The Dismal Economics of Utopia: Lesson One

This originally appeared in Pajamas Media. I thought it was a natural follow-up to yesterday’s post about the odd economic situation in France. The content below has been edited, but tenderly, from the original.

Imagine a point in our bright future—a glorious time!—when all incomes will be equal. Perhaps this wonderment shall be accomplished by a new global Enlightenment, perhaps it will arrive by fiat: All incomes, the narrowly passed legislation will read, shall henceforth be equal.

Equality at last! Oh, the unbridled joy of knowing that everybody else is finally no better than I am! Merit is finally meaningless! President Obama’s stated goal of redistribution, at least in terms of income, will have been realized.

If the After Life which these men said does not exist actually does, Marx, Godwin, Condorcet and similar intellectual giants will smile in pride down from it, basking in the knowledge that the adolescent human race has finally grown up.

What will be the consequences of this rigorous fairness?

The exact number of people alive when the blessing comes upon us is irrelevant, as is the mandated income, but suppose it is $50,000. Let’s begin, as most economists do, by looking at the distribution of household income (I owe this example to Thomas Sowell).

When equality arrives, it will turn out that the mean household income will be about $116 thousand. About 40% of households will make that much or less, and 60% will make more. Now, $116 thousand makes the people who only pull in $50K look poor: that is, equality will force about 16% of the households to be “poor.”

What about the rich? Depends on what “rich” means, of course, but take $200K as a starting point. That is, after all, four times as much as the “poor” make. About 37% of households will be “rich.” The really wealthy household incomes start around $500K. Just less than 1% of all households will make at least that much.

What about the households of the Bill Gateses and Carlos Slims of the future? Those households which make more than $700K? As now, they will be a rarity: just over 1 out of every million households will be obscenely rich.

What’s going on? Everybody is equal by law! How can there be rich and poor when everybody receives the equality-salary of $50 thousand?

Easy: households are not comprised of equal numbers of people. Some households have just one person, more have two or three, fewer have four, and fewer still have five or more. The exact distribution isn’t important; I picked one in common use by demographers.

The artificial creation of rich and poor households derives from the socialist goal of equality, which demands that every person receive the same income. And “every person” by definition includes infants, the aged, and everybody in between.

“No fair!” you might be thinking, “Your example is silly. Everybody knows that equality does not mean awarding equal salaries to babies and the residents of nursing homes.”

Everybody does not know that. If you lust for equality the burden is on you to define exactly what “equality” means. Socialists and other utopians are usually content to let this definition float, and let its fuzziness work to their advantage. This floating definition puts realists on the defensive, who are ever nervous about making statements that might be judged hostile to equality.

Anyway, the above analysis gives a hint of the large-scale corruption that occurs when incomes are reported by household. Now let me show you how you can go from poor to rich by the flip of a switch.

In real life, most households have one or two bacon suppliers; some have none, some have three or more. Suppose, judging it to be absurd to award infants a salary (and not every socialist would), equality is defined to mean that each household is only allowed to have one income.

Then the mean household income would indeed be $50K. And there would be no rich and no poor households because each household earns exactly the same.

But consider per capita income. Sixteen-percent of the population will make an average salary of $50K, 24% will make an average of just $25K. These people are rich compared to the roughly 1% who will average just $6,500, and will really be able to Lord it over the 1% bottom-of-the-barrel poor who will average about $4,000 or less.

Best of all, our new definition of equality ensures that those who used to be rich under the old definition are now poor! And isn’t that the true goal of socialism? In the new definition, larger households are penalized, under the old they were rewarded.

This result also assumes that people of all ages go into the averages. But neither this nor the first analysis need that assumption. We can eliminate babies: the artificial creation of rich and poor happens even if you consider only “adults.”

Perhaps utopia can still be found by eschewing household statistics and considering wealth instead of income? It cannot. But that is a lesson for another time.

21 Comments

  1. Shortly after it was created, the universe contained uniformly distributed matter. It “without form and void.” Thankfully, that changed.

  2. Equality of opportunity does not equal equality of income. I don’t believe I’ve ever heard a politician say that all incomes should be equal.

