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Suppose you could snap your fingers and instantly reduce the huge disparity in income distribution across the globe. Would you do it?

Many of you will probably say yes. You'd take some of the "extra" money from the rich and use it to help the needy. But suppose I put one condition on this magic power of yours. Suppose the only thing you can do by magic is reduce by half the wealth of the top 1% while knowing the money would be transferred to no one. The money would simply cease to exist. The rich would have half as much, while everyone else remained the same. Would you use your powers then?

I keep reading opinions that the gigantic gaps we see in income distributions are corrosive to a healthy society. If that's the case, using your magic to screw the rich should be a good thing for the world - including the rich themselves - even if the poor are not directly helped at the same time.

So how about it - Would you use your magic to screw the rich, thus reducing the gap in income distribution?

 
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May 9, 2012
That's an interesting question. As you know, and as I've mentioned here before, financial planners get asked a similar question to try to find out how you view the relationship between other people's success or failure and yours. It goes like this:

Which of these two alternatives would you prefer? Scenario 1: You get offered a job with a salary of $60,000 a year. Someone you know with identical skills gets offered the same job at a different company for $70,000 a year.

Scenario 2: You get offered a job with a salary of $55,000 per year; as in the above scenario, the person you know gets offered an identical job with a salary of $50,000 per year. Which scenario would you prefer?

The answer to this is very telling. If you'd prefer the lower salary as long as the other guy is earning less than you, rather than the higher salary when the other guy is earning more than you, it means your perspective is skewed toward preferring other people's failure to your success.

Scott's question is similar: do you just want other people to do worse, rather than yourself to do better? If all you want is for those rich SOBs to be poorer, then what happens when you or a member of your family becomes rich? Remember, we don't have economic classes in this country. People move into and out of both richness and poverty every day.

Let me try another thought experiment, along the line of wealth redistribution. Let's say that ten of us get together, and decide it's not fair to have rich people not give some of their money to us. So we go out and hire a robber, saying we'll pay him a percentage of what he robs from other people at gunpoint. One of our group says that that won't be fair, because the robber may rob from a person who is not rich. So we tell the robber to only rob people who are obviously well-off; driving expensive cars; wearing Rolexes and diamonds.

Would you buy into that plan? If not, why not? It's what the government under the current administration wants to do.

Whenever you take money from someone who has earned it and give it to someone who has not (with the obvious exception of people who cannot [rather than WILL not] provide for themselves, you are robbing the earner of their property. You're just using the government to do it rather than hiring your own personal robber to do it. Dr. Walter E. Williams, the John M. Olin Distinguished Professor of Economics at George Mason University, posits that if it is illegal for an individual to do it, it is illegal for the government to do it. I think he has a point.

In Scott's scenario, the robber takes the money, but throws it away. To me, robbery is robbery, regardless of what the robber does with the money. But those of you who follow my posts here are probably not surprised. Go figure.
 
 
+4 Rank Up Rank Down
May 9, 2012
Studies show that inequality is so offensive to the sense of justice (among humans and chimpanzees) that test subjects will act in ways that harm themselves if it harms the better-off more. Many people would therefore choose a world where everybody makes half as much money, or reduce the wealth of the 1% even if it means an economic recession. Personally, I have a theory about recessions: I suspect they happen when the richest 1% (or 20%, for that matter) have too much money. All that money sloshing about reduces interest rates (how much are you getting on your checking account or your savings account? probably close to nothing) and other investment and savings incomes. A financial bubble is then created in some damn-fool way (housing, hedge funds, buying on the margin ... recessions and depressions are all different, like unhappy families) and the rich and the would-be rich and the near-rich pour their money and the profits from their investments and borrowed money into the bubble. Until it bursts. The rich tend to get out before the bubble bursts more often than the middle classes, and they are less harmed by the crash and thus recover long before the economy (as has happened already). Boom and bust--it's basic psychology and economics. Of course, there may be other theories and I have some more ideas of my own, but I suspect that giving too much money to people who spend is much better than giving too much money who tend not to spend very much of the additional cash. Over-investment and over-saving is even worse than over-production, which Marx thought was going to be the death of capitalism. Say hello to the Japanese crash. Say good-bye to China. Lots of luck to Europe and the USA--you'll probably be just getting on your feet in the middle classes when the next crash comes thanks to China and the stupid decisions being made now by conservatives and liberals alike. Remember, it was Bush that crashed the economy, not Obama. 2007-2008--Obama was just a glint in somebody's eye when the bubble burst, let alone during the 15 or 20 years that inflated it.
 
