Wealth Distribution Fallacies
The argument for and against wealth distribution are pretty common. Conservatives will often believe that wealth distribution will stunt job growth because the rich will stop creating jobs. Liberals believe that if money is distributed everyone will have a higher quality of life. They are both wrong and this can be deduced by a simple deduction of basic facts.
#1 Money does not equal products
World hunger can easily be solved, we just need to print an infinite amount of money and we would have an infinite amount of food, right? The people that believe wealth distribution would actually work don’t understand what money is. Money is just an arbitrary representation of your time you exchange for products, it doesn’t actually represent products. People that don’t have a lot of money will often look at the wealthy and assume that everyone can live the way they do but that would be an impossibility. If everyone had infinite amounts of money not everyone could buy a Ferrari because Ferrari’s take a certain amount of time to make.
There is also this illusion that the wealthy are massive consumers. Sure they might have a larger house or a fancier car but outside of that their consumption rates are some what comparable to everyone else. Even if they did actually consume 5x more then everyone else, distributing their wealth would only help (maybe) an extra 5-10% of the population. The only thing distributing wealth would do is max out the means of production and ultimately reduce the availability of items for everybody which would lead to preferential treatment based on other criteria. You don’t need a sophisticated understanding in economics to get this principle.
#2 The wealthy create massive amounts of jobs
On the opposite side of the spectrum you have the belief in the “trickle down” effect. The reason this idea is fallacious is because a lot of wealthy people usually don’t spend their own capital on projects and even if they do in the case of some billionaires, assuming their projects are successful (4/5 are not) their endeavors won’t really become true job creators until they get public funding through the stock market.
While it is true that the wealthy usually have a better understanding of this process, they can execute the process without ever spending a cent of their own money. A venture capital firm might be entirely funded by means of the stock market (the public) and while the wealthy might buy shares and fund indirectly their impact to the total funding amount is relatively small. This principle has direct business applications as well. Who makes more money wal-mart or Neiman Marcus? In 2011 Neiman Marcus made 4 billion gross, wal-mart made 446 billion in 2012. Public investment is always worth more then private wealthy investment.
Part of the misconception is that only the wealthy invest in the stock market but the public will actually invest in the stock market indirectly. For instance, mutual funds buy into the stock market on behalf of the public. A lot of people who have retirement funds usually have mutual funds and by this process are actually investing into the stock market.
In video games where they have fake currencies generated all the time there is a common problem of inflation which is important to the designer because it makes elements in the game have less value and because of that the overall good experience of the game is reduced. What game designers do to combat the issue of increasing amounts of money is to create money sinks and these are methods that occur to pull money out of the system indefinitely.
The wealthy act as a money sink. They pull money out of the system and then don’t spend it. This process is important because it increases the value of everyone’s money. It is even more important when you have a government that insists on creating new money all the time. The wealthy or corporations are actually what is stopping inflation from actually rising at an even faster levels then they already are.
Our economies revolve around a variety of balancing acts. We want to maintain quality of life, introduce social programs, but at the same time we want to encourage competition via free market but not have abuse of the general populous in the process. I am not sure what processes are the best, the only thing I am sure of is that no pure system would be without fault.
Whether it is capitalism or socialism, all systems that exist exist for the same reason and that is to overcome the problem of not having enough to go around. Capitalism links the amount of stuff you can get to your effort or innovation (hopefully) and socialism gets you more stuff via rationing.
There would be some, of course, that argue we need to learn to live with less but this is highly ideological and wouldn’t work because of the human ego always demanding more. It is unrealistic to expect or hope everyone to change their consumption rates. The easiest way to solve our economic problems is through technology and making material items valueless because we can create them so easily. From this view point, at the current time capitalism seems to be the best motivating force for reducing production times and devaluing materialistic items.