The Division of Labor: Wealth and Ignorance

One of the main characteristics of a capitalist economy is the division of labor. The division of labor allows for greater efficiency in production by compartmentalizing tasks and having individual workers specialize in a single domain. Perhaps the best example that illustrates this was Henry Ford and his revolutionary advances for the automobile industry.

Prior to Ford, cars were primarily produced by skilled workmen. These workmen not only had to have strong mechanical skills, but also extensive knowledge in engineering, physics and material science. In many cases, these craftsmen were capable of building an entire car by themselves. Indeed, car making was an intellectual artform and each piece was a luxury reserved for the rich.

Then Ford came along and began building cars via assembly line. Ford hired large numbers of unskilled workers, many of whom had never even seen a car in their life, and gave each individual a few simple instructions. Suddenly, these workers had become “car makers.”

fordassemblyline

The division of labor allowed these workers to know just enough in order to do their job without ever needing to fully understand the process. Amazingly, not only was this method more efficient than the cars made by the skilled workmen, but it was cheaper and faster too. Thanks to Ford, car prices dropped dramatically and became so commonplace that even the unskilled workers he had hired could afford them.

Whether he recognized it or not, Ford had expanded on the knowledge and progress from the Enlightenment and Industrial revolution from the 17th and 18th centuries. The following excerpt from A Treatise of Human Nature highlights this:

“When every individual person labors a-part, and only for himself, his force is too small to execute any considerable work; his labor being employ’d in supplying all his different necessities, he never attains a perfection in any particular art; and as his force and success are not at all times equal, the least failure in either of these particulars must be attended with inevitable ruin and misery. Society provides a remedy for these three inconveniences. By the conjunction of forces, our power is augmented: By the partition of employments, our ability en creases: And by mutual succor we are less expos’d to fortune and accidents. ’Tis by this additional force, ability, and security, that society becomes advantageous.” – David Hume, A Treatise of Human Nature

150 years before Ford, David Hume recognized the exponential possibilities that human collaboration had for transforming societies. Today, these “conjunction of forces” are represented in the form of large corporations. This rapid advancement in efficiency is one of capitalism’s greatest qualities- creating vast amounts of wealth through expansive production.

Nevertheless, despite the enormous benefits that the division of labor can provide to society, it is not without its faults. Karl Marx most notably criticized the division of labor with his theory of alienation and how humans become a “cog in a system of machines.” Adam Smith also criticized the division of labor for its harmful effects to democracy in The Wealth of Nations:

“In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.” – Adam Smith, V.1.178

Smith pointed out that the division of labor breeds ignorance because it encourages citizens to a very narrow focus of awareness. Citizen’s need to know how to do their specialized jobs and that’s it. There’s no need in viewing the bigger picture- the inter-connectivity of society, politics and rational discourse. These compartmental underpinnings explain people like Ben Carson: someone who is a brilliant neurosurgeon, but also a young earth creationist with dozens of delusional and irrational beliefs. Or as Bill Maher describes them, “Smart-Stupid people.”

The truth is that democracy only works well with equally informed citizens- and capitalism, by its very nature of making production extremely efficient, undermines this by destroying the intellectual curiosity that democracy requires. In this way, America has been able to both excel and fall behind at the same time. We are a nation of wealth and ignorance.

Smith suggests that “unless government takes some pains to prevent it,” that this is the path we are doomed to follow. The election of Donald Trump would suggest that the government has failed in this regard and will continue to do so in the near future.

I am, however, optimistic. The Internet has made it easier than ever before to learn and explore ideas outside ones expertise. Automation has and will continue to take over jobs that are simplistic and repetitive. We are a nation of wealth and ignorance, but perhaps one day we can become a nation of wealth and reason.

