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If you could snap your fingers and magically double the wealth and income of every human on earth while somehow keeping inflation in check, would you do it?

Before you answer with some version of "Duh, yes." keep in mind that you would be severely worsening income inequality. And that, as we are often reminded by the media, will destroy civilization.

I'm not entirely clear why income inequality leads to doom, all other things being equal, but I hear it has something to do with the French. The analogy, as I understand it, is that Marie Antoinette and her historically inaccurate philosophy "Let them eat cake" is exactly like Bill Gates pledging his fortune to eradicating malaria, fixing education, and providing clean water to the poor.

BUT WHAT ABOUT THAT HEDGE FUND GUY AND HIS HIGH FREQUENCY TRADING????

You can kill that guy with a shovel. That has jury nullification written all over it. I haven't looked into it, but I'm fairly sure there are a few assholes among the middle class and poor too. Can we ignore the outliers for now?

One of the odd things about my career, and where I live, is that I meet a lot of billionaires and hundred-millionaires in the normal course of my work. Allow me to label my experience anecdotal and rare before you do. Anyway, my experience is that all the super-rich people I meet seem to have a few things in common:

-          They don't need to work.

-          They all work 60+ hours per week.

-          Every penny they make from now on will be spent by others.

-          They are trying to find the best way to give away their money.

-          No one likes higher taxes.

I don't think we want the rich to stop working. We're all lucky that Steve Jobs didn't quit before Pixar. But if the rich keep working, inequality is likely to keep getting worse. So how do you solve the problem of helping the rich give away their money in ways that help low-income folks the most while being meaningful to the givers?

Before I answer my own question, I'd like to introduce an economic concept that someone probably already thought of. I call it Predicted Personal Lifetime Consumption (PPLC). That's the amount of money that a rich person can reasonably spend on himself and his immediate family members over the course of a lifetime.

There are two big limiting factors on personal consumption. The first is decision fatigue. At some point you want to stop making choices about your personal spending so you can enjoy life. There just isn't enough time to make all the buying decisions necessary to spend a billion dollars on leisure.

The second limit on personal spending for the rich is that at some point you run out of big, expensive items worth buying. Maybe you buy a jet, an island, perhaps a pyramid or two, and soon you're running out of ideas.

My point is that there are a lot of rich people wishing they had a better and more meaningful way to get rid of excess wealth. Most of those folks have a pro-business attitude and, one imagines, a low opinion of how the government uses taxes. So what do you do?

How about a private entity creating some sort of venture capital funding program that allows the rich to leverage their experience and their cash in ways that best help the economy? Think of it as micro-loans to low-income borrowers but with the kicker that the lender can offer mentoring, contacts, and even training.

If you had a choice of paying an extra $100K in taxes, or loaning $100K to a low-income person who has a reasonable business plan and might need some mentoring and contacts, which would you prefer? Paying extra taxes feels like shitting on your own money and burying it where no one can find it. Helping someone who is struggling to create a business feels like a meaningful use of your mind and your resources. It's no contest.

The problem is one of information.

There's no way to match poor people that need some mentoring, training, and investment with rich people who might be happy to help.

Making loans to low-income people is a high-risk, low-return game. That's why no one does it. But the rich can do it without answering to shareholders and without risking a change in their own lifestyles. And while the low-income people are struggling and failing (mostly) they are also building up their skills, creating contacts, and stimulating the economy even as they fail. The economy as a whole benefits even as individual low-income ventures go under. That's how capitalism works; it's mostly a failure engine for individuals while being a benefit to the whole.

So imagine an online service that matches rich people with low-income folks who need some help. When you get a rich person as a mentor, you get his entire network of contacts by extension. That's way better than a bank.

And rich people like to keep score. So this imagined micro-loan and mentoring service needs to track the performance of each rich person's investments in the poor. You would track data to keep things competitive among the rich, to make sure the system is working, and to allow you to identify best practices among investors.

That's my idea for today. How bad is it?

---

Scott Adams

Co-founder of CalendarTree.com

According to Amazon.com, the best reviewed book I've ever written is this one.

 


 

 
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Jun 5, 2014
Sorry to necro this thread, but I just saw this and thought it was very relevant to the conversation.

http://www.ted.com/talks/paul_piff_does_money_make_you_mean

don't get angry before you watch it to the end, the message isn't as bleak as it seems!
 
 
May 28, 2014
I always wondered what would happen - just theoretically - if you gave everyone in the country a million dollars. I suppose there would be a brief surge in the economy as people ran around spending it on stuff before the prices began to rise. But I would imagine that money is sort of like water, it would just slosh around seeking levelness again so that having a million dollars became meaningless and to be rich you would need 100x that or whatever. My question being, is money only valuable if there is an imbalance of it? (I know nothing about economics, I wish I did.)
 
