It is easy to forget that the economy is just a representation of our supply and demand behaviors. If everything was accurately recorded, it would just be a ledger and it always equals one. As we know however, "equaling one" doesn't mean that it is well distributed. In fact, it is very poorly distributed.
To visualize this better than I can, here is an image from the The Visual Capitalist which shows the distribution of wealth across net worth brackets in 2022.
As incredible as it is that over 50% of adults on earth have less than $10,000 in net worth, and all together they only own 1.2% of all private wealth, it doesn't really tell the full story, does it? For instance, the statements, "the share of adults in the lowest wealth range has dramatically declined" and "since 2000, the global middleclass has more than doubled" doesn't factor in the inflation rate. A million dollars isn't what it used to be.
However, what I find interesting about how we think about the economy, is that it represents some kind of societal health, where for instance, GDP is used as some kind of indicator as to how a country is doing. For instance, the United States is by far the largest economy in the world, with 25.5T in GDP (25% of the world total) generated in 2022, with China coming in second at around 18T. However, the "per capita" GDP is 6x higher in the US, at 75K per person, but 12.5K in China. But, if you look at Ireland for example, their 5M people "generate" 105K per capita, 30% more than the average American.
Why?
Ireland's generous corporate-tax regime has made it a hub for multinational tech and pharmaceutical companies. These firms generate much of their income in Ireland, inflating its GDP, but funnel that money to their headquarters (or shell companies) abroad.
The economy is the story of a bus full of millionaires on average, but when the billionaire steps off, the rest have next to nothing to their name. A few people have it all.
More than that though, while money is useful for marking trades of goods and services of differing value, it is not an indicator of the health of the people themselves. There is a "weird" assumption that money will translate into wellbeing, so if a country generates a lot of wealth, people will magically become healthier. Is that what we are seeing?
It is a misnomer that wealth means health in personal lives, but it is even more pronounced at the national and global levels, because the vast majority of the wealth is held by those who control the distribution, allotting themselves more than others to create an ever-widening gap. But, the economy is working exactly as it should, as it is a representation of supply and demand still.
However, another misunderstanding that many have about the economy is that the underlying algorithms is to encourage the growth of itself. Making more money doesn't mean that anything more is being created, because there are so many ways to grow wealth, without actually producing something. Even worse, the incentive is skewed toward growth at any cost, meaning that the algorithm will inevitably favor profit maximization. This comes in many forms, but efficiency is one of those mechanisms, meaning that reducing people required to generate wealth, will be employed.
To illustrate this:
Ireland, which has the third highest per capita GDP in the world, is about the same population size as the country in which I live, Finland. In fact, Finland has about 10% more people. However, the per capita GDP is over double that of Finland. Are they richer? No. The average salary in Finland and Ireland are actually about the same, so for those "on the ground", the wealth is roughly similar across the population. The money is "made" in Ireland, but not by the Irish people. Nothing extra is being created, no one is working harder, the GDP wealth isn't translating into greater wellbeing for individuals at all.
This came up in a discussion today at work, where we were talking about automation taking jobs. Many seem to think that all this means is that people will retrain, but eventually, there is nowhere for normal people to retrain too. But more importantly, the economy is designed with profit for business in mind, which used to require hiring people to generate goods and services. But, since the less people required to generate leads to greater profits, the algorithm will "naturally" favor getting rid of people.
This means that profits can be made, GDP can be incredibly high, but the average person is jobless and starving, begging robotic arms for handouts, or a merciful death.
This is because the algorithm of the for profit economy, isn't attached to what an economy is meant to do for humans, it is designed for financial entities. Corporations aren't about people, they are about shareholders. The corporation don't care if there are a hundred, a thousand or one shareholder, because its goal doesn't change, increase shareholder wealth.
A corporation never has to pay an inheritance tax, because they don't die, they fail. However, even when they fail, the business of that entity is absorbed by another entity, and that entity doesn't care if it is one of ten, or one of one. It will keep looking to maximize wealth for the owners, or owner. And as my colleague quickly realized, the only way to ensure financial survival, is to own.
Yet there is a strong cultural drive to encourage renters.
This is because of the economic wealth maximization algorithm - Renters pay, but they don't compete for profits as owners. And, what they pay with either comes through earnings from work, government handouts coming from tax from earnings at work, or government spending using tax collections, or borrowing debt on future tax. The corporations have money pass through them, but eventually, it is going to get washed, multiplied and end up back in their hands again. However, because they will insatiably look to increase profits, they will continually reduce their costs in capital expenditure, including human capital, meaning that less money will be in the hands of workers, less in the hands of governments, more in the hands of owners. But, the corporate machine will keep running its code of wealth maximization.
The biggest problem in the economy isn't centralized money, it is that the most efficient way to maximize wealth, is at the detriment of human wellbeing. If "making money" required providing goods and services that improved human wellbeing, we would be okay. But, in order to do that, we have to demand that suppliers provide it, because all the economy itself does, is track supply and demand.
Shit demand, Shit supply.
At the end of the day, distribution itself doesn't matter much, if we the people aren't going to use it to demand quality of life. We can have all the money in the world in our hands, but what we spend it on is going to dictate what is supplied. However, because the distribution is so incredibly bad at the moment, the masses just don't have the economic power to buy our way out of this shitshow. This means that if we want things to actually improve for us as humans, we have to overhaul the economy to reset distribution. But far more importantly, we have to dramatically change our mindset from a "for profit" model, to a "for wellbeing" model.
It would be interesting to be able to get an accurate statistic on how much of the 100 trillion dollars in yearly GDP is spent on activities that unequivocally improve our lives. If we were using our resources well, it would be running at 100% of the best we can do efficiency, right?
What's all that money really doing for us?
Taraz
[ Gen1: Hive ]