    You sir, are the master of the straw man and reductio ad absurdum .

  3. Kevin,

    Two things can account for your lack of memory, comrade. Simple forgetfulness, or lack of reading. Many politicians fret continually about the “rich” and “poor” income “gap.” Socialism aims to remove this “gap”, does it not? Now, my demonstration is merely to show the absurdity of equality of money (wealth, income, whatever). This is akin to a mathematical proof which says a result is not possible. We now have to search for what is.

    And in any case, whether I’m right or wrong in my reductio (I’m right; and I think you agree), equality of opportunity is also an impossibility. Not an unlikelihood: but an impossibility.

  4. I agree that true equality of opportunity is unachievable, but this shouldn’t be the reason not to strive for it. If the goal is worthy, then we need to ponder ways to approach it. IMO, the intertwined social, economic and political equalities should be considered the same way.

    You obviously don’t agree with Obama’s tax policy. I don’t know if Obama and socialists (think of Singapore and Taiwan) want to ensure income equality. Anyway, instead of guessing what you think, let me ask you this:

    Mr. Briggs, do you not think that certain degrees of social, economic and political equalities degree are goals worth striving for?

  5. With the exception of 3 countries (Azerbaijan, Bangladesh and Switzerland) the poorest 10% of a country population’s share of GDP (consumption) ranges between 0.7 to 4%. The US is 2%. Remarkably average until you factor in the GDP and the reason millions risk everything to come here.

    The bottom 10% in Bangladesh spend 8.8% of their GDP. Bangladesh however faces no tide of immigration despite the lure of equity.

  6. You don’t understand the meaning of the word “equality”. Perhaps if you bothered to read some writings of your own “founding fathers” you would find the correct definition. But since you are astonishingly blind and impervious to any other argument that isn’t about proving how wrong the left is, apart from the “unfair” cry that somewhere very deep behind your true conscience that really knows you’re just making straws here, you’ll never write anything substantially interesting about this… except to the choir of course…

  7. Two things can account for your lack of memory, comrade. Simple forgetfulness, or lack of reading. Many politicians fret continually about the “rich” and “poor” income “gap.” Socialism aims to remove this “gap”, does it not?

    … and do you even know why it does? Does it not bother you that some people, 1%, have more power and ability to lobby for laws and actions than the “lowest” 90% of the people? Do you think that that is the best state of affairs? Well if you do, please me my guest, but then we couldn’t have more different sets of morals and what defines a “good” state of affairs. I really despise Oligarchies.

    I mean, it’s incredible. Do you really think that a bloke that earns 8k a year should be taxed at the same rate that Gates? Are you really so “far out” on this spectrum of ideas? Not even effing Adam Smith ever thought this way!! This is completely a new phenomenon, and it wasn’t born by “grass roots”, but rather from the very rich elite. This Ayn Randian garbage is nonsensical, and the sheer insanity of that woman and its group doesn’t even stop so many people for seeing that her ideas were the ideas of a lunatic.

    It’s madness. Pure and simple. Because to deny any form of egalitarian politics is to deny, for instance, progressive taxes. And whomever denies this is … I mean wow.

  8. Your post reminded me of the never-ending quest for an “uninformative” prior distribution in Bayesian statistics. As in politics, people have an intuitive desire for priors to be “uniform,” but then are stymied when you ask “uniform on what scale?”

  9. Poor Luis Diaz confuses the equality sought by our founders and the “equality” gamed by our socialist-progressive betters currently in office. He further thinks el profesor makes the same mistake. But is not this thread illustrative of the very fact Briggs thinks there is a difference? ¡Dios mio!, pobre Luis seems dense today.

  10. Poor Luis Diaz confuses the equality sought by our founders and the “equality” gamed by our socialist-progressive betters currently in office. He further thinks el profesor makes the same mistake. But is not this thread illustrative of the very fact Briggs thinks there is a difference? ¡Dios mio!, pobre Luis seems dense today.

    Perhaps you are the one being brainwashed by FOX et al, misquoting the president like hell and all of the other inanities, etc.? It sure seems so.

    “Equality” means _______________________________________________.

