Arithmatic and class struggle

A provocative title. But this is really more of a discourse on absurdity.

I have recently been playing this wish fulfillment game called ”If I had a million dollars.” After considering various extravagant plans – I want a helicopter! Party in Samoa for all my friends! – I commented, well, maybe I could just live on the interest.

Think about it. A sound but not–particularly–inspired investment might be expected to earn a 5 percent return. (At least before the current financial crisis. Who knows what the cost of capital is these days?) Essentially, I could deposit my million in a bank and, at the end of the year, have earned $50,000 (pre–tax). That is more than I am now earning, and it would require absolutely no work.

So I scaled it up. If I had a billion dollars instead, I could plop it down in a bank and earn a thousand times as much on interest. That would be a $50 million income (pre–tax) that required no creativity, no innovation, no value–creation. A snail could earn that money if given a billion.

It is also a staggeringly huge amount of money. On my current salary, it would take me over 1000 years to make that. And by the standards of most of the world, I am quite well paid. In short, one could live twelve happy, long and reasonably opulent lives off one year‘s worth of interest on a billion dollars.

I am pointing this out because it seems to me that we fail to consider what these numbers all mean. Simply put: A billionaire is someone who has money in excess of any conceivable human needs. Furthermore, they can earn more than they would ever need simply by doing nothing.

Bear this in mind the next time you hear someone telling you that we need to “unleash“ the powers of the “creative class“ by cutting taxes on the richest members of society.