An Economic System Based On Helping People
(I believe this writing is important.)
Our current capitalist system in the United States is hurting people and incentivizes us to act in ways that actively harm others. We can do better.
In fact, let’s design a new economic system right now.
We’re starting fresh, so, to be fair, let’s just assume that everyone gets the same amount of resources to start.
This time though, we don’t want to incentivize people to just get rich. We want to incentivize people to help others. By definition, since we’re building an economic system, we’re building a system to distribute resources. So, in our system, in order to incentivize helping others, we should allow people to gain resources by helping others.
If someone does something that helps you, you can give them resources as a reward. The more it helped you, the higher the reward. That way, it’s the people who help the world the most who get the most resources!
Great! We did it. This is a much better system, because it’s the people who help the world the most who become the richest.
We just recreated capitalism.
Yep, that’s right. Capitalism is a system that tries to get people to help one another.
So why doesn’t it do its job?
Why are so many people suffering under this system? Why is it that people who are rich often don’t seem to be helping others at all, much less helping the world more than other people do?
Well, let’s see what happens to our system after a few years.
The First Generation
Let’s say we implemented our new system in an imaginary world for a few years where it was true that resources were initially distributed equally among every person in the world (equality), nobody lied or was coercive (honesty and respect), and people always gave the same amount of resources as a reward for the same amount of help (consistency).
During the first year, let’s pretend there’s a person called Ritchie that helps out everyone. If you ever needed help, Ritchie is there for you. He builds things for every neighborhood, helps people to accomplish their goals, and really just makes life better for everyone.
People really like how much Ritchie helps them, so they give him lots of money as a reward.
Another person, who we’ll call Porter, is pretty much just selfish. He doesn’t really help people all that much. Just keeps the money he started off with and uses it for himself.
Since Porter doesn’t help anyone, he doesn’t get any extra money beyond what he started off with. Thus, he ends up with far less money than Ritchie.
The system seems to be working, right?
Building for Whom?
Now, imagine there’s someone named Smith who helps people by making tools for them. Her tools are so good that they provide a quarter of all the help a person needs. That is to say, people will pay a quarter of their life savings in order to buy a tool from Smith.
Now Smith wants to do good in the world, and she’s been told that her economic system rewards those who help others the most. So, in order to figure out what will help people, she looks to see what would make the most money.
Due to limited time and materials, Smith realizes she can only make one tool per generation. So she needs to figure out who she should make this tool for. Remember, no matter who the tool is built for, she’ll make sure it satisfies a quarter of that person’s needs, so anybody who buys one of her tools will pay 25% of all of their money in order to reward Smith for how much she has helped them.
Smith is trying to find people to sell to and comes across both Ritchie and Porter before they have children.
She notices that Ritchie has much more money, due to him helping more people. So, 25% of all of Ritchie’s money is far more than 25% of all of Porter’s money. Making more money is an indication of helping people more under this economic system, so Smith determines that she is helping more by building a tool for Ritchie. Thus, Smith decides to build a tool for Ritchie, rather than Porter.
Now obviously, Smith is incorrect to think that she’s helping the world more by building a tool for Ritchie. However, the result isn’t all that bad. What ended up happening is that a product (Smith’s tool) that improved life quality was built for those who helped others the most (Ritchie), rather than those who helped others the least (Porter).
In other words, under this economic system, as soon as one person becomes extremely rich by genuinely helping people more than others, others who believe that money is synonymous with helping the world will flock to help the genuine rich person in order to become rich themselves. This means that if you want to make lots of money under this system, you should be focused on helping two groups of people: 1. People who genuinely made the world better than others did, or 2. People who helped (and therefore were rewarded by) those who genuinely made the world better than others did.
I think that the result of this system during the first generation (before people have kids) is actually fairly close to how the world should be. If you help people, more people want to help you. You could argue that the people with the least amount of money need the most help, but, at least in this first generation, the people with the least amount of money are also the people who are doing the least to help others. If they needed more money, they could just help people.
But what happens once people have children?
The Second Generation
A few years later, both Ritchie and Porter have families. Due to Ritchie’s positive impact on the world, Ritchie has lots of extra money, which goes towards supporting his family and friends. This means that even though his children haven’t helped anyone, since their father loves them anyway, they still receive lots of money (from their dad).
