Wealth Inequality In The United States

I’m showing you this video not for the editorial content—one of the deep flaws in arguments about wealth is that, when someone is making $1,000,000 compared to someone making $50,000, the rhetorical question “Does that person really work 20x as hard as the other?” usually follows. The problem with that question is that it equates effort with value.

Imagine someone owns 3.65 million shares, or about 1%, of the Kellogg’s corporation. Because of what he owns, he is delivering $18 million in profitable value to people across the world each year because those people are choosing to take their scarce dollars (which they acquired through work, investing, inheritance, etc.) and buy Rice Krisipies, Frosted Flakes, Fruit Loops, Pop-Tarts, Eggo-Waffles, and so on. A little less than half of that $18 million will show up in the form of $8-$9 million worth of dividend checks that are paid out every ninety days in $2.25 million (or thereabouts) installments.

The guy with 1% of Kellogg is not more honorable, respectable, or “better” than the person hauling trash making $50,000 per year. Those qualities are something you have to possess, and are not measured by wealth. But in terms of value delivered to society.

A lot of times, particularly during political seasons, people say, “the rich get richer” as if it is a pejorative. Instead, it’s just a basic function of mathematics—compounding. When General Electric goes from $12.50 per share to $25 per share, someone owning 100 shares is only going to make a little over $1,000. Yet someone with 10,000 shares is going to be able to pay for a starter home in cash by the same General Electric change in price. The reason this is “fair” is because the person with the 10,000 shares had to do something to acquire all that money to invest in the first place (at least, that’s true 90% of the time according to Dr. Stanley’s research, with the other 10% coming from inheritance), and of course, if GE’s business were to fall apart, the person with 10,000 shares is going to lose a lot more money than the person with 100 shares.

Inequality is a function of value created—it’s not something that should be considered immoral unless the wealth was created by lying, cheating, stealing, or some form of oppression. If you try to create extra profits by paying your employees less than promised, than equality is a big problem because it’s theft. If someone turned $10,000 in Coca-Cola stock in 1970 into over $1.8 million today, then he deserves to be richer than his neighbors because he acted prudently, patiently, and delivered value to others in the form of soda enjoyment, and it is a fair and just incentive structure that he be rewarded.

Rather, the reason why I bring this video to your attention is because I want you to pay attention to the clear and lucid presentation—it’s very persuasive. By using easy visual signals to juxtapose how things should be, how people think things are, with how they really are, the creators of this video series make their case very clearly. If you remove yourself from getting caught up in it and step back and analyze what tools they’re using to be persuasive, there is a lot to learn here.


Originally posted 2014-02-16 14:53:15.

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