What would happen if the wealth of a generation were randomly distributed to the next generation?

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Question: 

This is more of a speculative, hypothetical question. I’m working on a novel in which the wealth of the previous generation is distributed randomly into the next generation. The wealth isn’t distributed equally – in other words, there are the same number of wealthy people from one generation to the other, but there’s no predicting who those new people will be. Once the new generation has the money, they can spend it as they like. So I’ve been speculating – how would that economy look different than our own? Wealthy families wouldn’t be able to pass on wealth – instead, a young person in a slum could be the lucky recipient. What kind of economy would that create?

Answer: 

Thank you for your question. The economies would look very different. Your hypothetical world seems analogous to one that imposes a 100% estate tax and uses a lottery to transfer any tax collected back to the economy. Naturally, individuals facing a 100% state tax would have no incentives to leave any (intended) estate. Unintended estates, or bequests, could still occur because of uncertainty about the length of life. Therefore, one expects the size of the pie, the amount of total wealth, to be substantially lower in your hypothetical world than in our own because estimates suggest that bequest motives, the desire of parents to leave estates to their children, are very important in practice. In other words, your hypothetical economy is expected to be poorer. On the other hand, one may expect more social mobility in your hypothetical world, as you suggest. A consideration that needs to be taken into account is that wealthy parents may substitute estates for education, or other type of non-taxable asset, to give an advantage to their children which would tend to reduce social mobility.

Given these considerations, I still think you can write a very interesting novel that has implications for the real world beyond economics, including political and cultural aspects. Here is a way you can avoid the issue of a shrinking pie described above, so that you can focus on the issues of distribution. The world you would like to imagine is probably a primitive agrarian economy, one without machines, where the amount of land owned is also the wealth of a person. Machines will reintroduce the problem of the shrinking pie. People would die randomly and annuity markets do not exist so that land is confiscated and redistributed upon dead. With annuity markets this is not possible because the land would belong to an insurance company upon dead. The key about such economy is that the total amount of wealth, land, is the same in the two worlds you want to compare: one in which wealth is randomly distributed each generation versus one in which the previous generation determines ownership of the next generation. In this economy people would always own some land even if estates are confiscated because they may survive many years, or die the next day.

I can imagine many ways in which the two worlds are different, but one can also imagine many ways in which the two worlds are identical. The political process and the functioning of society may be very different, and the overall satisfaction may be different. Overall production and consumption may be the same. Hope these ideas help you may your novel more solid on the scientific component.

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