Posts Tagged 'Warren Buffet'

If I become rich, won’t someone else become poor?

This is the title of Chapter 4 in Jay Richard’s book “Money, Greed, and God.”  The chapter deals with the idea that there is a finite amount of “wealth” in the world.  He calls it the “zero-sum myth”, and it basically says that wealth just gets transferred around.  People who espouse this economic doctrine believe that the only way anybody ever got rich was by making someone else poor.  Jay sets out to show that capitalism actually creates wealth, it doesn’t just shift it around.  I’m going to quote extensively from the book, because there is a large section here that explains his position very well.

(In this section Jay is dealing with the following statistic from the UN Millennium Campaign:  “The three richest people in the world control more wealth than all 600 million people living in the world’s poorest countries.”)

We already know that these 600 million people suffer absolute poverty.  But this statistic isn’t about that; it’s comparing three rich guys who “control” as much wealth as the 600 million poorest people.  In 2007, Americans Bill Gates and Warren Buffett and Mexican telecom mogul Carlos Slim Helu had more money than the poorest 10 percent of the world’s population.  This is the mother of all gaps between rich and poor.  If it upsets you, then it’s done its job.  It’s designed to make you react, to feel morally indignant – but not to think.

Let’s do some thinking anyway.

What’s the point of the comparison?  Is it that some people have way too much money?  Are we supposed to think that if Bill Gates weren’t so rich, the 600 million wouldn’t be so poor?  Or worse: are we to suspect that Gates somehow extracted that wealth from the 600 million poorest people on the planet? 

We should worry about the absolute poverty in the world, especially if we’re in a position to do something about it.  But worrying about gaps between different groups of people is not the same thing is worrying about absolute poverty.  In fact, most such gaps are distractions.  Complaints about gaps almost always reflect a basic confusion about the nature of wealth.

When we hear that the gap between rich and poor has grown, for instance, we’re supposed to think that means that the rich getting richer makes the poor get poorer.  But that follows only if the total amount of wealth is static.  Then we’ve got a zero-sum game, where a gain in one place means a loss someplace else.  But in a modern market economy, that’s not what happens.  The total grows over time.  For example, imagine you’ve got a country, Atlantis, with one thousand citizens.  Ten years ago, 999 Atlantans had incomes of one thousand dollars, while one fat cat made $1 million a year – a thousand times more than everyone else.  What if I told you that in the last 10 years the income gap had grown tenfold?  You might think that’s bad news, if you assume the gap shows the fat cat getting richer at everyone else’s expense.

But without any other information, you wouldn’t know the economic status of the other 999 Atlantans.  For all you know they may now make ten thousand dollars a year, and the rich guy, $100 million.  Sure enough, the gap has grown tenfold.  It’s also grown in real dollars, from $999,000 to $99,990,000.  But the 999 people at the bottom are making ten times more than they were ten years earlier.  They’re much better off.  They just have a smaller percentage of a much bigger pie.  That’s not a big deal.  Unfortunately, the point is as easy to understand as it is to forget.

Notice that the Millenium Campaign stacks the deck in favor of zero-sum logic.  The verb betrays the bias.  Why does it say the three rich guys “control” wealth?  Why doesn’t it say they “own” or “earned” or “have created” wealth?  Let’s try it: “The three richest people in the world have created more wealth than all 600 million people living in the world’s poorest countries.”  That certainly sounds different, doesnt’ it?  Put it this way, that statistic no longer automatically triggers moral indignation.  But that’s how it should be. 

We shouldn’t be troubled about the wealth Gates, Buffett, and Helu have created.  We should be troubled that for some reason, 600 million people have individually owned, earned, and created so little economic wealth. 

 Wealth isn’t the problem.  Poverty is.

 That last part, is so important.  We need to quit making wealth and issue and focus on poverty.

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