The Growing Wealth Gap...Incorrigible People and the Arithmetic of Wealth
April 16, 2008
Here are some notes from this week's reading. Periodically, I plan on posting similar notes. They are short. They are sometimes cryptic. And they are not fully thought out. But they might provide some useful ideas to the motivated ETR reader. Some of them will emerge as essays, briefs or blogs in the future.
- I've been reading a book on wealth and poverty from a man who won the Nobel Prize for his work helping the poor of Bangladesh. His name is Muhammad Yunus. His book is called Creating a World without Poverty. It's a good, quick read. I found myself arguing with it a lot but admiring it too. I recommend it to anyone who wonders about global poverty.
- One thing that Yunus said that got me thinking was a reference to the"growing gap between rich and poor." You hear that all the time. Usually - as with Yunus - it is a call to arms. Some parts of the economy may be getting wealthier (or smarter or more Internet savvy or whatever) but the gap between them and the bottom is growing. This is supposed to be very disturbing. And it used to alarm me. But lately I've begun to wonder if this isn't a specious concept. Yes, the economy is expanding. Yes, the poor are getting richer. But what about the gap between the rich and poor? That is getting wider! It's an interesting bit of logic. Very appealing. But fundamentally flawed. I should look into that. It may be that any time an economy improves the poor get richer faster because that is how it naturally happens in a free market. The rich, after all, have more resources: more capital, more intelligence, better connections, better financing, more education, more experience, etc. And on top of all that, they begin as the economic leaders. How could it not be that they would get richer faster? But is that a problem? And if so is it real or relative? You can't eliminate that except by force which ruins the economy. We should not measure the gap but the gap between how poor the poor were and how poor they are now. Compare this thought to the study Alex Green talks about that indicates people would rather have $50 in a $100 distribution than $100 of a $500 one. What does that say about human psychology? It goes a long way to explain why we worry about relative gaps.
- In Creating a World of Wealth Yunus admits that free markets create wealth but wants a new sort of World Bank to eliminate poverty. One like his own bank, the Grameen Bank. But what if poverty is not caused by social and economic inequities but by an uneven distribution of intelligence, ambition and tenacity?
- Yunus believes that capitalism is insufficient because it is profit based and therefore simplistic. Human beings are more complex than that, he argues. He proffers another model: Social business.
- Not everybody can be saved. Not everyone can become a successful entrepreneur. Having worked with some diehard dunderheads over the year, trying bootlessly to motivate and direct them, I must concede: some people lack the mental resources to succeed.
- If that is so, then what to do? Leave those people in poverty?
- Success is about probabilities: knowing how to use them. Most would-be entrepreneurs make two big mistakes. They start businesses that have a low (20%) chance of success and quit marketing and sales efforts because they don't realize the probabilities of direct response success. The secret to success: start high probability businesses and keep selling till you have taken a sensible amount of chances.
posted by M. Masterson @ 3:54 PM,
3 Comments:
-
At 4:54 AM,
said...
-
interesting thoughts. (and in the 2nd bullet point - when you say "the poor get richer faster", did you mean to say "the rich get richer faster" - which would make more sense in the context?)
-
At 10:42 AM,
said...
-
Do you believe that, in broad terms, wealth is accrued by the intelligent and ambitious and those who are poor are largely stupid and lazy?
That certainly has not been my experience of the world, though I don't can't cite statistics on the matter. I do know some relatively wealthy people who inherited their wealth and aren't particularly hard working. I also know some smart, hard-working people whose talents and passions didn't happen to lie in a lucrative realm, or who just had a bad break.
(For example, over 50% of bankruptcies in this country come from medical bills, and over 50% of those come those who were covered by health insurance. http://www.nchc.org/facts/cost.shtml. I'm not lazy, but as a young person, I often had to go without health care for financial reasons. A tenth of this nation is does not have health insurance, and I doubt that a full 10% of this nation is simply too lazy or foolish to buy health insurance. If these people become severely sick, they will lose all of their savings.)
I don't think that capitalism always hands people a fair deal. And since, as you noted, human nature is very concerned with relative wealth, an ever expanding wealth gap will likely lead to severe social tension if unchecked. Or do you think that society will tolerate it as the top one percent of the population accrues a greater and greater percentage of the wealth? Will society tolerate it when one percent of the population owns ninety-nine percent of the world's assets? How far will it go?
So, my question is, does a system that rewards those who are born into wealth and punishes those who are not become fair simply because it allows a small minority of truly exceptional individuals to break through and become wealthy?
Or, does the profit motive, like any other powerful natural force, require some checks and balances? We dam rivers, right? -
At 4:44 PM,
said...
-
Two wrong headed assumptions are always made in the wealth gap argument.
First, that wealthy people were born that way and that is somehow unfair. The facts actually show that over two thirds of wealthy people were born to meager to middle means. Those born to wealth tend to blow their money or have it stolen.
Second, that there is a relatively finite amount of resources and wealth in the world. That means that if a person becomes more wealthy, they are by definition taking it from someone else. Capitalism does reward the success of a business, but rarely to the detriment of society. With the exception of Warren Buffet, most people become wealthy by CREATING capital, not TAKING it. Socialism by definition does not create capital, it merely distributes it.
Subscribe to RSS Feed