Too
Close for Comfort
Be wise, be
fair, be sure, be there, behave, beware
Be wise, be smart, behave my heart
Don't upset your cart when she's so close.
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.