property to his servants (property worth 8 talents, where a talent was a large unit of money, as discussed below). One servant receives five talents, the second two talents, and the third one talent, according to their respective abilities.

    Returning after a long absence, the master asks his servants for an accounting. The first two servants explain that they have each put their money to work and doubled the value of the property they were entrusted with, and so they are each rewarded:
    His lord said to him, “Well done, good and faithful servant. You have been faithful over a few things, I will set you over many things. Enter into the joy of your lord.”
    — Matthew 25:23, World English Bible

    The third servant, however, has merely hidden his talent in a hole in the ground, and is punished for being lazy.

    It would have been interesting to see what God would have done if one of the men gave his talents to charity. But in this case, the point is that we’re called to work to double the value of the property we’re entrusted with.

    We’re also told in Proverbs 10:4 – “Lazy hands make a man poor. But diligent hands bring wealth.”

    All this to say, there is nothing wrong with working to double the value of our wealth.

    WEALTH DISPARITY AND DEREK JETER

    Bart brings up some great points about wealth disparity and some conclusions calling for a narrowing of the gap. But that’s a nice theoretical socialist dream, if it can be attained.

    Take for instance the mortgage debacle. The government, unfortunately under President George Bush, pushed HUD (Housing and Urban Development) to raise the number homeowners in the country. It had been some 30% in prior years and that number went up to 60-plus% – meaning they wanted 60% of households to own homes. It was a great egalitarian move toward the creation of housing utopia. Err. Well, not exactly. Unfortunately, it didn’t all work out in the end did. What happened? People ended up borrowing against their new-found paper wealth and taking out home loans against their properties. And, we know how this story ended.

    So I disagree with Bart about wealth disparity and its “positive” effect on social relationships. I don’t agree that “with a great disparity of wealth are societies that are becoming less and less human by the moment.” Firstly, if you’ve ever lived in or visited a poverty-stricken area, you’ll find some of the most human and happy people.

    Secondly, people with “money” are often the ones supporting missions to such areas to “create” relationships with those who are socio-economically disadvantaged. The assumption that a more socialist society would make everyone more human is to not understand humanity at all. The human condition is one in search of purpose. How do you acknowledge that purpose if everyone is treated the same? My five year old son plays soccer. Because there’s no score keeping and every game is a tie, most of these kids don’t know how to be aggressive. They don’t know how to “win.” Now, I’m not saying they should learn that early on. And, I like the idea of allowing them to learn social skills and niceties. But without this idea of advancement and progress (or lack thereof), would any of these kids – 15 years later – pursue anything? If they knew that they’d always get a C (like everyone else), would they strive to cure cancer; would they strive to make a Derek Jeter’s backhand flip that saved the 2001 American League Division Series? (4)

    Would they strive to make a difference?

    If we lived in the Garden of Eden, then maybe there’s a chance for us. And, while I ascribe to making the world closer to it, I think we would sacrifice more happiness in the long run. And, in the end, aren’t we striving for more happiness than wealth anyway?

    Footnote:

    1) Microsoft millionaires (NYTimes)
    http://www.nytimes.com/2005/05/29/business/yourmoney/29millionaire.html?pagewanted=all

    2) Google Milionaire
    http://rebuildthedream.com/blog/2011/09/26/google-millionaire-asks-obama-would-you-please-raise-my-taxes/

    3) http://www.dailymail.co.uk/news/article-1136463/Theres-reason-poor-people-malaria-The-moment-Bill-Gates-released-jar-mosquitoes-packed-conference.html

    4) http://sports.espn.go.com/espn/espn25/story?page=moments/45

    • ezra roizen October 15, 2011 at 1:17 pm #

      Great post! (except the part about the 2001 ALDS 😉 )

  7. Alex Roizen October 16, 2011 at 1:23 pm #

    Robert Reich: “What if I were a genie that could increase the capacity of the American economy, that could provide more wealth and income for everyone? But, here is the catch: 90% of that increase will go to people who are already in the wealthiest top 5%. The rest is going to be distributed to everyone else.”
    I’ve never heard the metaphor of the Genie and the finger snap to the Federal Reserve and the bailout before- clever.

