During my last blog on cause of inequalities I mentioned my childhood experience of accumulating too many marbles during the marble playing season and then pouring them out onto the playgrounds at the end of the school year so that my friends would have marbles to start the new season during the following year. I also mentioned the idea of the pot latch whereby Native Americans gave back accumulated wealth to their communities. These are great ideas, but I wonder how they might work in a large economy.

Billionaire Chuck Feeney managed to give his $8B away in September of 2020 after spending almost 40 years in doing so. I managed to give all of my marbles away at the end of the school year in a show of “generosity,” even though it wasn’t generous at all – I didn’t need them until the following marble season and I wanted to play marbles.

The real issue isn’t so much about how “generous” a person is when giving away their wealth – it is more about what happens when it is being accumulated. I kept accumulating marbles because I couldn’t figure out how to NOT do so. Once I got to a certain point in my accumulation I had a built in advantage just because of the size of my supply. I could afford to take risks that others couldn’t take, and I could overwhelm the odds of a particular game by adding in more of my marbles. Even though I wasn’t a very good player, my accumulation resulted in my having an advantage so I kept getting more.

I don’t have any idea how Feeney managed to accumulate that much money so early in his life (he must have made it by the time he was 30 years old or so), but I have some guesses. I guess that he was early in his field, allowing him to get a leg up and bias his chances of success. I also assume he kept wages low, kept the cost of services low, and kept the prices high. When it is all said and done, I guess he paid less than he “could” have, and charged more than he actually “needed.” His money came at the expense of his employers and suppliers, and his customers. Apparently he eventually realized that he probably didn’t really need $8B to keep his used Volvo running and started to try to get rid of the extra. But how do you do that once passed a certain point? It can’t be easy. It took him and his foundation forty years to accomplish it.

Why should this matter? It matters because it took all of that money away from those that got too little and/or paid too much. The money trickled up to him even though he had no use for it – or even a way to deal with it effectively. Bill Gates experienced (and still experiences) something similar. The other day I read that he is now worth $120B, up from about $80B ten years ago. He has given away around $50B to his foundation so far, but isn’t keeping up on the growth. While it is nice to hear that he is trying to give it all away, how is it that he gets to be the one who decides where it should go and how it should be used. Afterall, it is all caused by over charging for his products and services and under paying his employees and suppliers. I suppose those folks would rather have had a say in how their money was to be used.

The Scientific American article that I referenced in my last blog post (“Is Inequality Inevitable”, November 2019) suggested that there are two major contributing characteristics of our economic system that might contribute to the current out-of-control economic inequality where a small handful of people own more than 50% of the entire world’s wealth.

The first problem is the failure to adequately redistribute the wealth. Their model found that a redistribution for each transaction based upon the difference between the “agent’s” (the company or individual making the transaction) wealth and the mean wealth in society. This has to be in the form of a complementary subsidy for the poor (those below the mean) based upon their distance from the mean. This has to be in the form of redistributing the “excess” wealth to the poor, not in the form of tax that is then used to do things by the government. Taxes are necessary in addition to the redistribution in order to fund government.

The second problem is related to the fact that things are less expensive for those with wealth. It is expensive to be poor. For example, there are no bank checking fees if you keep sufficient funds in the account. If not, you have to pay a large fee to use checks. It is also very inexpensive to purchase a home if you have sufficient investments to just move investments to a house instead of another form of investment such as bonds. Otherwise there are large fees, mortgage payments, expensive insurance, etc. Not long ago Warren Buffet pointed out that his secretary pays more income tax that he does even though he “makes” billions of dollars a year. The list of cost savings from being rich is very long indeed.

There is also a third problem that sort of puts a fine point on the issues caused by the first two. Negative wealth is a dangerous and widespread problem that severely limits the poor from taking advantage of “good deals” and adds a large additional cost that does not exist for those above the mean. Negative wealth includes things like student loans, mortgages beyond the value of the property, personal loans etc.

This leaves a rather large question of how could these things (especially the first two) be rectified? Each is almost impossible to visualize. For example, “taxing” to redistribute funds might mean an income tax based upon wealth rather than income. This actually seems to make more sense than our current approach since “income” isn’t realized until investments are sold. Therefore, it is possible to live on the principal of an investment which is not “income” because it was already there while not paying for increase in value until it is sold. Owning stocks might be an example. They can achieve unspecified increases in value without facing taxes until they are sold. Of course it wouldn’t work to tax the unsold value because the prices fluctuate and I might have to sell them at a price below what I was taxed. A small step forward would be to “tax” my income by my net worth rather than my “income.” Removing the “extra” costs for being poor is much more difficult. I suppose it might be feasible to provide an allotment covering the extra costs associated with being poor.

In my opinion, expenses such as student loans and the cost of health care shouldn’t exist. Students should get paid to got to college, not have to pay. They are working hard to provide a value asset to government and businesses, an asset that should be paid for by those most benefiting from that work – which seems to be government and business, not so much the student. The economy is based upon the availability for educated and trained employees – the economy should pay for those services. Health care is beyond being questionable – it is the moral and ethical responsibility for society to take care of their sick and injured.

I want to leave this blog with the question of how do we change the economy to ensure an equitable redistribution of wealth to prevent oligarchy and the unfair suffering of those that because of random processes find themselves far below the mean? As noted in the referenced Scientific American article, the fact that simple and plausible models of the free market give rise to economies that are anything but free and fair should be both a cause for alarm and a call for action. We should both be alarmed and trying to do things to prevent the run-away transfer of wealth upward to the wealthy.