wealth

Housing should be cheap

PNRJ core principles, development economics, inequality, macroeconomics, market failure, public policy , , ,

Sep 1 JDN 2460555

We are of two minds about housing in our society. On the one hand, we recognize that shelter is a necessity, and we want it to be affordable for all. On the other hand, we see real estate as an asset, and we want it to appreciate in value and thereby provide a store of wealth. So on the one hand we want it to be cheap, but on the other hand we want it to be expensive. And of course it can’t be both.

This is not a uniquely American phenomenon. As Noah Smith points out, it seems to be how things are done in almost every country in the world. It may be foolish for me to try to turn such a tide. But I’m going to try anyway.

Housing should be cheap.

For some reason, inflation is seen as a bad thing for every other good, necessity and luxury alike; but when it comes to housing in particular—the single biggest expense for almost everyone—suddenly we are conflicted about it, and think that maybe inflation is a good thing actually.

This is because owning a home that appreciates in value provides the illusion of increasing wealth.

Yes, I said illusion. In some particular circumstances it can sometimes increase real wealth, but when housing is getting more expensive everywhere at once (which is basically true), it doesn’t actually increase real wealth—because you still need to have a home. So while you’d get more money if you sold your current home, you’d have to go buy another home that would be just as expensive. That extra wealth is largely imaginary.

In fact, what isn’t an illusion is your increased property tax bill. If you aren’t planning on selling your home any time soon, you should really see its appreciation as a bad thing; now you suddenly owe more in taxes.

Home equity lines of credit complicate this a bit; for some reason we let people collateralize part of the home—even though the whole home is already collateralized with a mortgage to someone else—and thereby turn that largely-imaginary wealth into actual liquid cash. This is just one more way that our financial system is broken; we shouldn’t be offering these lines of credit, just as we shouldn’t be creating mortgage-backed securities. Cleverness is not a virtue in finance; banking should be boring.

But you’re probably still not convinced. So I’d like you to consider a simple thought experiment, where we take either view to the extreme: Make housing 100 times cheaper or 100 times more expensive.

Currently, houses cost about $400,000. So in Cheap World, houses cost $4,000. In Expensive World, they cost $40 million.

In Cheap World, there is no homelessness. Seriously, zero. It would make no sense at all for the government not to simply buy everyone a house. If you want to also buy your own house—or a dozen—go ahead, that’s fine; but you get one for free, paid for by tax dollars, because that’s cheaper than a year of schooling for a high-school student; it’s in fact not much more than what we’d currently spend to house someone in a homeless shelter for a year. So given the choice of offering someone two years at a shelter versus never homeless ever again, it’s pretty obvious we should choose the latter. Thus, in Cheap World, we all have a roof over our heads. And instead of storing their wealth in their homes in Cheap World, people store their wealth in stocks and bonds, which have better returns anyway.

In Expensive World, the top 1% are multi-millionaires who own homes, maybe the top 10% can afford rent, and the remaining 89% of the population are homeless. There’s simply no way to allocate the wealth of our society such that a typical middle class household has $40 million. We’re just not that rich. We probably never will be that rich. It may not even be possible to make a society that rich. In Expensive World, most people live in tents on the streets, because housing has been priced out of reach for all but the richest families.

Cheap World sounds like an amazing place to live. Expensive World is a horrific dystopia. The only thing I changed was the price of housing.


Yes, I changed it a lot; but that was to make the example as clear as possible, and it’s not even as extreme as it probably sounds. At 10% annual growth, 100 times more expensive only takes 49 years. At the current growth rate of housing prices of about 5% per year, it would take 95 years. A century from now, if we don’t fix our housing market, we will live in Expensive World. (Yes, we’ll most likely be richer then too; but will we be that much richer? Median income has not been rising nearly as fast as median housing price. If current trends continue, median income will be 5 times bigger and housing prices will be 100 times bigger—that’s still terrible.)

We’re already seeing something that feels a lot like Expensive World in some of our most expensive cities. San Francisco has ludicrously expensive housing and also a massive homelessness crisis—this is not a coincidence. Homelessness does still exist in more affordable cities, but clearly not at the same crisis level.

I think part of the problem is that people don’t really understand what wealth is. They see the number go up, and they think that means there is more wealth. Real wealth consists in goods, not in prices. The wealth we have is made of real things, not monetary prices. Prices merely decide how wealth is allocated.

A home is wealth, yes. But it’s the same amount of real wealth regardless of what price it has, because what matters is what it’s good for. If you become genuinely richer by selling an appreciated home, you gained that extra wealth from somewhere else; it was not contained within your home. You have appropriated wealth that someone else used to have. You haven’t created wealth; you’ve merely obtained it.

For you as an individual, that may not make a difference; you still get richer. But as a society, it makes all the difference: Moving wealth around doesn’t make our society richer, and all higher prices can do is move wealth around.

This means that rising housing prices simply cannot make our whole society richer. Better houses could do that. More houses could do that. But simply raising the price tag isn’t making our society richer. If it makes anyone richer—which, again, typically it does not—it does so by moving wealth from somewhere else. And since homeowners are generally richer than non-homeowners (even aside from their housing wealth!), more expensive homes means moving wealth from poorer people to richer people—increased inequality.

We used to have affordable housing, just a couple of generations ago. But we may never have truly affordable housing again, because people really don’t like to see that number go down, and they vote for policies accordingly—especially at the local level. Our best hope right now seems to be to keep it from going up faster than the growth rate of income, so that homes don’t become any more unaffordable than they already are.

But frankly I’m not optimistic. I think part of the cyberpunk dystopia we’re careening towards is Expensive World.

We do seem to have better angels after all

PNRJ book reviews, core principles, development economics, ethics, futurism, inequality, public policy , , , , , , , , , , ,

Jun 18 JDN 2460114

A review of The Darker Angels of Our Nature

(I apologize for not releasing this on Sunday; I’ve been traveling lately and haven’t found much time to write.)

Since its release, I have considered Steven Pinker’s The Better Angels of our Nature among a small elite category of truly great books—not simply good because enjoyable, informative, or well-written, but great in its potential impact on humanity’s future. Others include The General Theory of Employment, Interest, and Money, On the Origin of Species, and Animal Liberation.

But I also try to expose myself as much as I can to alternative views. I am quite fearful of the echo chambers that social media puts us in, where dissent is quietly hidden from view and groupthink prevails.

So when I saw that a group of historians had written a scathing critique of The Better Angels, I decided I surely must read it and get its point of view. This book is The Darker Angels of Our Nature.

The Darker Angels is written by a large number of different historians, and it shows. It’s an extremely disjointed book; it does not present any particular overall argument, various sections differ wildly in scope and tone, and sometimes they even contradict each other. It really isn’t a book in the usual sense; it’s a collection of essays whose only common theme is that they disagree with Steven Pinker.

In fact, even that isn’t quite true, as some of the best essays in The Darker Angels are actually the ones that don’t fundamentally challenge Pinker’s contention that global violence has been on a long-term decline for centuries and is now near its lowest in human history. These essays instead offer interesting insights into particular historical eras, such as medieval Europe, early modern Russia, and shogunate Japan, or they add additional nuances to the overall pattern, like the fact that, compared to medieval times, violence in Europe seems to have been less in the Pax Romana (before) and greater in the early modern period (after), showing that the decline in violence was not simple or steady, but went through fluctuations and reversals as societies and institutions changed. (At this point I feel I should note that Pinker clearly would not disagree with this—several of the authors seem to think he would, which makes me wonder if they even read The Better Angels.)

Others point out that the scale of civilization seems to matter, that more is different, and larger societies and armies more or less automatically seem to result in lower fatality rates by some sort of scaling or centralization effect, almost like the square-cube law. That’s very interesting if true; it would suggest that in order to reduce violence, you don’t really need any particular mode of government, you just need something that unites as many people as possible under one banner. The evidence presented for it was too weak for me to say whether it’s really true, however, and there was really no theoretical mechanism proposed whatsoever.

Some of the essays correct genuine errors Pinker made, some of which look rather sloppy. Pinker clearly overestimated the death tolls of the An Lushan Rebellion, the Spanish Inquisition, and Aztec ritual executions, probably by using outdated or biased sources. (Though they were all still extremely violent!) His depiction of indigenous cultures does paint with a very broad brush, and fails to recognize that some indigenous societies seem to have been quite peaceful (though others absolutely were tremendously violent).

One of the best essays is about Pinker’s cavalier attitude toward mass incarceration, which I absolutely do consider a deep flaw in Pinker’s view. Pinker presents increased incarceration rates along with decreased crime rates as if they were an unalloyed good, while I can at best be ambivalent about whether the benefit of decreasing crime is worth the cost of greater incarceration. Pinker seems to take for granted that these incarcerations are fair and impartial, when we have a great deal of evidence that they are strongly biased against poor people and people of color.

There’s another good essay about the Enlightenment, which Pinker seems to idealize a little too much (especially in his other book Enlightenment Now). There was no sudden triumph of reason that instantly changed the world. Human knowledge and rationality gradually improved over a very long period of time, with no obvious turning point and many cases of backsliding. The scientific method isn’t a simple, infallible algorithm that suddenly appeared in the brain of Galileo or Bayes, but a whole constellation of methods and concepts of rationality that took centuries to develop and is in fact still developing. (Much as the Tao that can be told is not the eternal Tao, the scientific method that can be written in a textbook is not the true scientific method.)

Several of the essays point out the limitations of historical and (especially) archaeological records, making it difficult to draw any useful inferences about rates of violence in the past. I agree that Pinker seems a little too cavalier about this; the records really are quite sparse and it’s not easy to fill in the gaps. Very small samples can easily distort homicide rates; since only about 1% of deaths worldwide are homicide, if you find 20 bodies, whether or not one of them was murdered is the difference between peaceful Japan and war-torn Colombia.

