No Matter What Happens, There Will Be A 1%

Well, the Title is not totally true. If everyone had exactly the same thing, then all there would be is the 100%. But let’s face it. That ain’t ever gonna happen. But, we can always dream can’t we? Below, excerpted from this paper, is someone who imagines such a world, and its problems. Still, there are those who would just as soon not have cool stuff, as to know that the one who thought it up would end up with more than their fair share of cool stuff.

Imagine a society with perfect economic equality. …[N]o one worries about the gap between the rich and poor, and no one debates to what extent public policy should make income redistribution a priority. Because people earn the value of their product, everyone is fully incentivized to provide the efficient amount of effort. The government is still needed [and are funded] with a lump-sum tax. [...]The society enjoys not only perfect equality but also perfect efficiency.

Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. Think of the entrepreneur as Steve Jobs as he develops the iPod, When the entrepreneurs product is introduced, everyone in society wants to buy it. They each part with, say, $100. The transaction is a voluntary exchange, so it must make both the buyer and the seller better off. But because there are many buyers and only one seller, the distribution
of economic well-being is now vastly unequal. The new product makes the entrepreneur much richer than everyone else.

The society now faces a new set of questions: How should the entrepreneurial disturbance in this formerly egalitarian outcome alter public policy? Should public policy remain the same, because the situation was initially acceptable and the entrepreneur improved it for everyone? Or should government policymakers deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally?

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2 Comments

Filed under Economics, Equality, Government, Social Justice

2 responses to “No Matter What Happens, There Will Be A 1%

  1. …and the poor you will always have.

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