News of the Day: How Many Billions Does a Man Need?
With apologies to Leo Tolstoy.
Today’s Reads
Jonathan V. Last, The Bulwark: “SpaceX, Late-Stage Capitalism, and the Trillionaire’s Race War”
Catherine Rampell, The Bulwark: “Congrats. You’re About to Unwittingly Make Elon Musk a Trillionaire.”
Joe Lancaster, Reason: “Elon Musk Becomes the World's First Trillionaire. Is That Such a Bad Thing?” (PF)
Buckle in, kiddos. This one turned into a long one.
What’s Happening
Last week SpaceX went public, and Elon Musk became the first trillionaire ever. Technically, he’s a trillionaire “on paper”; he owns over a trillion dollars in stock, which isn’t quite the same as having a trillion in his combined bank accounts, and if the company crashes out he could lose that status. Still, it’s a lot of money.
It’s also not just his money at play, or the money of ill-informed investors who don’t want to miss out on the next big thing. As Catherine Rampell explains, due to the way the stock market indices and specifically the index funds most of our 401K’s are tied to, you’re almost certainly (and involuntarily) invested in SpaceX yourself. More details on that below. JVL points to the bigger problem in his piece: Elon Musk is effectively “too big to fail” (my term), and in the current political environment at least he’s pretty much unregulateable. When you’re wealthy enough that stock market indices change their rules so they can list your stock, who’s going to stop you from doing whatever you like?
Joe Lancaster at Reason takes the opposite view: those progressives refuse to believe someone could legitimately deserve to be this rich; well, Musk has developed technologies that make space travel cheap enough that the innovation really is worth the valuation, and beyond that, when the economy grows we’re all better off.
Of note, around the same time SpaceX’s IPO was going public, over on Twitter Elon Musk was encouraging the racist riots going on in Northern Ireland after a Sudanese (and black) refugee stabbed and seriously wounded a native-born (and white) Irish man. What matters most here is that Elon Musk was able to shape opinions and can be plausibly accused of inciting racist violence, not because he has insight or special knowledge, but because he was able to buy the algorithms, and because his fame and wealth lead people on the far right to think he’s worth listening to.
What Catherine Rampell Said
Normally there are a bunch of rules and requirements that public companies must meet before they can be included in major indices like the Nasdaq 100 and the Russell 1000.
For example, stocks typically must be publicly traded for some minimum period of time before being added to one of the major indices. Indices often also have profitability requirements—that’s why Tesla was locked out for so many years after going public—as well as requirements for things like corporate governance and liquidity.
These rules are there to protect investors and the integrity of the index, and to prevent fly-by-night companies from entering the mix.
But this time around, several of the major indices have decided to waive many of these requirements. Not only for SpaceX, to be clear, but for other “megacap” companies expected to IPO soon too (such as OpenAI and Anthropic). The result is that SpaceX’s inclusion in these indices is being fast-tracked. That will effectively force passive index funds to buy it.
Why? Because that’s how these products work.
If I have my 401(k) in, say, a Russell 1000 index fund at Vanguard, I do so knowing Vanguard will invest my money as the Russell 1000 is constructed. My stock portfolio composition will mimic, on a small scale, the composition of the index—it’s indexed to it. So when a new stock is added, the fund has to buy it, at whatever the market price may be. It doesn’t get to pick and choose stocks, or wait until the stock looks like it’s a better or more strategic deal. That’s what it means to be a passive index fund.
A whole lotta money is benchmarked to these indices. About $662 billion is indexed to the Nasdaq 100, for example. It’s true that, as of this writing, not all of the indices will be carving out an exception for SpaceX and the other tech firms: S&P Dow Jones Indices, which runs the most-used index (the S&P 500), announced on Thursday evening that it would not waive its main eligibility requirements after all, surprising markets; but given pressure from market participants, there’s some question as to how long decision will hold.
All the captured index money forced to buy, plus the dumb money worried about FOMO, are likely to reinforce each other and drive prices higher. At least in the near term, anyway. So in that near term, Musk will become a trillionaire thanks to the bending of a few rules.
It may be tempting to blame this fast-tracking on some sort of shady backroom deal—a mega favor for a megadonor made by a Trump administration regulator. But there’s no evidence that’s the case; it’s really more about the not-so-great incentives these index providers face.
What Joe Lancaster Said
But SpaceX has pioneered innovations in space travel that very recently seemed like science fiction. "SpaceX's ability to lower launch costs by roughly 90 percent—through reusable first-stage boosters, but also a vertically integrated manufacturing process and a high-cadence flight rate—is mega innovation equal to any of the past quarter century," writes James Pethokoukis of the American Enterprise Institute. "That massive cost decline, with another 90 percent or more potentially on the way through full reusability, has fundamentally altered the economics of space and finally made possible the dreams of the original Space Age: orbital cities, deep-space habitats, space-based solar, asteroid mining."
