Death: No. Humans need fantasy to be human. To be the place where the falling angel meets the rising ape.
Susan: With tooth fairies? Hogfathers?
Death: Yes. As practice, you have to start out learning to believe the little lies.
Susan: So we can believe the big ones?
Death: Yes. Justice, mercy, duty. That sort of thing.
I want to start this by saying that I am in favor of a wealth tax. We should be increasing taxes on the wealthy and raising minimum wage, because we know that steadily increasing the relative buying power of the poor is the best way to improve an economy. However, none of this happens in a vacuum. When we talk about income equality, I have become distressed at the amount of ignorance on display about the economy, systemic societal problems, and even what money actually is.
One Pixel Wealth is a webpage from 2021 that helps visualize how truly insane the amount of wealth that the richest people have actually is. While the visualization is great at putting in perspective just how much Jeff Bezos’ wealth is on paper, it links to a refutation of the Paper Billionaire Argument to dispute the idea that Jeff Bezos doesn’t really have that much money in liquid assets. The paper billionaire argument is that, because most wealth is in stocks or bonds, selling it all at once would flood the market and crater the total value of those assets.
The proposed counter-argument is incredibly bad. It demonstrates a total lack of understanding about macro-economic forces. Ironically, this is because it cannot appreciate the scale of its own arguments, the exact issue that One Pixel Wealth is trying to address. Let me paraphrase the key points in this counter-argument:
- The Paper Billionaire argument doesn’t work, because you can liquidate the wealth over time in a controlled sell-off, which executives do regularly.
- Given that $122 trillion worth of stock changes hands in the US every year, you could liquidate a trillion dollars over five years and only constitute 0.16% of all the trading.
- Because 50% of all US households own stock, you will always be able find people to buy the stock the billionaires are selling, it’s not just other billionaires that will buy it.
- Even if the paper bilionaire argument was true, if selling all the stock would lose 80% of it’s value, that would leave behind $700 billion.
To start, #1 and #2 don’t work for a very simple reason: A stock’s value represents the market’s confidence in the stock producing future value. Owning stock, in some circumstances, is interpreted as having confidence in that future value. If the market loses confidence in your company, it doesn’t matter what assets you have, your stock price will crater if the market thinks you’ll start losing money. If the CEO starts liquidating their position (which they must state their intention to sell stock ahead of time, years before it completes), the market will panic and the stock price will implode at the mere announcement of the liquidation, let alone actually selling any stock. Elon Musk right now should make it painfully obvious that he was only ever the richest man in the world on paper, because he just lost $107 billion dollars this year! He only bought Twitter for $44 billion! You simply cannot make the combined GDPs of Bulgaria, Croatia, Iceland and Uruguay evaporate if that money was actually real in any sense.
Money does not represent physical assets. Money is supposed to represent human labor, and there is a fixed amount of human labor available on the planet. When someone dies or is incapacitated, it goes down. When someone graduates into the labor force, or becomes more skilled, it goes up. In ancient times, “human labor” was heavily correlated to how much physical activity someone could do, like lifting things or harvesting food. However, our modern economy is dominated by specialist jobs done by highly skilled laborers. So for the sake of analysis, we can say that the GDP of the entire planet should ideally represent the maximum amount of labor the entire human race could do, if we assigned everyone to the job they are most qualified for. We could then increase the total amount of labor we can do by either building machines or improving our skills.
This leads into why point #3 is complete nonsense. It reminds me of when Ben Shapiro, when talking about climate change, asked “you think that people aren’t going to just sell their homes and move?”
The entire point of wealth inequality is that the top 1% holds more money than the entire middle-class. That’s literally the problem! How can everyone else possibly buy all the stock the billionaires are selling if it would require all of their savings? Who are you selling the stocks to?! This isn’t how money works! One Pixel Wealth even tries to claim that if we just gave all the poor people in america a bunch of money it would fix poverty, while linking to a study that only applies to local economies. The world’s largest economy is NOT a local economy! These measures only work when the global economy can absorb the difference, which means making changes gradually or in small, localized areas.
Of course, even if you somehow magically liquidated all your assets and acquired $700 billion dollars in real, liquid cash, it’s not actually $700 billion dollars. It’s like saying that there are gold asteroids worth $10000 quadrillion dollars - the value would plummet if you actually had that much gold. Since money represents human labor, which is a limited resource, simply having more money does not let you do more things. $700 billion dollars is enough to hire 12 billion people for 1 day working at minimum wage ($7.25), but you can’t actually do that, because there’s only 7.8 billion people in the entire world. Having $700 billion in liquid assets would decrease the value of money itself. That’s what inflation is. People claim that some billions of dollars will be enough to eradicate malaria or provide drinking water to everyone, but it’s never that simple because these are always geopolitical issues. Bill Gates has donated billions of dollars since 2005 towards fighting malaria and we only got a vaccine 16 years later. We’re surrounded by so many dumb problems we can solve with more money that we’ve forgetten that some problems are really, truly, fundamentally difficult problems that cannot be solved by throwing money at them. At some point there are just too many cooks in the kitchen.
Note that this labor distribution problem applies to liquid assets, which is one theory on why inflation had (until 2021), remained fairly low despite the amount of wealth increasing to ridiculous amounts. Wealthy people are acting as gigantic money sinks - by absorbing all of the “money”, the actual amount of real, liquid cash in the economy increased at a modest rate, so inflation remained stable. Now, inflation has started to skyrocket in 2022, and some people blame the stimulus payments, but the reality is that the low interest rates during the pandemic, combined with other complex macroeconomic forces, likely caused it, although nobody knows for sure. If wealthy people started actually spending all their money at once, as people seem to want them to do, the amount of liquid assets would skyrocket and so would inflation.
I keep saying that money is supposed to represent human labor, because it’s really an approximation. Someone can be more productive at one job than another, so the amount of human labor is not a knowable value in the first place. Instead, it helps to think of money as representing percieved power imbalance (conservatives often make the mistake of thinking it represents actual power imbalance, which it does not). This power imbalance can come from economic, diplomatic, or military factors. Basically, money is just the current state of global geopolitics. You cannot fight wealth inequality by just redistributing money. Simply taking money from rich people does not fix the systemic issues that created the power imbalance in the first place, because it’s not actually wealth inequality, it’s power inequality, and that is a political issue, not economic. Money is simply our way of quantifying that imbalance. The government’s unwillingness to tax rich people is because of the power imbalance, not the cause of it. If politicians are unwilling to go after rich people, it’s because those rich people hold an alarming amount of sway over politicians, which makes them keys to power.
It means that we have allowed power to accumulate in dangerously high concentrations, and we need to deal with this at a political level before we get an economic solution. We must elect leaders that help tackle power inequality (like break up huge corporations) before we can make progress on wealth inequality. Basically, go vote.