Friday Forward - Trillionaire Debate (#542)
Why some of the loudest arguments about Musk's new fortune are also the weakest
Two weeks ago, Elon Musk became the world’s first trillionaire on paper after SpaceX issued its initial public offering (IPO). The response from many was predictable.
The very next day, I saw a CNN panel where a politician held up Musk’s net worth in contrast to the need for more resources and better public infrastructure for constituents in his district. Another panelist rebutted him by correctly pointing out that Musk’s wealth did not come at the expense of the politician’s district, and if SpaceX didn’t exist the district wouldn’t suddenly be richer.
There are legitimate criticisms of Musk, some of which I have made before. But in this specific area, many people are distorting the picture, reaching for arguments that stir outrage while ignoring basic economics.
It’s true that the SpaceX IPO created a massive amount of wealth for Musk. It also created life-changing wealth for many other people.
The SpaceX IPO turned roughly 4,400 current and former employees into millionaires and pushed around 400 of them past $100 million. Most were not executives; many were machinists, engineers, process planners, and rank and file workers. This includes a welder who joined SpaceX in 2015 because he needed the paycheck and whose shares are now worth just over a million dollars.
These are transformative outcomes for real people, but you won’t find much discussion of their stories in the headlines.
It’s also worth noting the trillionaire headline everyone argues about is also misleading. Musk does not have a trillion dollars in the bank; in fact, his net worth actually dipped below $1T shortly before this article published. Instead, his net worth is the value of his equity in the various companies he built. And wealth creation isn’t zero sum: every dollar of value of SpaceX isn’t taken out of someone’s pocket.
The companies Musk built are worth about $3.5 trillion today, roughly $1.5 trillion for Tesla and more than $2 trillion for SpaceX. None of this value was created by accident, or without significant personal risk. Musk poured nearly the entire $180 million from the PayPal sale into SpaceX and Tesla. At one point in 2008, both were nearly bankrupt and he had to borrow money to cover rent. Musk risked everything he had to bring these companies to the top of the market, and he’s being rewarded for that risk.
While his own share of those companies is worth about $1.1 trillion, the other $2.4 trillion belongs to others, including the index and pension funds inside millions of ordinary retirement accounts. More than 140,000 people draw a paycheck from his companies and spend that money into the economy. Reusable rockets seeded a commercial space industry, Starlink put internet access where fiber never reached, and Tesla pushed the global auto industry into electric.
Elon Musk does not need me to defend him. But I have an allergy to arguments that are made loudly, intended to stoke populist outrage, and don’t hold up to scrutiny.
There are good arguments for criticizing Elon Musk. His controversial work with DOGE is a reasonable target. It’s worth debating whether one person should hold this much sway over rockets, satellites, AI, and a media platform, or whether he should enjoy a direct line into the government. There is also the fact that extreme wealth gaps have always frayed our social fabric and have often become a source of considerable social instability.
But criticizing Musk for being a trillionaire and suggesting he is hoarding money that could be better used elsewhere is economically inaccurate. Even Musk’s critics can say so.
Those who act as if Musk could simply use his newfound paper wealth to fix all manner of societal problems are not based in reality. He cannot simply liquidate his Tesla and SpaceX stock and give hundreds of billions to charity. Selling that many shares at once would crater the stock price.
Meanwhile, wealth created from the IPO will begin to flow into the economy. When employees and investors sell their shares, they’ll pay capital gains taxes. This includes Musk, whose $11 billion tax bill in 2021 was the largest individual payment in the history of the United States treasury. And newly wealthy employees will buy homes, hire tradespeople and pay the property taxes that fund their town’s schools. Those are real benefits that affect the real economy. And like him or not, that money was created through his businesses.
No one has to like Elon Musk to be honest about how his wealth actually works and what it has built. Building things has always improved more lives than populist rhetoric ever has.
Quote of the Week
“There is not a fixed amount of wealth in the world. You can make more wealth." – Paul Graham
Have a great weekend!
-Bob
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This is a more balanced view of what Mr. Musk has accomplished with the IPO. Before DOGE and any of his current efforts, Ashlee Vance wrote what I consider to be another balanced look at Mr. Musk. It was my book of the year when I read it, because it includes not only his accomplishments, but also his flaws. The book is called Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.
One of the issues I struggle with are the core values behind the person creating the wealth… even if trickle down.