On the other hand, all we really can do is make the best inferences we have with the available data, and for the time periods in which we do have detailed records—surely true since at least the 19th century—the pattern of declining violence is very clear, and even the World Wars look like brief fluctuations rather than fundamental reversals. Contrary to popular belief, the World Wars do not appear to have been especially deadly on a per-capita basis, compared to various historic wars. The primary reason so many people died in the World Wars was really that there just were more people in the world. A few of the authors don’t seem to consider this an adequate reason, but ask yourself this: Would you rather live in a society of 100 in which 10 people are killed, or a society of 1 billion in which 1 million are killed? In the former case your chances of being killed are 10%; in the latter, 0.1%. Clearly, per-capita measures of violence are the correct ones.

Some essays seem a bit beside the point, like one on “environmental violence” which quite aptly details the ongoing—terrifying—degradation of our global ecology, but somehow seems to think that this constitutes violence when it obviously doesn’t. There is widespread violence against animals, certainly; slaughterhouses are the obvious example—and unlike most people, I do not consider them some kind of exception we can simply ignore. We do in fact accept levels of cruelty to pigs and cows that we would never accept against dogs or horses—even the law makes such exceptions. Moreover, plenty of habitat destruction is accompanied by killing of the animals who lived in that habitat. But ecological degradation is not equivalent to violence. (Nor is it clear to me that our treatment of animals is more violent overall today than in the past; I guess life is probably worse for a beef cow today than it was in the medieval era, but either way, she was going to be killed and eaten. And at least we no longer do cat-burning.) Drilling for oil can be harmful, but it is not violent. We can acknowledge that life is more peaceful now than in the past without claiming that everything is better now—in fact, one could even say that overall life isn’t better, but I think they’d be hard-pressed to argue that.

These are the relatively good essays, which correct minor errors or add interesting nuances. There are also some really awful essays in the mix.

A common theme of several of the essays seems to be “there are still bad things, so we can’t say anything is getting better”; they will point out various forms of violence that undeniably still exist, and treat this as a conclusive argument against the claim that violence has declined. Yes, modern slavery does exist, and it is a very serious problem; but it clearly is not the same kind of atrocity that the Atlantic slave trade was. Yes, there are still murders. Yes, there are still wars. Probably these things will always be with us to some extent; but there is a very clear difference between 500 homicides per million people per year and 50—and it would be better still if we could bring it down to 5.

There’s one essay about sexual violence that doesn’t present any evidence whatsoever to contradict the claim that rates of sexual violence have been declining while rates of reporting and prosecution have been increasing. (These two trends together often result in reported rapes going up, but most experts agree that actual rapes are going down.) The entire essay is based on anecdote, innuendo, and righteous anger.

There are several essays that spend their whole time denouncing neoliberal capitalism (not even presenting any particularly good arguments against it, though such arguments do exist), seeming to equate Pinker’s view with some kind of Rothbardian anarcho-capitalism when in fact Pinker is explictly in favor of Nordic-style social democracy. (One literally dismisses his support for universal healthcare as “Well, he is Canadian”.) But Pinker has on occasion said good things about capitalism, so clearly, he is an irredeemable monster.

Right in the introduction—which almost made me put the book down—is an astonishingly ludicrous argument, which I must quote in full to show you that it is not out of context:

What actually is violence (nowhere posed or answered in The Better Angels)? How do people perceive it in different time-place settings? What is its purpose and function? What were contemporary attitudes toward violence and how did sensibilities shift over time? Is violence always ‘bad’ or can there be ‘good’ violence, violence that is regenerative and creative?

The Darker Angels of Our Nature, p.16

Yes, the scare quotes on ‘good’ and ‘bad’ are in the original. (Also the baffling jargon “time-place settings” as opposed to, say, “times and places”.) This was clearly written by a moral relativist. Aside from questioning whether we can say anything about anything, the argument seems to be that Pinker’s argument is invalid because he didn’t precisely define every single relevant concept, even though it’s honestly pretty obvious what the world “violence” means and how he is using it. (If anything, it’s these authors who don’t seem to understand what the word means; they keep calling things “violence” that are indeed bad, but obviously aren’t violence—like pollution and cyberbullying. At least talk of incarceration as “structural violence” isn’t obvious nonsense—though it is still clearly distinct from murder rates.)

But it was by reading the worst essays that I think I gained the most insight into what this debate is really about. Several of the essays in The Darker Angels thoroughly and unquestioningly share the following inference: if a culture is superior, then that culture has a right to impose itself on others by force. On this, they seem to agree with the imperialists: If you’re better, that gives you a right to dominate everyone else. They rightly reject the claim that cultures have a right to imperialistically dominate others, but they cannot deny the inference, and so they are forced to deny that any culture can ever be superior to another. The result is that they tie themselves in knots trying to justify how greater wealth, greater happiness, less violence, and babies not dying aren’t actually good things. They end up talking nonsense about “violence that is regenerative and creative”.

But we can believe in civilization without believing in colonialism. And indeed that is precisely what I (along with Pinker) believe: That democracy is better than autocracy, that free speech is better than censorship, that health is better than illness, that prosperity is better than poverty, that peace is better than war—and therefore that Western civilization is doing a better job than the rest. I do not believe that this justifies the long history of Western colonial imperialism. Governing your own country well doesn’t give you the right to invade and dominate other countries. Indeed, part of what makes colonial imperialism so terrible is that it makes a mockery of the very ideals of peace, justice, and freedom that the West is supposed to represent.

I think part of the problem is that many people see the world in zero-sum terms, and believe that the West’s prosperity could only be purchased by the rest of the world’s poverty. But this is untrue. The world is nonzero-sum. My happiness does not come from your sadness, and my wealth does not come from your poverty. In fact, even the West was poor for most of history, and we are far more prosperous now that we have largely abandoned colonial imperialism than we ever were in imperialism’s heyday. (I do occasionally encounter British people who seem vaguely nostalgic for the days of the empire, but real median income in the UK has doubled just since 1977. Inequality has also increased during that time, which is definitely a problem; but the UK is undeniably richer now than it ever was at the peak of the empire.)

In fact it could be that the West is richer now because of colonalism than it would have been without it. I don’t know whether or not this is true. I suspect it isn’t, but I really don’t know for sure. My guess would be that colonized countries are poorer, but colonizer countries are not richer—that is, colonialism is purely destructive. Certain individuals clearly got richer by such depredation (Leopold II, anyone?), but I’m not convinced many countries did.

Yet even if colonialism did make the West richer, it clearly cannot explain most of the wealth of Western civilization—for that wealth simply did not exist in the world before. All these bridges and power plants, laptops and airplanes weren’t lying around waiting to be stolen. Surely, some of the ingredients were stolen—not least, the land. Had they been bought at fair prices, the result might have been less wealth for us (then again it might not, for wealthier trade partners yield greater exports). But this does not mean that the products themselves constitute theft, nor that the wealth they provide is meaningless. Perhaps we should find some way to pay reparations; undeniably, we should work toward greater justice in the future. But we do not need to give up all we have in order to achieve that justice.

There is a law of conservation of energy. It is impossible to create energy in one place without removing it from another. There is no law of conservation of prosperity. Making the world better in one place does not require making it worse in another.

Progress is real. Yes, it is flawed, uneven, and it has costs of its own; but it is real. If we want to have more of it, we best continue to believe in it. And The Better Angels of Our Nature does have some notable flaws, but it still retains its place among truly great books.

Reckoning costs in money distorts them

PNRJ core principles, critique of neoclassical economics, ethics, inequality, market failure, public policy , , , , , , , , , , , , ,

May 7 JDN 2460072

Consider for a moment what it means when an economic news article reports “rising labor costs”. What are they actually saying?

They’re saying that wages are rising—perhaps in some industry, perhaps in the economy as a whole. But this is not a cost. It’s a price. As I’ve written about before, the two are fundamentally distinct.

The cost of labor is measured in effort, toil, and time. It’s the pain of having to work instead of whatever else you’d like to do with your time.

The price of labor is a monetary amount, which is delivered in a transaction.

This may seem perfectly obvious, but it has important and oft-neglected implications. A cost, one paid, is gone. That value has been destroyed. We hope that it was worth it for some benefit we gained. A price, when paid, is simply transferred: One person had that money before, now someone else has it. Nothing was gained or lost.

So in fact when reports say that “labor costs have risen”, what they are really saying is that income is being transferred from owners to workers without any change in real value taking place. They are framing as a loss what is fundamentally a zero-sum redistribution.

In fact, it is disturbingly common to see a fundamentally good redistribution of income framed in the press as a bad outcome because of its expression as “costs”; the “cost” of chocolate is feared to go up if we insist upon enforcing bans on forced labor—when in fact it is only the price that goes up, and the cost actually goes down: chocolate would no longer include complicity in an atrocity. The real suffering of making chocolate would be thereby reduced, not increased. Even when they aren’t literally enslaved, those workers are astonishingly poor, and giving them even a few more cents per hour would make a real difference in their lives. But God forbid we pay a few cents more for a candy bar!

If labor costs were to rise, that would mean that work had suddenly gotten harder, or more painful; or else, that some outside circumstance had made it more difficult to work. Having a child increases your labor costs—you now have the opportunity cost of not caring for the child. COVID increased the cost of labor, by making it suddenly dangerous just to go outside in public. That could also increase prices—you may demand a higher wage, and people do seem to have demanded higher wages after COVID. But these are two separate effects, and you can have one without the other. In fact, women typically see wage stagnation or even reduction after having kids (but men largely don’t), despite their real opportunity cost of labor having obviously greatly increased.

