Deconstructing Forbes' annual list of billionaires.

Policy made plain.
March 24 2006 6:08 AM

Why Be a Billionaire?

Deconstructing Forbes' annual list.

(Continued from Page 1)

Add it up. According to Forbes, yachts can cost up to $300 million to buy plus 10 percent annually to run, and a Russian on the list has three. If you buy three of the biggest and each one lasts only five years, that's $270 million a year. The most expensive car Forbes could find was something called a Bugatti Veyron, costing $1 million. Get a new one every year—heck, get three—throw in maintenance and a full-time driver, luxuriate in a visit to Jiffy Lube every month (instead of the three-month intervals urged upon the bourgeoisie), and you're still talking barely $4 million a year. Forbes reports that actually the top 10 billionaires drive much cheaper cars than this.

House? Prince Ahlwaleed bin Talal Alsaud has a 317-room (but who's counting?) palace in Riyadh that cost $130 million. Suppose you own five of these, and every 10 years you tear them all down and rebuild from scratch. Even if you add maintenance, air conditioning, and condo fees, you have to struggle to hit $100 million a year. Put one of them on your own private island. The most expensive island Forbes could find for sale was listed at $39.7 million. But when they see you coming they're going to up that to $40 mil, aren't they? So what! Buy a new one every year. Fly there in your private plane. Forbes strangely doesn't say how much a private plane costs, but says you can charter a plane to the Bahamas for $40,000. So, leave all your houses and your island and do that every weekend. It adds up to under $2.1 million. Check into a nice hotel. Use the minibar. Another million or so, depending on whether you go for the chips or the nuts.

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Staff yourself silly. Forbes says that a personal assistant to schedule your travel and keep you stocked in razor blades and deodorant can cost up to $80,000 a year. Heck, pay yours $100,000. Hire five. And three for your spouse. With benefits (don't forget to pay their Social Security) that's still under a million. A security "adviser" is pricier: A top British firm charges $1,600 a day. Better get three, and one more for the spouse. That means you're spending $2.5 million to protect your $3.3 billion from harm. Oh, and your family too.

Total? Uh-oh, with a Starbucks latte every day (essential), you're over $400 million! At that rate, the average billionaire's stash could be gone in less than a decade. But about 90 percent of this is the boats and the houses. So, settle for either one yacht that is larger than anyone else's or three yachts that aren't. Make do with two Saudi-style palaces and a Las Vegas time share. Acquire one private island instead of one a year. Voilà! You have economized down to barely $100 million a year. At that rate, $3.3 billion is enough to live better than a Saudi prince and leave enough to your children so that they can do the same (provided that you don't have as many children as a Saudi prince).

The notion that billionaires are inspired to accumulate more billions by the prospect of a third gigantic yacht is shared by vulgar capitalists and vulgar anti-capitalists, but as a theory of billionaire behavior it doesn't even describe reality. Most billionaires spend far less than they could and don't even own that first yacht. Many of them give huge amounts to charity. But it's also hard to believe that the chance to give it away is a major motive for earning it in the first place. And if billionaires do earn it primarily in order to give it away, that itself would require a special economic theory just for them, different from the one that explains the rest of us.

The prevalent theory of billionaire behavior is that it's a matter of keeping score. Investor Carl Icahn, possibly the greediest of the top-level American billionaires, put it this way to Ken Auletta of TheNew Yorker in explaining his recent siege of Time Warner: "I enjoy winning and making money. I've always been an obsessive character. I don't see a psychiatrist, but, if you really analyzed it, people like me are out to win, and winning is money." Keynes meant something similar, though maybe more subtle, when he used the term "animal spirits" to describe the motivation of capitalists.

This raises the interesting question: If winning is what the money is all about, wouldn't, say, half as much money be just as much winning—as long as everybody else in the game had half as much money as well? If Icahn is right, a stiff tax on billionaires ought to have no negative effect at all, as long as it is applied to all billionaires equally. I'm not advocating such a tax. I am, though, suggesting that the exquisite sensitivity to the incentives of rich people that has been the dominant force in tax policy since 1980 may be overwrought.

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