Distribution - Economics and Ecology: United for a Sustainable World - page 96

example, that two people form a rudimentary economy as sole producers
and consumers. There is $100 of income between them, which at first blush
we assume is evenly split, with each having a $50 per year income. What will
be produced? Without specifying details, their demand for goods will be
roughly similar, even allowing some differences for their individual tastes
in choosing items beyond their basic necessities. After all, their purchasing
power is identical. Therefore, as producers, even with some differences in
productive skills and specialization, they will each be engaged in producing
what they both need and want.
As a result, the important conclusion is that the existence of similar pur-
chasing power (not necessarily similar tastes or similar work skills) on the
part of participants in an economy will create the realization of interdepen-
dency between and among those producers and consumers. It will also cre-
ate the necessary awareness, on both of their parts, of their dual role as both a
producer and a consumer in this simple society.
Now, let us adjust the assumptions somewhat by asserting that one per-
son has an income of $70, while the other has an income of $30. What will
be produced in this economy? The answer stems from the obvious fact that
the majority of the purchasing power—70 percent to be exact—rests with
one of the two citizens of this system. Therefore, if everything is sold, 70
percent of the total output must cater to the desires of the wealthier per-
son. In turn, the person with only 30 percent of the income will likely find
himself or herself producing goods with the wants of the other person in
mind—and perhaps struggling a bit more to meet his or her own needs.
The situation will be even more striking if we assume one person has 90
percent of the income and the other has 10 percent. Production will be almost
totally oriented to the demands of the wealthier individual, perhaps even
including people working directly for them as maids, servants, security
guards, and the like. The choices of what to produce in the economy will
shift dramatically toward services and luxuries, and away from the produc-
tion of basic necessities, despite their increasing unavailability at the lower
end of the income distribution. Incidentally, as we all know, the rich-to-poor
ratio in the United States is many times worse than the nine-to-one ratio of
this example—but read on.
There are two vitally important conclusions to be drawn from the various
scenarios of this bare-bones example. The first is an economic observation.
Namely, it is immaterial how affluent a system might be or how far above
subsistence the typical worker/consumer might be when the average income
is calculated. If the distribution of income becomes increasingly disparate,
the least well off in the system are sooner or later driven to subsistence and
poverty. This is true because the wealthiest exist in the lap of luxury, and
the economy will continue to serve their needs because they have all the
purchasing power.
This is a recipe for what we euphemistically refer to as a “Banana Belt
Republic,” which is a situation in which the majority of a population exist in