In which world would you be better off financially?

[Sparko]

In Augustine2004's lew rockwell thread he brings up a study.

You have a choice of one of two scenarios to live in:

A - You make 50K/year and everyone else in the world makes 25K/year

B - You make 100K/year and everyone else in the world makes 200K/year

In which world would you be better off financially, as in purchasing power? and why?

[Alcoth]

I haven't read all through that thread. If that is a qualifier for answering this question, please tell me what post to start on :tongue:

My first inclination is that you'd be better off making double the salary of everyone else. In general, prices will be lower because the economy would self-compensate for the lower income national average. If no one can purchase a product, no companies profit. Hence, they'd find a way to reduce costs to provide a product or service at a nationally affordable rate.

Hopefully that makes sense. It does in my mind, but sometimes that's scary.

[Sparko]

No the other thread is not necessary to read. In fact it is mostly about me and Auggie arguing about which is better, so I started this thread so he can see other's opinions and get it out of his thread. The important thing is the scenario, which I posted above.

[Crow]

In Augustine2004's lew rockwell thread he brings up a study.

You have a choice of one of two scenarios to live in:

A - You make 50K/year and everyone else in the world makes 25K/year

B - You make 100K/year and everyone else in the world makes 200K/year

In which world would you be better off financially, as in purchasing power? and why?

I'd to for the A scenario.

In the "A" scenario, other folks are evidently making a go of it on $25,000 a year, so I should be able to do fine. I'd have twice the purchasing power of most, and could probably survive on half of my income and have $25,000 left for savings, investment, or to spend on non-necessities.

[Alcoth]

No the other thread is not necessary to read. In fact it is mostly about me and Auggie arguing about which is better, so I started this thread so he can see other's opinions and get it out of his thread. The important thing is the scenario, which I posted above.
Coolies, thanks. Then my choice of "A" stands.

[eudyptes]

I'd agree with what's been said for the A scenario as well. Since income is fixed the increased monetary supply in scenario B would drive inflation but not wages...so you'd be losing ground as far as purchasing power and savings.

[Soyeong]

Currency measures relative wealth because it doesn't have any value other than what we give it (minus the meltdown value). So having 1X is no different from having 2X if everything else relatively is the same. Using that logic, I think we can rewrite the options as:

A - You make 100K/year and everyone else in the world makes 50K/year

B - You make 100K/year and everyone else in the world makes 200K/year

or even:

A - You make 2K/year and everyone else in the world makes 1K/year

B - You make 2K/year and everyone else in the world makes 4K/year

The people who make 1k a year can survive off of that because the 1k/year is just as relatively valuable is the 50k, so the answer to the question becomes clear.

[Alcoth]

Currency measures relative wealth because it doesn't have any value other than what we give it (minus the meltdown value). So having 1X is no different from having 2X if everything else relatively is the same. Using that logic, I think we can rewrite the options as:

A - You make 100K/year and everyone else in the world makes 50K/year

B - You make 100K/year and everyone else in the world makes 200K/year

or even:

A - You make 2K/year and everyone else in the world makes 1K/year

B - You make 2K/year and everyone else in the world makes 4K/year

The people who make 1k a year can survive off of that because the 1k/year is just as relatively valuable is the 50k, so the answer to the question becomes clear.
But, the question wasn't what can you survive off. It was "in which world would you be better off financially?".

Did I miss your point?

[Sparko]

So far you all have said the same thing I said to Augustine. He seems to think he will have twice the purchasing power in the world where he only makes half what everyone else does because he is making twice what he would make in the A scenario. I tried to explain that the two scenarios are not linked. He can't buy products from world A while living in world B for example. It's an either/or scenario. Prices in each economy would reflect the cost of labor in that world, and would be adjusted for income.

In 1950, the average wage was $3200/year. A house cost around $14K. People made less but had about the same purchasing power as now (maybe more. they didn't typically have to work two jobs to survive).

Today the average income is $44K and the average house costs $180K.

If you were making $6400 in 1950 you would have it made. If you are only making 22K today, you could not buy as much as you could living in the world of 1950 making twice what everyone else made back then even though you are making 3.5 times as much as you would in the 1950 world. Because stuff costs a lot more now.

