More Inequality, Merited

Consider two plausible assumptions:

  1. Within a few centuries, “immortality” goes on sale. That is, if you pay enough, and your body is of a convenient type (e.g., android), then you can buy backups and replacement parts, and keep functioning indefinitely. (At least until correlated failures hit all your backups at once). Most folks, however, may be unable to afford the price.
  2. At this time, there will still be a capitalist world economy with not-overwhelming taxes on the rich. So individuals can still accumulate wealth over a lifetime, as they have done for millennia.

Today, as in the past, wealth levels tend to diverge over individual lifetimes, and then converge over many generations. People born with similar initial wealth often have quite different wealth at life’s end. They also tend to give different amounts to their children. Yet over many generations, distant descendants tend to have similar wealth. (At least if they live in the same nation; see Greg Clark.) Children often lack their parents’ drive or abilities, and prefer to spend their inherited wealth. “Rags to rags in three generations,” the saying goes.

But given the above assumptions, in the future able driven folks can continue to accumulate wealth indefinitely, allowing the usual within-lifetime wealth divergence to last far longer. Maybe eventually these old dogs couldn’t learn new tricks, but we should still expect to see far more wealth divergence in this future. Quick: does this sound like a good or a bad thing?

Now consider: in this future, wealth should depend less on parental luck, and more on personal merit, such as drive and ability. (Other kinds of luck matter too of course, but not obviously more than before.) Isn’t it good if personal wealth depends more on personal merit?

If you still find this scenario horrifying, that suggests your dislike of wealth inequality isn’t based so much on it being undeserved, but is more against the very idea of inequality. Perhaps you are horrified by such huge inequality because it shows raw luck imposing unnecessary harmful risk, which you want to cure via redistribution. But if so, it should be enough to offer folks wealth insurance. If you are horrified by a future where enough able driven folks knowingly reject wealth insurance, allowing some to become fantastically rich, then again your objection seems to be to inequality itself.

Btw, Tyler says:

When will the world have its first trillionaire? In real terms I say never, marginal tax rates will rise to capture the rents, one way or another.

This seems remarkably pessimistic about future world wealth or world-wide tax rates. Today’s richest man has $74B, which is probably ~$50B after correcting for “marginal tax rates.” So proportional growth of the world and the richest by a factor of twenty, roughly what we achieved in the twentieth century, would create a trillionaire.

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  • OK

    Just two words: investment bankers. Is this about parents, merit, luck or – ohh – fraud? Who knows, right?

  • rrb

    I don’t find it comforting that it would be those with drive and ability accumulating massive wealth. If I invented the best burger and made a zillion dollars, I could fund charities, research and political lobbies, and patronize artists. My point is, the general power represented by money accumulating for centuries in the hands of people good at specific things sounds bad. Developing the world’s best taste in art still wouldn’t put you in a position to support talented artists, but inventing the best burger would; this seems a bad state of affairs for the art world, since inventing the best burger isn’t evidence that you can recognize talented artists. Same goes for politics, charities, research, etc. Widening inequality still sounds like a bad thing to me.

    • Michael Vassar

      That’s a great way to put it. Basically, massive wealth inequality produces the same problems as communism.

      • Kathleen Charles

        US equality then and now! Slaves sold from Africa then. Slaves sold by traffickers now. Equal! Wealth is behind this. Wealth is behind every devious action taken. Ponzi. Trafficking. Pedophilia. You name it. Wealth degrading equality. The failed “trickle down” of wealth hasn’t trickled. The wealthy get wealthier. Poor get poorer. Charity is given, not deducted from your income tax

  • How much is personal merit the luck of the genetic lottery?

  • Gregory Lewis

    Why believe wealth should depend less on parental luck in this world?

    If I’m one of the super rich and living for a very long time, I can transfer my wealth to far off descendants, and do so more efficiently than relying on my probably-less-able offspring. So, looking at it in reverse, it seems that the offspring of the future will have a better chance at getting ill-deserved wealth from parental luck, as the social graph between the super rich and the offspring becomes denser because the super rich dude doesn’t die before his great-great-great-great grandchildren.

    Or am I missing something?

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  • wophugus

    I am against inequality because I think, all else being equal, lowering inequality increases happiness. Obviously once you have to name actual policies to lower inequality all else stops being equal,, but the basic point that “less inequality means more happiness” seems intuitively right (what with the diminishing marginal value of stuff and the envy and all that) and empirically plausible to me based on the evidence I’ve seen. As such, the “inequality will go more to people who have earned their money” part of your future sounds good (people who earn wealth are demonstrating a greater prefrence for it than people who inherit it, so it will presumably make them happier) and the “inequality will become starker” part sounds bad.

