Is Wealth Inequality Actually a Problem?

the wealthiest among us today live a life unparalleled by any other human throughout history the greatest Kings and Emperors could only dream of the life afforded to today's Global billionaires and it doesn't end there even me multi-millionaires are living through a time where they have access to information unhindered mobility and Limitless personal Comforts but this is all taking place in a time where a swelling population of people are struggling to make ends meet the issue of wealth inequality is a hugely controversial one people from either extreme the debate advocate for absolute wealth accumulation or bringing back The Guillotines these passionate extremes might be very fun to explore but in reality their arguments are just not productive wealth inequality is a hot button issue that is only going to get more divisive as the world gets richer but is wealth inequality actually a problem it's never nice to see stories about a billionaire getting their fifth mega yacht while single mothers are struggling to pay bills but is one actually causing the other if we were to put emotions and morality away to answer these questions we would have to look at a few key factors why is the world becoming more unequal are there any benefits to wealth inequality does the wealthy getting wealthier mean average people are becoming poorer and what are the drawbacks of wealth inequality this episode of Economics explained was made possible by our fans on patreon if you would like to gain Early Access to these videos before they're uploaded to YouTube as well as participate in exclusive q a sessions please consider supporting our channel on patreon.com economics explained perhaps the reason wealth inequality has come to the Forefront of the public Consciousness in recent decades is because it is becoming more and more severe today the wealthiest seven people in the world have more Collective wealth than the poorest 50 percent that's seven people with more wealth than 3.9 billion people these people are frustrated that technological innovation has not made Humanity richer but rather it has only made a handful of people richer although that's not entirely correct in fact inequality itself is more just a side effect of prosperity imagine a tribe living in a time before the first civilizations took shape these were people using very basic tools and living in groups no larger than a hundred or so these societies had very little wealth inequality the richest member of such a society might be a chief or an elder they might not need to go out and hunt or gather as much they might live in a slightly larger Hut and get the first pick of food but there wasn't a huge difference in fact if we look at Maslow's hierarchy of needs we will see that a majority of the difference came from the more social levels of the pyramid a majority of this society's time was spent just staying alive when a society is living meal to meal there isn't much room for disparity apart from respect honor relationships and all the stuff that doesn't really rely on technology to produce it if we push the society forward a few thousand years into the Middle Ages we would find a very similar situation now there are Kings and Lords who live in castles and enjoy a regular diet grown by their peasants toiling in the fields inequality has grown because there was more room for it to grow Society had developed from where humans were basically animals in the wild struggling day to day to survive to basic Farmers this Step Up in technological prowess gave people like kings and queens and Lords the ability to exist but even the richest and most prosperous King from these times would not hold a candle to the quality of life enjoyed by the average American today in the modern day people from developed countries have robust housing with the ability to regulate temperature year round they have robotic slaves that do their laundry and even the bottom dredges of society like grad students have the ability to travel almost anywhere in the world comfortably and quickly this is of course to say nothing of the Miracles in modern medicine or our boundless access to information the extreme pace of technical Innovation over the past three centuries has meant that quality of life by almost all metrics has massively improved for everyone but of course in the same way that farming steal weapons and basic architecture gave rise to a class of nobility the information age has given rise to a modern Global upper class dingy castles without running water ha try a 17 bedroom palace with swimming pools a 30 car garage and underfloor heating gold-plated horse-drawn carriage how about a private jet that travels 98 the speed of sound a jet that can get a modern billionaire from anywhere in the world to anywhere in the world in less than 24 hours all with one phone call to Giovanni the butler boy on a gold-plated iPhone this is all to say that the absolute Pinnacle of wealth in the society body has increased as the general level of wealth in a society has grown along with it in 300 years it's not inconceivable to think that we will be reading heart-wrenching stories about a single mother who was unable to make payments on her spaceship that she needed to get to her second job on Mars and this leads us neatly on to the often overlooked benefits of inequality when the issue of wealth inequality is explored it's agreed by both Advocates and opposition alike that wealth inequality drives motivation to be better more efficient workers people wouldn't go through the effort of