[Cow Poke]

So far you all have said the same thing I said to Augustine. He seems to think he will have twice the purchasing power in the world where he only makes half what everyone else does because he is making twice what he would make in the A scenario. I tried to explain that the two scenarios are not linked. He can't buy products from world A while living in world B for example. It's an either/or scenario. Prices in each economy would reflect the cost of labor in that world, and would be adjusted for income.

In 1950, the average wage was $3200/year. A house cost around $14K. People made less but had about the same purchasing power as now (maybe more. they didn't typically have to work two jobs to survive).

Today the average income is $44K and the average house costs $180K.

If you were making $6400 in 1950 you would have it made. If you are only making 22K today, you could not buy as much as you could living in the world of 1950 making twice what everyone else made back then even though you are making 3.5 times as much as you would in the 1950 world. Because stuff costs a lot more now.

A "Finance Guy" spoke at our church about 20 years ago, and he pulled a coin from his pocket and held it up for everybody to see. He said... "This is a real $20 Gold Piece". He then produced a $20 bill and held it in the other hand. Then he proceeded to say....

In 1920, this $20 Gold Piece would by a man's suit, a pair of shoes, and a tie.
In 1920, this $20 BILL would buy a man's suit, a pair of shoes, and a tie.

TODAY, this $20 BILL MIGHT buy a man's tie.
TODAY, this $20 GOLD piece will buy a man's suit, a pair of shoes, a tie....

(If he told that story TODAY, he might be able to say the $20 Gold Piece could buy a new car :shrug:)

ANYWAY, Sparko, I can't see your argument not making sense! :thumb:

[Soyeong]

But, the question wasn't what can you survive off. It was "in which world would you be better off financially?".

Did I miss your point?
Sorry, I wasn't clear as I thought I was. I was just pointing out that making 1k/year doesn't necessarily reflect on their ability to survive because a specific dollar amount has no meaning in terms of purchasing power. The value of of a unit of currency is relative to what others have, so when you're making 2k/year and everyone else is making 1k/year, your 2k is relatively worth more than when you're making 2k and everyone else is making 4k.

[Crow]

Yup. Quantity of money is not what is important. It's buying power is. Currency has no value other than what it can buy.


If you have 3 billion of a currency and it will only buy you a loaf of breed, you're better off with one of a currency that will buy you five loaves.

[Alcoth]

:thumb: :wink:

[Cow Poke]

OK, Sparko... save me from having to read the other thread....

What was the argument AGAINST the notion that having "2x" income to everybody else's "x" is a good thing?

[Sparko]

OK, Sparko... save me from having to read the other thread....

What was the argument AGAINST the notion that having "2x" income to everybody else's "x" is a good thing?

nothing. he just kept insisting he would have twice the purchasing power even though he was making half what everyone else made.

If you really want to read the other thread discussion, it is here:
http://www.theologyweb.com/campus/showthread.php?117929-Augustine2004-s-opinions-on-Lew-Rockwell-Plato-and-assorted-other-subjects&p=3159113#post3159113

[FreezBee]

nothing. he just kept insisting he would have twice the purchasing power even though he was making half what everyone else made.

If you really want to read the other thread discussion, it is here:
http://www.theologyweb.com/campus/showthread.php?117929-Augustine2004-s-opinions-on-Lew-Rockwell-Plato-and-assorted-other-subjects&p=3159113#post3159113

Seriously?

The combined purchasing power in a society equals the amount of goods affered for sale.

Let S = amount of goods offered for sale.

Let N = number of people (assumed >> 1)

Let P = combined purchasing power


1. If you make 50K/year, and everybody else makes 25K/year, then P = (N-1)*25 + 50 ~ N*25 = S, average purchasing power = P/N ~ N*25/N = 25

So, in this scenario you have twice the purchasing power as anybody else and can buy twice the goods.


2. If you make 100K/year, and everybody else makes 200K/year, then P = (N-1)*200 + 100 ~ N*200 = S, average purchasing power = P/N ~ N*200/N = 200

So, in this scenario you have half the purchasing power as anybody else and can buy half the goods.


Unless the amount of goods is four times as high in scenario 2 than in scenarion 1, you will own less in scenarion 2 than in scenario 1

[Alien]

nothing. he just kept insisting he would have twice the purchasing power even though he was making half what everyone else made.

If you really want to read the other thread discussion, it is here:
http://www.theologyweb.com/campus/showthread.php?117929-Augustine2004-s-opinions-on-Lew-Rockwell-Plato-and-assorted-other-subjects&p=3159113#post3159113

I think you are being unfair to Augustine.

