All the money is spread equally around the world. Consequences? [closed]

Question

Imagine that the government or something decided to take all the money in the world, take the average and give everyone that amount. How would the world react? About 80% of the worlds population has agreed on this and all income for each person is the same.

The money taken from each person is the total amount in cash plus the total amount saved in the banks. All the countries' saved money that they have earned through taxes stay the same and aren't spread.

I imagine that the currency in the rich countries will rise because there's less money now, but what would be the global effects? Would this be good or bad?

Answer 1

Less investment

The more money that people have, the more they can save and invest. So for most people who lose money, they will save and invest more. However, the average wage is less than the amount where people save a lot. Unfortunately, this means that most people who gain money won't save significantly more. The net result will be a fall in investment and an increase in consumption.

More inflation

An increase in consumption without a corresponding increase in the capital stock to improve production will cause inflation. This will be exacerbated by the loss of capital stock from the fall in savings, which will cause production to fall. Note that inflation makes people poorer, so they save even less.

Drop in work

If everyone has the same income regardless of whether they are working or not, most people won't work. There will be exceptions. Writers may continue to write. Artists may continue to make art in general. Athletes may continue to play sports. But why be a garbage man? In fact, why do any of the unpleasant parts of any job?

Even if you set things so that everyone who works has the same income but people who don't work don't, the same problem exists. There'll be a lot of people for some jobs and hardly any for others. The disliked jobs will have to reduce hours to make them more attractive.

The net result of this is another drop in production. Which means more inflation.

Free education

Education would have to be free under this scenario. There's no incentive for people to pay for an education. They can get the same income without education. Note that people getting an education would have to get an income as well. Otherwise they are effectively paying for the privilege of getting an education.

Lower incomes

In the short term, nominal incomes will rise for most people. This is because the average income is higher than the median income. So for most people incomes will seem to go up. But inflation will eat up the increase. Worse, falling production will cause incomes to fall from that initial value.

Increased corruption

There will be a lot of incentives for people to try to game the system. If there is no garbage pickup, you have to take the garbage to the dump yourself. But what if instead you pay your neighbor a couple bucks to take your garbage with his? He pockets the money without reporting it as income.

Want a good job? Kick a bit back to the person responsible for hiring.

Note that in general there's no point in starting an honest business. You get the same income either way. So all new businesses will be corrupt.

Bad, very bad

It's a negative cycle. Investment would fall, causing production to fall, causing incomes to fall, causing investment to fall, and round we go again. The consequences are bad, unabashedly bad.

A one-time transfer

I've analyzed this assuming that "all income for each person is the same" means that you are going to maintain this. If instead you meant to say that incomes will stay the same as they are now rather than the same as each other, this would just be a one-time transfer.

In that case, the near term effect is that savings will drop. This is because people lose money exclusively from savings while the people who gain can save or consume. Again, this will cause a drop in investment. Over time, some people will blow their windfall. Others will save most of theirs. There will be a short term inflation effect.

Longer term there is the problem that people may wonder if you'll do it again. If so, they'll likely save less (or save in ways that aren't subject to this).

Note that if you give every person an equal share of all the cash in the US, that's only \$3800 per person. That's not enough to make a significant investment. It is enough for people to make a significant purchase.

The result is mostly bad. Savings and investment down. Current inflation and consumption up. Future consumption is lower, as people won't be able to finance it out of their savings. The only good result in that last is the increase in current consumption. That will produce increase incomes for someone. Mostly those rich enough to own stocks or businesses.

The middle class will be the worst hit. The rich don't keep most of their savings in banks. They buy stocks and stuff instead. The poor don't have any savings. Short term, the poor will get the most benefit. Longer term, the rich will get most of the profits. This will increase wealth inequality, which would seem to be the opposite of the intent.

Answer 2

Some people will blow it all at once. Some people will save. Some people will live beyond their means. Some people will live well within it. Some will barely scrape by paycheck to paycheck. Money would fairly rapidly start funneling to those who save and invest from those who mostly just spend.

Fewer people will go for an education. If you can earn the same amount as a pizza delivery driver as a neurosurgeon, a large incentive to put in the insane hours needed to become a neurosurgeon no longer exists.

One easy example of someone who would gather more money than others would be someone who lent money for profit, or even someone who simply grew some surplus vegetables in their garden.

Answer 3

There have been countries that have done this sort of thing on a smaller scale, and it doesn't always turn out the way you might assume.

For example: In Malaysia, they gave every native Malay a free plot of land, purely on the basis of their ethnicity, basically because they are jealous of the Chinese immigrants who move in and immediately form a business class. So what did the Malay's do with their free handouts? Start working a farm? Start a business? Charge the Chinese rent? No. They immediately sold their land to the Chinese so that the could spend the money on alcohol.

