Saturday, September 22, 2012

Money doesn't grow on trees

After my last post I remembered that lots of Americans are still falling for the conservative narrative about rich people and job creation. Ever since Bush sold the Iraq War, conservatives have been using the simple strategy of repetition to sell their message. It's disgusting how simple and effective it is. How it works is:
  1. Pick something that you want everyone to believe
  2. Repeat it.

    A lot.

    That is, make up some stuff that supports this belief, or find a small amount of shaky evidence that seems to support it, and mention it to as many people as possible, as many times as possible.
Another word for this is propaganda. Propaganda is shockingly effective. It sold the war on Iraq; it sells Chinese people on every message from their government; and it sells Americans on every belief of Rupert Murdoch. Oh, how I wish people would not fall for it, but they do and they always will; being human has many curses. Sadly, only the rich and powerful can use this technique, since it requires tremendous resources to send a single message repeatedly to everybody. True, less powerful organizations can send messages and convince some people, but not as efficiently as the rich and powerful can, and so the rich and powerful message tends to win (as long as it isn't too implausible.)

One message that has been going around for the past few years goes something like "rich people are the job creators, so anything that hurts rich people will destroy jobs." Several other messages circle around it for protection, messages to demonize those who support increased taxes for the wealthy, claims that raising taxes is socialism, claims that raising taxes on the rich doesn't increase government revenue due to the "Laffer curve", and so on (note: the Laffer Curve is a legitimate concept, but it probably peaks somewhere above 70%, whereas some of the richest people have tax rates below 20%). There's too much BS going around for me to address it all, but I'd like to push back against this mindless worship of rich people a bit today.

When it comes to wealth, perhaps people don't understand the obvious: that gambling money is a zero-sum game. If you get ten million dollars, that money came from somewhere! Somebody, somewhere, had to lose ten million dollars in order for you to gain it. Usually it's spread out over lots of people; maybe a million people lost an average of $10 and they lost it without even realizing it. Finances can be extremely complicated and it may be nearly impossible to understand where the money came from, but it did come from somewhere!

A couple days ago, a friend in Colombia (a much poorer person than myself) asked me "is this offer for real?" A website was offering to give anyone a free iPod in exchange for credit card details, if you agreed to sign up for one month of another popular service like Netflix or eMusic (e.g. $8 for one month of Netflix). Then she showed me another website offering a free iPhone 5 (which costs $700 retail).

Now, apologies to my friend, but that's a dumb question. Of course it's a scam! Would you believe it if a website offered to give you a "free $700" just for handing over your credit card details? I think people fall for it because they only think of what they will get out of it, not what someone else will lose. I would love to give all of you a "free" laptop. So why don't I? Because I would lose tens of thousands of dollars, stupid! Even if you could somehow verify that this is for real, and that you'll really get an iPod or iPhone, it would still be foolish to sign up without asking: where does the money for this iPoop come from? Who benefits and who loses? What are the motives of the people involved?

Regardless of whether someone "won" a lot of money, "earned" a lot of money on Wall Street, or "got a free iPhone", you should be asking yourself where the money came from. Some adults need to be taught a lesson that children already know: "money doesn't grow on trees". When I hear that a Wall Street exec--who does not produce any actual physical products or anything useful at all--gets a $5 million salary every year and a $5 million "bonus", I am not angry because he has a lot of money. No, that's fine, how nice for him! Nor am I angry because he got far more in one year than I will ever have in my entire lifetime: I am not an envious person. No, I am angry because other people, much poorer people, lost $10 million at the same time. That money came from somewhere! That's why I'm pissed off! And you should be too!

Many people lost thousands or tens of thousands of dollars (for some, paper losses, for others, real losses) when the stock market crashed in 2008*. The money didn't simply "vanish"--it went to the rich clowns that caused the crisis*.

