by Oliver Waters
In last month’s column I criticised the ‘degrowth’ movement, which essentially proposes that we should produce and consume less stuff. This notion has some merit of course – we should always strive to ‘do more with less’ – if that simply means making our technologies more efficient.
But the degrowth ideology also tends to be motivated by the following claim:
‘Rich countries already have enough resources to secure good lives for everyone.’
CNBC Explains video – ‘Degrowth: Is it time to live better lives with less?’
The idea here is that if all the wealth in a rich country, like the US, was divided equally, everyone could live comfortable, dignified lives. This is a highly intuitive claim, given the visceral displays of opulence by billionaires. Nonetheless, it is both false and harmful if taken too seriously.
To unpack why, we need to first clarify what we mean by the term ‘wealth’. It’s a strange word, since it seems to apply to radically different kinds of things. Jewellery, real estate, intellectual property – these all obviously count as wealth. But what do an idea and a townhouse have in common?
Wealth is best conceived as a property of people, rather than of physical objects themselves. In his book The Beginning of Infinity (2011), physicist David Deutsch defines a person’s wealth as ‘the repertoire of physical transformations one is capable of causing’. Owning a car contributes to your wealth, for example, as it enables you to transform petrol into useful motion. Owning a great new idea, on the other hand, allows you to transform the world in previously unimagined ways, and perhaps make yourself rich in the process.
How much total economic wealth is there in the world? In their 2023 Global Wealth Report, Credit Suisse estimates the figure at around $454.4 trillion USD. The United States holds the greatest share of around 31% ($140 trillion). The US has the second-highest mean (average) wealth per adult ($551,350) after Switzerland, but only the 13th highest median wealth ($107,740). This is because the US has a relatively large number of very rich people, which skews its mean wealth upwards.
This makes the US a prime candidate country for having more than ‘enough’ resources to share around. After all, if all its wealth were to be distributed equally, every adult could have $551,350 in their bank accounts, right? Every couple would end up with just over a million dollars. Since half of people own less than $107,740 of wealth, wouldn’t such a radical redistribution benefit the majority of people? Seems like an easy electoral promise!
But let’s look a bit closer at the practicalities of this scenario, starting by noting the difference between wealth and money.
Wealth is heterogenous – there are many different types of it – and most kinds of wealth cannot be arbitrarily divided without being destroyed. This goes especially for ordinary physical objects: you can’t distribute a nice gold watch among 50 people by cutting it into 50 equal parts. Money is that small subset of wealth that is defined as a useful medium of exchange, store of value, and unit of account. To serve these functions, money must be divisible while retaining its value, and fungible in the sense that every dollar is equivalent to every other dollar. This is why if you borrow a $10 note from a friend, you can give him back ten $1 notes the following week. Whereas if you borrow your friend’s $5 million mansion for a week, you can’t give her back 5 random properties each worth $1 million.
One theoretical way to redistribute all the wealth in the US would be for everyone in the US to trade all their wealth to the rest of the world in exchange for money. This money could then be redistributed equally within the US, and people could then buy back what they wanted from the rest of the world. As you’ve probably already realised though, this scenario couldn’t work because there is not nearly enough currency in existence for the rest of the world to buy all the wealth in the US.
This means the only viable way to divide up all wealth in the US would be to literally divide up its wealth. So let’s examine two of the main types of wealth which also appear to be far more ‘redistributable’ than objects like mega-yachts: corporate stock and real estate.
If a company’s stock is valuable, this is mainly because the company is expected to keep making profits, by producing better and cheaper goods and services than their competitors. How is it going to be able to do that? By making the right decisions. Who makes those decisions? The executives and ultimately the owners of the company who employ them.
This means the value of a company at any given time is determined to a significant degree by who is in charge of its decisions. For instance, if you suddenly redistributed all of Amazon’s stock equally among all people on Earth – it would literally cease to be Amazon. For a time, it would retain many of the superficial operational features of Amazon, but inevitably different kinds of decisions would be made than would have been made under the previous ownership structure. Amazon would therefore have lost a core part of what made it successful in the first place, and its overall value would almost certainly decline.
Switching out the owners of a successful company to a random subset of the population is like switching out the top 5 globally ranked tennis players for random citizens at the start of a major tournament. Sure, it’s logically possible that you happen to pick 5 even better tennis players who have so far remained undiscovered by talent scouts, but the odds are not in your favour.
