Imagine, if you will, a world in which a mysterious God-like figure creates and distributes money. Let’s call it: Leslie. Leslie only asks that every person go to a special building and sit in silence for 5 hours a day, 5 days a week. Anybody who does this, gets money. For simplicity, we’re gonna leave the uses of money out of this discussion, but assume for now that everyone wants it. Anybody who follows Leslie’s instructions gets $50k a year, and pretty much everybody does because it’s not that hard and it’s an ok salary.
Here’s the question: how do we make rich people? Here’s the answer: by making poor people. Kelly is an entrepreneur. Kelly decides that they are going to offer their friends a place to store their money, so that their friends can have more space in their homes for activities. Kelly only asks an annual fee of 5% on whatever Kelly stores. Assuming Kelly’s friends ask them to store ALL of their money, and they are all the same age (have been earning for the same length of time at the same rate) as Kelly, here is how the numbers work out.
For Kelly to get 5% richer, they only need one client, who will get 5% poorer. For Kelly to get 50% richer, they need 10 clients, who will each become 5% poorer. For Kelly do double their money, they need 20 clients. Alternatively, they could up their prices. They could double their money by doubling the rate (to 10%) and only getting 10 clients. With this, we can establish a relationship: the number of poor people negatively correlates with the extremity of individual poverty, or: the more people there are, the less poor they have to be. Moreover, there is an exponential relationship between the growth of an individual's wealth and the number of people who become less wealthy as a result.
How is the real world different from this? Well, for starters, TIME and MONEY aren’t the only resources for sale in real life. There are a lot of folks who get rich by taking other people’s money (see: loans and interest), but there are also people who get rich by discovering or developing a new resource. Gold is an example of a resource that can be discovered, while ride-sharing is an example of one that has been developed. Unfortunately, the process for melting down, re-forming, and selling gold requires the time-labor of people who will get paid less than the person who discovered the gold (unless they’re really generous to their employees) and the ride-share company can only run with the time-labor of people who will ... yeah, you guessed it ... get paid less than the person who developed the concept.
Ultimately, we discover that, in order to sustain an “Upper Class,” a “Lower Class” needs to exist, and it needs to contain more people. The more opulent the lifestyles of the Upper Class, the more dreary the lives of the Lower Class. For most of the history of “civilization,” the entire population of any political entity served at the pleasure of a single ruling family or individual, who enjoyed lavish luxuries thanks to the toil of the lower classes, potentially consisting of upwards of 90% of the population. In Ancient Egypt, everyone besides the Pharaoh was considered the property of the ruler. We owe the pyramids to a greater wealth-gap than we could ever imagine. For these reasons, the “growing middle class” is a phrase we always hear describing economies that are trending positively. The “middle class” is just poor people who aren’t as poor as they were before.
So in the two extremes, an economy can either have an entire nation serving one very wealthy individual (traditional monarchies, authoritarian regimes), or everybody can have the exact same amount of stuff (communism – where nobody has any stuff). It seems fair that everyone should have the same amount of stuff, because equality. BUT – all people are really not created equal. Some people are smarter, some people are stronger, some people develop a passion for overcoming challenges, and some people come to prefer the path of least resistance. Because of factors stemming from both nature and nurture, it is not the case that everyone can contribute the same amount of productivity for the benefit of society, so everyone should really not have the same amount of stuff.
A truly fair system is one where people who are willing and able to do more get more, but people who can’t do more aren’t left behind to suffer. This means constricting the amount of wealth people at the top are able to earn (because the more they get, the more people at the bottom must lose). We have a minimum wage to levitate the people at the bottom, but no maximum wage to hold back the people at the top. High taxes may disincentivize atmospheric salaries, but don’t prevent them altogether. Additionally, the redistribution of the wealth of hard workers and people with natural advantages down to people with natural disadvantages leaves out one key group of stakeholders: lazy people.
How much help should lazy people get? How much of their laziness is their choice, and how much is due to psychological trauma, bad parenting, &c? If they don’t get any help, they may turn to crime – an easier alternative to getting a job that, as a bonus comes with the opportunity to go to jail and having your food and housing provided by the state for a while. There is a balance point to aim for where the government isn’t giving so much to people at the bottom that there is no incentive to work, but it’s also giving enough that they don’t turn to desperate measures to survive, or simply give up altogether.
Really the whole thing is about balance. Can we make a world where nobody has to be at the bottom? No. For something to be higher, something else must be lower. Can we create a world without poverty? MAYBE – by reigning in the wealth of the people at the very top. Mike Trout’s $37.7 million salary is equivalent to 754 individuals making a nice $50k. According to Japan Times, the world’s 500 wealthiest people grew their fortunes by $1.2 trillion, which is equal to 24 million people making a nice $50k. But then there are bad stats, too. Worldpopulationreview.com reports that the 2018 GDP of the entire world was almost $85 trillion. Divvy that up among all 7.8 billion people on Earth, and everyone gets a little less that $11k. GDP is not really all the wealth that is available to be earned and it doesn’t include cash transactions or other barters with legitimate precision, so that’s just a frame-of-reference stat, but it’s sobering nonetheless (it's also a good argument for less procreation).
