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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 7, 2012
I'm trying to think how this could be done.
Let's assume, just for the sake of the calculation, that the we have one company, one super-rich guy and 99 normal guys.
Let's assume further, that the company is a public one, with 594 shares.

So, the super rich owns 198 shares and each normal guy 4 shares.
Therefore, "reducing the wealth of the rich bastard by half" means
a) taking away 99 shares from him
b) bombing 1/6th of the company to make the value of those 99 shares disappear. That is, because the remaining 495 shares aren't allowed to appreciate.

Now, every normal person has kept their shares and share prices are unaffected (that's precision bombing for you) but the output capacity is down by 17%. (Is it? Where did the output go before? The rich guy didn't consume that much and couldn't invest it because we assume a constant share distribution.)

This is where it gets complicated for me. Absolute demand goes down (the rich guy will economize a bit and buy one lamborghini less) but demand /relative to industrial capacity/ ought to rise because most customers are as rich as before and demand the same thing (like toilet paper). This means higher prices and more profit reinvested and paid out in dividends. Not sure what the monetary policy of the central bank ought to be here.

What I'm not sure either is the effect on the employment. Let's assume we make an effort and solve that problem by a mixture of reallocating labour to rebuilding and reducing the work hours of those unfit to carry bricks around. So no one get's laid off. There's a temporary slump in demand but I guess, after the rebuilding it will stabilize at a level that is the original demand level minus the reduction by the rich guy. If we do lay off people, the slump will be bigger, for instance people will no longer be able to afford medical care and simply be sicker than before -> sinking demand in the medical department of our universal company.

Also, there are a few studies that say that wealth differentials generate unhappiness. I don't know the exact relationship so I hesitate to say that overall happiness goes up. Does Schadenfreude count?

Boy, this is complicated.

I'd push the button, because I'm tired of all that theorizing and want to find out what happens really.
 
 
May 7, 2012
I would totally take from the rich and give to the poor. As long as "rich" is defined as "more than I have".
 
 
May 7, 2012
I would absolutely push the button to remove half the wealth of the 1%, for no reason other than this would reduce the undue influence the rich currently have over our "democracy".
 
 
+44 Rank Up Rank Down
May 7, 2012
It's not the money itself. The problem is the increasingly rigged system that keeps the money flowing upwards. Taking money from the wealthy (with or without redistribution) is not the answer.

Looking at the problem as a simple issue of "fairness" is not helpful. Much better to ask the question: "what policies produce the healthiest, and most productive society?".

A child that receives an excellent education, is well fed, has access to adults who care and encourage him or her to set high goals for the future, etc. is going to be more productive than one who lacks those advantages.

The more we can do to ensure as many kids as possible grow up in a world that allows them to develop and use their talents, the better off we will be. An "excellent" education system encourages and rewards hard work. It does not hand out something for nothing. It does however, give kids access to a world in which they can work hard - and then benefit from their efforts.

In reality, there are many ways the current system is rigged. One example: Our elite universities swerve as gatekeepers to a great extent to the best opportunities. They do this with the help of tax-exempt status for their multi-billion-dollar endowments. If access were merit-based that would be OK. It is not. The legacy admissions preference helps ensure children of past graduates secure club membership over better-qualified rivals. I'd argue that such institutions do not offer a public service commiserate with their tax benefits. At a minimum, I'd like to see requirements put in place that would force them to dramatically expand the number of students they serve - based on the size of their tax-exempt cash hoard.

(My own middle-class, non-legacy, son was recently accepted to Stanford - arguing against my point. While I'm thrilled with his acceptance, the experience has only reinforced my position as I get to know other parents. They are lovely people, but an outsized percentage attended Stanford themselves.)

So - no: Taking money from wealthy people - and doing nothing else is not helpful. Much better to address the many ways the system is rigged to keep wealth flowing upward.
 
 
-10 Rank Up Rank Down
May 7, 2012
I'll tell you three people who definitely would: Barack Obama, Nancy Pelosi, and Harry Reid.
 
