Spreading the wealth makes it worth less

Imagine a giant field of piles made of sand. We have a finite amount of sand, and a finite amount of space, so the only question is how much to dump on each pile.

Water runs between these piles of sand. There is a finite amount of water, say enough for a depth of two inches, and it surrounds every pile and covers the finite space.

The decision facing us now is one of distribution. Our minds, which are wired to eliminate threats, would immediately suggest that we make a whole bunch of identical piles of sand.

This is what most adults by instinct do. On the other hand, a child or wild mountain man may make uneven mounds, perhaps creating a topography or some other whimsical difference.

Instinctively some part of us realizes that even mounds are a dead end. At that point, a peaceful uniformity (why not call equality by its real name?) will prevail.

However, at that point two problems emerge. First, there is no real possibility of change except to the unequal. Second, all mounds will be close to the water line, and thus unstable. Thus being equal may seem to be better on paper, in reality it offers an experience of lesser value.

The distribution of income is analogous to our piles of sand metaphor.

Our instinct is to want no one to be poor, and thus to want to even up all the little piles so that everyone has the same amount.

However, this doesn’t work for the two reasons mentioned above.

There is no real possibility of change except to the unequal. Your society will be entirely stagnant and will dis-incentivize people to improve themselves. The reward comes before the performance, so the performance becomes optional.

All mounds will be close to the water line, and thus unstable. You will have devalued money by reducing its ability to move us away from things that pain us in life. We will all be equally close to troubles, which makes us feel helpless.

There’s two another points that are harder to visualize but just as important:

We send a moral signal against adaptation to reality and self-improvement. Inequality provides an upward function by allowing society to separate good behavior from bad, and give incentive to the former while making the latter sting. This sends a clear message: this is our society, these are our values; if you act to further these values, you will be rewarded.

We eliminate selection on the basis of ability and replace it with popularity. Perhaps the most damaging consequence of equality is that we stop selecting for people who are more effective and efficient. This puts power in the hands of those who are less competent, not more. People who make more money (Kardashians aside) are generally more effective. Those are the people we want using our money so that they can keep it in motion and set up industries to create more wealth.

I’m no big fan of jobs. They are boring, mandatory, confining, pointless, boring, ugly and very political. However, the problem with jobs is that we’ve tried too hard to include everyone, which means that (a) we dumb down the job and (b) we make our currency less valuable, so we need to spend more time competing for it.

I’ve learned in this life through painful experience how in most cases, our problems are the result of us avoiding reality and not the result of some external force doing bad things to us. It’s the same way with the economy: our unrealistic instinct is to make the piles equal, which then paralyzes the economy, makes currency less valuable, and forces us to do more of what is unpleasant just to keep ourselves above water.

This metaphor is not simple. It reflects the highest level of abstraction with which we can view this issue. As a result, it always applies. It shows us the two choices we face.

We can either have inequality with higher value of our currency and less work for everyone, or equality with lower value of our currency and more work for everyone. Which future do you want?

7 Comments

  1. Matt Strictland says:

    Too much inequality suppresses the demand side though.

    If you for example have a large population of poor people and no way to export to other markets, you have much less industry and much less wealth being generated. C.F like the entire world

    Also wage side expenses are usually recouped. If you are say a well run grocery store and offer a discount, this will increase loyalty to you (lowering turnover costs) and regain some of the wages paid bought in kind. This lowers wage costs

    Had Henry Ford for example followed the trends of the time and spent effort suppressing wages, the US auto industry would have been much smaller and without the wage pressure the carryover to other industries would have had more poverty

    In addition to a weaker, poorer nation the internal pressures would have been greater. Human societies require a certain degree of perceived fairness to operate and an excess perception of unfairness creates massive troubles. Granted it doesn’t scale well (humans are tribal) but the instinct is still there and the risk of virulent memes is always there too.

    And yes the I know US is growing into some foul mix of corporatism and socialism. This is a natural outcome of our policy vis a vis jobs and wages. Not only have wages dropped in real terms by half since the 70′s (roughly) but whole categories of employment are now gone, some by legislative fiat (most telemarketing) some by automation (factory jobs, video stores) some by outsourcing.

    Throw in mass immigration and women in the work place and you have a perfect storm.

    And no, given the way the US is configured socially it cannot be reversed. You can’t expel the immigrants, take women out of the work force or increases wages.

    The net result will be increasing socialism and despotism until the country fractures on ethnic and cultural lines. The trick is I think in being lucky enough to be in the right place at that time and being able to eek out a decent life for oneself.

    1. EvilBuzzard says:

      Let too much inequality suppress the demand side. There is an old NT verse about not casting pearls before swine. I thought about that when I read the news story about the loser who technicolor-yawned in the middle of The New York Metropolitan Opera. There is more than economics involved here. THere is some demand that deserves to be suppressed.

      1. Not all demand is equal. Some demand is in fact irrational and can be destructive. I’m sure “the people” want legal marijuana. From my experience, that’s a bad idea.

        1. EvilBuzzard says:

          “…Not if you run a Taco-Bell franchise!” Hahaha!

          But all joking aside, this brings up an interesting angle. The lowest level of mass-produced slop will always benefit from more consumption of anything. It’s the civilized part of the economy that is screwed.

    2. Too much inequality suppresses the demand side though.

      Permanent growth is not only an illusion, but destructive for society.

      Stability is better.

      The point is to pay workers a market-competitive wage for what they do, which keeps everything in balance.

    3. sherlockzz says:

      A “large population of poor people” is not “too much inequality” it is too much equality. The majority of the population is equally poor. The demand side is suppressed because of the equality of poverty. Take away incentives and we will all eventually be wallowing around the bottom. Except, if I take your point correctly, an elite few in charge who will have access to wealth and privilege by virtue of powerful positions. When you used the word “inequality” I would guess you meant a lack of opportunity for those at the bottom.

  2. [...] as Amerika.org points out, here come the unintended consequences! There is no real possibility of change except to the [...]

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