Tuesday, January 21, 2014

What's Wrong with the Wealth Inequality Conversation

This is a power-law distribution graph. I first became familiar with the phenomenon of power-law distribution graphs from Clay Shirky's TED talk comparing institutional models of organization and collaborative models of organization.

Now, suppose you're a photo-blogger. You invest several hundred dollars and a few months on photography lessons, another couple hundred on decent quality photography equipment, and spend a few hours a week, every week taking photos and posting them to your page. As an amateur, you do quite well; your photos are of good, nearly professional quality, and you make calendars out of them over Christmas for your relatives. Your photo-blog receives, on average, around 50,000 hits per month.

Your father, on the other hand, lives in retirement and has opted, of all possible hobbies out there, to devote the majority of his free money, time, and energy into the same one you chose. After thousands of dollars on courses, seminars, workshops, equipment, and trips to exotic places, and after thousands of hours of practice time taking meticulous photos, he's finally started his own photo-blog, and his superior photos bring him in close to 1,000,000 page-views per month, with thousands of them shares.

And just as one final counter-point, let's look at your teenage daughter, a social-media tycoon and queen bee, a selfie-taking, smart-phone-wielding Facebook junkie with more tech skills than she probably deserves or knows how to productively apply. As it happens, she takes a tremendous number of photos, which she uploads to facebook via instagram. Her photos get a fare number of views, but only from close friends and family members. At your request, she reluctantly put some of her better photos into an online photo-blog. The blog gets less traffic than the Gravina Island Bridge.

I want you to keep two things in mind. First, that even the possibility of a teenager taking photographs as if it was the most ordinary thing in the world--which, in many ways, it is--would not have been thinkable a mere hundred years ago, and is now possible thanks primarily to a non-redistributive market. Secondly, in a world where websites are profitable only with the aid of people actually going to them, I want you to allegorically think of page-views as a kind of currency, to be distributed and redistributed.

Notice too that, in the greater population, photographers like your daughter are ubiquitous; like yourself are uncommon; like your father are exceptional and rare. As if by some celestial law, the page views associated with each blog correlate to quality of content, not as a matter of moral obligation or of making the internet run better, but as a function of human nature, incentive structures, and simple cause-and effect.

It is from this allegorical angle that I look at the arguments for redistributing wealth. Power-law distributions are not just about contribution of content and effort, but also describe the expected distribution of rewards, be they page-views or dollars.

In my macro-economics class, the only non-textbook article we were told to read was Joseph Stiglitz's now famous "Of the 1%, by the 1%, for the 1%," which lambasted the growing wealth inequality in the United States, and in some way spurred on and gave credence to the Occupy movement (the parts that weren't a political carry-over from Code Pink and the rest of the Anti-War movement, as Bernadine Dohrn mentioned to conservative writer and journalist Andrew Breitbart). Stiglitz actually preempted my own argument, saying:

"Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year--an economy like America's--is not likely to do well in the long haul. There are several reasons for this."

His given reasons are the following: first, wealth inequality is a result of decreasing opportunity, which is bad; second, distortions and manipulations that lead to inequality undermine the economy; third, America needs infrastructure, which is the result of 'collective action,' which inequality threatens by dividing people based on needs, desires and incentives.

As I recently wrote in a post about unemployment, there are no shortages of opportunities for work, even for lucrative work. If there is a problem of unemployment, the problem appears to be more cultural and social than it is economic in nature. Stiglitz's second point is largely correct, but is a function caused by government intervention and meddling, not solved by it.

As for the third point, the argument that "[t]he United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on..." is misleading on two fronts. First, it ignores all of the bad things government has done with the money we give it (most recently, denying the privacy-rights and presumption of innocence of its' taxpayers). As Christopher Hitchens once observed, it is true that Hezbollah gives money to charity, and that HAMAS helps feed the poor. Not to compare our own government's actions to those of theocratic-fascist organizations, but it would be equally unjust to equivocate the threat to society posed by large corporations, which often fund philanthropic infrastructure projects, with the threat posed by the government presumed to be the sole provider of such infrastructure.

Secondly, Stiglitz's point ignores the opportunity cost when money is put into "collective" goals through government. There are various reasons why the private market is a more efficient and more effective innovator, builder, and business-conductor than the government, which I won't go into here for the sake of brevity.

Stiglitz also references a common fallacy in social theorizing: the idea that those at the top stay in the top, and that money doesn't move around. We're stagnating, and money won't redistribute, so the wealthy, while outwardly complaining, are really quite happy with the status quo. Thomas Sowell thoroughly destroys this myth in his more careful study of the issue:

For the more progressively-inclined, loath to trust a conservative (a black conservative!!1!) like Thomas Sowell, Malcolm Gladwell also attacked this fundamental misunderstanding of social and economic mobility in his most recent book "David and Goliath."

Ultimately, however, none of these address the most important issues, which is not intellectual or economic or anything so high as that. The real concern at work here is a more gut-level, emotional argument: they have something I don't have. How did they get it? They're no better than me...

Well, actually, if you want to use money as your measure, yes, the 1% are better than you, and they care more about money than you do. For the same reason that your dad has more page-views on his photo-blog, because he put in time and effort to get those page views, the way Bruce Lee put in time and effort to achieve his martial arts expertise (though I'd totally get behind a "redistribution of martial arts expertise" movement), the wealthiest in America have, by and large, achieved it through a combination of luck and really, really hard work. My 8th grade math teacher was one of the founding members of Amazon, retiring in his mid-30's. How did he do it? By putting in consecutive 18-hour days, for months, on top of a finely honed expertise with computers and logistics. I will never be a member of the 1%, because I spend my time writing about stuff like this instead. As a consequence, I may one-day aspire to be among the top 1% of writers in the world though. Imagine the injustice: 1% of all writers owning 40% of all the writing talent! How terrible! When we look at money the way we look at any other kind of currency, be it respect, page-views, books, knowledge, sleep, or whatever, the lunacy of class warfare rhetoric becomes transparent.

We shouldn't be shocked or upset when we see power-law distributions at work in society. We shouldn't feel upset when your basement-dwelling cousin has a better World of Warcraft character than we do, despite his putting in roughly 1,000% more time into the game than you. We shouldn't feel upset when, after our reclusive sibling spends hours reading and studying in their room while we were out partying, they end up smarter than us. Nor should we feel we've been cheated or wronged when someone makes more money than we do. The increasing wealth-inequality is not a function of some kind of systemic injustice, but is in fact the natural product of justice--giving to each their due--and a growing population. In many ways, it is in fact a sign of freedom and equality of treatment, in that only in a free economy can real differences between individuals in goals, aspirations, drives, and the sweat of honest effort be allowed to shine openly.

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