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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

The wealth gap is not a problem. It is the product of individuals using their liberty to pursue interests that are most satisfying to them: either producing goods and services for others or consuming what others produce. Those who serve many accumulate wealth.

There is a problem when there is no wealth gap. Through various means of wealth redistribution, authorities attempt to equalize outcomes and inadvertently create a permanent underclass. Also, the reduction in wealth via property confiscation reduces the incentive to meet the needs of others. Fewer goods and services are produced and less wealth is created. Ultimately a death spiral occurs, and we all lose.

Jay Owen

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21 comments to Samizdata quote of the day

  • Lee Moore

    Well, yes. Wealth gaps are the inevitable consequence of free markets. And yes, free markets are the best way to create more stuff, and more stuff tailored to the desires of each person.

    But, no. Wealth gaps do matter. Because wealth is, to some extent, a positional good. Wealth is, or signals, or buys, status. And status is very much a positional good. This isn’t simply a matter of envy and resentment and so on. It directly affects the consumption of the most important good of all – girls.

    Relative wealth affects who has a chance of getting the girl of his choice. Or second choice. Or third choice. Or any damn girl at all. And if the wealth is so skewed that rich billionaires can scoop up harems of the best looking girls, then it’s a problem.

    It may not be a problem with a sensible solution. But don’t be assuming there’s no problem. A social structure that gives the few high status and wonderful access to girls, and the many low status and slim pickens on the chick front, is unstable. Our society has a number of other features that don’t have to do with wealth which alienate low status men. But you don’t want to be piling up too many reasons for the average Joe to want to tear the whole thing down and start again. Telling him he’s never had a technologically more brilliant car, for so few hours of labour, not to have a girl sitting beside him in, isn’t going to cheer him up any.

  • RRS

    This is incomplete (or mis-named) calculus.

    “Wealth” occurs as accumulation; either for deferred consumption or further production.

  • Thailover

    Reality leads to inequality of outcome, therefore reality is unfair.

  • But, no. Wealth gaps do matter

    Matter == problem

  • Paul Marks

    Actually much of modern inequality is the result of government backed Credit Money expansion – not a new observation, as Richard Cantillon back in the 1700s. Credit money expansion (even after the boom-bust has run its course) tends, as Cantillon pointed out, to make (some of) the rich richer and the poor poorer than they otherwise would be – and it is not a “zero sum game” it is a “negative sum game” – as the harm done to the poor by the Credit Money expansion is greater than the benefit gained by certain wealthy speculators, not even all rich people benefit from the Credit Money expansion – only certain rich people benefit.

    As for when the bubble bursts and such cities as New York are reduced to the waste-lands it is their destiny to become – I am astonished the bubble has lasted this long, the rich have certainly had time to “cash out” and leave the Credit Bubble “financial centres”.

    As for the production of real wealth – that still happens, it is done by “hopelessly old fashioned and primitive” people such as (for example) the family owned manufacturers of the German “mittelstand” – although the German government does everything it can to undermine them, with everything from artificially high energy costs to the introduction of an inheritance tax (at the urging of that vampire Warren Buffett – who wants to destroy family owned business enterprises and turn people into “trust fund kids” rather than owner-managers).

    As for the leftist internet billionaires in the United States – they are children of the Credit Bubble and deep-down they know it. Hence their leftist politics – they know they do not deserve their own wealth, that it is artificial, but they then make the mental jump that NO ONE deserves their wealth.

  • Schrodinger's Dog

    People don’t have a problem with inequality per se.

    Highly-paid sports stars are almost never objects of envy and resentment. Their huge wealth is justified because they are among the very best players in the world. The system is brutally competitive too: any player who doesn’t perform is soon booted off the team. It has to be like that, because under performing players cause the team to lose, which causes the fans to stop watching, which causes a loss of revenue for the team. It’s capitalism at its purest.

    The problems start when wealth is perceived as unearned, the classic example being the kid whose rich daddy gets him a place at Oxbridge, followed by a plum job in the City. Or when people are rewarded for failure. After running Yahoo! into the ground, Marissa Meyer walked away with $23 million. Just to add insult to injury, as a result of her failure, doubtless a lot of Yahoo! employees were let go with little or nothing. I challenge any libertarian to justify that. Presumably the payment was stipulated in her contract, but that just pushes everything back one step: what were the people who wrote that contract thinking?

    Lee Moore, there isn’t a problem with a few, high-status wealthy men hogging all the girls. Rather, for various reasons, the hard working man, with a good job and his own home has largely lost whatever appeal he used to have to women. But that’s a debate for Château Heartiste, not Samizdata!

  • I challenge any libertarian to justify that.

    Easy. As a business person, I think it is idiotic & if I was a shareholder, I would be demanding heads roll. However as a libertarian, I support people’s right to be idiotic and hopefully go broke as a result.