    Chris DeVore: “Maybe we’re all better off if a few well-intended and enlightened folks get to keep most of the wealth we collectively create. Those people would then get to invest in specific problems that plague society as a whole.”
    I admire Bill Gates and Warren Buffet for all they have accomplished and given back along the way, but they are truly special people. To say our society would be better off distributing massive wealth to a few well-intended and enlightened people is a solid assumption, but fails to recognize the alternative. We live in a free market, our next round of ultra billionaires may not be so generous. What do you suppose Floyd Mayweather would do if he manages to amass his 100 millions into billions? Last I saw he was burning bills in a Las Vegas nightclub…

  8. Leslie Kanberg October 19, 2011 at 12:11 pm #

    From another angle: Did you read about the Artic tribe that is resisting selling their land to big oil because having cash & the “perks” promised (e.g. better roads, access to more consumer goods, even a hospital) hold little appeal to their community? If we were not motivated by having cash or crap, how would life on Planet Earth be different?

  9. Bart Garrett October 20, 2011 at 11:45 am #

    Quite fascinating to read these posts in one sitting. It makes me quite excited about the upcoming event, which is going to be an Oxford Style Debate (http://www.uscourts.gov/EducationalResources/ClassroomActivities/OxfordStyleDebate.aspx)!

    I could not help but make some parallels to this thread and the “Take Back Wall Street” or “Take Back Our Country,” or “Take a Dump on a NYC Police Car” movements that are now taking place in cities all over the world. The “We are the 99%” seem to make my point that somewhere in our decision-making on what to do with our billions, millions, or thousands, we need to factor in that this growing chasm between “rich” and “poor” cannot be healthy for a society or culture.

    Somewhere along the way it might have been assumed that I think this is a government issue and that it is the government’s job to re-create more equality. I don’t!

    Rather, it seems that, (still with feet firmly planted in the “give it away along the way” camp), giving generously along the way, empowering employees to give alongside of you along the way, re-structuring the economic architecture of a company to not just be about top-line expense and bottom-line profit (paying employees more equitably, avoiding lay-offs, etc.) would all be wonderful ways to “mind the gap” and not just live a life of affluent isolation and then decide once you’ve made enough that it is now time to deal with malaria, male-pattern baldness, or education.

  10. Bart Garrett October 20, 2011 at 12:58 pm #

    Taken from the Atlantic, July/August 2011, “14 Great Ideas,”

    #3 The Rich are different from you and me.

    Chrystia Freeland
    Editor, Thomson Reuters Digital

    The rich are always with us, as we learned from the Bette Davis film of that name, released in the teeth of the Great Depression. The most memorable part of that movie was its title—but that terrific phrase turns out not to be entirely true. In every society, some people are richer than others, but across time and geography, the gap between the rich and the rest has varied widely.

    The reality today is that the rich—especially the very, very rich—are vaulting ahead of everyone else. Between 2002 and 2007, 65 percent of all income growth in the U.S. went to the richest 1 percent of the population. That lopsided distribution means that today, half of the national income goes to the richest 10 percent. In 2007, the top 1 percent controlled 34.6 percent of the wealth—significantly more than the bottom 90 percent, who controlled just 26.9 percent.

    That is a huge shift from the post-war decades, whose golden glow may have arisen largely from the era’s relative income equality. During the Second World War, and in the four decades that followed, the top 10 percent took home just a third of the national income. The last time the gap between the people on top and everyone else was as large as it is today was during the Roaring ’20s.

  11. Traver Hutchins October 20, 2011 at 6:38 pm #

    I know I will get slammed for saying this, but at the end of the day,a lot of the current wealth disparity discussion centers around 2 themes: 1) companies should care less about their bottom line and hire more people (even though they apparently don’t need them) and 2) CEO comp levels are too high. I don’t agree with either nor do I think it is in our long term interest to fiddle with either.

    Companies have learned in the downturn that they were too bloated during the the last up cycle. As sales pressure quickly mounted starting in 2008 they resolved to do more with less…or at least the same with less. In essence, they became more productive. Technology gains are also playing a role in increased productivity. Incentives to companies to create new jobs where they are needed is one thing…but it’s heavy handed to say that companies “should” be hiring because they have great profits. They should be hiring when they need another body to fill a needed function.

    In the meantime, new companies will emerge to fill opportunities where the big corporations can’t effectively compete/innovate and that’s why it’s critical that the smaller ceo’s who may happen to make $250k or more should not get hit over the head with more tax burden. That will reduce job development.

    The Corporate CEO compensation is a function of each Corporate Board getting the right talent at the right price. Putting aside the Boards that were too cozy with pay packages over the last decade, let’s assume that most today are very focused on their company’s performance.

    CEO price tags are guided by supply/demand dynamics and the pay levels are a reflection of what it takes to secure that talent in today’s market (not the 1970’s or other). Some may find it repugnant but its not up to a higher power to determine what someone makes-that’s the job of the marketplace. And a huge % of that compensation is performance based-they earned it in the minds of those that set the goals.