    • I am against inequality because I think, all else being equal, lowering inequality increases happiness.

      Equality of what increases happiness? It doesn’t make sense to speak of equality as such, because some kinds of equality are mutually exclusive with other kinds of equality. For instance, increasing equality of hourly nominal income would decrease equality of risk-adjusted nominal hourly income (if, say, one job is more dangerous than the other). Increasing equality along one dimension almost always increases inequality along another.

      • Wophugus

        Hanson already specified; equality of wealth.

  • Anonymous

    I have an aversive gut-level reaction against the concept of billionaires, let a lone trillionaires, and I think there are at least two aspects to it. One is about power concentration, but that should occur even more strongly with political leaders of sufficient power.

    The other aspect is inefficiency. With $600,000 I could live absolutely happily for the rest of my natural life span. I literally don’t know what a billionaire would buy to create additional pleasure patterns in his or her brain. I’m assuming with that kind of resource allocation (or misallocation?), an insane amout of usable matter and energy is burned for zero-sum status games. In a world where billions own almost nothing, this seems like a massive destruction of general utility.

    inb4 deontological property rights, there is no such thing. Property rights are just a tool of society to get people to do productive and innovative things.

    • Michael Vassar

      I think that you are right about the two problems with billionaires, but you see them as adding up rather than canceling out. In practice, most of what the rich spend on is status competition VIA creating more value via business. Poor people buy diamonds to show off, but huge diamonds are just gaudy. Billionaires can only really compete for status via display of art collections, public art, charity projects, and making more money, all of which are positive sum games and underprovided public goods.

      Ideally, we would want near equality in wealth as consumption but massive disparities in wealth as power corresponding to who wanted and cared about power, but we wouldn’t want all power in the hands of a few people. A basic income of $100 per capita per day with good anti-monopoly law and almost all wealth in the hands of people with $5M to $500M seems ideal to me.

  • Stephen Bronstein

    Bankers may be the most extreme example of this given the recent government bailout and ongoing implicit guaranty, but as many have pointed out, the vast majority of people who do get rich, even if they aren’t bankers and therefore not as explicitly subsidized by the government, were nevertheless able to get rich because of the mostly public/govt institutions that build the infrastructure on which their businesses rely, educate their workers, etc. So the question of whether the wealth is ‘deserved’ or not is more complicated than you suggest. Which you could argue, I guess, is just me phrasing “I have a problem with inequality itself” in a different way. Although my problem is much more with the level of inequality vs the concept, and then in particular with the banking industry successfully exacting so much in rents from the rest of us.

    • J

      “were nevertheless able to get rich because of the mostly public/govt institutions that build the infrastructure on which their businesses rely, educate their workers, etc.”

      The trouble is that given our tax structure and the percentage of it paid by the “rich”, they’re the ones who paid for all of those things, so the question of whether wealth is deserved is less complicated than you think. Should people who paid for something not be permitted to enjoy it’s benefits? I should note that I agree much of banking industry profits involve rent seeking, primarily because of government regulation.

      I recognize that some people have a problem with inequality in and of itself; greed and envy are normal human behaviors. All I ask is that we stop hiding behind sanctimonious nonsense like “problem with inequality” and call that “problem” what it really is.

      • Anonymous

        The question of desert is less relevant than the question of welfare, imho. I welcome inequality if and only to the degree to which it is useful (for general welfare). Are billionaires useful? Will trillionaires be useful?

  • r

    Sounds perfectly fine to me. I guess my intuitions are just broken.

  • Andr

    I don’t necessarily object to the scenario you describe, and i don’t object strictly to the idea of inequality–but (at least based on observing our current system and its predecessors) inequity seems to come most primarily from the exploitation of lower castes by the higher. To this, I object.

  • Doug

    For all the people citing investment bankers in this thread, can you name a single billionaire investment banker? Particularly one working at a bulge bracket firm that’s been bailed out or guaranteed by the government?

    Virtually every single finance billionaire is a hedge fund/private equity manager, or a hedge fund manager in all but name only (i.e. Ichann and Buffett). Hedge funds don’t get any guarantee from the government, nor did they get any government bailout money.

    Banks make money from taking private risks with public guarantees. Hedge funds make money taking private risks with private capital. Every single hedge fund billionaire is a brilliant investor or trader in some form or another. If you doubt what I say, I’d like to see anyone here even come close to matching any of their investment track records.

