Apr 15, 2012

The Wealth Hoarding Fallacy, or Yet Another Zero-Sum Fallacy Derivative

Cat lying in a pile of moneyA frequent theme in a lot of liberal rhetoric is this idea that a few select elite are unfairly gobbling up money and then sitting on piles of it like fat cats. Somehow, we're to automatically, if not intuitively, know that this behavior is pure evil. You get this sentiment most noticeably (and most recently) from the Occupy Wall Street movement types. And boy, does it get exasperating.

What drives me nuts is that this is such an obvious mistaken assumption. I'm not an econ expert, but even a layman like me can plainly see that the wealthy do not just stuff their money under a mattress somewhere. What do they do with it? They put it into investments or bank accounts or something. It's not just loose change lying unrealized beneath the couch cushions.

This money is in account of some kind*. Banks and such use these funds to drive other ventures, whether investment accounts into stocks and bonds, or as capital from which they can offer all sorts of loans to other folks. Loans, stocks, all this stuff is used to drive yet other ventures, such as business start-ups, car purchases, home mortgages, you name it. The economic engine purrs along just fine (continuing the cat metaphor, of course).

But I know why the idea is sexy: we want a villain. We want somebody or something to point at when we're suffering through a sluggish economy. We like splitting things into the haves and the have-nots. We like to be the underdog, to seem pious and down-trodden and sympathetic. We like to be the victim. A faceless entity like a sluggish economy gives no solace, but a greedy aristocrat twirling his mustache makes for a familiar and easy target.

Except it's just not true in most cases. This idea that the wealthy are hoarding the money from the rest of us is just another derivative of the zero-sum fallacy. There is this pie of money that gets allocated and the more they have must mean the less we have. The ZSF typically gets easily refuted with a quick explanation of value and creation in economic terms but in this case the answer needn't be so academic. As I said, it is plain to even this layman that all this money doesn't just sit around collecting dust in some basement. It is used to fuel more and more wealth, whether of knowledge, material goods, or what ever. It's hard to predict the possibilities. And even harder to see them happening, I suppose.

Of course, if money is unfairly gotten in the first place, by all means this should be prevented and punished when it is caught. Crony capitalism, bailouts of banks, all of the other stuff the OWS folks frequently harp about, I'm right behind you guys for the most part. It is shameful and unfair. But even so, the wealth they have accumulated, fairly or otherwise, is still generating activity in the economy through the means I've mentioned previously. That doesn't excuse or justify the bad behavior of some, but it should refocus the debate on the loopholes and other tricks that are, legally or illegally, being exploited to gain said wealth unfairly. Perhaps then we can finally see positive changes made. Indulging in convenient scapegoating bears nothing but transient relief.

* I realize that an oft-heard secondary complaint is that said money ends up in an oversees account, but I’ll address that knee-jerk xenophobia some other time.

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