While, overall, I enjoyed reading this post, I feel that this statement -
> 1 in 10 dollars of income produced in this country is paid out to the richest 1% without them having to work for it.
is misleading. I think this type of attitude makes it more difficult to find common ground. Yes, that income is not produced through recent work, but it is produced as a bi-product of previous work.
The issue is that once a person accumulates enough wealth, the difficulty to generate value falls while the opportunities to do so rise.
If we consumed all of that nasty wealth, there'd be none to borrow to get a house or education. None for startups.
People get rich by not consuming everything as soon as they get it. This is a great thing for everybody.
And it's not just rich that accumulate. A person making minimum wage and just saving the same amount withheld by the US social security tax would have hundreds of thousands of dollars accumulated if they kept it in the stock market for their entire working career.
I was curious about this a few years ago and put together this spreadsheet, using this tax rate, rate of return and minimum wage over a 40 year period.
That's what the Estate Tax is for. There are ways to circumvent that via things like charitable foundations, however that's a very different debate.
The author is confusing income from dividends (either of the stock or bond variety) and interest income with income simply for existing. He chooses to use Alaska, an oil rich and low population state, as a model for the rest of the country. He states that the government would somehow build up a "big wealth fund" that would deliver "returns" without specifying where those returns would come from or the amount of those returns. A fund of the size required can't easily generate large returns since that amount of money is enough to distort markets.
Simple back of the napkin math is that based on the 2013 census, we have 242,470,820 adults living in the US. If we pay each of them $12,000 per year, that's
$2,909,649,840,000 in additional mandatory spending every single year. That's more than Medicare and Social security combined, and that has no cost of living adjustments built in. The basic math shows that this idea is simply unrealistic as far as I can tell.
There's a few assumptions built into your basic math. Does the benefit need to be $12,000/year? Can we phase out Social Security ($888B) Health Care spending ($602B) and other safety net services ($362B) as we phase in basic income?
Setting the annual benefit to an average of $7,000 and phasing out other safety net services get's the basic math a lot closer, while theoretically helping more people than the current system.
I'm not saying Basic Income is a definite win, but back of the envelope assumptions are usually too simple to dismiss or validate an idea.
Your proposal gets the math a lot closer, although I thought social security paid more than 7k/yr... so now grandma has to take a haircut on her income and pay for Healthcare out of pocket too. I'm no social security lover but that seems extreme.
The allure of UBI is interesting but I've never figured out how the math works out without making sizable reductions in quality of life for significant chunks of the population. The money has to come from somewhere... I think UBI works out to be worse than zero sum economically.
Anyway I've always been a firm believer that if you can't come up with a compelling and largely accurate back of the envelope justification for your story, you're not going to get many adherents.
Perhaps that's becuse it's not true? 80% of American millionaires are first generation rich, meaning only one in five of them have inherited their wealth.
Setting that fact aside, why should my work not directly benefit my children? Providing for ones offspring is a universal motivation.
"More than 10 million U.S. households have a net worth of $1 million or more, a record high representing nearly 9 percent of all households in the country. That may sound like a small percentage, but it's one in 11 households. Instead of leading an extravagant life filled with luxuries and indulgences, a millionaire could be in your neighborhood."
To be in the top 1%, you need to have a net worth somewhere between $5M - $25M (1.2 million households out of 124 million in the US)
Spending capacity of a single person does not scale though. A member of top 1% does not eat 1000 hamburgers in a day because they can afford it. They might spend $1000 on a single hamburger or several million $ on a car but it is hard to see how that money trickles down rather than stay in the Veblen goods ecosystem.
You're right. The problem is that rich people don't spent much money, they tend to already have most of their needs met.
Poor people on the other hand are much quicker to bring their income back into circulation. If you want a lot of money to be spent domestically, you need to redistribute the money to the poor.
Don’t tax labor to give money out to UBI loafers. Instead, snag society’s capital income, which is already paid out to people without regard to whether they work, and pay it out to everyone.
Also known as nationalizing all investments.
I think the author may not quite have a grip on capitalism.
