Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?
This is your opportunity to ask questions. No question too simple or too silly.
Culture war topics are accepted, and proposals for a better intro post are appreciated.
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Notes -
I recently read this article, which seems to have awoken some latent bleeding heart in me. As a result, it’s got me thinking about wealth redistribution, whence the following questions:
I understand that this post betrays a real naïveté in both economic knowledge and worldly experience— so I’ll admit that I’m a decent bit embarrassed about making it, but I figure that a Small-Scale Question Sunday thread is the best place to ask this.
I’ve become much more sympathetic towards the issues that poor people face recently. The pandemic and inflation have had huge impacts on the economy that resulted in a large wealth distribution effect in favor of people that already had accumulated wealth (such as owning houses or stocks). Houses are much more unaffordable today than they were before the pandemic due to the mortgage rates increasing so much. For many people expenses (rent, food, etc.) have risen much faster than incomes. Many employers kept raises under inflation partly because they know most people won’t go through the hassle of looking for a new job.
The result for renters is that it is now much harder to save for a downpayment for a house that costs 100k+ more than it did 3.5 years ago and has a higher monthly payment due to mortgage rates. Many poor people are in a worse situation today through no fault of their own. It is because the pandemic policies created so much fraud/waste/inflation that made rent and housing less affordable. Poor people can’t just work harder when the government stacks the system against them further.
Anyway, to answer your question about the utilitarian arguments against wealth distribution imagine a world where there are no billionaires or double digit millionaires. It becomes much harder/impossible for someone to start an innovative business that may go bankrupt or take many years to become profitable. In today’s world there is a venture capital model where the rich can bet on many of these visionary businesses and they only need a small percentage to succeed to make money. They know some will go bankrupt but that is just a cost of their investment strategy. The banks don’t have an incentive to fund these businesses so private investors must fund them. If there are no ultra-rich investors it becomes much harder to get funding.
Additionally, accumulated wealth earned allows people to influence policy (such as through political donations and advertising). In theory if accumulated wealth is the result of merit then it gives those people more influence in public policy. If they are smarter than average than it may result in better policy overall. In practice the people with accumulated wealth often influence policy to enrich themselves/their friends instead of shaping policy in what is best from a utilitarian perspective.
Why would banks not be interested if venture capital has a positive return?
The lack of very wealthy people implies that venture capital does not have large positive return.
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