Are modern economies even possible without the ultra wealthy?

Economics Economics Questions
21

I do not think you can intelligently separate the ultra wealthy from the state infrastructure and hence from our modern economies. The ultra wealthy currently acquire and maintain their wealth unjustly, in my opinion.

I think that it is true that it is obvious that some have made their fortunes directly through the state and its mechinations, but not so for most. The,y like the rest of us, are both beneficiaries and victims.

Without the state, the proletariat would likely swarm the parasitic elite. We would devolve into a more primitivistic lifestyle and I do not see that as a bad thing.

If this is true would the destruction of the state result in massive loss in human life? After all a modern economy is the only way to produce enough food to feed the worlds current population. What i mean by this is: To produce enough food you need modern farming techniques, to use modern farming techniques you need modern farming equipment, to have modern farming equipment you need modern manufacturing techniques… etc…

If we do indeed need the modern economy with all its trappings to maintain our current world population, would eliminating the state and returning to a more primitive existance even be a viable choice? And if that is the case that we are stuck with a modern economy… are the very wealthy absolutely vital to everyone elses we being?

Or maybe not.

22

“If this is true would the destruction of the state result in massive loss in human life?”

The first to go would probably be the parasitic elite. People who actually work for a living will likely be safe. Sure, there will probably be collateral damage somewhere in between.

I am not too worried about any guilt associated with a conceivable loss of life resulting from the destruction of the state. If such a causal relationship exists, I am smuggly laying blame on the statists and other parasites. The way I see things is that a destruction of the state will reveal who is a parasite and who is not.

“If we do indeed need the modern economy with all its trappings to maintain our current world population, would eliminating the state and returning to a more primitive existance even be a viable choice?”

I do not really care. Like I said before, I would rather live in a cave with love, peace and freedom. Do not get me wrong, I enjoy modern technology just like most of us – I am just not entitled to it.

23

What’s stopping you?

24

You’re looking at this all wrong.

First, there’s nothing inherently desirable about an equitable distribution of wealth or a high degree of wealth polarization unless you value these things as ends in themselves. Neither conditions yields robust long-term economic growth. Savings, on the other hand, allows for additional capital investment, which elevates real wages rates across the board, and increases total sustainable national output. But the degree of wealth polarization has absolutely no effect on average wage rates, total sustainable national output, technological innovation, or whatever. In other words, the degree of wealth polarization, when it comes to economics, is entirely immaterial (insofar as it’s the natural outcome of free exchange). Both an equitable society and a polarized society can have a high savings rate. People oppose what they consider to be high degrees of wealth polarization because they consider it “unfair,” i.e., they wish to expropriate the wealth of others.

Next, forced wealth redistribution yields economically inefficient outcomes, not because it lowers the degree of wealth polarization (which is, again, unessential), but because it disturbs, if not destroys, the institutions and mechanisms that facilitate capital accumulation and organization, and it arbitrarily alters the incentive structure in adverse ways.

And finally, wealth polarization is not a condition that uniquely characterizes “modern economies,” i.e., quasi-capitalistic societies. Wealth polarization is really just the inevitable outcome of varying capabilities, both innate and acquired, amongst men. Communist societies, for example, reward loyalty and obedience, feudal societies, on the other hand, reward gallantry and prowess on the battle field, and capitalism rewards those that are best able to satisfy the needs and desires of the masses. Feudal societies were incredibly polarized, and China has an inequitable distribution of wealth. So again, wealth polarization has always existed, and it always will (just something you might want to bring up at your next family get-together).

25

The gap has always been there, it just has become more obvious.

Wealth accumulation tends to be a winner take all game. Money tends to make more money.

Poor people cannot become wealthy until they learn how to save, short of some government intervention, that promotes the casino real estate or casino stock market miracle.

26

I don’t know, it was pretty obvious in 18th century France, and in all pre-capitalistic societies for that matter. It has become an issue in recent decades because the socialists have no other argument, and nothing else to turn to. Thus they’re forced to create new issues, new so-called “problems” with capitalism (it hasn’t been able to eliminate the innate and acquired differences amongst men, something which no system could possibly ever accomplish).