On an individual level, it’s not such a big mistake to equate price and cost. If you are buying something, its cost to you basically just is its price, plus a little bit of transaction cost for actually finding and buying it. But on a societal level, it makes an enormous difference. It distorts our policy priorities and can even lead to actively trying to suppress things that are beneficial—such as rising wages.

This false equivalence between price and costs seems to be at least as common among economists as it is among laypeople. Economists will often justify it on the grounds that in an ideal perfect competitive market the two would be in some sense equated. But of course we don’t live in that ideal perfect market, and even if we did, they would only beproportional at the margin, not fundamentally equal across the board. It would still be obviously wrong to characterize the total value or cost of work by the price paid for it; only the last unit of effort would be priced so that marginal value equals price equals marginal cost. The first 39 hours of your work would cost you less than what you were paid, and produce more than you were paid; only that 40th hour would set the three equal.

Once you account for all the various market distortions in the world, there’s no particular relationship between what something costs—in terms of real effort and suffering—and its price—in monetary terms. Things can be expensive and easy, or cheap and awful. In fact, they often seem to be; for some reason, there seems to be a pattern where the most terrible, miserable jobs (e.g. coal mining) actually pay the leastand the easiest, most pleasant jobs (e.g. stock trading) pay the most. Some jobs that benefit society pay well (e.g. doctors) and others pay terribly or not at all (e.g. climate activists). Some actions that harm the world get punished (e.g. armed robbery) and others get rewarded with riches (e.g. oil drilling). In the real world, whether a job is good or bad and whether it is paid well or poorly seem to be almost unrelated.

In fact, sometimes they seem even negatively related, where we often feel tempted to “sell out” and do something destructive in order to get higher pay. This is likely due to Berkson’s paradox: If people are willing to do jobs if they are either high-paying or beneficial to humanity, then we should expect that, on average, most of the high-paying jobs people do won’t be beneficial to humanity. Even if there were inherently no correlation or a small positive one, people’s refusal to do harmful low-paying work removes those jobs from our sample and results in a negative correlation in what remains.

I think that the best solution, ultimately, is to stop reckoning costs in money entirely. We should reckon them in happiness.

This is of course much more difficult than simply using prices; it’s not easy to say exactly how many QALY are sacrificed in the extraction of cocoa beans or the drilling of offshore oil wells. But if we actually did find a way to count them, I strongly suspect we’d find that it was far more than we ought to be willing to pay.

A very rough approximation, surely flawed but at least a start, would be to simply convert all payments into proportions of their recipient’s income: For full-time wages, this would result in basically everyone being counted the same, as 1 hour of work if you work 40 hours per week, 50 weeks per year is precisely 0.05% of your annual income. So we could say that whatever is equivalent to your hourly wage constitutes 50 microQALY.

This automatically implies that every time a rich person pays a poor person, QALY increase, while every time a poor person pays a rich person, QALY decrease. This is not an error in the calculation. It is a fact of the universe. We ignore it only at out own peril. All wealth redistributed downward is a benefit, while all wealth redistributed upward is a harm. That benefit may cause some other harm, or that harm may be compensated by some other benefit; but they are still there.

This would also put some things in perspective. When HSBC was fined £70 million for its crimes, that can be compared against its £1.5 billion in net income; if it were an individual, it would have been hurt about 50 milliQALY, which is about what I would feel if I lost $2000. Of course, it’s not a person, and it’s not clear exactly how this loss was passed through to employees or shareholders; but that should give us at least some sense of how small that loss was for them. They probably felt it… a little.

When Trump was ordered to pay a $1.3 million settlement, based on his $2.5 billion net wealth (corresponding to roughly $125 million in annual investment income), that cost him about 10 milliQALY; for me that would be about $500.

At the other extreme, if someone goes from making $1 per day to making $1.50 per day, that’s a 50% increase in their income—500 milliQALY per year.

For those who have no income at all, this becomes even trickier; for them I think we should probably use their annual consumption, since everyone needs to eat and that costs something, though likely not very much. Or we could try to measure their happiness directly, trying to determine how much it hurts to not eat enough and work all day in sweltering heat.

Properly shifting this whole cultural norm will take a long time. For now, I leave you with this: Any time you see a monetary figure, ask yourself: “How much is that worth to them?” The world will seem quite different once you get in the habit of that.

Housing prices are out of control

PNRJ inequality, public policy , , , , ,

Oct 2 JDN 2459855

This is a topic I could have done for quite awhile now, and will surely address again in the future; it’s a slow-burn crisis that has covered most of the world for a generation.

In most of the world’s cities, housing prices are now the highest they have ever been, even adjusted for inflation. The pandemic made this worse, but it was already bad.

This is of course very important, because housing is usually the largest expenditure for most families.

Changes in housing prices are directly felt in people’s lifestyles, especially when they are renting. Homeownership rates vary a lot between countries, so the impact of this is quite different in different places.

There’s also an important redistributive effect: When housing prices go up, people who own homes get richer, while people who rent homes get poorer. Since people who own homes tend to be richer to begin with (and landlordsare typically richest of all), rising housing prices directly increase wealth inequality.

The median price of a house in the US, even adjusted for inflation, is nearly twice what it was in 1993.

This wasn’t a slow and steady climb; housing prices moved with inflation for most of the 1980s and 1990s, and then surged upward just before the 2008 crash. Then they plummeted for a few years, before reversing course and surging even higher than they were at their 2007 peak:

https://fred.stlouisfed.org/series/CSUSHPINSA

[housing_prices_US_2.png]

https://fred.stlouisfed.org/series/USSTHPI

This is not a uniquely American problem. The UK shows almost the same pattern:

https://fred.stlouisfed.org/series/HPIUKA

But it’s also not the same pattern everywhere. In China, housing prices have been rising steadily, and didn’t crash in 2008:

https://fred.stlouisfed.org/series/QCNN628BIS

In France, housing prices have been relatively stable, and are no higher now than they were in the 1990s:

https://fred.stlouisfed.org/series/CP0410FRM086NEST

Meanwhile, in Japan, housing prices surged in the 1970s, 1980s, and 1990s, ending up four times what they had been in the 1960s; then they suddenly leveled off and haven’t changed since:

https://fred.stlouisfed.org/series/JPNCPIHOUMINMEI

It’s also worse in some cities than others. In San Francisco, housing now costs three times what it did in the 1990s, even adjusting for inflation:

https://fred.stlouisfed.org/series/SFXRSA

Meanwhile, in Detroit, housing is only about 25% more expensive now than it was in the 1990s:

https://fred.stlouisfed.org/series/ATNHPIUS19804Q

This variation tells me that policy matters. This isn’t some inevitable result of population growth or technological change. Those could still be important factors, but they can’t explain the strong varation between countries or even between cities within the same country. (Yes, San Francisco has seen more population growth than Detroit—but not that much more.)

Part of the problem, I think, is that most policymakers don’t actually want housing to be more affordable. They might say they do, they might occasionally feel some sympathy for people who get evicted or live on the streets; but in general, they want housing prices to be higher, because that gives them more property tax revenue. The wealthy benefit from rising housing prices, while the poor are harmed. Since the interests of the wealthy are wildly overrepresented in policy, policy is made to increase housing prices, not decrease them. This is likely especially true in housing, because even the upper-middle class mostly benefits from rising housing prices. It’s only the poor and lower-middle class who are typically harmed.

This is why I don’t really want to get into suggesting policies that could fix this. We know what would fix this: Build more housing. Lots of it. Everywhere. Increase supply, and the price will go down. And we should keep doing it until housing is not just back where it was, but cheaper—much cheaper. Buying a house shouldn’t be a luxury afforded only to the upper-middle class; it should be something everyone does several times in their life and doesn’t have to worry too much about. Buying a house should be like buying a car; not cheap, exactly, but you don’t have to be rich to do it. Because everyone needs housing. So everyone should have housing.

But that isn’t going to happen, because the people who make the decisions about this don’t want it to happen.

So the real question becomes: What do we do about that?

Could the Star Trek economy really work?

PNRJ futurism, inequality, macroeconomics, public policy , , , , , , , , , , , ,

Jun 13 JDN 2459379

“The economics of the future are somewhat different”, Jean-Luc Picard explains to Lily Sloane in Star Trek: First Contact.

Captain Picard’s explanation is not very thorough, and all we have about the economic system of the Federation comes from similar short glimpes across the various Star Trek films and TV series. The best glimpses of what the Earth’s economy is like largely come from the Picard series in particular.

But I think we can safely conclude that all of the following are true:

1. Energy is extraordinarily abundant, with a single individual having access to an energy scale that would rival the energy production of entire nations at present. By E=mc2, simply being able to teleport a human being or materialize a hamburger from raw energy, as seems to be routine in Starfleet, would require something on the order of 10^17 joules, or about 28 billion kilowatt-hours. The total energy supply of the world economy today is about 6*10^20 joules, or 100 trillion kilowatt-hours.

2. There is broad-based prosperity, but not absolute equality. At the very least different people live differently, though it is unclear whether anyone actually has a better standard of living than anyone else. The Picard family still seems to own their family vineyard that has been passed down for generations, and since the population of Earth is given as about 9 billion (a plausible but perhaps slightly low figure for our long-run stable population equilibrium), its acreage is large enough that clearly not everyone on Earth can own that much land.