tertiary education or long arduous careers or even putting in some overtime if there wasn't the promise of higher standards of living this isn't to say that everyone going to college expects to be a millionaire but rather they do intend to increase their standard of living through more readily available work better conditions and yes of course more competitive remuneration a common counter argument to this is that often higher compensation can lead to lower performance a popular study asked people to shoot basketball hoops for varying prizes from Modest sums all the way up to very significant amounts of cash it was found that the higher the prize was the worse the expected results were people have used this practical demonstration to show that wealth inequality doesn't actually produce hyper performance but this is actually a pretty terrible model for a few reasons the first is that most business is not based on performance in a single moment if a life-changing amount of money was offered to someone who could throw 10 three pointers in a row that person may dedicate a year to do nothing but getting really really good at throwing three pointers in the same way if someone was offered two million dollars to design a bridge they might not design a very good Bridge because they would be distracted by thinking about the new boat they are going to buy but if the role of chief engineer and huge civil projects attracted a seven-figure income you might find that people go to school for many years to get the technical knowledge they need to perform that task huge compensation might not make people's performance better day to day but it does make people far more motivated to attain the skills they need to perform a role tomorrow the second floor in this EXP government were that the results were dubious at best repeat experiments did not find a strong pattern between higher compensation and poorer performance okay so inequality means that people are motivated nothing particularly revolutionary there but what is often overlooked is some of the more subtle benefits of huge accumulations of wealth the first steam engines were assembled by wealthy Nobles effectively as a hobby the Renaissance and the Resurgence of science that came along with it was fueled by the patronage of wealthy families and modern spaceflight was something that was only made possible by pooling the collective cash of the wealthiest nations in the world steam engines modern science space flight and a myriad of other developments have all been hugely beneficial to life in the modern world none of these technological Marvels would have been possible if it weren't for the huge concentration of wealth the idealistic notion of trickle-down economics has been hair heavily criticized by most economists to the point that trickle down is actually a phrase used to discredit economic theories but perhaps it's not wealth that trickles down in the form of cash rather it trickles down as technical Innovation by extension if we were to speculate about the future of humanity it's not inconceivable to foresee billionaires being the bridge between Earth and Mars bringing along with it all the prosperity that would come from being a multi-planet species now wealth-driving Innovation while simultaneously motivating a more productive Workforce is great and most people don't have any problem with individuals becoming wealthy so long as they didn't get there by pushing others down there is an increasingly popular narrative that the world's modern billionaires are becoming wealthier by pushing others down into poverty Graphics like this that show a majority of the United States wealth being hoarded amongst a few certainly back up this idea the reality of this is rather unsatisfying though it depends there are billionaires today that have genuinely added a huge amount of value to society and have been rewarded for it think of individuals like Bill Gates say what you will about his Shady business practices Microsoft has revolutionized the way that we do business one person with Excel can do the work of 20 bookkeepers with an abacus the increase in product activity accommodated by this everyday business software has delivered incalculable increases in global efficiency the same is true for a lot of other innovators they got rich by sharing in a slice of the value that they added to Society on the other hand there are individuals that rightfully deserve some criticism intermediaries like payday loan companies gambling institutions or black market criminals are clearly claiming more money for themselves than what they are contributing to the collective wealth of society in fact to enrich themselves they are actually making Society poorer which is very clearly a negative outcome this all exists on a spectrum from radical innovators that massively contribute to society and get rewarded for it on one hand all the way down to the leeches on the other hand it is easy to categorize every extremely wealthy person as an equally ruthless Tyrant but the this anger probably distracts from the real problem here it's much more important to stop people getting wealthy from leeching off Society rather than stopping extreme wealth altogether all that being said even if someone becomes wealthy through the most virtuous of means and makes great contributions towards the future of humanity it doesn't necessarily mean that the wealth they receive from these actions is going to cause a great benefit if anything else it can cause a misguided Market economists will look at people's marginal propensity to consume