Did you finish the article? They're not literally suggesting that all capital income be redirected by the government, but instead suggesting that the government should build up a fund that owns capital assets.
> The US federal government would employ various strategies (mandatory share issuances, wealth taxes, counter-cyclical asset purchases, etc.) to build up a big wealth fund that owns capital assets.
Sure, wealth taxes does mean effectively redirecting some of the capital income earned by other people, but that's basically what all taxes do anyway. And I'm not sure what "mandatory share issuances" or "counter-cyclical asset purchases" mean. But the end result is they're suggesting that the government should own a set of capital assets rather than just relying on taking money from citizens that own capital assets.
> Did you finish the article? They're not literally suggesting that all capital income be redirected by the government, but instead suggesting that the government should build up a fund that owns capital assets.
To provide a UBI of say 12k for every adult in the country (as opposed to just a few hundred or thousand), such a fund would need to own a large part of all the corporations and housing stock in the country. Didn't work well for the countries that tried it in the past.
So, essentially, abolish property rights? Just have government seize the capital from people who currently own it, or rather, seize the proceeds of the capital which is effectively the same thing, because why would you bother owning the capital if you weren't going to have access to the income it produces?
I'm all in favor of Universal Basic Income, but what happens when everyone who currently invests their money to produce this passive income decides to simply spend it instead since they wouldn't get to use any return from their investments?
There's also be no capital accumulating for innovation. No annoying technology to enable people to make high salaries. And none of the annoying tax revenues collected from them.
> but what happens when everyone who currently invests their money to produce this passive income decides to simply spend it instead since they wouldn't get to use any return from their investments?
We would then experience true economic recovery, where everyone can access the inventory of dollars, as opposed to the current "asset based" recovery we are now experiencing. Which is basically economic recovery for those who own hard assets.
Thinking about it, basic income would be better than increasing credit as a way to increase the money supply, but it is probably not particularly good either.
I'm in favor of trying UBI to see the impact, testing it properly.
I'm not a fan of this article however. While we are reasoning by analogy, It's fairly well documented that most capital wealth does not survive past an initial generation or two. There's something about creating the wealth/passive income that creates a different behavior than being given it.
This article does nothing to discuss that. The analogy included feels like it's just there to support a punchy headline.
This is why I'm more excited to see some real tests and results in various countries and communities.
> There's something about creating the wealth/passive income that creates a different behavior than being given it.
My completely uninformed opinion is that this is largely due to one of the following:
1. Kids who grow up with so much passive income that they never need to work even for luxuries. UBI won't produce this, because anyone who wants luxuries will still have to work to afford them.
2. Passive income isn't automatically self-sustaining, so if kids aren't as good as their parents at actually managing their assets and/or business, then they may simply end up spending more than they make (especially if they're trying to maintain the same lifestyle their parents had even though they can't maintain all of the income). I think this ties back into #1 as well. The article said 30% of the income is capital assets, but if kids aren't good at business (or don't want to work at all), then they're relying on capital income for nearly all of their income instead of just a portion of it, which generally isn't self-sustaining without a change in lifestyle.
The Rockefeller, DuPont, and Kennedy families (just to name three) show that capital survives for many generations if enough has been accumulated that it is impossible to consume it all. I think between $50 and $100 million is the critical mass needed to create a "black hole" of money. Above that amount of money and more money is sucked in faster than one person can squander it.
An interesting model to look at is that of the Rothschild family. If you can cut past the conspiracy theories, they run the family wealth as a family bank. Family members can borrow from the bank, but they must attend an annual meeting and share their learnings with the rest of the family (at least that's my old memory of something I read).
It's interesting how different folks approach it. The Vanderbilt family largely lost it all, the Rockefellers kept it (even after large charity).
Personally, I'd put myself in the Buffett camp. Leave your children enough that they can do anything, but not so much that they can do nothing.
This article seems transparently fallacious to me, since the income generated for the 1% is due to investment capital. Investment capital, among a million other attributes that differentiate it vs a state backed UBI program, is exposed to risk. There isn't just some pile of "income" sitting there we can harvest every year, the income the article talks about exists due to the exchange of capital. At the end of the year, some of those investments fail (for example, bonds default) and the income streams vanish.
