Income Equalization Does Not Equal Universal Poverty

Income Equalization Does Not Equal Universal Poverty

I have written before about an egalitarian income structure as a method of preventing the destructive competition for individual security and status which trumps all considerations of long term wealth preservation in the system of economic production which I call private finance capitalism. This egalitarian proposal will horrify many people. Surely you cannot mean that people who frame houses or pick fruit for a living would make the same money as directors of hospitals or of semiconductor manufacturing facilities? Such profligacy would bankrupt society and reduce us all to poverty stricken misery, wouldn’t it? Note the assumptions being made here. Since leveling incomes would raise house framers and fruit pickers to a higher standard of living than they have now, these people must already be living lives that are below the level of poverty stricken misery that will be brought about by the egalitarian nightmare of the future. Furthermore, the only way to maintain the pleasant and materially rich lifestyles of people with relatively rare economic talents is to keep the people who carry out these humble but useful tasks in a miserable poverty stricken state forever. Not a very nice set of assumptions, is it?

However, morality aside, the claim that paying people good salaries to perform humble but useful jobs will inevitably bring about general poverty is false, as a simple thought experiment will show. Consider a hypothetical society of which every single member is extraordinarily smart, creative, talented, and productive. No exceptions to this rule exists. Every single person is a super achiever. Presumably this society would be the most economically productive society on a per capita basis that ever existed. Let us presume that they have adapted an egalitarian income structure such as I discussed in my essay Economic Mechanisms for the Creation and Preservation of True Wealth. Since everyone is approximate equally productive such equal distribution of benefits would make sense.

This society of overachievers would still have to pound nails, pick fruit, sew clothing, etc. Super geniuses or not these people would still need to wear clothes, eat food, and have a home to live in. Probably nobody would be willing to pound nails or pick fruit for forty plus hours per week, so they might have to develop some kind of work sharing arrangement for these less popular tasks. Nevertheless these kinds of jobs would still be carried out.

Now let us suppose that our society of geniuses discovers a lesser race of people in some distant place who are scratching out only a miserable subsistence living because their skills and technology are relatively limited. Our geniuses realize the people they discovered may have less talent than themselves but that they are perfectly capable of carrying out such tasks as picking fruit, hammering nails, etc. So the geniuses decide to hire some of these people to work full time in relatively low skill jobs and as a results our overachievers have additional time to dedicate to economic tasks more suited to their skills.

Suppose that a number of people equal to 20% of the population of geniuses are hired thus freeing up 20% of the work hours of the high achievers. Let us also assume that the egalitarian salary structure is extended to the newcomers. Let us additionally assume that in some sense the productivity of the high achievers when pursuing tasks that properly utilize their skills is four times greater than the productivity of the newcomers pursuing their low skill tasks. A simple calculation then shows incomes will rise by 50% as a result of this new work arrangement. Now if you believe that having a relatively rare, highly demanded economic talent is a form of virtue and that the only proper reward of virtue is excess economic consumption relative to people with less virture (i.e. more common talents) then such a system will not appeal to you, but the claim that paying people well to do humble, but necessary work will inevitably bankrupt society is incorrect. They key word here is ‘necessary’. In a world in which people who pound nails and pick fruit were paid good salaries, no one would live in a thirty room mansion on ten acres of land tended by professional gardeners. Certain kinds of economic excess which are enabled only by large income differentials would disappear from the face of the earth, but the truly necessary and valuable work would still get done.

Of course one can imagine practical problems with an egalitarian income scheme even if status loving human being could be induced to put up with it. For one thing suppose that a job required a number of years of specialized training. If this training was paid for by the student it would put him or her at a significant economic disadvantage relative to people working in careers requiring less education. In order to over come this disincentive to train for high skill jobs, public funding of education would be required. People training for high skill jobs would receive full salary and full credit toward retirement in the social security system. If the trainees flunked out of the training program or never worked in the profession for which they were trained then attachment of future wages and/or reduction of social security credits could be pursued as a method of recovering costs.

I believe that a potential efficiency advantage exists for such a system of egalitarian income distribution. If all successful production enterprises pay their employees approximately equal salaries, then people will be inclined to go into whatever profession they most love. Any job that you can do well and that provides a product or service that society needs can produce financial success, so why not do what you most care about and enjoy? Surely people who care about and enjoy their work will be more productive than people who are alienated from their work in the rat race of eternal growth. Of course in the system I am envisioning success is not guaranteed in any profession. If fruit pickers are well paid then only those who are the most productive will be hired. I can guarantee that no one would hire me for such a job under the circumstances I am describing.

If human beings must compete for status in a hierarchy of achievement, let the symbols of that status be something other than the right to consume ever increasing amounts of economic output. The destructiveness of this economic paradigm becomes more evident every day, and yet the forms of private finance capitalism continue to present themselves to our imagination as the inevitable, unassailable superstructure of human society which does not need to be defended because it can not be questioned. We must find a new economic paradigm or be swept into chaos.

July 18, 2007