Besides, economics is not zero-sum. Musk's balance sheet growing to a trillion dollars does not mean other people lose money; it means the economy as a whole is growing.
And growing economies are good for everybody, not just the uberwealthy: Between 1990 and 2025, the global share of people living in "extreme poverty" declined by nearly two-thirds, from 2.31 billion to 808 million, even as the global population increased by nearly 3 billion—an accomplishment J.D. Tuccille called "nothing short of miraculous." It's not a coincidence that over that same period of time, global gross domestic product (GDP) roughly quadrupled, boosting countless thousandaires into millionaires and millionaires into billionaires in the process.
What Elon Musk Himself Said
Via JVL:
What It Means
Let’s start with Joe Lancaster’s claim that a rising economic tide lifts all boats. I think intuitively we all know enough to be suspicious of that claim. But if you need convincing, perhaps an anecdote will help illustrate the problem.
I’m reminded of a Tiny House Hunters episode about a psychologist working near San Francisco. She had a better paying job than most people nationally, but because she lived so near Silicon Valley, locally she had less income than the people around her, so she’d been priced out of the traditional housing market in her area and was looking to build a micro-sized, more affordable house. Silicon Valley’s income boom for their workers didn’t lower her income, it might have even helped her a little since she had more potential clients, but that benefit was still dwarfed by the fact the people around her were making much more than her, which drove up the cost of housing for everyone. The local economy growing may not have shrunk her personal income, but it did restrict her buying power.
Joe Lancaster’s point above about the drop in global poverty even as inequality grows is of course good for them, but seems to miss the crucial point that their having more income and wealth doesn’t drive price inflation for me. We’re not trying to rent the same apartment or buy electricity from the same grid, so them having more money to spend doesn’t affect my personal economy the same way. Even if you accept that the rich got rich because they’re just able to add that much value to society (I’m personally skeptical on that point), it doesn’t mean inequality on this scale, both in terms of wealth and influence, doesn’t hurt us all.
Of course, Reason is a libertarian site, and it’s a core libertarian belief that we can’t redistribute wealth that people came by fairly just because everyone else would be better off. Liberty over outcome. More on that below.
JVL points out (rightly, I think) that America lacks the political will to regulate a certain class of very rich people. The way SpaceX’s IPO affects our retirement savings is only one example, but it is a straightforward one that illustrates the larger point. Anyone with a 401K tied to an index fund had a lot of stock in more established companies sold and SpaceX stock bought in their name and on their dime, just because of how the market is structured. They didn’t choose to do that, and couldn’t really have opted out of it if they wanted to. And SpaceX, due to its size and Elon Musk’s influence, was exempted from the usual rules that would make sure those listings and all the investments based on them were actually good risks for investors. If it turns out SpaceX is a lemon, everyone gets hurt. Investing is always a risk, of course, but it’s precisely because Musk is so rich and we’re unwilling or unable to make the excessively rich play by the same rules as the rest of us that will have left all those 401K-holders vulnerable.
There’s an irony here. If liberalism and the rule of law was in better shape, if people trusted that even the very powerful could be forced to respect their rights and interests by the law, you could have more inequality before it got to be such a threat to the rest of us. Liberal institutions provide a kind of shock absorber for society, meaning the very failure of the institutions that are at least correlated with less inequality (PF) means we’re less able to tolerate the inequality their failure makes space for. Go figure.
This isn’t only an economic problem, of course. I mentioned the situation in Belfast, where he approvingly retweeted angry far-right posts about needing to repel the “invasion” of Europe. This incident is particularly troubling because people in the non-social media world took all that hate offline and started attacking real people across the United Kingdom (PF), but Musk being racist on social media is hardly a new development. Rich people, or people generally, holding racist or just hateful ideas is also unfortunately common. The difference here is Musk’s wealth and particularly his control over Twitter’s algorithm means his words have a lot more influence, and the very fact that he’s so rich means a lot of people are particularly primed to treat them as reasonable and correct. His words have an outsized impact, and precisely because he’s heckin’ rich.
Put more generally, this all turns free speech on its head, because the whole point of free speech - not in the constitutional sense but in the more philosophical, ethical sense of why we think it’s a good thing to begin with - relies on people being able to have some sort of a conversation. The most powerful among us being handed a megaphone to scream at the rest of us just isn’t what John Stuart Mill had in mind.
