Why don't billionaires give their money away?

Austan Goolsbee wonders in the NYT today why billionaires don't give more of their money away, given that they can't spend it (there's just too much of it to spend) and that even their children can't realistically spend it either: "their fortunes are growing far faster than their number of heirs, so each of the children will have the same problems spending the money that their parents had". He concludes:

In a few weeks, you will see the list of the world’s wealthiest people and how vastly their wealth has increased. Warren Buffett will probably be the only one pledging to give his fortune away. The other billionaires will probably think he’s crazy, but it may make him the most rational person on the list.

Greg Mankiw points out that Goolsbee is assuming that billionaires' wealth increases at a rate of 10% per year, which might not be realistic, especially after accounting for inflation and taxes:

At a more modest return, say 4 percent, providing for heirs is a somewhat more plausible motive than Austan gives it credit for being. Remember that the number of heirs is approximately doubling every generation--a rate of about 3 percent per year. So consumption smoothing among you and your heirs would allow you to annuitize your wealth at a rate of only 1 percent. And if you want your family's consumption to grow over time, the annuitization rate would be even lower.

But I see the question slightly differently. The real question facing billionaires, as I see it, is whether to give their money away now or later – specifically, after their own death. Buffett has clearly found a compelling use to which he wants his money to be put, and given the specifics of that use – poverty reduction, mainly – it makes sense to front-load the spending while he's still alive. Other billionaires, by contrast, might not be nearly as convinced that they know today for certain where they want their money to go.

So the solution is to write a will. Your family gets what you want them to get, your favorite charities likewise – and if you ever change your mind, you can. You can increase your expenditure today and leave less money for your beneficiaries; alternatively, you can invest your money today and, if all goes according to plan, leave more money for your beneficiaries. If the fancy takes you, you can even do something halfway between the two, like trying to buy the LA Times – newspapers in general being very bad investments, but very gratifying toys for the ultra-rich. Meanwhile, as Goolsbee says, you get to "lord it over the other families who have less".

Bankers never say they're doing nothing; they say they're "preserving optionality". Maybe billionaires think the same way.

Posted by Felix at 13:45 EST