Inequality Thought Experiments

So, inequality.

The current state of the United States is:

According to Emmanuel Saez, the top 1% of Americans by income take home 22.5% of all income.  According to another article also summarizing Saez, the top 0.01% of Americans take home about 4.5% of all income.

And from yet another article on Saez:

The message for strivers is that if you want to be very, very rich, start out very rich. The threshold for being in the top 0.1 percent of tax filers in 2012 was wealth of about $20 million. To be in the top 0.01 percent—that’s the 1 Percent club’s 1 Percent club—required net worth of $100 million.

(To be clear, 0.1% of tax filers is somewhere in the general vicinity of 100,000 people, and 0.01% of tax filers is thus in the general vicinity of 10,000 people.  There are of course billionaires with an order of magnitude more wealth than that).

Suppose that all those numbers were slashed in half.  Let’s say that the top 1% of Americans took home 11.25% of all income, the top 0.01% took home about 2.25% of all income, and the top 0.1% and 0.01% had wealth of $10 million and $50 million.  The richest billionaires would have net worth of like $35 billion instead of $70 billion, and say the Koch brothers would have $20 billion instead of $40 billion.  (Billionaire data from Forbes).

Does that change your views on anything?  What does it change?

If you imagine that billionaires buy votes, either directly through corruption, or indirectly through massive, effective publicity campaigns and owning think tanks and such, do we imagine that the Kochs will be unable to do that with a mere $20 billion?  Are you appreciably closer to having the $10 million in wealth that it would take to put you in the top 0.1% than you are the $20 billion that it would take to put you in the top 0.01%?  Do you think that the richest, say, 50,000 people would have lives and agendas more closely connected to yours if they had only mid tens-of-millions-of-dollars compared to high-tens-of-millions or low hundreds-of-millions?

Similarly, imagine that all those numbers were doubled.  Gates now has $150 million, give or take.  The Kochs have $80 billion.  It takes $40 million to enter the top 0.1%, and $200 million to enter the top 0.01%.  The top 1% takes home 45% of all income, and the top 0.1% takes home 9% of all income.

Does that change your views on anything?  What does it change?

If you imagine that the rich having lots of money does not affect your life, is that still true if they’re much, much richer?  Does it change anything if the amount of wealth that is passed down via inheritance is twice what it was before?  Do you think that the very rich could, if they were much richer, have more of an effect on the political process?  Would they be more disconnected from the world you live in?

These are honest questions.  My answers:

  1. I don’t think that life would be much different if the rich were half as rich as they are today.  I think that the very rich, political types are not principally bound in their ambitions by the amount of money they have available to put into their goals, but rather by having good places to spend the money they’re already spending.  I think that the Koch brothers or George Soros or whoever would be just about exactly as influential as they are today if they had half as much money.  I don’t think that the 1970’s were a time free of corruption or of powerful elite influence that went against the interests of most people.  I don’t see a sign that current elite influence is any stronger than it was, or any more sinister.
  2. I think that at double the wealth of what we have today, the world would be worse.  I suspect that in that world, Picketty’s concerns about an inheritance-based society would have a lot more merit.  I also would be concerned that some individuals were approaching an amount of economic power that would allow them to stand much closer to the peers of nations, and that that would provide them with a lever they do not have today.

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