You said that you are going to distribute the money? As in the cash? but people keep their assets? In that case the wealthy lose nothing, because they have already invested all of their money and have no cash as such? The middle class would be robbed of their life savings, and the poor would immediately spend their money on consumer goods, their proceeds of which go to the rich. The result is that the rich are richer and the middle class have been reduced.

Or were you going to seize all business's also? That was already tried in the soviet union. Businesses administrated by government bureaucrats that had no stake in them immediately collapsed, as did the entire economy.

Answer 4

The issue would probably be the lack of infrastructure in poorer countries, as well as the fact that you couldn't use it to actually buy anything (though this depends on if the distribution is a one-time deal or a permanent income change). Assuming this a a permanent income change, then if you go to a shopkeeper and try to buy something, you won't be able to. The shopkeeper won't earn anything from it, because they won't be allowed to keep the money - all of their income will be redistributed.

They make zero money, but they lose a resource, resulting in a net loss.

And so money dies. The market dies. Capitalism dies with it. The money you've passed out becomes useless, because you can't really trade it.

You'll have to depend on your government to help you get the things that you need.

In countries with a lot of infrastructure, without corruption thrown into the mix (as in modern day North Korea), this might work. If the people were dedicated to it, it probably would work. Everyone, economically speaking, would be equal. There wouldn't be opportunities for advancement in business or in housing or economic status, which would anger some people, but this impossibility could lead to something like Star Trek's federation, if you want to be idealistic: everyone would work for advancing themselves in education, philosophy, and friendships.

But... this might not work in the world's poorer countries. Again, it's going to be difficult to trade when money is now effectively worthless... resource-rich countries would probably be alright. The Middle East might be able to improve its infrastructure significantly by bartering its oil with other nations, or exporting solar energy somehow if the world has become more clean.

But countries without resources and without infrastructure would suffer. The people have money, sure, but they can't spend it, and the government would have 1) no way to distribute food and 2) no way to convince other countries to help it build infrastructure. Already, countries like this have issues with starvation... I imagine it would become significantly worse. Unless governments assign people to humanitarian jobs that work in other countries (because the government would have to be the one employing everyone with businesses nonexistent)… undeveloped countries would suffer. And without a market, there wouldn't be much of an opportunity to get ahead.

It would be roughly the same as it is now. The rich would get richer and the poor would get poorer, but on a country scale rather than a social scale.

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Now, if this is a one time deal and everyone has to start over with equal money… well. It would do absolutely nothing but destroy investments and force the market to start over. Yes, there are about USD60,000,000,000,000 on the planet.

But this would equal USD10,000 for every man, woman, and child on Earth, and that's… it's certainly equalizing, but by no means would it make everyone a billionaire. I imagine a lot of people would evade this by temporarily investing into property and then selling it afterwards.

This would create a competitive environment coming out of it. A very competitive game, I suppose. Either spend your $10,000 wisely and come out with an empire, or be trampled. It would be a bloodbath among the formerly rich, a sort of modern day Game of Thrones or Hunger Games as newly formed companies try to squeeze themselves through the crucible of losing everything. It would be interesting. Would I want to be there when it happened? No. But a book would be nice.

Still, you would see formerly poor entrepreneurs who never had a chance emerging victorious. Poor countries, too, might benefit as their citizens do, from taxes and such.

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All of this neglects current companies. Is Google being disbanded here? What about Apple and Microsoft? Many people are rich because they own large corporations. If the owner of one of these companies lost all of his personal wealth, he or she would still own a large corporation and be able to quickly turn a new profit.

It's also important to note that the destruction of Google would mean riots in the streets. I'm not kidding. Remember SOPA? You'd lose Google Search, Gmail, Youtube, Google Maps, Android apps and phones... once, Google went down for 5 minutes and internet traffic went down 40%.

Taking down corporations like this means taking down empires.

I, for one, can say that if Google, Microsoft, Apple, Spotify, Facebook, Reddit, Stackexchange, and the internet became nonexistent... well. I think most people would be wishing they still had Spotify to listen to the Les Miserables soundtrack while storming a building with a mob.

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So. Would it be positive? Would it be negative? Honestly, you get to decide. I think it depends on exactly the scenario. In the first one, you get to explore the pros and cons of sudden communism, and in the second, excessive capitalism. It also depends on where you live: poor countries may benefit in the second, but will likely have difficulty in the first. Whatever you choose though - capitalist dystopia, communist dystopia, capitalist utopia, communist utopia - bear in mind that it likely won't last. However good a situation or government is, history will eventually tear it down. So there should be cons, however minor, that will become bigger and bigger over time - civilizations tend towards entropy.

