Friday, January 20, 2017

The World's Richest

Last time I gave a very short summary of the principles of economic understanding.  Often personal and governmental decisions arising from good intentions lead to disruption and unintended consequences, whereas economic understanding would help us to anticipate and avoid these very natural outcomes.

One important omission from last week was the idea that the “economic pie” is getting bigger.  As the economy grows everyone is better off.  It is not the case that if I get more you must get less.  It's not a zero-sum game where having winners means some must be losers.  This is not obvious to young people because progress takes time.  

Eighty years ago only about half the households in the US had a radio and flush toilet.  Only about 60% had a car and 70% had electric lights.  About 60 years ago televisions came on the scene, and in another ten years color TV.  It wasn’t until about 40 years ago that home air conditioning began to spread.  Microwave ovens and home video recorders were brand new.  Regular use of personal computers in home and office came about in the last 25 years.  Cell phones and smart phones followed.  Today we take all this for granted, but we can afford to have the lifestyle we have due to a growing economy.

The poor today have appliances that a few generations ago were limited to the rich or that no one had because they were not invented yet.  The latest information I found were 2011 Census estimates of the percentage of poor households in the US that owned the following:  clothes washer and dryer (65%), refrigerator (98%), microwave (93%) air conditioner (83%), television (96%), video recorder/DVD (83%), computer (58%), cell phone (81%).  Those numbers are higher today, and it all came about through innovation, increased productivity and a growing economy, not because someone else had to settle for less.

 But Oxfam International sees it differently.  Using the tag line: “The power of people against poverty,” their focus seems not to be on eradicating poverty directly, but on the size of the gap between the world’s haves and have-nots.  In the news this week, a press release against income inequality lists the eight richest men in the world whose combined wealth equals that of the poorest 50% of the world.  Oxfam has been releasing this type of information each year before the World Economic Forum in Davos, a private conference for the world’s richest people, apparently trying to embarrass and shame them into supporting the cause.  (Note that just 1% of the people in the bottom 50% of the world are from North America.  And using their measurement criteria, new college graduates who owe more money than they have could be counted among the world’s poor.)

If we took everything away from these eight and distributed to the 7.4 billion people in the world, each of us would get $57.70.   The following year we would get considerably less from the next eight or ten or twenty.  It doesn’t work that way.

Some of the people listed are Bill Gates, who sold software to billions; Jeff Bezos, who lets us shop for almost anything on Amazon; Warren Buffet and Mark Zuckerberg.  None of these people forced us to give them our money.  We could have used inferior software, not shopped from home and never joined Facebook.  But many people chose to support them.  That’s how they got to be the richest people in the world, by inventing something we wanted, that added value to our lives and that we were willing to buy.  Gates and Buffet have set up charitable organizations.  Amazon has just announced plans to add 100,000 jobs in the US over the next 18 months. 

Now that we have freely given them our money and the growth of their companies has provided a huge number of jobs, Oxfam thinks they should feel guilty and the government should punish them with higher taxes.  Doesn’t confiscating someone’s money through threat of force constitute punishment?  (Should we limit the number of twitter followers anyone can have so we all have an equal chance to get our message out?  Wouldn’t that be fairer, too?)

Economic growth doesn’t work that way, and the key to ending poverty is through economic growth, not artificially shuffling around a fixed amount of money.

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