13 thoughts on “In Praise Of Capitalist Inequality”

  1. The part I keep blocking on is the entire concept of ‘income inequalities’ as a problem.

    Picture a “perfect” agrarian society, where everyone has their survival needs met and a modest income from trading for crops they didn’t grow.

    One fellow develops a tractor. He grows more, and blows the entire chart for “income”.

    IOW: Another name for “income inequality” is “progress”. Stop buy the whining of the Luddites.

  2. Nice quote here:

    Most people who advocate robbing Peter to pay Paul always imagine themselves as Paul — never as Peter.

      1. I wonder if they do. Both Gates and Buffet have most of their wealth in securities with unrealized capital gains. Much of the realized gains went to charity.

  4. To me, the basis of a free, capitalist economy is the simple rule of making stuff. The more stuff you make, the more stuff you have. The better the stuff you make, the better the stuff you have. If you want more stuff, make more stuff. If you want stuff you can’t make yourself, make stuff other people want and trade it to them for the stuff you want. The result is lots of people making better and better stuff in ever larger amounts.

    In contrast, the principle of wealth redistribution is entirely different. If you want stuff, demand it from the people who made a bunch of stuff for themselves. If you want even more stuff, band together with other lazy people and take it from those who made it or traded for it (by making stuff of their own to trade). If you want to have more stuff than anybody, convince all the people who aren’t making much stuff to seize everything and put yourself in charge of distributing it “fairly.”

    The redistributionist method quickly explodes into poverty and misery because the people who were making stuff for themselves, and coming up with ever better ways of making stuff, get outraged and being robbed and taken advantage of, quit making any stuff, and then all the stuff runs out, leading to endemic poverty, stagnation, and misery.

    The difference is between “I want to build till my hands bleed” and “I want to take till their eyes bleed.” One system naturally builds a surplus, necessarily clumped around the most productive producer. The excess supply of stuff outstrips demand and ensures that stuff is cheap.

    The other system naturally builds a shortage, because producers don’t like getting robbed, and the people in charge of redistribution leverage even more power out of the shortages by brokering access to the rarer and rarer pieces of remaining stuff. Soon nobody has anything except an equality of abject poverty, which the people take to be the normal way of the world until they finally realize they don’t have any stuff because they don’t make any stuff, and they don’t make any stuff because it’s stolen for redistribution the moment they do.

    That’s how I explain capitalism to small children.

  5. It’s kind of like thermodynamics. For a heat engine to do work, you must have a temperature differential. As heat flows from higher to lower temperature, work is done.

    No differential, no work.

  6. My 2¢: to me, the fundamental thing about income inequality is that it is the inevitable consequence of the increase in entropy in an economy.

    There is a mistaken notion, common especially but not exclusively among leftists, that the “natural” distribution of wealth should be a bell curve. That is, all else being equal, everyone should have about the same stuff, maybe a little more, maybe a little less. Leftists ascribe the extremes of wealth and poverty that arise in every economy to theft, or other unfair circumstances like the distribution in intelligence, or the power of corporations, or whatever.

    What is seldom appreciated is that the “natural” distribution of wealth, when people exchange wealth, is exponential, not Gaussian.

    Here’s a simple toy economy: start with $100,000. Consider a bank with 1000 accounts. Now, pick an account at random (with a uniform distribution). Put a dollar in that account. Repeat until you have distributed the $100,000. The average amount per account is $100. But what is the distribution of wealth? It is approximately Gaussian, with a mean of $100 and a standard deviation ~$10. This is what people have in mind when they think of the “fair” distribution of wealth (excepting the actual allotment of exactly $100 to each account).

    Now do this: pick a pair of accounts, A and B. If there is any money in A, take a dollar and put it in B. Repeat. Keep repeating, millions of times. What happens to the distribution of wealth? Perhaps surprisingly, the distribution gets wider. And wider. In fact, it ultimately changes shape to an exponential distribution, proportional to exp(-w/wbar). The most likely wealth is no longer wbar=$100 — the most likely wealth is $0, with likelihood tapering off as wealth increases.

    The equilibrium distribution happens to be the one that maximizes entropy. It is in fact the Boltzmann distribution. There is even a physical analog: this is the distribution of energy for a system of quantum harmonic oscillators. (BTW the Gini coefficient of the Boltzmann economy is exactly 0.50, close to what the US perennially experiences.)

    So: in “year zero” (to use Pol Pot’s phrase) you can distribute wealth equally, but once people start exchanging wealth, “inequality” is the inexorable result.

    More info here: Statistical Mechanics of Money.

    1. That reminds me somewhat ofSteven J. Gould’s observation of organism sizes, from bacteria to whales. For a very long time the largest organism was a bacteria, which is pretty much the lower bound on size for fundamental reasons. You could consider bacteria as “the poor.” Once you’re broke, you’re at the bottom. But the range of possible sizes extends to the right on a graph, and those niches were originally unoccupied. Over time evolution filled them. The median size of organisms is still bacterial, but now there are also a relative handful of bigger organisms, numerically insignificant compared to the trillion trillions of bacteria, but it’s the large organisms that get most of the attention because they’re more visible.

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