 
May 7, 2012
I have no problem with someone earning more money than I do, or with the way they legally earn it and how they manage to keep most of it. Being what most would consider a middle income wage earner, I would just like to have the chance to pay the same effective taxes on my earnings as they do on theirs. I don't think that vaporizing half the wealth of those individuals is going to do it for me.
 
 
May 7, 2012
10,000 years ago, there were two tribes living in caves on two different continents, and they both had access to the same amount of goods (i.e. income). Then, one day, Tribe A invented the wheel and income inequality (between Tribe A and Tribe B) soared. What a bad day for humanity.

Fast forward to today. Most everyone has that wayward brother, uncle or friend who refuses to get up out of his own way and make a decent living. His income is pretty much fixed at some low number. Now, each time you or anyone else increases their own productivity and income, the income disparity relative to Wayward Uncle increases.

Moral of the story: The bottom end of the spectrum is always going to be roughly the same, so rising income disparity is actually a fairly strong indicator of...progress! OMG.
 
 
May 7, 2012
2 more thoughts:

1. Scott's question is boring so screw it. It needs to be more fun and have a chance of personal risk and loss. Let's do this one instead:

You and a number of people are sealed in seperate rooms with a button. Each time the button is pressed the top 1% loses half their wealth but there's a 50% chance everyone else loses their half their wealth too.

Do you press the button?



2. Out of curosity, in what form would half the wealth disappear? Where the wealth disappears from, from a logical standpoint could have different consequences down the road. IE: stock crash, housing crash, gold crash, governments defaulting on half of their bonds, etc.
 
 
May 7, 2012
Given that the estimated values of all derivatives is around $1000 trillion, or about 18 years' worth of global production, making this amount of wealth vanish wouldn't change anything.
 
 
-5 Rank Up Rank Down
May 7, 2012
warning: this comment is written in a style that can easily be confused as advocacy or opinion!

let's say you could magically put food and medical supplies into the hands of every criminal. but by doing so you would also give them guns and rape kits. would you?

obviously weapons are not the same as wealth and criminals are not the same as rich people. but if the rich live in a system where they can use some of their wealth to create more wealth for themselves at the cost of others, then it might make sense to regulate how much wealth someone can have.
 
 
May 7, 2012
Thou shalt not covet thy neighbour's house, Neither shalt thou desire thy neighbour's wife, thou shalt not covet thy neighbour's wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour's.
 
 
May 7, 2012
"Would you use your magic to screw the rich, thus reducing the income distribution gap … while knowing the money would be transferred to no one?"
Of course NOT. Maybe .1% of the populace would say "YES", but lacking the info/time/energy/materials/space/money, are powerless to that effect.

"Would you use your magic to screw the poor, thus increasing the income distribution gap … while knowing the money would be transferred to no one?"
Of course NOT. Maybe .1% of the populace would say "YES", HAD the info/time/energy/materials/space/money, and in fact did so.

Still, my answer to Scott's query is NO.
The problem is NOT the income distribution gap, nor even its change over the past 3 decades.
The problem is that:
[the vast majority of] the poor are poorer than they were 3 decades ago
more people are poor than there were 3 decades ago
the middle class is becoming poorer
more middle class are moving toward poverty, than poor are moving away from poverty

It's about the gap between poverty and 'slavery' closing, more so than the income distribution gap.

Most of those who can comfortably afford everything I really needed, and have no debts to worry about, are not really that mad at the richest .1%
 
 
+3 Rank Up Rank Down
May 7, 2012
The solution is to lift up the bottom, not cap off the top.

Why people insists that the the size of the income gap between rich and poor is bad?

 
 
May 7, 2012
I wouldn't snap my fingers even before your condition. The top 1% already have total tax rates of up to 50% in the US. We still have poor. Forced income redistribution doesn't work. Time to scrap it because it is clinically insane. You can't keep trying the same exact thing and expect different results each time.

Frankly I don't care about income disparity: the gap itself is irrelevant and is simply a tool to trick the ignorant masses and useful idiots to buy into something they shouldn't. If someone honestly earns a billion or two, governments should let him keep it. I care about the poor, but "because of the poor" (ad poverty?) is a logical fallacy on its own. There are moral ways to help the poor and forced redistribution isn't one of them; there are probably better and more efficient ways to help the poor that don't involve government. Most rich people probably are willing to help the poor on their own and can do the job better than "good enough for government work".

