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Fixing Income Inequality - Scott Adams' Blog

Fixing Income Inequality

If you could snap your fingers and magically double the wealth and income of every human on earth while somehow keeping inflation in check, would you do it?

Before you answer with some version of “Duh, yes.” keep in mind that you would be severely worsening income inequality. And that, as we are often reminded by the media, will destroy civilization.

I’m not entirely clear why income inequality leads to doom, all other things being equal, but I hear it has something to do with the French. The analogy, as I understand it, is that Marie Antoinette and her historically inaccurate philosophy “Let them eat cake” is exactly like Bill Gates pledging his fortune to eradicating malaria, fixing education, and providing clean water to the poor.

BUT WHAT ABOUT THAT HEDGE FUND GUY AND HIS HIGH FREQUENCY TRADING????

You can kill that guy with a shovel. That has jury nullification written all over it. I haven’t looked into it, but I’m fairly sure there are a few assholes among the middle class and poor too. Can we ignore the outliers for now?

One of the odd things about my career, and where I live, is that I meet a lot of billionaires and hundred-millionaires in the normal course of my work. Allow me to label my experience anecdotal and rare before you do. Anyway, my experience is that all the super-rich people I meet seem to have a few things in common:

–          They don’t need to work.

–          They all work 60+ hours per week.

–          Every penny they make from now on will be spent by others.

–          They are trying to find the best way to give away their money.

–          No one likes higher taxes.

I don’t think we want the rich to stop working. We’re all lucky that Steve Jobs didn’t quit before Pixar. But if the rich keep working, inequality is likely to keep getting worse. So how do you solve the problem of helping the rich give away their money in ways that help low-income folks the most while being meaningful to the givers?

Before I answer my own question, I’d like to introduce an economic concept that someone probably already thought of. I call it Predicted Personal Lifetime Consumption (PPLC). That’s the amount of money that a rich person can reasonably spend on himself and his immediate family members over the course of a lifetime.

There are two big limiting factors on personal consumption. The first is decision fatigue. At some point you want to stop making choices about your personal spending so you can enjoy life. There just isn’t enough time to make all the buying decisions necessary to spend a billion dollars on leisure.

The second limit on personal spending for the rich is that at some point you run out of big, expensive items worth buying. Maybe you buy a jet, an island, perhaps a pyramid or two, and soon you’re running out of ideas.

My point is that there are a lot of rich people wishing they had a better and more meaningful way to get rid of excess wealth. Most of those folks have a pro-business attitude and, one imagines, a low opinion of how the government uses taxes. So what do you do?

How about a private entity creating some sort of venture capital funding program that allows the rich to leverage their experience and their cash in ways that best help the economy? Think of it as micro-loans to low-income borrowers but with the kicker that the lender can offer mentoring, contacts, and even training.

If you had a choice of paying an extra $100K in taxes, or loaning $100K to a low-income person who has a reasonable business plan and might need some mentoring and contacts, which would you prefer? Paying extra taxes feels like shitting on your own money and burying it where no one can find it. Helping someone who is struggling to create a business feels like a meaningful use of your mind and your resources. It’s no contest.

The problem is one of information.

There’s no way to match poor people that need some mentoring, training, and investment with rich people who might be happy to help.

Making loans to low-income people is a high-risk, low-return game. That’s why no one does it. But the rich can do it without answering to shareholders and without risking a change in their own lifestyles. And while the low-income people are struggling and failing (mostly) they are also building up their skills, creating contacts, and stimulating the economy even as they fail. The economy as a whole benefits even as individual low-income ventures go under. That’s how capitalism works; it’s mostly a failure engine for individuals while being a benefit to the whole.

So imagine an online service that matches rich people with low-income folks who need some help. When you get a rich person as a mentor, you get his entire network of contacts by extension. That’s way better than a bank.

And rich people like to keep score. So this imagined micro-loan and mentoring service needs to track the performance of each rich person’s investments in the poor. You would track data to keep things competitive among the rich, to make sure the system is working, and to allow you to identify best practices among investors.

That’s my idea for today. How bad is it?

Scott Adams

Co-founder of CalendarTree.com

According to Amazon.com, the best reviewed book I’ve ever written is this one.