27

I think it is much more obvious today because we have real time global media, and the many are able to know the habits of a Bill Gates, and the latest real estate purchases of an Al Gore. That sort of familiarity (which does indeed breed contempt) with the elites was not available to peasants in the past.

28

Flic said: “So in short, redistribution of wealth, is an economic system of impoverishment.”

Not for the folks on the receiving end of the redistribution.

Permit me to play the devil’s advocate here just for the sake of argument. My intent is to further expose the evil of statism.

Step into the shoes of the statist and try to conceive ot the labor force as a resource. In certain third world countries, people really are disposable so, why care about them? We could treat the lives of the poor suckers who work in sweatshops the same as we treat water, trees, oil, etc. We are not crying over lost wood when we burn it in our stove to keep the house warm, do we? No, we go get more and there is a lot of it outside. The same with people’s lives.

I present this heinous perspective because I adamantly am convinced that is how people in third world countries are treated and we are the beneficiaries of said modern economy.

Liberty Student asked: “What’s stopping you?”

Go ask my wife.

29

and it arbitrarily alters the incentive structure in adverse ways

Presumably not if they’re lump sum transfers?

30

But the degree of wealth polarization has absolutely no effect on average wage rates, total sustainable national output, technological innovation, or whatever.

What I was considering is that the way wealth is distributed in a society has a direct impact on the savings rate of a society. Why? Because the poorer the individual the more of your income must be consumed in order to live. As your income increases you gain more and more disposible income that can be directed towards savings. So if more of an economies income is concentrated in on the upper end of the income scale this will lead to a higher savings rate.

Savings, on the other hand, allows for additional capital investment, which elevates real wages rates across the board, and increases total sustainable national output.

If what I describe above is true then it would appear, that income distribution would affect a societies savings rate and in turn affect real wages. In effect making everyone better off in the long run.

Both an equitable society and a polarized society can have a high savings rate.

They could but “society” does not have one savings rate. The wealthy save a much larger portion of their income while the poor a much lower portion. An economy with more income concentrated on the high end would most likely result in a higher savings rate.

Simply because once an individuals income reaches a certain point it is very difficult to consume it all. Its been pointed on before, though I cant remember who said it, that even though Bill Gates makes 10,000 times my salary he does not eat 10,000 times as much food, as a matter of fact it would be impossible. The impossibility of consuming your entire income gaurantees money will be available for investment. While a more equitable distribution of income would put more of the money in a range where consuming it would not be difficult.

Next, forced wealth redistribution yields economically inefficient outcomes, not because it lowers the degree of wealth polarization (which is, again, unessential), but because it disturbs, if not destroys, the institutions and mechanisms that facilitate capital accumulation and organization, and it arbitrarily alters the incentive structure in adverse ways

I agree that there are many other problems created by redistribution. All I am saying is that this is another problem in addition to those. How big of a problem??? I dont know. Lets talk it out.

And finally, wealth polarization is not a condition that uniquely characterizes “modern economies,” i.e., quasi-capitalistic societies.

I havent claimed that it is unique to modern economies. I asked whether modern economies need the very wealthy. In other words if we, through government redistribution or through voluntary action, redistribute significant amounts of wealth from the very wealthy to the poor and middle class, would this lead to an economy where more of its production is consumed and less saved? It seems plausible that it would.

31

What’s stopping you?

Somebody owns them all.

32

First, there’s nothing inherently desirable about an equitable distribution of wealth or a high degree of wealth polarization unless you value these things as ends in themselves. Neither conditions yields robust long-term economic growth. Savings, on the other hand, allows for additional capital investment, which elevates real wages rates across the board, and increases total sustainable national output. But the degree of wealth polarization has absolutely no effect on average wage rates, total sustainable national output, technological innovation, or whatever. In other words, the degree of wealth polarization, when it comes to economics, is entirely immaterial (insofar as it’s the natural outcome of free exchange). Both an equitable society and a polarized society can have a high savings rate. People oppose what they consider to be high degrees of wealth polarization because they consider it “unfair,” i.e., they wish to expropriate the wealth of others.

That’s exactly what I was saying

33

Yep, I can dig it.