3. Most resources that we currently think of as scarce are not scarce any longer. Replicator technology allows for the instantaneous production of food, clothing, raw materials, even sophisticated electronics. There is no longer a “manufacturing sector” as such; there are just replicators and people who use or program them. Most likely, even new replicators are made by replicating parts in other replicators and then assembling them. There are a few resources which remain scarce, such as dilithium (somehow involved in generating these massive quantities of energy) and latinum (a bizarre substance that is prized by many other cultures yet for unexplained reasons cannot be viably produced in replicators). Essentially everything else that is scarce is inherently so, such as front-row seats at concerts, original paintings, officer commissions in Starfleet, or land in San Francisco.

4. Interplanetary and even interstellar trade is routine. Starships with warp capability are available to both civilian and government institutions, and imports and exports can be made to planets dozens or even hundreds of light-years away as quickly as we can currently traverse the oceans with a container ship.

5. Money as we know it does not exist. People are not paid wages or salaries for their work. There is still some ownership of personal property, and particular families (including the Picards) seem to own land; but there does not appear to be any private ownership of capital. For that matter there doesn’t even appear to be be much in the way of capital; we never see any factories. There is obviously housing, there is infrastructure such as roads, public transit, and presumably power plants (very, very powerful power plants, see 1!), but that may be all. Nearly all manufacturing seems to be done by replicators, and what can’t be done by replicators (e.g. building new starships) seems to be all orchestrated by state-owned enterprises such as Starfleet.

Could such an economy actually work? Let’s stipulate that we really do manage to achieve such an extraordinary energy scale, millions of times more than what we can currently produce. Even very cheap, widespread nuclear energy would not be enough to make this plausible; we would need at least abundant antimatter, and quite likely something even more exotic than this, like zero point energy. Along this comes some horrifying risks—imagine an accident at a zero-point power plant that tears a hole in the fabric of space next to a major city, or a fanatical terrorist with a handheld 20-megaton antimatter bomb. But let’s assume we’ve found ways to manage those risks as well.

Furthermore, let’s stipulate that it’s possible to build replicators and warp drives and teleporters and all the similarly advanced technology that the Federation has, much of which is so radically advanced we can’t even be sure that such a thing is possible.

What I really want to ask is whether it’s possible to sustain a functional economy at this scale without money. George Roddenberry clearly seemed to think so. I am less convinced.

First of all, I want to acknowledge that there have been human societies which did not use money, or even any clear notion of a barter system. In fact, most human cultures for most of our history as a species allocated resources based on collective tribal ownership and personal favors. Some of the best parts of Debt: The First 5000 Years are about these different ways of allocating resources, which actually came much more naturally to us than money.

But there seem to have been rather harsh constraints on what sort of standard of living could be maintained in such societies. There was essentially zero technological advancement for thousands of years in most hunter-gatherer cultures, and even the wealthiest people in most of those societies overall had worse health, shorter lifespans, and far, far less access to goods and services than people we would consider in poverty today.

Then again, perhaps money is only needed to catalyze technological advancement; perhaps once you’ve already got all the technology you need, you can take money away and return to a better way of life without greed or inequality. That seems to be what Star Trek is claiming: That once we can make a sandwich or a jacket or a phone or even a car at the push of a button, we won’t need to worry about paying people because everyone can just have whatever they need.

Yet whatever they need is quite different from whatever they want, and therein lies the problem. Yes, I believe that with even moderate technological advancement—the sort of thing I expect to see in the next 50 years, not the next 300—we will have sufficient productivity that we could provide for the basic needs of every human being on Earth. A roof over your head, food on your table, clothes to wear, a doctor and a dentist to see twice a year, emergency services, running water, electricity, even Internet access and public transit—these are things we could feasibly provide to literally everyone with only about two or three times our current level of GDP, which means only about 2% annual economic growth for the next 50 years. Indeed, we could already provide them for every person in First World countries, and it is quite frankly appalling that we fail to do so.

However, most of us in the First World already live a good deal better than that. We don’t have the most basic housing possible, we have nice houses we want to live in. We don’t take buses everywhere, we own our own cars. We don’t eat the cheapest food that would provide adequate nutrition, we eat a wide variety of foods; we order pizza and Chinese takeout, and even eat at fancy restaurants on occasion. It’s less clear that we could provide this standard of living to everyone on Earth—but if economic growth continues long enough, maybe we can.

Worse, most of us would like to live even better than we do. My car is several years old right now, and it runs on gasoline; I’d very much like to upgrade to a brand-new electric car. My apartment is nice enough, but it’s quite small; I’d like to move to a larger place that would give me more space not only for daily living, but also for storage and for entertaining guests. I work comfortable hours for decent pay at a white-collar job that can be done entirely remotely on mostly my own schedule, but I’d prefer to take some time off and live independently while I focus more on my own writing. I sometimes enjoy cooking, but often it can be a chore, and sometimes I wish I could just go eat out at a nice restaurant for dinner every night. I don’t make all these changes because I can’t afford to—that is, because I don’t have the money.

Perhaps most of us would feel no need to have a billion dollars. I don’t really know what $100 billion actually gets you, as far as financial security, independence, or even consumption, that $50 million wouldn’t already. You can have total financial freedom and security with a middle-class American lifestyle with net wealth of about $2 million. If you want to also live in a mansion, drink Dom Perignon with every meal and drive a Lamborghini (which, quite frankly, I have no particular desire to do), you’ll need several million more—but even then you clearly don’t need $1 billion, let alone $100 billion. So there is indeed something pathological about wanting a billion dollars for yourself, and perhaps in the Federation they have mental health treatments for “wealth addiction” that prevent people from experiencing such pathological levels of greed.

Yet in fact, with the world as it stands, I would want a billion dollars. Not to own it. Not to let it sit and grow in some brokerage account. Not to simply be rich and be on the Forbes list. I couldn’t care less about those things. But with a billion dollars, I could donate enormous amounts to charities, saving thousands or even millions of lives. I could found my own institutions—research institutes, charitable foundations—and make my mark on the world. With $100 billion, I could make a serious stab at colonizing Mars—as Elon Musk seems to be doing, but most other billionaires have no particular interest in.

And it begins to strain credulity to imagine a world of such spectacular abundance that everyone could have enough to do that.

This is why I always struggle to answer when people ask me things like “If money were not object, how would you live your life?”; if money were no object, I’d end world hunger, cure cancer, and colonize the Solar System. Money is always an object. What I think you meant to ask was something much less ambitious, like “What would you do if you had a million dollars?” But I might actually have a million dollars someday—most likely by saving and investing the proceeds of a six-figure job as an economist over many years. (Save $2,000 per month for 20 years, growing it at 7% per year, and you’ll be over $1 million. You can do your own calculations here.) I doubt I’ll ever have $10 million, and I’m pretty sure I’ll never have $1 billion.

To be fair, it seems that many of the grand ambitions I would want to achieve with billions of dollars already are achieved by 23rd century; world hunger has definitely been ended, cancer seems to have been largely cured, and we have absolutely colonized the Solar System (and well beyond). But that doesn’t mean that new grand ambitions wouldn’t arise, and indeed I think they would. What if I wanted to command my own fleet of starships? What if I wanted a whole habitable planet to conduct experiments on, perhaps creating my own artificial ecosystem? The human imagination is capable of quite grand ambitions, and it’s unlikely that we could ever satisfy all of them for everyone.

Some things are just inherently scarce. I already mentioned some earlier: Original paintings, front-row seats, officer commissions, and above all, land. There’s only so much land that people want to live on, especially because people generally want to live near other people (Internet access could conceivably reduce the pressure for this, but, uh, so far it really hasn’t, so why would we think it will in 300 years?). Even if it’s true that people can have essentially arbitrary amounts of food, clothing, or electronics, the fact remains that there’s only so much real estate in San Francisco.

It would certainly help to build taller buildings, and presumably they would, though most of the depictions don’t really seem to show that; where are the 10-kilometer-tall skyscrapers made of some exotic alloy or held up by structural integrity fields? (Are the forces of NIMBY still too powerful?) But can everyone really have a 1000-square-meter apartment in the center of downtown? Maybe if you build tall enough? But you do still need to decide who gets the penthouse.

It’s possible that all inherently-scarce resources could be allocated by some mechanism other than money. Some even should be: Starfleet officer commissions are presumably allocated by merit. (Indeed, Starfleet seems implausibly good at selecting supremely competent officers.) Others could be: Concert tickets could be offered by lottery, and maybe people wouldn’t care so much about being in the real front row when you can always simulate the front row at home in your holodeck. Original paintings could all be placed in museums available for public access—and the tickets, too, could be allocated by lottery or simply first-come, first-served. (Picard mentions the Smithsonian, so public-access museums clearly still exist.)

Then there’s the question of how you get everyone to work, if you’re not paying them. Some jobs people will do for fun, or satisfaction, or duty, or prestige; it’s plausible that people would join Starfleet for free (I’m pretty sure I would). But can we really expect all jobs to work that way? Has automation reached such an advanced level that there are no menial jobs? Sanitation? Plumbing? Gardening? Paramedics? Police? People still seem to pick grapes by hand in the Picard vineyards; do they all do it for the satisfaction of a job well done? What happens if one day everyone decides they don’t feel like picking grapes today?

I certainly agree that most menial jobs are underpaid—most people do them because they can’t get better jobs. But surely we don’t want to preserve that? Surely we don’t want some sort of caste system that allocates people to work as plumbers or garbage collectors based on their birth? I guess we could use merit-based aptitude testing; it’s clear that the vast majority of people really aren’t cut out for Starfleet (indeed, perhaps I’m not!), and maybe some people really would be happiest working as janitors. But it’s really not at all clear what such a labor allocation system would be like. I guess if automation has reached such an advanced level that all the really necessary work is done by machines and human beings can just choose to work as they please, maybe that could work; it definitely seems like a very difficult system to manage.