The analogy to UBI completely fails. Honestly this is probably one of the most transparently dumb UBI articles I've seen posted on HN. (Disclaimer: I support the idea of UBI pending research outcomes.)
When investment capital's returns turns out to be distributed in a disproportionate manner that's not actually benefitting the majority of society, we have a problem. The tables have been turned in favor of rent-seeking behavior, which is what the article complains about. This is merely a way of correcting that problem.
Risk is always relative. If you have enough capital, you can afford to focus solely on the long run, and plan positions accordingly. In general portfolio theory managers aim to optimize an objective - for short term hedge funds that's typically Sharpe ratio or just net return, but for long term focus (e.g. a rich family), you focus on minimizing the probability of shortfall.
That is, your family is going to spend some x% of your wealth every year. Then you only need to return x% on the fund (approximately) on a yearly basis. There is very little real risk associated with this strategy, if you're rich and needing to earn a small percent of your total assets, say 3%. Now, if your family isn't rich, you're probably going to need to spend much more than 3% in income, and your probability of shortfall increases dramatically.
This is similar to how college endowments work - do you think Harvard's endowment has a high chance of going dry anytime soon? Tangentially, their tax-free status is tied to spending 5% of the assets each year, which actually makes their job a lot harder, and is why they need to still raise money.
"There is very little real risk associated with this strategy"
Once you get to inter-generational wealth there is catastrophic risk that is almost uninsurable; managing that risk is extremely difficult. It is not as simple as "buy bonds", you have to deal with things like confiscatory tax rates, hyperinflation, default, being targeted by the government as a juicy source of funds, fall of a government you had previously been associated with, a dumb heir coming into control of the fortune and getting swindled...
There is diversifiable risk and there is non-diversifiable risk. Everyone is subject to non-diversifiable risk, and there's plenty of risk associated with being poor, such as not having enough food to eat.
Can you please provide widespread proof of "income streams vanish[ing]"?
Because for the ultra-rich, I dont believe there is any evidence of this. Do they lose money some of the time? Sure But nearly any prudent investor could manage a portfolio that would be able to keep them wealthy in perpetuity.
"Can you please provide widespread proof of "income streams vanish[ing]"?"
Were you in a coma from 2007-2010 ?
Ok, let's stipulate that you were. You were in a coma. Fine.
How about twentieth century world history from high school ? Great family dynasties all over the western world were ruined in the aftermath of WWI.
How exactly would you hedge against the leninists arresting you and killing your entire extended family ? Remember, WWI is going on in the background so you can't just jet off to St. Barts...
Moving on to WW2, how would a "prudent investor" manage their portfolio of businesses and contacts and resources in their family base of Dresden ? Or Hiroshima ?
Your scope of thought on this issue is ... limited.
Your criticism is that there isn't a foul-proof way for the rich to stay rich forever?
Of course there are going to be major hurdles during total war and extreme regime change. That would be obvious to anyone who wasn't being disingenuous or thick-headed, or both.
Those circumstances have nothing to do with this discussion as its not a realistic threat for billionaires of today, especially in America.
The 2007-2010 crisis did not impact the billionaires. They are still billionaires.
There is a very easy way to hedge against the risk of world wars and revolutions: spread the wealth around so they don't happen. Pay much higher taxes, especially inheritance taxes, and think of it as anti-communist insurance.
The "1%“ rhetoric is also quite misleading, since the passive income is concentrated much more tightly than that.
If he had said "the average person in the top 10% receives a UBI equal to 75% of the average income in the country" or "the average American receives a UBI equal to 10% of the median income in the country" it would be equally true, yet make quite a different impression.
How much risk, and how much reward? I don't have a problem with people who take risks being able to reap proportionate rewards, but when a Mars or Walton (or Trump) inheritor can pull in many millions per year with practically zero risk (or thought or effort) they are drawing capital out of the competitive free market into a world of pure rent. That makes them no different than the manor lords of old, and that's not the kind of economy or social structure I think we should have.