and save what this means is that for every extra dollar someone receives how much will they spend and how much will they save average people spend a good majority of the money they make because well living is expensive there are bills to pay and mouths to feed extremely wealthy individuals tend to spend a lower portion of their income though they spend more overall but less in relative terms because there are only so many cars and planes and bottles of champagne that you can realistically buy this means that wealthy people accumulate money the rich get richer as it were most of the time these wealthy people will try to invest this extra cash into businesses or real estate or whatever else they think will increase in value to make them even wealthier but there is a problem if too many people become too rich the opportunities for good Investments dry up if a group of billionaires are waiting for the next promising tech company to go public they're going to start a wild bidding war driving the price up from something that is reasonable to something that actually makes it a pretty poor investment the same is true for high-end real estate eventually these people accumulate more money than they know what to do with which is a problem they could put it in a bank but low interest rates make that an unappealing decision so they are forced to invest into less and less promising ventures in the hope to achieve some return this is called a glut which is a real problem for the economy a recent paper by the National Bureau of economic research and authored by Harvard Professor Ludwig Stroud talks about the modern savings glut of the rich in this paper it is identified that the wealthy Elite of the world are running out of safe havens to hoard their vast piles of money this has only been accelerated by the economic Fallout of 2020 which has rocked markets that were once thought to be very stable a savings glut is what led to the hoarding of mortgage-backed Securities before 2008. today we see very wealthy investors putting money into companies with no plan to ever turn a profit simply because they don't have anywhere else better to put it recessions are caused by debt and poor Investments these debts and poor Investments are facilitated by money that has nowhere better to go now an important Point here is that savings gluts are less of a problem if it is from the lower and middle classes for one lower earners don't have the capacity to hoard quite as much Capital as the truly wealthy Elites of the world and two they have more ability to put it towards smaller scale projects the world today is full of fantastic investment opportunities but loaning someone five thousand dollars to start an online 2D glasses business is just not worth the attention of a billionaire even if this business could return a 300 return on investment in the first year it wouldn't pay for the fuel it took the billionaires jet to come and see the investment pitch if a billion dollars was spread out amongst 20 000 households though then these Endeavors would find much more traction meaning that more money would go towards promising small-scale businesses and less money would go towards not so promising large-scale businesses foreign wealth and power is always going to be a controversial issue an issue argued back and forth between the words of many who can only make so much noise and the voices of a few who can make quite a lot wealth inequality and the misallocation of capital is an issue but it's not the type of issue that most people think it is why is the world becoming more unequal because it is becoming wealthier are there any benefits to wealth inequality yes some of Mankind's greatest achievements have come from extreme concentrations of wealth does the wealthy getting wealthier mean average people are becoming poorer well in some cases unfortunately yes and what are the drawbacks of wealth inequality well they are there and they are serious but some billionaires spending 200 million dollars on a yacht is not that drawback if anything building a yacht is actually a great way to employ yacht builders and crew members no no outrageous spending makes for better headlines but it's not the real issue the real issue is outrageous investing hi guys I hope you enjoyed the latest video if you did please consider liking and subscribing this video was made possible by our amazing patrons over on patreon if you would like to gain Early Access to these videos before they go live please consider supporting the channel like these awesome people did thanks guys bye

Channel: Economics Explained

Views: 805,607

Keywords: the new masters of the universe, is wealth inequality actually a problem, the economics of wealth inequality, wealth inequality explained, the economics of wealth inequality explained, income inequality, economic inequality, income inequality explained, economics inequality explained, how does wealth inequality impact the economy, the economic impacts of wealth inequality, income inequality economics explained, wealth inequality economics explained, economics explained

Id: swOpLpZaA78

Length: 16min 45sec (1005 seconds)

Published: Thu Jul 09 2020

Reddit Comments

[u/itsnotlupus]

TL;DW: No, wealth inequality is pretty great. If it gets worse, it only means everybody's getting wealthier. On average. Ha! Trickle down economics is actually a thing. Everything is fine. Except insanely rich people may not invest well, and maybe that's the real problem here. Erm.

I'd recommend you don't take this narrative at face value and research this further instead.