It’s The Distribution System, Stupid!
In his popular book Guns, Germs & Steel, geographer Jared Diamond traces the rise of agriculture creating a surplus food supply, which allowed specialization of labor, leading to human civilization. All consequent economic developments, from private property to derivatives, concern this issue of distributing a society’s surplus.
The American presidential campaign has generated a variety of schemes for distributing the resources of humanity’s largest economy. In order to understand them, it is helpful to understand a bit about distributions. Most readers will be familiar with the bell curve. A pool of any items distributed randomly will yield a graph shaped somewhat like a bell. Physicist, Albert Laszlo Barbarasi, explained in his book Linked that the bell shape applies only to random distributions. In networked systems, distributions tend to follow a power law - which is to say the distribution graph resembles a ski jump.
As does a recent Tax Policy Center map of American income distribution. Many middle class Americans are discovering that the bell has flattened out. How do we humans create such an inequitable distribution of group resources? Two factors leap to mind – Efficiency and Politics.
American’s agricultural percentage of workers has dwindled from nearly all, to relatively few. Currently, 2 percent of U.S. citizens (and probably an equal number of Latin Americans) produce enough food to feed the nation and to convince Kim Jong Un to abandon North Korea’s nuclear weapons program.
A decade ago, I interviewed a representative of the National Association of Manufacturers in D.C. I was assured that American manufacturing was not shrinking. Rather, fewer workers were producing the same results. The representative opined that American manufacturing was heading “in the same direction as agriculture.”
American society has numerous paths for distributing its resources to its citizens. One method is employment. Another is ownership.
Technological efficiency tends to reduce the number of producers (employees). Consequently the income distribution curve for everyone involved in agricultural, manufacturing, and information and service production (most of the population) is flattening.
Since ownership (direct or through investment) is also a basis for acquiring society’s resources, distribution will peak for owners. However, a significant proportion of investments are pooled funds, aimed at providing income for pensioners. Because the individual draws from these pools are low, the income distribution curve flattens for the majority of owners (i.e. pensioners). A minority of owners does accumulate disproportional income from their ownership; creating the inequities we observe in humanity’s foremost “free market”.
Efficiency produces a ski jump graph.
Consider the American presidential campaign views toward those in the flat areas of the income distribution graph. Republicans advocate broadening the tax base to increase government revenue. Those citizens who pay no taxes, due to exemptions, should begin contributing to ease the tax burden on the citizens who already pay. (I’m not making this up. CNN and Slate articles provide quotes).
Now, consider the American presidential campaign attitudes toward higher income citizens. Former president George W. Bush enacted tax cuts which were due to expire. Ramping up for the presidential contest, Republicans and Democrats fought over whether to extend the tax cuts, and for whom they should be extended. President Obama wanted to extend the cuts for those earning $250k or less. The Republicans successfully held out for no upper cap. Obama countered by proposing a tax on those earning more than a million dollars per year. This proposal was deemed class warfare. (Again, I’m not making this up).
Obviously, the strategy of collecting more from people at the lower percentiles of income distribution while maintaining tax breaks for those occupying the top percentiles of income distribution, reinforces the ski jump distribution graph.
This power law distribution is not exclusive to the United States. A map of the wealth distribution among the globe’s nations will look very similar. Illustrating the power of networks to force power law distributions, China is now considering World Bank recommendations to privatize its State industries. The plutarchs of the State machinery vehemently oppose this change.
Whether in the form of private property or State control, humanity’s current methods of distributing society’s surpluses create ‘free riders’ at the top as well as at the bottom of the distribution curve. Meanwhile the erosion of middle classes is unlikely to halt; leading to ... what?
Repeating Our History
Millennia ago, humans developed agriculture, a technological innovation which spawned a social innovation – creating surplus supplies of food which supported specialists in technological innovation. The result was human civilization.
Human technological innovation has taken civilization global. We have the opportunity for a concomitant social innovation. As a model, we should return to our prior success – creating surpluses and using them to support specialists in technological innovation. The DIY and open source movements demonstrate that people will use their own time and resources to innovate, and that they will freely share their innovations with humanity. A contribution ethic could lead to the next human innovation – expanding human civilization beyond our globe.