Thursday, November 03, 2011


"Capitalism did not create poverty -- it inherited it."

The real 1%
One of the most repeated complaints by the left is that rich people are so very rich and that they have so much of the nation's vast income, and that's not fair. I am always slightly amused that someone is outraged that rich people are, in fact, rich. Yes, they have more money. That's sort of the definition of rich: they have more money.

The left brings this up as a complaint because they think it is unfair and unreasonable. Some people are horribly poor and struggle daily while others have so much, that strikes them as unjust and improper. This inequality is one of the chanted talking points of the occupiers, for instance, and its where the "1%" line comes from; the richest 1%. They point to statistics such as how the richest 1% have increased their share of the nation's income from 8% to 17% in the last three decades, according to the Congressional Budget Office. The richest 1% of people in the United States control 42% of the nation's wealth.

This seems improper to many without a deeper look into what is happening and why: the rich are getting richer! My life sucks! It seems to get even worse when you compare gross income numbers which suggests the rich are getting richer 1.46% faster than the middle class.

Now, putting aside the greed and envy in these complaints - you're upset that others are doing well because you want that for yourself - there are some flawed presuppositions in these complaints.

What I mean is this: these stats only seem to be unjust and improper because of some basic presumptions about life and economics which are untrue. Some economic myths have to be punctured here to make more sense of this data.

The first of these myths is the idea of a zero sum game. Too many people think there is a fixed, finite amount of money in the world which is shuffled around like slices of a pie. Under this myth, if one person gets rich, he necessarily took slices from someone else to get more for himself. The rich only get that way by making someone else poor, in other words.

The truth is, wealth is not a limited pool which is increased only by taking from others. In a sense, you make more money by enriching others. Wealth is created by investment, expansion, and growth. There is more money around today than there was in 1980, for instance. The GDP of the United States in 1980 was about $2,788,100,000,000. In 2010, it was $14,551,800,000,000; a growth of almost seven times as much money. That didn't come about by taking away money from other countries. It was created through a vibrant economy.

So you can get rich by making money which enriches everyone, by hiring people who work and create products which sell to others, making you money and making your workers money as well. The pool of money is theoretically limitless, although there is probably an absolute maximum amount of reasonable earning possible for any given society. You can get rich by taking money from others, but that's not how most people get there; in fact, very few do - thieves and congressmen, for example. But I repeat myself.

The second myth is that if someone else gets richer, that somehow harms me. This myth presumes that if anyone else gets wealthier, I am somehow harmed or diminished in the process. And the richer they get, the more damage they've done to me and others. This is related to the first myth but in non monetary terms, but it also assumes that when rich people get rich, they keep the money and no one else gets any access to it. They put it in a vault somewhere and swim in it on occasion like Scrooge McDuck.

The problem with this myth is that if someone else gets rich, they've not done me any harm at all (unless they've done so criminally or unethically). The fact that Bob is a billionaire has no effect on me at all, except to make me envious and angry, if I'm the jealous kind. His riches probably help me, in fact, because people who make a lot of money spend a lot of money, thus injecting the economy with their wealth and creating jobs.

When rich Bob buys a mansion, someone had to build it, someone maintains it, and several people work there. They all get paid. The rich spread that extra wealth around by definition unless they are Ebenezer Scrooge and live in squalor out of fear of spending any money. All those nice cars and expensive clothes and jewelry and boats and vacations and so on cost them money and that means they bought it from workers who are poorer than they are. Like you and me.

The third myth is that it is bad that the rich are getting richer. This myth assumes that as the wealthy get wealthier, then the riches of the nation are being concentrated in fewer and fewer people. And this is declared "bad" because of the above myths.

However, while the rich have gotten richer (even adjusted for inflation) over the last few decades, the truth is the number of them has gotten greater, not smaller. The concentration of wealth is instead spreading out. That's a mathematical inevitability. In 1980, the population of the US was 227,000,000. 1% of that was just about 2.3 million people. In 2010, the population was about 308,000,000, which makes 1% of that around 3.1 million people. More wealthy people, more "1%."

The fourth myth is that it is necessarily and absolutely unjust if some have more than others. That if the 1% richest people int he United States control 42% of the country's wealth, then that is wrong and justice is being violated.

The problem wit this myth is that raw numbers tell us nothing. What matters is how they got rich and what's happening to the rest of the country.

If the richest 1% got that way through the slave trade, prostitution, and acting as attorneys in frivolous class action lawsuits, then they'd be horrible for it because of what they did. Justice is defined by an absolute set of ethical standards, not relative distribution of goods and comforts. If poor people are that way because they were downtrodden, misused, and stolen from, that would be bad. If they are that way because of missed opportunities, bad luck, or personal problems (drugs, sloth, stupidity, etc), then that is not an indication of some injustice.

