Monday, 16 January 2017

Economic Myths: Fungible funding

Oxfam is getting all hot under the collar about the fact that the world's eight richest men own as much wealth as the poorest half of the population of the World.

Apart from appealing to the Envious, it is hard to see what they hope to gain by pushing this statistic. If those eight men all died intestate and their wealth was subsumed into their countries' national debt, hence effectively ceasing to exist, the world would be a more equal place, but how would that benefit the poor half of the population? For that matter, if their wealth was shared out equally between the entire richer half of the world's population, the world would be an even more equal place, but the poorer half would still be no better off.

What Oxfam are trying to suggest is that if these rich eight didn't have so much, the poor half would have more, but this is really just another example of the Myth of Fungible Funding, which is that if money is not spent on something of which I disapprove, it will automatically be spent on something of which I approve. (e.g. if the government weren't spending so much on Trident, they could spend more on the NHS and variants ad nauseam.)

If I was a supporter of Oxfam, I'd suggest that they get on and do something more useful with my money, but I'm not.

12 comments:

Steven_L said...

I think what Oxfam are getting t is that if that had all that money (or more to the point inherited a load of Microsoft and Berkshire Hathway shares) then in their eyes that would be a lot better.

Dinero said...

Canceliing Bank account liabilaites would not "subsume" anything into the national debt , but the rest of the mechanics of the post makes sense.

paulc156 said...

Alternatively if a large part of the money that the likes of Bill Gates received (purely as a result of the state enforcing copyright protection) were returned to the state they could decide to reduce taxes. Either way it's a straight choice between conferring huge special privileges on a select number of individuals with enormous lobbying power or a more egalitarian approach on a much larger group with little lobbying power.

Ben Jamin' said...

An unequal share of everything(income, capital, land) is a bad thing in and of itself, because by thinning the market it reduces the scope for economies of scale. Thus shrinking our stock of wealth and welfare.

However, the cure of redistributing income and capital creates deadweight losses that are worse than the symptoms. Not so by equally sharing the scarcity value of natural resources. Land taxes not only reduce inequality, thickening the market, but aid the efficient allocation of resources.

So yes, the World would be richer if it was more equal. It just depends on how we do it.

http://markwadsworth.blogspot.co.uk/2015/09/deadweight-loss-of-excess-inequality.html



Mark Wadsworth said...

The statistic in itself is fairly meaningless, they just want to highlight how unequal things are. Which they undoubtedly are.

Having got people's attention, they would have done far better to also explain HOW those wealthiest 8 people got so wealthy, and WHY the really poor are really poor. Those basic rules apply to every country and would largely explain why there is such disparity of wealth within e.g. the UK.

mombers said...

One argument in their favour is that the wealth of those 8 men is largely not spent on productive activity - lots of it is just sitting in expensive land and the income from shares and bonds is reinvested. If the income was distributed amongst more people, it would create a lot more demand for goods and services. Those 8 men might lead lavish lifestyles but don't consume the equivalent to millions or billions of people.

Striebs said...

MW you are spot on as usual .

I think that deep down , the less authoritarian ones at least , know you have to look at "how" these supranormal profits and great wealths have come about .

As someone said , behind every great wealth there is a great theft . Just look at Carlos Slim who was effectively handed his wealth by the Govt . I bet there were a few revolving doors after that .

To just tax supranormal profits after they have been made amounts to turning a blind eye to how the money was made and just using the operator as an expensive tax collector ; one shekel for the state , one for me ....

Sadly , having a confiscatory state seems to be the important thing for authoritarians and authoritarian under-achievers .

Graeme said...

Oxfam is a strange organisation. It can cover its charitable activities from donations and its untaxed trading activities but roughly half of its income comes from governments and is used on these "outreach" and lobbying activities. The question is why are governments (the UK is the largest contributor to Oxfam but far from the only one) funding a "charity" to write reports such as this?

Bayard said...

"they could decide to reduce taxes."

Yes, they could, but on past form, they are more likely to blow it on expensive foreign military adventures. As I was saying....

"Having got people's attention, they would have done far better to also explain HOW those wealthiest 8 people got so wealthy, and WHY the really poor are really poor."

Well yes, but I think Graeme gives a clue why they didn't, in his post above.

DBC Reed said...

Mombers clinches it: restricted wealth constricts aggregate demand-though he explains it better.

Ben Jamin' said...

@ DBC

Hold on. I got there first. Hows about a little credit in my direction?

I even did a post on it over a year ago :/

Bayard said...

DBCR, I am not saying that sharing out the wealth of the richest eight wouldn't be a good thing, I'm saying it wouldn't necessarily help the poor.