 
May 25, 2014
I see your game plan. Tell them about canals and making electricirty out of thin air. Every idea will start to look good after that. It does sound like a good idea, so your plan is working.
 
 
May 22, 2014
as long as you allow ppl an active voice and choice in their life (decisions, effort, contributions) you will have outcome disparity.

the only way to prevent humans from utter misery is to put them in a padded room with a straight jacket.

some will use whatever autonomy they have dysfunctionally.

this is why expansive welfare programs are so damn misguided.

you have to literally take away their input into their own lives to prevent them from messing it up. you have to destroy liberty to ensure ppl wont get obese/smoke marijuana/not wear seatbelts.

if you let them drive their own life, they will create wildly different results. disconnecting consequences for those choices is deeply misguided. thats what ensuring equal outcome is doing. its just sick in the head.
 
 
+13 Rank Up Rank Down
May 21, 2014
It's late and I'm tired so I'm going to commit the cardinal sin of not reading all the comments to make sure this hasn't already been brought up. Apologies in advance if necessary...

(and yes, I realize I've just shouted a reason why my comment should be ignored)

My line of work (public radio) puts me in touch with a lot of people who professionally give away money: foundations, wealthy people, corporate giving offices, etc. I'm an engineer with little taste for finance but a keen interest in human psychology and a decent knack for translating complex engineering concepts into something the average Joe can understand.

This means I frequently get roped into wearing far fancier clothes than I like and sipping an overpriced drink at some event where I'm making chitchat with someone (or several someones) who either has more money than God, or is managing more money than God. Sometimes while the worry dances around in the back of my head that if I say the wrong thing, I'll cost the company an eight figure donation. (note: that rarely is within the realm of possibility even if I tried to do it, but irrational or not, it's a worry that likes to dance in my brain.)

It's often simultaneously the most boring thing in the world and utterly fascinating to me at the same time. Thankfully more the latter.

I say all that to provide a little credibility for this point: the first thing I thought of when I read your idea, Scott, was Mark Zuckerberg's $100mil donation to Newark, NJ schools that was not only less effective than if he'd just lit a big pile of used $100 bills on fire like in The Dark Knight...but was actively harmful because it allowed a lot of safeguards against corruption to be badly eroded.

Before anyone says "that's an outlier case," let me remind you of my background I talked about earlier. Those kinds of problems are RAMPANT in the grantmaking industry. And they're getting worse as rich people increasingly are unwilling to give money without seeing some kind of "impact" from their money. So instead of money flowing to proven models in stable industries that do good work...i.e. BOOOOOOOORRRRRING stuff...you get everyone turning themselves inside out and upside down, trying to out-do each other to be the latest and greatest "disruptive model" to attract funding.

This has not proven to be winning business model you might think.

I have no empirical evidence, merely a hunch, but I think the reason why the rich hate taxes more about detachment from society than anything else. When you don't really see much relative benefit in your life from paying taxes, all you see is the massive "inefficiencies" and "corruption" that are "rampant" in government. When you're in a chauffeured Mercedes, you don't see how subsidized public transit makes it possible for you to get to work every day. When your kids go to the ritzy private school, you don't see how subsidized public education makes it possible for everyone else to have a shot at wealth and greatness. When you can afford to shop at Whole Foods, you don't appreciate FDA minimum standards at the bargain supermarket. When you can afford a private generator, you don't appreciate a robust power grid. When you can afford private security, you don't appreciate a good police force.

Notice a theme here? When you've got a ton more money than everyone else, you get disconnected from everyone else. Confirmation bias starts making you wonder why everyone else is being a lazy bum and !$%*!$% off your success that you busted your ass for. You start forgetting that when you've got everything, and nobody else has anything, that's when the torches and the pitchforks come out, and the guillotine makes a comeback.

Because maybe those half-dozen ex-SEAL's you're paying to take a bullet for you have M-16's, but that's still only 180 rounds total. Angry mobs tend to be tad larger than that.

In other words, we're talking about income inequality.

And that's why taxes are so crucial to this discussion. You can argue that a private firm could serve the same function, and do a better job at it. But taxes are collected by the government. And whether true or not, government is the one entity that collect taxes that every man, woman and child in America has a personal stake in. Oh sure, that's a collective fantasy but aren't all great ideas? Government, after all, is not a bunch of corrupt elected officials. It's an IDEA. A way of life. A concept to build a country around. It may be inelegant and inefficient, but it kinda HAS to be if it's going to be bought into by 300 million people.

