Limitarism: Why no one needs more than 10 million euros

Limitarism: Why no one needs more than 10 million euros

by Andreas von Westphalen

[This article posted on 12/21/2024 is translated from the German on the Internet, https://www.telepolis.de/features/Limitarismus-Warum-niemand-mehr-als-10-Millionen-Euro-braucht-10218147.html,]


Limits on extreme wealth are back on the agenda. But why should the richest accept them? Part 2 and conclusion.

Global wealth inequality has reached unprecedented levels. In Germany, too. Extreme wealth stands in sharp contrast to existential poverty. This has significant effects on society and individuals, on social peace, on health, on social mobility.

As thinkers like Plato and Aristotle already recognized, an equilibrium between minimum and maximum wealth is necessary to ensure social stability, as explained in Part 1.

Part 1
Elon Musk's 56-minute paradox: That's how extreme wealth inequality is

Telepolis

It is time to rethink such ideas and seek concrete solutions.

In her seminal work entitled “Limitarism,” Dutch economist and ethics professor Ingrid Robeyns writes about her research on the subject:

“As I progressed, it became clear that extreme wealth creates not only practical and political problems, but also moral ones. Assessing the legitimacy of inequality and especially of extreme wealth meant confronting a number of fundamental philosophical questions.

How do we see ourselves as humans?

How do we understand our relationship to others in society?

What responsibility do we have for vulnerable people and the provision of public goods?

And what should we make of the justifications of extremely rich people for why they have so much money and power?

Everything has a limit

After a decade of research, Robeyns concludes that there should be no extremely wealthy people and that an upper limit is therefore necessary for income, but especially for wealth:

If you want no one to live in poverty and consider too much inequality to be bad, it follows that there must be an upper limit to how much a person can own.Three counterarguments

Robeyns is by no means alone today with her solution concept of limitarianism. The US-American sociologist Tom Malleson also advocates this in “Against Inequality”, as does the journalist Julia Friedrichs in “Crazy Rich”, an investigation of the super-rich in Germany.

Robeyns lists three objections that are repeatedly raised against her when she proposes the idea of a cap on income and wealth:

• It is not inequality that is the real problem to be solved, but rather poverty.

• A cap fundamentally contradicts the idea of meritocracy.

• A cap contradicts the motivation generated by the prospect of exceptionally high profits.

1st objection: poverty, not inequality

The author had already pointed out elsewhere on Telepolis that a very popular argument against taking a closer look at the extent of inequality is to identify poverty as the real problem.
Also read
If you want to fight poverty, you can't forget social inequality

Telepolis

Accordingly, the fight against poverty is also central for many philantrocapitalists, whereas one usually looks in vain for them in the fight for a reduction in inequality. Of course, there is an unbeatable advantage for billionaires and the super-rich in placing only the problem of poverty at the center of attention.

Because this does not raise any questions about the extent of one's own wealth and the moral justification for the fact that year after year the wealth of the top one percent and the top one-hundredth increases significantly, whereas the rest of society gets almost nothing from the larger pie. That is why Robeyns emphasizes:

The question we should really be asking is: How have the gains of globalization been distributed? It is not enough to ask whether we are in a win-win situation. Rather, we need to know whether it is a fair win-win, and even whether it is the best of all possible win-wins.

The main problem with gallantly avoiding the issue of massive inequality by focusing solely on poverty is that it also leads to the numerous disastrous side effects on democracy, society, and people's physical and mental health, as shown in the first part of the series.

Therefore, alleviating poverty, as important as the issue is, cannot be the answer to the fundamental problem of poverty and the massive inequality.

2nd objection: Contradiction to meritocracy

The concept of meritocracy, which is closely linked to the issue of equal opportunity and is at the core of the American dream, is certainly at the center of the argument for the unlimited growth of the highest incomes and wealth.

In his book “What's Right: The Case for America's Most Important Values, and Why They Are Under Attack”, the American philosopher Michael Sandel explains how questionable and, in some respects, dangerous this concept is (not least how little social reality matches the supposedly prevailing meritocracy).

Another point: a glance at the richest Germans reveals that the argument of meritocracy has little to do with reality. At most, only one-third of the 100 richest Germans have earned their wealth through their own entrepreneurial endeavors.

Whether the exceptionally wealthy have also worked exceptionally hard remains more than questionable. Morris Pearl, a former hedge fund manager at Black Rock, a multimillionaire and co-founder of the “Patriotic Millionaires,” which advocates higher taxation of the wealthiest people, explains:

Have I worked particularly hard? Maybe a little, sometimes. Most of my work consisted of sitting in the office, reading and writing e-mails, and making phone calls. Did I work harder than the man who has to connect fire hoses to the hydrants in the snow, or the woman who has to carry full beer mugs all evening? Not really.

Nick Hanauer (whose fortune is estimated at around half a billion US dollars) admits freely and frankly: “I'm not the smartest guy you'll ever meet, or the hardest working.”