  • Once you get beyond elementary particles, everything is graded on the curve. Some are tall, some are short, and there are many in between. Some are rich, some are poor — and the poor we will always have with us, because poverty is graded on the curve. The best we can do is hope that everybody will be reasonably polite and understanding about it — but that, too, is graded on the curve.

  • Fraser Orr

    @Lee Moore
    It may not be a problem with a sensible solution. But don’t be assuming there’s no problem.

    Of course there is a sensible solution. It simply means that if the guy wants to get the girl he has to work hard, be creative, do productive things etc. so that he can turn the wealth gap to his advantage. Which is to say it provides very good incentives.

    Life is unfair. Some guys are short, some women have a propensity to obesity, some people are smart, some not so much, some people have fantastic parents, some have parents so bad they’d be better off without parents. We don’t start out equal, but with free markets we have an amazing tool that allows us individually to compensate for our shortcomings and enhance our strengths, and be successful if we are willing to put in the work.

  • Supposing, for the sake of argument, that wealth gaps matter (the idea can be defended – and also challenged), creating an inequality of power, so that the state can remedy the inequality of wealth, is very much not the solution. Not only are inequalities of power much more reasonably seen as a problem than inequalities of wealth, but the former have a marked tendency to bring on the latter.

    “It was possible to pay the NKVD man twelve times what the doctor was paid and the great thing was the doctor did not know this. He knew how much the NKVD man was paid, which was the same as he was, but he did not know what the NKVD man could buy with it.” (Kravchenko, “I chose Freedom”, quoted from memory)

  • Fraser Orr

    Of course any time this subject comes up we must post the the response from the late, great Maggie:

    https://www.youtube.com/watch?v=okHGCz6xxiw

  • RRS

    Gee: if we are going this deep in the weeds, let’s not ignore the estimable Amartya Sen:

    https://tannerlectures.utah.edu/_documents/a-to-z/s/sen80.pdf

  • Laird

    I agree with Owen’s basic premise, but with one significant caveat: the reason for wealth disparity matters greatly. If the disparity is truly because of free enterprise and the satisfaction of consumer desires, or substantial superiority in certain professions of interest to great interest to the public (such as sports figures, actors, singers, etc.), then there is no problem. Such wealth is earned, and most people recognize that. (They may be envious, but generally not hostile.) But if the disparity is due to governmental intervention, “crony capitalism”, etc., then there most certainly is a problem. Such wealth is not fairly earned, but is a function of political influence. (“Pull”, as Ayn Rand put it.) A society with a large, and growing, wealth disparity which is attributable in significant measure to such political means (as is true in the US, where so much wealth today is the direct result of “quantitative easing” and other monetary interventions which funneled vast wealth into Wall Street) is in danger of serious civil unrest. Witness France in 1789.

    The “Occupy Wall Street” movement was a foretaste of what might still happen here. It was completely wrong in its diagnosis of the problem and the remedies it sought, but not in its gut instinct that there is a fundamental problem. This is related, but not identical, to the problem discussed by Paul Marks.

  • Eric

    I agree with Paul. It’s difficult to know how much of the wealth gap is due by the choices people make when the government is continually monkeying with the money supply.

  • Lee Moore

    I beg to differ. I agree that most people would accept Laird’s distinction between earned and “pulled” wealth. Up to a point. For when one points out to reasonable well off middle class folk whose eyes boggle at the tech billionaires’ wealth that they created their own wealth, you usually get “yes, yes, I agree…but even so…” The “even so” is emotion taking over from reason. And if you think reason’s gonna win that one, you’re dreaming.

    But when it comes to earned v pulled the main difficulty is telling the one from the other. No doubt we could all point to some clear examples of each, but there’s a very large middle ground of “mixed.” Even the tech billionaires feed at the teat of government created intellectual property rights. As this is Samizdata, I’m guessing that almost everyone here thinks that at least 90% of millionaires in the USA, UK, EU are “earned” millionaires. (Including inherited earned.) But I bet you wouldn’t get that sort of estimate from Joe Public. Joe might be nearer 25%. Joe is wrong of course but when you’re computing the prospects of unrest, it doesn’t matter that he’s wrong. What matters is what he thinks. And that, for Perry’s benefit, is “matters” = “is a problem.”

    If you want Prime Minister Corbyn, the best way to achieve it is for the successful to say loudly and smugly to the losers “come on, pull yourselves together, work harder, work smarter – anyone can succeed in a free market with enough effort and gumption. You’ve only got yourselves to blame for malingering at the bottom of the heap.”

    Ellen’s Law is right. Most things are graded on a curve. But Joe Public can put his middle finger up pretty straight when he has a mind to.

