The Superfluity of the Masses
I do not think the bottom half or so of the world by ability has any relevance to economic growth whatsoever. That is not to say that they do not provide value – they trade labor for money, and free up people to do other things. What I mean to say is that what they do is almost entirely accounted for in the money they are paid. It does not have any spillovers to other people, and it is those spillovers which are overwhelmingly responsible for human prosperity.
Imagine if the bottom half and the top half were to cleave in twain. (One must abstract away from the chaos and dislocation such a supernatural event would cause). The top half would be discomfited, and probably a bit poorer; the bottom half would revert to the barbarism of the Goths in Rome, looking at structures they cannot understand nor maintain. If you want to isolate the effect of ability, and replace each missing person with a twin of another in these worlds, the top half would see the almost total elimination of anti-social behavior and an economic boom, while the bottom half would see mass starvation as they breach their Malthusian bonds. With physical labor, a skilled worker can be substituted for with increasing numbers of unskilled workers; with mental labor, no number of people below a threshold could ever substitute. A thousand auto-dealers could not substitute for one von Neumann, nor could a million.
The masses are dragged along by the elites. They are not in any substantial way responsible for progress. Without the brilliant, there is no math, no medicine, no science, no democracy, no liberalism, no fertilizer, no literacy. Without the proletariat, there are no servants, and fewer laborers. In fact, if you believe that automation has more positive externalities than labor, then low wages for labor keep us actively poorer.
Economic growth is the implementing of ideas, and it is ideas which we underproduce. They are not appropriable. The marginal cost of using someone else’s idea is approximately zero. The people who make them will be under rewarded relative to the value they create, and these people will be concentrated among the top earners. I am heavily inspired here by Jones (2022). There are, of course, some income sources which are high-paying and have little in the way of externalities. I think finance is one such profession – this is the steelman of those who bemoan elite graduates going into quant jobs – but high incomes very often come from implementing new ideas. And this is not research which can be subsidized. How are you to subsidize the idea of Walmart? How are you going to subsidize creating Amazon? This is not specifiable. We cannot give a prize for it, and a patent on Amazon – to the extent that such a thing is remotely feasible – would be to pile distortion on distortion.
There is a long line of papers in the optimal taxation literature, where optimal is defined as “maximally revenue extracting”. I do mean long – I have not come close to reading it all. I recommend Mankiw, Weinzerl, and Yagan (2009), for the more “conservative” case, and Diamond and Saez (2011) for the more “progressive” case. In any case, though, they treat the individual as capturing the returns from their labor, and so optimal tax papers tend to have extremely high top marginal tax rates. Diamond and Saez find that the revenue maximizing top rate is 91%, and the utilitarian high rate not far off, if you allow for people’s utility with respect to income to be concave.
Jones points out that much of what the top does is create new things, which benefit those below. Once you include this, the optimal tax rate plummets. In their preferred specification, the tax rate on the top 1% which most benefits the bottom 90% is 9%. Alternative specifications can only raise it as high as 51% – and other specifications turn it negative. It is not implausible that the very richest in society aren’t working enough, and should face a top marginal tax rate of negative 26%!
I haven’t even touched on optimal capital taxation, which is likely at a very low rate. (I have not had time to sort through the conflicting claims on this, as the results of Chamley (1986) and Judd (1985) seem to be overturned by the results of Straub and Werning (2020)). Much of so-called “returns to capital” are actually returns to labor income anyway, which is why there are very good arguments for taxing corporations. “Capitalists in the 21st Century” uses the death or retirement of a corporation’s primary owner to show how much of the corporation’s dividends are really labor returns, and Leite (2024) is giving the receipts for how firm owners shift to suspicious expenditures.
We mustn’t kill our golden gooses. Culture shapes our institutions, but to some degree, our institutions shape our culture. Compare ourselves with Sweden. They have very high tax rates, so they shift how they receive high incomes. Instead of working more, and getting paid more – which for many jobs has enormous positive spillovers onto others – they take their pay in the form of working less, and in shifting their production to the home (in other words, they do not pay others to do housework or similar things – it simply isn’t worth the taxes). The former is clearly better for society than the latter.
I don’t want us to become like Sweden. But it is more than just that I do not want us to become like Sweden – the world needs us to not be like Sweden. Sweden needs us to not be like Sweden. We cannot become a contented culture. It is Americans' belief that making something new is good and high-status that benefits the entire world. Let them sit, placid, while Valhalla burns; America will put out the fires the world ignores.
What an unhinged rant ! The leaps in logic from niche economics papers covering specific cases to grand totalising assertions about humanity's nature are unexplained and inexplicable. This essay speaks more about your barely concealed superiority complex than about the value of the "lower half" of humanity.
