Adam Triggs | Is every billionaire a policy failure, like Bernie Sanders and Alexandria Ocasio-Cortez argue

The combined wealth of the 250 richest people increased from $318 billion in 2019 to $520 billion in 2022. Even when you adjust for inflation, this is a big jump.

How did they make their billions?

For the newest entrants in the richest-of-the-rich list, tech, property and finance feature prominently. Other industries include everything from pubs, clubs and online gambling to electronics and some niche areas of manufacturing.

Leading voices on the political left in the United States - namely, Bernie Sanders and Alexandria Ocasio-Cortez - argue that "every billionaire is a policy failure". Are they right?

In some instances, the answer is yes. But in other cases, it's more complicated.

One area where a billionaire is clearly a policy failure is where they made their money by exploiting market power in an uncompetitive industry.

If someone is a billionaire because they used their market power to price gauge consumers, then this is a policy failure.

If someone is a billionaire because the government protects their company or industry from having to compete for their work, then this is also a policy failure.

If someone is a billionaire because they explicitly or tacitly formed a cartel with their competitors or because the government favoured them for lucrative government contracts, then this is, again, a policy failure.

A recent report from the e61 Institute suggests this isn't just hypothetical.

The report found that there is an uncomfortable correlation between companies that donate money to political parties and those who go on to win government contracts.

Exactly how many billionaires made their money because of market power is not clear. Measuring market power is difficult, let alone linking it to a specific individual's wealth.

Even identifying the industry in which an individual made their money can sometimes be tricky. The world's richest man, Elon Musk, made most of his money through his shares in Tesla. But his ability to purchase those shares came from the money he made from PayPal, and Zip2 before that.

And those are the easy cases. What about all the other billionaires? Are they policy failures? This is when it gets even harder.

Sanders and AOC aren't just arguing that we should close tax loopholes and strengthen competition laws. They are arguing that the government should actively stop people from being or becoming billionaires by substantially raising taxes on those people.

Their argument is that any billionaire is a policy failure because the billions of dollars they amass would be better spent on health and education.

They are also concerned by the political instability created by rising inequality. Economists are similarly concerned that rising inequality hurts growth and reduces economic stability.

Things become tricky here for three reasons.

First, there (might) be an incentives issue to think about. Nobody is going to take the risks of starting a business if the profits all get taken off them, and research shows that innovation and new business creation tends to suffer if taxes are too high.

But does this apply to billionaires? Presumably the prospect of making millions of dollars, or even hundreds of millions of dollars, is enough to lock in that incentive, although there might still be an impact on incentives at the margin.

Second, there is an ideological question which people will disagree on about the role of government in society. If people take the risk of starting a business and become obscenely wealthy as a result, is there a role for government to intervene? Or is our approach simply to say "good for them"? Reasonable people will disagree on this point.

People will also disagree on the role that wealth plays in democracy.

Some see unfettered economic freedoms as being vital for democracy as a check on government power. Others see it as being corrosive of democracy by allowing wealthy elites to run the show.

The truth is probably somewhere in between, and much of the latter can be fixed though sensible reforms to political donations laws.

Third, there is a practical question: even if you believe that every billionaire is a policy failure, what do you plan to do about it?

Some argue that wealth taxes are the solution. But this raises more questions than answers.

For one thing, billionaires don't store their wealth in big piles of cash like Scrooge McDuck. Their money is almost always tied up in the equity of their companies - hence why Elon Musk's wealth changes dramatically when Telsa's share price changes.

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Taxing wealth that is tied up in productive assets isn't as simple as taxing idle piles of cash. And many economists - like Larry Summers - argue that a wealth tax would be easy to dodge and that there are better ways to raise revenue, like closing existing loopholes.

Whether every billionaire is a policy failure is a tough question which many will disagree on. Luckily, there are practical no-regrets things we could be doing.

Strengthening competition laws, ensuring government regulations and procurements aren't favouring particular companies or individuals, improving the efficiency of our tax system and cleaning up political donations are all steps in the right direction.

Best of all, this will answer our question once and for all of whether billionaires are policy failures: if we fix these policy failures and we see fewer billionaires as a result, then there's our answer.