23 April 2014

Free Market VS Capitalism (Current State of Affairs; or: Why Should We Care?)

[Part 4 of 10, Free Market VS Capitalism essay series.  Part 1 here]

 A Historically Unprecedented Concentration of Wealth

There are a number of independent ways our system tilts the field and gives an unfair advantage to those who already have capital. This makes things much easier for those who need the least help.  At the same time, by encouraging resources (remember, financial wealth, like paper curranecy, is just a convenient placeholder for actual tangible resources) to be concentrated in a few hands, the system makes it substantially harder for those without capital to make a living. 

Pro-capitalists will often point out that wealth is not finite - value can be created, both by extracting primary resources from the Earth (farming, mining, logging), but notably via technology - an iphone has more value than the plastic glass and metal it is made of. 

However, at any given moment there is a finite amount of wealth currently in existence.   If one person were to have 220 trillion dollars, that is another way of saying that one person controls 98% of all the (currently available) resources on the planet.  This means that the other 7 billion humans would have to divide the remaining 2% among them. 

Gross world product (GDP of all countries combined) grows by approximately 3-5% per year.  But our one insanely rich individual is getting 98% of that 3-5%.  So the growth that goes to everyone else would be .08%  Less than a 1/10th.
This is just a thought experiment - reality is not quite that bad - but it demonstrates why the "wealth can be created" argument is meaningless.  For one, it is impossible to live on hypothetical future growth.  For two, under capitalism, those who already have enough are the ones who get the vast majority of that new growth anyway.

My analogy of one person owning everything is extreme... but it is not as far off as most people would assume.

I think this is one of the primary reasons this issue isn't taken more seriously by more people.  Most people don't realize just how extreme wealth inequality really is.  It's nearly impossible, because the numbers are bigger than the human brain is able to conceptualize.  It's like trying to really understand, on an intuitive level, the size of galaxies, or the distances between them, or the age of the universe, or how everything is made of subatomic particles.  It is humanly impossible to have an idea in our minds of exactly how big the number one googol is (yes, it was a number, before it was a brand name). In reality it is a specific number, but as far as the human mind is concerned, it is interchangeable with infinity.  The number one billion is trillions and trillions of times smaller a number, but it is already inconceivable.  Go ahead, try it: try to picture one billion people.  Or a billion stars.  What does it really mean?  It just gets blurred together as "lots and lots".
We tend to think of emperors, pharaohs , sultans, railroad barons, as having extreme wealth and power compared to the people they lived among. 
In reality there is currently the most extreme wealth inequality there has ever been in human history.

Imagine 85 people.  They could all fit in one large room.  You know more than 85 people by first name.
Now imagine half of all humans in the entire world. 

See, I wasn't exaggerating when I said my analogy wasn't actually that far off from reality.

Those 85 people each have (on average) over 41 million times as much as each of half of the human population has (on average).

Almost half of the world’s wealth is now owned by just one percent of the population - $110 trillion.

Most people know that there is wealth inequality.  But few people realize the extent:

But even this graphic is extremely misleading - the smallest division it shows is 1% of the population.  Within the 1%, if you subdivide it even further to 0.1% or 0.01%, that set of subgroups is just as unequal as the 1% is to everyone else:

See that pink square about 3 or 4 squares down from the top on the right? There is more or less your successful 1%er.
See how much closer it is to the rest of the 99% than it is to the top square? 

The lower 1% is made up of doctors, lawyers, CEOs, frugal computer programers, small business people, and others who actually earn their wealth through direct productivity. 
They actually have a closer amount of wealth to the poorest 50% than they do to the handful of billionaires in the top 0.01%

These graphs are all only showing the distribution in the US.
Granted, the US has some of the most extreme inequality in the developed world, and the country as a whole has disproportionate wealth for its population size compared to most of the world.  But these same graphs would be far more extreme if they included the entire human population.
Now go back to my thought experiment near the beginning of this page.  There is a finite amount of material resources at any one time.  If one person - or 31 thousand (the top 0.01% of America) - holds the majority of everything, then everyone else has to divide up whatever is left.  This means that the the concentration of wealth directly impacts poverty.  You can not ever eliminate poverty while leaving such massive wealth concentration in tact.

Go back to my analogy from a previous page - some people's snowballs have gotten so large that they pick up ALL of the snow as they pass, so that there is basically nothing left for anyone else.

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