Sunday, June 9, 2019

Wealth Inequality Versus Overall Wealth

Which would you rather have, wealth equality where everyone has the same level of poverty, or wealth inequality, but be wealthier overall?

North and South Korea are an interesting experiment in Capitalism versus Communism.   Both started from similar initial conditions after World War II - being devastated by the war.   The North chose the path of Communism, with a venerated "dear leader" and a cult of personality, as well as the authoritarian state - the inevitable result of Communism or indeed, even Socialism.   South Korea embarked on a path of unfettered Capitalism - a form not even seen in the United States - where a few powerful families ended up controlling a huge portion of the nation's wealth.  The rest, as they say, is history. 

Perhaps there isn't a lot of wealth inequality in North Korea - everyone is pretty much dirt poor, with the exception of a few leaders who live in fabulous luxury.   A recent book release details the life of the "dear leader" and his many palaces and mansions.  His personal Japanese sushi chef (who has no doubt since faced a firing squad) detailed the excesses of the Kim family dynasty.  Now some apologists for Communism might argue that the economic conditions in the North are due to US and International sanctions, and that the authoritarian regime is a natural response to Western attempts to destabilize the country.   But that is overstating the case a wee bit.  While we might not trade directly with North Korea, other countries do.  The cry of "Yankee Imperialism" has been used by every petty dictator around the world to excuse their miserable failures in economics and government leadership.

South Korea has its share of faults - corruption in the government and the concentration of wealth in the hands of very few.   And while there is great wealth inequality in that country, overall, people are far wealthier than those in the North, or indeed in many other countries around the world.  You have to ask yourself, which is better - being wealthier, even if "someone else" is fabulously wealthier than your are, or being dirt poor but "equal" to every other "comrade" except the dear leader?

In the United States as of late, the hue and cry has been that wealth inequality is a bad thing and moreover is a sign of our moral decay.   And maybe this is true, maybe not.  But it is interesting that in one of the world's wealthiest countries - where ordinary people enjoy a standard of living envied by the rest of the world - we are told how awful we have it, and how put-upon we are.   The problem with this narrative is that in addition to being untrue, it is wholly dangerous.

While there are news stories aplenty about how awful some poor person has it (having a crappy car and only basic cable channels) or how "unlucky" drug-abusing homeless people are (as they shit on your lawn and break into your car) we don't hear a lot about the legions of middle-class people in this country.   Get in an airplane and fly over America sometime, and look on in marvel at the endless suburbs, with house after house, each with a garage and two, sometimes three or more cars.   These are hardly "put-upon" people, and they number in the hundreds of millions.   Sure, you can argue that our suburbs are bland, boring, safe, and unimaginative.   But no one is starving there.

We tend to forget how lucky we are, and it is easy to ignore how good the hamburger is on your plate, when the fellow down the table is having filet mignon.   But as I have harped on in the past, worrying about what other people are doing isn't going to help your own bottom line.   Pining for social change as a means of achieving personal success is a flawed plan in life.  Not only is the social change not likely to happen, it may very well happen in a manner that does not work to your advantage.

I mentioned above that this talk of wealth inequality is dangerous, and you may have wondered why. It is easy to rail against the wealthy and argue that their money should be "redistributed" to the "less-fortunate" such as yourself.  But what might surprise you is that those "wealthy bastards" might include you, and the money they are talking about taking away is yours.

We are told we are put-upon in America because someone has it much better.   The premise is, if only we took away wealth from the richest people, the rest of us could be so much better off.  After all, the combined wealth of the five richest people in the USA is equal to 2% of our GDP, right?   Oh, wait, why are they comparing wealth (assets) with gross domestic product (revenue or income)?    That's like saying my wealth is thirty-four times the median income in the United States!  Clearly Alahambra Orlando-Cortex needs to take my money away!

But it is a common mistake among those ignorant about money (and "Business Insider" falls into this class).   Even "business journalists" often conflate revenue (gross receipts) with income (net profit) and then conflate annual income (your pay) with wealth (your savings) - often in the same article.  The only thing worse that that are people who think a Billion is a million-million (which they do in the UK - no wonder The Guardian is so alarmed!) and not a thousand-million, which it is.

But let's assume that at least they have their numbers right, and these five wealthiest guys have $415 billion between them.  Let's divide that up and give it to the Pee-Pul, who obviously deserve it, right?  I mean, just by dint of not being Billionaires.  In a nation of 300 million people, that would give everyone a one-time payment of $1,383.33   Yea, that's enough to turn their lives around.  Problem is, that would be it - a one-time payment.

