Relative Wealth and the Struggle for Economic Dominance

It’s still the same old story
A fight for love and glory

– “As time goes by”, By Herman Hupfeld

Dow up 148 points yesterday. Gold rose $5.

And look at the euro. It’s back up to $1.38. Or, looked at from the other direction…the dollar is headed down again.

All that new money is having the effect Ben Bernanke wanted – sort of. It’s boosting asset prices. People feel richer. So, they spend more money. Trouble is, they’re not really richer. And after they spend more…they have less.

Here’s a subject you’re going to hear more about: wealth inequality. The rich have gotten richer. The poor have gotten poorer. People don’t know why. But they don’t like it. And they figure it has something to do with the rich rigging the system. They’re right…but not in the way they think.

But who cares if some people are richer than other people?

People obviously have a need for wealth. That is, they must eat. They need shelter, clothing… They don’t really need much more than that.

But there’s more to it, isn’t there? People have a desire for wealth. For status. For power. These things are more important than wealth itself.

Why? After a bare minimum, wealth doesn’t really affect a person’s survival. You don’t need more than the basics for that. Arguably, anything you eat more than what you actually need has a negative effect on your life.

And clothes? You can go to Wal-Mart and get all the clothes you need for $100.

Maybe less.

Shelter? Well, that’s a bit more expensive. But there’s a guy we see everyday who lives out on the street. He stands in the entrance to the abandoned Greyhound bus station in Baltimore, next to a mattress and a sleeping bag. He is always standing when we come by. And he is always facing south. He never turns his head, neither right nor left, neither up nor down…but he just looks straight ahead to the south.

Arguably, you don’t need more shelter than that. He seems to stay there…at no cost whatsoever. Not that we’d recommend it. But you could get a perfectly comfortable trailer for practically nothing.

What’s our point? That you don’t really NEED much money.

So why bother with it? And why do people care if you have a lot more than they do?

Humans seem driven to fight for wealth, power and status. Partly, you can explain it as a survival mechanism. No, you don’t need much money to survive. But for thousands of years, the person who was able to store up a little extra grain…or hunt a little extra meat…was the one who, in time of famine, might survive.

Of course, this is just theory…but you can imagine too that women would want to be close to the fellow who could get food when no one else could. She would want to have his children – fit and able – rather than the children of say, a tax collector or TSA inspector. First, because she might have a better chance of survival. And second, because her children might have a better chance of survival. He might keep them fed – after all, they’re his children! Not only that, they might be genetically well suited for survival anyway.

So, the kids that survive are likely to have the same survival instincts as the parents…which is to say, they’re likely to be good hunters/providers…or want to hook up with one.

There, anything else you want to know about socio-biology?

No? We didn’t think so.

So, let’s keep moving. Why did we bring this up?

Just to show that the relative wealth or status of people is very important – even though it is not directly related to their own survivability. Everyone wants to be rich, famous, and an Olympic rower – like the Winklevoss twins!

Naturally, they’ve got their eyes open all the time – sizing up the competition. They want to know where they stand. So, they spend a lot of time and effort not only trying to get ahead – trying to become rich, famous, and an Olympic rower – but also trying to bring the other fellow down!

Yes, dear reader, we’re sorry to have to tell you this. But jealousy, envy, resentment, backbiting, backstabbing, and income redistribution are just natural human instincts too.

And here’s another important point. Since more wealth is only interesting from a RELATIVE point of view…that is, it is only useful when it gives you higher status…a normal, healthy human being cares more about “fairness” than he does about absolute wealth. Of course, fairness can mean practically anything you want it to mean. It can mean fairness of opportunity – as in, we all play by the same rules. Or it can mean fairness of outcome – as in, we all end up in the same place.

In an up and coming economy, with limited government and low taxes – like the US in the early part of the last century – people care more about fairness of opportunity. People are making money. They’re creating status for themselves. Things change fast. You are responsible for creating your own wealth, power and status.

Later, as the economy matures, fairness of outcome becomes more important. New wealth is harder to get. It’s harder to move “up” in society. People get a hold of the government and turn it into a zombie-protector. They use it to make sure the rich get richer and the poor stay poor.

That is when people become very interested in “equality of income.” They think it is not fair. And, they’re often right. Because, by that time, the elites, the privileged, and the zombies have usually been able to rig the system for their own benefit.

As we put it in this space a week ago, when government meddling plays a bigger role in an economy, having access to the meddlers becomes more important.

The fight for love and glory continues…but the battlefield moves to the government.

Bill Bonner
for The Daily Reckoning

The Daily Reckoning