If you live in a college town, it’s almost a certainty that you’ve seen a bumper sticker along these lines: “Live simply so that others may simply live.” That phrase has the advantage of sounding like it’s based on some underlying economic theory as well as expressing a kind of moral superiority because of its concern for the least well-off. Despite its appearance, however, this claim misconstrues the causes of wealth and poverty, and as a result, the poor would suffer great damage from the idea’s unintended consequences.
The implicit economic theory behind the bumper sticker is that the West’s high rate of consumption, or perhaps the 1 percent’s rate, leaves fewer resources for the poorest. Its message could be construed in at least two different ways: (1) as a moral exhortation for the rich to not consume so much, or (2) as a call for government to reduce the consumption of the wealthy by forcibly transferring it to the poor. Regardless of which view is taken, the arguments below suggest why both strategies must fail.
Note that the bumper sticker assumes that economies are zero-sum games, in which one party’s gain must be another’s loss. It overlooks all the ways in which markets are, in fact, “positive-sum games,” in which both parties gain from their interaction. Exchange, which is the core of the market economy, is the classic example of a positive-sum game.
What is true of any given exchange is just as true of the market as a whole. The wealth or poverty of the poor depends not on the greed or generosity of the wealthy, but on the political and economic institutions of any given society. The poor are not poor because the rich won’t share. The poor, particularly outside the United States, are poor because government policies have made it more difficult for people to create and protect their wealth. Those rules and institutions are what determine how wealthy any society is, including the least well-off. If we want others “to simply live” we should be encouraging governments across the globe to eliminate policies that discourage wealth creation and create barriers for the poor to access the labor market.
This, however, is not the only fallacy of the bumper sticker. As it turns out, not only is the rich’s high level of consumption not a cause of poverty, it is actually one of the ways the poor become wealthier. F.A. Hayek argues in The Constitution of Liberty that a key to progress in any society is the initial testing of new goods, services, and ways of living to see if they are valuable. In a market economy this is a role played by the wealthy: They have the resources to try things out when they are new and expensive. If new goods and services are sufficiently valuable, they will continue to consume them, signaling producers to keep producing them.
Hayek also argues that the middle class and poor observe the rich using these new goods, which helps create their own interest in obtaining them. Producers, having covered much of their fixed costs through the high prices paid by the rich, can now afford to produce these goods at a lower marginal cost, making them more affordable to the poor. Without the extravagances of the rich, many things that the poor and middle class take for granted today would never have been feasible to produce. One need only think, in our own lifetimes, of the obvious cases of computers, smartphones, and entertainment technology like LCD TVs.
Almost all the household appliances that are now found in nearly every American home were once found only in the homes of the wealthy. It is wealthy people’s ability to consume that makes those goods affordable for the poor.
Were we successful at persuading the rich to consume much less, or were government to prevent them from consuming at current rates, we would eliminate the major method by which we learn what new products people want and by which companies can afford to create them. Without consumption by the rich, there would be many fewer affordable new products for the poor. Restricting wealthy people’s consumption would not reduce but perpetuate poverty.
For those of us who understand these things, we might want to consider a different bumper sticker. My preference would be to flip the script and get one that exhorts the rich to “Consume more, so that others can do more than just live.”