So what are we trying to achieve? What does a “good economy” look like? It looks like talented and hardworking people being able to earn enough that they are encouraged to keep working hard and producing, because the hard work of the most talented people creates jobs, trickling down the ladder to people at the bottom, who don’t have the talent or don’t have the work ethic to create their own jobs. But along this chain, the difference in salary should be limited so that the people at the top don’t get so much that the people at the bottom are left to suffer so much that the system falls apart. If the people at the bottom decide they don’t want to do their jobs, then the people at the top don’t get paid either. The “dark matter” of economics is pain and discontent. Generally, economics just talks about the flow of goods and money, how people act when the supply of one or the other changes, &c. But pain and discontent do crucial work behind the scenes. When the people at the bottom are in too much pain, they can transfer that pain directly to the people at the top, perhaps by going on strike or by starting a revolution and cutting off heads with a guillotine. The people at the top need to make sure they aren’t caught up in their fun while discontent and pain are growing among the people at the bottom, because that’s when the whole system comes crashing down, and everybody is equal in their poverty again. It feels like we’re getting dangerously close to that point these days.
I write this as someone solidly in the middle. I am talented and hard-working, but I have suffered quite a bit. Because of what I’ve suffered, sometimes I need to rest. I can’t constantly work my bum off, but when I can work, I want my work to make a difference in people’s lives. When it’s impossible to do work for the good of other people without pushing myself towards the bottom of the “middle class,” and there’s no incentive other than warm fuzzies, it’s hard to convince myself that I really am doing the right thing. My whole family seems to think I’m a communist hippie happy-go-lucky take-nothing-seriously dipsy-doodle. Or maybe it’s just me that thinks that, and I only think that because economic pressures are the only empirical measurement we’ve developed for personal success. Who really knows?
There are a lot of problems out there when it comes to money and wealth. We all need it. Some of us are unhealthily obsessed with it. Some of us don’t want to think about it and just want to do the best work we can. Some of us are desperate for it because we want our kids to be able to eat dinner tonight. It’s a lot to think about and I obviously don't have the answers. The only recommendation I want to make is: DON'T OVERSIMPLIFY IT. Economics/wealth/money is a complicated beast and the simple solutions won't work. Equality for all really isn't fair, but neither is whatever the heck we've got right now.
5 July 2020
Lower Greenville, Dallas, TX
Here’s the question: how do we make rich people? Here’s the answer: by making poor people. Kelly is an entrepreneur. Kelly decides that they are going to offer their friends a place to store their money, so that their friends can have more space in their homes for activities. Kelly only asks an annual fee of 5% on whatever Kelly stores. Assuming Kelly’s friends ask them to store ALL of their money, and they are all the same age (have been earning for the same length of time at the same rate) as Kelly, here is how the numbers work out.
For Kelly to get 5% richer, they only need one client, who will get 5% poorer. For Kelly to get 50% richer, they need 10 clients, who will each become 5% poorer. For Kelly do double their money, they need 20 clients. Alternatively, they could up their prices. They could double their money by doubling the rate (to 10%) and only getting 10 clients. With this, we can establish a relationship: the number of poor people negatively correlates with the extremity of individual poverty, or: the more people there are, the less poor they have to be. Moreover, there is an exponential relationship between the growth of an individual's wealth and the number of people who become less wealthy as a result.
How is the real world different from this? Well, for starters, TIME and MONEY aren’t the only resources for sale in real life. There are a lot of folks who get rich by taking other people’s money (see: loans and interest), but there are also people who get rich by discovering or developing a new resource. Gold is an example of a resource that can be discovered, while ride-sharing is an example of one that has been developed. Unfortunately, the process for melting down, re-forming, and selling gold requires the time-labor of people who will get paid less than the person who discovered the gold (unless they’re really generous to their employees) and the ride-share company can only run with the time-labor of people who will ... yeah, you guessed it ... get paid less than the person who developed the concept.
Ultimately, we discover that, in order to sustain an “Upper Class,” a “Lower Class” needs to exist, and it needs to contain more people. The more opulent the lifestyles of the Upper Class, the more dreary the lives of the Lower Class. For most of the history of “civilization,” the entire population of any political entity served at the pleasure of a single ruling family or individual, who enjoyed lavish luxuries thanks to the toil of the lower classes, potentially consisting of upwards of 90% of the population. In Ancient Egypt, everyone besides the Pharaoh was considered the property of the ruler. We owe the pyramids to a greater wealth-gap than we could ever imagine. For these reasons, the “growing middle class” is a phrase we always hear describing economies that are trending positively. The “middle class” is just poor people who aren’t as poor as they were before.
