The world today is the most uneven it has been in history.
The chasm between the haves and the have nots has been widening decade after decade only
to be further accelerated by a global pandemic that disproportionately benefitted the rich
while hurting the poor.
This made a lot of people very angry and valid questions are being asked about the morality
of one person hording billions of dollars while others don’t even have clean drinking
water.
This inequality has led to new ideas like president Biden’s proposals to tax unrealised
capital gains at death, to ensure that people can’t horde their assets indefinitely throughout
multiple generations.
Now who knows if this proposal will ever see the congressional hall (let alone actually
be instated) but for the sake of this video I am going to try to defend the indefensible
and convince YOU that wealth inequality is not really as bad as you might think…
But before I do, I just want to clarify something about all of the comments on the other videos
in this series.
I don’t actually believe that MLM’s are legit, or political lobbying is a force for
good in the world, I am simply showing that there is always a counter argument and sometimes
the best way to learn about something (especially something you feel very strongly about) is
to hear out both sides of the story.
Alright, now that’s out of the way, let’s start off with possibly the most damning piece
of evidence in the case against the global elite... these graphs.
You have likely seen some version of this graph that either tracks income or wealth
distribution amongst the population.
Down here the poorest people in the country have a negative net worth because they have
more debt than they do assets, and up here the top 1% has an almost unimaginably large
share of the pie…
Well there is no getting around the fact that this looks bad, but consider it like this.
How much does this top 1% CONSUME?
As in how many resources are they taking up that can’t then be used by the rest of the
population?
Don’t get me wrong, it’s certainly more than the average person, and in the case of
the TRULY elite global billionaire class it might very well be Multiple times more than
the average person but it’s not quiet as severe as these graphs would have you believe.
A joint study by Oxfam and the Stockholm Environment Institute found that the richest 10% of the
global population were responsible for just under 50% of all global greenhouse gas emissions.
If we assume that these emissions are comparable to consumption, then that gives us a pretty
good idea of how this all breaks down.
Now admittedly there are a few problems with this.
For starters this study didn’t actually look specifically at the top 1%, only the
top 10% globally, so guess what, if you are watching this from a developed country there
is a good chance you are in this elite group of mega polluting global citizens.
Despite that the same basic logic applies.
Jeff Bezos flies private while I fly in coach burning 90 times the amount of jet fuel to
get from A to B on average.
Jeff Bezos wears $10,000 suits and lives in dozens of luxury homes around the world, while
I get mine off the rack for 500 bucks and need to make do with a one bedroom apartment.
Jeff Bezos launched his own space program to keep him occupied where I spend my weekends
(insert hobby here)
Jeff Bezos is a million times wealthier than I am, and he consumes a lot more than I do
(as roughly an average American) … but he does not consume a million times more…
This may be an extreme example, but the same basic logic applies to everybody up here at
the tip of the hockey stick.
Ironically, the same logic is actually used to argue against wealth inequality.
Some prominent figures have argued that rich people are bad for the economy because they
don’t spend a much of the money they make, whereas a working-class family will spend
almost everything they make which DOES stimulate the economy.
Now neither of these arguments is actually wrong.
Wealthier people have a lower marginal propensity to consume but you can’t have it both ways.
You can’t say they are bad for the economy because they don’t use up resources in proportion
to their wealth, while also arguing they are bad for society because they have disproportionate
use those same resources…
The world is ultimately a place with limited resources, our economic and financial systems
exists to decide how these resources are distributed.
Wealthy people have a lot more say over these systems, but they don’t use that influence
to say “haha I’m going to horde basic necessities so you poors can’t have any”
…
Now OK, the next argument that people will make is that sure, these people aren’t consuming
a proportional amount of the worlds resources, but they might be doing something worse…
They are buying up a disproportionate amount of the world’s assets.
This is ABSOLUTELY true, for the same reasons we have already seen.
When an average person receives their payslip almost all of it will go to covering their
living expenses, then after they are taken care of whatever is left over may be saved
and invested, if that person is financially responsible (and that is a big if)
When a wealthy person receives dividends from their holding company paid to them through
their trust, they will also use that money to cover living expenses, but no matter how
lavish their lifestyle they will still have more left over that they can then re-invest
back into asset markets.
Perhaps the most problematic of these types of investments is the real estate market,
because unlike the market for stocks and bonds, their objectives are at direct odds with society…
right?
Wealthy investors want their real estate investments to become more and more expensive whereas
society at large just wants affordable housing to live in and raise a family.