But common sense should also be enough to prove that an “ordinary” income millionaire hardly works 20 times harder than a nurse. The question at this point, of course, is what a job is worth and who determines it and how.
Also read
The illusion of fair pay: Performance alone is not enough

Telepolis
A joint effort

Perhaps the most important argument against meritocracy, which coolly accepts any degree of wealth because it is “earned,” is the fact that, as Robeyns points out,

extreme wealth is always built on a foundation that others have created.

Just think of the rule of law, which is completely financed by taxes, and which, with its legal security and reliable legal system, protects property and patents, without which the super-rich would simply hold a piece of paper in their hands instead of an endless stream of money.

Robeyns provides a helpful thought experiment for this:

Say a ship with a hundred passengers on board is shipwrecked halfway between two islands. In one scenario, the passengers manage to reach a deserted island with no infrastructure or civilization.

In the other, they arrive on an island with all the infrastructure, technology and comfortable facilities of a rich country in the 21st century – only that all the people on this second island have miraculously left just a day or two before (in thought experiments, this is possible; perhaps they have all just set out to conquer the galaxy).

How much material wealth could the same group of shipwrecked people create during their time on the first or second island?

The difference would be enormous. This shows how much of our prosperity depends on what previous generations have developed for us. We cannot create prosperity without standing on the shoulders of our ancestors, and that means that, however much entrepreneurial spirit we may have, our own contribution to our success is limited.

As popular as the term may be, there is no such thing as a self-made millionaire.
Getting rich on its own

One of the main arguments against the belief that extreme wealth is “earned” and therefore fair is that, due to the financial market, significantly higher profits are possible from a certain level of wealth onwards – without any particular risk – which remain out of reach for ordinary mortals.

In other words: from a certain level of wealth, the percentage return on the financial market increases significantly and participation in the financial market begins to make sense.

Fund manager Andreas Beck, who manages around one and a half billion euros, explains in an interview with Zeit that his tactic is to spread money widely in normal phases in order to then benefit from it in times of crisis and take advantage of special opportunities for returns. Beck admits:

That's the unfair thing about the capital market. The strategy only works for wealthy people. That's why the rich get richer and richer.

If I need access to my money within three weeks in the event of a crisis because otherwise I won't be able to pay the rent, then this doesn't help me. Otherwise, however, an ultra-stable investment means, to put it simply, that time is money.

Or to quote Brecht: If there is enough money at the beginning, the end is usually good.

There is no trace of meritocracy.
3rd objection: upper limit endangers motivation

The conviction that extremely rich people would no longer be sufficiently motivated and therefore less productive if an upper limit were introduced for their income suffers from several problems.

It may be a widespread notion that people are motivated solely by money – that is, extrinsically – but this sad assumption completely contradicts research on the nature of motivation and is not even empirically proven to any extent. On the other hand, there are a whole series of experiments that show, for example, the negative effects on motivation and productivity of very high bonuses.

When it comes to the apparent certainty that only the highest possible sums of money will motivate, common sense may once again rub its eyes in amazement: So, extremely rich people are only sufficiently motivated for their work if they can earn extremely high wages, which increase significantly every year if possible?

And if the wages don't continue to skyrocket, do they go into inner refusal to work? The assumption can only be an indictment of the work or the people concerned. Or both.

The argument does not even stand up to superficial scrutiny. For example, Jeroen van der Veer, former CEO of Shell, received a salary of €10.3 million in 2008, the year of the financial crisis. He emphasizes that the different salary levels had no influence on his performance:

If I had been paid 50 percent more, I would not have done better. If I had been paid 50 percent less, I would not have done worse.
A question of morals

Robeyns believes that extreme wealth cannot be morally justified. In particular, donations and inheritances of large fortunes pose a particular problem for moral justification. The volume of inheritances and donations is gigantic.

A study by the Hans Böckler Foundation from 2017 comes to the conclusion:

In the period up to 2027, the annual volume of inheritances in Germany, including gifts, will amount to up to 400 billion euros.

Significantly, there are no official statistics on exactly how much is inherited or given away. The Federal Statistical Office only documents cases that have been assessed for tax purposes. On average, Germany collects only about three percent in inheritance tax.

The significantly increasing inequality is therefore inherited and massively different starting chances are put into the cradle, while at the same time many do not get tired of talking about meritocracy.

Another moral problem from Ingrid Robeyns' point of view: some of the super-rich and billionaires have come into their wealth in a more or less dubious or semi-criminal way. As an example of this, she cites families in the US who made their fortune in connection with the slave trade and are still at the top of the wealth rankings today.

Or families in Germany who amassed an enormous amount of money in connection with the Third Reich, the concentration and labor camps, and the takeover of Jewish assets, and were able to make that money work for them.