It means taking the massive chunk that goes to the 1% and instead redistribute it evenly to everyone (including the 1%, but this time they get a much smaller piece)
I think very few are against the idea of free money for everybody because of the fear of moral decay if people aren't working. I think the opponents are worried about where that money to fund UBI will come from.
Taking away people's assets to be redistributed is obviously kind of a touchy subject.
I've actually seen a lot of folks argue against UBI out of the assumption that if people don't have to work, no one will ever do anything with their lives and we'll all go to hell with no production whatsoever. This article is targeted at that argument. If that's not an argument against UBI you want to make, that's great, but it's still worthwhile for the author to write something here.
I didn't realize investments were the same as being payed. It is a revelation that people who have enough money to live off of investments don't have to fight to survive?
UBI is a well intentioned but misdirected goal. Ask for minimum social infrastructure. Not money. Minimum social infrastructure that involves food, education and medicine safety to a good degree (without any hint of lavishness). We achieve that, we will solve arising problem meaningfully in my opinion.
I agree there should be a minimum social infrastructure but shouldn't there also be more? In a near future where automation has made most jobs obsolete people shouldn't have any form of luxury at all? No capital to speculate? No hobbies? Seems like a very dull future.
I am being pragmatic. Having lived (currently living) in a pseudo socialist state, I do not think UBI/welfare state is going to last. May be I am wrong in sense of not knowing how people will change given the choice.
Minimum social infrastructure elevates the bottom for everyone. If people can rise from that bottom further, maybe we can work towards elevating the bottom further and further as time passes.
The following is a non-value judgement. We see generally better outcomes when we just hand people cash than when we make them jump through hoops, and partake in non standard services to acquire resources. It also generates more administrative overhead than if we just hand them cash.
I don't know if this would hold for a universal social services infrastructure.
My personal analysis is that I would tend towards decentralization via cash payments, so as to enable choice, and not have the state takeover the potential economic activities enabled by such cash payments. Nobody wants to be given food from a government kitchen or government food box, but most people, I would think, would not mind getting $X per week/month/year to supplement their other income from the government.
I think your statement is spot on in context of giving cash to people in resource stripped geographies. As charities handling social programs are detached from ground realities.
But in context of democratic, developed states and cities; UBI/welfare is not a good solution. Minimum social infrastructure is what we should strive towards. So, when people fall from safety nets; that fall can be contained. With passage of time; we can work towards elevating that net further.
I have an idea. Can't we make national lotteries pay out in UBI, and use the results for studies? That way, those lotteries at least serve a useful goal.
66 comments
[ 0.21 ms ] story [ 141 ms ] thread> 1 in 10 dollars of income produced in this country is paid out to the richest 1% without them having to work for it.
is misleading. I think this type of attitude makes it more difficult to find common ground. Yes, that income is not produced through recent work, but it is produced as a bi-product of previous work.
The issue is that once a person accumulates enough wealth, the difficulty to generate value falls while the opportunities to do so rise.
People get rich by not consuming everything as soon as they get it. This is a great thing for everybody.
And it's not just rich that accumulate. A person making minimum wage and just saving the same amount withheld by the US social security tax would have hundreds of thousands of dollars accumulated if they kept it in the stock market for their entire working career.
I was curious about this a few years ago and put together this spreadsheet, using this tax rate, rate of return and minimum wage over a 40 year period.
https://docs.google.com/spreadsheets/d/1RlSfkW-DKXAXtXKvZJR5...
The author is confusing income from dividends (either of the stock or bond variety) and interest income with income simply for existing. He chooses to use Alaska, an oil rich and low population state, as a model for the rest of the country. He states that the government would somehow build up a "big wealth fund" that would deliver "returns" without specifying where those returns would come from or the amount of those returns. A fund of the size required can't easily generate large returns since that amount of money is enough to distort markets.
Simple back of the napkin math is that based on the 2013 census, we have 242,470,820 adults living in the US. If we pay each of them $12,000 per year, that's $2,909,649,840,000 in additional mandatory spending every single year. That's more than Medicare and Social security combined, and that has no cost of living adjustments built in. The basic math shows that this idea is simply unrealistic as far as I can tell.
