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To answer that you need a way of equating money with "utility" (i.e. the use and/or pleasure that people get from their money). I believe that utility is logar

To answer that you need a way of equating money with "utility" (i.e. the use and/or pleasure that people get from their money). I believe that utility is logarithmic with rate of expenditure. Hence doubling your spending rate gets you a constant increment in utility. This is why we measure pay rises in percent rather than absolute value. Another $100/week would make a huge difference to someone on the breadline, but is lost in the noise for a millionaire. This means that money transferred from a rich person to a poor person will increase utility, because the decrement in the rich person's utility is more than outweighed by the incremenent in the poor person's utility. This difference can also accomodate the transaction costs (i.e. running the IRS) and the "deadweight cost" of decreasing the rich person's incentive to earn more. This would seem to suggest that money should be redistributed so that everyone has the same amount, as that would maximise utility if the total amount of money is constant. But of course that condition isn't true: in a world with zero economic incentives there would be no economic activity. In reality of course such a world would go horribly wrong in any number of ways. So there would seem to be an optimum amount of inequality in a society. Too little, and you destroy incentives to create new stuff, thereby making everyone poorer than they would have been. Too much and you are wasting valuable resources on gold plated baths that would be better spent giving poor people a tolerable standard of living, education, health care etc.

klodolph 9y ago
My guess is it would be more of a logistic curve (S-shaped) rather than logarithmic. $1 does not make you much happier than 1¢, but $50k/year is a big step up from $30k/year. At the low end, at some point you can afford to have a roof over your head, and an extra $20 might mean that you're eating much better for a whole week, or you can buy new shoes, or whatever. But if you're homeless, $20 won't feed you for very long or get you out of the rain for very long. At the mid range, a salary bump from $30k to $50k might make a world of difference if you're trying to raise a family. It might mean that you're not worrying about how you're going to pay for groceries, or it might mean that your kids are always wearing reasonable, well-fitting clothing.
- JamesBarney 9y ago
  Why do you think going from 0k -> 20k makes less of a difference than 30k -> 50k?(And we're talking about consumption not production, so weird things like having government benefits removed don't factor in).
  - klodolph 9y ago
    I'm saying that $3 -> $5 is less of a difference than $30k -> $50k.
- ben_w 9y ago
  At current exchange rates, $20 will provide 39 days worth of food to someone in the UK (assuming the only thing they care about it calories and not vitamins, as this is the Tesco Value Digestive Biscuits Diet — I have no idea if homeless people would eat like that).
- yorwba 9y ago
  I think you are right that at very low levels, the same sum of money becomes much less useful, but I think you are wrong about the level at which that happens. A few years ago, I met a beggar at a bus stop, who said that the store across the street had a sleeping bag for 50% off until the end of the week, and he was hoping that he would be able to buy it for the winter. I didn't have much money on me myself (basically just the bus fare), but I gave him what I had and walked home instead. To him, those five-ish euros meant not freezing in his sleep, while to me, they only meant a bit of unplanned exercise. If you have nothing at all, every little bit of money gives you access to some tangible improvement of your situation. But if you have much less than nothing, and every cent of additional income just serves to lower a gigantic debt, there isn't really much incentive to earn more when it makes no significant difference in the end. This is probably one of the reasons bankruptcy law allows discharging unpayable debts, because otherwise debtors might not be motivated to do something about the debts they could repay.
deleted 9y ago
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amelius 9y ago
I suppose there is also a psychological component to it. If your neighbor is making 10x the amount of money and doing 1/10 the amount of work, then that's a real problem there. So even in relatively rich countries where everybody has enough food and medical care, inequality can be a problem.
ddxxdd 9y ago
You're missing the commenter's point. If everyone ends up wealthier due to IT, then everybody's utility would be going up. Hence, IT would end up being a net positive thing even if it increased inequality. In other words, if there were no way to reduce inequality without reversing the gains that everybody made, then reducing inequality in that situation would be harmful.

klodolph 9y ago

My guess is it would be more of a logistic curve (S-shaped) rather than logarithmic. $1 does not make you much happier than 1¢, but $50k/year is a big step up from $30k/year. At the low end, at some point you can afford to have a roof over your head, and an extra $20 might mean that you're eating much better for a whole week, or you can buy new shoes, or whatever. But if you're homeless, $20 won't feed you for very long or get you out of the rain for very long. At the mid range, a salary bump from $30k to $50k might make a world of difference if you're trying to raise a family. It might mean that you're not worrying about how you're going to pay for groceries, or it might mean that your kids are always wearing reasonable, well-fitting clothing.

JamesBarney 9y ago
Why do you think going from 0k -> 20k makes less of a difference than 30k -> 50k?(And we're talking about consumption not production, so weird things like having government benefits removed don't factor in).
- klodolph 9y ago
  I'm saying that $3 -> $5 is less of a difference than $30k -> $50k.
ben_w 9y ago
At current exchange rates, $20 will provide 39 days worth of food to someone in the UK (assuming the only thing they care about it calories and not vitamins, as this is the Tesco Value Digestive Biscuits Diet — I have no idea if homeless people would eat like that).
yorwba 9y ago
I think you are right that at very low levels, the same sum of money becomes much less useful, but I think you are wrong about the level at which that happens. A few years ago, I met a beggar at a bus stop, who said that the store across the street had a sleeping bag for 50% off until the end of the week, and he was hoping that he would be able to buy it for the winter. I didn't have much money on me myself (basically just the bus fare), but I gave him what I had and walked home instead. To him, those five-ish euros meant not freezing in his sleep, while to me, they only meant a bit of unplanned exercise. If you have nothing at all, every little bit of money gives you access to some tangible improvement of your situation. But if you have much less than nothing, and every cent of additional income just serves to lower a gigantic debt, there isn't really much incentive to earn more when it makes no significant difference in the end. This is probably one of the reasons bankruptcy law allows discharging unpayable debts, because otherwise debtors might not be motivated to do something about the debts they could repay.

deleted 9y ago

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amelius 9y ago

I suppose there is also a psychological component to it. If your neighbor is making 10x the amount of money and doing 1/10 the amount of work, then that's a real problem there. So even in relatively rich countries where everybody has enough food and medical care, inequality can be a problem.

ddxxdd 9y ago

You're missing the commenter's point. If everyone ends up wealthier due to IT, then everybody's utility would be going up. Hence, IT would end up being a net positive thing even if it increased inequality. In other words, if there were no way to reduce inequality without reversing the gains that everybody made, then reducing inequality in that situation would be harmful.