To paraphrase thather: spreading the wealth doesn't work when there's no more wealth to spread.
 
 
+1 Rank Up Rank Down
May 7, 2012
DNA says "Unearned wealth is unearned guilt".

OK - so what is "earned" wealth? For example, would you call Mitt Romney's estimated $270 million "earned", considering the methods by which he earned it? His company, Bain Capital, performs "leveraged buyouts" of other companies, which involve saddling those companies with massive debt to pay HIS fees. (A report on the details in in the non-partisan New Yorker: http://www.newyorker.com/online/blogs/johncassidy/2012/01/bain-capital-a-users-guide.html).

Would you say the same about Bill Gates' billions, or Steve Jobs' billions?

Any suggestions about taxing or redistributing income only address part of the problem. A more thorough redistribution would also take account of the money that has been removed from the economy and is being hoarded by the 1%. I'm NOT in favour of this, before anyone starts shouting at me! I'm just making a point about why any suggestions for taxing *income* won't make much difference to the big picture. Warren Buffet doesn't make much income per year, but he has billions in assets that such measures can't touch.
 
 
May 7, 2012
"If the rich, including corporations, could institute debtor's prison, would they?"

The answer to your question, and to Scott's is, "No". Not if given sufficient thought.
If a corporation goes bankrupt, should it's corporate officers (CEO, board of directors, etc) be imprisoned until the debt is paid? Most CEOs would probably answer, "No".

On a slightly related topic:
The U.S. government, on behalf of it's citizens (some of whom pay taxes), wants to spent approx $4 trillion a year, increasing spending by 5-10% into the future. It only collects around $2 trillion in taxes, so it has a deficit of $2 trillion.

If the U.S. government were to confiscate 100% of the wealth of everyone in the Forbes 500 richest people in the world, it would reduce the deficit (this year) to under $1 trillion. Then, next year, it'd be back to $2 trillion again and increasing.

My point is not just that it's futile to "tax-the-rich" to balance the budget. But, in fact, by running a perpetual deficit -- and printing money to finance it -- we are, in effect, taxing the rich, by reducing the value of the money they've got. Every $1 printed is diluting the value of every $1 that exists. The more money someone has, the more they are affected by the dilution.

Think of $1 as a "share" in the USA corporation. I have around 12,000 shares in a savings account. Warren Buffett has billions of shares. When the USA corporation issues 2 trillion extra shares, the value of all the shares is reduced. But since Warren has more, he is affected more. He can still afford more nice things than me, but he can't buy as many airlines as he could before.
 
 
+20 Rank Up Rank Down
May 7, 2012
An old Russian joke tells the story of a peasant with one cow who hates his neighbor because he has two. A sorcerer offers to grant the envious farmer a single wish. “Kill one of my neighbor’s cows!” he demands.

I think that many people would be just as glad to have the rich suffer even if no one else gained.

I also believe that most of those suggesting tax increases for high incomes are each thinking that the income bracket just *above* them should pay. So it is our version of killing our neighbors cow anyway.
 
 
May 7, 2012
Conversely,

If the rich, including corporations, could institute debtor's prison, would they?
 
 
+1 Rank Up Rank Down
May 7, 2012
Interesting.

I think there would be zero long-term difference. Eliminating half the wealth of the top 1% would be more-or-less the same as redistributing it; it would cause massive deflation due to restriction of the money supply, and thus make the money/income possessed by the poorest people worth more. There would be more short-term issues (deflation is bad in the short-term because of outstanding contracts based on a fixed price; could bankrupt some smaller companies).

But really, what's the difference? Either way you're taking money away from one group of people with the intention of helping another. Leaves a bad taste in my mouth.

If this were a laudable goal, the better way to do it is slowly, and by changing regulations so they favor smaller corporations over larger ones. I don't have time to get into how I'd like that to go, but just magically making everything happen... not so much.
 
 
May 7, 2012
Arent we already doing that now with the tax system in place? how's that working out for us?
 
 
 
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