He originally referenced an article that was discussing "happiness", not income. It talked, very correctly imo, about the fact that true happiness does not come from material prosperity, and that other factors are more important. Part of that article says, and I paraphrase because for some reason it won't let me highlight in order to copy the text:

Beyond a certain level of income people tend to focus on their relative position in society rather than their material status. It goes on to quote a study that offered the participants the two choices mentioned, with the results quoted.

Though you may be right about the economics (and I think you are), the obvious intention of the study was to present the participants with two choices where the purchasing power of the dollars was the same. It doesn't matter one bit whether the example was unrealistic. That was not the intention of the study, nor did it affect the conclusions drawn.

Your challenge, I would submit, was a red herring. The title of this thread would be more correct if it was "In which world would you be happier?"

[FreezBee]

nothing. he just kept insisting he would have twice the purchasing power even though he was making half what everyone else made.

If you really want to read the other thread discussion, it is here:
http://www.theologyweb.com/campus/showthread.php?117929-Augustine2004-s-opinions-on-Lew-Rockwell-Plato-and-assorted-other-subjects&p=3159113#post3159113


[The first two items below are 2 weeks old at least.] Some experiments studied envy. In one, people were asked whether they would rather earn $50,000 in a world where everyone else earned only $25,000, instead of earning $100,000 (double purchasing power!) in a world where everyone else earned $200,000. A majority of people chose the first alternative! http://www.gpiatlantic.org/conference/media/nyt1004.pdf

Is being top dog really that much better than having double purchasing power? I'd say no; a reason is that we'd be more able to help unfortunate people and they otherwise would be better off anyway.

:hrm:

Is this really supposed to make sense?

First of, ignore "your" income. In one scenario everybody (but you) has an income of 25K, and in the second scenarion everybody but you has an income of 200K. Assuming production to be the same, the combined purchasing power is the same, it's just that prices are 200K/25K = 8 times as high.

If prices in the second scenario are the same as in the first scenario, how can people earn an 8 times a high pay? Where do those money come from, and where do they go?

I seriously doubt Augustine can be serious here!

[FreezBee]

I think you are being unfair to Augustine.

He originally referenced an article that was discussing "happiness", not income. It talked, very correctly imo, about the fact that true happiness does not come from material prosperity, and that other factors are more important. Part of that article says, and I paraphrase because for some reason it won't let me highlight in order to copy the text:

Beyond a certain level of income people tend to focus on their relative position in society rather than their material status. It goes on to quote a study that offered the participants the two choices mentioned, with the results quoted.

Though you may be right about the economics (and I think you are), the obvious intention of the study was to present the participants with two choices where the purchasing power of the dollars was the same. It doesn't matter one bit whether the example was unrealistic. That was not the intention of the study, nor did it affect the conclusions drawn.

Your challenge, I would submit, was a red herring. The title of this thread would be more correct if it was "In which world would you be happier?"

Ok, thanks, that does explain things somewhat. But how can the purchasing power per dollar be the same?

I see the point: it's better to be poor in a very rich country than rich in a very poor country.

[Tanakh Keeper]

In Augustine2004's lew rockwell thread he brings up a study.
You have a choice of one of two scenarios to live in:

A - You make 50K/year and everyone else in the world makes 25K/year

B - You make 100K/year and everyone else in the world makes 200K/year

In which world would you be better off financially, as in purchasing power? and why?
I like to use real numbers to illustrate a point. Conventional wisdom teaches us that the maximum price of a house that can be purchased is 3.5X the amount of gross annual income.

In situation A, everyone in the world could afford a house costing $87,500.
In situation B, everyone in the world could afford a house costing $700,000.

The one person in situation A would easily be able to afford to buy a standard house, while the person in situation B couldn’t afford to buy a standard house. Even though the person in situation B has twice the number of currency units as the person in situation A, the purchasing power of those units are far less.

[Sparko]

I think you are being unfair to Augustine.

He originally referenced an article that was discussing "happiness", not income. It talked, very correctly imo, about the fact that true happiness does not come from material prosperity, and that other factors are more important. Part of that article says, and I paraphrase because for some reason it won't let me highlight in order to copy the text:

Beyond a certain level of income people tend to focus on their relative position in society rather than their material status. It goes on to quote a study that offered the participants the two choices mentioned, with the results quoted.