  • Runcie Balspune

    Self-styled PM-in-waiting Corbyn has recently told people to pay more tax because “one day they might need an ambulance”. Thus expressing the prevailing view that the government can spend your money more wisely than you can.

    The annulment of the fact that a wealthy person got to that state by working hard and managing their own wealth far more efficiently and effectively than the government can, adds to this fantasy.

    Wealthy people are deemed to be exploitive of others and have accumulated wealth by taking it from others less fortunate (and less wealthy). So, of course Mr Corbyn’s ambulances are going to be staffed by well-paid, highly motivated, satisfied, individuals, not the overworked, underpaid, pension-less, stressed out champions I am aware of, alongside the other million of likewise medical staff in the same organization.

    I mean, in the NHS, it’s not like a small number benefit from largess of taxpayer funds whilst the downtrodden working class support them, is it?

  • Alisa

    I beg to differ. I agree that most people would accept Laird’s distinction between earned and “pulled” wealth. Up to a point.

    I see no reason to differ, as Lee’s comment in no way contradicts Laird’s, only points out an additional component of the problem (and I agree, it is a problem). Most wealthy people earn their wealth through some mixture of fair play and ‘pull’, and in most cases it is very difficult or even impossible for a lay person to weigh the contribution of each. So in the end, what matters is that most people understand that ‘pull’ does play a role and resent that, but since they have almost no way of knowing which wealthy individuals enjoy it the most, they resent all wealthy individuals as a group (except for those who clearly do not enjoy the ‘pull’ factor – such as athletes, at least as far as general perception goes).

  • Laird

    I disagree with Lee’s comment, not so much with his specific point but because I don’t believe that he’s addressing the correct issue. The issue is not with the “ordinary” rich: people who have made a few millions or tens of millions through small business ownership, real estate investment, professional achievement (doctors, lawyers, entertainers), etc. No one minds them because the “gap” between them and the rest of us isn’t really that large. Those people are not the “1%” who are the problem; you have to get into billionaire territory to be a member of that select group. And for the most part that only happens when: (1) you inherited the money (Sam Walton’s heirs, etc.); (2) you started a successful company which went public in a massive IPO (think Apple, Microsoft, Google, Facebook, etc.); or (3) you manipulate electronic “money” on Wall Street. Not many are particularly concerned about Group 1 (and there really aren’t that many of them anyway), and most of us have great admiration for Group 2 because we know that they really did create that wealth. It’s Group 3 who are the problem, and they are almost exclusively mega-wealthy precisely because of the crony capitalism problem I mentioned in my original post.

    All of the government-created “money” which entered the economy because of “quantitative easing” did so through the banking system, which means that most of it was siphoned off by Wall Street (read: Goldman Sachs and the Seven Dwarfs). It is to them that most of the public ire is directed, and rightly so.

  • Paul Marks

    Sadly I suspect that many (most?) people have no idea about these matters.

    For example – the anti Wall Street manipulators protests might seem to be against people who make their money by manipulating credit bubbles and pulling strings, but they are NOT.

    The protesters marched right past the residence of George Soros without saying a word, and ignored Warren Buffett (who has been joined at the hip with the Federal government for many decades) – so who did they attack? The “Koch Brothers” – people who actually make their money by their energy producing and manufacturing business. The public, sadly, do not have a clue about who is a looter and who is the owner-manager of a real wealth producing business.

  • Rich Rostrom

    Laird @December 31, 2017 at 10:43 pm: … if the disparity is due to governmental intervention, “crony capitalism”, etc., then there most certainly is a problem. Such wealth is not fairly earned, but is a function of political influence.

    Indeed. And if one looks at the 1,000 richest people in the world, how many are kleptocrats of some degree: Russian oligarchs, Arab princes, African dictators, etc.? Possibly half? The “push and pull” combination comes into it as well. Carlos Slim became the richest man in the world by acquiring Mexico’s privatized telecom company on favorable terms in 1990, and with it the right to build out Mexico’s cell phone system.

    Many “First World” fortunes trace back to crony deals and government favors. For instance, the US transcontinental railroad made some of its builders very wealthy – and was heavily subsidized by government loans for construction and the gift of vast areas of frontier land. Their vehicle, the Southern Pacific Railroad, came to dominate California government, and was known as “The Octopus”.

    Another factor is that when it’s “raining soup”, people who have buckets benefit most. The various booms of the Industrial Revolutions, from textiles in the 1830s to telecom and IT in the 1990s, created vast new wealth. A large portion of this new wealth went to those who already had capital. IOW, those already rich, most of them part of the political and social elite,

    “Dealer wins and winner deals”, or so it often seems.

  • Paul Marks (January 2, 2018 at 12:54 am), I regarded the occupy movement as astro-turf, not ‘the people’ in any sense. One of the symptoms was their choice of targets whenever they were specific.

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