Davide Bonaldo/Sipa USA via AP Images
At the time he offered to buy Twitter, Elon Musk’s net worth hovered around $300 billion, or roughly the GDP of Finland.
Elon Musk’s purchase of Twitter does not seem to be going well. Just three weeks after buying the company, Musk has fired the entire executive suite and half the staff, fired dozens more for insufficiently slavish devotion, and most recently has apparently driven off something like 40 percent of those who remain with an abrupt demand to submit to a “hardcore” new contract without most of the relevant details.
Though Twitter is still functioning at time of writing, in my experience it has become notably more glitchy and is swarming with bots. Informed observers are predicting that absent a major change of course, serious technical instability, major security breaches, or even total collapse are just a matter of time. “I know of six critical systems (like ‘serving tweets’ levels of critical) which no longer have any engineers,” one former employee told The Washington Post. “There is no longer even a skeleton crew manning the system.”
We can conclude one thing from this mess for sure: The oligarch class has entirely too much money.
By any reasonable conception of how markets and capitalism are supposed to work, what Musk did should not have been possible. First, he offered to buy Twitter at $54.20 per share on an impulsive whim (perhaps the first major corporate acquisition in history whose price was determined by a stale marijuana joke), for a total of $44 billion. This was about 20 percent more than the company’s stock value at the time. Even Twitter’s market price then was clearly too high, given the gathering troubles across the tech sector in general and the social media site’s chronic unprofitability in particular.
Just a few months after closing the deal, Musk was obviously overpaying by a factor of two at least. This is probably why he repeatedly tried to back out. But after the Delaware Chancery Court stopped him from breaking the contract, he indeed went through with it, financing about $13 billion with loans from third parties—which loaded up Twitter with an interest payment roughly equal to its entire net revenue in good years.
Then Musk promptly obliterated the company’s business model. He drove out the head of ad sales, alarming the companies that account for nine-tenths of Twitter revenue. He implemented a new verification system where anyone can pay for a blue check, which (of course) led thousands of people to impersonate celebrities, politicians, and huge companies. Eli Lilly and Lockheed Martin lost billions of dollars in market capitalization because two jokers spent $8. Advertisers, logically fearing Twitter would turn into a cesspit of abuse, racist slurs, and child porn, and turned off by Musk’s erratic behavior, started shunning the company.
Before buying Twitter, Musk had spent $4 billion buying its stock, and had to spend another $20 billion out of pocket to complete the purchase. Since then, he has sold another $4 billion in Tesla stock to cover expenses, for a total of about $28 billion spent out of pocket. That is roughly equal to the GDP of Jamaica, but at the time it was only a small part of Musk’s fortune, which peaked at $340 billion in November last year—possibly besting John D. Rockefeller for an all-time record in modern history. At the time he offered to buy, Musk’s net worth hovered around $300 billion, or roughly the GDP of Finland.
Allowing wealth to concentrate to such a degree greatly increases the chance of the kind of completely pointless disaster that has befallen Twitter.
Strictly speaking, an individual’s net worth is not the same as national GDP; one is a stock and the other is a flow. But it gets at the important point, which is that Elon Musk and his fellow ultra-oligarchs command resources comparable to those produced by a small wealthy nation over an entire year. Economists assume wacky stuff like “hugely overpaying for a company and immediately driving into a ditch” won’t happen, because all the monetary incentives are against it. But while Musk has lost nearly half his net worth since its peak, and probably will lose a lot more once all this is finished, he will almost certainly still be a multibillionaire at the end. Guys like him can lose more money than any single person has ever lost in history, in less than a month, and still have enough to live 10,000 lifetimes in resplendent luxury.
The odds of such a thing happening increase when one considers the social effects of extreme wealth. Being that rich tends to both convince people that they are heroic geniuses far beyond the capabilities of ordinary mortals, and isolate them from any normal social interaction or criticism. It is exceptionally easy to attract a coterie of yes-men and toadies who will indulge your every whim and bad habit. Substance abuse problems and delusions of grandeur are frequent. Sound familiar?
Non-rich people can be erratic weirdos too, and ordinary businesses without megalomaniac oligarch CEOs have destroyed themselves in the past. But allowing wealth to concentrate to such a degree greatly increases the chance of the kind of completely pointless disaster that has befallen Twitter.
During the New Deal, the oligarch class was cut down to size with confiscatory income taxes on the very rich, which topped out at 94 percent for the top bracket. We could go one better by adding a wealth tax to the largest fortunes, as economists Thomas Piketty and Gabriel Zucman suggest, perhaps even plowing the proceeds into an Alaska-style social wealth fund for the benefit of all.
The solutions are readily available. The larger point is this: The existence of major companies shouldn’t hinge on the behavior of loopy, Reddit-poisoned crackpots.
