If Bill Gates (or any other super rich anti-christ for that matter) really does have a $70 billion fortune what would happen to the world economy if he gave just $1 million (not much in the West these days)to every single person on the planet?
Would it end poverty or simply raise the stakes?
Forget the probability that many people would want to give up work and live a life of lesuire causing society to collapse etc. Just pretend that this could be overcome by some type of clause preventing immediate retirement or something.
I’m trying to understand the economic necessity for the unbelievably unfair division of wealth worldwide and wondering if there’s a bit more to it than greed and exploitation.
The real thing that’s stopping him is the fact that he could only afford to give everyone around $12. Check your math again. 1,000,000 * 6,000,000,000 = 6,000,000,000,000,000. He only has 70,000,000,000.
Without criticizing the OP unduly for the arithmetic mistake in his/her hyperbolic introduction, there is certainly enough money in the world that if it were distributed equitably, would certainly permit a great deal more human happiness than it is now.
…except that, if all wealth (as measured by money) is to be distributed evenly, then the incentive to be productive and gain wealth disappears - and the total wealth of the community slowly diminishes. One only has to look at the robust Soviet economy as a prime example.
The OP is British, and as we all know, the American and British definitions of billion differ; the Brits take one million and raise it to the power of the prefix of a large number; ergo one billion is a million million, or an American trillion.
Although the world would not be filled with millionaires, six billion people would pocket about $12,000 each, which most definitely is not chump change.
Reread the OP’s question, and respond with this level of income.
“The best way to do mathematics is to be creatively lazy.” -I. M. Isaacs
Actually, I did not know this. Is this true? So for the British, one billion is $1,000,000,000,000, or what we would call one trillion? Really? Doesn’t this cause problems in communicating among British and American people dealing in very high finances?
Goldie
Gentlemen certainly DO prefer blondes –
and with good reason!
I appreciate you explaining the British/American difference to the term “billion”, but whether DKD is a Brit or not, doesn’t change the fact that Bill Gates can not give $1,000,000 or even $12,000 to everyone in the world, so the question is pointless. The $12 he could give wouldn’t make a huge different even in the poorest countries.
Okay, assuming that there is enough wealth on the planet for each human being to have a million dollars, and assuming that by magic it could be distributed evenly with no fuss, I don’t think the utopia would last very long. There is a certain subset of people who are driven to accumulate — people for whom enough is never enough. Although many of us could live happily for the rest of our lives with a cool million, a few ambitious souls in our midst would demand more than their share. The wealth would gradually become redistributed through commerce, theft, invasion, wars, etc. Eventually, society would reach its natural equilibrium, with most of the population living in poverty while a small percentage of elites control the majority of the wealth.
Perhaps, but the beauty if it is there isn’t a finite amount of it. Wealth creates wealth. The problem isn’t distributing the existing wealth; the problem is removing the barriers for poorer nations to develop their own economic bases and begin building that wealth. Pesky little barriers like trade tariffs and national borders, those sorts of things. Without those, the potential for every nation to become wealthy would be unlimited.
$12,000 in Rwanda is probably a pretty hefty sum. $12,000 in Beverly Hills is a weekend. Hell, I got almost that much in bonuses last year.
You know, you really couldn’t quit your job tomorrow and retire forever on a million dollars. Not in the U.S. anyway, and not if you’re currently under age 60 or so. These days, it isn’t as much as you think it is.
The problem of the OP is that money is confused with wealth. The two, while often similar, are not synonymous.
Leaving Bill Gates out of it, let’s give everyone on Earth a crisp new million dollar bill and see what happens. Everyone’s now a millionaire and goes to bed happy. The next morning, a farmer in rural Tanzania wakes up at dawn as he always has and contemplates the fifteen hours of back-breaking labor he must face in order to produce a subsistence crop. Suddenly he remembers he’s now a millionaire. He can easily afford to hire someone to work his field. He walks into town and, feeling generous, offers a hundred dollars (a month’s average salary in Tanzania) to anyone who will work all day on his farm. He’s surprised when no one take him up on his offer, but the townsmen have all decided why should they put in a hard day’s work for a hundred dollars when they’ve already got a million? The farmer decides that he has no real need to work his fields, he can now just buy all the food he wants. So he walks around town but finds that all the markets are closed; the owners have apparently decided there’s no reason for them to work now that they are rich. He finally finds one store open but is shocked by the prices. A bag of beans that cost five dollars yesterday now cost five thousand. The farmer thinks the store owner must be insane; no one will pay those outrageous prices even if they are millionaires. But he sees that customers are indeed going into the market and buying. He asks a woman why she was willing to pay so much for food and she answers “What choice do I have? All the stores that are still open have the same prices. And I must buy food because my children are hungry.” The farmer decides that the storeowner is behaving like a thief and strides angrily into the market to confront him. He finds the storeowner is already in an argument with another man. The farmer thinks it is another customer but listening, realizes it is a truck driver who is telling the storeowner he must pay a quarter million dollars for the food he is delivering. When the storeowner argues, the driver tells him he paid four hundred thousand dollars for it in the city and another twenty thousand for gas to deliver it. The farmer doesn’t know whose side to argue on and leaves the store. He walks back to his farm, picks up his tools, and starts working, knowing he will have to work even harder than usual to make up for the hours he lost.
