Steve Roth: The winners have us all playing a loser's game

Steve Roth writes that The winners have us all playing a loser’s game.

Perfect markets concentrate wealth. It’s their nature. But at some point, market-generated wealth concentration strangles those very markets (compared to markets with broader distributions of wealth). If a handful of people have all the wealth, how many iPhones will Apple sell? If only a few have the wealth to buy cars, automakers will produce a handful of million-dollar Bugattis, instead of forty handfuls of $25,000 Toyotas. Sounding familiar?

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Why, then, aren’t we spending our lives on the right side of this chart? It’s a total win-win, right? The answer is not far to find. Nassim Taleb shows with some impressive math (PDF) what’s also easy to see with some arithmetic on the back of an envelope: if a few richer people (who dominate our government, financial system, and economy) have the choice between making our collective pie bigger or just grabbing a bigger slice, grabbing the bigger slice is the hands-down winner.

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To summarize: perfect markets, left to their own devices, concentrate wealth. Concentrated wealth results in less wealth, and far less collective well-being. (You’ll notice that I haven’t even mentioned fairness. It matters. But I’ll leave that to my gentle readers.)

This all leads one to wonder: how could we move ourselves into that happy world of rapidly increasing wealth and well-being on the right side of the graph? Hmmmm…

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Roth agrees that Marx was right about the dynamics of Capitalism. However, Roth wants to save Capitalism through the expansion of the Welfare State.

Yet, Roth points out the main impediment to the expansion of the Welfare Stete: the capture of the state by the wealthy. The plutotracy cares not whether it grows fast or slow, as long it stays in control.

Roth fails also to mention the importance of the USSR in the creation of the Welfare State in the West. The Welfare State was a political instrument to counteract Communist propaganda about a workers' paradise. Without the USSR, there is no longer a need for the Welfare State because there is now no alternative.

Or it could be as George Orwell wrote in 1984?

It was possible, no doubt, to imagine a society in which wealth, in the sense of personal possessions and luxuries, should be evenly distributed, while power remained in the hands of a small privileged caste. But in practice such a society could not long remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realise that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance.

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A free society is a Communist one.