 
-4 Rank Up Rank Down
May 8, 2012
Personally, I would destroy half of the artificial wealth that the .01% has created for themselves through the federal reserve. A sudden hit like that would be pretty difficult to live through for a time, but once the US economy returned to its real level of wealth, as determined by real productivity and output, not inflated asset values, sustainable growth would return. Personally, I wouldn't take such a drastic step right off the bat.

However, I believe that many people here are vastly overestimating the impact of wealth in politics. Wealth is certainly a powerful tool, but even if you eliminated the influence of rich corporations, there would still be plenty of internal corruption to worry about. The department that regulates automobiles depends on your dependence on the automobile. And if they have to, the wealthy will simply influence academia in order to influence government, as they already are, but to a greater extent. Friends in high places will always matter.

Personally, I believe that if you limit corruption, in terms of
 
 
May 8, 2012
It's not the money itself -- it's the use of money to do damaging things (favorable laws, re-routing of public funds for personal use, etc).

BTW, there is precedent in the US government for income re-distribution. Just look at monopoly breakups like the Ma Bell and others. The only thing different in your thought experiment is applying that to individuals (rather than businesses).
 
 
May 8, 2012
Yes.

I've got an even better idea. Just wipe out all the wealth in the stock market by making shares worthless. Most of the wealth is fake anyway. And such a move would disproportionately affect the rich, while still allowing them to own all their other assets.

Where is the "kill" button for the stock market?
 
 
May 8, 2012
I'm not sure what you are suggesting, because wealth has to go somewhere, unless it is destroyed. So lets assume that some angry volcano god demands that the top 1% sacrifice to him, or something along those lines.

If the volcano god demands money, then what you've got is massive deflation, and probably a crash in the system as people default on loans and a switch to some sort of non-monetary system.

If the volcano god demands actual wealth - so whenever the 1% consumes something they have to give one to the volcano god, and for services they would have to hire people to walk up and down the volcano for no reason. This would cause inflation and would do more for income redistribution and would be generally good because it would boost production demand.

There is one final option - a magical hard cap on the income of the 1%. This would mean that when a person makes a certain amount - they are somehow prevented from any further aquisition. This I would do in a heartbeat, because it would mean that the only possible way for a person at the cap to gain more wealth would be to raise the baseline.
 
 
May 8, 2012
Let's move the focus away from income distribution. I'm perfectly content with the fact that some work harder than I and as such will amass much greater wealth than I can. I'm also fine with the guy who inherits all his wealth without lifting a finger.

It's what happens next, that I don't like. and that is that I pay a higher percentage taxes on my earned wealth than someone else does on their total income just because they make most their money in capital gains. The argument being that the corporations were already taxed and so you shouldn't cause investors to be taxed again. Well from what I see it, most of the corporations have found ways to avoid their taxes, so the taxes haven't been paid, and so the burden falls all the heavier on the middle class.

When will the middle class rise and say enough already?
 
 
May 8, 2012
How about a button that instantly turns the poorest 1% into FABULOUS abstract artists, who paint with INTENSE passion and layers of meaning while radiating a MESMERIZING charm (and let's not minimize this) -- an EXPLOSIVE monetary upside.

All the BEST PEOPLE will be buying this art, darling.

 
 
May 8, 2012
Some very interesting reading on this topic can be found in Wikipedia under the title "Inequity Aversion." The interesting thing is that in studies, it shows that people choose to be fairly altruistic and avoid wealth inequity... except when there is a perception that wealth will be forcibly redistributed (i.e. rules that allow the disadvantaged person to take some from the richer). In those !$%*!$%*!$%*!$ roughly 40% of people will take money from the richer person, and the richer show no altruism at all.

It also showed that most people would prefer that nobody gets any money, than to let someone else get too large a share.

Interestingly, I remember reading a year or two ago that when this experiment was repeated in other countries, inequity aversion was shown to be far more pronounced in western countries, and especially in the USA.
 
 
+10 Rank Up Rank Down
May 8, 2012
Getting rid of half the money isn't what matters - what matters is control of resources. If the rich are secure in that, nothing changes.
 
 
+1 Rank Up Rank Down
May 8, 2012
Chuck wrote that a deficit which caused inflation affected Warren Buffet more than the rest of us. Um, patently false. Ever hear of marginal utility?

Inflation is a leading cause of the disparity in wealth - and that is by and large a fiscal/spending policy, not a tax policy, as a 100% tax rate wouldn't even offset the deficits we're currently running.

