Why the rich must pay more

Higher taxes on the rich is a very lively debate that seems to be equally split at 50% for and 50% against. Wouldn’t the opinion of professional economists weigh in and explain to everyone how society has to treat this question? You think it would, be consider this…

Who do we really listen to in society to solve our dilemnas? Turns out most often we turn to the news media, politicians, family and friends. When was the last time you got your advice from a real professional, other than perhaps your medical advice. Shouldn’t economists tell us how much to tax who? Well they do all the time, but their voices are drowning under wave after wave of propaganda designed and paid for by… you guessed it, the rich!

After all, without the poor, you can’t have the rich. Our english words are defined by statistics, by comparisons and by anecdotes, some real and some made up. You’ll always have the rich and the poor, even if there a lot more equality. That’s just how statistics work: the population is 100% and you have the top 50% of earners and the bottom 50% of earners, and this will always be true regarding of income equality. That alone doesn’t really say anything about the situation, but a lot of people don’t even grasp that very simple concept, they think that the bottom 50% are lazy and just don’t work hard enough.

The truth is that you can work really really hard at a really really low paying job and you’ll be really really poor. On the flip side you can slack off and do almost nothing at a really high paying job, and… need I say more?

Work ethic has little to do with the global situation. Yes there are lazy poor people and I am sure you could find the poster child for every extreme case of incompetence, entitlement abuse, lazyness, etc… Just like you could find perfect examples to vilify the rich, but rarely if ever are these people representative, and seeing it any other way is ¬†generalization, which is essentially prejudice.

There are rich men who are doing good than ever before, and there are poor people who do feel like the world owes them something. Neither of these cases makes a single difference in this discussion though, because when we talk about the rich and the poor and tax rates and money, we’re talking about society and the system that rules it. We are talking about the law, economics and how these affect social mobility and the financial status of the average human being.

First, understand that money is a limited resource, at any given time there is a fixed amount in circulation. Therefore, if any one person has a whole lot of it, and isn’t putting it back into circulation in short order, then this creates an imbalance, it creates hardship and poverty.

First, realize that money only exists to facilitate trade, so let’s switch it out for something more tangible, like bread. Bread has value in that you can eat it, and if bread were the currency, you could also trade for it. Now clearly bread doesn’t last forever, in fact almost nothing does. The fact that money doesn’t expire is actually a ¬†problem on its own, but we’ll get to that some other time.

So assume there’s a village with 100 people living in it. Every day the bread maker makes 100 loaves, enough to feed everybody. Now these loaves won’t always be distributed equally because in society we’ve all agreed that some jobs are more important than others, whether or not that is true is something we’ll get to some other time.

Now let’s say the mayor is the local “rich guy”, he takes up 35 loaves of bread each day, because his work is deemed more important. The rest of the village get the rest of the bread and clearly some of them are going to be hungry. Now there’s enough bread for everyone, but the economy doesn’t work that way.

The mayor realizes his affluence, and of course knows he does not need 35 loaves of bread per day so he decides to redistribute his share by selling his loaves, at a profit of course, otherwise he’s not really making more than others now is he?

Now the mayor has this incredible advantage, because not only does he already earn way more than he needs, but he can also use his wealth to enrich himself even more, and as his earns more and more, the balance is tipped further and further in his favor. His holdings in fact decreases the supply of wealth and thus the price rises, benefiting only the mayor, who holds the gross majority and thus can set the price at whatever he wants.

Meanwhile the rest of the village grows skinny and much less their own hard work, can’t compete with the man who owns everything ¬†already. The divide deepens forever, because there’s no system in place to prevent this from happening.

Next time, we’ll talk about taxes, and how they can help fight the natural imbalances that occur in a capitalist system like the one described above.

animated picutre of Scrooge McDuck diving into money
Scrooge McDuck dives into money

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