Wealth

 

Too Close for Comfort

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Can society increase wealth in a manner that is FAIR?

If the mean and median are the same, the distribution is “normal”.  It is suggested that this is the distribution which most humans would also classify as “fair”.  If the mean wealth is $0 and the median wealth is $0 this merely means that some of the people have negative wealth (i.e. debt) while others have positive wealth.  This does not mean that there is no wealth, just that the Standard Deviation of wealth is not also $0. The variance is the square root of the Standard Deviation.  If the distribution was normal, the wealthiest 0.3% are those that have a wealth which is the Standard Deviation multiplied by three.  In other words, if the wealthiest 0.3% have a wealth of $1 million, then if the median wealth is zero and the average wealth is zero, then the Standard Deviation is $333,333 and the variance is 577.

During the COVID pandemic the phrase flatten the curve became well known. A naturally occurring statistical phenomena, such as hospital bed admittances with COVID when there are no safety precautions, would be a uniform normal distribution with a variance of 1.  Flattening the curve means increasing its variance.  A variance of 577, would be a very flat curve.  In order for it to also be a normal distribution,  it would mean that the poorest 0.3% must also have a debt of  $1 million.  Since this amount of debt is not likely, the distribution of wealth is most probably skewed to the wealthy, the median is less than the mean, and the distribution is NOT normal.

Society, all of the individuals with wealth, have an interest in increasing the median.  If the existing distribution is maintained, then an increase in wealth of the median will also increase the amount held by the wealthy.  However society can not increase the wealth unless, as they say in the US Constitution "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries", otherwise there is no incentive for inventors to invent or for artists to create new works of art.  Additionally, society may take other measures to increase its wealth, say by funding the programs of the New Deal or the Great Society.  In order to have the funds for these programs, society must raise funds in taxes, and therein lies the rub.  Those with existing wealth are loathe to part with that wealth in the form of taxes, which are the merely the way that society must raise its revenue.

Tax codes should raise revenue by preserving a fair distribution of wealth, or at the very least the existing distribution of wealth.  The problem is that beginning with the Reagan Tax Cuts, the tax code promoted a shift of wealth from the median to the wealthiest.  Additionally, and not surprisingly, this was also accompanied by a slowing of economic growth for all groups.

If society is to increase wealth, and not merely transfer wealth from the poor to the rich, the tax code should be revised to be fair.