My point here isn’t just to criticize Elon Musk, but to hopefully lay out the contours of a bigger problem. Concentrating power in a few individuals is a poison pill to democracy by its very nature. Giving that power to people who have separated themselves from the great mass of humanity the rest of us are part of is worse still, because they don’t understand the people whose lives they have such an influence on. And community, society, is built on a sense of mutual dependence and that (at some level at least) we’re all in it together. When you’re as rich and powerful as Elon Musk now is, that relationship becomes more of a one-way street.
So this kind of inequality seems economically bad for the rest of us. It certainly fosters a sense of resentment. It gives too much power to the particular individuals who are least able to use it well on all our behalfs, and it weakens the bonds that make for a strong community. Even if someone came by their billions honestly, even when we’re talking about fundamentally more decent multi-billionaires than Elon Musk obviously is (the Warren Buffets of the billionaire class, for instance), there comes a point where inequality is just no bueno for the rest of us.
Libertarians like Lancaster, as I said, would argue that’s beyond the point. If Musk came by his trillion honestly and fairly we just don’t have any right to take it from him. For my part, though, I’d argue the whole point of a society is to make things better for everybodyYou consent to the system because you choose to live in it, and Musk could live somewhere else if he chose. Of course we’d rather he not, which is why we want to make American society one where he’d prefer to keep living. Some inequality does lead to better outcomes overall (c.f. John Rawls), but it’s a balancing act, and there’s nothing illegitimate in asking whether that balance has fallen off its axis.
The real question here is what to do about it. To really do that justice I’d need another two thousand words at least, and probably some economic and legal expertise I just don’t possess. Tax policies like the wealth tax proposed by Alexandria Ocasio Cortez or even a progressive income tax that accounted for all the ways people accumulate wealth beyond just earning a salary would go a long way. So would strengthening and improving liberal institutions so even the very rich have to follow the rules the rest of us live by. Cultural shifts like being a little less shameless in displaying wealth and using it to address social problems you care about, like McKenzie Scott’s recent altruism (PF), would also change how people relate to the wealthy. It’s a multi-pronged project, but even with that there’s probably a point where if you have more than that amount, it’s just not good for society to allow that. I can’t pinpoint exactly where that line is, but I suspect once you’ve reached a cool trillion you’re on the other side.
Luckily I’m just a blogger on the internet with a knack for armchair philosophy. I’ll leave working out the perfect solution to those with the actual power to implement it. That doesn’t excuse me from calling out the problem, though. And as much as I believe talented people who contribute to society should be rewarded for that work, at some point enough is enough.
Related Stories about Elon Musk and the SpaceX IPO
Paul Krugman: "Elon Musk, Human Ponzi Scheme"
Robert Reich: "Musk's Galactic Ripoff"
The Guardian: “Riots and racism: why is the UK burning?” (PF)
Le Monde: “Elon Musk's role was 'instrumental' in the Belfast riots, researchers say” (PF)
PBS: “What to know about the stabbing that set off fiery riots in Northern Ireland”
Yi Zhou, Atlantic Council: “Does liberal democracy drive inequalities?” (PF)
Fortune: “MacKenzie Scott gave away more than $7 billion last year—but her secretive style got her snubbed from a top donors list” (PF)
Mother Jones: “Why No Human Being Should Ever Be Allowed to Have a Trillion Dollars” (PF)
Salon: “SpaceX IPO: Why insiders like Elon Musk are much likelier to cash in big than public buyers” (PF)
Axios: “Race-obsessed, untouchable Musk hits escape velocity from CEO rulebook” (PF)
Fortune: “On the day of a historic IPO, SpaceX’s president is already hinting at a Tesla merger: ‘That might make Elon Musk’s life a little easier’” (PF)
The Verge: “The world’s first trillionaire is a killer” (PF)
Musical Break
More News about the Economy and Inequality
Popular Info: "Trump administration looking to transfer billions in Iranian assets to Kushner clients"
The Atlantic: “An Oligarchy of Old People” (PF)
Semafor: “How success turns allies into competitors” (PF)
Mother Jones: “Why Billionaires Pay Much Less Tax Than the Average American” (PF)
Vox: “I asked a billionaire about his environmental philanthropy. It didn’t go well.” (PF)
Noe Magazine: “Pope Leo XIV: AI Wealth Must Be Universally Shared” (PF)
The Conversation: “You’ve been trying to get around Amazon – but it’s not that easy” (PF)
Vanity Fair: ““Stealth Wealth” Is Over. “Niche Riche” Is In. (Capisce?)” (PF)
Aeon: “Rights Require Money” (PF) (On the need to reform the global finance system)
Wired: “The Untold Story of the Google Buses That Took Over San Francisco” (PF)
