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Alexandria Ocasio-Cortez falls for the ‘fixed pie fallacy’

If someone becomes rich, even very rich, is that ‘immoral’? New York’s Rep. Alexandria Ocasio-Cortez argued as much recently.

As Fox News reports,

Freshman democratic lawmaker Alexandria Ocasio-Cortez on Monday appeared to agree with the idea that a world that allows for billionaires is not moral.

The question was put to Ocasio-Cortez by The Atlantic’s Ta-Nehisi Coates at a Martin Luther King forum in New York City.

When asked whether “a world that allows for billionaires” is “a moral outcome,” Ocasio-Cortez responded: “No it’s not. It’s not.”

She then said that she does not believe all billionaires “like Bill Gates, for example, or Warren Buffett are immoral people.”

“I’m not saying that, but I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong,” Ocasio-Cortez said.

There is no ‘fixed pie’

This argument rests on the notion that these folks in Alabama can’t get access to healthcare because Bill Gates and Warren Buffett are rich. But this is wrong. The two things are totally unrelated. Neither Bill Gates nor Warren Buffett got rich by making these folks in Alabama poor. The poverty of Alabamians is not a function of the wealth of Gates or Buffett.

To think otherwise, as Rep. Ocasio-Cortez does, is to fall victim to the ‘fixed pie fallacy‘. As the economist Milton Friedman explained, “Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.” Rep. Ocasio-Cortez sees wealthy people and assumes that their wealth must have been taken from somebody else, those poor Alabamians, for example. It follows that the remedy for their poverty is the decreased wealth of someone else. She lives in a zero sum world where one can only gain at the expense of another.

This is nonsense. Think of Bob Dylan, for example, a very rich man. If you like listening to his music, as I do, you’ll value the new album more than the $10 it would cost to buy, so you hand the store owner the $10 and they hand you the album. I have exchanged something I value less (the $10) for something I value more (the album). On the other side of the exchange, the store would rather have the $10 than the album. It, too, has swapped something it valued less (the album) for something it valued more (the $10). This exchange has made us both better off.

Imagine I bought the album from Wal Mart. Sam Walton has become a very rich man by giving people goods and services they would rather have than the dollars they hand over to Wal Mart in exchange for them. Sam Walton has become better off but so have his customers. The difference is that you can see how Sam Walton has benefited by adding up the dollars he’s been given. How do you quantify the value to me of the album or Tostitos I was given? How do you multiply those benefits by all his customers?

The same goes for Bill Gates. He developed Windows, the most popular desktop computer operating system. He handed copies of this over (excluding the middle man for simplicity’s sake) to Microsoft’s customers. He would rather have the $40 than Windows, the customer would rather have Windows than the $40. They exchange. Bill Gates’ money holdings increase, the customer’s Windows holdings increase. Each person Bill Gates has sold Windows to has been better off for it, they wouldn’t have bought it if it didn’t. If you add up the $40 by the number of customers, you can see why Bill Gates has become a very rich man. His products have made millions of people better off. If Bill Gates took money from anyone in Alabama it was handed to him willingly in exchange for a product they valued.

John Phelan is an economist at the Center of the American Experiment. 

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