Merely spouting numbers about alleged concentration of wealth, earnings and so on tells us nothing about how that came about and has nothing to do with justice in any sense of the word, any more than giving scores for the World Series tells us about justice. The fact that the Walla Walla Onions scored 17 and the Topeka Corns scored only 2 doesn't mean that the game was unjust, only that the score was lopsided. There's no ethical significance to that number whatsoever.

If the Onions cheated or the umps made terrible calls then there'd be a problem, but even then the problem is not with the score, it is with the cheating and bad calls. If rich people got that way through cruelty, theft, and tyranny, then the problem is their cruelty, theft and tyranny, not their greater wealth. The remedy for this may be to remove their wealth, but the wealth its self is not unjust, it is merely wealth. Inanimate objects and economic concepts have no ethical weight. Only people can be right and wrong in what they do and why, not things. A gun is just a chunk of metal, wood, and plastic, but a human can murder with their bare hands.

Who has what riches doesn't signify; what matters is mobility. Can you move up, are you able to better yourself, do you have the opportunities to make your economic situation better? Because if you can get better, then the riches of another person are irrelevant to your situation. And in America, still, you have that opportunity, more than almost all of history and most of the world around us. At Reason Magazine, Shikha Dalmia writes about income inequality:
In America, well-being mobility, in a sense, comes to you without you having to go it. You don’t have to be income-mobile to improve your quality of life. But that doesn’t mean that Americans don’t have income mobility. Far from it. Odds are, anyone who makes basically sensible life choices such as going to college, getting and staying married (preferably to a working spouse), and working full-time will find themselves in the top income quintile in their peak earning years.

This allows more Americans to be “threshold earners”: After they reach a certain income level, they can trade more work for greater leisure, a luxury that only the filthy rich enjoy in poor countries.
And without question almost everyone in the US has the opportunity to better themselves, even more now than ever with the internet. So if Bob is a billionaire and you're not, so what? You can do better if you choose to and work at it. It doesn't always work, but you have the opportunity to do so if you choose to take advantage of it. In other nations and for the bulk of human history, where you were born, there you stayed. You could not find a way out of your situation, you could not earn more. You struggled merely to survive.

There are some who are utterly trapped. Someone who is a quadriplegic has significantly fewer opportunities than a fully healthy individual, for example. Someone who is ravaged with addiction and self destructive lifestyle won't dig their way out. But those limitations are not due to economic problems, and not due to Bob being rich.

And, as it turns out, Bob isn't as rich as he used to be. Again from Reason Magazine:
New data from the University of Chicago’s Steven Kaplan shows that, despite government bailouts, in 2008 and 2009 the adjusted gross income of the top 1 percent—a disproportionate number of whom work in the financial industry—fell to 1997 levels. All in all, the fat cats took a 20 percent income hit, compared with the 7 percent lower earners suffered in the aggregate. Few economists believe that the super-rich will ever reclaim all their pre-bubble earnings.
And that spread between the wealthy and the middle class? That actually isn't 1.46% if you look closer at the numbers.
Northwestern University economist Robert Gordon has pointed out that this analysis is based on the common price index, a number that both overstates the growth in real income among the haves and understates it for the have-nots. Indeed, globalization and big-box shopping outlets such as Walmart—the very forces that liberals blame for inequality—have vastly reduced prices for modest-income folks who shop at such venues. But the Paris Hiltons of the world who patronize stores like Versace and Roberto Cavalli haven’t benefited as much, because these businesses are almost completely immune to competitive price pressures. Once the productivity data is adjusted for such factors, Gordon found, the gap between the rich and poor grew only by 0.16 percent per year—or one-tenth of the 1.46 percent that liberals tout.
Basically opportunity is expanding for poorer people in ways that the wealthy don't benefit from. The internet makes it possible for me to publish books despite my poverty. The internet lets me research things I'd never have been able to find out. People who are vastly wealthy could comfortably buy what I can get online now for almost free. They don't benefit from this as much as I do. So the gap is closed by an enormous amount. There's a gap, but its tiny.

I am 99%So don't worry about wealth inequality. Don't worry about someone, somewhere being richer than you are. That's irrelevant. What you should be concerned about is how they got that way; and for many of these super-rich, the way they're getting that way is through crony deals with government that leverage their earnings up and destroy competitors.

If you need to be angry at the rich, don't do so out of envy. Do so out of a real sense of injustice because they're gaming the federal government and taxpayers like you. Its not their wealth that's the problem, its the corruption in government they use to become wealthy.

1 comment:

Rob said...

Much of the growth in that GDP figure will come from simple depreciation of the currency through growth in money supply. A 2010 dollar will buy a fraction of what the 1980 dollar did. Try buying a house at 1980 prices. That said, GDP has grown; the pie does get bigger.