A False Equivalency & The Wealth Fallacy

Inequality

There lies a fallacy regarding economic inequality that obscures the lens through which we view wealth. I was golfing at Bay harbor over the summer, a course up north that is situated in the middle of some of the most expensive real estate in Michigan. As I’m driving to the first tee box, I noticed the multimillion-dollar houses lining the fairways of the course and I had two competing thoughts in my mind. The first of which being, “Good for them” and the second being the envious creep of a sarcastic “Must be nice.”

Wolfie

Since 2008 in this country and more broadly since the beginning formations of society, the have-nots and the have-somes have resented the wealth of those that have it. The thoughts that come to mind are words like, “Privilege” and the conjured images are those such as Jordan Belfort in The Wolf of Wall Street.  We picture people on yachts and then compare that to an opposite image, one of deep-stricken poverty. “Where’s our share?” is a guiding principle, the belief that we as the working and lower class are entitled to what others who live well beyond their means have. I think we’re doing something that is as reckless as it is ignorant. I believe we’ve been conditioned to conflate wealth with thievery.

PPP

From The White House, mainstream media, and social media, I keep seeing a promulgated message regarding the PPP loans and the recently announced student loan debt “cancellation.” The message put forth is that businesses took all of this handout money and it was simply wiped away meanwhile the middle class was left on the hook for the student debt that will result in people suffering for years, even decades to come. Those in a position of political power are simply saying this to continue playing on the class “Victim” card in order to garner support come mid-terms. The inherent flaws in comparing PPP loans and student loans are many. Firstly, the PPP loans that were given to businesses were always said to be grant money, provided to businesses in order to pay their employees who were not able to receive a paycheck while the government forcefully shut down businesses. Grants are not loans, grants are forgiven, never was this PPP money given with the expectation of being paid back. Secondly, student loans were voluntarily taken out under the promise to be paid back. People who put forth this message have a glaring oversight, “What do you think would have happened to the economy and the jobs of the working class had PPP loans not been distributed?”

Pareto

What those who often criticize wealth fail to consider is where exactly they think wealth comes from. Businesses, jobs, goods, and services do not simply drop out of the sky and it is up to those in power to decide how it gets distributed. Wealth, business, goods, services, and jobs must be created, and through their creation, we all prosper. Yes, some prosper more than others and the level of prosperity is unequal but this is not simply because of greed. Yes, greed exists, it is in our nature and it always has been and always will be. However, the more applicable argument is that there is an unequal distribution of wealth naturally because nothing in humans and in nature is distributed evenly. This is the Pareto Principal, a universally-recognized theory that states that 80% of the output is a result of 20% of the input. It’s a theory used to describe the distribution patterns we see in man and in nature. The fact of the matter is nowhere in nature do you see an equal distribution of anything, including within us.  There is not an equal distribution of mountains, water, rivers, rainforests, and deserts.  Population isn’t equally distributed, 80% of the population lives in 20% of the states and within each state, 80% of the population lives within 20% of the cities.  Income follows this same pattern, in the U.S. roughly 80% of the wealth is owned by 20% of the people.  20% of people pay 80% of the taxes.  20% of the world’s farmers produce 80% of the world’s total agriculture. In baseball, W.A.R. is an advanced metric stat identifying wins that finds 20% of the players are responsible for 80% of the wins.  In football, 20% of the plays are called 80% of the time.  In business, 20% of the staff is responsible for 80% of the production.  We wear 20% of the total clothes we own, 80% of the time.  In language, we use 20% of the words, 80% of the time.  Not every single thing breaks down neatly at 80/20, you’ll see varying from 70/30 to 90/10 but this principal describes distribution patterns, wealth is not outside of this law.

Jobland

Some people prosper more than others for a variety of reasons, both innate and environmentally based but the biggest reason is that human beings are not equal to one another. To quote the economist Thomas Sowell, “No one is equal to anybody, even the same man is not equal to himself on different days.” This fallacy persists that we all enter the world as blank slates and are all of the same intelligence, work ethic, physical and mental ability, etc. This is simply untrue. The greatest determinant of success is intelligence, intelligence is nearly an entirely innate trait. Yes, you can add IQ points through something called a confidence interval however this improvement is minuscule and our cognitive ability is largely already decided for us before we ever leave the womb. Another fallacy that persists is a result of a misrepresentation in our minds. When we think of “Business owners” we think of wall street hot shots, robbing the working folk blind while they live in excess. The fact of the matter is that over 99% of businesses are owned and operated by those that reside in the middle and lower class. Think about all of the businesses that reside in your city, in my city of Wyandotte, for example, these are hard-working people, not people of extreme wealth. The shortsighted thought process that inflicts those that conflate PPP loans with student loans is that they fail to consider that an exceedingly large number of businesses that were forced to shut down would have gone under due to their inability to bring in income. What do we think would have happened to the jobs of employees in businesses that were forced to shut down without the government grant money? Of the businesses that remain, there would be a surplus of labor and less competition in the market. Laws of supply and demand would tell us that with less competition in the market, wages would decrease as there are many more people competing for the same jobs and the costs of goods and services would increase due to competitors forcing down the price in a given industry. Jobs do not simply come from a magical “Jobland” where magical seeds produce trees with money for leaves, and people are suddenly able to make a living without working. Jobs have to be created by those in search of profit by providing a good or service that satisfies a need of the people that they serve.

Fraud

Don’t get me wrong, the answer increasingly looks like shutting down the economy for a virus that was never going to disappear and was going to eventually inflict everyone was a giant mistake. Additionally, distributing these currency-inflating grants was the wrong way to go. Rather than the intelligent approach which would have consisted of concentrating precautions by tailoring them for the most vulnerable, the government opted instead to decimate the economy. Because there is not a single thing that the government does well outside of producing weapons, this PPP program was incredibly flawed. According to NBC News, “The theft of as much as $80 billion — or about 10 percent — of the $800 billion handed out in a Covid relief plan known as the Paycheck Protection Program, or PPP. That’s on top of the $90 billion to $400 billion believed to have been stolen from the $900 billion Covid unemployment relief program — at least half taken by international fraudsters.” Additionally, for many thousands of business owners that are not at the top of their industrial ladder, it was a nightmare process trying to retrieve the PPP money allocated to their business.

Conflation

It is to our peril that we conflate wealth with thievery. The people that owned the multi-million dollar homes on the Lake Michigan golf course do not own those homes because they immorally transferred wealth from us to them. They own those homes because we reside in an exchange economy, one where we exchange currency for goods and services that we need and want. In order to provide a good or service, it requires labor. Those owners of the expensive property are only in that position because they needed to rely on employees, employees earn a wage in exchange for their production. These compensated employees earn money to be able to provide for themselves and their families. The more valuable the employee is to production, the more money they are able to earn. One of the benefits of a relatively free market is that there is competition for labor, people who make themselves valuable are able to shop their services where they can earn the most that a business is willing to pay them. Businesses that do not offer consumers something that they want or need simply do not survive because they have nothing useful to offer. During the socialist takeovers of the past, business-and-property owners were demonized as thieves that stole from the workers, what inevitably took place was the decimation of the economy that led to famine and slave-labor. I close once again with a quote from economist Thomas Sowell, “I have never understood why it is “greed” to want to keep the money you have earned but not greed to want to take somebody else’s money.”