There's only so much he can do.

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Hurting the Rich Won't Help the Poor

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Today’s column might anger some people on the right and the left. Try not to react emotionally. Instead consider this as a way to point out some obvious truths to your ideological opposites. 

Take a look at the Robin Hood Index chart below. It shows the effect of confiscating all of the wealth of each country’s wealthiest individual and redistributing it to the poorest 15 percent of the nation’s population:

Hold the “communist” invective for the moment. This thought experiment might be instructive about what we should -- and shouldn't -- do about widening income inequality in the U.S. and elsewhere.

QuickTake Income Inequality

The impact of taking all of the wealth from one person varies by country, based largely on population size and the wealth of the richest person. Consider what happens if we took all of the wealth ($80 billion) of Microsoft co-founder Bill Gates and redistributed it to the poor. According to an analysis by Bloomberg News, the poorest 15 percent of Americans would get a one-time payment of $1,736 each.

Using Bloomberg Billionaires Index, we see that adding Warren Buffett’s $60 billion would bring the  payment to about $3,000. My back-of-the-envelope calculation of adding the next few billionaires -- Charles and David Koch ($98.7 billion), Jeff Bezos ($48.9 billion), Mark Zuckerberg ($41.8 billion), Larry Ellison ($40.8 billion), Larry Page ($35.2 billion) and Sergey Brin ($34.3 billion) -- brings the total to about $450 billion and would make the payment about $10,000 per person. It takes the next 20 or so billionaires on the list to move that to $20,000.

While a one-time payment of $20,000 might be nice for a few weeks or months, it solves precisely none of the long-term problems facing the poorest Americans. It does not:

 -- Improve education and career training.

-- Help create more job opportunities.

-- Enhance health care, including lowering infant mortality.

-- Increase availability of fresh and healthy food.

-- Improve infrastructure and ground transportation.

-- Increase longevity.

-- Create safe, integrated local policing.

-- Update the reliability of the electrical grid or improve access to broadband.

-- Ensure voting rights.

This list includes many of the basic needs and important rights and civil liberties that the poor have demanded for decades. Any deficiencies in these areas can't be resolved through a giant wealth transfer.

The trouble is, there are few signs that our elected leaders are willing or capable of providing the conditions so that the poor are in a better position to help themselves. Indeed, partisan wrangling in Washington has so paralyzed the government that many of its basic function have been seriously degraded. Regardless of your political views, these are: A common defense, the legal system, emergency police and fire services, infrastructure and basic education. (Yes, the private sector can provide some of these services, but not for the entire nation’s population and not without gross excesses and failures that exceed the shortcomings we see in government).

Almost everyone except for small number of extremists (who would rather there be no government) say they want the business of government to be done efficiently and without rancor. But how is this to be accomplished, when today's leadership seems unable to do anything except raising enough money to get re-elected to continue the paralysis for another congressional term?

Let's take just one example -- the tax code. Leave aside for the moment that it has been heavily tilted during the past 30 years to favor the wealthy. Rather, focus on what everyone knows to be true regardless of ideology: the code is absurdly complex and subject to being gamed by those with the best accountants and tax lawyers. So if everyone knows this, why does reform never seem to happen? That suggests (at least to me) that it is the lobbyists and not elected officials who are truly running Washington.

The bottom line is simply this: There are enormous problems facing the nation, and as long as we keep electing the same people, and allowing the same influencers to fund their campaigns, there is unlikely to be any significant change from the status quo anytime soon. This paralysis seems to have made some billionaires very nervous. But the last thing we should do is delude ourselves into thinking that making the rich less rich does a lot for the poor in the absence of better government. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Barry L Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net