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The Paradox of Free Markets

No individual has had a greater influence on economic policy than Adam Smith. Smith laid the foundations of classical free market theory and most notably conceptualized the idea that profit maximizing firms interacting with rational consumers in competitive markets lead to prosperous societies. [1] For this reason, Smith is frequently celebrated by free market fundamentalists as a champion of Laissez-faire capitalism.

However, despite what his contemporary followers claim, Smith recognized the limitations of the market and the necessity of government:

“According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.”- Adam Smith IV.9.51

Smith believed that it was essential for government to provide certain goods like infrastructure, banking and education because they provided the foundation in which markets could flourish. Nevertheless, Smith recognized the danger of government when their authority was used only to benefit a small number of individuals. Indeed, Smith warned again and again of the collusive nature of business interests, the formation of cabals or monopolies, and the political power this gives to the richest members of society:

“It is in the age of shepherds, in the second period of society, that the inequality of fortune first begins to take place, and introduces among men a degree of authority and subordination which could not possibly exist before. It thereby introduces some degree of that civil government which is indispensably necessary for its own preservation: and it seems to do this naturally, and even independent of the consideration of that necessity. The consideration of that necessity comes no doubt afterwards to contribute very much to maintain and secure that authority and subordination. The rich, in particular, are necessarily interested to support that order of things which can alone secure them in the possession of their own advantages. Men of inferior wealth combine to defend those of superior wealth in the possession of their property, in order that men of superior wealth may combine to defend them in the possession of theirs. All the inferior shepherds and herdsmen feel that the security of their own herds and flocks depends upon the security of those of the great shepherd or herdsman; that the maintenance of their lesser authority depends upon that of his greater authority, and that upon their subordination to him depends his power of keeping their inferiors in subordination to them. They constitute a sort of little nobility, who feel themselves interested to defend the property and to support the authority of their own little sovereign in order that he may be able to defend their property and to support their authority. Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”Adam Smith V.1.55

What Smith is describing here is the foundation of corporatism. Simply put, corporatism is the control of the state by the richest interest groups. In practice, corporations will lobby the government for things like subsidies and profit reducing regulations. Free market fundamentalists will often call this level of conspiracy “crony capitalism.” They argue that by simply reducing government size that the “free market” will naturally resolve this issue. This, however, is a misguided fantasy with no factual basis in history.

Before we go any further we must identify what a “free market” actually is, or at the very least, try to understand what it implies. Let’s look at some modern dictionary definitions:

“An economic market or system in which prices are based on competition among private businesses and not controlled by a government.” – Merriam Webster

“Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy.” – Investor Words

“An economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.” Dictionary.com

Today, the term “free market” is often defined as a market without government regulation. Implicit in this definition is that buyers and sellers would have “prices based on competition”, markets would follow the “laws of supply and demand”, and economic activity would be “unrestricted.” Immediately we can see contradictions in this concept.

The following excerpt from Understanding Capitalism demonstrates this quite concisely:

“Without government interference there is nothing to prevent interference, restriction, and subsidy by the mafia, an activity for which we have real world examples. Without government interference there is nothing to prevent the erection of barriers to free transaction, used either to extract rents, to marginalize competition, or to punish groups of people based on any number of criteria such as race, religion, gender, etc. Furthermore, there are any number of ways in which non-governmental entities can implement rules and regulations which distort the laws of supply and demand, a classic example being the National Football League’s imposition of salary caps and profit sharing across organizations.” R.G. Price, Understanding Capitalism

So here we have a paradox. Without the government imposing rules on the market, there is nothing to stop the “free market” from restricting itself from the next powerful authority. There are countless examples of the “free market” distorting itself. To name a few:

Coca Cola paying retailers to eliminate competition

Ticketmaster obtaining exclusive contracts with venues

F.W. Woolworth discriminating against black customers

Japanese citizens erecting barriers to trade and charging tolls for the transport of goods

In each of these cases we see private actors take action to subvert the “laws of supply and demand,” distort “prices based on competition” or prevent people from transacting freely in an “unrestricted” market without any coercion from government forces. Indeed, it was the implementation of government regulation that ultimately led to a freer market in these cases.

