Ken Griffin, wealth inequality and the politics of envy

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When campaigning for his progressive income tax, Illinois Gov. J.B. Pritzker argued it was needed to address “income inequality” and fund education and social services.

Although voters rejected the tax hike, Pritzker has succeeded in reducing income inequality without it. He did so by driving away the state’s wealthiest person.

Billionaire investor Ken Griffin and his family are moving to Florida.

Removing Griffin’s nearly $2 billion in annual income from the books substantially narrows the gap between the richest and poorest Illinoisans. But the loss of roughly $100 million in tax revenue will make it harder to fund government services. Incomes will be more equal as a result, but the poor will be worse off.

Income inequality is a lousy measure of the success of an economy. It is easy to see.

Imagine two hypothetical states. In State A, there are two people who each make $50,000. In State B, there are 3 people: one person makes $1 million and two people who each make $225,000. Which state would you choose to live in? Everyone would choose State B, even though income inequality is much greater. The absolute well-being of individuals matters as much or more than their relative position.

British Prime Minister Margaret Thatcher made the point on her last day in parliament. A Labour Party critic lamented the growing income inequality in Britain during her 11 years in office. Thatcher responded that under her leadership every income level grew, noting that her critics would “rather the poor were poorer, so long as the rich were less rich” by a bigger amount.

The better measure of an economy is how well it delivers opportunity for individuals to improve their financial well-being. We should focus on inputs (opportunities), not outputs (income).

Consider, for instance, how the United States compares on measures of national income inequality. The United Nations looks at the ratio of income earned by the top quintile compared with the bottom quintile. The United States ranks 114th on this metric, worse than El Salvador, Haiti, and Mexico. Yet, hundreds of thousands of people from these countries risk their lives each year to come to the United States. Presumably, this is because opportunity and absolute well-being matters more than relative position in an economy. If income inequality is what people cared about, immigration would run the other way.

Griffin’s departure will improve Illinois’ top-to-bottom ratio by almost 0.25 percentage points. But Illinoisans are substantially worse off as a result. We will lose his state tax payments, the hundreds of millions in philanthropy he has donated, and, perhaps most important, the thousands of jobs (and associated tax revenue) made possible by his presence here. Economists estimate entrepreneurs like Mr. Griffin capture just 2 % of the value they create for society. His billions in income translate into about a hundred billion in value for the rest of us.

Income inequality can be indicative of a problem. If wealth is not earned, then income gaps may reflect deep unfairness in the way the economy works. Venezuela does poorly in world rankings of income inequality because getting rich probably says more about manipulating government power to serve one’s selfish ends, rather than the product of good ideas or hard work. This can’t be said of Griffin, who built one of the world’s leading financial firms from scratch, choosing Illinois as its home.

It didn’t have to be this way. To be sure, Griffin disagreed with the governor on a host of issues, often sharply. But instead of sitting down with Griffin and finding common ground on issues like education and crime, the governor’s office called him “a liar.” A few nasty tweets from the governor’s team are probably not why Griffin left, but rather high crime, rising taxes, and a government that doesn’t work. In either case, Griffin left Illinois because he believes Florida is a better place for him and his wealth. Illinois is the loser.

It is easy to be jealous of Griffin’s billions, but the politics of envy make us all worse off. Instead of focusing on income inequality, Pritzker should celebrate wealth creators, regardless of whether they widen the gap between the rich and the poor. Adding a few billionaires will increase income inequality here, but that would be a boon to government revenue. When it comes to policies, Illinois would be better served by ones that attract successful entrepreneurs, not ones that drive them out of the state.

M. Todd Henderson is the Michael J. Marks Professor of Law at the University of Chicago Law School. Anup Malani is the Lee and Brena Freeman Professor of Law at the University of Chicago Law School.

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