Finally, it depends on whether or not Google is going away.

…because if Google is going away...

Answer 5

When you start talking about movements of money like that, the meaning of the currency starts to get a bit muddy. However, there are many arguments that it wouldn't take long for the status quo to come back. One theory is that those who have money, and have managed to keep it thus far, are rather good at using money to do things. Those who have not kept large sums of money have less experience using it to further their life. Accordingly, by the theory, the rich will return to being rich, and the poor will return to being poor.

Of course, the interesting bit is right around when the currency is transferred. To really play with money like this, you have to start viewing money as a form of power: its a way to get people to choose to do something you want done (like handing you a bouquet of flowers for your wife. They didn't want to do it... the flowers are theirs. But offer them some currency, and you can make the transaction worth their while). We can talk about the rich and the poor in the US, but the really interesting stuff happens in the villages that make single-digit dollars per day worth of income. A lump transfusion of power like this would have a marked effect on their lives, in one way or another.

Lets play some number games. Lets take the GWP: the Gross World Product. Currency is actually really hard to play games with, since not all stored wealth is stored in currency, but production is a bit more sane to play with. the GWP is roughly \$100 trillion/year. Divide that among the world's 7 billion people, and its about \$14k/year-person. For those of us living comfortably in the US, we'd notice, but this would not be earth-shattering. But for a country like Malawi, the poorest country in the world with a GDP of \$226.50/year-person, and you have an extraordinary change in purchasing power. You can buy a decent excavator for \$100k. If you're thrifty, you could even cover a rather large amount of gas for that price in addition to buying the excavator (buy used!). If a tribe in Malawi wanted to buy one on their normal income, they'd need to be a tribe of 500 people, and do nothing but save to buy the excavator. Tribes tend not to get that large! However, hand them just 1 year's worth of "their share" of the GWP, and a hunter gatherer party of 15 could buy one... two in fact.

Now, this does suggest that these poor countries might be able to feed themselves better, at least temporarily. But it also shows the earthshattering effect of wealth on their cultures. What capitalism can give them in a year would literally be more than they could make by traditional tribal methods in a lifetime! What will this do to the balances of power? What will this do to tribal heritage?

It'd be a messy time, that's for sure.

Answer 6

How would the world react?

With rejoicing on the part of the 80% who "have agreed on this" for a month or two. Then would come the shortages, then the famine.

If people believe that growing, manufacturing, transporting, creating or trading stuff won't get them any profit they won't bother to do it any more. Hence the series of famines in the USSR starting with the famine of 1921 that killed 5-6 million, and similar famines in other Communist countries.

Going by past experience of humanity the survivors would then blame the collapse on anyone other than themselves and take out their anger on some group designated as the class/racial/religious enemy.

Answer 7

I think you should decide the exact outcome based on how you want to tell your story. But I think it could have potential for good and bad. But more so good. We are pretty much running the world in the exact opposite way today, take a look at the results. You get a lot of financial class division, and specific crimes and lifestyles due to lack of finances. One can only reasonably assume that you would have largely inverse reactions in your scenario. It could make the whole of society stronger or lead to an interesting new problem all together.

Answer 8

I read the question a couple times and I think the implication is that all cash (and savings) but not wealth would be distributed ONE time. This would lead to the very poor having much more cash, of course. The result could be quite positive, as they might use it to buy farmland from either multinational agriculture or from land owning elites. They might even buy farm land in neighboring countries and emigrate from crowded countries. The result would be much more widespread ownership of farms and probably would result in a better standard of living for most of these people.

Answer 9

First you will need to define money. If you mean the paper trash we take everywhere, then it makes absolutely no difference how you spread it. The real power of a currency depends on the reserves of gold in that government's vaults. The more the gold, the higher the currency value.

And no government will give a single kg of those reserves with a sane mind.

That is the first (and somewhat boring) answer to your question.

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Considering that the paper trash distributed evenly and no country annuls their trash. In this case, banks are the first to hit dirt. A hell lot of people are going to commit suicide and a hell lot of companies are going to go broke.

The poorer countries will get a huge steroid boost to their economies. If (as you have stated) per capita income is the same globally, then there will be very little difference between 1st, 2nd and 3rd world countries. The difference of gold reserves would count very little and the main power to a country's economy would be ... -guess- ... its population! Considering everybody is earning the same amount, the countries with huge populations (China and India to start with) would go booming with surplus reserves while countries with less population (basically all of Europe) would have their economies coming crashing.