To conclude, Smiths analysis of free markets provides a solid foundation for creating a prosperous society. However, free markets ≠ no government regulation. A freed market must have limited, but smart regulations towards the highest concentrations of capital. It must also account for externalities. And ideally, the freed market would be one that redistributes its capital to all its citizens, but I’ll save those thoughts for another time.

The Case for Universal Basic Income

Universal Basic Income (UBI) is the idea that all citizens of a country should regularly receive an unconditional sum of money in order to pay for basic living necessities. In practice, UBI would replace the current welfare system and it’s numerous existing programs as a more transparent, efficient, and affordable alternative. UBI would ultimately eradicate poverty and prepare us for the future economy that is rapidly changing due to technological process and automation. Let’s take a closer look on how UBI could work in the American economy.

In America, the poverty line for a single individual is $11,880. Thus if UBI were to provide every citizen between the age of (18-64) with $12,000 a year, it would instantly bring every citizen above the poverty line. This will allow a couple things to happen. First the need for a minimum wage law would become unnecessary because it would no longer have to provide a basic living, and therefore involuntary unemployment would no longer exist. Competition would thrive and people would be more willing to take risks knowing they’ll always have $1000 in the bank every month.

Secondly, women would be reinvigorated into the economy. Women disproportionately provide the majority of care taking roles in families for children and elderly which is work that is monetarily uncompensated for. UBI would thus be a transfer of wealth to care takers (and therefore mostly women) and provide them with compensation for work that they already do for free. Indeed, UBI would be the biggest feminist revolutionary act of our time.

While the economic boom that UBI is capable of providing looks promising, some skeptics have challenged it on several fronts. One criticism of UBI is that by providing people with free money is that people will have much less incentive to work. This is a fair criticism, but it is one that can be addressed by changing the tax system to a more progressive one.

In the current welfare system, benefits are phased out as workers earnings increase. This creates poor incentive to work, and in some cases like those with disability insurance, the choice is binary: work or receive benefits. With UBI, workers will only stand to gain from working and educating themselves to fit the needs of future markets.

Another strong criticism of UBI is it’s relationship with families that have a lot of children. Should UBI provide more for these families? Is this fair? And perhaps more importantly: Is this economically sustainable? This is a problem directly related to overpopulation. You can read more about this in my blog post Overpopulation: A Road to Dystopia. As far as I can tell, UBI advocates haven’t been entirely convincing on this front. However, some argue that this will be a non-issue.

UBI will require a change of mindset in the way we view work in our everyday lives. It will require us to accept the uncharted territories of a new world that has an abundance of resources, massive automation, and a diminishing need for traditional work. Despite the challenge this presents, I’m incredibly optimistic to the implementation of UBI in the near future (25-40 years) here in America. I expect this conversation to elevate onto the national level in the coming years.

For further reading on arguments for and against UBI, some recommended articles:

A Guaranteed Income For Every American

The Case for Free Money

My Second Thoughts About Universal Basic Income

Why a Universal Basic Income Is a Terrible Idea

If Robots Steal Out Jobs, A Universal Basic Income Could Help

Make America Sane Again

Last night was a spectacle to see unravel. Flipping through channel to channel, I watched as the mainstream media imploded attempting to reconcile their polling data with reality. In just a matter of hours the narrative had changed completely. The narrow path for Donald Trump to claim victory had mutated into Hillary Clinton needing a miracle. And then in a single moment it was over: Donald Trump became the 45th president elect of the United States.

If there is one thing I’ve learned over the course of this election cycle, it is this: Never underestimate the ignorance of the American people. This will no doubt be remembered as an absurd climax in American politics, but it was something that had become gradually inevitable for the wildest year in my lifetime. Indeed, 2016 included the withdrawal of the United Kingdom from the European Union, massive vehicular terrorist attacks, the Panama Paper leaks, and a Chicago Cubs World series win. Still, the question everyone will be asking today and for many years to come: How?