Setting the annual benefit to an average of $7,000 and phasing out other safety net services get's the basic math a lot closer, while theoretically helping more people than the current system.
I'm not saying Basic Income is a definite win, but back of the envelope assumptions are usually too simple to dismiss or validate an idea.
The allure of UBI is interesting but I've never figured out how the math works out without making sizable reductions in quality of life for significant chunks of the population. The money has to come from somewhere... I think UBI works out to be worse than zero sum economically.
Anyway I've always been a firm believer that if you can't come up with a compelling and largely accurate back of the envelope justification for your story, you're not going to get many adherents.
Setting that fact aside, why should my work not directly benefit my children? Providing for ones offspring is a universal motivation.
[1] http://www.investopedia.com/financial-edge/0810/7-millionair...
http://www.cleveland.com/business/index.ssf/2016/03/us_milli...
"More than 10 million U.S. households have a net worth of $1 million or more, a record high representing nearly 9 percent of all households in the country. That may sound like a small percentage, but it's one in 11 households. Instead of leading an extravagant life filled with luxuries and indulgences, a millionaire could be in your neighborhood."
To be in the top 1%, you need to have a net worth somewhere between $5M - $25M (1.2 million households out of 124 million in the US)
Poor people on the other hand are much quicker to bring their income back into circulation. If you want a lot of money to be spent domestically, you need to redistribute the money to the poor.
Also known as nationalizing all investments.
I think the author may not quite have a grip on capitalism.
> The US federal government would employ various strategies (mandatory share issuances, wealth taxes, counter-cyclical asset purchases, etc.) to build up a big wealth fund that owns capital assets.
Sure, wealth taxes does mean effectively redirecting some of the capital income earned by other people, but that's basically what all taxes do anyway. And I'm not sure what "mandatory share issuances" or "counter-cyclical asset purchases" mean. But the end result is they're suggesting that the government should own a set of capital assets rather than just relying on taking money from citizens that own capital assets.
To provide a UBI of say 12k for every adult in the country (as opposed to just a few hundred or thousand), such a fund would need to own a large part of all the corporations and housing stock in the country. Didn't work well for the countries that tried it in the past.
I'm all in favor of Universal Basic Income, but what happens when everyone who currently invests their money to produce this passive income decides to simply spend it instead since they wouldn't get to use any return from their investments?
There's also be no capital accumulating for innovation. No annoying technology to enable people to make high salaries. And none of the annoying tax revenues collected from them.
And people always try to escape it. And its eventually abandoned.
Pick one. Those are literal opposites.
We would then experience true economic recovery, where everyone can access the inventory of dollars, as opposed to the current "asset based" recovery we are now experiencing. Which is basically economic recovery for those who own hard assets.
I'm not a fan of this article however. While we are reasoning by analogy, It's fairly well documented that most capital wealth does not survive past an initial generation or two. There's something about creating the wealth/passive income that creates a different behavior than being given it.
This article does nothing to discuss that. The analogy included feels like it's just there to support a punchy headline.
This is why I'm more excited to see some real tests and results in various countries and communities.
My completely uninformed opinion is that this is largely due to one of the following:
1. Kids who grow up with so much passive income that they never need to work even for luxuries. UBI won't produce this, because anyone who wants luxuries will still have to work to afford them.
2. Passive income isn't automatically self-sustaining, so if kids aren't as good as their parents at actually managing their assets and/or business, then they may simply end up spending more than they make (especially if they're trying to maintain the same lifestyle their parents had even though they can't maintain all of the income). I think this ties back into #1 as well. The article said 30% of the income is capital assets, but if kids aren't good at business (or don't want to work at all), then they're relying on capital income for nearly all of their income instead of just a portion of it, which generally isn't self-sustaining without a change in lifestyle.
