Monday, May 28, 2012

The Awesome Pledge

Rich people have no reason to feel ashamed of their wealth. Although anti-rich attitudes are popular, by and large getting rich entails creating value, an activity that makes us all better off. We don't live in a zero-sum world with a fixed quantity of riches. If we did, we would be justified to worry about a fair distribution of wealth between the 99% and the 1%. But in our world, wealth is made and economic inequality is an indicator of a healthy system that rewards risk and value creation, as I wrote about on these pages previously.

Not all wealth is virtuous. Half Sigma's dichotomy between value creation and value transference is a useful framework to delineate between good and bad wealth. And I believe in exceptions to a purely subjective theory of value, some things people value are innately better than others. But mostly, getting rich is a good way to benefit mankind.

There are signs that the wealthy buy in to the anti-rich attitude that says they should be ashamed of their wealth.  The evidence includes the popularity of The Giving Pledge, a pledge signed by many rich people to give away the majority of their money to philanthropy. Warren Buffet's tireless advocacy for higher taxes on wealthy individuals is another example of rich self-loathing.

Shaming rich people until they give away their wealth to philanthropy or taxes is not optimal for society. Doing great good through philanthropy is hard work. Mark Zuckerberg signed the Giving Pledge. He later made a $100 million contribution to Newark city public schools. I'm sure that money will do some good, but unionized public bureaucracies tend to be an endless money hole. 20 years from now, what impact will his contribution have?

Meanwhile, a small minority of wealthy individuals are using their wealth in different ways. Elon Musk founded Space X, a venture that has radically reduced the cost of space flight in a first step to making humanity an interplanetary species. The total bill for Space X was a $800 million investment of Musk's personal wealth over 8 years, less than half of what Gates and Buffet spend on philanthropy in a year, and less than 5% of NASA's annual operating budget.

There are many other sci fi dreams within the reach of a billionaire's investment - these are discontinuous leaps forward in technology that will have profound effects on our species. We could mine asteroids, cure death, and create our AI robot children. We just need a few billion dollars in the right hands. I believe that accomplishing any of these things will improve more lives in the long term than any sum of money dumped into a failing school system.

So instead of The Giving Pledge, I propose we create The Awesome Pledge. Pledge to do something awesome with your wealth, like Space X. Don't take the easy way out by just giving it away. You worked hard to earn it. Now work hard to put it to use.

Most importantly, we must change the attitude that wealth is bad. If Warren Buffet had his way and taxes were higher, Space X wouldn't exist. Elon Musk ran very low on cash while building Tesla Motors and Space X concurrently. If he had paid European tax rates on his earnings, the critical cash would have been in some government contractor's pocket instead of his.

It's worth noting that the ideals of The Awesome Pledge and The Giving Pledge are not incompatible. Elon Musk is a signer of The Giving Pledge. He intends to give away the majority of his wealth. It's just that he isn't done with it yet.

And I am not saying that philanthropy is bad. Certainly, for older billionaires who don't have the energy or imagination to embark on a new venture, it is a good idea. But if younger rich wish to embark on philanthropic enterprises, they should think carefully of an enterprise that can have a large impact, and weigh it against all other options. Philanthropy can be awesome, but it is hard work.

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