Unequally Distributed Wealth or Equally Distributed Poverty

There is an immutable law of economics.  You cannot redistribute what does not exist.  Modern political thought seems to not accept that truth.

Given the current levels of taxation, regulation, jurisprudence, and intrusion into the orderly carrying on of business, we can safely say that while the rich may be getting richer, they do so because of effort and skill rather than the presence of a benign business environment.  When effort and skill does not prevail, they will go elsewhere and take their wealth with them.

The poor on the other hand believe themselves to be entitled to some of that wealth.  How much is an ongoing discussion, but the trend is more.  As they get more, paradoxically their risk increases.  If the wealth is unavailable to distribute, they will few options.

The key to advancement is to know wealth is the result of effort, skill, risk, innovation, and a contribution to others that the others pay for willingly.

That the wealthy depend on the poor is a political argument that goes only part way.  The wealthy do depend on others for their wealth.   If there were no customers, there would be neither sales nor profit, but the idea that the poor make others wealthy is a diversion.  A white gloved hand to draw attention from reality.

The reality is customers are willing to trade their money for the product or service.  If the customers are in sufficient numbers the accumulated profit can be quite large.  Is that bad?  Who loses?  The customers got value or they would have bought something else.  No loss there.  The profit is a tiny fraction of the sale price.  While the total profit accruing to a business founder may appear quite large, distributing it equally to customers as a price reduction would have a negligible effect on them.  No winner by price redistribution.

We should encourage the creation of wealth.  There should be such regulation and taxation as is reasonable for protection, fair dealing and the costs of necessary governance.  There should be as little intrusion into business as possible.  If you discourage wealth, you will have less of it and accordingly there will be less to distribute.  Then what?

Historian Will Durant offers insight.

“In progressive societies the concentration of wealth may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.”

I am no historian, but I expect redistribution always comes first and when there is nothing left to distribute,  revolution later. As Margaret Thatcher has pointed out,

“The problem with socialism is that you eventually run out of other peoples’ money.”

The equal division of poverty seems a poor goal for governments, yet the logical extreme of current policies is just that. It is about political advantage through polarization. 

Envy is a poor counselor, although it sells well politically.  We should do better.  We can invite instead of discourage the creation of wealth.

Let’s find the triggers and promote those.  Let’s work at a distribution of the wealth that enables the poorer of us to live and advance and achieve wealth. Let’s help young people acquire the skills and attitudes that enrich all of us.

For the wealthy, the best economic incentive is the removal of disincentives.  Let’s celebrate the creation of wealth.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

2 Comments on “Unequally Distributed Wealth or Equally Distributed Poverty

  1. Don, I cannot agree with the mutually exclusive outcomes you have posited, not for what they could encompass but for the alternatives they embody.

    Equality of financial means at all times is not what most people who argue for progressive taxation & wealth/income redistribution argue for, and neither is the poverty of all (even ignoring that poverty can be measured multiple ways and that absolute control over a pool of money is one aspect of a definition).

    Even assuming that what the market assigns to a person as income for some ‘work’ is a fair reflection of talent, work, effort, value added, etc (which both empirically & anecdotally it is not), one cannot ignore all that went into allowing a person to take life into their own hands – parents, teachers, bosses, partners, colleagues, educational and vocational opportunities, access to resources and freedom from survival needs, …

    The vast majority of people have wealth & high incomes only in part (and often only a small part) due to their effort. The vast majority of the factors that go into allowing persons to appropriate a larger portion of income/wealth has more to do with who they were born to, when they were born, and what natural gifts they were given. Additionally, the private wealth created by individuals and organizations is drawn on and thereby appropriates the value belonging to society (however defined) and is built on advances and structures paid for by all of society. Just at it would be unfair to have the public appropriate the marginal value added by any one person for others, it too is unfair for an individual to appropriate as their own value that they did not create.

    The role of government is to shape society to allow for the maximum fulfillment of persons’ lived/talents/abilities in a manner that is fair and equitable – to draw from a famous jurist, to devise policy from behind a veil of ignorance of one’s position, characteristics, and capacities. It is to differentiate fairly between value, represented by money and wealth, created by a person or organization and that appropriated from social capital or created by publicly funded/created entities. Taxation is one of a matrix of intersecting laws, including property laws, that must be applied before a person can claim private control over financial power (and then within the limits deemed appropriate by society). Pre-tax income and wealth no more belongs to a person than does rights in an invention free from the limitations imposed on patents. Society, must take from persons the portion of money allocated by the market that is attributable to society, and leave what is attributable to the person’s marginal addition of value. This measurement, by necessity, is arbitrary, but the difficulty in finding the boundaries does not mean that boundaries do not exist.

    • Thanks for the comment Sas. My point is not nearly to your level of thought. I think it would do us well to encourage wealth so to have more to share. The envy and castigated of the wealthy does not further the reasonable needs of society.

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