How Would You Distribute Wealth?

Wannapik Studio 1

Congratulations! The IMF has selected you to manage a grant of $8 billion to make the world a better place. You have great discretion over the budget. You may save some or all of this fortune away for your own financial security. You may consume to your heart’s content and let the money trickle down. You may invest in your favorite corporations or start a new one. You can form a charity.

Or …

You may choose to give most of the money to other people. Remember, your mission is to make the world a better place. Your gift portion must satisfy these simple rules:

  1. You can divvy the money among any number N of people, from N = 1 (just yourself) to N = 8 billion (Every person in the world).
  2. You must distribute the money equally among these N people. Nobody else will receive a direct payment.
  3. Each person who receives a share will have full budgeting authority for that share. You can’t tell them how to spend it. However, they may not “regift” it. Only you have authority over slicing the pie.

Here are some sample scenarios:

  • N = 1. You keep full control over the whole $8B jackpot. Other people will complain, but you trust no one more than yourself to spend this money wisely. Just imagine the impact that your charities will have! Or maybe you can form a corporation putting thousands of people to work in productive and rewarding careers!
  • N = 8. You and seven friends will each control $1B. Is it worth watering down your share to diversify among a few friends?
  • N = 8,000. Now you must give your money away to people you don’t know. You will make these people all millionaires. Maybe they can invest wisely to make their communities better places.
  • N = 100,000. Each person in your pool will receive $80,000, enough to enjoy a comfortable living for a year. This could transform the lives of 100,000 families living in poverty. But … is this an unfair “handout”? Will they spend it wisely?
  • N = 200,000. Each person in your pool will receive $40,000. This could reach even more families, but with diminished impact.
  • N = 8 billion. Every person in the world gets $1. Although the fortune is now split with perfect equity, it has lost all power to do anything useful. It is also going to rich families as well as poor.

What value of N would you choose?

Everyone seems to have an opinion about the distribution of income and wealth. While it’s easy to say, “That’s wrong,” it’s much harder to follow up with, “And I’ll tell you what’s right.” I created this exercise to force you to state your position and then struggle with its imperfections.

The moral of the story is that wealth must go through two stages to do any good:

  1. At some points in the economy, wealth must be concentrated. That’s the only way to build enterprises that do good works. (Are you listening on the left?)
  2. Wealth must eventually flow from highly concentrated centers to less concentrated ones. That’s the only way to keep the economy alive. (Are you listening on the right?)

This exercise also addresses such questions as, “Who gets the wealth?”, “Who should decide?”, and “What strings should be attached?”

Please share your thoughts. I might follow up with another post describing how people think wealth should be distributed, how they think it is distributed, and how it actually is distributed.