So I guess it’s not completely out of the question that we could find some appropriate mechanism to allocate all goods and services without ever using money. But then my question becomes: Why? What do you have against money?

I understand hating inequality—indeed I share that feeling. I, too, am outraged by the existence of hectobillionaires in a world where people still die of malaria and malnutrition. But having a money system, or even a broadly free-market capitalist economy, doesn’t inherently have to mean allowing this absurd and appalling level of inequality. We could simply impose high, progressive taxes, redistribute wealth, and provide a generous basic income. If per-capita GDP is something like 100 times its current level (as it appears to be in Star Trek), then the basic income could be $1 million per year and still be entirely affordable.

That is, rather than trying to figure out how to design fair and efficient lotteries for tickets to concerts and museums, we could still charge for tickets, and just make sure that everyone has a million dollars a year in basic income. Instead of trying to find a way to convince people to clean bathrooms for free, we could just pay them to do it.

The taxes could even be so high at the upper brackets that they effectively impose a maximum income; say we have a 99% marginal rate above $20 million per year. Then the income inequality would collapse to quite a low level: No one below $1 million, essentially no one above $20 million. We could tax wealth as well, ensuring that even if people save or get lucky on the stock market (if we even still have a stock market—maybe that is unnecessary after all), they still can’t become hectobillionaires. But by still letting people use money and allowing some inequality, we’d still get all the efficiency gains of having a market economy (minus whatever deadweight loss such a tax system imposed—which I in fact suspect would not be nearly as large as most economists fear).

In all, I guess I am prepared to say that, given the assumption of such great feats of technological advancement, it is probably possible to sustain such a prosperous economy without the use of money. But why bother, when it’s so much easier to just have progressive taxes and a basic income?

Tithing makes quite a lot of sense

PNRJ core principles, development economics, inequality, personal , , , , , , , , , ,

Dec 22 JDN 2458840

Christmas is coming soon, and it is a season of giving: Not only gifts to those we love, but also to charities that help people around the world. It’s a theme of some of our most classic Christmas stories, like A Christmas Carol. (I do have to admit: Scrooge really isn’t wrong for not wanting to give to some random charity without any chance to evaluate it. But I also get the impression he wasn’t giving a lot to evaluated charities either.) And people do really give more around this time of year: Charitable donation rates peak in November and December (though that may also have something to do with tax deductions).

Where should we give? This is not an easy question, but it’s one that we now have tools to answer: There are various independent charity evaluation agencies, like GiveWell and Charity Navigator, which can at least provide some idea of which charities are most cost-effective.

How much should we give? This question is a good deal harder.

Perhaps a perfect being would determine their own precise marginal utility of wealth, and the marginal utility of spending on every possible charity, and give of your wealth to the best possible charity up until those two marginal utilities are equal. Since $1 to UNICEF or the Against Malaria Foundation saves about 0.02 QALY, and (unless you’re a billionaire) you don’t have enough money to meaningfully affect the budget of UNICEF, you’d probably need to give until you are yourself at the UN poverty level of $1.90 per day.

I don’t know of anyone who does this. Even Peter Singer, who writes books that essentially tell us to do this, doesn’t do this. I’m not sure it’s humanly possible to do this. Indeed, I’m not even so sure that a perfect being would do it, since it would require destroying their own life and their own future potential.

How about we all give 10%? In other words, how about we tithe? Yes, it sounds arbitrary—because it is. It could just as well have been 8% or 11%. Perhaps one-tenth feels natural to a base-10 culture made of 10-fingered beings, and if we used a base-12 numeral system we’d think in terms of giving one-twelfth instead. But 10% feels reasonable to a lot of people, it has a lot of cultural support behind it already, and it has become a Schelling point for coordination on this otherwise intractable problem. We need to draw the line somewhere, and it might as well be there.

As Slate Star Codex put it:

It’s ten percent because that’s the standard decreed by Giving What We Can and the effective altruist community. Why should we believe their standard? I think we should believe it because if we reject it in favor of “No, you are a bad person unless you give all of it,” then everyone will just sit around feeling very guilty and doing nothing. But if we very clearly say “You have discharged your moral duty if you give ten percent or more,” then many people will give ten percent or more. The most important thing is having a Schelling point, and ten percent is nice, round, divinely ordained, and – crucially – the Schelling point upon which we have already settled. It is an active Schelling point. If you give ten percent, you can have your name on a nice list and get access to a secret forum on the Giving What We Can site which is actually pretty boring.

It’s ten percent because definitions were made for Man, not Man for definitions, and if we define “good person” in a way such that everyone is sitting around miserable because they can’t reach an unobtainable standard, we are stupid definition-makers. If we are smart definition-makers, we will define it in whichever way which makes it the most effective tool to convince people to give at least that much.

I think it would be also reasonable to adjust this proportion according to your household income. If you are extremely poor, give a token amount: Perhaps 1% or 2%. (As it stands, most poor people already give more than this, and most rich people give less.) If you are somewhat below the median household income, give a bit less: Perhaps 6% or 8%. (I currently give 8%; I plan to increase to 10% once I get a higher-paying job after graduation.) If you are somewhat above, give a bit more: Perhaps 12% or 15%. If you are spectacularly rich, maybe you should give as much as 25%.

Is 10% enough? Well, actually, if everyone gave, even 1% would probably be enough. The total GDP of the First World is about $40 trillion; 1% of that is $400 billion per year, which is more than enough to end world hunger. But since we know that not everyone will give, we need to adjust our standard upward so that those who do give will give enough. (There’s actually an optimization problem here which is basically equivalent to finding a monopoly’s profit-maximizing price.) And just ending world hunger probably isn’t enough; there is plenty of disease to cure, education to improve, research to do, and ecology to protect. If say a third of First World people give 10%, that would be about $1.3 trillion, which would be enough money to at least make a huge difference in all those areas.

You can decide for yourself where you think you should draw the line. But 10% is a pretty good benchmark, and above all—please, give something. If you give anything, you are probably already above average. A large proportion of people give nothing at all. (Only 24% of US tax returns include a charitable deduction—though, to be fair, a lot of us donate but don’t itemize deductions. Even once you account for that, only about 60% of US households give to charity in any given year.)

A more nuanced “Carousel of Progress”

PNRJ futurism, inequality, public policy , , , , , , , ,

Aug 11 JDN 2458707

I recently got back from a trip to Disney World; while most of the attractions are purely fictional and designed only to entertain, a few are factual and designed to inform and persuade. One of these is the “Carousel of Progress”.

The Carousel of Progress consists of a series of animatronic stages, each representing the lifestyle of a particular historical era. They follow the same family over time, showing what their life is like in each era. When it was originally built, the eras shown were 1900s, 1920s, 1940s, and 1960s; but over time they have updated the “present day” stage, and now they are 1900s, 1920s, 1940s, and 1990s. The aim of the attraction is to show how technology has made our lives better.

The family they show is upper-middle class; this makes sense, as most of the audience probably is as well. But to really understand the progress we have made, we need to also consider the full range of incomes.

In this post I will go through a similar sequence of eras, comparing the lifestyles of not just the middle class, but also the rich and the poor.

In what follows, I’ve tried to create that, using the best approximate figures on standard of living I could find from each era. The numbers are given in my best guess of the inflation-adjusted standard of living; obviously they’re much more precise in the 1980s to today than they are for earlier eras.

I’ve summarized all these income estimates in the graph below (note the log scale):

 

Carousel_of_Progress

This means that, after a bumpy ride through the Middle Ages and the Industrial Revolution, we did actually raise the floor—the poor today are about as well off as the middle class in ancient times. But we raised the ceiling an awful lot faster; the rich today are something like a thousand times as rich as the rich in ancient times.

 

50 AD: Roman Empire

Rich: Patrician

Life is good! My seaside villa is one of the finest in Rome, and my industrious slaves fulfill my every need. At my personal zoo I recently acquired a lion and an elephant. I dine on only the finest foods, including wine from my personal vineyard. An aqueduct feeds directly into my personal baths. The war in Gallia seems to be going well; I look forward to my share of the spoils.

Wealth: $4 million

Income: $200,000

Middle class: Plebeian

Things could be worse. My family has a roof over our heads and bread on our table, so I’m grateful for that. But working all day on the farm is exhausting, and we can’t afford servants to help. My oldest son is a gladiator, though so far he has not attained the highest ranks of the profession. My youngest son was recently drafted into military service in Gallia; I pray for his safety.

Wealth: $10,000

Income: $10,000

Poor: Proletarian

Wealth: $0

Income: $1,000

Living in a hovel I don’t even own with my four children and begging on the streets isn’t an easy life, but at least I’m not a slave. Most of our food is provided by public services. With the war raging in Gallia, one of our small blessings is that we are actually too poor to be drafted into service.

1000 AD: Medieval England

Rich: Duke

While living in a castle is nice, I sometimes wish an end to the frequent raids and border skirmishes that made these high walls necessary. Still, I can’t complain; I own plenty of land, and have plenty of serfs to work it. I am in good favor with the king, and so His Majesty’s army has helped protect my lands against invasion. I have all the feasts, wine, and women a man could ask for.

Wealth: $2 million

Income: $100,000

Middle class: Knight

I can’t complain. It is an honor to be a knight in His Majesty’s army, and I am proud that my family was able to earn enough wealth to buy me a horse, a sword, and the training necessary to reach this rank. I own a little bit of land, but my lord has called upon me for a new campaign, I’m hoping to buy a larger estate with the spoils I earn from it. My family has plenty of food to eat, though if the well runs dry I’m not sure where we’ll get more water.

