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Wednesday, February 21, 2018

Is Wealth Inequality Bad?

Many people, including Pope Francis, rail against wealth inequality. From an economic perspective, it is not at all clear why. Wealth inequality actually corresponds quite well with the rising tide of affluence throughout the world. Right now, during a period of the most extreme wealth inequality between nations ever, we are also on the verge of wiping out extreme poverty. This is not a coincidence.

I have noted before that the office of the papacy does not include the requirement that the Pope be very knowledgeable of economic theory, nor that he be very intelligent in his comments on it. While the Church has a duty to serve the poor, the method by which the poor are best served is largely prudential - different people might legitimately choose different means to solve it. Wealth inequality, by itself, is not a sin so long as everyone's minimum requirements for food, clothing, shelter, education, medical care ad basic human dignity are being met. Quite frankly, all but the last of those minimum needs are being met much better today, in a time of enormous wealth inequality, then they have ever been met in the entire course of human history.

In fact, things have gotten so much physically better precisely as a result of growing wealth inequality. Wealth inequality is correlated with EVERYONE getting out of poverty.
The "trickle-down" theory of Reaganomics is a fine example of how inequalities actually help everyone. Even Ted Kennedy admitted that much. The rising tide which brings incredible wealth to the 1% ALSO lifts the 99% out of poverty. The mechanics for how it works is very straightforward.

Take laparoscopic surgery, for instance. When I was young, that was only an option for millionaires. But, as more millionaires bought the procedure, economies of scale kicked in and semi-millionaires could afford it. There were a lot more semi-millionaires than there were millionaires, so scale kicked in again, repeatedly. As cost fell, more and more people could afford it, so more and more people did it, which dropped costs still further. The increase in scale also meant the procedure became increasingly streamlined and efficient, if only so as to handle the demand better.

Today, laparoscopic surgery is standard procedure for gallbladder and appendix removal, among a host of other applications. It provides cheap out-patient surgery that simply didn't exist 50 years ago. Why? Because millionaires volunteered to act as the guinea pigs. They were the only ones who could originally afford it. As they and their extremely well-paid doctors refined the procedure, it became increasingly available to the rest of us. Today, it is so common that it doesn't merit mention.

The same thing happened with cell phones. The original radio phones and cell phones were the size of bread boxes and cost more than any average Joe could possibly afford. But millionaires needed to stay in constant contact with their businesses and with the stock market, so they bought the tech. They served as the guinea pigs. As scale increased, price dropped, efficiencies improved. Now, literally everyone in the US can afford cell phones. And not just cell phones. Today's phones are the 1960s equivalents of super-computers that fit in our pocket and put us in touch with most of humanity's combined store of knowledge. The rich people and their richly rewarded tech outfits worked out the kinks. We have all benefited.

THAT is what wealth inequality does. It allows millionaires to act as guinea pigs for new tech. If it doesn't work, they waste their money and/or die. If it DOES work, then I get the tech about fifteen years later, because by then, the cost has dropped down to where even I can afford it.

Wealth inequality is an extremely efficient way to utilize resources. If I have a new tech idea, I can either try to convince tens of thousands of middle-class people to fund my idea, at great personal risk to each of their wealth stores, OR I can convince one extremely wealthy person to fund it at minimal risk to his wealth store. It was easier to do the latter than the former. Even today, being on Shark Tank will bring you funding in literally 20 minutes, while promoting the same project on Kickstarter will take days, weeks, or months to accomplish the same level of funding. It is far easier for Elon Musk to guide a project like the Falcon Heavy or BFR to successful completion than it is for ten thousand people to agree on how to do so, and that assumes you could get the funding from that ten thousand at all.

Wealth inequality is not the problem many people make it out to be. In fact, wealth inequality has historically been the solution which has made us all fabulously wealthy by any historical standard you care to name. Because of wealth inequality, the rich are willing to serve as the experimental guinea pigs necessary to bring functioning solutions to the masses. That's not a bad thing.

We have a knee-jerk reaction against wealth accumulation because we innately see the world as a zero-sum game. And the fallen world often acts and reacts as if it were. But the whole point of Christianity is to change our world-view. A Christian understands that God's grace and power are infinite, therefore the zero-sum game view can never be correct. Insofar as we image God, we have the ability to change our world from being zero-sum to being infinitely resourceful and wealthy.

Can we create Utopia? Physically, sure. Spiritually, not a chance. We are still fallen creatures, and that will always prevent us from establishing any real paradise on earth. We are slowly solving the problem of physical poverty. It really is going to disappear, possibly in our lifetimes.

But spiritual poverty? As long as anyone in the world is not Catholic, then the world still suffers from extreme spiritual poverty. THAT is the wealth inequality which we, as Catholics, need to remedy. Fortunately, from that viewpoint, Catholics are the rich one-percent. We have infinite resources that can be delivered to the poor among us, and make them all wealthy too. As physical riches percolate out into the world, that is the only wealth inequality we really need to be concerned about.

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