    Equality means everyone being able to have the same legal rights. Equality means no slavery. Equality means that when someone borns, he shouldn’t be doomed to poverty just because his father is poor. In this sense, equality means equality of opportunity. How is equality of opportunity possible if there are so many differences between the education of the poor and of the rich? Why is the current state of affairs so blatantly favoring the rich’s kinds?

    Jefferson dixit:

    There is also an artificial aristocracy founded on wealth and birth, without either virtue or talents; for with these it would belong to the first class. The natural aristocracy I consider as the most precious gift of nature for the instruction, the trusts, and government of society. And indeed it would have been inconsistent in creation to have formed man for the social state, and not to have provided virtue and wisdom enough to manage the concerns of the society. May we not even say that that form of government is the best which provides the most effectually for a pure selection of these natural aristoi into the offices of government? The artificial aristocracy is a mischievous ingredient in government, and provision should be made to prevent it’s ascendancy.

    Equality means ending poverty. Why don’t people find it atrocious that while some people fly in personal jets, buy sport teams, etc., there are millions living in poverty, in the same country? Why is this so easily accepted, as if there is some kind of “natural law” that states that there should be some people with a million times more resources than others.

    Equality means you aren’t stepped like a slave. Like people that can’t buy medical insurance, and yet have to work all day against corporations. Well, bad luck to them. Their problem that they weren’t born richer.

    Equality is an utopic tension. Like Freedom is another. Yes, one would be a total fool to try to build a complete equality without the resources to do it (today, ahem), just like one would be to try to build a total “free” world (anarchy). But to deride the effort, the will to make everyone’s lives less miserable than they are, is just denying the enlightment project.

    For heaven’s sake, even Adam Smith proposed a progressive tax!

    Furthermore, the only thing that separates the left from the right isn’t the fact that government exists and should exist. Is *how much*, where is the line crossed between public and private. And this is in the middle, in the grey. Not in the extremes.

  11. Luis Diaz

    “I mean, it’s incredible. Do you really think that a bloke that earns 8k a year should be taxed at the same rate that Gates?”

    As you have used a very strong , agressive and for all practical purposes moronic language (that I will not quote) , let me tell you that I find you rather limited .
    You seem not only to lack elementary reading skills but the little that you can read , you don’t understand .
    It would be acceptable or at least understandable to see such reactions on some of the more complicated William’s posts like those who deal for example with the binomial distributions .
    In such cases some people say stupid things but don’t realise how stupid they are .
    However the fact that you were unable to understand this particular post about equality is rather telling about your abilities .
    I am afraid that you waste your time on this blog (sorry William to discourage one of your readers :))
    .
    It will be interesting to find out how deep a hole you will dig before realizing it on the example of the quote I selected above .
    So it gets you foaming at the mouth if Gates is taxed at the same rate as some bloke .
    Then answer me please :
    Why shouldn’t Gates be taxed at a same rate like some bloke ?
    More generally what would be wrong with an inverse U tax rate (inverse U is a system where Gates would be taxed at the same rate like some bloke) ?
    Note please the conditional .
    If you can , try to think a little because the important questions will come only after you figure out these preliminary answers .
    .
    P.S
    Don’t assume anything about what are my preferences of tax rates . You have no clue anyway and it would be irrelevant .

  12. Louis- Please explain how you break Pareto’s principle to get this equalty. Consider nation A – It has torn itself to shreds by ethnic hatred and civil war destroying their wealth or potential to create same in the process. Nation B destroyed its wealth potential by corruption and a failed state. Nation C has avoided these problems through the basic honesty and industriousness of its citizens. Must nation C join nations A&B in poverty to achieve equality. Just trying to understand the bounds here.

    Perhaps my position is better stated by Sir Isaiah Berlin in his Two Concepts of Liberty:
    “If the liberty of myself or my class or nation depends on the misery of a number of other human beings, the system which promotes this is unjust and immoral. But if I curtail or lose my freedom in order to lessen the shame of such inequality, and do not thereby materially increase the individual liberty of others, an absolute loss of liberty occurs.”