Mind you, it's not always obvious that money is a zero-sum game. After all, money is debt, and money can be created from thin air, but it's still effectively a zero-sum game; creating new money eventually devalues the existing money, so it is not a magic way to create wealth, it merely transfers wealth from everyone else evenly.

Outside the money-making game itself, it should be noted that the real world is not a zero-sum game. For example, some new technologies can revolutionize the world and enhance everyone's quality of living: so technological innovation can be a positive-sum game, one that really does improve society. Thus, you might argue that Bill Gates really did earn his fortune by creating technology that improved the world. You'd be wrong though, because many people at Microsoft deserve as much credit as Gates himself but did not walk away with billions of dollars, and because any number of people and companies outside Microsoft would have been ready and willing (if circumstances had been slightly different) to create the same technology or better, at a much lower cost. For heaven's sake, the Linux ecosystem was created by volunteers, for free! Given a little money, the open-source approach to software development could have produced higher quality software than Microsoft did, much more efficiently. (It is often complained that open-source software has lower quality, but I would argue that this is because it was produced for free; if somehow these same volunteers could be paid, they could work full-time and produce high-quality free software very efficiently.) I could make other arguments, too, like: surely Bill Gates is not one million times better than the rest of us, so surely he didn't deserve one million times as much money. Or: to make his fortune several elements of luck had to happen that were outside his control. And you know, it wouldn't surprise me much if, following our deaths, our creator informs us that our souls are actually all identical and that the only difference between us was our bodies, talents and circumstances, so that all our talk of certain people "deserving" this or that was baloney the whole time, in a way.

While new technology often has a "positive sum" effect on the world, other things commonly have a "negative sum" effect. The financial crisis is a perfect example of the negative-sum effect: yes, some Wall Street folks got rich by causing the crisis, but if we could somehow measure their negative effects on society as a dollar amount, this negative dollar amount would be much higher than the amount of money they pocketed. Why? Well, millions of people lost their jobs, and job losses are a negative-sum effect. Someone with a job is producing stuff, probably creating value for society, while someone without a job is producing nothing (but still consuming some resources, albeit less resources than someone with a job would consume). Thus, destroying jobs is a negative-sum game, while creating jobs is a positive-sum game.

But even when someone is involved with a positive-sum game, that doesn't automatically mean they "deserve" their $10 million paycheck, and it doesn't even mean they have a net positive effect on society.

I mean, let's say you made $10 million this year and you helped create 100 jobs salaried at $50K each. First of all, are you daft enough to think you singlehandedly created these 100 jobs all by yourself? Most likely hundreds of people helped with this effort, and most of them still make $50K per year and little or no bonus. Second, the net effect on society of 100 new jobs may be well under $50K per person, much less than half of the money you made--and remember, that money came from somewhere. So even if you created 100 jobs of value (you didn't, but let's pretend you did), you still drained more than that from elsewhere to line your pockets. Eventually you'll spend that money and some of it will 'trickle back down', but the mansions and yachts you bought with the gold-plated toilets are purely a drain on society; they are not even really good for you yourself, since super-rich people are, statistically, not much happier than people that are only "fairly" rich. That is, if you find yourself making 10 times as much money, chances are you are only slightly happier: so if you try to buy happiness with money, the price is obscene. You could have easily made hundreds of people very happy with your $10 million, but instead you chose to buy a f***ing yacht. Idiot!

Third, the skills that you needed and used to create jobs are learnable. There are probably millions of people out there who could replace you and do your job just as well if they had the proper training (and the social connections you are lucky enough to have received--"it's not what you know, it's who you know"). So there is no need for anyone to make $10 million dollars, and the rest of us would be better off (richer) if someone else, someone willing to work for $200,000 or $300,000 per year, would do your job instead. We'd be better off because we wouldn't be silently losing the money that pays your salary: if you make $10 million per year on Wall Street, the rest of us would have more profitable mutual funds if you were gone (since you wouldn't be draining the stock market with all those fancy accounting tricks, or destabilizing the banks by paying your bonus with loans that your company might never repay.) If you make $10 million per year in telecomms, the rest of us would have lower phone/internet bills if you were gone. If you make $10 million per year on TV, we'd have lower cable bills or box-office prices if someone "lesser", but no less talented, replaced you (or better yet, perhaps the money could be spent on better investigative journalism or something... Lord knows ignorance is increasing these days).