Take away the taxes, and you take away the government. Take away the government, and you take away the idea. You take away "America", if I may be a little cheesy. You take it away, and you replace it with the ugly reality: the rich are here to make everyone beg for their scraps at the rich's amusement.

Again, cue the torches and pitchforks.

So that's why income inequality matters. It's a way of preserving the comforting, if slightly stupid, idea that keeps everyone in this country working hard with their nose to the grindstone...no matter how much evidence there is that they're idiots. The idea, the fantasy, that someday they, too, can be one of the rich and powerful. Take away that fantasy, and the whole thing just crashes down.
 
 
+13 Rank Up Rank Down
May 21, 2014
Most people in America do not realise that the reality is not at all what they think it is:
https://www.youtube.com/watch?v=QPKKQnijnsM
 
 
+3 Rank Up Rank Down
May 21, 2014
Microloans to the poor are not necessarily overly risky. Kiva http://www.kiva.org/ is an organisation which allows those of us who are not necessarily very rich in our own societies to provide loans to people in much poorer countries. It's worth checking out
 
 
+7 Rank Up Rank Down
May 21, 2014
[I'm not entirely clear why income inequality leads to doom]

Me neither, but the thing is, that it is a fact and not a hypothesis. Read up on it if you don't believe me. Countries with higher income- inequality have a higer crime-rate.

I don't know the sort of rich people you know, but I know the people in my company in higer positions, and they all have one thing in common; a certain ruthlessness, lack of consideration, some are narcissistic and just plain a*holes. And they LIKE TO WORK.
 
 
+1 Rank Up Rank Down
May 21, 2014
I often wondered what would have happened if during the housing crisis, all those who had a mortgage from a bank that failed and got bailed out by the government, had their mortgage paid off? The original lender already got their money. The government basically covered the mortgage, so why am I still paying it?

Furthermore, what if everyone who has a loan with one of those banks just said screw it all at once and stopped paying their mortgage! What if millions of homeowners just stopped paying their house mortgage because the company they're paying it to went out of business. What could possibly happen? Kick millions of people out of their homes? Foreclose on all of them? I think we average hard working Americans missed a golden opportunity to show the government and the wealthy elite who really own and run America.
 
 
May 20, 2014
The problems with your criticism of concern over income inequality are that you base it off the assumption that inflation won't happen and that an increase by a constant factor wouldn't result in a significant real difference in income inequality (i.e. the numbers would become bigger, but it wouldn't have any real effect on purchasing power). If you start with the right assumptions, you can "prove" whatever you want; if I assume 1 3 = 5, I can "prove" 3 1 = 5 (if I also assume addition is transitive). This is why assumptions are important, both your explicitly stated assumption (that inflation wouldn't happen), and your implicit assumption (that what you describe accurately models an increase in income inequality).
 
 
May 20, 2014
I'll have to admit, unlike most of your ideas, this one has some merit.

But it'll never happen. Why not? Because government will never let it.

To make it happen, government would have to encourage it. The only way to do that would be to give tax breaks for it. Which means that two things would happen to government: it would get smaller, and it would lose power.

Fat chance.

Sad but true: government needs a permanent underclass who looks to it for salvation. If you don't need government to get by, then government would have to go back to doing what the Constitution tells it it can do. Think that will happen? When pigs sing.

Moreover, imagine the outcry from progressives. "Who are you rich people to choose who is worthy of getting your money and assistance? You're a rich <fill in the blank>. You have no right to decide! You hate the <fill in the blanks>. All you're doing is perpetuating your own, unfair, capitalistic system!" Then the pitchforks would come out.

You see, to progressives, there's only one reason why a person should be given other people's money: because they don't have it. And there's only one reason why other people's money should be taken from them: because they have it.

You don't sway a progressive by asking them to encourage a poor person to become a rich person through the capitalist system. To them, that's like killing the patient to cure the disease.

So, while your idea is a great one, I fear we've come too far toward socialism for those who despise our system to turn around and support it. Why do you think there are more people on food stamps than there are in poverty?

It's all about 'fairness.' And the only 'fair' arbiter of wealth redistribution is the government.

So while your idea is a good one, you're never going to get it by the huge leviathan that is our government. Or convince your fellow progressives that, just perhaps, excess taxation is bad for the economy.

Our government would rather give a person a fish than to teach them how to fish. The problem is, those fishes they're giving are now on loan from China.

So great idea, Scott. Now write a blog post on how you're going to convince the government to allow your idea to move forward. I'd really like to read that one.
 
