Public vs. Private- Graphs and Equations

They say people learn things differently. If long, wordy paragraphs isn't your cup of tea, I've taken the most crucial points of my previous post: "Public vs. Private" and made "sense" out of them.

If this concept already exists, and I'll bet it does... well, here it is again from my perspective.

The thesis of my last post was:
The distribution of resources by a government was necessary at the time of cavemen because the variance in individual production was greater than the reduction caused by reduced incentives and it happened that with limited capability to produce, the difference in variance was the difference in obtaining that which one needed to survive.

To demonstrate what this means, I have constructed for you some graphs.

First, for the typical individual living 60,000 years ago, a hunter-gatherer:

As you can see, while his average production level remains above the subsistence level, it lies close enough to it that the variance in production on a daily, weekly or monthly basis could cause it to drop too low. This being the case, it would only be a matter of time before an individual, without the help of others, would starve to death. Or else he may try a riskier form of hunting, out of desperation, that could get him suitably killed in some other manner.


When people band together and form a government to distribute earnings, two things happen:
1. The inefficiencies of government reduce the average production
2. The wider range of producers greatly reduces the variance

And so the graph instead looks like this:

In almost any scenario, from a macroeconomic scale, you will always want to favor average production level over reduced variance- because individual variance is going to be counter-acted, virtually entirely, by the fact that there are so many individuals within society.

The one and only exception to this rule is if your producers are dying as a result of the variance. Because more critical still than keeping average production level up is making sure that members of society can reliably attain survival.

It is for this reason, the trade-off caused by implementing governmental wealth distribution laws was a desirable thing for people to do 60,000 years ago. At least, the alternative was much less desirable.


In contrast, here's what the graph looks like for the individual in present-day times:

Note that the subsistence level has not actually moved-- people still need all the things today they needed back then as hunter-gatherers. There is a certain amount of food, water and shelter that a person needs to survive, which hasn't changed in any significant way over the course of human history.

What has drastically changed is average production and variance. After all, nobody from a McDonalds employee to a MBA sports star has to cross their fingers and wonder if they're going to get their paycheck- and when they do get a paycheck, ungraciously and in ignorance of their good fortune bumbling around the grocery store, the hunter-gatherer could never dream of the variety and ease that this American has the pleasure to associate with obtaining food.

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The fourth graph is unnecessary, and simple in nature. Apply the changes seen between the first and second graphs to the third graph. Is the trade-off of a government redistribution of wealth still worth it? Are we desperately avoiding the subsistence level, and need we sacrifice average production in favor of inefficiency to stay clear of it it?

I think not.

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Oh, and I did this too:

S= subsistence level
A= average production
T= true average production
V= variance
I= inefficiency
G= government redistribution

S= constant
A= variable
T= A - I
V= z + G(-x), where x > 0, z > 0.
V is never < 0.
I= G(y), where y > 0.
G= variable

So here's the what-to-do-with-government cheat sheet!:

If T - V < S, and x > y to the extent that T - V becomes closer to S as G increases, increase G until T - V = S. If y > x to the extent that a reduction in G causes T - V to become = or > S, reduce G to 0.

If T - V = S, reduce G if, and only if, y > x to the extent that T - V remains = S or becomes > S as G is reduced. Should this occur, reduce G to 0.

If T - V > S, reduce G until T - V = S OR G = 0, whichever comes first.