Your $10 million had to come from somewhere, and I can guarantee that virtually all of it came from people that are dirt-poor compared to you. To make matters worse, you are probably spending some of that money to lobby Congress for laws favorable to you and your bottom line, and you probably feel little or no obligation to help society with your wealth, apart from some token amount to massage your conscience.

Some (only some) of the 1% create jobs, but surely these jobs could have been created at a lower price, and more importantly these "job creators" are obviously not that good at creating jobs, otherwise America wouldn't still have an unemployment crisis four years after the bust. Obama gave in, he let the rich keep their tax cuts (in exchange for a higher deficit and national debt), yet somehow these job creators have not fixed the economy. Because rich people are just rich people, not magic job fairies. Duh.

Sadly, since my message is not simple and I am not rich and powerful, I cannot simply repeat my simple message on Cable News 10 times a day. Instead, almost no one will read it, and those that do read it will not change their opinion. So the rich and powerful will win again... for now. But eventually, I suspect we will all lose, when the unsustainable policies supported by the rich finally cause a more serious implosion of the world economy.


JF said...

Over two months late but I just came across this post and feel it's just too wrong to let go.

You go downhill from when you assert "money came from somewhere!". The simple fact is that *anything* can be converted to money. The simplest way is to sell it. Other ways are to use it to improve your position so that you can charge money; e.g. If you have a house blocking a road you can charge tolls. You can be elaborate as you like but in the end anything can become money.

Following from this basic assertion, if you can create something (as you say "technological innovation can be a positive-sum game") you can convert it to money too. Bingo - you've gotten money without taking it from anyone.

That's not too say at all that rich people deserve their wealth. I think you're main objection is to such a notion and you feel that the only way to counter that is by saying they took their wealth from others. But the notion is absurd without any such fallacies. If I found a treasure in the desert I didn't take it from anyone. Nor do I in any way deserve this wealth. You point out many ways rich people start out advantaged. Yes, life's not fair but that's not theft.

Having said all that, I do agree that since the rich are as deserving as the rest of us we should do what we can to help out that rest of us. That's the conclusion Republicans want to avoid and they do so by asserting that the rich are, in fact, more deserving. In arguing them, the left spouts too much economic nonsense that ends up feeding right-wing propoganda.

Qwertie said...

Sorry, I fail to understand your point. Charging tolls is literally taking money from people, and finding treasure in the desert is almost unheard of. If you're thinking of things like mining the Earth for resources, perhaps I didn't make clear enough that I was talking about the money making *game*. Mining "creates" new wealth by adding resources to circulation; technological innovation creates new wealth by using resources in new ways, or more efficiently. These are not zero-sum games.

I was talking about the games Wall Street, Telecom duopolies, the MAFIAA, et al play to increase wealth transfers from everyone else to themselves.

Qwertie said...

...although I should mention, that even among positive-sum industries, some businessmen arrange for all of the positive change in the wealth supply to funnel up to themselves.

Like the Wal-Mart executives for instance: they've put a lot of work into improving efficiency. This could create new wealth, but where does the wealth thus created go? As far as I know, not to their employees. It would give Wal-Mart the ability to lower prices, but have they done that? And if they do lower prices, is that their goal (laudable), or is it more of a tool to drive competition out of business in order to freely raise prices later?

Wealthy business leaders (and others that play the game) could easily use their influence to improve the world, but more often than not they choose to avoid doing that, to enrich only themselves. For many (obviously not all) of these people, it is only after they have five houses, a private jet and a car collection, and still have a mountain of money left over that they think about giving back. And maybe not even then.