I believe the biggest reason that Donald Trump was victorious was because of the extreme resentment for Hillary Clinton. It was blatantly obvious to anyone outside of the Hollywood, Wall Street and mainstream media bubble that she was a terrible candidate. She represented the essence of the status quo when the country was screaming for something new. Her campaign was shallow and unexciting to get behind. The Democrats failure to elect Bernie Sanders as their nominee was their biggest mistake.

Nevertheless, it’s clear that at the time of writing this piece that Clinton will win the popular vote and I suspect that she will do so overwhelming as the votes continue to come in. The majority of the country didn’t get swayed by a demagogue. Unfortunately, it doesn’t matter now. Perhaps there is something to be said about an outdated electoral college system, but I digress and will leave that to the hundreds of Op-Ed pieces that will surely be coming.

Finally, a third point: Leftists have rightly highlighted the sexism, racism and bigotry throughout Trumps campaign, but have also failed to engage in these conversations honestly. Being critical of Black Lives Matter doesn’t make a person racist. Being critical of Third Wave Feminism doesn’t make a person sexist. Being critical of Islamic Terrorism doesn’t make a person an Islamophobe. The failure to distinguish and separate steel man arguments from true bigotry is a key factor in the rise of Trump and the platform he now has. We should never begin by assuming the worst intentions of our political opponents when thoughtful disagreement is possible. It’s simply lazy thinking and it’s completely ineffective for changing minds.

Emotions are high as this two year long bitter campaign comes to a close, but Leftists and Liberals now more than ever need to be rational and champions of reason. The election of Donald Trump in addition to Republican control of the House, Senate and Congress leaves the door wide open to massively regressive changes these next several years.

The silver lining in all of this, ironically, is that Donald Trump is not a traditional republican. The man has no ideology and his policies have been all over the map from the beginning. There’s much reason to believe that his ideas will continue to evolve as the realities of world politics finally settles in. In this regard, I’m hopeful that the presidency can humble the narcissistic egomaniac and make for a survivable 4 years. Don’t hold your breath.

Liberalism vs Socialism

Both liberals and socialists value equality and liberty, but their visions for the world can be vastly different from each other. Perhaps the best way to distinguish between liberalism and socialism can be clarified by a single question: Who should own the means of production?

American Liberals would say that private individuals should own the means of production. However, they would also argue that the State should invest in a strong social safety net in order to combat the inequalities created by capitalism. The political philosopher John Rawls gives credit to this view in his work A Theory of Justice. Rawls provides two principles to follow in order to obtain a just and fair society:

The First Principle of Justice

First comes the priority of liberty: Each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others.”

Basic liberties include the political liberty to vote and run for office, freedom of speech and assembly, freedom of religion, freedom of personal property and freedom from arbitrary arrest.

(Note: Rawls clarified in the revised version of A Theory of Justice that he did not consider private ownership of the means of production or the freedom of contract a “basic liberty,” although this point is the main source of contention by libertarians and conservatives)

The Second Principle of Justice

Social and economic inequalities are to be arranged so that:

“(a) they are to be of the greatest benefit to the least-advantaged members of society, consistent with the just savings principle. (the difference principle)
(b) offices and positions must be open to everyone under conditions of fair equality of opportunity(Rawls, 1971, p. 302; revised edition, p. 53-54)

Liberals can satisfy these principles by rationalizing that inequalities exist only insofar that they increase the net prosperity for society while still maximizing basic liberties for all people.

Perhaps the best examples of this are the Scandinavian social democracies. These countries rank high in both economic freedom through “free”-market practices and egalitarianism through supporting a giant welfare state. Given the means of production are owned by private individuals (billionaires) in these countries, they represent the tip of the iceberg of what is possible within liberal democracies.

