I was recently asked a question about income inequality and although the answer seemed obvious to me, I feel that not enough people thoroughly understand global income inequality and it leads to a lot of misinterpretation of how wealth is actually being – and how some believe it should be distributed within a capitalist ‘mixed-market’ economy.
I was asked this question:
What would happen if we re-distributed the world’s 1%’s wealth back to the 99%?
The statistics that describe the magnitude of economic inequality are stark. Before taking into account the effects of redistributive government programs, the richest 1% of Americans make 20% of the income. Wealth inequality is even more extreme, with a recent study estimating that in America, the wealthiest 160,000 families have as much as the poorest 145 million families.
Such figures are rallying points for a specific strain of economic populism in America, manifested most saliently in the Occupy Wall Street movement. Occupy brought to the fore the idea that the nation is divided between a small group of haves and an increasingly large group of have-nots.
But if this is really the case, why aren’t Americans taking to the streets? They are not rioting, or even organizing to demand that the government solve the problems of inequality. And, in fact, poll numbers suggest Americans believe the government spends too much on the poor or is otherwise too involved in the economy.
Why do the statistics that supposedly describe the economic reality and Americans perceptions of that reality differ so much? For one, government programs do help—to a degree—cushion economic blows and redistribute wealth. But more importantly, the statistics that are trumpeted in much of the media do a poor job of describing the fluidity of the American economy.
This is an interesting concept and something I’ve always wanted to touch on because it really sheds light on global income inequality.
For the sake of this argument, let’s look at how you would actually go about doing this.
When we’re re-distributing wealth, we need to ask a few questions:
- Who are we taking the wealth from? Only the 1%? the top 5%. Who out of that percentage do we take wealth from? Do we take all their wealth and make them poor, or just enough so that they can live like the rest of us?
- Is it ethical to take back from the rich? Think about it, these people have worked hard just like the rest of us to earn their money, what gives us the right to steal from them?
You may be saying that a lot of these rich people are thieves anyway – perhaps they are corrupt politicians or lucrative businessmen who take advantage of others misfortunes to build their own wealth.
Like it or not, it’s not our decision to take money from them unless we have proof that they have done something illegal enough to go to jail for the rest of their lives.
But, assume for the sake of the question that all the 1% has earned their wealth through illegal activities and must go to jail forever.
What do we do with their money?
Well, re-distribute it to the 99% of course! Easy!
Not so much…
- Are we talking the 99% of Just the US, or the 99% of the world?
- Out of the 99%, who gets the money? Do we setup money-collecting vendors where each person can just go and get their money with a SIN card or something? How do we ensure these machines or cash dispensaries don’t get robbed? Hell, even if you dish it out of a bank, how do you ensure that bank doesn’t get robbed?
So how much wealth are we really talking anyway? Assuming we’re only dealing with the US.
“The paper, authored by three Federal Reserve economists—Jesse Bricker, Alice Henriques, and John Sabelhaus—and Jacob Krimmel of Wharton, found that from 1992 to 2012, the top 1 percent’s share of wealth rose by 6 percentage points to 33 percent. This is substantially lower than estimates by Saez and his colleagues, which estimates that the share of wealth held by the 1 percent is 42 percent. The share of income estimate is more similar: The Brookings paper found that the share income earned by the 1 percent is 18 percent, while Piketty and Saez’s 2012 estimate is 23 percent.”
The 1% in America is made up of 3,189,000 people who control approximately, let’s say they control about 30% of the US wealth.
I’ll refer to the US GDP as a measure of the countries’ wealth.
Their GDP in 2016 was 16,770,000,000,000
Just over $5 Trillion.
Take that figure and divide it by the Rest of America’s population, which is 315,711,000
5,031,000,000,000 / 315,711,000 = $15,935
A study byfound that the average American spends about $151/week on perishable goods (food and beverages), or $7,852.
In two years, that wealth distribution of about $16,000 per US citizen apart of the 99% would be gone just on food purchases.
I think it’s safe to say that an equal distribution of the 1%’s wealth wouldn’t mean much.
Take this well-known graph for example. Take a look at the wealth of the middle class and upwards – they’re living relatively comfortable, but could still use a bit of extra money. I think when we’re distributing this wealth it would be much more fair to exclude anyone upwards of 70% of the nations wealth, as they are considered upper-middle class and upper-class citizens, and obviously won’t benefit that much from $16,000.
I’m not going to do the calculation, but you can expect the bottom 60% of the US population in terms of wealth to receive about $30,000, which would make an enormous impact on their lives, and would pull many people out of poverty, given that they invest their money properly.
Wealth inequality not only in America but around the world is one of the most difficult problems we face as a global society. Even with a quick calculation, we see that even taking the 1%’s wealth and re-distributing it to the 99% won’t even make a dent on a majority of people’s lives.
The massive global wealth distribution is a tad bit concerning, but we shouldn’t be alarmed because this is what capitalism allows; infinite growth. Those in the 1% are all entrepreneurs – they have pioneered companies and technologies that help the rest of the world.
Take Bill Gates and Mark Zuckerberg for example – their inventions have helped billions of lives in countless ways, and they consistently give their money away to the poor.
Personally, I think having 99% of the wealth in the hands of the 1% may be a good thing in a sense – these are the smartest, most capable people on Earth when it comes to managing money. They know where to invest, what to invest in, and how to save.
And think about it, Bill Gates can make a hell of a lot more investing $10 billion in a company, than 300 million people can investing in their groceries for the next two years.
Bill Gates uses his money to make more money then the rest of us combined could make, and then disperses his profits to those who need it most – this is true philanthropy, and this is why capitalism can be so beneficial.
So, to wrap everything up, I don’t think the problem we have is with the wealth distribution – I think it’s with what the people at the top are actually doing with their money.
If you’re worth $20 billion there is no way in hell you or your family for the next 100 generations can spend that – give some of it away for gods sake.
Obviously this is easier said than done – I mean, if I had that kind of money it would be difficult to just give it away – but if we are to ever eradicate global poverty, it starts with the wealth controlled by the 1%.
It starts with people like Bill Gates and Mark Zuckerberg – real philanthropists – real human beings who truly care about the rest of humanity.
It starts with educating our society on what capitalism actually entails, and why exactly having so much wealth within the 1%’s hands may not be such a bad thing.
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