A third aspect that raises moral doubts about extremely large fortunes is the disproportionately strong possibility of using one's own wealth to shape politics in one's own interests and thereby becoming even richer or influencing tax policy in such a way that tax avoidance becomes even easier. According to Julia Friedrich's research, the German super-rich pay an average tax burden of one percent.
Poison for society

While Germany is a high-tax country for employees, it is a low-tax country for very high incomes and wealth. Billionaires and the super-rich have a lower tax burden than the average German. And there is another special factor here: tax avoidance and tax evasion.

According to a study by the University of London, Germany loses 125 billion euros annually due to tax evasion.

According to estimates by the German Institute for Economic Research (DIW), tax avoidance by companies results in revenue losses of up to 30 billion euros.

The unequal distribution of the tax burden, which radically runs counter to the basic idea of a progressive tax, creates a fundamental socio-political problem in that many of the so-called super-rich have little interest in the common good and have an exit strategy in place for when the common people are doing badly and a catastrophe threatens.

Media scientist Douglas Rushkoff has described this very vividly in “The Survival of the Richest” and explained it in an interview with Deutschlandfunk.
Limit

When specifying the concept of limitarianism, Robeyns suggests taking three different limits into account:

Limitarism distinguishes three thresholds: the prosperity ceiling, the ethical limit and the political limit. This complicates the story I want to tell a little, but these distinctions are important. (...)

The prosperity ceiling is the level at which additional money can no longer improve the standard of living, at least not significantly. (...)

The ethical limit denotes the maximum level of money one should have for moral reasons. Above this ethical limit, we cannot justify keeping the excess money with a clear conscience. (...)

The political limit is the wealth ceiling for an individual that the state should set as a target for its social and fiscal systems. Above this threshold, wealth is, in my view, immoral. Governments should try to ensure, through policy measures and institutional design, that no one accumulates more money.

This does not necessarily have to translate into a tax rate of 100 percent on income above the political limit. Ideally, a package of diverse measures should be used to dilute the concentration of extreme wealth.

However, this threshold should not be seen as unrealistic, but as a limit that is as hard as possible.
Proposal

When it comes to setting a specific upper limit for wealth, Robeyns insists that the figure is less important than the concept and the fundamental attitude of society that goes with it.

Based on his own study in the Netherlands, which explored the question of what level of wealth turns affluence into excess, 80 percent of respondents said that a fortune of four million euros was the desired limit for a family of four. Robeyns rounds this sum up considerably and concludes:

In a country with a similar socio-economic profile to the Netherlands, where I live, we should aim for a society in which no one owns more than 10 million euros. There should be no decamillionaires. This limit in euros, dollars or pounds applies roughly to most developed economies.

A fortune of 10 million euros is “a good balance between the level that establishes moral and political considerations that tell us what the maximum level is”.

According to Robeyns, the massive additional government revenue should be used, on the one hand, to ensure that the state can carry out its tasks and, on the other hand, to directly combat serious inequality in a very concrete way. She advocates – like the French economist Thomas Piketty – an initial inheritance that all young people should receive when they come of age to help them get started in life.
Alleviating suffering

Tom Malleson emphasizes that we should talk less about what people “deserve” and more about what they need. And the goal should not be to end inequality, but to radically reduce it. Ingrid Robyens, for her part, emphasizes that nothing can justify unlimited inequality. This is the strongest argument in favor of limitarianism.

The essence of morality is to end suffering where we can end it. Therefore, for ethics professor Robeyns, it follows that it is a moral imperative to use the excess wealth of the extremely wealthy to alleviate suffering.

In a truly just world, the rich would accept that there must be limits to their wealth. And a world in which everyone accepts that there is a cap and fair distribution would be a deeply just world.
Time is of the essence

Limitarism appears to be an important tool for paving the way to a more just society with less extreme inequality. And action is needed, because without government intervention, the social divide will widen further and the disastrous side effects will increase accordingly.

The New Economic Forum warns on the basis of a study:

Without political intervention, the concentration of wealth at the top of the richest will increase significantly in the coming years. According to simulation calculations, the share of the wealthiest ten percent of Germans in total wealth would rise from just over 60 percent to around 67 percent by 2027.

These are the results of estimates based on a new wealth simulator developed by a group of scientists led by Timm Bönke and Charlotte Bartels from DIW Berlin together with the Forum New Economy.

One solution proposed by the authors of the study: a basic inheritance for every 20-year-old would be most likely to positively change the distribution of wealth.

Will the social question, the ever-increasing inequality and possible solutions become an issue in the election campaign? We shall see.

Literature:

Friedrichs, Julia: Crazy Rich: The secret world of the super-rich.

Malleson, Tom: Against Inequality: The Practical and Ethical Case for Abolishing the Super-rich.

Robeyns, Ingrid: Limitarism: Why wealth must be limited.

Sandel, Michael: The End of the Common Good: How the Performance Society Is Dismembering Our Democracies.

Watkins, Don, Brook, Yaron: Equal is Unfair: America's Misguided Fight Against Income Inequality