Living With the Rich

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People often get upset at the income difference between rich and poor in America. They say it is some sort of injustice that there are people in America who make billions of dollars each year while there are others who can only make a few thousand dollars.

I say I’d rather make a few thousand dollars in a country with billionaires than a country with only millionaires.

I think I have a logically sound explanation of why that is. The simple explanation is opportunity.

Suppose I make no money at all and have no financial assets at all, and have no credit whatsoever. I am literally penniless, and I have no way of getting any money at all except for selling my time. Suppose I am relatively unskilled compared to the people I live with in my country. This would represent a poor kid from the “hood” (sorry to use 90’s terminology) who finds himself thrust into reality.

If I lived in a country with very many very rich people, I’d be much better off than if I lived in a country where people were more similar to my status.

The reasoning is rather simple. In a classic economic logical exercise, we can prove that even if you are not as good as others at doing something, you will still get paid for doing it. The thought experiment works like this. Suppose there are two islands, A and B, and two products that people on those islands can produce, C and D, each unit of equal value on the world market. Now, the people on island A are educated and have technology and training available, and each person can produce about 1000 C’s and 500 D’s. On island B, the people are backward. They use stone tools and cannot even read or write or do basic arithmetic. Each one can only produce 10 C’s or 10 D’s. Now, suppose the two islands entered into trade. What sort of arrangement would benefit everyone the most? Should the people on both island produce some C’s and some D’s, or should everyone on A produce C’s and everyone on B produce D’s, or vice-versa? The answer is to have everyone produce what they are comparatively good at. On island A, people produce twice as many C’s as D’s. so they should focus on that. On island B, they can produce C’s or D’s with equal ease, so they should choose between one or the other. Since island A is making all the C’s, they should focus on making D’s. No other combination will yield as much value for the people of islands A and B.

So, given the fact that in terms of the national economy, I am at the very bottom rung, there is something I do comparatively better than the people around me. It may take a while for me to figure out what that is, it may require someone with more experience and education to tell me what to do, but in the end, there is something I can do. If I focus on doing that, it will be in the rich people’s interests to pay me to do that task so they can focus on what they are comparatively good at. Say I’m comparatively good at cleaning toilets, while the rich people are comparatively good at running factories or buying and selling stock on the stock market, or programming computers, or inventing new apps for mobile devices. If I just focus on cleaning toilets, then it won’t be long before a rich person comes a long and says, “You know, if you clean my toilet, I can spend a few more hours a month focusing on what I am good at, and I’d make more money as a result. Here’s a part of the money I make because you’re cleaning my toilet.”

Ta-da, I have a job, and it probably pays pretty well, because the rich people I work for are making millions of dollars for every hour they don’t have to clean their toilets.

In a poor country, I still have the same opportunity. However, the time it takes to clean the toilets is not nearly as valuable to the rich of that country. So when they go to negotiate my pay, there is a much, much lower limit to it. Beyond a certain point, and it doesn’t make any economic sense for them to hire me.

The above is logically sound. I can’t see an issue with it. If you are poor, you are much better off living with enormously rich people. There are vast opportunities available to you that would not be available if you were living in a country with more “fair” income distributions.

So, when communists and socialists and leftists and progressives and nazis alike quote to you the income disparity, and you find yourself near the bottom of the scale, just keep in mind that you have vast opportunities that would not exist in countries where the rich and poor are much more similar in income to each other.

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