Billionaire Planet

How abundance made us wealthy

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Congratulations, you won the birthdate lottery! If you are reading these words, you were born a millionaire, perhaps even a billionaire. Unless, of course, you’re in some apocalyptic future and unearthed Pathways of Progress from a long-forgotten time capsule. You were born into wealth that your ancestors could only dream of. Yet in any discussion of economic growth, “inequality” and “fairness” often take center stage. This can be an unhelpful distraction from the obvious benefits of material progress.

Default State

In our quest to uplift the poor and disenfranchised, we often begin by asking, “What makes them poor?” We hope that if we can divine the cause of poverty, we might alleviate it. We aim to treat poverty as if it were an illness that only a specific medicine can cure. This, however, is the wrong question and inevitably leads to the wrong answer. Poverty is the default state of humanity. Our species spent most of its existence in dire material poverty. We should not ask why some of us are impoverished but why some are not. The social supercomputer is lifting people out of material poverty every day. It does this in two ways: First, by raising our incomes, the total number of dollars, yen, yuan, pounds, or whatever unit of currency we trade for our time. Second, by compressing the cost of goods and services, making them better and cheaper.

When we ask the wrong questions we draw the wrong conclusions and answer. One might hear, for example, proclamations that all of today's problems can be solved if the “rich” were not selfishly “hoarding” all of the wealth for themselves. Statements like these illustrate legitimate frustration and feelings that the “system is rigged.” These feelings are not completely without merit, as I will discuss in a moment. But blanket statements of this kind also illustrate a fundamental misunderstanding of how wealth and prosperity come to be and harmfully conflate inequality with unfairness.

Here, our primal propensity to fall for zero-sum fallacies takes hold. As I noted early on, System 1 of our brains thinks of wealth as a finite pot of gold that all must share. We naturally think in zero-sum terms where one person’s gain is another’s loss. In other words, Jeff Bezos’ billions make everyone else poorer. We now know, however, that wealth is just a measure of our accumulated stock of knowledge; it’s infinite, and if we let it, it will grow infinitely. The “pie” of wealth can grow to an infinite size; Jeff Bezos's billions do not make you or me necessarily poorer.

To be fair, wealth inequality is, to an extent, a mathematical consequence of economic development and human progress. In the US and many other countries, wealth inequality has grown over the last 50 years. Billionaires are certainly getting a larger slice of the economic “pie.” However, looking only at the size of the slice misses an important factor: the pie itself has also gotten bigger, much bigger. Today, the poor and middle class may have a smaller proportion of the total pie, but their slices are still much larger than they were in the past.

Time Cost

Admittedly, the fact that the poor are wealthier today than in years past is likely of little solace to many. We need to take this analysis a step further. Recall that we become wealthy in two ways 1) Raising incomes and 2) Compressing prices. At the end of the day, what matters is not the number of dollars in your wallet, but what you can do with them. In Enlightenment Now, author

Steven Pinker

writes that when we define poverty by what we can do with dollars, rather than the dollars earned, the poverty rate in America plunged 90 percent from 1960 to 2018, to a mere 3 percent of the population. The reason is that a dollar today, even when adjusted for inflation, buys a much greater quality of life when compared to a dollar 60 years ago. 

This sounds incredibly unintuitive, don’t prices trend upward with inflation? Doesn’t everything get more expensive with time? Of course they do, but inflation data is inherently flawed; it fails to capture technological improvements and the rising wealth of consumers. For this reason, we have to turn to an alternate measure of cost. That measure is called the “time cost” or the “time price.” Pioneered by

Gale Pooley

and

Marian L Tupy

in their book, Superabundance, Pooley and Tupy illustrate the simple math behind the concept. To compare the true cost of a good or service over time, one simply calculates the number of labor hours of work required to buy it using the below formula:

Time Cost = Dollar Cost/Income

To compare the “time cost” of goods and services for a large population over time, we can divide that cost by the median income of that group. We use the median income instead of the average because a few extremely wealthy individuals can skew averages upward and distort the data. “Time prices” are a superior method for capturing the true cost of goods and services over time because it avoids the subjectivity inherent to inflation data and the challenges of currency exchange rates between countries. Also, because innovation reveals itself in both higher incomes and lower prices, it better captures the impact of innovation on material wealth.

When we measure the time cost of common goods and services, we find that we are all getting very wealthy and that the distribution of this wealth is becoming more, not less, equal. As we saw already, basic commodities have become more affordable. To calculate this, we can index the time cost of wheat, corn, and rice, staples that represent most of the calories we humans consume. The trend is clear; for Americans since 1960, the time cost of these commodities dropped by about 78 percent. The growing wealth of India and China saw time costs plunge by an even starker 81 percent and 96 percent respectively. This is despite the global population more than doubling in that time.

The general population only seems to acknowledge time prices in terms of computing because the pace of change is more readily apparent. We all know, for example, that consumer electronics have become more affordable over time. Televisions, especially so, but price compression is everywhere. The time price of refrigerators, for example, has fallen about 92 percent since 1956. This means that the median American worker in 2022 can purchase over 13 refrigerators today for the same hours worked in 1956. In that same period, the time cost of air conditioning units fell 97 percent, enabling one to buy 36 AC units for the price of one in the 1950s.

This doesn’t even fully consider technological improvements; not only are these products cheaper, but the new model refrigerators and AC units are also a lot more energy efficient. TVs are larger, lighter, produce more vivid colors, and have higher resolution. Smartphone prices may have trended upward over the last 15 years, but they also replaced many separate products one used to but individually; a pager, scanner, phone, camera, music player, video camera, dictionary, address book, calculator, alarm clock, maps, timer, flashlight, radio, voice recorder…etc. The smartphone collapsed a host of consumer goods into a single device. Thus, enabling our incomes to go further and do more than they did in the past.

In sum, you may not have as much money as Jeff Bezos, but the phone in his pocket is probably not much better than yours, nor are the clothes on his back. Even the poorest among us live like kings compared to the wealthy of generations past. Progress may widen inequality when expressed in dollars, but it appears to narrow inequality in just about everything that matters.

Inequality and Unfairness

Many will remain unconvinced by the arguments presented above. They will still hold that wealth inequality is fundamentally unfair. The preceding arguments are not meant to dismiss frustration with the status quo, but instead to properly frame the questions that we should be asking about inequality, fairness, and growth. If we begin from the basis that inequality is severe, getting worse, and fundamentally unfair, we will draw the wrong solutions. But now that we understand the true nature of inequality, we can address these questions from a position of reason instead of emotion.

I admit that to the extent that wealth is “unearned” or achieved through “rent-seeking,” in economic parlance, inequality is a problem. Indeed, a surprising amount of unearned wealth comes from the location value of land. Land and resources are not the fruits of physical or intellectual labor. Thus, allowing the matter of the Earth to be privately captured by individuals is genuinely problematic. Similarly, imperfections in the market system allow certain players to yield significant unearned wealth at the expense of everyone else. While most businesses and billionaires create wealth for all, those who rely on rent-seeking unfairly extract wealth in a zero-sum manner. Policymakers, therefore, should narrowly tailor policy to target this rent-seeking, not the wealthy in general.

The solution to poverty rests in first asking the correct questions and understanding where wealth comes from. Poverty is the default state of humanity. People are not poor because others are rich. We are all getting richer as the social supercomputer adds to the stock of human knowledge. It does this by simultaneously raising incomes and compressing costs. While the former may exacerbate inequality, the latter ameliorates it. With this understanding in hand, should we allow it, there is no limit to the wealth humanity can produce in the future.

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