Posts Tagged ‘ wealth ’

Follow the Goods, not the Money: The ‘I Am Rich’ App and its Discontents

A bit late to the party, I recently stumbled upon this story and, more importantly, this response to it. It naturally got me thinking about wealth transfers since the moral and economic consequences of purchasing the ‘I am Rich’ app lend themselves more toward that description than one of proper consumption.* Treating and scorning these purchases as bona fide consumption I think is an instance of a common economic fallacy: following the money.

All exchange is fundamentally the same phenomenon at the micro level: someone values a physical good, service or any psychological consequence that comes of transferring their resources to someone else, so they do it and, if the exchange was voluntary, there is an ex ante increase in utility for both parties. At the macro level, however, it becomes useful to delineate consumption and transfer; the implications for society matter. Pure transfers have no effect on the allocation of resources unless some very specific behavior induced the transfer and would do so predictably in the future. If transfers like this were profitable enough for many prospective recipients, it would soon develop into a market for services, much like I speculate the market for street beggars to be. However, to the extent transfers are not behavior induced or are sufficiently isolated/unpredictable, their effect on the structure of production is precisely a transfer from the marginal consumption pattern of the transferer to the marginal consumption pattern of the transferee with a magnitude of the sum transferred. To call money wasted or opportunities foregone in this instance is inappropriate; it depends on what the recipient will do with his windfall.

In the case of the app, its developer did adjust his behavior to meet some perceived market demand and his minor success may have signaled others to do likewise and, to that extent, it was a humanitarianly wasteful venture. I, however, measure this extent to be quite small in comparison to the money he received given his presumably moderate opportunity costs and very low resource commitment to the project. This was mostly a one-off transfer in my view and its effects on the actual distribution of resources in the world are negligible given the sums involved; their impact was (circa 2008) still yet to be determined. Armin Heinrich can still make the world a better place, and the world has lost very little for his app.

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People Who Complain About Growing American Income Inequality Are Sorry Excuses For Cosmopolitan Thinkers

Here is the kind of chart they like and here is another.

Here is a powerful theoretical explanation for stagnant or stalling average wages in a country and a world where many many more people are far far better off then they were in the 70s.*

Conjecture on why the theoretical explanation almost certainly applies:

The Second World War left the (only recently) industrialized world in ruins. While Europe and Japan rebuilt, American capital and infrastructure were wholly intact. When you consider the huge relative advantage of working in an industrialized economy to begin with, it becomes very hard to understate the significance of the United States’ position at the time. Moreover, Women had not broken into the peacetime workforce and bid down the wages of men. Median/Average income was at an all time high, shocking.

When would we say all of these socio-economic/historical factors began to shift against the lone male American household income earner? Hard to venture a better guess than the 1970’s. The European and Japanese recoveries/miracles were hitting full swing, we opened trade with China, women started entering the workforce in droves and the US economy hit a rough patch. By the time the domestic economy turned around, foreign competition in the labor market was well established and Reagan’s more liberal immigration policy coupled with the recovery to increase the number of low-income earners entering the American economy from abroad.

These trends have largely continued through today and they have been a boon to everyone. It would be very difficult to show that the median American family, or indeed the median Chinese or Indian family is not much better off than they were 40 years ago when we had so much more domestic equality. Technology and efficiency gains have been huge and they’ve been distributed all over the American economy; you’re reading this online article over free wi-fi on your smartphone, you’re no one-percenter and your parents would be awed by your lifestyle at this age.

So America’s middle class of old is in far better shape, the new middle class is lightyears ahead of what was likely third-world poverty a generation ago, but our focus needs to be the fact that we all live like shit because the greed and privilege of 3 million Americans making more than $250,000/yr is robbing us of the life we deserve. The truth seems to be that the middle class were the privileged ones, getting to press buttons and pull levers for fat suburban incomes while the rest of the world lived in real poverty. Now that those people who were once desperate have joined the global economy and proven themselves no less skillful than their American counterparts, the latter have lost their privilege that came at a great price to many millions of people and now sulk despite still living in the lap of luxury.

On the other side are the 1%: A tiny minority of people with highly specialized skills that few have learned despite many having the chance because they are that difficult to master and that dismal to learn even though they are the skills that let you make extremely important decisions about the structure of production that effect the income and consumption of millions. Given the boon to living standards we’ve seen due to globalization and the successful adoption of new technologies on an industrial scale, I’d say the people organizing it deserve quite a premium over the people stamping jars and balancing cash registers.

The moral of the story is that the people narrowly focusing on the slightest possibility that wealthy middle class Americans have been given a raw deal are they same people who call themselves champions of the poor and proponents of progress. My understanding is that humanism was progress in the 17th century and 19th/20th century nationalism was the conservative backlash; yet many on the left prioritize a return to a world of abject poverty for billions so a select few among their countrymen needn’t feel inferior to an even more select few, though this connection very likely does not occur to them. They are, at the very least, myopic, if not outright selfish and malicious in their drive to cultivate an elite that coheres to their aesthetic.

 

 

*The second graph was the best I could find in a lengthy search, nothing on global median income, but an endless trove of the headlining charts. This heavily underscores my point.