Though you may be right about the economics (and I think you are), the obvious intention of the study was to present the participants with two choices where the purchasing power of the dollars was the same. It doesn't matter one bit whether the example was unrealistic. That was not the intention of the study, nor did it affect the conclusions drawn.

Your challenge, I would submit, was a red herring. The title of this thread would be more correct if it was "In which world would you be happier?"

If income doesn't impact your happiness, then why choose the scenario where you make less? How would that make you happier? Augustine clearly indicated he would be happier in the second scenario (100/200) because he would have "twice the purchasing power" - which is clearly wrong.

I submit that if you live in the first world, where you have twice the purchasing power, then you can afford to do more to be happy. If you like giving to charity, you have more to give, for example.

If we are talking about nebulous unmeasurable factors like "love" - then why bring up a scenario comparing two incomes? The article did not mention anything about the purchasing power in both scenarios being the same. I wasn't even going by the article anyway but by the way Augustine2004 presented the scenario himself in his post.

Augustine also goes on to keep arguing that he has twice the purchasing power in the scenario where he makes half what everyone else makes.

besides, I didn't start this thread to hammer augustine, I just wanted to see what others thought. He accused me of being deliberately obtuse. I wanted him to see what others thought and give him a chance to explain himself. I thought the topic deserved its own thread instead of being lost way down in his thread.

[lao tzu]

A pirate ... wondering about how much he'd like to EARN ... now I've seen everything.

[eudyptes]

... now I've seen everything.


....but yet you haven't been seen

[FreezBee]

....but yet you haven't been seen

Hence lao tzu is the unseen seer

[Cow Poke]

Hence lao tzu is the unseen seer

:noid: I don't see him!

[FreezBee]

:noid: I don't see him!

but maybe he sees you!

[Alien]

Ok, thanks, that does explain things somewhat. But how can the purchasing power per dollar be the same?

It can't, but that was not the point of the study. It's nothing to do with economic theory at all. All that matters is that the participants were prepared to assume that the purchasing power was the same.



I see the point: it's better to be poor in a very rich country than rich in a very poor country.

No. The point is that there are things that people value higher than material wealth, in this case status within the community. Some people prefer to be a (relatively) big fish in a little pond than a (relatively) small fish in a big pond, even though the fish in the big pond may be bigger than the fish in the small pond.

[Alien]

If income doesn't impact your happiness, then why choose the scenario where you make less? How would that make you happier?

Strictly (studies have shown) an increase in income increases happiness only up to a certain point, which (my thought here) tends to be where the extra money removes some big problem or problems. For example, if you are in default on your mortgage and about to be kicked out of your house, extra income will remove the stress and worry and thus you will be happier. After that point (again from studies) an increase in income gives a short lived increase in happiness, which then returns to the previous level.

As to the choice, most people don't realize this, so it doesn't figure in their choices. For those that do, it might be that having a less demanding job would free them up to do things that are more likely to produce happiness.



Augustine clearly indicated he would be happier in the second scenario (100/200) because he would have "twice the purchasing power" - which is clearly wrong.Yes. He started off by talking about "envy", which was somewhat about what the link said. After that ... well he wasn't too clear admittedly.



I submit that if you live in the first world, where you have twice the purchasing power, then you can afford to do more to be happy. If you like giving to charity, you have more to give, for example.
The referenced article seems to indicate that "affording" things doesn't make you any happier, so your submission is in conflict with that (which doesn't mean it's wrong of course). How about if you would be happiest spending most of your time as an artist but your job doesn't allow you time to do that?



If we are talking about nebulous unmeasurable factors like "love" - then why bring up a scenario comparing two incomes? The article did not mention anything about the purchasing power in both scenarios being the same. I wasn't even going by the article anyway but by the way Augustine2004 presented the scenario himself in his post. Well, I not going to defend Augustine's explanatory ability! But though the article didn't mention the parity of purchasing power, it was implied. Maybe a better question would be to ask if they would rather work in a small community where the subject made more than everyone else, or in a large community where they made more, but less than everyone else in that community. I think that gets rid of the economic argument. We're not talking about immeasurable things though. The article suggest that happiness is measurable (and if it isn't the whole thing is nonsense).