No, let’s not leave Gates out of it. The idea in the OP is clear enough: there is no new money, so it is not clear that there should be massive inflation. Money is a store of wealth (amongst other things) what is happening here is that a whole lot of wealth is being redistributed.
So what would happen if there were some large wealth redistribution like this? The most recent example is OPEC in the 70s: a fair bit of upheaval, some people stay rich, some are temporarily wealthy, then seem to go back to where they started.
Quick line on incentives: only what happens at the margin matters for incentives to work. A once-off or lump-sum shock to personal wealth has no effect.
I must object to the general notion that the reason so many people are really poor is because a few people in the West have command over most of the resources. The main reasons they are poor are all to do with the deficiencies of the institutions in which they live, and these usually boil down to they have no protection against the arbitrary exercise of power.
But inflation is not just a function of money supply - it’s also a function of velocity of money.
Another point - almost all of Gates’ money is tied up in stocks. To liquidate it all, other people have to buy it from him. So their money supply dwindles.
One prediction I’d be happy to make - if you re-distribute all that money, the economy would be seriously hurt. One of the factors in the efficiency of a capitalist economy is that money tends to flow to the most efficient areas. If you manage to get a whole bunch of intelligent people to buy up all Gates’ stock so you can re-distribute the cash, you’ll be moving money from efficient users to less efficient users. The net result will be a lowering of economic performance. For example, driving all that money out of the market will lower investment in other firms that would make good use of it.
Also, you’d get market distortions from the artificial influx of capital, which would play havoc with information transmission through the price system. Normally, if the demand for a producer’s products goes up, it’s a signal to the producer to increase production, or at the very least it tells the him that his latest decisions were good ones. If it turns out that the demand increase is only a ‘blip’ due to a one-time injection of cash into the economy, every producer of goods will make inefficient decisions.
There are no magic bullets, folks. Many, many smart people have tried to enforce commands on the economy for social reasons, usually with disastrous consequencies. The Weimar Republic and Argentina tried to print money to buy their way out of economic difficulty - the result was people buying bread with wheelbarrows full of near-worthless cash.
It’s funny, I was just thinking about this earlier today. I was remembering some guy saying, “Man, why can’t the gov’t just print more money? It’s so easy.”
Other posters have mentioned the crux of the problem: inflation.
The only worth money has is that people agree with it’s value. Little Nemo did a good job at showing how inflation works.
If everyone was a millionaire, and if the gov’t set price ceilings on all our goods, what would happen? Businesses would simply close down since there is no profit to be made. And that million dollars won’t buy you anything.
Seriously folks, inflation has nothing to do with this. The nominal purchasing power is the same, before and after. Yes, velocity of money also may affect inflation, but this is determined by institutional factors (velocity is faster if people want to hold lower real balances because there are more ATMs for example).
This is wealth redistribution, a real as opposed to nominal phenomenon. After the redistribution, people would not wake up with banknotes which they would find to be worthless, they would wake up with a greater command over the real resources of the world.
If Gates died and bequeathed his wealth to n people, would this cause inflation?
The suggestion in the OP would not be a panacea for world poverty, and indeed there would be a little less wealth in the US, but the sky would not fall.
It would depend on where you live in the U.S., what your standard of living is going to be, and how good you are at investing, but I’m 25, and I could probably retire off $1 million. Even a somewhat timid investor should be able to make 5% or $50,000/yr. A good one should be able to make more. You wouldn’t be able to spend all that money, as you’d need to reinvest some of those earnings to counter inflation and pay your taxes, but the remainder would be enough to live on.
Maybe a more important question than redistributing Bill Gates’ (or anyone else’s) money would be an equitable distribution of far more basic necessities of life.
What if everyone in the world had a decent home, clean water supplies, some means to make a living: whether it be a job or sufficient land and tools to perform agriculture, at least a high-school education, and access to electrical power?
I think if we (the human race in general) put our minds to it, we could accomplish this. Would it wreck the world economy? I doubt it. It might bring an age of unparalleled prosperity if everyone were productively contributing to the economy.
Unfortunately, we haven’t decided that this is the kind of goal we want to pursue, being much more interested in fighting each other, amassing personal wealth, entertaining ourselves & so on. I’m convinced that even if we decided that this would be a good goal to pursue, there would be many who would fight it, out of ideology or greed.