However, Porter’s kids get basically nothing and have to learn how to make money on their own. (And Porter doesn’t have much that he can teach his kids about how to earn money, since he never really did it himself.)
So, within our second generation, we already have large amounts of inequity: people who haven’t worked to help the world (Ritchie’s kids) have far more money than others (Porter’s kids). Why? Because people give money to those they care about, even if those people never worked to help them.
Even if we give all the children in this second generation the same amount of money to start off with, Ritchie’s kids will likely end up with more money than Porter’s kids, because Ritchie will give his kids money just for existing, because they’re his children.
So, one reason for inequity under capitalism is that we have families and people we care about, even if they don’t explicitly help us. Thus, people who are cared about by those who are rich will gain more resources than people who are cared about by those who are poor, regardless of how much they’ve done to help the world.
Building for Families
Smith ends up having a child around the same time as Ritchie and Porter, and Smith’s child is the tool-maker for her generation.
So, Smith’s child is now trying to figure out who to build a tool for: Ritchie’s kids or Porter’s kids. Just like her mom, people are willing to pay 25% of their wealth for one of the tools that Smith’s child creates.
It turns out that Porter’s kids actually do end up helping the world more than Ritchie’s kids, but no one has any exact method of figuring out who helped the world more, so nobody knows that Porter’s kids deserve to have more money than Ritchie’s kids. In addition, since Ritchie gifted so much money to his kids, it turns out that Porter’s kids end up having less money than Ritchie’s kids, despite doing more to help the world.
So, when Smith’s child decides to build a tool, she ends up in the same situation as her mom. Ritchie’s kids have more money, so building a tool for them is seen as a better choice.
This, however, is not how we’d like the world to work. Ritchie’s children are having tools built for them, even though they’ve done less to help the world than Porter’s children.
Unfortunately, that means that this economic system won’t work. The goal was to make it so that people were incentivized to help others (or to help those who do help others.) Instead, we found that within the first generation, people are incentivized to help the rich, despite being able to do the same amount of good for people who are not rich. This isn’t that bad of a problem, if it weren’t for the fact that in the second generation, who was rich was no longer guided by who helped the world the most.
However, it can get even worse.
A Third Generation
Now, it turns out that Smith’s child’s tool helps people to be more efficient at helping others. This means that you do less, but it ends up helping others more.
This tool is so good at improving the efficiency of helping people, that Ritchie’s kids, who don’t do much at all, are actually able to help the world far more than Porter’s kids, since Porter’s kids are working without the tool.
This also means that Ritchie’s kids end up with more money than Porter’s kids, despite Porter’s kids trying harder to do good in the world.
So, by the time we get to the third generation, when everyone has kids again, the tools will be given to the Ritchie family once again, because their family will have done the most good for the world.
This is intergenerational poverty. Porter’s kids are not given the tools to efficiently improve the world because they’re poor in comparison to Ritchie’s kids. Ritchie’s children will use the tool to make a lot of money and then donate that money to their children out of love. Porter’s children don’t make that much money without the tool. So, they have less to donate to their children. This means that when the next generation is making tools, once again, Porter’s family will have less money than Ritchie’s family, and so the tools will be made for Ritchie’s family.
This means that generation after generation, Porter’s family will remain poor, despite each generation (except for the first) being just as hard-working as Ritchie’s family.
Why is this important?
I think that this economics story illustrates a few things about our current economic system:
- It helps show why people make products for the rich rather than the poor; making the same thing for someone who’s rich will likely make you more money. Thus, the rich often end up making products for each other.
- It helps show why business leaders may seem to do less work but make more money. The work that they’re doing is more effective at making money. It’s not necessarily harder work.
- Even in a “perfect” society with equality, honesty, respect, and consistency, within a few generations, an economic system that incentivizes helping people still can end up with rich people who do little to help the world and intergenerational poverty for groups of people who may be trying to help the world.
This video (“Peter Schiff Speaks for 1 Percent at Occupy Wall Street” by ReasonTV on YouTube) was instrumental in getting me to start thinking about these sorts of ideas years ago. This simplistic model I created helped me to understand why even if Peter Schiff is right that capitalism incentivizes helping others, such a system can still lead to many people being upset about an unequal and unfair distribution of wealth.
As always, I’d love to hear your thoughts. I don’t care whether you’re an economist, a janitor, or a middle school student, your thoughts are important for the world to hear.