I mean, just who do you think is fighting the the Buffet rule--a minimum 30% tax rate for those making over a million dollars in a single year? Surely it's not the middle class who is behind the opposition. Fox News may try to recruit the middle class for the fight, but the common man is not the source of opposition.

Qwertie said...

Come to think of it, Apple is a better example than Wal-Mart. They mastered funneling money up like no other corporation I know of. Traditionally, electronics has been a low-margin business and so it didn't seem *that* unreasonable to be paying Chinese workers $2/hour to build stuff.

But how do you justify that same wage for those working on behalf of Apple, when Apple has $76 billion in cash-like assets (well, I got that number for July 2011) and the iPhone 5's cost to manufacture was about $217 for the $749 32-GB model? While Microsoft was at times hated for their monopolistic business practices, they at least built a thriving ecosystem of other software development businesses around them; Apple meanwhile has expertly manipulated the software ecosystem around the iPhone so that most of the profits from the app store goes to them.

It seems to me that Apple's main contribution to society has been a few good user interface ideas. I don't see how they created much new wealth--the smartphone revolution would have happened without them, albeit maybe with phones that weren't as slick. Certainly what they've created has value, I just suspect that they've managed to take more than they have given. Perhaps it will trickle back down, but only against Apple's will.

Let us therefore not be co-opted to support the rich, for they are willing, able and experienced at fending for themselves.

Fact is, the debt skyrocketed because of war, tax cuts on the rich, and Wall Street deregulation. What is unreasonable about taxing the rich to bring the debt back down?

JF said...

There's quite a bit to reply to here. Let me start by attempting to defuse the exchange. I am not trying to support the rich or suggest they not be taxed heavily. I thought my last two paragraphs would have made that clear.

What I am trying to say is that the rich (mostly) do not get their money from others. Not even Wall Street. I agree that charging tolls is a bad example. The point, which should be clear, is that money does not need to come from something you can see or hold in your hand. Anything others can benefit from can be made into money. In that sense, finding treasure in the desert is extremely common - the equivalent is happening all the time. I'm sure you can use your imagination to find better examples.

Pointing out that the rewards of created wealth are not distributed fairly does not make it stolen money. It is true that the owners of Wal-Mart take unconscionable advantage of their employees by using them to create value whose rewards they keep but the value is still created, not stolen. Neither does pointing out that the value could have been created by others. Anything anybody has ever done could just as easily have been done by someone else. But it wasn't. That does not mean Apple stole the ideas from whoever else would have filled their niche.

Historically it can be seen that those whose wealth *has* been based on what economists "rent-seeking" (such as feudal aristocrats) were perpetually short on money. After all, you can only milk people so much before they're too impoverished to be milked further. Given that, do you really think Wall Street could have survived two centuries before needing outside money? Some European bourses have an even longer record.

I will close by repeating how I closed by last comment. The reason people feel the need to call wealth some form of theft is that they feel it is the only way to deny them a right to keep what they want. But any general will tell you - do not start a battle by conceding to the enemy the choice of battlefield. You can acknowledge that the rich have created wealth while still arguing that others have an equal entitlement to the fruits of that wealth. This is not being co-opted into supporting the rich. But economic illiteracy is.

Qwertie said...

I guess we have both misunderstood each other; I perhaps reacted too strongly to your comment, but you seem to have mischaracterized my original post.

You've repeatedly used words like "steal" and "theft" as if that's what my post was talking about. My post does not use these words; it doesn't even use the word "take" to describe the transfer of wealth from the poor to the rich. I'm not saying it's theft: it's all legal and most rich people have no intention of "stealing". I am saying that the Right is wrong to claim that rich people deserve their wealth and are "the job creators", just as they are wrong to suggest that the poor people deserve to be poor and are a drain on society. There are exceptions on both sides of the (widening) economic divide, but the general message is wrong and must be countered vigorously.