On capitalism, wealth and inequality

Time for one more politically incorrect, unawake dive into the world of income inequality.

Jordan Peterson, Glenn Loury and Douglas Murray discuss the relationship among capitalism, wealth and inequality. Is inequality the inevitable and unacceptable outcome of capitalism? Do "non-capitalist" countries experience higher or lesser levels of inequality than capitalist countries?

• Why 1% Of the World's Population Controls 45% Of the Wealth. Full video: The Uncomfortable Truth Behind Economic Inequality | Jordan Peterson & Glenn Loury.

• Here’s Why Blaming Inequality on Capitalism is Absurd….full version (The war on the west)

Income and wealth inequalities are theological, mathematical and not-at-all-immoral outcomes of sustained economic growth and the high and improving level of general prosperity that growth produces. Yet growth does not occur at equal rates for every person, every country, or every region. And growth is more geometric than arithmetic, producing that nugget of wisdom as to "the power of compound interest."

Peterson also cites Price's Law, that says "that 50% of the work is done by the square root of the total number of people who participate in the work."

In a blog based on a recent Peterson lecture, Darius Foroux wrote this:

What Are The Implications Of Price’s Law?

In his lecture, Peterson talks about how only a few authors dominate book sales. He mentions Stephen King, who’s been dominating top charts for decades. He’s sold more than 350 million books.

J.K. Rowling has sold more than 400 million books. If you look at the number of books sold in a year, you’ll probably see the ratio described by Price’s law. Only a few authors (out of hundreds of thousands of authors) are responsible for 50% of the sales. But that’s more like Pareto’s principle.

Anyway, let’s not compare theories. These theories and laws are often just that — they are nothing more than models. Let’s look at the implications.

Academics and intellectual bloggers love to dissect the world from their leather desk chairs, drinking their Voss water. They love to explain how the world works.

Look, we don’t have the time to study all the 1419 mental models that exist. We still have to put on our clothes every morning and work, so we can pay the bills. But that’s also not a productive way to live.

Yes, you can’t sit in your ivory tower and criticize the world. But you also should not criticize “unfairness” while you’re working hard to earn your money. We get it, life’s not easy.

And theories like Price’s law are merely ideas — not facts. They don’t hold up in every single situation. So before the pretentious idiots go out and theorize about all the limitations of Price’s theory, let’s stop and think about what we can learn.

My presentation to prospective students and parents was simpler: Describe the world in terms of three basic income levels, let's say one making $9 a week, the second $90 a week and the third $900 a week. And let's say that the minimum weekly income to climb out of extreme poverty is $20 a week, meaning that the first group is extremely poor, even if there is a range of incomes around that $9 average. Then let's apply economic growth, causing all incomes to triple over a period of time. Now those numbers are $27, $270 and $2700.

Note first that the relative amount of income earned by each group has not changed. The top group previously earned -- and still earns -- 90% of the income. What has changed drastically is the absolute gap between the groups, from $81 a week between the first and second group to $243, as that gap has tripled as well. The same thing happened between the second and third groups, i.e., a massive absolute increase in the gap, a tripling of the difference.

To be fair, these initial gaps were not exactly what the world was like in the early nineteenth century, when 94% of people were poor. Today that figure is less than ten percent, and there are six billion more people on earth today. In practical -- and mathematical terms -- there are about as many people in absolute poverty today as there were two hundred years ago. However, there are also more than six billion people NOT living in extreme poverty, when that number was about 6,000,000 two hundred years ago, or basically 6% of one billion people. That's a thousand times more people out of poverty than there were two hundred years ago.

The fundamental problem is that when the United Nations almost fifty years ago set a goal to reduce absolute poverty from 44% world-wide to a much smaller number, say 10%, they probably did not really expect to reach that goal, they did not really have a plan or method (it's called 'capitalism, free markets and growth'), and they did not expect that a massive increase in ratline poverty (see above) would be the result.

Be careful what you wish for. Beware of unintended consequences. Remember that with economics, there are always trade offs and scarcity of some sort. And after you cross the gaol line, don't demand that the goal line be moved....