This helps to partly explain the much derided ‘trickle-down effect’ of allowing a small number of people to enjoy ownership over huge corporations. It’s not that we naively expect those folks to generously give most of their profits to the poor. It’s that some people are very good at implementing business ideas at scale. They are the Roger Federer of coordinating huge companies that produce useful things, like healthy juices, streaming services, or medical devices. Allowing them to perform to the full extent of their abilities makes us all better off as users of those products and services.
For most prominent billionaires, like Jeff Bezos or Elon Musk, the vast majority of their wealth consists of stock ownership. You often hear people criticise them for not choosing to spend some fraction of their net wealth on alleviating world hunger. One issue is that the moment they sell a significant share of their ownership stakes in Amazon or Tesla, the share price would be dramatically affected, and thus the total value of the company. Given they are a major reason why the company is doing so well, it follows that reducing their ownership stake will most likely make the company perform worse, which ultimately means worse products at higher prices.
There may of course be great reasons for an owner to step down – maybe they’ve lost their edge, or are better at starting companies than running them, and so on. But as long as they are outperforming their competition in offering better products at cheaper prices, they are ultimately probably doing more good for the world than if they were to sell up and give all the money to charity. After all, it’s the most disadvantaged people who suffer the most from a rising cost of living.
So much for company stock – what about real estate? Couldn’t it be divided among the many, not just the few?
Natural, untouched land can be divided up arbitrarily enough, indeed it has been by empires and nations over the centuries. But land in itself isn’t actually all that valuable. There’s a lot of it on Earth, and people simply aren’t interested in most of it, being so inhospitably far from the amenities of human civilisation.
What people do want is land close to the centres of cities, which is why it is more expensive. What people care about most are houses or apartments that suit their particular accommodation needs. Now we begin to see why real estate is less fungible and divisible than we might have first assumed.
Living spaces are designed to suit some people’s needs and not others. A studio apartment is not suited to the needs of a five-person family, and a hard-to-maintain mansion is not suitable for the purposes of a single professional. One therefore cannot simply ‘equally distribute’ housing, as though it is some fungible liquid that can be poured in equal portions into everyone’s cups. Houses in themselves don’t have a fixed value for everyone – it matters where they are located and how they are designed. The very same real estate that is valuable to one person because of its location and design will be much less valuable to someone with totally different needs.
This reasoning obviously also applies doubly to productive real estate, like factories, company offices, etc. The value of a factory is definitely not the same if you suddenly move it to a different area, given this can radically change key inputs such as access to raw materials and labor.
To sum up then, most of the world’s existing corporate stock, real estate, and personal real assets are not the kinds of things that can be evenly distributed throughout the population without corroding or destroying their value.
This leaves us with money – the perfect kind of wealth to redistribute to help those in need. How much US currency is there? Very little, compared to the total amount of wealth. $18 trillion as at late 2023, if you take the measure called ‘M1’: money that is readily accessible for spending, i.e., not tied up in investments or term-deposits. Note that this is only about 13% of total US wealth ($140 trillion). And this fraction is historically abnormally high because of the nearly five-fold increase following the Covid pandemic financial stimulus. There was only $4 trillion of money in early 2020, i.e. only about 3.5% of US wealth at the time.
Now, if this $18 trillion of money was divided up equally among the 335 million people that live in the US, each would only receive just shy of $54,000. That’s not a yearly salary – it’s one-time lump sum payment that is grossly inadequate to provide a decent, dignified life. And this is in the richest country on Earth. It turns out that while money does indeed make the world go round, there simply isn’t enough of it to go round the world.
To be clear, none of these points about the nature of wealth determine the moral questions of whether coercive redistribution of wealth is ultimately good or bad, right or wrong in particular contexts. But they do challenge a popular misunderstanding that underpins a desire to redistribute wealth at very large scales.
If we merely tinker at the margins by redistributing a couple of percentage points of wages to benefit the most disadvantaged, this obviously won’t bring about a calamity. It’s when we really start pushing the envelope that things start to break. When countries heed the Marxist cry to ‘seize the means of production’ by nationalising whole industries (think Venezuela), their hard-earned wealth reliably starts evaporating.
What these extremists don’t realise just because the average per-capita wealth in a society is $X, this does not mean that everyone in the society could have $X via a committed redistribution effort. There simply aren’t enough Scrooge McDucks on Earth, diving into their swimming pools full of gold coins, to cannibalise.
The most important economic problem the world faces is therefore not how to radically redistribute justly acquired wealth. It’s how to create much more wealth for more people – and fast.