The Undeserving Rich -- Did Warren Buffet Really Earn His $50 Billion?

Warren Buffett, one of the wealthiest men in the nation, is worth nearly $50 billion. Does he “deserve” all this money? Why? Did he work so much harder than everyone else? Did he create something so extraordinary that no one else could have created it? Ask Buffett himself and he will tell you that he thinks “society is responsible for a very significant percentage of what I’ve earned.” But if that’s true, doesn’t society deserve a very significant share of what he has earned?

When asked why he is so successful, Buffett commonly replies that this is the wrong question. The more important question, he stresses, is why he has so much to work with compared to other people in the world, or compared to previous generations of Americans. How much money would I have “if I were born in Bangladesh,” or “if I was born here in 1700,” he asks.

Buffett may or may not deserve something more than another person working with what a given historical or collective context provides. As he observes, however, it is simply not possible to argue in any serious way that he deserves all of the benefits that are clearly attributable to living in a highly developed society.

Buffett has put his finger on one of the most explosive issues developing just beneath the surface of public awareness. Over the last several decades, economic research has done a great deal of solid work pinpointing much more precisely than in the past what share of what we call “wealth” society creates versus what share any individual can be said to have earned and thus deserved. This research raises profound moral -- and ultimately political -- questions.

Recent estimates suggest that U.S. economic output per capita has increased more than twenty-fold since 1800. Output per hour worked has increased an estimated fifteen-fold since 1870 alone. Yet the average modern person likely works with no greater commitment, risk, or intelligence than his or her counterpart from the past. What is the primary cause of such vast gains if individuals do not really “improve”? Clearly, it is largely that the scientific, technical, and cultural knowledge available to us, and the efficiency of our means of storing and retrieving this knowledge, have grown at a scale and pace that far outstrip any other factor in the nation’s economic development.

A half century ago, in 1957, economist Robert Solow calculated that nearly 90% of productivity growth in the first half of the 20th century (from 1909 to 1949) could only be attributed to “technical change in the broadest sense.” The supply of labor and capital -- what workers and employers contribute -- appeared almost incidental to this massive technological “residual.” Subsequent research inspired by Solow and others continued to point to “advances in knowledge” as the main source of growth. Economist William Baumol calculates that “nearly 90 percent . . . of current GDP was contributed by innovation carried out since 1870.” Baumol judges that his estimate, in fact, understates the cumulative influence of past advances: Even “the steam engine, the railroad, and many other inventions of an earlier era, still add to today’s GDP.”

Related research on the sources of invention bolsters the new view, posing a powerful challenge to conventional, heroic views of technology that characterize progress as a sequence of extraordinary contributions by “Great Men” (occasionally “Great Women”) and their “Great Inventions.” In contrast to this popular view, historians of technology have carefully delineated the incremental and cumulative way most technologies actually develop. In general, a specific field of knowledge builds up slowly through diverse contributions over time until -- at a particular moment when enough has been established -- the next so-called “breakthrough” becomes all but inevitable.