    No question that we are in a period of extreme disparity but that will fluctuate over time just has is has over the last 100 yrs. Applying a federal tonic of some sort is not a cure. Nor is the disparity of those pay packages the cause of our malaise. I have yet to see the causative correlation between CEO pay levels and unemployment levels.

    As an aside, anyone try to get a bank loan recently? There you will experience the effect of a regulatory pendulum gone too far. Raising the underwriting threshold to where it is now is not at all helpful to the emerging company trying to hire folks. Let’s keep that in mind as the talk moves towards how Penn. Ave should jump in to help fix us.

    For what it’s worth I don’t like the disparity level either.However I put more faith in our marketplace to adjust to maximized happiness over the longer term.

    • ezra roizen October 22, 2011 at 11:13 am #

      Traver – great points! CEOs, founders and pro-athletes alike – we should live in a world where performance is rewarded. I think you effectively articulate a powerful set of positions in this discussion. We don’t want to dull our competitive edge, and we need winners and, unfortunately, losers if society is going to progress. As to your first statement, let there be no mistake, your tea is always welcome at this party 😉

  12. Will Quist October 24, 2011 at 5:50 pm #

    This is a pretty intimidating stream of comments to jump into. I have learned my lesson, comment early and often to avoid compounding the amount of critical thinking that needs to go into a comment.

    Though not directly related to the original post, I am going to second Travers’ notion that the equality of opportunity is paramount. Wealth disparity becomes an exponentially divisive force when it appears the game was rigged.

    A real issue as well, is massive personal wealth accumulation without the commiserate amount of wealth creation in the broader economy. I know there are economic arguments for why Goldman prop desks should be able to mint money coming and going, with instruments that have no real bearing on the real world, other than their monetary impact when realized, but I can almost guarantee that negative blow to the human psyche is much larger than any economic gain – if it really exists at all.

    When I score the impact of one’s wealth on society, the first thing I try to uncover is what was the value you created along the way for others. Steve Jobs wasn’t a prolific philanthropist, but his time at Apple’s helm added millions of dollars to the pension funds and foundations and countless other organizations who are do gooders that owned the apple stock through the years. In addition, he helped enable a myriad of apple employees to be in a financial position to give back. Though there may be leverage in accumulating wealth to give it away with 2 seconds on the clock, the ultimate leverage is to use your expertise to build a machine that creates enough value to empower others who have expertise in helping to do what they do best.

    Nothing I have said does much to solve the disparity gap, but I am not sure that is something we can solve – or want to solve. I agree that we need winners and losers in order to make progress. I think the key is to ensure that as many people as possible have the chance to become a winner, and that spoils go to those creating the most wealth for the economy as a whole.

  13. Theodore Zouzounis October 27, 2011 at 12:27 pm #

    I will not question the intentions of those who give away wealth. Many times motivation comes from the following formula:

    Family
    Government
    Charity
    100 %

    What is desired mix?

    Estate taxes are scheduled to go to 55% after $1 million in 2013. For the very wealthy, it is a choice of charity or government but nice to make it and then decide!!

    Mr. Buffett has his own foundation also. His daughter is trustee. A big foundation can pay a large salary to trustee (she has a lifetime job).

    Mr. DeVore makes an interesting point. Of course a smart move for many of the “middle ranks” is a Charitable Remainder Trust. The ability to gift low basis stock to CRT and sell it with no capital gains take income until death and balance left to charity of their choice. Those in Silicon Valley who did this prior to the collapse were thrilled to have taken “money off the table”. Tax laws can encourage gifts to charity for the very selfish also. Do you think if estate taxes were eliminated charities would get the same level of gifts?

    And, finally, estate planning takes work!! A fellow study group associate of mine tells the story of a meeting with a very wealthy gentleman. My friend said to him…”based on the information I have if you die without thoughtful estate planning, the estate taxes you pay would fund the federal government for four (4) hours. However, if you implemented a Charitable Lead Trust your family (foundation) could give away $500+ million over a decade”.

    “It’s an ill wind that blows on a ship with no destination”.

  14. ronroizen9 October 28, 2011 at 9:55 am #

    I think the main problem with your conference topic is its Marie Antoinette-ish central question. What I mean is that most of us poor slobs out here never have occasion to worry about the question of philanthropic strategies for our wealth. We just try to get by and – at least up here in Wallace – only make donations usually when some member of the community sends out a call for a little financial help. In this sense, your central moral question for the debate is a problem for, and the province of, the spoiled rich only – and thus a little like, in some funny backwards way, Marie saying, “Then let them eat cake!” How is it like that? Well, I guess in the sense that the debate’s central question harbors the feeling that the rich really are cut-off from the arguably much more pressing concerns and moral dilemmas of the rest of us.

