05 October 2010

Wealth distribution

I came across the following image here a few days ago:

The above referenced link is to a story about the disconnect between Americans' belief(s) about wealth distribution in the U.S. and reality. Specifically, it says:
It's fine if reasonable people have different ideas about whether we should extend the Bush tax cuts for people making more than $250,000. Or think estate taxes are unfair. But when we have those debates, it's critical that everyone has a clear understanding of how things really are. We're becoming a plutocracy.
I'm not going to argue against that last sentence. Debating the merits of tax cuts for certain brackets or in certain situations in an effort to stave off a plutocracy, in my mind, though, ignores the bigger picture.

It seems to me that the dangers of a plutocracy lie, not necessarily with those that control the wealth, but with the government that can be controlled via that wealth. Specifically, there is very little that the U.S. federal government currently does not regulate. Under such a system, the aforementioned wealth can be very dangerous as it can be used to steer that regulation, which carries all the force of law, in directions that benefit only those controlling the wealth.

Contrast that with a government under which there is very little or even no economic regulation. In this system, plutocrats are not able to influence regulation to protect their wealth. They must simply produce goods and services that consumers are willing to buy; they must actually compete on the merits of their wares and business methods. The risk is that if they don't, other businesses will spring up in their place and eat their lunches, so to speak. Under such a system, consumers hold all of the power, and the "problem" of unequal distribution of wealth may work itself out.

I say "may" because, if we remove government from the equation, it's not immediately clear to me that the wealth distribution in the chart above is necessarily a problem. For example, the chart does not give the reader any indication that those in the lower quintiles do not have enough money to sustain their needs. Note that I'm not arguing that they currently do have sufficient money. Assuming for a moment that they do, though, and that there is no government to be influenced in economic matters, is there a problem?


  1. "other businesses will spring up in their place and eat their lunches"
    That is, until they get together and make some mutually beneficial agreements. Free markets must be kept free from monopoly by the government as they will always move in this direction without such regulation. Adam Smith recognized this danger:
    "People of the same trade seldom meet together (this no longer true,in fact the opposite is true), even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
    Free markets theory assumes lots of crazy stuff, like perfect information and the ability to substitute goods and an individuals ability to rationally recognize their own utility curves. While I agree that free markets are the way to go (it's too bad we don't have many), they can only remain free within some form of governance.

  2. With reference to the same item of quoted text, I was going to puckishly append, "...unless they hire the Pinkertons or Blackwater to burn down the newly-established business before it can become a real threat." It's unlikely to be a simple tip of the silk hat, a shrug, and a call of "Well played, old man!"


Please be relevant, civil, and brief... in that order.