Wealth: $5,000

Income: $5,000

Poor: Serf

Live grows harder by the day, it seems. My lord keeps demanding more and more work from us, but already the land is producing as much as it can bear. Though we are responsible for planting and harvesting the wheat, often the bread never makes it to my family’s table.

Wealth: $0

Income: $500

1600 AD: Renaissance Venice

Rich: Noble

With the advent of global trade and colonization, wealth has flooded into Venice, and I have had the chance to claim some portion of that flood. I dress in the finest silks, and eat exotic foods from lands as distant as India and China. Servants fulfill my every need. How could life be better?

Wealth: $10 million

Income: $1 million

Middle class: Merchant

I am a proud member of the trader’s guild. Though it our trade ships that carry wealth from across the seas, we often find that wealth passing on up to the nobles, leaving little for ourselves. Still, I have my own land, my own house, and plenty of food for my family.

Wealth: $10,000

Income: $10,000

Poor: The Pebbles

I had a good job working in construction until recently, but I was laid off. I could no longer afford my rent, so now I live on the streets. I feel as though I work constantly but never can find a way to get ahead.

Wealth: $0

Income: $2,000

1750 AD: Pre-Revolutionary France

Rich: Noble

Viva la France! Life is better than ever. Servants do all my work, while the wealth produced by my fields and factories all goes to me. I barely even pay any taxes on my grand estates.

Wealth: $20 million

Income: $2 million

Middle class: Bourgeoisie

I live reasonably well, all things considered. My family has a home and enough food to eat. Still, taxes are becoming increasingly onerous even as the nobles become increasingly detached from the needs of common people like us. Still, we may as well accept it; I doubt things will change any time soon.

Wealth: $15,000

Income: $15,000

Poor: Peasant

Life is hard. I work all day on the farm to make wheat, and then the nobles tax it all away. We have to make our own clothes even as the nobles luxuriate in silks from around the world.

Wealth: $0

Income: $500

1900 AD: United States

Rich

My coal mine has been a roaring success! I am now one of the richest men who has ever lived. I even have my own horseless carriage. Servants are getting more expensive these days, though; even though I’m richer than my grandfather I can’t afford as many servants.

Wealth: $1 billion

Income: $100 million

Middle class

“Well, the robins are back. That’s a sure sign of spring. What year is it? Oh, just before the turn of the century. And believe me, things couldn’t be any better than they are today. Yes sir, we got all the latest things: gas lamps, a telephone, and the latest design in cast iron stoves. That reservoir keeps five gallons of water hot all day on just three buckets of coal. Sure beats chopping wood! And isn’t our new ice box a beauty. Holds 50 pounds of ice. Milk doesn’t sour as quick as is used to. Our dog Rover here keeps the water in the drip pan from overflowing. You know, it wasn’t too long ago we had to carry water from a well. But thanks to progress, we’ve got a pump right here in the kitchen. ‘Course we keep a bucket of water handy to prime it with. Yes sir, we’ve got everything to make life easier. Mother! I was reading about a fellow named Tom Edison, who’s working on an idea for snap on electric lights.”

Wealth: $18,000

Income: $18,000

Poor

I live on the streets most of the time. I eat food out of the garbage. What little money I have is earned by begging. I’m not proud, but it’s all I can do to survive.

Wealth: $0

Income: $2,000

1920 AD: United States

Rich

Life is sweet. My electric company is raking in the dough these days; seems they can hardly find enough copper to lay all the new cables we need to supply all the folks buying into our grid. I have four automobiles now—all top of the line of course. The times, they are a-changin’: Can you believe they gave women the vote? Eh, well, I suppose they can hardly vote worse than us men do already.

Wealth: $5 billion

Income: $500 million

Middle class

“Whew! Hottest summer we’ve had in years. Well, we’ve progressed a long way since the turn of the century 20 years ago. But no one realized then that this would be the age of electricity. Everyone’s using it: farmers, factories, whole towns. With electric streetlights we don’t worry so much about the youngsters being out after dark. And what a difference in our home. We can run as many wires as we need in any direction for Mother’s new electrical servants: electric sewing machine, coffee percolator, toaster, waffle iron, refrigerator, and they all go to work at the click of a switch. Take it easy! You’ll blow a fuse! Queenie! Leave ’em alone. Well, the days of lugging heavy irons from the old cookstove to an ironing board are gone forever. With an electric iron and electric lights, Mother now has time to enjoy her embroidery in the cool of the evening. Right, Mother?”

Wealth: $20,000

Income: $20,000

Poor

Life on the streets is still hard, but at least they’ve got these new soup kitchens to feed me and my family, and with running water in the city we can sometimes get clean water to drink. That newfangled electricity stuff is supposed to be the bee’s knees, but we sure can’t afford it.

Wealth: $0

Income: $4,000

1940 AD: United States

Rich

My steel company is doing extremely well, particularly with the war in Europe raising the price of steel. We just bought our very own airplane; isn’t that marvelous? With Britain under siege and France already fallen to the Krauts, I think we’re gonna end up in the war soon—FDR certainly has been making noises to that effect. If I were poor, I’d be worried about my sons getting drafted; but I’m sure we won’t have to worry about that. No, I’m just looking forward to my stock returns when they start churning out tanks instead of cars in Detroit!

Wealth: $2 billion

Income: $200 million

Middle class

“Well it’s autumn again and the kids are back in school. Thank goodness! Here we are in the frantic forties and the music is better than ever. And it’s amazing how our new kitchen wonders are helping to take over the hard work. Everything is improving. Electric range is better. Refrigerators are bigger and make lots more ice cubes. But my favorite is the electric dishwasher. Now Mother spends less time in the kitchen and I don’t have to dry the dishes anymore. Oh, I spend a lot of time here. Have to. Now that television has arrived, Grandma and Grandpa have taken over my den. Television has changed our lives. It’s brought a whole new world of culture into our home.”

Wealth: $24,000

Income: $24,000

Poor

The Depression was hard on everybody, but I think it was hardest on us poors. This New Deal business seems to be helping out a lot, though; on one of the new construction projects I was able to find work for the first time in months. I’m worried we’re going to be brought into the war soon, but if I get drafted at least that means three squares a day.

Wealth: $0

Income: $4,000

1960 AD: United States

Rich

Running an oil company is not for the faint of heart; they keep adding more onerous regulations every year. Still, profits are bigger than ever. I just wish Uncle Sam would stop taking such a big cut; Commies, all of them. I can barely afford upkeep on my yacht these days with all the taxes.

Wealth: $2 billion

Income: $200 million

Middle class

We just got a color TV at home, and we’ve been watching around the clock. We get all four channels! And my new T-bird is a real beauty; paid a fortune for her, but worth every penny. Society is improving, too; with Rosa Parks and whatnot, I’m guessing things are about to get a lot better for colored folks especially. After that, I’m thinking it’ll be the gays’ turn next; I wonder how long that will take.

Wealth: $30,000

Income: $30,000

Poor

Life is still hard, but I think it’s better now than it’s ever been, even for poor folks like me. Thanks to Welfare, I’m not even as poor as I could be. It’s tough to make ends meet, but at least I can afford a place to live and food to eat. And I’m pretty healthy too: Antibiotics and vaccines mean that we are finally safe from some terrible diseases, like polio. It seems crazy: Just a generation ago the President had a disease that now even folks like me are protected from.

Wealth: $0

Income: $6,000

1980 AD: United States

Rich

They told me I was crazy to invest in these “personal computing machines”, but I saw the writing on the wall. Computers are the future, man. They’re gonna be everywhere, and do everything. We’re gonna have robots and flying cars, and if I have anything to say about it, I’m gonna own the factories that make them.

Wealth: $5 billion

Income: $500 million

Middle class

We have our own PC now. I use it for work, but my kids use it mostly for computer games. I still can’t beat my daughter at Pong, but I can at least hold my own at Pac-Man these days. I hear that programming skills are going to be in high demand soon, so I’ve been trying to teach the kids BASIC.

Wealth: $50,000

Income: $50,000

Poor

Nixon’s Welfare “reform” really hit my family hard. If I don’t find work soon, they’re going to cut my benefits; but if I could find work, what would I need benefits for? Jimmy Carter made some things better, but it doesn’t look like he’ll be re-elected. Can you believe that old actor Ronald Reagan is running?

Wealth: $0

Income: $8,000

2000 AD: United States

Rich

I sure played my cards right in the stock market, buying those tech firms just before the Internet boom really hit. Now I have my own jet and I’m thinking of buying a yacht. Maybe I’ll diversify into real estate; it looks like housing prices are heading north.

Wealth: $10 billion

Income: $1 billion

Middle class

Our home has almost doubled in value since we bought it; we took some of that out as a home equity loan, which helped us buy laptops for our kids. It’s amazing what they can do now; we used to have a big clunky desktop, and these little laptops would run circles around it. We also installed a 56k modem; I’m a little worried about what effect the Internet will have on the kids, but it seems like that’s where everything is going.

Wealth: $60,000

Income: $60,000

Poor

I hate working in fast food, but it beats not working at all. I really wish they’d raise minimum wage though; once you figure in inflation, we’re actually making less than people did ten years ago. I think I qualify for Welfare or something, but the paperwork has gotten so crazy I couldn’t even deal with it. I’m just trying to get by on what I make at the burger joint.

Wealth: $0

Income: $10,000

2020 AD: United States, Present Day

Rich

I knew my app startup would be a success, but even I couldn’t have predicted we’d make it this far. Bought out by Apple for $40 billion? I could hardly have dreamed it myself. I am living the high life; I’ve got my own helicopter now, and a yacht 50 feet long (#lifestyle #swag!). I just upgraded my Google Glass to the new model; it is awesome AF. I think I might move out of the Bay Area and get myself a mansion in Beverly Hills.

