Let me put this in a way that a HNer can understand:
It's bad because happiness has a logarithmic dependence on income. A system that permits this amount of wealth concentration is isomorphic to one that actively creates misery.
I don’t think that’s necessarily true. Wealth is not zero sum. It’s possible for one person to make a billion dollars of wealth without taking it from someone else (increase in stock price, leverage for investment, etc etc).
There are other factors to consider, mean wealth, median wealth, quality of life, etc.
I’d rather live in a hypothetical country with $1M of purchasing power where 1% had $1B than a hypothetical country with $500k where 1% had $1M.
High inequality does not mean low quality of life. Just take a look at the inequality of the US vs the inequality of third world countries. The US has higher inequality but also higher quality of life.
Wealth is zero sum, only economic growth is not zero sum. If
your stock goes up by a billion because you made it possible for the economy to produce an extra billion worth with the same resources, then sure. If you just bet on the market and win, or an angel drops one billion dollars on you from the sky, everything you buy with it is taken from someone else.
Money is just an accounting for the actual goods and services the economy provides. There are only so many materials and laborers available at any one time and your wealth determines who gets access to them. If you buy $1 billion in chairs, other people will have to forgo things made from wood (or forgo other things to attract new lumberjacks). Your wealth represents your power to bid against them and win.
I’m not sure how to teach this directly through comments as there are so many ways to create wealth to increase the overall value. Khan academy has a decent series on microeconomics [0] that will take an hour or so to view.
I think the simple view is wealth is zero sum. I have a pie and there’s only eight pieces. If I have seven pieces then you can only have one. Easy enough to split the pie and we both have equal amounts. But it’s not possible for you to have more pie without me having less.
In the real world it is possible to create value. And the things human value are intangible. So if you paint pictures and I sing songs, you paint 5 pictures, I sing you five songs we are both happier and have more value. I can’t paint so I value a painting at 100 whuffie. You can’t sing so you value songs at 100 whuffie.
In economics they can this guns and butter and use it as an example of trade increasing wealth.
If country X is really good at making guns but marginal at making butter and country Y is really good at making butter but marginal at guns they have to allocate labor to make both since everyone needs guns and butter. So each country makes $100 worth of goods at the total value of $200. However if country X only made guns and Y only made butter they could exert the same labor but have $400 in total value. Neither country is worse off.
This works in part because money is imaginary to reflect how people value things.
This works more with no tangible things that can be reproduced so it’s quite possible for someone to make a trillion dollars worth of software without taking a trillion dollars away from somewhere.
I think you are missing the point. Wealth is almost only restricted by natural and human resources.
However, getting paid in a currency is directly limited by total currency in circulation. Of the total items of wealth in the world, if more and more currency is hoarded at the top 1%, only the top 1% can afford the wealth created by the rest.
In other worlds, wealth is increasing but the purchasing power of it is not reaching everyone proportional to the wealth they are creating.
I think if you watch those videos you will learn that getting paid is not limited by total currency in circulation both due to velocity of money [0] and due to non-currency assets that people get paid in (IP, stock, etc).
In the scenario I described above each country could spend all their wealth if they do desired. Nations constantly create money and handle deposits so even if they wanted it all in cash that they never spend (which no one does) they could do that in both the $100 and $200 scenario because as nations they can create currency. If the currency is backed by wealth of nations then inflation is less (ie, a country printing $100 with $1 in wealth is in trouble, but a country printing $100 with $100 in wealth is less in trouble).
Fortunately, while these concepts are a little non-intuitive, it’s possible to study, learn, and use them to influence our decision. Or to help me decrease confusion on the relationship of purchasing power and wealth.
You need to think a little beyond velocity of money. Velocity of money causes inflation/deflation. Printing currency reduces interest rates which indirectly causes more borrowing which indirectly causes more spending, thus increasing velocity of money.
All of this still isn't related to the article which is talking about unequal distribution of wealth.
Sure one way to solve this unequal distribution is handing more money to poor directly by printing, but thats bound to cause inflation.
The point of saying that wealth is not zero sum is that it can be created, by using the available materials and laborers in different ways. This phenomenon also causes economic growth.
> High inequality does not mean low quality of life.
There's research to indicate that it does, once you've surpassed a certain level of wealth. I've been reading Utopia For Realists, which does a very readable job of summarizing work on the topic, and one publication cited that is available online is:
There is no such thing as doing "everything right" a capitalist society is a zero sum game.
You only make money by taking it from someone else. Sure the reserve can print more money but that only leads to currency devaluation on a macro level which on a whole reduces purchasing power of the society.
You can't really address income inequality without fundamentally reshaping society.
> you only make money by taking it from someone else
This is false. Money is an expression of labor and is exchanged in return for labor or the product of someone else’s labor. Totally dismissing that the exchange of money requires both parties to gain something is a deceptive (and in my opinion, immoral) trend.
When my money “grows” in the stock market. It isn’t because I took money from another person. It is not a zero-sum game.
A retail investor in the stock market is playing an almost entirely zero-sum game. You're not supplying valuable information about which companies deserve capital. You're not providing scarce savings to stimulate investment. You're simply laying claim to the future earnings of society by bidding against others.
It's like buying a home in San Francisco -- it's not adding value that makes your wealth go up, it's the fact that other people want what you have and you got there first. And there's a healthy helping of government interference making sure that your stake is protected against outsiders.
Actually... you are providing liquidity to the market.
Until recently, there was no easy way to transfer wealth intertemporally -- livestock died, grain spoiled, precious metals got stolen, land got invaded, etc.
The faith that people have in the stock market -- that they can buy something now and sell it in 50 years with very low frictional costs, allows the market to function, which ultimately lowers the cost of acquiring and deploying capital. This also ensures that capital is matched to risk tolerance, and that capital is deployed most effectively.
Imagine if each VC individually had to find a retail buyer for their shares.
Are we not talking about income inequality? Fact is hard currency is finite, perceived wealth or value is something else entirely.
Income is typically tied to hard currency.
When you make money in the stock market, you invested in a business, one that would supply a goods or services (or a derivative), of which requires taking someone else's money in exchange for that good or service.
