Given the popularity of discussion about the problem of growing wealth inequality, you are probably already well aware that a certain segment of the population has done much better over the last few decades then the rest of us. This video lays out the insane level that the problem has reached, and if you haven’t seen it I would really recommend checking it out.
The key issue that I think a lot of the 1%’ers talk is missing, is something I alluded to in my last post. When we are talking about how much money the mega-wealthy are acquiring we are not really talking about people, rather we are talking about capital. These people are not standing in line at the bank to cash oversize $1M paycheques, rather, the majority of income for the wealthy comes from investments. Even if we are talking about big CEO salaries, their pay is directly determined by how much money they have made for stockholders, and thus how much capital growth they are producing. While it is divisive to talk about how much money certain people are making, talk about increasing concentration of capital is much more productive. Thus, if we want to have an honest discussion about wealth inequality we must talk about the rise of the financial sector.
In my post We Are Not Programmed for Abundance, I ask whether the increasing polarization of society is occurring for the same reason that our waistlines keep expanding. Just as we lack the biological programming to push the plate away when we have eaten the right number of calories, do we also lack the cultural programming to deal with the age of plenty provided by the modern economy? I think it’s an interesting idea and deserves another thought infection – to see what insights can be gleaned by thinking about the parallels of obesity and the growth of the financial sector.
Is the economy obese?
What does it mean to be obese? Based on a ratio of your height and weight, your BMI is the standard measurement by which a doctor will decide where you fall on a scale running from underweight to obese. Obesity is defined by a BMI greater than 30.
A better metric than BMI is a body density measurement. By dunking your entire body in a tank of water and seeing how much water your displace, you can get an exact measure of your body density. Because fat weighs less than muscle, a reading of the overall density of your body translates into a % fat you have on your body. Ultimately, it is the amount of fat that someone carries which is the most relevant metric in considering obesity. Whereas a healthy person’s body fat might range from 15% to as high as 30%, an obese person can have 40% body fat or higher.
Because fat is the method by which the body is able to store highly concentrated energy for later use, essentially someone who is obese is just storing up to much energy. Think of a bear that fattens up over the summer and fall, and then lives completely off of this energy store as it hibernates through the winter.
Fat stores have evolved as a safety net for lean times. What happens if there are no more lean times? Or lean times simply don’t occur with adequate regularity to counteract surpluses of energy input during times of plenty? In the modern world, we have essentially unlimited access to delicious calorie rich food, so our caveman bodies take the surplus of energy we are shovelling into them, and storing it away for later.
As your body adds layer after layer of fat, it eventually reaches a point where biological prudence turns to pathology. All of this fat that we are accumulating becomes a serious detriment to our body. The fat starts to drag us down, keeping us from interacting with the world in a normal way. The fat also starts to build up in places where it shouldn’t, leading to things like clogged arteries and heart problems. In a sense, obese people become ensnared in their own biological safety net.
So now the crux; what does this have to do with the economy? In some ways capital investment acts as a form of high energy storage for the economy at large. Whereas fat can be converted into things like muscles or bones, capital can be converted into things like factories and goods. As our economy gets better at serving the basic human needs as well as the expanded consumerist needs of today, the natural response is to store away more and more energy as capital.
It is important that we are not necessarily talking about all money, or even all capital here, what I specifically see as the fat would be the growth in financial sector investements (such as banks, derivatives, etc…) that are increasingly disconnected from the “real” economy. Just as there are many forms of energy in the human body, there are many forms of capital.
Another interesting thing about fat, is that all this fatty tissue itself has metabolic demands. Thus the more fat you have, the more you are driven to eat, leading to a vicious cycle of weight gain. Similarly, as the financial sector grows, it demands to be fed by economic resources. More capital growth demands more resources dedicated to maintaining and growing that capital, and the cycle continues.
While it might look great on paper to have a GDP driven by record profits in investments, this does not necessarily reflect the betterment of people’s lives. Yes, this vast wealth represents potential businesses and factories, but it does so in the exact same way that fat represents potential muscle. If we don’t put it to use, then it will just continue to grow of its own volition.
Having a certain amount of this high density storage is absolutely essential to normal function whether we are talking about the economy or your body. But what constitutes a healthy amount of capital for an efficient economy? At what point does the growth of capital move from economic prudence to pathology? You may not agree that we have reached such a point yet, but if you at least accept that there exists a point where our overzealous nature to squirrel away profits starts to do more harm then good for the economy, then perhaps we should talk about how we might short-circuit this vicious feedback.
Just as there are countless solutions to lose excess weight, there are many solutions for the economy:
We can go on a diet. In a way, this is what happens in a depression. Disruptions in various sectors start to have a ripple effect across the economy, and things go off the rails for a while. People’s lives are suddenly worse off, and real demand grows in its wake. This drives investment into real economic output and a leaner and more efficient economy. While I think this would work, it is not really an ideal option given the need for things to get shitty in order for things to get better. This would not be the choice of a self-aware and well managed modern society, and in the end it would only perpetuate the cycles of boom and bust.
We can count calories. Some people seem to think that moving to a planned economy is the only solution to the problems of capitalism. I am not one of those people. While I do not blindly view socialism as some sort of super evil, I also think there is a disrespect for freedom built into a purely planned economy. I personally would not want to lose weight by counting every calorie I eat, similarly I do not want to restrict the economy to exactly fulfilling only what is decided to be appropriate needs or wants.
We can eat healthier food. If we were to demand that the economy start producing things with radically lowered environmental footprints, it would demand retooling by industry, and significant investment across every sector of the economy. It is a heinous lie that we cannot grow the economy and improve the environmental footprint of society at the same time. It is only through a sickening lack of creative vision that anyone could think that we are incapable of lowering our impact on the environment. The market could be the best friend of the environment if we devise systems that reward innovation to improve sustainability and punish inefficiency. This is absolutely something that we should do. Why are we not doing this?
We can find a new reason to lose weight. To me this is the single most important step for anyone to accomplish anything. People will not lose weight until they have a reason to do so. In the same way, the economy is not going to shed excess capital until it has a drive to do it. This is why the outbreak of war normally leads to such great economic stimulus. As a society, we are suddenly shifted to accomplishing a goal, which is so desperately necessary any and all means should be employed. At the most extreme, we become convinced that the very existence of our society depends on this, and every level of our society follows suit. Industry invests and we all go to work. It is a sickening fact that killing each other has so often lead to great advances in human society, but purpose does not have to be derived only from war. The space race of the 50′s and 60′s is another example of how a societal level challenge can lead to great economic growth and great accomplishments. I think the world of today thirsts for new grand challenges.
In the end, the solution to income disparity will likely come from dealing with other problems in our society. No problem is ever an island unto itself. Societal change has in the past emerged from processes that we did not understand. We faced environmental collapse because we did not see our collective impact on the natural world, we saw depressions when we failed to see our collective impact on the economic world. But it does not have to be this way. Just as new understanding of our biology will allow us to remake our bodies as we would want them to be, a consciousness of the forces the make our society will allow us to remake our society as we would want it to be. How do you want the world to be?
UPDATE: A great article here on the state of excess capital in the world today.
Disclaimer: There are many different ideas touched on in this post, and there are many intelligent people who have spent a lot of time thinking and talking about these things. This post is not meant to be exhaustive in any way, and is simply meant to infect you with some new thoughts. I would suggest reading more about monetary policy, growth of the financial sector, derivatives, obesity, economics and whatever else might strike your interest. Just keep thinking, and don’t be afraid to be wrong, it’s the discussion that matters!