 
May 20, 2014
Your idea is abysmal: http://www.thielfellowship.org/

Seriously, there's a real problem with this.
If people with lots of credit select you to be worthy of their credit, because they think you'll succeed,
they will MAKE you succeed.

This is partly based on individual merit, but based more on favorable consideration by rich people ... and, when push comes to shove, they WILL act in their own self-interest.

And regarding Apple's Steves ...
Steve Wozniak committed only one mortal sin: He created Jobs.
 
 
May 20, 2014
I like your optimism Scott. But poor people have serious problems that you'll have a hard time mentoring away. The biggest economic disease in this country is that people who make $100 spend $100. People who make $1,000 spend $1,000. People who make $10,000 spend $10,000. It doesn't really matter how much people make, or how much you give them, or why. They burn it.

You give a poor person $100k to start a company, and they'll rent a $10k office, and spend $25k on office furniture and shiny new computers before they have a single customer. Probably pay themselves a decent salary, too. Three months later, they'll be flat broke, and won't understand what happened to the money. They'll probably blame you.

Obviously, this is what you hoped to address with mentoring, but it takes years and repeated mistakes to correct a fundamental misunderstanding of money, and most poor people have a terrible understanding of money. Worse, I'd say most have an inferiority complex that gives them terrible anxiety when attempting to be frugal when there is money available. This is less like an education gap than it is like a mental health problem.
 
 
May 20, 2014
"If you could snap your fingers and magically double the wealth and income of every human on earth while somehow keeping inflation in check, would you do it?"

This statement disqualifies you somewhat. The value of money is not defined in a vacuum but like a balance sheet it stands in relation to all the products an economy provides. So if you want to keep inflation in check you also need to double land, resources like oil, gold and diamonds, housing, food, etc. Otherwise prices will double quickly.

In fact one can already observe that today. The governments around the world are providing free money to banks and the super rich and that in turn leads to an extreme inflation in the luxury housing market.

Since trickle down economics is an illusion nothing of this gets to normal or low income people, so inflation on that level is still almost non-existent (though with China getting richer and requiring more resources there is inflation on food and other resources China gobbles up).

And I always find it funny if rich people say:
"I am looking for ways to give my money away. But I am not giving it away to the government."
That only means, that they want to use their money for their own goals, and more often than not that goal is increasing their wealth.
 
 
0 Rank Up Rank Down
May 20, 2014
I think the real problem we are facing is that young people who graduate college (or enter the work force from high school) often have less hope of becoming "middle class" (buying a house, raising children, taking vacations - standard american dream stuff). Income inequality alone doesn't explain this - but it certainly doesn't help.

High priced VPs, CEOs, etc at Hospitals, Colleges, and many other "essential" corporations certainly add to the burden that lower/middle income people face. Their compensation comes in the form of higher prices to the 99% (and to be fair - the 1% - but most of their compensation comes at from the 99%).

I'm not saying higher taxes will fix the problem, or that income inequality is the predominant cause of young people seemingly having less opportunity - but I do think that both could benefit the 99%. I also don't agree that the wealthy should only support people with business plans, or that giving $s to poor in third world countries (while noble), addresses the dimmer future for the 99%.

Is it really fair to claim that all billionaires are like Bill Gates and Warren Buffett and give away all their $s. You've heard of the Koch brothers I assume? The Waltons? (No idea on the relative %s of Billionares that create dynasties vs philanthropists.)
 
 
+6 Rank Up Rank Down
May 20, 2014
I'm not a wacky socialist and I do not think that income inequality necessarily leads to doom. In fact, it was the super-wealthy of the times that brought civilization out of the Dark Ages with their patronage of learning and arts during the Renaissance. However, there are also plenty of evidence throughout history that when the super-rich elite becomes entrenched, and there is no hope of equal opportunity to rise oneself out of poverty, then you see social unrest and revolution.

But look also at North Korea where the super-rich elite has brainwashed the masses into believing that their particular form of society is better than the rest of the world despite the obvious and contrary evidence in front of their eyes.

Its about control. Democracy with its promise of equal opportunity is the hope that helps the poor to support the system even though themselves are not currently benefiting. Dictatorships promise pain and suffering for those who would dare to question. If the masses start to lose faith in the promise or if there are signs of weakness by the existing system, then society may start its march towards chaos.

It is not a simple matter of income equality.
 
 
May 20, 2014
First things first, the rich should at least pay the same amount of tax on a percentage basis that the middle class does, right? I think most people object more to the fact that they're taxed disproportionately than to the actual dollar figure.