Well first things first… is that even true?
People love to complain about unaffordable houses until they are a homeowner themselves,
and since 65.8% of Americans are homeowners themselves this isn’t a concern that is
as widespread as you may think.
Even if it were… the type of super rich person that people like to get angry over
(the multi billionaires) are not investing in this type of residential real estate…
at least not directly.
Why?
Well because it’s too much of a pain in the ass to manage.
At the scale of wealth that we are talking about here, these super rich people would
need to manage thousands of properties in order for real estate to make up any appreciable
portion of their portfolio.
I know I have been critical of Graham Stephan in the past, but he did do a great video on
why he was no longer investing into real estate… basically he is too rich at this point for
it to be worth his time dealing with tenants and contractors and real estate agents.
Now Graham’s whole thing WAS real estate, so for him to say it was “too hard”, shows
that someone who is an order of magnitude wealthier than even he is, just isn’t going
to bother with this type of asset.
It’s simply WAAAAYYYY easier to invest the same money into stocks or other financial
instruments that scale easily with little additional effort per unit.
Of course, the particularly astute amongst you might point out that there are things
like real estate investment trusts that will buy up thousands of properties and then bundle
them into a tradeable security.
In fact these real estate investment trusts or REITs as they are know have been the focal
point of some controversy surrounding housing affordability, but worry not.
In reality these types of securitized homes only make up a very small portion of the total
real estate market and don’t have as much pressure on housing affordability as most
people think.
Even if they did these types of assets aren’t particularly popular amongst the super rich
anyway, and they tend to cater more to regular household investors as well as pension funds
and the like.
Now this is not to say that the ultra-wealthy don’t invest into real estate, they do,
they just don’t buy in the same types of markets that you might.
Instead, they buy up commercial real estate, like, warehouses, shopping centres, forestry’s,
and farms.
Bill Gates recently became the largest farmland owner in the United States, which could actually
be seen as a very good thing.
Personal controversies aside, just think, who is more likely to invest into new and
innovative farming techniques that will provide all of us all with more food?
Old McDonald on the barely profitable family farm?
Or Bill Gates with his billions?
…
Now the final reason that wealth inequality is not as bad as you think is that… well…
wealth inequality is not as bad as you think.
What I mean by this is that most statistics you see concerning the disparity of wealth
amongst Americans will be based on data collected by the federal reserves Survey of Consumer
Finances.
This is a fantastic resource that gives regular people an insight into the economy that wouldn’t
be possible without running multimillion-dollar studies themselves but it does have some problems.
One that is most often identified is that this survey does not account for wealth held
in defined benefit retirement schemes.
There are a LOT of Americans who will be provided with a fixed income in retirement either through
a pension plan they invested in themselves or through a plan provided to them by their
employer (something that is particularly common with government employees).
These types of schemes are not popular amongst wealthier individuals though because they
naturally have the financial resources to accept some volatility of returns in their
retirement in exchange higher returns on average.
The problem is that defined benefit pensions don’t normally get counted as assets because
they can’t be bought or sold like a stock or piece of real estate.
But if someone had a defined retirement pension of $50,000 per year, then even by the most
conservative estimates, they would have otherwise needed a ONE MILLION DOLLAR investment portfolio
to provide those same returns.
At a suggested withdrawal rate of 3% per year in retirement, you are looking at more like
1.5 million dollars oh and by the way there are plenty of defined benefits that pay a
lot more than this too.
A follow up study conducted was conducted by economists at the fed, they also used a
conservative estimate of the value of those future payments as compared to a typical asset
portfolio.
By then looking at the age groups that were on the verge of retirement they found that
more than half of the net wealth of the average household was held these types of pension
schemes.
This is including people’s homes, which should give you an idea of just how valuable
these schemes really are.
Naturally this huge lump of otherwise unreported wealth evens out the playing field between
the middle class and one percent by a surprisingly significant amount.
Of course, there is still a disparity, but it’s still not as bad as this chart would
have you believe.
Now should defined retirement benefits be counted as wealth for the households that
will benefit from them.
I would argue yes… but you might have your own opinion… just like you will likely have
your own opinion on the wealth inequality issue and that is totally fine.
Hopefully by defending the indefensible I have given you a fresh perspective to consider,
and if you want to see me try to do the same by defending political lobbying and multi-level
marketing companies, then go and check out the other videos in this series to keep on
learning how money works.