34

My point is that you must isolate and separate all of the variables in order to identify the relevant variable (the necessary and sufficient cause) and reach a sound conclusion. We are discussing and considering the causes of long-term economic growth. My point is that a high degree of wealth polarization cannot cause economic growth, by itself, but may very well be a potential consequence of economic growth. With a functional financial system you don’t need a low time preference (a lot of savings) in order to engage in investment (the entrepreneurs are not necessarily the savers in modern capitalistic economies). So it’s not really clear that wealthy individuals necessarily have a lower time preference.

There are extremely polarized societies that are dirt poor (Bolivia, Botswana, Brazil), and there are extremely “equitable societies” that are relatively wealthy (Sweden, Norway, Germany); there are equitable societies that are quite poor (Croatia, Serbia Algeria), and there are polarized societies that are quite rich (U.S., Hong Kong, Singapore).

35

What is the difference between hoarding wealth an destroying wealth? Both is a removal from the economy. One is more permanent. Wouldn’t spending it through consumption or investment be better for the economy overall?

People have a right to use their wealth as they see fit. But it does not mean it is being used efficiently.

36

Ok, bear with me here. I’m missing something…

With a functional financial system you don’t need a low time preference (a lot of savings) in order to engage in investment (the entrepreneurs are not necessarily the savers in modern capitalistic economies).

It is almost never your entrepreneurs who are the savers in an economy. Your entrepenuers are typically the ones who are in need of capital. They are your borrowers.

Savings are the source of all investment. What has been consumed cannot be lent out. What is saved can be. So you do need savings in order to invest.

No you dont have to have a low time preference in order to have a high volume of savings. It would depend on the distribution of the income with in a society. Lets assume there are only one thousand people in an economy they both have high time preferences.

1st scenario: 999 make 50,000 each — 1 makes 100,000,000 the 999 consume 100% of thier income; the one rich guy tries to consume all his income but only manages to consume 50%, he deposits the other 50% as CD at a bank or buys stocks and bonds. That would leave $50 million available for investment.

2nd scenario: all thousand people make 149,950 a year. they consume 90% of thier income. that leaves $14,995,000 available for investment.

The distribution of income had a direct impact on the availability of resources for investment.

We are discussing and considering the causes of long-term economic growth.

This is not exactly what I am considering. I guess what I am considering is that modern economies, require certain levels of capital investment, which require certain levels of savings. It seems that the amount of money available for savings is related to income distribution.

There are extremely polarized societies that are dirt poor (Bolivia, Botswana, Brazil), and there are extremely “equitable societies” that are relatively wealthy (Sweden, Norway, Germany); there are equitable societies that are quite poor (Croatia, Serbia Algeria), and there are polarized societies that are quite rich (U.S., Hong Kong, Singapore).

Savings rates and income disparity has little to do with this. An extremely poor society with a high savings rate will still be poor today. But may or may not be tomorrow. What a high savings rate means is that there should money available for investment. Nothing more. If the saved money is invested poorly then the society will still be poor. Also if the saved money is lent out to people for the purpose of consumption then the society will still be poor.

Also do you have any statistics that back up these claims? I have not seen any personally, but would bet that there are wide disparities in all of the listed countries.

37

What is the difference between hoarding wealth an destroying wealth? Both is a removal from the economy. One is more permanent. Wouldn’t spending it through consumption or investment be better for the economy overall?

Do you mean hording money or tangible goods?

38

Southern.
I would say it’s almost the declared purpose of income redistribution to redistribute from those with a low time preference to those with a high one. In fact, a frequent argument for income redistribution is how urgently funds are needed for immediate consumption. That someone “wouldn’t miss” his money is another way of saying that he has a lower time preference.
Taxed money is almost entirely used for present consumption, whether redistributed or directly spent by the state, while at least some of what isn’t taxed is invested in the future. Or to put it in another way: Investment budgets and tax revenues compete for the same bucket of money.