The claim that the lower half of humanity will descend into "Gothic barbarism" is ridiculous on many levels. I know you don't mean your Gothic comparison literally, but I will nevertheless debunk this idea. Firstly, the savagery-barbarism-civilisation typology of classification is obsolete for more than a century and must go into the dustbin of history. Secondly, the Goths very much were capable of understanding Roman politics, society, institutions and culture. In Iberia they established a highly centralised and powerful monarchy based on the model of the Dominate. In Italy they ruled over a kingdom mostly unchanged from the times of the late Western Empire as well until it's takeover by the Eastern Romans. The legacy of Rome was retained across Europe until the Arab invasions. Furthermore the economic decline of the empire was not due to barbarian *Untermenschen* but due to the complex but delicate economy and trade networks of the *Principate* collapsing under the strain of the Crisis of the Third century and the Denarii turning into a fiat currency under the rampant inflation, which gave rise to the cruder but more robust economic structure of the *Dominate* which emphasised serfdom and destroyed bulk trade. The "Barbarians" were not dullards who could not perceive and preserve the Roman legacy, it's destruction was a byproduct of the Arab conquest. Go read about the Pirenne thesis.
With that said, your claims that the upper half of the population is more productive than the lower half is no forbidden knowledge, it is a Tautology that follows from the very definitions of those terms. Moving on to your claim that there would be mass starvation among this hypothetical seperated lower half, that is simply not true. It does not take much cognitive capacity to operate farm machinery or produce fertilizer via the Haber-Bosch process. Btw most famine is caused not by shortage of food but by barriers and restrictions on its transport and mobilty, most of which, mind you, are imposed by capitalists and leaders from the upper half of the population. Regarding your assertion that almost all antisocial behaviour would be absent from the hypothetical upper half, this is also not true. Do not the businessmen, managers and politicians of this world empirically have much more psychopathic and sociopathic traits amongst them ?
Also, your claim that the lower half hardly contributes to human progress is untrue. It may be that they have almost nothing to contribute in more g-loaded fields of acheivement and may not have achieved any drastic breakthroughs for humanity. But is not most human progress gradual and incremental, and have not the masses a part to play in it ? It is ludicrous that you claim that art, science, math, liberalism, democracy and so on are due to the elite alone.
Were the cave painters of Lascaux and Altamira "elite" in some way ? What about the those millions of nameless people who established with their own hands the"science of the concrete" ? What about the spontaneous democracy of the small tribe or clan, an atavistic tendency that even under the cruel yoke of the "upper half" emerged in such diverse places,times and contexts as fraternal associations like *collegia*, *guilds*, *sreni*, land and irrigation management systems such as the *mir*, *rundale*, *mash'a* and *subak* and in areas free from your upper half's repression such as Dithmarschen and Frisia ? If not the common man, who built Thebes of the seven gates, who erected the archs of Rome, who raised up the ruins of Babylon ?
If you choose any individual measure such as IQ to demarcate the "upper" and "lower" halves of humanity, then no doubt there are plenty from the lower half who have contributed for the species. If you have socio-economic-status in mind, then does not the existence of social mobility prove that these halves are not set in stone ? But if you delineate them as to keep this division watertight and immutable, does that not result in a tautology and is therefore wrong ?
Remember that most of the disproportionate contributions to progress that has emanated from the "upper class" are due to them having made themselves a parasite class which has not to worry about the grunt work carried out for them by their subordinates. It is due to this forcible division of labour that the elites obtain slack and more chances for contributions. Those ideas which you proclaim are underproduced public goods are themselves largely iterative improvements of other such ideas, and most of the maximal value of those concepts to be extracted under ideal conditions shall be balanced by the debts owed to precursors of those ideas themselves, should people be able to extract royalties from their ideation so effectively as you dream of.
It is not coincidence that any major development in human progress is done near simultaneously by multiple pioneers, such as calculus by Newton and Leibnitz, oxygen by Carl Scheele and Joseph Priestly and the telephone by Alexander Graham Bell and Elisha Gray, because progress is contingent not on individuals and ideas, but on materialistic forces and needs, which influence development of certain concepts, tools or ideas in response to social and economic needs through creative destruction. This materialistic impetus would last regardless of which type of individuals exist.
Your suggestion that we should allow people to capture yet more of the value they create from ideation flies in the face of a reality that has allowed increasingly longer periods of copyright, patent and trademark validity and has received nothing in return. Indeed, this recent increase in the time validity of intellectual property rights is driven not by rational economic arguments but from rent seeking behaviours from corporate companies.
I see not why the Swedish model is inferior to the American one. True, if applied in American conditions it may result in a slower rate of growth and a more slow paced economy. But beyond a certain point, the returns to human happiness from economic abundance steeply drop off. We must remember that economic ideas, including the very concept of growth, are merely means for humanity and not a end in and of itself. While we may have a market economy, we must remember to keep it embedded in wider society, in the Polanyist sense. Even if somehow the absurd assertion by you that the bottom half of society does not contribute in significant ways is true, which it is not, they gain more utils from resources provided to them than to the "elite". Therefore it is necessary for society as a whole to give them unto their last, as unto thee.
'Sweden needs us to not be like Sweden' - took the words right out of my mouth
Also reminds me of this hilarious footnote from a recent Paul Graham essay: "It's obvious that different people have different interests, and that some interests yield far more money than others, so how can it not be obvious that some people will end up much richer than others? In a world where some people like to write enterprise software and others like to make studio pottery, economic inequality is the natural outcome."
But also, if you are blessed as an externality-causer (either at an individual or national level), I think you should take that responsibility as part of the deal. You aren't better, just different.