Gas being $4 vs $2 a gallon isn't going to change Buffet's day to day life in the slightest. For commuters like myself, it's money that isn't going into the economy anywhere else. And with the anti-profit, anti-growth policies of the Obama Administration, the money going to big companies is just sitting there, because it's more profitable for them to NOT reinvest it in new projects or other companies; or, technically, the expected return will not justify the level of risk in the current climate -- they can do better without taking any risks at all.

What we really need is a climate in which it's (a) better for the big guys to take risks than not to, and (b) the risks being undertaken aren't economically destabilizing (e.g., leveraged speculation). Currently, we have neither. And that's where the gap comes from; it's not tax policy at all. That's just a cheap way of pandering for votes -- the politics of envy and hate, by the very people who say they are against that sort of politics!
 
 
+16 Rank Up Rank Down
May 8, 2012
The first part of this post which suggests that many of us would equalise world wealth if we got the chance is wrong.

Average World wealth, i.e. assets, is about $33,000 and income is about $7000 p.a.

That last is a mean, the median would be $1,700.

I suggest that not many readers of this blog are worse off than average and that most would keep their advantage.
 
 
May 8, 2012
Dingbat was on the right track. I'd definitely prefer a way to reduce the influence of the super-rich -- forcing them to seriously compete in a market economy instead of just buying up or crushing opposition, for example.

Years ago I got into a semi-debate with my father on inheritance tax. He suggested it was easily defeated by spending the money to give a kid a non-fiscal but equally unfair advantage: a first-class education, a high-paying career, whatever health/appearance enhancements can be bought, etc. I argued that made high inheritance tax even more attractive as an economic policy, since you rewarded parents for producing individuals equipped to generate value instead of trust-fund babies and hereditary corporate deadwood. If you had wealth but knew you couldn't leave it to your kids, wouldn't you spend it now to assure a high-paying career in medicine, or on engineering skills to provide a leg up in technology?

For that matter, if children of the powerful knew that government, lobbying and Daddy's corporation were forbidden to them, wouldn't they embrace the educational advantages needed to earn big money elsewhere?
 
 
+16 Rank Up Rank Down
May 8, 2012
how come Scott can say sc re w the rich in his post, but I cannot quote him without getting the swear symbols in my entry? I guess only the 1% get to swear....
 
 
May 8, 2012
It's funny that everyone reacts to the simple premise of this blog post by focusing on poor people "taking" money for themselves, when Scott clearly said that only the 1% would impacted by this. Perhaps it is Scott's frame of this as !$%*!$%*! the rich".
It might be more interesting to see how people would react if that half of the 1%'s wealth would go towards reducing the deficit instead of just disappearing. Not towards helping poor people, but helping all of us by reducing the credit card bill we all owe.
Scott frames taking money from the 1% as !$%*!$%* the rich. Is the current system !$%*!$%* everyone else?
 
 
+1 Rank Up Rank Down
May 8, 2012
How to bring total anarchy to the world, just keep snapping the fingers and reducing the top1%'s wealth by 50% until there's no wealthy left and we're all as broke as each other.
 
 
May 8, 2012
I don't have the data to make anything out of this idea... But I would think that reducing the wealth by 50 % of the top wealthiest would probably do nothing. There would probably still be a large gap between rich and poor after the reduction to the wealthiest.

Equality is a lie, perpetuated by the naive.

I would probably push the button to see what happens though..
 
 
May 7, 2012
There's a difference between money and wealth, of course. Destroying money would just cause deflation, sooner or later, and then the money the poor have would be worth more. So for this experiment, you have to destroy actual wealth. Really sounds perverse when you look at it that way. It recalls Roosevelt destroying farm products to keep prices up.
http://ex-army.blogspot.com/
 
 
+28 Rank Up Rank Down
May 7, 2012
Scenario 1:
Bill and Ted both love pie. Bill cuts the pie the pie unevenly and takes the bigger piece. Ted, mad about this, cuts Bill's piece to make it even, and throws away the left over.

Result:
Both have the same amount, and both could have done better.

Scenario 2:
Bill cuts the pie unevenly and takes the bigger piece. Ted, seeing his needs not met, bakes a second pie.

Result:
Everyone wins.

Lesson:
Idiots focus on getting the biggest slice of the pie they can.
Smarties focus on making the pie bigger.

So....:
Stop being so damn focused on what other people have.
Focus on what you can do to grow the pie.
 
 
0 Rank Up Rank Down
May 7, 2012
Addition: I forgot to mention that I'm also assuming (just for the sake of the calculations), that the super rich guy owns 1/3 of the company. This was an arbitrary choice.
I'm not sure what the real number is for the US.
 
 
 
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