Wealth: $20 billion

Income: $2 billion

Middle class

Why is rent so expensive? And how am I ever going to pay off these student loans? After college I managed to land an office job because I’m pretty good with Excel, but it’s still tough to make ends meet. Smartphones are cool and all, but it would be nice to actually own my own home. I think my parents had planned for me to inherit theirs, but we lost it in the subprime crash. Eh, things could be worse. #FirstWorldProblems.

Wealth: $62,000

Income: $62,000

Poor

Things were really bad a few years ago, but they seem to be picking up a little now; I’ve been able to find a job, at least. But it doesn’t pay well; I can’t barely afford rent. I don’t have what they call “marketable skills”, I guess. I should have gone back to school, probably, but I didn’t want to have to deal with student loans. Maybe things will be better once Trump finally gets out of office.

Wealth: $0

Income: $12,000

2040 AD: United States, Cyberpunk Future

Rich

I guess I picked out the right crypto to buy, because it gave me enough to buy my own AI company and now I’m rolling in it. My new helicopter is one of those twin-turbofan models that runs on fuel cells—I was sick of paying carbon tax to fuel up the old kerosene model. I just got cybernetic implants: No phone to carry around, nothing to get lost! I hear they’re working on going to neural interface soon, so we won’t even need to wave our hands around to use them.

Wealth: $40 billion

Income: $4 billion

Middle-class

I used to have a nice job in data analysis, but they automated most of it and outsourced the rest. Now I work for a different corp doing customer service, because that’s the only thing humans seem to still be good for. I have to admit the corps have done some good things for us, though; my daughter was born blind but now she’s got artificial eyes. (Of course, how will we ever pay off those medical debts?) And I really wish someone had done something about climate change sooner; summers these days are absolutely unbearable.

Wealth: $65,000

Income: $65,000

Poor

Wealth: $0

Income: $15,000

I lost my trucking job to a robot, can you believe that? But how am I supposed to compete with 22 hours of daily uptime? Basic income is just about all the money I have. I haven’t been able to find steady work in years. I should have gone to college and studied CS, probably; it seems like salaries in AI get higher every year.

How much wealth is there in the world?

PNRJ inequality , , ,

July 14 JDN 2458679

How much wealth is there in the world? If we split it all evenly, how much would each of us have?

It’s a surprisingly complicated question: What counts as wealth? Presumably we include financial assets, real estate, commodities—anything that can be sold on a market. But what about natural resources? Shouldn’t we somehow value clean air and water? What about human capital—health, knowledge, skills, and expertise that make us able to work better?

I’m going to stick with tradeable assets for now, because I’m interested in questions of redistribution. If we were to add up all the wealth in the United States, or all the wealth in the world, and split it all evenly, how much would each person get? Even then, there are questions about how to price assets: Do we current market prices, or what was actually paid for them in the past? How much do we depreciate? How do we count debt that was used to buy non-financial assets (such as student loans)?

The Federal Reserve reports an official estimate of the US capital stock at $56.2 trillion (in 2011 dollars). Assuming that a third of income is capital income, that means that of our GDP of $18.9 trillion (in 2012 dollars), this would make the rate of return on capital 11%. That rate of return strikes me as pretty clearly too high. This must be an underestimate of our capital stock.

The 2015 Global Wealth Report estimates total US wealth as $63.5 trillion, and total world wealth as $153.2 trillion. This was for 2014, so using the US GDP growth rate of about 2% and the world GDP growth rate of 3.6%, the current wealth stocks should be about $70 trillion and $183 trillion respectively.

This gives a much more plausible rate of return: One third of the US GDP of $19.6 trillion (in 2014 dollars) is $6.53 trillion, yielding a rate of return of about 9%.

One third of the world GDP of $78 trillion is $26 trillion, yielding a rate of return of about 14%. This seems a bit high, but we’re including a lot of countries with very little capital that we would expect to have very high rates of return, so it might be right.

Credit Suisse releases estimates of total wealth that are supposed to include non-financial assets as well, though these are even more uncertain than financial assets. They estimate total US wealth as $98 trillion and total world wealth as $318 trillion.

There’s a lot of uncertainty around all of these figures, but I think these are close enough to get a sense of what sort of redistribution might be possible.

If the US wealth stock is about $70 trillion and our population is about 330 million, that means that the average wealth of an American is $200,000. If our wealth stock is instead about $98 trillion, the average wealth of an American is about $300,000.

Since the average number of people in a US household is 2.5, this means that average household wealth is somewhere between $500,000 and $750,000. This is actually a bit less than I thought; I would have guessed that the mythical “average American household” is a millionaire. (Of course, even Credit Suisse might be underestimating our wealth stock.)

If the world wealth stock is about $180 trillion and the population is about 7.7 billion, global average wealth per person is about $23,000. If instead the global wealth stock is about $320 trillion, the average wealth of a human being is about $42,000.

Both of these are far above the median wealth, which is much more representative of what a typical person has. Median wealth per adult in the US is about $65,000; worldwide it’s only about $4,200.

This means that if we were to somehow redistribute all wealth in the United States, half the population would gain an average of somewhere between $140,000 and $260,000, or on a percentage basis, the median American would see their wealth increase by 215% to 400%. If we were to instead somehow redistribute all wealth in the world, half the population would gain an average of $19,000 to $38,000; the median individual would see their wealth increase by 450% to 900%.

Of course, we can’t literally redistribute all the wealth in the world. Even if we could somehow organize it logistically—a tall order to be sure—such a program would introduce all sorts of inefficiencies and perverse incentives. That would really be socialism: We would be allocating wealth entirely based on a government policy and not at all by the market.

But suppose instead we decided to redistribute some portion of all this wealth. How about 10%? That seems like a small enough amount to avoid really catastrophic damage to the economy. Yes, there would be some inefficiencies introduced, but this could be done with some form of wealth taxes that wouldn’t require completely upending capitalism.

Suppose we did this just within the US. 10% of US wealth, redistributed among the whole population, would increase median wealth by between $20,000 and $30,000, or between 30% and 45%. That’s already a pretty big deal. And this is definitely feasible; the taxation infrastructure is all already in place. We could essentially buy the poorest half of the population a new car on the dime of the top half.

If instead we tried to do this worldwide, we would need to build the fiscal capacity first; the infrastructure to tax wealth effectively is not in place in most countries. But supposing we could do that, we could increase median wealth worldwide by between $2,000 and $4,000, or between 50% and 100%. Of course, this would mean that many of us in the US would lose a similar amount; but I think it’s still quite remarkable that we could as much as double the wealth of most of the world’s population by redistributing only 10% of the total wealth. That’s how much wealth inequality there is in the world.

“Robots can’t take your job if you’re already retired.”

PNRJ futurism, inequality , , , , , ,

July 7 JDN 2458672

There is a billboard on I-405 near where I live, put up by some financial advisor company, with that slogan on it: “Robots can’t take your job if you’re already retired.”

First, let me say this: Don’t hire a financial advisor firm; you really don’t need one. 90% of actively-managed funds perform worse than simple index funds. Buy all the stocks and let them sit. You won’t be able to retire sooner because you paid someone else to do the same thing you could have done yourself.

Yet, there is some wisdom in this statement: The best answer to technological unemployment is to make it so people don’t need to be employed. As an individual, all you could really do there is try to save up and retire early. But as a society, there is a lot more we could do.

The goal should essentially to make everyone retired, or if not everyone, then whatever portion of the population has been displaced by automation. A pension for everyone sounds a lot like a basic income.

People are strangely averse to redistribution of wealth as such (perhaps because they don’t know, or don’t want to think about, how much of our existing wealth was gained by force?), so we may not want to call our basic income a basic income.

Instead, we will call it capital income. People seem astonishingly comfortable with Jeff Bezos making more income in a minute than his median employee makes in a year, as long as it’s capital income instead of “welfare” or “redistribution of wealth”.

The basic income will instead be called something like the Perpetual Dividend of the United States, the dividends each US citizen receives for being a shareholder in the United States of America. I know this kind of terminology works, because the Permanent Fund Dividend in Alaska is a successful and enormously popular basic income. Even conservatives in Alaska dare not suggest eliminating the PFD.
And in fact it could literally be capital income: While public ownership of factories generally does not go well (see: the entire history of socialism and communism), the most sensible way to raise revenue for this program would be to tax income gained by owners of robotic factories, which, even if on the books as salary or stock options or whatever, is at its core capital income. If we wanted to make that connection even more transparent, we could tax in the form of non-voting shares in corporations, so that instead of paying a conventional corporate tax, corporations simply had to pay a portion of their profits directly to the public fund.

I’m not quite sure why people are so much more uncomfortable with redistribution of wealth than they are with the staggering levels of wealth inequality that make it so obviously necessary. Maybe it’s the feeling of “robbing Peter to pay Paul”, or “running out of other people’s money”? But obviously a basic income won’t just be free money from nowhere. We would be collecting it in taxes, the same way we fund all other government spending. Even printing money would mean paying in the form of inflation (and we definitely should not print enough money to cover a whole basic income!)