    The equivocation of billionaires with investment bankers has no basis in reality. And I suspect is purely driven by envy, and is a convenient way for people to rationalize that the rich aren’t “really earning it.”

  • Prakash

    I’m for immortality. Living until the entire universe snuffs out is a good thing. But what I don’t see is people having many descendants in today’s sense if immortality became available.

    What are the assumptions behind Clark’s finding that will change in a scenario where immortality became available? Will this convergence of descendants still happen?

    How does this reconcile with your prediction of a malthusian future?

  • Robert W

    I don’t like it because there are declining marginal returns to wealth, so beyond some point inequality does not improve welfare. I don’t care about ‘merit’ at all. Is that an acceptable option?

    • Konkvistador

      No problem. I self-modify so I push the point at which inequality improves further away from any position I’m about to reach.

      I find it funny people in this thread are so stuck on modern humans as they are. Modern Western humans at that.

  • Ari T

    Just remember, there’s no such thing as free will. 🙂

  • IVV

    If I am “immortal”, will I even care about offspring?

  • Lord

    It would effectively eliminate the law against perpetuities which would make for a very different world. Imagine a city with a farm in the center because it appeals to the sensibilities of the original and still existing owner. What charities would be worth contributing to at that point beyond education and science? Think of culture with significant portions frozen in time. Perhaps change itself would be rejected to preserve the past and a caste system be established to make it permanent. It doesn’t sound inviting.

  • Wonks Anonymous

    Off-topic, but a recent paper argues that people with power but not status are the most prone to demeaning others. Hat-tip to Balko.

  • mjgeddes

    terminal values = individual evolutionary goals/specific intelligence
    optimization power = individual general intelligence
    creativity/signals = individual representational system

    social analogies;

    memes = social goals
    money = social optimization power
    narratives/art = memetic representation/signaling

    The key analogy here is that money is ‘social optimization power’. It is the ‘social engine’ or ‘GO’ (social motive force for memes) as drug dealers call it. You don’t want to be putting too much optimization power in any one persons hands.

  • I too have a propensity towards techy, self-made billionaire fanboyishness.

    But I don’t let my freak flag fly the way you do, Prof. Hanson.

    I intuit that we want resources to go to those best able to administer them against our existential risk — not to those individuals who “merit” them due to lifelong ability to accumulate wealth. I do think there’s going to be a tension there, that they’re not going to be the exact same population. It’s a fair niggle that redistributive inefficiencies in a proportion of situations will mean the cost-benefit of non-market redistribution doesn’t pass cost-benefit analysis -that we’ll sometimes have lower existential risk by not redistributing from the self-made to particular existential risk minimizing programs. But I think that’s an empirical question for the relevant expert communities to determine.

    So beware tech billionaire fanboyishness biasing you away from optimized existential risk minimization.

  • Robert Easton

    “proportional growth of the world and the richest by a factor of twenty, roughly what we achieved in the twentieth century” does not sound correct to me. The world part, yes. “The rich” as a large group, probably true as well.

    But the single richest person in history is still probably Rockefeller Sr, who was several times richer than anyone today. Other gilded age entrepreneurs like Carnegie and Vanderbilt were also richer than anyone today. Later on, Ford was as well.

    This makes Tyler’s story seem likely to me.

  • Daniel

    I’m not against inequality per se. I’m against unhappiness. It just happens that, given a constant amount of resources, distributing them about evenly maximizes happiness. Giving people a higher proportion of resources because of their merit, assuming total resources stay constant, still reduces net happiness. The advantage to such inequality is that it tends to create more resources. You have to balance it so that the marginal benefits of increased incentive equal the marginal costs of inequality.

    Also, wealth insurance wouldn’t work very well. You will tend to be more likely to buy it if you know you’ll generate less wealth than you appear to at first. The top 10% wouldn’t buy it, followed by the top 10% of the bottom 90%, etc. Also, it would case the same disincentives to work that normal wealth distribution would.

  • Mitchell Porter

    I don’t see the future, or even the present, as being about capitalist meritocracy. The market is subordinate to culture, politics, and law. In an era of artificial intelligence and invasive neuroscience, the human race will either end up as a communist borganism, a posthuman hierarchy, or even as a communist borganism serving a posthuman hierarchy. (Or maybe I’m just projecting the present on the future.)

  • Anonymous

    How economic inequality harms societies: