January 07, 2004



The Future of Wealth

Glenn Reynolds raises some interesting points about income inequality in his latest Tech Central column:

If the rich are getting richer on a steep curve, while the rest of us are getting richer on a less-steep curve, then if you project the far enough ahead we'll have Bill Gates owning entire solar systems while the likes of me make do with a Porsche. Not exactly a tragic scenario (though I'd prefer a Bugatti) but if wealth disparities are great enough, I suppose it becomes harder to maintain civil society, as the rich will have too little in common with the rest of us.

The response, of course, is that if you project any trend far enough into the future it leads to bad scenarios -- and usually worse scenarios than the one where I have to settle for a Porsche. But such projections rarely come true. Today's rich people might get richer than the rest of us, relatively, but it's not likely to turn them into Galactic Overlords. In fact, in terms of daily life experience, I suspect that today's rich are less different from, say, ordinary upper-middle-class Americans than their counterparts were a hundred years ago, or even twenty (a point buttressed by Easterbrook's new book, The Progress Paradox), and that doesn't seem likely to change in the foreseeable future.

I've heard it argued that a typical middle class American enjoys a lifestyle as opulent (or even more so) than a typical king in the middle ages. Like life expectancy, wealth is increasing with each generation. But because of inflation and fluctuations in currency value, wealth is harder to measure across generations than something as straightforward as lifespan.

I like Glenn's idea of comparing the difference in lifestyle between the average person and the richest of the rich. If that delta could be quantifiable, it would almost certainly show a consistent downward trend over the past two hundred years.

Why?

Is it because rich just doesn't buy you as much as it used to? Just the opposite, really. Poor buys a lot more than it used to.

A good way to measure the increase in wealth across the generations is via the accumulation of stuff. It's by this measure that I can declare myself richer than, say, William the Conqueror. Actually, that's a tough one. He had more land and horses than I do, and was much better off in the precious metals department. And in terms of being able to raise armed forces, I'll have to concede that my Posse might have a hard time with the Norman invading forces. Still, I sleep in a more comfortable bed, eat better food, and have Tivo. He never got to go to Starbuck's for a Caramel Macchiato (hell, he never even got to go to Dairy Queen for a Peanut Buster Parfait), much less have a steam bath followed by an aromatherapy facial at Antoine Du Chez.

And even if some historical know-it-all wants to add a comment explaining that William actually did have access to the equivalent to any of the above, I would then point out that he was the King of Freaking England, where I'm the Guy with the Second Patchiest Lawn on the Block. Plus, I had hernia surgery a few years ago. Throw a medical condition into the mix and there's just no question as to who's better off.

I get to live like a king because there is so much more stuff than there used to be. That's why I think the lifestyle delta between average and richest-of-the-rich would be particularly interesting to track over the past 200 years. Since the beginning of the Industrial Age, the amount of stuff available to everyone (including the poorest of the poor) has increased exponentially. So even if — as Glenn points out — the richest are accumulating stuff on a much steeper slope than the rest of us, their relative edge in lifestyle is decreasing. Once you cross a certain threshold, the question of who is actually better off becomes harder and harder to determine (as it was with William the Conqueror and myself.) There are people who have much less money than Bill Gates and yet who live a much more opulent lifestyle. Who's richer? If Bill Gates owns the whole solar system but wears dorky clothes and drives a dorky car, but Glenn drives a Porsche and wears marginally less dorky clothes...it almost becomes a matter of taste at that point.

About the only thing left that great wealth can buy is political influence, and even that (as Glenn explains) is becoming a shakier proposition.

Two (hypothetical) future developments promise to flatten the delta virtually out of existence. One of these is the universal assembler (third item), which uses nanotechnology to allow anybody to make — literally — anything they want, including their own univeral assembler. In addition to closing the gap between the rich and the average, this device will eliminate any remaining gap between the average and the poor. Poverty won't exist any more.

The other development is full-immersion virtual reality, which will enable anyone to experience anything. Think of that scene in the first Matrix where they arm themselves by selecting weapons from an inexhaustable warehouse containing every firearm ever conceived. Now map that capability over to things like cars and vacations and (yes) romantic partners.

Who's richer, a guy with one real Porsche or a guy with a virtual collection of every Porsche model ever built? Assuming the VR is flawless and the experience of driving the virtual cars is identical to the real thing, I'm going to say the second guy. If this capability is ever realized, the day people generally agree with my answer is the day the concept of "wealth" ceases to exist.

Posted by Phil at January 7, 2004 08:52 AM | TrackBack
Comments

You and Glenn make great points, and in the end I think you're both right. But I have a hard time bending my brain around the concept of someone getting rich without someone else having to get poorer, even though the libertarian in me doesn't really care. :)
Can someone explain this? Is it simply a matter of automation 'causing us to produce more, and cheaper, stuff, that even people at the poverty level can afford? And how does this affect currency values? I think there are FAAAAR to many variables to easily compare the lives of people who lives 25 years apart, let alone 948.
I'm rambling. I should stop that.

Posted by: The Hearn at January 7, 2004 09:56 AM

Is it simply a matter of automation 'causing us to produce more, and cheaper, stuff, that even people at the poverty level can afford?

That's it in a nutshell. There's more stuff, and it can be produced faster, more cheaply, and more efficiently as time moves forward.

Posted by: Phil at January 7, 2004 10:37 AM

Hearn,

I think you may be having definitional difficulties regarding the word "richer". If you are looking strictly at money, then yes, the world is the zero-sum game that you envision. When I buy something, my total money is less, worse, than it was before the purchase.

If you look at the value of the exchange, however, then you see that neither side comes out losing. I may pay for a car, for example, with money, but I would believe that the car has more value to me than the money I paid for it. If I didn't, then I would not make the purchase. The seller of the car would have to assign more value to the money that I give him than he would to the car, or he would not make the sale. Both of us would walk away (Ok, I'd drive) feeling that we had increased the value of what we had and are therefore wealthier. As Adam Smith would say, Wealth has been created.

Cost is absolute, value is relative.

Gamer

Posted by: Gamer at January 7, 2004 10:39 AM

"But I have a hard time bending my brain around the concept of someone getting rich without someone else having to get poorer," - The Heam

I think the problem you have is that you think of wealth as a static, unchaniging quantity - that it can be shifted around, but not created or destroyed.

But wealth IS created by our own efforts. Or, as my father always used to say - 'The only ways to create weath are fishing and farming, mining and manufacturing. Everything else just moves it around.'

In this day and age, we might argue over what exact efforts really do create weath - but wealth can increase.

As a crude example, take two people out in the wilderness. Each is given a pile of branches. One person makes a hut out of the branches. The other just sleeps on top of the pile. The person who made the hut now has something of value - whereas the person who didn't manufacture anything is poorer. But the 'hutless' person can take a sticks from his pile and use them to harvest or hunt food. He can even exchange this food for the services of the hutmaker to make another hut. Both end up with shelter and food - much weathier than they were before when all they had were two piles of branches. The total wealth between these people grew.

And of course, there are activities that do NOT increase wealth. If the hutless person used his sticks to kill the hutmaker, then he could take over the hut - but the total amount of wealth would not have increased.

And finally, there are activities that DECREASE total wealth - such as the hutless man (in a fit of jealousy?) using his sticks to make a fire that burns down the hut.

I don't always buy the line that "if someone is getting richer, someone else is getting poorer."

Posted by: Point of Prue at January 7, 2004 10:45 AM

Because there isn't a finite amount of "wealth" in the world. There is a finite amout of, say, gold. But you can print more bills, and make more TiVos... and as people get more efficient and can make goods for less work, there's more stuff to go around for everyone.

But think about it -- 948 years ago, a papercut could kill a king (infections, of course). Even 100 or 200 years ago, the life expectancy was, what.. 40? So just our medical care, even the medical care of the inunsured, is better than anything anyone had before. I can go to the store and buy a topical antibiotic like polysporin and save myself from dying of a papercut. I think it costs about $5. That's an hour of work at minimum wage.

Wealth is not a zero sum game.

Think of it this way -- 50,000 years ago, how much wealth was there? Some people had precious items, maybe even some gold. But there were no TiVos or cars, or planes, or corporations. IS there more wealth now? Well, since I own more than a wooden stick... yes! So it's possible for wealth to increase. I'd say just about everyone in the world has more welath than your average cave man. And just think, there are even more people than back then. Wealth increases.

Posted by: Ceilig at January 7, 2004 10:47 AM

umm, This whole discussion is also using as its' basis Bill Gates, who represents a nipple on the Bell Curve of personal wealth.

The point being that when you say the rich are getting rich faster than the poor are getting rich, this is an untrue statement. There are poor people who are getting rich very quick, and rich people who are actually getting poor. The groups are trading individual elements.

Therefore, it is concievable that not too soon after a universal assembler is created, there will be an artificial intelligence created that will create all software, and Bill Gates will be broke (or his progeny). Whereas Glenn Reynold's Progeny will be the multi-trillionaire of a blogger empire stretching across 4 solar systems (right after he creates a couple of profit centers in blogging).

Income inequality is totally acceptable, in a reasonably regulated society that still values individual property rights. Let chaos theory determine who owns the first solar system.

Posted by: Joel Mackey at January 7, 2004 11:06 AM

I don't think you would have that hard of a time defeating William the Conquerer. I can go out today and buy a fairly large armory of semi-automatic rifles, and I would think that that would equalize things quite a bit.

Posted by: Robert at January 7, 2004 11:13 AM

The day Virtual Reality is invented is the day that laziness becomes a hobby.
The universal assembler will (prediction here) be tightly regulated as to preserve the limited resources of silicon and carbon and nitrogen that we have on our planet.
Sorry to throw a dystopian vision on the utopian choir. But yes, we, even the poorest in the U.S., are wealthier than the Kings, Emperors and Tsars of the Middle Ages. The richest Genovese doesn't have access to to the every-day luxuries that middle-class America does.

Posted by: Geoff at January 7, 2004 12:04 PM

I can't believe this sophmoric snideness passes for significant thought or analysis.

Does Reynolds adopt that nerdy haircut and those pitiful glasses so we will sorry for him and not deal with his ideas? Maybe so.

But let's use the historical record and not some ridiculous argument that uses a reductio ab absurdum tehnique to come up with what passes for wit in the rightwing blogosphere.

The historic trajectory of the country of Spain from the golden era of the 1500's to its diminished status in mid 17th century is a perfect example of the stultification of both the political process and the decline of economic vitality that is the outcome of increasing economic inequality.

Increasing inequality doesn't give you a Porsche, Mr. Reynolds, it means that larger swatches of the income distribution curve from the poor to the middle class have trouble treading water, and if you're lucky the Republicans might give you waterwings with a slow leak.

Posted by: Debra at January 7, 2004 04:47 PM

Debra: Our problems are not Spain's. Spain's biggest problem was inflation caused by gold and silver imports from its colonies. These created "wealth," in the sense of more money, but did nothing to make the Spanish economy more productive. In fact, they tended to rigidify what had previously been a fairly dynamic society.

Our economic problems, such as they are, stem from too much productivity, not too little. And our society can hardly be called rigid.

Sorry you don't like the haircut. Perhaps I can manage something "marginally less dorky" in the future.

Posted by: Glenn Reynolds at January 7, 2004 08:07 PM

Frankly, Glenn, I think Debra's problem wasn't so much with your haircut as it was with how snide we were all being. So I just want to go on the record with an apology for my snide comments.(Unfortunately, I can't apologize for being sophomoric; anyone who's read my bio knows that I wear that word as a badge of honor.)

Also, I feel that a clarification is in order. I never meant to say that in the future you would be marginally less dorky than you are now; rather, I meant that your dorkiness relative to that of Bill Gates would remain constant.

You're perfect the way you are, man. Don't ever change.

(Oh, and thanks for the link.)

Posted by: Phil at January 7, 2004 08:24 PM

The problem with Debra's argument is that it assumes income is distributed, rather than earned. As a good socialist, she feels that humans are superior to free markets at "distributing" income, and is perfectly willing to take on the task herself. The problem is that income is the by-product of increasing wealth, which is created by individuals. If you take away the income, they stop creating the wealth.

She further assumes that income equals wealth. Spain may have less income proportional to the rest of the world, but it is obviously a "wealthier" place than it was in the 1500's.

As to where "status" fits into a discussion of wealth, income, and standard of living, your guess is as good as mine.

Posted by: Kurt at January 8, 2004 08:04 AM

Debra serves up four paragraphs of insult to one paragraph of actual argument. Technically, I suppose this is not "sophomoric"; it seems to qualify more for the third grade, though there's no accounting for taste. One thing we can know, however: her one paragraph of non-insult is certainly lacking in "significant thought or analysis".

Consider the countries in Europe with similar inequality problems: Britain and France serve as good examples. Yet Spain somehow suffered for its inequality in ways the others did not.

How, we cannot guess, as unfortunately Debra is too busy with style advice to let us know. Perhaps she will forgive our reductio ad absurdum and show us what passes for wit in her corner of the blogosphere.

Posted by: Jeff Licquia at August 4, 2004 02:11 PM

In regards to wealth and Virtual Reality...

I agree that wealth, as measured by material goods, would become basically nonexistant. What more could anyone want...except maybe a longer lifespan?? At this point wouldn't the the length of a person's life be the only real thing of value (besides, obviously, the VR equipment) left in the world??

Assuming such, I think (like something out of a cheesy sci-fi movie) added life would become our basic currency, and those who controlled the means of prolonging life might become the new Bill Gates of the world, and we will have just redefined what it means to be 'poor' or 'rich'

...but hey that's just me...

Posted by: Ian Mac at August 4, 2004 04:35 PM

Disparity in wealth, whether measured in cash on hand or goods, is a relative comparison. The poor are poorer than the rich, and the rich are richer than the poor, but this is not any kind of absolute standard. And I think this is what Debra is missing.

Rich and poor are relative terms, measured against each other rather than any kind of external or even really objective standard. And that is the central problem in trying to explain economics to socialists. (Well one. Another being the "non-zero sum" game thingy as well)

So what if Bill Gates has a 65 million dollar home. That really don't mean much to me, because his tastes and what he values is different from mine. I got a home, a family, more books than Willaim ever dreamed of, (and I don't have the largest private library by any stretch of the imagination), a working car, and most of what I want. Bill has what he wants, and I got what I want, so where is the problem?

I have to disagree with Ian above however. I don't think the fact that you live to be 200 years old will give me any sense that you are 'richer' than I am. What wealth is, is capability to make your dreams into reality. Paul Allen, Bill's co-founder, has a space ship. He can (or will be able to soon) go into space almost any time he wants to, for any reason he wants to. Something that Bill cannot do on his own. So in this one sense, Paul is richer than Bill, even if Bill has more cash.

Posted by: Ben at August 5, 2004 01:43 AM
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