Let us know how it works out.
https://www.givedirectly.org/research-on-cash-transfers
http://www.forbes.com/sites/timworstall/2017/01/02/finlands-...
https://blog.ycombinator.com/basic-income/
https://catalog.hathitrust.org/Record/002169251
An interesting model to look at is that of the Rothschild family. If you can cut past the conspiracy theories, they run the family wealth as a family bank. Family members can borrow from the bank, but they must attend an annual meeting and share their learnings with the rest of the family (at least that's my old memory of something I read).
It's interesting how different folks approach it. The Vanderbilt family largely lost it all, the Rockefellers kept it (even after large charity).
Personally, I'd put myself in the Buffett camp. Leave your children enough that they can do anything, but not so much that they can do nothing.
The analogy to UBI completely fails. Honestly this is probably one of the most transparently dumb UBI articles I've seen posted on HN. (Disclaimer: I support the idea of UBI pending research outcomes.)
That is, your family is going to spend some x% of your wealth every year. Then you only need to return x% on the fund (approximately) on a yearly basis. There is very little real risk associated with this strategy, if you're rich and needing to earn a small percent of your total assets, say 3%. Now, if your family isn't rich, you're probably going to need to spend much more than 3% in income, and your probability of shortfall increases dramatically.
This is similar to how college endowments work - do you think Harvard's endowment has a high chance of going dry anytime soon? Tangentially, their tax-free status is tied to spending 5% of the assets each year, which actually makes their job a lot harder, and is why they need to still raise money.
Once you get to inter-generational wealth there is catastrophic risk that is almost uninsurable; managing that risk is extremely difficult. It is not as simple as "buy bonds", you have to deal with things like confiscatory tax rates, hyperinflation, default, being targeted by the government as a juicy source of funds, fall of a government you had previously been associated with, a dumb heir coming into control of the fortune and getting swindled...
If being rich was easy everyone would do it.
Because for the ultra-rich, I dont believe there is any evidence of this. Do they lose money some of the time? Sure But nearly any prudent investor could manage a portfolio that would be able to keep them wealthy in perpetuity.
Were you in a coma from 2007-2010 ?
Ok, let's stipulate that you were. You were in a coma. Fine.
How about twentieth century world history from high school ? Great family dynasties all over the western world were ruined in the aftermath of WWI.
How exactly would you hedge against the leninists arresting you and killing your entire extended family ? Remember, WWI is going on in the background so you can't just jet off to St. Barts...
Moving on to WW2, how would a "prudent investor" manage their portfolio of businesses and contacts and resources in their family base of Dresden ? Or Hiroshima ?
Your scope of thought on this issue is ... limited.
Of course there are going to be major hurdles during total war and extreme regime change. That would be obvious to anyone who wasn't being disingenuous or thick-headed, or both.
Those circumstances have nothing to do with this discussion as its not a realistic threat for billionaires of today, especially in America.
The 2007-2010 crisis did not impact the billionaires. They are still billionaires.
The parent claimed that "the rich" have foolproof recipes to stay rich forever - they just need smart portfolio management.
So yes, my criticism is that that is false.
If he had said "the average person in the top 10% receives a UBI equal to 75% of the average income in the country" or "the average American receives a UBI equal to 10% of the median income in the country" it would be equally true, yet make quite a different impression.
I think very few are against the idea of free money for everybody because of the fear of moral decay if people aren't working. I think the opponents are worried about where that money to fund UBI will come from.
Taking away people's assets to be redistributed is obviously kind of a touchy subject.
Minimum social infrastructure elevates the bottom for everyone. If people can rise from that bottom further, maybe we can work towards elevating the bottom further and further as time passes.
I don't know if this would hold for a universal social services infrastructure.
My personal analysis is that I would tend towards decentralization via cash payments, so as to enable choice, and not have the state takeover the potential economic activities enabled by such cash payments. Nobody wants to be given food from a government kitchen or government food box, but most people, I would think, would not mind getting $X per week/month/year to supplement their other income from the government.
But in context of democratic, developed states and cities; UBI/welfare is not a good solution. Minimum social infrastructure is what we should strive towards. So, when people fall from safety nets; that fall can be contained. With passage of time; we can work towards elevating that net further.