Also, I'm Canadian. I'd rather pay higher taxes and have socialized medicine for all. Rich Americans can simply buy the best medical care available but seem to loathe the idea of paying for someone else not to die. It's a fundamentally different way Canadians perceive their responsibility to society. If you disagree, you should note that when a national poll was held about who was the greatest Canadian of all time the winner wasn't an inventor or athlete or scientist. It was Tommy Douglas, the premier of a prairie province 70 years ago who is regarded as the father of socialized medicine in our country.
 
 
May 20, 2014
Of course, anyone would be more willing to loan money, than to pay extra taxes. No one enjoys paying taxes, and everyone would like to have more control over their finances. If the wealthy are excused from paying taxes, the money will have to come from elsewhere. The rest of the population feels the hurt of paying taxes more than the top 1%. For the rest of us, it means sacrifice. For the 1% it means a reduction in power and assests you admit they don't really need to live in absolute luxury.

However, I am all for the rich taking greater risks by loaning money to lower level business start ups. I'm pretty sure they all do that already, for whatever their reasons they do it (benefit of humanity, fame, power). It's really a low risk, high reward situation. Despite the fact that the investment might fall through, all they've lost is something they never really needed in the first place. And if they win, they win big.
 
 
+2 Rank Up Rank Down
May 20, 2014
I think there is a difference between a system that seizes and redistributes wealth and one that prevents (or at least attenuates) the accumulation of wealth above a certain level. An article of faith among laissez faire conservatives is that high progressive tax rates will sap incentive. I have spent most of a very long professional and business career in contact with people who worked very hard and made a lot of money (regrettably I have been mainly an observer of the second phenomenon). I do not believe that any of these people were motivated solely by money: none of them would have worked any less hard if their incremental earnings were subject to taxation at significantly higher rates that we now have. I am old enough to remember when the top incremental tax rate was 93% -- and you know what? Lots of people worked very hard and made a lot of money. And lots of people worked reasonably hard and made enough money to consider themselves part of the middle class. And some people (who may or may not have worked very hard) did not make much money, and were poor. I suspect that, however you jigger incentives, people will pretty much group themselves into those categories (with due allowance, as you say, for outliers). So please let's not try to argue that someone who makes $5 million a year will choose to stay home and watch soaps if you tell him that his next million will be taxed at, say, 80%. We both know that most of the people in the world who make $5 million a year aren't built that way.

Though I think your philosophical position (in so far as it is reflected in most of your blogs) is wrong, this current idea is in many ways appealing and interesting. For one thing, it recognizes that even businesses that fail in fact stimulate the economy: they create jobs (albeit short term), and they buy lots of things from other businesses that do not fail. Our current economic plight is mostly about slack demand, so anything we can do to stimulate demand (including, by the way, deficit spending by the government) is useful.

The main problem I see with the idea is scale: just as the super-rich are at the limit in terms of spending their money, they would quickly become overwhelmed by having to dole it out $100k at a time. It's a time consuming process: there are a limited number of people who want to start a business (most people would rather just get a paycheck), and a limited number of businesses that you could start with $100K. On the other hand, if you start doling it out in $1 million chunks, you will attract any number of scam artists looking to cash in quickly. So you will have to hire some gatekeepers to look at the dozens or hundreds of business plans that come your way, and your mentoring will have to be done by proxy; before you know it, you're a bank. And as a bank, you are not too big to fail, you are too small to succeed.

So I love your idea, and I think all the super-rich should engage in something like it -- but it is just not going to do enough to deal with the scale of problems we face in the United States, let alone the far larger problems faced by other parts of the world.
 
 
+12 Rank Up Rank Down
May 20, 2014
"I'm not entirely clear why income inequality leads to doom"

The "doom" is it leads to nobility. The truly wealthy and their heirs have access to the media, politicians, the best schools for their kids and the resources to keep themselves on top with very little personal risk creating a de facto oligarchy.

It also causes talent to migrate to sectors of the economy devoted to luxury goods and casino style investment banking rather than innovating to fulfill middle class needs (though like Scott did you can definitely get rich doing that).

It definitely causes a shift in policy perspective not necessarily because of quid pro quo arrangements but just because if you contribute a million to a political campaign you get few friendly lunches with the candidates and your potholes whatever they may be fixed.

Imagine the flip side if the wealthiest Americans were only single digit millionaires making 150k a year and there were a whole lot of them. Wouldn't they be more for consumer protection, paid sick days, subsidized childcare and healthcare, public education, clean and safe public transportation, etc.? Don't countries with the lowest inequality have the strongest policies in these areas?
 
 
 
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