On Income Inequality

Most folks who lament income inequality have the following model in their head:  Wealth comes at a fixed rate from a fountain in the desert, and the rich are the piggy ones who hog all the output of the fountain and won't let anyone else in close to drink.  The more anyone takes from the fountain, the less that is available for everyone else.  And this was probably a pretty good model for considering pre-capitalist societies.  The actual robber barons, before the term was abused to describe successful industrialists of the 19th century, were petty nobles (ie the government of the time) who did absolutely nothing useful except prey on those around them and on those who passed by conducting rudimentary commerce, taking from them by force.  That is not how most people become wealthy today, with the exception of a few beneficiaries of cronyism (e.g. Terry McAuliffe).

These issues are dealt with quite clearly from a surprising source -- this review by an economist of the movie "Elysium".   I don't really get the schtick at the end with the Adam Smith cameo, but the rest is quite good

Postscript:  A while back I was reading the Devil's Candy (terrific book) and thinking about movie-making.  Perhaps it is not surprising that wealthy movie stars think in zero-sum terms.  I suppose much of their success can be thought of as zero-sum.  If I get the part, someone else does not.  If I get an extra point of the gross, that is less for everyone else.  If this movie does well, that probably means less revenue for another movie that came out the same weekend.   Particularly for actors trying to make it or on the rise, movies have a fixed sum of value and they are trying to grab a larger share of that value.

It is interesting that in their own sphere of influence, I never hear about such folks seeking any sort of income redistribution.  Perhaps I have missed it, but I never hear Matt Damon say "hey, take one of my gross points and split it up among all the craft folks on the movie, or share it out with the 20 guys who didn't land my part."

  • Onlooker from Troy

    EconPop is good stuff. Very libertarian bent to it. Watch/listen to them all.

  • me

    Unfortunately, the ironic statement at the beginning of the paragraph is pretty darn correct these days: Money is created from nothing by the FED and lands in the markets for stocks, bonds, real estate etc, where the fat cats (people with preexisting wealth) hold most of the market share and reap most of the benefits. Not the way a modern economy ought to function, but, well, ...

  • Patrick Albanese

    Actors don't just believe in the zero sum game economic theory.
    There is more to their delusion.

    Since a lot of success in show biz is luck, they know their wealth is a gift of serendipity. Also, they make large sums of money, including residual income, for minimal effort.

    What happens is, they believe that all wealth is a matter of luck, and that those who acquire it didn't work very hard for it. Just like them.

    Suffice it to say, they do not live in the real world..

  • Howard Luken

    You are absolutely right. Unfortunately those with wealth deny this fact. The fact that their wealth is an illusion created out of nothingness with fiat money. Hence Congress giving the Fed and the Rothschild banking system Around 30 trillion dollars in 2009 2010 Instead of following their constitutional duty to have the Treasury issue real money backed by real things.

  • Matthew Slyfield

    Money is not wealth, it's only a means of exchanging wealth.

    In fact, not only does the creation of money from nothing by the FED not create wealth, it actively destroys real wealth.

  • bigmaq1980

    Excellent point. Seems that applies to much of the entertainment industry, where those who "make it" are extremely few and the rest are pauper wannabes. Wonder what the GINI coefficient is on that industry?

    It also seems that the industry has a history of bad faith business dealings. Anecdotally: Colleagues who consulted for the industry (back end accounting) tell of how it was near impossible to help them set up a system given the monumental number of "exceptions", with the goal of pushing costs around to projects in a way to maximize the studio's "take" (i.e. minimize payout). This was mostly due to the uniqueness of the contracts associated with each project (i.e. amount and type of shares/splits, thresholds, etc). Being exposed to other industries, they thought it was extremely manipulative, the amount of gaming in the numbers.

    It corroborates a business mag article way back on Speilberg. IIRC, he complained about a profit sharing clause on Jaws, as he saw nothing from that clause in the blockbuster hit. Ever since, his clauses were based on gross revenue thresholds, with more than half going to him above those levels, and includes merchandise, etc..

  • Mike Powers

    RE your last bit: Keanu Reeves did in fact sign away his points from the "Matrix" sequels to the special-effects and costume-design teams. (the jury's still out on whether that was actually worth anything, but it does seem to be the kind of gesture you're asking for.)

  • ErikTheRed

    Not just that, but there is an impressive amount of unbelievably shady and dishonest business being done in Hollywood that simply does not exist in large parts of the "real" business world. Yes, there are other shady areas but by and large people generally have to do what they say they will do in order to stay around.

  • David in Seattle

    When I was in Guatemala, we stayed with a family that owned a piece of land on which they grew avocados. His neighbors were jealous of him because he was relatively wealthier than they were. Why? Did he plunder their fields for the fruits of their labor? Did he divert water to ensure his trees had what they needed? Did his field shield his neighbor's from the sun? Nope. He weeded between his trees and pruned them regularly. It took a lot of extra work. Work that a lot of other farmers wouldn't bother to do.

    On income inequality, I see two things happen: (1) Someone takes advantage of another. (2) Someone outdoes another through hard work. #2 usually results in more production and, therefore, more overall wealth. #1 usually involves soldiers, bureaucrats, and/or thieves and, historically, leaves everyone poorer. I like #2. I consider #1 evil. I despise those that can't tell the difference.

  • obloodyhell

    }}} It is interesting that in their own sphere of influence, I never hear about such folks seeking any sort of income redistribution. Perhaps I have missed it, but I never hear Matt Damon say "hey, take one of my gross points and split it up among all the craft folks on the movie, or share it out with the 20 guys who didn't land my part."

    The only actor I've ever heard of "sharing the wealth" is Drew Carey. When he started his TV series, he had a Mazda Miata. The series was a surprise success, and the producers were so happy they bought him a Porsche. He went back to the set, shouted out, "Who here has the worst car?" one of the set hands said he didn't have a car. Carey threw him the keys to the Miata. Clearly, he didn't need the car any more, but that's at least a semblance of Noblesse Oblige. I'd love to see some collaborations between him and Penn Jillette for Reason or the like. The two would probably be great together.

  • obloodyhell

    I seem to recall hearing about Fess Parker, who made the mistake of taking a cut off the back end for his exceptionally popular Davy Crockett series for Disney. Supposedly the series never actually made a profit, which is obvious equine excreta. Examination of the books showed charges for four hundred dollar doors (in the 50s and 60s!!)... stuff that would make the Military Procurement people blush.

  • obloodyhell

    Yeah, now that you mention it, I seem to recall that, too, along with the Drew Carey story mentioned above.

  • obloodyhell

    I'm not so sure it actually destroys wealth all by itself, though the market distortions it creates can certainly have that as a secondary effect. All it really is is playing with the numbers, a common governmental trick, since they're not required to use GAAP.

    Remember that -- come the revolution, the Next Government should be required by Law, with the same penalties for falsification by those in charge as exists for such in business -- to utilize GAAP in all of its accounting mechanisms.

  • Ann_In_Illinois

    Another fictional world with wildly unrealistic economics is Panem, in the Hunger Games trilogy. Most of the districts are kept in extreme poverty while people in the capital are fabulously wealthy. It might be believable if the capital was shown as gradually declining, but instead it's depicted as a place with rapid technological innovation even though no one ever actually does any work.