So in the two extremes, an economy can either have an entire nation serving one very wealthy individual (traditional monarchies, authoritarian regimes), or everybody can have the exact same amount of stuff (communism – where nobody has any stuff). It seems fair that everyone should have the same amount of stuff, because equality. BUT – all people are really not created equal. Some people are smarter, some people are stronger, some people develop a passion for overcoming challenges, and some people come to prefer the path of least resistance. Because of factors stemming from both nature and nurture, it is not the case that everyone can contribute the same amount of productivity for the benefit of society, so everyone should really not have the same amount of stuff.
A truly fair system is one where people who are willing and able to do more get more, but people who can’t do more aren’t left behind to suffer. This means constricting the amount of wealth people at the top are able to earn (because the more they get, the more people at the bottom must lose). We have a minimum wage to levitate the people at the bottom, but no maximum wage to hold back the people at the top. High taxes may disincentivize atmospheric salaries, but don’t prevent them altogether. Additionally, the redistribution of the wealth of hard workers and people with natural advantages down to people with natural disadvantages leaves out one key group of stakeholders: lazy people.
How much help should lazy people get? How much of their laziness is their choice, and how much is due to psychological trauma, bad parenting, &c? If they don’t get any help, they may turn to crime – an easier alternative to getting a job that, as a bonus comes with the opportunity to go to jail and having your food and housing provided by the state for a while. There is a balance point to aim for where the government isn’t giving so much to people at the bottom that there is no incentive to work, but it’s also giving enough that they don’t turn to desperate measures to survive, or simply give up altogether.
Really the whole thing is about balance. Can we make a world where nobody has to be at the bottom? No. For something to be higher, something else must be lower. Can we create a world without poverty? MAYBE – by reigning in the wealth of the people at the very top. Mike Trout’s $37.7 million salary is equivalent to 754 individuals making a nice $50k. According to Japan Times, the world’s 500 wealthiest people grew their fortunes by $1.2 trillion, which is equal to 24 million people making a nice $50k. But then there are bad stats, too. Worldpopulationreview.com reports that the 2018 GDP of the entire world was almost $85 trillion. Divvy that up among all 7.8 billion people on Earth, and everyone gets a little less that $11k. GDP is not really all the wealth that is available to be earned and it doesn’t include cash transactions or other barters with legitimate precision, so that’s just a frame-of-reference stat, but it’s sobering nonetheless (it's also a good argument for less procreation).
So what are we trying to achieve? What does a “good economy” look like? It looks like talented and hardworking people being able to earn enough that they are encouraged to keep working hard and producing, because the hard work of the most talented people creates jobs, trickling down the ladder to people at the bottom, who don’t have the talent or don’t have the work ethic to create their own jobs. But along this chain, the difference in salary should be limited so that the people at the top don’t get so much that the people at the bottom are left to suffer so much that the system falls apart. If the people at the bottom decide they don’t want to do their jobs, then the people at the top don’t get paid either. The “dark matter” of economics is pain and discontent. Generally, economics just talks about the flow of goods and money, how people act when the supply of one or the other changes, &c. But pain and discontent do crucial work behind the scenes. When the people at the bottom are in too much pain, they can transfer that pain directly to the people at the top, perhaps by going on strike or by starting a revolution and cutting off heads with a guillotine. The people at the top need to make sure they aren’t caught up in their fun while discontent and pain are growing among the people at the bottom, because that’s when the whole system comes crashing down, and everybody is equal in their poverty again. It feels like we’re getting dangerously close to that point these days.
I write this as someone solidly in the middle. I am talented and hard-working, but I have suffered quite a bit. Because of what I’ve suffered, sometimes I need to rest. I can’t constantly work my bum off, but when I can work, I want my work to make a difference in people’s lives. When it’s impossible to do work for the good of other people without pushing myself towards the bottom of the “middle class,” and there’s no incentive other than warm fuzzies, it’s hard to convince myself that I really am doing the right thing. My whole family seems to think I’m a communist hippie happy-go-lucky take-nothing-seriously dipsy-doodle. Or maybe it’s just me that thinks that, and I only think that because economic pressures are the only empirical measurement we’ve developed for personal success. Who really knows?
There are a lot of problems out there when it comes to money and wealth. We all need it. Some of us are unhealthily obsessed with it. Some of us don’t want to think about it and just want to do the best work we can. Some of us are desperate for it because we want our kids to be able to eat dinner tonight. It’s a lot to think about and I obviously don't have the answers. The only recommendation I want to make is: DON'T OVERSIMPLIFY IT. Economics/wealth/money is a complicated beast and the simple solutions won't work. Equality for all really isn't fair, but neither is whatever the heck we've got right now.
5 July 2020
Lower Greenville, Dallas, TX