I think it may simply be that people aren’t cognizant enough of the magnitude of wealth inequality. I’m hoping that my posts on the extremes of wealth and poverty might help a bit with that. The richest people on Earth make about $10 billion per year—that’s $10,000,000,000—simply for owning things. The poorest people on Earth struggle to survive on less than $500 per year—often working constantly throughout their waking hours. Even if we believe that billionaires work harder (obviously false) or contribute more to society (certainly debatable) than other people, do we really believe that some people deserve to make 20 million times as much as others? It’s one thing to think that being a successful entrepreneur should make you rich. It’s another to believe that it should make you so rich you could buy a house for every homeless person in America.
Automation is already making this inequality worse, and there is reason to think it will continue to do so. In our current system, when the owner of a corporation automates production, he then gets to claim all the output from the robots, where previously he had to pay wages to the workers—and that’s why he does the automation, because it makes him more profit. Even if overall productivity increases, the fruits of that new production always get concentrated at the top. Unless we can find a way to change that system, we’re going to need to redistribute some of that wealth.

But if we have to call it something else, so be it. Let’s all be shareholders in America.

Just how rich is rich?

PNRJ core principles, ethics, inequality, public policy , , , , , , , , , , , , , , , ,

May 26 JDN 2458630

I think if there is one single thing I would like more people to know about economics, it is the sheer magnitude of global inequality. Most people seem to have no idea just how rich some people are—and how poor so many others are. They have a vision in their head of what “rich” and “poor” are, and their “rich” is a low-level Wall Street trader making $400,000 a year (the kind of people Gordon Gekko mocks in the film), and “poor” is someone who lives under a bridge in New York City. (They’re both New Yorkers, I guess. New Yorkers seem to be the iconic Americans, which is honestly more representative than you might think—80% of Americans live in urban or suburban areas.)

If we take a global perspective, this is not what “rich” and “poor” truly mean.

In next week’s post I’ll talk about what “poor” means. It’s really appallingly bad. We have to leave the First World in order to find it; many people here are poor, but not that poor. It’s so bad that I think once you really understand it, it can’t but change your whole outlook on the world. But I’m saving that for next week.

This week, I’ll talk about what “rich” really means in today’s world. We needn’t leave the United States, for the top 3 and 6 of the top 10 richest people in the world live here. And they are all White men, by the way, though Carlos Slim and Amancio Ortega are at least Latino.

Going down the list of billionaires ranked by wealth, you have to get down to 15th place before encountering a woman, and it’s really worse than that, because Francoise Bettencourt (15), Alice Walton (17), Jacqueline Mars (33), Yang Huiyan (42), Susan Klatton (46), Laurena Powell-Jobs (54), Abigail Johnson (71), and Iris Fontbona (74) are all heirs. The richest living woman who didn’t simply inherit from her father or husband is actually Gina Rinehart, the 75th richest person in the world. (And note that, while also in some sense an heir, Queen Elizabeth is not on that list; in fact, she’s nowhere near the richest people in the world. She’s not in the top 500.)

You have to get to 20th place before encountering someone non-White (Ma Huateng), and all the way down to 65th before encountering someone not White or East Asian (the Hinduja brothers). Not one of the top 100 richest people is Black.

Just how rich are these people? Well, there’s a meme going around saying that Jeff Bezos could afford to buy every homeless person in the world a house at median market price and still, with just what’s left over, be a multi-billionaire among the top 100 richest people in the world.

And that meme is completely correct. The math checks out.

There are about 554,000 homeless people in the US at any given time.

The median sale price of a currently existing house in the US is about $253,000.

Multiply those two numbers together, and you get $140 billion.

And Jeff Bezos has net wealth of $157 billion.

This means that he would still have $17 billion left after buying all those houses. The 100th richest person in the world has $13 billion, so Jeff Bezos would still be higher than that.

Even $17 billion is enough to spend over $2 million every single day—over $20 per second—and never run out of money as long as the dividends keep paying out.

Jeff Bezos in fact made so much in dividends and capital gains this past quarter that he was taking in as much money as the median Amazon employee’s annual salary—which is more than what I make as a grad student, and only slightly less than the median US individual income—every nine seconds. Yes, you read that correctly: Nine (9) seconds. In the time it took you to read this paragraph, Jeff Bezos probably received more in capital gains than you will make this whole year. And if not (because you’re relatively rich or you read quickly), I’m sure he will have in the time it takes you to read this whole post.

When Mitt Romney ran for President, a great deal was made of his net wealth of over $250 million. This is indeed very rich, richer than anyone really needs or probably deserves. But compared to the world’s richest, this is pocket change. Jeff Bezos gets that much in dividends and capital gains every day. Bill Gates could give away that much every day for a year and still not run out of money. (He doesn’t quite give that much, but he does give a lot.)

I grew up in Ann Arbor, Michigan. Ann Arbor is a medium-sized city of about 120,000 people (230th in the US by population), and relatively well-off (median household income about 16% higher than the US median). Nevertheless, if Jeff Bezos wanted to, he could give every single person in Ann Arbor the equivalent of 30 years of their income—over a million dollars each—and still have enough money left to be among the world’s 100 richest people.

Or suppose instead that all the world’s 500 richest people decided to give away all the money they have above $1 billion—so they’d all still be billionaires, but only barely. That $8.7 trillion they have together, minus the $500 billion they’re keeping, would be $8.2 trillion. In fact, let’s say they keep a little more, just to make sure they all have the same ordering: Give each one an extra $1 million for each point they are in the ranking, so that Jeff Bezos would stay on top at $1 B + 500 ($0.001 B) = $1.5 billion, while Bill Gates in second place would have $1 million less, and so on. That would leave us with still over $8 trillion to give away.

How far could that $8 trillion go? Well, suppose we divided it evenly between all 328 million people in the United States. How much would each person receive? Oh, just about $24,000—basically my annual income.

Or suppose instead we spread it out over the entire world: Every single man, woman, and child on the planet Earth gets an equal share. There are 7.7 billion people in the world, so by spreading out $8 trillion between them, each one would get over $1000. For you or I that’s a big enough windfall to feel. For the world’s poorest people, it’s more than they make in several years. It would be life-changing for them. (Actually that’s about what GiveDirectly gives each family—and it is life-changing.)

And let me remind you: This would be leaving them billionaires. They’re just not as much billionaires as before—they only have $1 billion instead of $20 billion or $50 billion or $100 billion. And even $1 billion is obviously enough to live however you want, wherever you want, for the rest of your life, never working another day if you don’t want to. With $1 billion, you can fly in jets (a good one will set you back $20 million), sail in yachts (even a massive 200-footer wouldn’t run much above $200 million), and eat filet mignon at every meal (in fact, at $25 per pound, you can serve it to yourself and a hundred of your friends without breaking a sweat). You can decorate your bedroom with original Jackson Pollock paintings (at $200 million, his most expensive painting is only 20% of your wealth) and bathe in bottles of Dom Perignon (at $400 per liter, a 200-liter bath would cost you about $80,000—even every day that’s only $30 million a year, or maybe half to a third of your capital income). Remember, this is all feasible at just $1 billion—and Jeff Bezos has over a hundred times that. There is no real lifestyle improvement that happens between $1 billion and $157 billion; it’s purely a matter of status and power.

Taking enough to make them mere millionaires would give us another $0.5 trillion to spend (about the GDP of Sweden, one-fourth the GDP of Canada, or 70% of the US military budget).

Do you think maybe these people have too much money?

I’m not saying that we should confiscate all private property. I’m not saying that we should collectivize all industry. I believe in free markets and private enterprise. People should be able to get rich by inventing things and starting businesses.

But should they be able to get that rich? So rich that one man could pay off every mortgage in a whole major city? So rich that the CEO of a company makes what his employees make in a year in less than a minute? So rich that 500 people—enough to fill a large lecture hall—own enough wealth that if it were spread out evenly they could give $1000 to every single person in the world?

If Jeff Bezos had $1.5 million, I’d say he absolutely earned it. Some high-level programmers at Amazon have that much, and they absolutely earned it. If he had $15 million, I’d think maybe he could deserve that, given his contribution to the world. If he had $150 million, I’d find it hard to believe that anyone could really deserve that much, but if it’s part of what we need to make capitalism work, I could live with that.

But Jeff Bezos doesn’t have $1.5 million. He doesn’t have $15 million. He doesn’t have $150 million. He doesn’t have $1.5 billion. He doesn’t even have $15 billion. He has $150 billion. He has over a thousand times the level of wealth at which I was already having to doubt whether any human being could possibly deserve so much money—and once it gets that big, it basically just keeps growing. A stock market crash might drop it down temporarily, but it would come back in a few years.

And it’s not like there’s nothing we could do to spread this wealth around. Some fairly simple changes in how we tax dividends and capital gains would be enough to get a lot of it, and a wealth tax like the one Elizabeth Warren has proposed would help a great deal as well. At the rates people have seriously proposed, these taxes would only really stop their wealth from growing; it wouldn’t meaningfully shrink it.

That could be combined with policy changes about compensation for corporate executives, particularly with regard to stock options, to make it harder to extract such a large proportion of a huge multinational corporation’s wealth into a single individual. We could impose a cap on the ratio between median employee salary (including the entire supply chain!) and total executive compensation (including dividends and capital gains!), say 100 to 1. (Making in 9 seconds what his employees make in a year, Jeff Bezos is currently operating at a ratio of over 3 million to 1.) If you exceed the cap, the remainder is taxed at 100%. This would mean that as a CEO you can still make $100 million a year, but only if your median employee makes $1 million. If your median employee makes $30,000, you’d better keep your own compensation under $3 million, because we’re gonna take the rest.

Is this socialism? I guess maybe it’s democratic socialism, the high-tax, high-spend #ScandinaviaIsBetter welfare state. But it would not be an end to free markets or free enterprise. We’re not collectivizing any industries, let alone putting anyone in guillotines. You could still start a business and make millions or even hundreds of millions of dollars; you’d simply be expected to share that wealth with your employees and our society as a whole, instead of hoarding it all for yourself.