Socialists, in contrast, would say that the workers should democratically own the means of production. They argue that this would naturally create a more egalitarian society because profit sharing would better reflect workers contribution and profits would no longer be concentrated to a small number of capitalists. Most would agree that this is a noble and ideal goal, but figuring out how this transition of power would occur has been socialism’s major shortcoming.

The other hurdle socialism faces is its perception in the public eye. It’s history in practice consists of failed states and staunch authoritarianism, but its theory is consistently misunderstood by those without a clear understanding of capitalism. Outside of intellectual circles, being a socialist in America is one of the worst things you can be.

The truth however is that one could be a socialist and believe in all of the same liberties laid out in Rawls First Principle of Justice. One could also be a socialist and have social conservative values (which are the values of the Amish). Indeed, socialism is not mutually exclusive with a single social ideology- it is an idea that contains a vast diversity of flavors.

One of the best critics of left wing liberalism came from the socialist G.A. Cohen in his book If You’re An Egalitarian, How Come You’re So Rich? Cohen elegantly points out that liberal rhetoric on equality doesn’t reflect what individuals do with their money. How is it that liberals demand our institutions to act altruistically, but on the other hand say individuals should act in their own self interest? The challenge for a liberal America is to convince 300 million individuals that an egalitarian society is in their self interest and to act on it.

The question remains: Can liberal democracies continue to evolve or will they succumb to socialism in the technological age?

I’ll leave you with this thought provoking video: Humans need not apply.

Redefining the Political Spectrum

I recently came across a fascinating eBook, Understanding the Political Spectrum by R.G. Price. The 92 page book gives insight on what the political terms Left and Right actually mean and how they’ve changed throughout history. It seems as though everyone has their own interpretation of these terms, but are vastly confused what is truly meant by them.

Like many people I’ve long struggled on how to identify myself politically. On any given issue I could give you a straight answer, but I never seemed to fit a predefined ideology. Why should my view on global warming have any relevance on what I think about gun control?

Price explains that one of the major problems in American politics today is the widespread misconception of what the political spectrum actually looks like. He acknowledges that both the Political Compass and Nolan Chart are useful tools to solve this issue, but argues that they are both incomplete. Particularly their use of “authoritarian” and “libertarian” paints a picture that can easily be shown to be contradictory.

Price paints a different picture of the political landscape with his Rational Spectrum:

rational-spectrum

There are a few things on The Rational Spectrum that may raise a few eyebrows. First is the use of Social Right and Social Left for the vertical axis.  Price explains that both the Social Right and the Social Left don’t oppose each other on any given issue, but rather that they are both opposing Liberalism (The inner circle on the spectrum). In America today, liberalism may be more often thought of as “libertarian-ism.”

Liberalism in its classical sense, to put it simply, is anti regulations and anti authoritarianism. Therefore it is always the opposing force when discussing any social issues and economic issues for both the Left and Right. First, let’s look at some examples of specific social issues to give this point more clarity:

Social Right

Anti Gay Marriage vs Liberalism (freedom to marry regardless of sex)

Anti Marijuana Legalization vs Liberalism (freedom to use marijuana)

Anti Abortion vs Liberalism (freedom to terminate a pregnancy)

Social Left

Affirmative Action vs Liberalism (freedom to hire)

Gun Control vs Liberalism (freedom to buy, own and use guns)

Global Warming Regulations vs Liberalism (freedom to pollute)

Price goes onto explain that the Social Right and Social Left may even agree on some issues, but for drastically different reasons. One example he gives is the issue of pornography. The Far Right is against pornography because they believe its immoral- often times for religious reasons. The Far Left on the other hand is against pornography because it represents the objectification of women. For Liberalism, however, pornography is perfectly acceptable because it’s just another form of human expression. Every social issue is a fight for regulation.

rational-spectrum2

Now let’s look at the horizontal axis. Perhaps less surprisingly, this deals with economics and is what is traditionally meant by the terms “Left” and “Right.” However, Price makes a unique distinction in that Laissez-faire Capitalism is a centrist idea rather than a far right one which many other political spectrum’s claim. Price argues that the far right is actually Corporatism which wants regulations to reduce competition and create Oligopolies. The far left or Socialism in contrast, wants regulations on businesses so that their benefits are shared across society.