Augustine also goes on to keep arguing that he has twice the purchasing power in the scenario where he makes half what everyone else makes. Yes, it sounds as if he didn't understand the article.



besides, I didn't start this thread to hammer augustine, I just wanted to see what others thought. He accused me of being deliberately obtuse. I wanted him to see what others thought and give him a chance to explain himself. I thought the topic deserved its own thread instead of being lost way down in his thread.Fair enough. I still think he got sidetracked for the original point, but if you just mean to discuss the economic theory side of things then OK.

[FreezBee]

It can't, but that was not the point of the study. It's nothing to do with economic theory at all. All that matters is that the participants were prepared to assume that the purchasing power was the same.



No. The point is that there are things that people value higher than material wealth, in this case status within the community. Some people prefer to be a (relatively) big fish in a little pond than a (relatively) small fish in a big pond, even though the fish in the big pond may be bigger than the fish in the small pond.

Well, it depend on whose point we are talking about. I am talking about Augustine's point -- why he would prefer to be poor among the rich rather than rich among the poor.

As for your point, how sure can we be about that interpretation? Maybe respondents answered based on that they didn't believe it possible to increase the monetary amount 8 times and maintain the same per $ purchasing power?

Be very careful with conclusion based on unrealistic scenarios!


- FreezBee

[Sparko]

Strictly (studies have shown) an increase in income increases happiness only up to a certain point, which (my thought here) tends to be where the extra money removes some big problem or problems. For example, if you are in default on your mortgage and about to be kicked out of your house, extra income will remove the stress and worry and thus you will be happier. After that point (again from studies) an increase in income gives a short lived increase in happiness, which then returns to the previous level.

As to the choice, most people don't realize this, so it doesn't figure in their choices. For those that do, it might be that having a less demanding job would free them up to do things that are more likely to produce happiness.

Yes. He started off by talking about "envy", which was somewhat about what the link said. After that ... well he wasn't too clear admittedly.

well as we went on in the thread, it was clear Augustinge was talking about "purchasing power" not "happiness" - as his choice, no matter that he figured wrongly was the one where he thought he had the most purchasing power. Thus this thread.


The referenced article seems to indicate that "affording" things doesn't make you any happier, so your submission is in conflict with that (which doesn't mean it's wrong of course). How about if you would be happiest spending most of your time as an artist but your job doesn't allow you time to do that? Then I would either hire someone to help out and give me more time, or I would use all that extra money I had to save up enough so that I could retire and do art.

what if you lived in the world where you made half as much as everyone else and you loved art, but your job was washing dishes and you had to spend all your time working just to scrape by? In either scenario you can end up working too much to enjoy things you like. But you have more options if you have more money.

[Sparko]

Well, it depend on whose point we are talking about. I am talking about Augustine's point -- why he would prefer to be poor among the rich rather than rich among the poor.

As for your point, how sure can we be about that interpretation? Maybe respondents answered based on that they didn't believe it possible to increase the monetary amount 8 times and maintain the same per $ purchasing power?

Be very careful with conclusion based on unrealistic scenarios!


- FreezBee

exactly. the whole study seemed very flawed if it was as alien says. If they were measuring happiness, then why tie it to differing levels of money at all, why not simply as if you would rather be poor and happy or rich and unhappy? That would see if people preferred money or happiness.

[FreezBee]

well as we went on in the thread, it was clear Augustinge was talking about "purchasing power" not "happiness" - as his choice, no matter that he figured wrongly was the one where he thought he had the most purchasing power. Thus this thread.
Then I would either hire someone to help out and give me more time, or I would use all that extra money I had to save up enough so that I could retire and do art.

what if you lived in the world where you made half as much as everyone else and you loved art, but your job was washing dishes and you had to spend all your time working just to scrape by? In either scenario you can end up working too much to enjoy things you like. But you have more options if you have more money.

Yes, as you explain it here, Augustine's argumentation depends on a very rich society, where you can have half the income of averybody else and still not worry about rent, food, and so on.

I've had a relatively high income i the late 1990s and early 2000s (corresponding to slightly more than $20,000 per month), but that certainly didn't make me happy, because I had a stressful job. Now I am an independent consultant with a rather low income that even varies from month to month, but I control my time myself, and I can say 'no' to a job. The main problem is making sure there's money to pay the rent, since it's quite high (low as low as they come in Copenhagen).

However, If I had half the income of everybody else, I wouldn't be able to pay rent, because the person who owns my room could rent it out for twice the price to someone else.

If you are the only poor person, make sure your definition of happiness implies sleeping outside in rain and frost and fighting with the birds about your food!


- FreezBee