How Much Should the Rich Give to the Poor?

     Last time we plunged into the consideration of inequality. 
We saw that it is impossible to measure and compare the real
wealth of one person to that of another.  Real wealth is
measured by use value, not market value.  Use value isn't
measurable.  We also saw that individuals' real wealth, their
satisfaction, is often increased by tangible wealth that belongs to
others.

     Suppose that a wealthy person invests $50 million in a
factory.  The workers at the factory earn 20 percent more than at
their old jobs.  Those who build the factory and those who
supply the factory and distribute its products also gain increased
income.  The factory owner has used his wealth in a way that
clearly increases the tangible wealth of others.

     We can reasonably assume that many of these others also
enjoy increased satisfaction.  Why would they work for the
factory if they didn't find it more satisfying than their next best
option?

     Suppose instead of building the factory the wealthy
person gave the $50 million to the poor?  In the short term the
poor would have increased tangible wealth.  Very possibly this
wealth would contribute to increased satisfaction.

     When poor people gain wealth, they spend most of it.  As
a result of the gifts, society as a whole ends up with less
investment.  This means lower production and lower average
incomes in the future.

     Are the benefits from the immediate satisfaction gained
by the poor worth more than the cost of satisfaction lost in the
future?  Satisfaction being unmeasurable, this question cannot be
answered.

     One thing is certain.  If all saved wealth was given to the
poor (either voluntarily or through government force) and
consumed, all investment would soon be consumed.  Eventually
there would be no factories, equipment or tools for workers to
use to increase their productivity.

     The few people who survived would be barehanded
hunter-gatherers attempting to live off what nature produced. 
The result would be nearly equal poverty at a level well below
what most poor people enjoy today.   I doubt that many people
would consider this stride toward material equality a good idea.

     Even then the survivors would not "enjoy" true equality. 
Some places the bounty of nature is greater than others.  Some
individuals would be better at living off nature than others.  Not
everyone would have equal abilities to hunt and gather.

     If the wealthy reduce their consumption and give to the
poor, long term productivity will not be hampered.  It is most
unrealistic to assume that all, or even most, charity by the
wealthy will be cut out of their consumption rather than their
investment.

     Thus, charity inevitably decreases future production and
the capacity for charity in the future, unless the charity increases
the productivity of the recipients.  If the poor simply consume
the gifts, the capacity for future gifts will be reduced below what
it could have been.

     We won't slip into the economic death spiral until we
reach the point that charity decreases net investment.  A smaller
increase in net investment will still provide for increased, or at
least sustained, production.  The one certain thing is that
committing charity that reduces net investment will eventually be
an unmitigated disaster for everyone.  Such charity is the
equivalent of giving away and eating the seed corn.  In the long
run, even the poor will benefit more from investment than from
gifts.

     I can't even suggest an ideal level of charity.  Setting an
ideal level of charity involves value judgments that will very
from individual to individual.  It would also require more
knowledge about the future than any, or all, of us can possibly
have.

     The only promising option is to leave the choices about
charity up to each individual.  When we did this in the past the
results were far better than most people realize.  With the
increased wealth produced today, there is every reason to expect
the results would be even better.

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Copyright 2013
Albert D. McCallum