The Rich are a Problem for the Economy

I don’t mean this in an ethical or classist way. I mean, the existence of wealth is a practical economic problem.

Our economy is based on people trading their work for the work of others. Money serves as a buffer for this act of trade — you have money so you can ask for someone’s efforts later, rather than now. But buffering money for too long results in the trade of efforts getting deferred. That’s why economist worry about money circulation.

Buffering money hurts us
stagnation

Rich people have accumulated money, which is to say, they performed work, but have not yet asked others to do equivalent work in return. They’re buffering that value, keeping it around for future use. While there’s nothing intrinsically wrong with that, it breaks the social contract of trading your work for the work of others. The longer the average dollar is buffered this way, the fewer people work, the more the economy suffers.

Investing isn’t good enough

You might argue that wealth is typically invested. But while investing is better than nothing, it’s not the same as purchasing.

If you buy a million dollars’ worth of Starbucks stock, the company may use that money to open up a new location, or they might not. Even if they do, someone has to purchase the coffee sold in that location, or the investment won’t recoup itself. Investment doesn’t create jobs, it serves as a stepping stone where jobs are already needed.

Compare that to spending the same million at Starbucks locations. This directly creates work for baristas, manufacturers, the transportation infrastructure, etc. Spending has a much different quality of impact than investing.

Really, investment boils down to rich people1 giving money to one another.

Socialism?

Of course, this whole line of thought reeks of socialism. I don’t recommend that we get rid of rich people, or the ability to become rich. The possibility for advancement is the driving force behind capitalism and our society in general.

But the implications of wealth need to be considered as well, and there’s clearly a problem with the accumulation of most money in a qualitatively stagnant state.

Encouraging economic growth

If the goal is to encourage economic growth, we need to balance the freedom of advancement with the cost of stagnation. And that might mean forcing more money into circulation by raising taxes on those who have the most.

This will, of course, take some toll on the private sector. But so long as we don’t go overboard, it won’t destroy it.

1 Operating under the corporations-are-people aegis.

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