    • Ezra Roizen October 28, 2011 at 9:57 am #

      Great comment!

      But I think there are two themes to this discussion, one is personal and the other is organizational. Sure, many of us don’t have a lot of extra scratch, but we all exist in the context of the organizations with which we work, and the economic systems in which they work – maybe some of us would have a bit more green if our employers had a different view of things…

  15. Richard Heaps October 28, 2011 at 8:59 pm #

    Kudos to Ezra and Bart for starting this discussion which is truly at the heart of the multiple crisis facing this country’s position during the 21st century. Personally, I believe that the issue of whether narrowing the wealth gap is more important than increasing the overall opportunities to generate wealth misses the point entirely. We live in a society that was framed in the 18th century with a series of checks and balances designed to create a balance of power not only between the executive, legislative and judicial branches but also the states and federal governments. In fact, the 10th amendment states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” And while throughout our history this reservation of powers clause has served us well, it has become, in my opinion now a limiting factor in creating economic opportunity on a broad scale that limits the potential for wealth and growth in the future.

    Take education as the primary example. While Brown v. the Board of Education declared that “Separate but Equal” was not in fact “equal”, the Supreme Court in 1973 in Rodriguez v. San Antonio declined to declare education as a “fundamental interest” and thus left delivery of education to the states. We in California have seen the dismal performance of an underfunded and over politicized educational system which favors the privileged and “no child left behind” becomes “no child gets ahead”. We, in fact, remain virtually the only major so-called “developed” country without a national system of education. Yet our institutions of higher learning remain almost without peer.

    Therefore I believe, that before I decide how and when I give away my billions, I want to decide what priorities I want to accomplish. I want my children and my children’s children to have the same set of opportunities that children in China, England, Finland, South Africa, Australia, and many others do–to achieve if they have their abilities. I want outreach to mean something, not be a token to ease our conscience. I want to see us rally as a society to realize that our very survival requires that opportunity be available to all and that that very opportunity may create disparities, but those disparities should not be the result of the massive screw-ups of various administrations at multiple governmental levels.

    What I am asking for is a form of radical libertarianism where we ask ourselves as to whether the fundamental institutions (as opposed to some of our core principles)? Isn’t it time we require our children to be computer literate?

    • ezra roizen October 29, 2011 at 8:09 am #

      Rich – one of the things that’s been stewing in my mind as we build up to the November 10th debate is “is this institutional at all?” I’m finding I’m leaning away from taxes as a solution, and I also find myself struggling with the notion that businesses should be about anything but great products and customer service. So, maybe it’s about personal direction (and peer pressure! errr I mean social norms) – maybe people just need to take part of their own time and when possible money and put it to work directly into the system. Maybe the first question we ask someone when we meet them shouldn’t be “what do you do?” but should be “who do you help?”

      • Richard Heaps October 29, 2011 at 6:44 pm #

        Ezra,

        Remember when we studied economics in college and the concept of a “public good”. From a macroeconomic perspective the function of government and taxes is to provide such functions as defense, public safety and in this case education. Education is the fuel that creates innovation and we as a society are behind and getting further behind by the day. I agree with you: taxes are not the solution. A solution begins with an entirely new structure built on public/private partnerships that combine philanthropy, tax revenues and most importantly put aside the traditional notions of how education is delivered, governed and measured and afford opportunities for all to be supported completely during their formative years. We are hanging on to an obsolete business model.

  16. ezra roizen October 30, 2011 at 8:21 am #

    Rich – I like your focus on education. There’s an interested argument that it starts with education and we need some radical innovation along those lines.

  17. ezra roizen November 5, 2011 at 10:06 am #

    Wall Street Journal magazine article on the pressure Buffett and Gates are putting on other billionaires to systematically give:

    http://online.wsj.com/article/SB10001424052970204644504576653510801826824.html

    Best line from the article 😉

    In his discussions with fellow billionaires, Buffett tells them that that there is no benefit in postponing a charitable promise: “My argument to these guys who said they weren’t ready was, ‘You’re thinking more clearly at 70 years old then when you’re 95, with Anna Nicole Smith sitting on your lap.’ “

  18. ezra roizen November 6, 2011 at 8:46 pm #

    Great discussion of the down side(s) of wealth inequality:

    http://www.cnn.com/2011/11/06/opinion/wilkinson-inequality-harm/index.html

  19. Bambi November 7, 2011 at 9:05 am #

    Best line: “You’re thinking more clearly at 70 years old, then when you’re 95, with Anna Nicole Smith sitting on your lap,” Warren Bufftett, on giving.

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