  13. Louis- Bill Gates has stepped in to try to rid the developing world of the malaria scourge. George Bush (US) and Bill Gates have spent more money of late on this problem than the equitable UN has in its history.

    You also do not seem to understand the concept that wealth can be both created and destroyed. Wealth is not zero sum.

  14. Dear Luis said:

    Perhaps you are the one being brainwashed by FOX et al

    Perhaps, if I watched it [or them]. But I don’t. I think and read for myself, and carefully consider the evidence. Afterward I make reasoned decisions, and as in an OODA loop, start all over again. You should try re-thinking your opinions occasionally. It would keep your mind young and vital, much longer.

    The first two “equalities” you mention are spot on. The third is also true but your following question regarding differences in educational opportunities is mis-guided. Conservatives WANT equal and fair educational opportunities for all. Progressive-socialists WANT an artificially “averaged” nationwide educational system that dumbs down students to the lowest common denominator. It is the current US government led educational system that is bad, bad, bad. Most commenters on this thread speak to that.

    You also said:

    Equality means ending poverty.

    Poverty, though real, in the US is an artificial construct. It’s defining line keeps changing. A government can’t end something it uses to label it’s economic measuring stick. The “poor” in this country are wealthy by a few other nation’s guidelines, and approaching middle class by most of the third world.

    You and I are probably not equal. You are probably far better at many things than I. But in this country we would have equal rights and equal opportunity. Nowhere else on earth is that completely true. You’re tilting at windmills here, sir, and your simple desires do not speak the truth. Please educate yourself further, or else stop following the world’s media. Their views, which you parrot, are self-serving and slanted to fulfill their own master’s agendas, IMO.

    Cheers, though

  15. The biggest problem I see with the equality of income argument is that equal incomes do not equate to equal wealth. Even if we ensured that all per capita incomes in America were equal, we would still have disparities because some people are better investors, some are more likely to save, others are more likely to consume, and so on. A large amount of the wealth inequity in America is a result of good financial decisions by some households and poor financial decisions by other households. When I see people carrying $30,000+ in credit card debt, yet they still can’t stop shopping for clothes, or can’t cancel the cable tv, or can’t wait a few more years to purchase their next car, I have no sympathy for them. For most of us, our level of wealth is directly correlated to the choices that we have made in life. If you are willing to give up some luxuries now, you will probably be able to live better tomorrow. If I choose to save my money and amass wealth, I shouldn’t have to turn around and fund your retirement/medical insurance/education/(insert welfare program) because you were too stupid/lazy/greedy/etc to make smart financial decisions.

  16. Luis Diaz

    I note that you were not able to answer 2 simple questions .
    This was actually what I expected .
    You belong to those cowards with big mouths but who flee when they are challenged .
    Big words , small ideas , is it ?

  17. Having households of more than one person doesn’t make a single person in a single person household receive less or more income than a single person in a multiple person household.

    A multi-person household has more income, but if a single person in that household can only spend their own income, who cares how much income a household has.

    If for example, the wife and/or the children have no say about spending the income, then the situation will look a tiny bit more like real life.

  18. Sorry for commenting and running – crazy week. Not sure if I can pick up the thread but….

    Many politicians fret continually about the “rich” and “poor” income “gap.” Socialism aims to remove this “gap”, does it not?

    Income inequality isn’t a problem to be solved, it’s a symptom of a larger societal problem. Your characterization seems analogous to: “there’s a patient bleeding out of multiple lacerations, doctors don’t want to the patient to bleed out, but that’s impossible, no matter how much you mop the floor, the blood will keep coming.” It misses the point.

    I think I’m pretty liberal, but I don’t want the government to force Bill Gates (or anyone else) to make the same amount of money as me. And I don’t think any politician has ever advocated that (feel free to show me evidence to the contrary). But there are government policies (I’m thinking of the many decades between the Great Depression and the 1980’s) that can increase equality, increase the number of people that have access to the middle class, and decrease the number of people in poverty.

    If that means that Bill Gates can only make 75 billion instead of 100 billion, and some billionaires can only be hundreds of millionaires, then I think that’s a reasonable trade-off.

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