There’s an interesting discussion going on over at Cafe Hayek about the so called distribution of wealth. To simplify, the main thrust of the argument is that we are all so much wealthier (as economists determine it, by our options) than we were in the past, quibbling over how that wealth is distributed is downright petty. I’ll try to tackle the main argument in another post (I’ve been saying that a lot recently), but there was an interesting set of points made in the comments. I’ll paraphrase and strip out the technical jargon. As a counter point, one commenter suggested that if we were to divide up a pie between three children and give them one piece each, all of them would be better off. But if we divided it up so that one child got 85%, the next one got 13%, and the third got 2%, the third child would be pretty upset even though he had more than he had before.
Fair enough, the child would be upset, and maybe with good cause. But there’s a big difference between that pie and the output of the economy. First of all, there isn’t a fixed size of “the pie”, it can grow and shrink. So yes, maybe someone is still getting only 2%, but if the pie is the size of Kansas, he might not care. This isn’t as far out as it might sound. Compare Bill Gates with, well, just about anyone with a decent job. Bill Gates makes far more money, but most people don’t really care as long as they get enough to do what they want, and it’s a far smaller piece of the economy than 2%…
Another important difference is that there isn’t anyone that decides how much each person gets. People forget that what we make is dependent on all the other prices in the market, not only for labor, but everything else as well. What we get paid is a result of all of the prices on the market, there isn’t anyone doing the distribution, unless everyone counts as someone…
Another commentator brought up the point that a better analogy would be if one of the children made the pie and the three of them decided how to split it up. Imagine one kid saving up his money, reading like crazy on how to do it, buy the ingredients, fail at a couple of attempts, and finally come up with a decent pie. Then the three would “democratically” decide on how to split it up. LOL, you can be sure who will be happy and who won’t be happy! Ideally, the person could make the pie any size they wanted and could divide it up however they wanted. Of course they would be limited by the available oven size, the pots and pans that they had access to, etc. but they could, within reason, make whatever size they wanted. The bigger it is, the more of a pain it is, but there is a greater payout as well. Anyway, you get the gist of the exercise. The economy is not a fixed thing, and there isn’t a third party that can divide it up without cheating someone.
Isaac