An Unequal Distribution of the World’s Wealth: Is It Fair?

50 percent of the world’s wealth is owned by 2 percent of the world’s (adult) population; the bottom half of the world’s population barely owns 1 percent of the global wealth; 10 percent of the population account for 82 percent of the world’s wealth; Africa owns 1 percent of the world’s wealth, while Europe and North America account for respectively 30 and 34 percent. These are figures, and figures don’t lie. So: what to infer from these figures, or more importantly: what should we infer from these figures? One thing is for sure: the world’s wealth is not fairly distributed, or at least not in an economical sense.

I am not going to make a plea for worldwide communism, in the sense that the world’s wealth should be distributed equally among all of its inhabitants. That would be unfair, right? To have people working to pay for other people’s laziness? No, that doesn’t seem to be the optimal option. It could work, of course, if everyone of us would be prepared to work his ass off in favor of a more prosperous world overall. But we don’t want a world that is more prosperous ‘overall’: we want our wallets to be filled with more prosperity; we want to make sure that we are fairly rewarded for our contribution to society (or the world for that matter). Because, as is the case with the worldwide pollution and exploitation of fossil fuels: you can play the nice guy but, in the end, the nice guy will get screwed by the more selfish – or more intelligent; depends on your perspective – people. The prisoner’s dilemma seems unsolvable in a world like ours that is crowded by insecure people; people that see each opportunity to cooperate as an opportunity to be screwed.

Nonetheless, I want to trigger your imagination with the following (unrealistic) idea: what if we could take the world’s total wealth as it currently is and divide it by the total number of people living on this earth, and give every individual this average amount of wealth to start their lives with. See it as a kickstarter: when you are thrown in this world of ours, you will be given some certainty; a buffer, so to say. You can decide for yourself what you want to do with your buffer; you can spend it on drugs, or you can use it to start your own business; you can decide to buy a car that you don’t actually need, or you can save your buffer money for buying a house later on. You can even bundle your wealth with the wealth of others in order to create bigger and collectively shared goods (like roads, schools etc.)! It’s totally up to you.

In our world this ‘starting amount’ of wealth would be 26.202 dollars. Note that this is wealth per capita and not income per capita. Income is nothing more than a temporary reflection of a country’s wealth; therefore a one time change in income will not make much of a difference; not without increasing the wealth (factories, technology etc.) that underlie it.

This ‘wealth sharing kick-start idea’ I’ve presented can be though of as a variation of John Rawls’ idea of the the veil of ignorance. This is a well-known philosophical thought-experiment, that goes (more or less) as follows: imagine that every person on this world wouldn’t have been born yet. All of us would be standing behind some kind of curtain separating us from the earth that we are about to enter. We don’t have any idea about what our own capabilities (where we’re good at) and the capabilities of others will turn out to be when we in fact enter the world. Also, we don’t know what our fate will be: we might become a plumber, but we might just as well become a CEO. All you know is that you have to make one decision now, and that decision is: when all of us will enter earth, what will be the ‘fair’ manner of distributing the income we will come to earn and the wealth we will accumulate? Are we prepared to pay for the medical care required for someone’s handicapped son (which, remember, could be you; you after all don’t have a clue about how you will turn out to be), or don’t we find that fair? And if we would find it fair, how much money would you be prepared to lay aside for these expenditures? Again the question is: what is fair?

Rawls’ message with this veil of ignorance is that, if everyone of us would imagine him or her standing their, behind the veil of ignorance, we might come to notice what a truly fair world might look like; irrespective of our own particular situation. Like any thought experiment, one can debate whether it would even be possible to think about ‘how the world should be’ without knowing anything about yourself or the world. Let’s however, for the sake of the argument, assume that we could. Now I ask you: what would you do? Would you commit to the wealth kickstarting plan, or would you gamble and hope you will become the next Bill Gates?

What do you think?

Financial Markets: Keeping Up the Illusion of Confidence

Financial markets are trading grounds on which not products but ‘packets of confidence‘ are exchanged. Do you dare to face the uncertainty, or do you rather pass the opportunity to some guy more manly than you? Who is the 21th century knight, galloping over the battlefield of fallen companies, always leaving just in time not to get hit by the sweeping sword of bankruptcy, but just long enough to receive the fortune and fame? Who has got the balls to take the risk? That’s the question.

A financial market is a special market. In contrast to ‘normal’ markets – markets at which tangible goods like tables or computers are traded, or services like car-washing and theater – this market is build on top of confidence, or at least the perception of it. Surely, through such things as valuation techniques, financial considerations play a more than average role in deciding whether or not to buy stocks, derivatives, obligations or other financial products. However, just as it is in science, there is always a leap of faith required to take the final step: no matter whether it is in jumping to the conclusion on the basis of data, or making the purchase of a stock based upon a ‘reasonable’ level of confidence. No absolute truths and absolute values exist.

Thus – given that confidence plays such an important role in financial markets – you might expect that regulators overseeing these markets will try to do anything in order to keep this fragile little entity up and running. Just like a friend might gloze over the truth in order to keep you – and therefore himself – happy, so a regulator might tell investors that everything is going according to plan; that there’s nothing to worry about. And although lying might be immoral – according to Kant’s Categorical Imperative at least – that’s exactly what he (the regulator) should do, right? If not, the whole house of cards will collapse; investors become (more) insecure and run away as fast as they can. So you need a Santa Claus kind of figure; someone who, above all, should be trustworthy; someone who, no matter how naughty you have been, will always be there to comfort you. Of course: it wouldn’t mind if he or she would have at least some understanding of financial markets, but that’s just only a bonus (you get it? That was a joke).

So, what would happen if, instead of Santa Claus, you would put a politician in charge of regulating the financial markets? A guy like, let’s say, Jeroen Dijsselbloem? A guy who says that, ‘If the banks can’t do it, then we’ll talk to their shareholders and bondholders, we’ll ask them to contribute in recapitalising the bank, and – if necessary – the uninsured deposit holders.’ Then shit is getting messy, right? The insecure investors, longing for a pat on the back, or at least a little sympathy, start running; like Forrest Gump, the investors get the sign to ‘Run, investors, run!’

Honesty is not appreciated in financial markets, so don’t even try it. Lie as hard as you can. Do everything to keep the rat-race going. Do all that is required to ‘restore the confidence in the financial markets‘; be the 21st century Machiavelli. Don’t listen to the crowd yelling that the banks must bleed for their sins. Just assure that they – the crowd – will get their money back. Illusion leads to confidence, and confidence is king. So lie as hard as you can mister regulators; Go for it!

But what do you think?