Similarly, the moderate left advocates for Social Democracy while the moderate right advocates for corporatistic capitalism. Social democracy is a mixed economy where capitalism is retained, but social welfare provisions are in place to make capitalist’s activity tolerable to society at large. I encourage you to read this article to better differentiate this and socialism. Likewise, corporatistic capitalism is in favor of corporate power, but to a lesser extent then the far right.

rational-spectrum-3

I highly encourage everyone to read Price’s work. His clarity will help shine a light on the disarray that is the American political spectrum. Cheers!

Ethics and Economic Justice

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” – Franklin D. Roosevelt

I have been reading David Parfit’s book Reasons and Persons the past couple of months and I must say, it’s been a wild ride. I recommend it to anyone that subscribes to utilitarian ethics and having their world views pushed to the limit. It may seem farfetched to some, but I suspect Parfit will go down as one of the greats in the history of philosophy.

The book covers a variety of loosely related topics, but I want to focus on the type of utilitarianism he concludes from his arguments: Prioritarianism. Prioritarianism holds that the goodness of an outcome is a function of overall well being (Utilitarianism) with extra weight given to worse off individuals. Let’s look at an example to sharpen the distinction between the two.

Imagine a two-person society: its only members are Jim and Pam. Jim has an extremely high level of well-being, is rich, and lives a blissful life. Pam, by contrast, has an extremely low level of well-being, is in extreme poverty, and lives a hellish life.

Now imagine that we have some free resources ($10,000 for example) that we may distribute to the members of this society as we see fit. Under normal utilitarian circumstances, the $10,000 will generate more well-being for Pam than it will for Jim. Thus giving the money to Pam would be the morally correct choice. However, let’s imagine slightly different circumstances.

Jim, for whatever reason, even though he is already filthy rich and very well-off, would gain just as much well-being by receiving the $10,000 as Pam would. Suddenly utilitarians don’t have a preference on who gets the money because both Jim and Pam’s well-being would increase the same. Prioritarianism on the other hand would give the money to Pam, because she is worse off than Jim.

Furthermore, prioritarianism doesn’t act just as a tie breaker for well-being, sometimes it favors priority over a small amount of well-being in order to emphasize compassion. So if Jim were to somehow gain more well-being from the money than Pam, Prioritarianism still wouldn’t necessarily favor him. It is important to note that the amount of well-being traded for priority is arbitrary, but in most cases we can rely on common sense. But why is that?

Well there is a good reason: There are diminishing returns on the value of goods and money. Would Jim be able to tell the difference between having 1 billion dollars and 1.00001 billion dollars? No, he wouldn’t have a clue. In fact there have even been studies, including a prominent one by Princeton University Researchers, that money doesn’t buy happiness after one earns $75000 a year.

It is estimated that it is around this point where money is no longer a primary concern in ones life. People can focus on health, relationships and leisure’s without the stress of paying the bills at the end of the month, which is a real fear for millions of Americans.

If you subscribe to prioritarianism ethics, a certain amount of wealth redistribution becomes fundamental to a healthy and moral society. In a society where Walmart’s Walton family (one of many examples) owns more wealth than the bottom 42 percent of Americans combined, millions of which are living in poverty and struggling to survive, can a rational person really argue that this disparity in wealth is ethical?

Welfare state capitalism may currently be the best economic model, but its inability to redistribute wealth fairly will continue to raise questions on how it can be improved. Economic justice isn’t about equality. It’s about removing the gross excess at the top to help prevent suffering for those at the bottom.