Well, OK, that's just those five guys.  If we lined them up against the wall when the revolution comes, we could all have a nice small payday.  Presuming that Ms. Alexis Oratio-Corona doesn't decide - like most Communist Dictators do - to just keep all that swag for herself.   Maybe she could get one of those bourgeois garbage disposals or something.

This article from (surprise, surprise) The Seattle Times, argues that some folks are getting "more slices of the pie" than they are entitled to, or more than their "ideal number" of slices.  They argue that the top 20% of people in the USA own 90% of the nation's wealth:
The top 20 percent of households actually own a whopping 90 percent of the stuff in America — 90 slices of pie! That’s exactly 4½ slices per person, nearly triple their “ideal” share according to Norton and Ariely’s survey* respondents. Their average net worth? $3 million.

That leaves just 10 percent of the pie for the remaining 80 percent of the populace. The next 20 percent of households (average net worth: $273,600) help themselves to eight slices, while the middle 20 percent ($81,700 net worth, on average) split a measly two slices.
You can see where this is going.  We all sent out for pizza, and someone hogged all the good slices!  What is appalling about this article, in addition to the idea that people are all "entitled" to the same amount of "slices" regardless of how hard they work (or if they work at all) is that the folks being castigated here have a measly average wealth of only $3 million dollars.   This is enough money to retire on these days at a middle-class living standard.   And I know this, as a retiree, trying to survive with far less than $3 Million.   But according to The Seattle Times, I am the problem, and I should just slit my wrists now, and hand over my money to the nearest sainted homeless person - who obviously deserves it more than I did.  After all, he's been panhandling hard for several years now - not goofing off and working for over 40 as I did.   What was I thinking?  Bougie!

Problem is, even people who have managed to barely save up enough to retire are deemed to be "hogging" too many slices of pizza:
There’s the top 1 percent, gobbling up an astonishing 40 slices of American pie. The next 4 percent split 27 slices between them, while the next 5 percent take another 12 slices (a little over two slices per person). The bottom 10 percent of the top 20 percent get, on average, one slice of pie each. But don’t feel too bad for them: Their net worth is, on average, about $740,800.
Read that last part again.   If you use the 4% rule for retirement, $740,800 works out to an income of  less than $30,000 a year.   These are the selfish people stealing all the pizza?   But of course, the entire premise of the article is flawed - the idea that the wealth of a country is a finite amount, and what remains to be done is to divvy this wealth up "fairly" rather than creating more wealth.  And the people creating the least amount of wealth or in fact creating no wealth at all by dint of not working, are deserving of a greater "slice" of this finite pie.   Oh, and by-the-way, the idea that wealth is the incentive to work has no value whatsoever.  People are not motivated to work because of incentives or punishments, right?   That is the underlying assumption - slipped right by us in articles like this.

That is the problem with this class-warfare thing.  It sounds like a neat idea to "take from the rich and give to the poor" when you think they are talking about someone else when they mention "rich".  But the reality is, the folks pushing these agendas are talking about you.  Yes you.  If you own a computer, and are on the Internet and reading this, odds are, you are in the top 20% of households in this country for wealth - and probably in the top 1-2% for the planet.   While there are not a lot of desperately poor people in the United States, there are in other parts of the world - in fact, most parts.

So before  you sign on to this idea that we need to "redistribute the wealth" bear in mind that the wealth they are talking about is at least in part, yours.   Revolutions sound fine and all.  But bear in mind that many revolutionaries are the first to be lined up against the wall and shot, once the purges start.   At least that's how it worked out for Trotsky.

Wealth inequality doesn't bother me all that much, only because overall, as a country, we are wealthier than the rest of the world.   Even our poor are the fattest and wealthiest poor in the world.  A "poor" person in America has a place to live, a refrigerator, a microwave, air conditioning, and possibly a car (although not a very good one, but with killer rims).   The idea that we need to make life more comfortable for the poor by taking away from others is flawed.  It is not as though people are starving here.  There are others in the world more worthy of our largess.

And perhaps one reason our country is so wealthy is that we have the incentive of wealth, which encourages people to achieve and succeed.  Take away that incentive and focus instead on divvying up the "pie" and you may find yourself running out of pie in short order, as the bakers decide to stop baking and instead stand in line for their free slice.

Granted, the recent tax cuts might not have been a good idea, and the idea of eliminating the gifts and estate tax is flawed.  But that isn't what the Left is talking about - they are pandering to a younger generation who has yet to earn their wealth, many of whom feel burdened by student loans that in a decade or two will seem trivial in amount (even if in the six figures).  They are pandering to these young people by offering (often literally) free lunches.  The problem with free lunches is that someone has to pay for them, eventually, and these folks signing onto these freebie deals today may find themselves in a bit of a pickle down the road when "redistributing the wealth" leads to its inevitable end - with everyone at the same level of poverty.