So saving is not a consequence of polarization, although it might appear that way. In our current economy those who do the saving tend to be the rich, but we cannot draw the conclusion that polarization causes saving. The rich can save because they have the money, if others had the money they would be the ones saving. The economy does not care whether one person saves a million Dollars or whether a thousand people each have a thousand Dollars in their pensions. Government spending reduces investment in the future because the purpose of taxation is to raise funds for immediate needs, not because it’s egalitarian.
Also entrepreneurs need customers. A higher savings rate may provide more productive projects with access to funding. But if customers can’t spend money because of polarization, fewer productive projects are profitable.

What you discovered is sort of the other side of the coin, that “idle” money that’s lying around on banks isn’t being wasted, it’s being invested. Taking that money and spending it on consumption does not make us richer, it eliminates investment. Also these schemes are based on grave misunderstandings of how market pricing works. Giving the poor twice as much money to spend on necessities doesn’t somehow make twice as many resources available. Mostly it just bids up the price of existing resources. Which hurts anyone among the poor who isn’t on the government dole.

39

A simple hip shot response to that assertion by your family is that I personally probably make less money than they do, and people in the 3rd world certainly do. One of us will be along directly to assist them in doing the “right” thing…with guns. If that seems wrong to them I challenge them to identify and resolve the contradiciton.

Seriously though, I’d like to know what you mean by “underconsumption”. The term implies less consumption than would be appropriate. By who’s standard? It feels like you’re applying an implicit standard here.

On the matter of investment I agree with you. The savings of the rich, and middle class (who are relatively rich compared to many others), are not static. They serve to provide investment capital for new endeavors. So the saved capital is doing something, not just sitting in a vault somewhere.

So yes, the more the government screws with that the less capital is available for investment. The growing gap between the rich and poor is much more complex an issue, and is generally a loaded question. If we are concerned about society in general at all (which we are not required to be) we should be more concerned with the gap between the poor and baseline. Is our worst case better than the best case of wandering naked through the forest scavenging? We’re doing great!

The fortunes of the ultra-wealthy are merely monuments to past brilliance and production. Nothing more, nothing less. They will be added to or torn down naturally. We don’t have to do anything to cause it. Thats where the old phrase “From shirts sleeves to shirt sleeves in three generations” comes from. The rich either invest (and therefore inadvertently improvre all of our lives via production) to replenish and grow the fortune or the capital is syphoned off by life and ignorance. The large amount of super wealthy in our society is a testament to what we were as a people.The large amount of people with a frown and a hand out is a warning of what we are becoming.

40

I would say it’s almost the declared purpose of income redistribution to redistribute from those with a low time preference to those with a high one. In fact, a frequent argument for income redistribution is how urgently funds are needed for immediate consumption.

Seems we are in agreement.

So saving is not a consequence of polarization, although it might appear that way.

This is where you lose me. Above this you state that income redistribution (a reduction of polarizataion) shifts resources from those with low time preferences (savers) to those with high time preferencees (immeditate consumption). So it seems that prior to the redistribution more money would be in the hands of savers, while after more money is in the hands of consumers. Your two statements seem contradictory.

The rich can save because they have the money, if others had the money they would be the ones saving.

I agree that it is easier for the rich to save. But this is not neccessariallly true. You can be rich and not save a dime. In fact I know several people who made a ton of money in the housing boom. They spent every dime and now dont have a pot to piss in.

Government spending reduces investment in the future because the purpose of taxation is to raise funds for immediate needs, not because it’s egalitarian.

Again it seems we agree. The government is taking money from those who dont need it (aka not spending it on consumption) and giving it to those who do (those who will consume it).

Also entrepreneurs need customers. A higher savings rate may provide more productive projects with access to funding. But if customers can’t spend money because of polarization, fewer productive projects are profitable

I think I disagree with this. There are not neccessarially fewer productive projects, only that the types of projects pursued by entrepreneurs would be different. The projects would be geared towards future consumption, not present.

Taking that money and spending it on consumption does not make us richer, it eliminates investment.

The only way it can eliminate investment is if it reduces the amount of money available for investment. The amount of money available for investment is savings.

Giving the poor twice as much money to spend on necessities doesn’t somehow make twice as many resources available.

No, but it does shift the types of goods available in an economy. If you are shifting the money from savers to consumers, then you are shifting production from capital goods to consumer goods. In other words people arent producing factories they are now producing tvs and services.