Jeff Bezos decides to throw a couple of billion at a difficult problem in society. People then complain. The exact complaints differ a bit, but there’s definitely more than the odd whine going on. It’s his money to dispose of as he wishes.
And besides, he already gave at the office.
This is the part that people don’t get about this capitalism and free-markets system. In order to make a pile of money (and Bezos does indeed have a pile ever so high) it is necessary to be producing something that others value. It’s only government and criminals (but I repeat myself) that get to take stuff, everyone else has to offer something that the consumer values more than the money said consumer parts with. It’s necessary to produce more value for other people in order to make that pile.
[Related: Jeff Bezos launches $2 billion fund to help homeless families, children]
The essential contention should be obvious. No one buys anything if they think it’s worth less than they’re paying. The very fact that they hand over $50 means that they think what they’re getting is worth more than $50. They may be mistaken, but that’s human — the belief must be there. So if Bezos has $150 billion (it’s difficult to keep up with the tabulation), then he must have offered the rest of us something we think worth more than that and we must have accepted that bargain.
This has been studied. William Nordhaus (who taught Paul Krugman when Krugman was a grad student) looked at how much of that value creation entrepreneurs get to keep. The answer is some 3 percent or so. The businesses they start, the inventions, the innovations, produce some value. Those people who start it all off end up with just that 3 percent. Nearly all of the rest of it flows through to us consumers. We get the new thing or the cheaper thing or the better thing, and that makes us better off — we’ve received that value.
We also have another estimation of this same point. Jason Furman (who used to be Obama’s chief economist) talked about Walmart. U.S. consumers save some $263 billion a year out of the store. No, that’s not the everyday low prices, that’s the effect of Walmart’s existence. That someone is selling cheap (and the ability to do so is a result of running a better logistics system than anyone else) means that everyone else has to temper their prices and profit margins to compete. That’s the free market part of this capitalist bit.
Sure, the Walton family have that $100 billion to $150 billion in stock (the tabulation varies over time). But that’s a once-off sum, a capital value. The rest of us are getting $263 billion a year. Convert that to a capital sum and it’s what, oh, say $5 trillion among friends? That’s one of the bargains of the century, isn’t it?
Those Waltons also have about the same, in total, as Bezos does and by the same method: revolutionizing retail to the benefit of all us consumers. There is even good evidence that Amazon is reducing the inflation rate for everything in aggregate, by perhaps as much as half a percent a year.
Thus these complaints taste a little sour. Unanswered questions? Making amends? Tosh, even balderdash. The rest of us, we consumers, we’ve made out like bandits from the process that led to that Amazon cash pile because that’s the way that free-market capitalism works. We out here, the citizenry, are the people who benefit.
Leave off Bezos and how he does or does not do philanthropy. He already helped everyone out at the office.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
