Wealth: The Toxic Byproduct (2013)

"The point is, money spent on consumption is toxic — value-destroying"

This is something I've been thinking about a lot recently. Surely when comparing inequality in societies, what we really care about is consumption. Singling out billionaires as an example of how unequal our society, I feel, is disingenuous. How much more does Bill Gates really consume than your 'average Joe'? Sure, he presumably eats good food, wears better clothing and has a big house, but his personal consumption levels are probably no more than an order of magnitude greater than ours.

What separates him then from us, considering he has a paper net worth many orders of magnitude greater than us? Well, mainly that wealth grants him an outsize influence on the economy. By virtue of his wealth and participation in the stock market he has access to some very big 'levers'. He can dictate what a large portion of the workforce choose to pursue as 'productive economic output'. He is, by means of increasing his net worth, incentivised to make prudent decisions in this regard. High performing participants in the stock market gain more influence in it. This is an optimising feedback loop for the economy and is less fair (but more effective) than simply giving everyone an equal say in the matter.

Is this a problem? Maybe. But does it really make our society more unequal? I would argue 'not as much as you might think'.

brilliant perspective. thank you for sharing.

I'm not sure I would use the word "interesting" it is more likely "illuminating" :-) But word selection aside, one of the problems that money brings is that it is a concrete number, and thus susceptible to being coerced into being a "score." This is particularly true when you have people who are insecure about their value, they might get it into their heads that the person with the highest "score" has the highest value. As the author points out that isn't a horrible place to be, it helps the economy, but it does become toxic when a person uses consumption to advertise their score relative to other people. (It becomes tragic when someone borrows to spend consumptively in order to present the illusion of having a higher score).

One of the examples of how broken this can be, is that of creating a company (with some paperwork and about $1,500 you can do this easily in California), then issuing yourself 5 billion shares in the company (also easy to do, just register them with the SEC), and then "sell" 20 of your shares to a friend of yours (who is a qualified investor :-)) for $20 to establish a "market value" for your shares. And Poof! you are now "worth" $4,999,999,980 by virtue of the "value" of the shares you still hold, you are a billionaire! And you only need to pay the $850/year to maintain your corporation's status.

So who wants to be a billionaire right? And what does that mean? You have a high "score" but you don't have any real wealth. You can't really sell a billion shares for a billion dollars. That isn't going to happen right?

So now people play this game in the crypto coin market, creating a coin nobody will actually use, giving them selves a bunch of it, and selling some to speculators to establish a story about what that coin is "worth." What does it mean really? Not a thing.

Most transactions are broadly a win-win - I have something you want, you have something I want, so we're both better off if we trade. That's the core justification for a free-market economy, and it's a very important one.

Most, but by no means all. Some are outright fraudulent, because I'm lying about what I'm selling. Some are coerced, because I've used my economic, social or political power to rig the deal in my favour. Some have unpriced externalities - you need oil, I have a shale oil field, we're both better off but some other sucker ends up with flammable tap water.

If we aspire to be ethical capitalists, we need to think about transactions in a more nuanced way than simply "free markets best markets" or "production good, consumption bad". We need to seriously examine whether the transactions we're entering into are genuine win-win scenarios.

The context would matter.

It’s a very common refrain to describe how many hours are wasted each day acquiring some necessity like food, water or shelter (I roughly include clothes under shelter).

Opening a clothing shop in the central market of the largest town wouldn’t move the needle.

Opening it in your village or the nearest crossroads could alter many lives.