I really like this analysis! Given this hypothetical income growth, what would the distribution of wealth look like today?
As far as I know, the distribution of wealth is even more skewed in favour of the rich, with some fraction of people at the bottom having 'negative wealth' i.e. more debts than assets. Wealth also seems to have a compounding effect, in that richer people have a higher savings rate and access to better investment opportunities. So would more equal income growth necessarily lead to a more equal wealth distribution, or are there other factors to account for?
Up until about 1970 workers wages and productivity grew equally, but then while productivity continued growing at the same rate it had been, inflation adjusted real wages plateaued and haven’t much risen since.[1]
I always like to say that we live in an exponential meritocracy, where your accumulated merit enhances your ability to accumulate more merit, eventually resulting in a small minority rapidly pulling ahead of the pack. Goes with the old adage: turning $100 into $120 is work; turning $100 million into $120 million is inevitable. Perhaps we need a linear meritocratic function.
Neither Gates, nor Jobs, nor Zuckerberg, nor Bezos, nor Musk inherited their billions. At best they inherited access to the social circles of their parents, and maybe paid-for education (too lazy to check). Knowing the right people is not something you can, or want, to limit or forbid.
Should anyone suggest to prevent passing as much as, say, $100k to your child (an approximate price of a university tuition), said anyone will see a massive push back from basically all strata of the society.
Yeah, but they benefited from a system that coerces people to trade their labor for less than it is worth.
Zuckerberg is worth >3x the annual income of all surgeons in the US. It is implausible that his net worth reflects his replacement cost. Even PG has said (to Zuckerberg) that if it wasn't him, it would have been someone else.
The amount of value you can obtain by trading something is by definition what it is worth. If nobody is willing to pay you an amount for something, it's not worth that much.
> It is implausible that his net worth reflects his replacement cost.
Why should it? His net worth reflects the expected value of the portion of Facebook that he owns. Why would it have anything to do with his replacement cost?
Hmm, not really. The cost of labour is actually generally agreed to be the replacement cost of the labour.
As a society, the only thing that we take out of Zuckerberg is his labour, so he shouldn't get anymore than the replacement cost of his labour. In other words, if someone would have done Zuckerberg's work for less compensation - and the GP asserts it is the case - then we as a society lose by having Zuckerberg do it instead of the lower compensated alternative.
In other words, when someone gets paid more than their replacement cost, there is a market inefficiency that causes loss to the vast majority.
He doesn't "get" anything. His net worth is due to ownership in the company he made. When people talk about his net worth increasing, that's due to the shares appreciating. He didn't get more of anything. He owns the same number of shares, they just became more valuable.
Zuckerberg is not employed by society. We're not all collectively paying him a salary.
If you're saying we should completely abolish private property, that's a different thing altogether.
Private property exists because it is an organization of things that is useful to society. That's why we heavily limit it using taxation and so forth.
We allow people to own capital because it motivates them to do some types of work. If we allow people to concentrate more capital than necessary to motivate them to do that work, we lose.
There is no "we" allowing or disallowing anything. Who is this "we" and why do use suppose they have some divine insight into the ideal allocation of capital?
LLCs and copyright law are rather arbitrary constructs which our laws have created in the belief that they promote some benefit to society - be it better allocation of capital, rewarding creators/inventors, etc.
Shares of stock, the secondary stock market - these are also arbitrary constructs which have been created to serve some purpose.
There’s some magical thinking regarding capitalism - that it practically runs itself; that is ensures efficient allocation of capital.
Capitalism may tend to decentralize economic decision-making, and it may tend to align production incentives with actual demand. But, that doesn’t mean it’s efficient. Efficiency would mean that incentives would nearly match the minimum to ensure satisfaction of demand. What we in America have is a system which highly rewards people who control the labor of others. Our society values wealth, not work.
"We" is the People, the Sovereign, the Government, whatever you like, whatever makes laws that allow for private property and regulates it. We suppose they have some divine insight into the ideal allocation of capital because empirically, so far, this system has shown to be the best way to allocate capital in many situations, so we allow it.
Outside of it, capitalist ideology also has the idea of the divine invisible hand of the free market, which is certainly an exageration, but in the real world markets with the proper conditions and regulations are pretty good at allocating capital.
> There is no "we" allowing or disallowing anything. Who is this "we" and why do use suppose they have some divine insight into the ideal allocation of capital?
You only really own something if enough people in society ("we") agree that you do own it. If enough of "us" change our mind (for instance, if your ownership is no longer useful to us), then you don't really own that thing anymore.
What you wrote is very scary. As someone who grew under a communist party rule, I have come to realize that there is no way to rationalize with communist. I think McCarthy came to the same realization.
This is literally the argument for why communism hasn't worked. Without private property it was impossible to motivate people to do some kinds of work - taking on risk, organizing production, and some kinds of innovation - to a sufficient degree and without many drawbacks.
If someone found a way to motivate people to do those kinds of labour properly - and force doesn't work well for many reasons, so it would have to be non-violent, but without having to allow ownership of capital and wealth concentration, why wouldn't we consider it? The Communists of old thought they found a way to do so and were wrong, but if someone today found a way to do it that doesn't cause many drawbacks, it would be foolish and dogmatic not to consider it, and if it works well, implement it.
Capitalism automatically allocates more resources to those who uses the resources well via markets mostly choosing to buy better or cheaper products. That works much much better than allocating resources via committees or strict laws, until you have a better solution for resource allocation any replacement for capitalism will fail.
However this also means that as long as we keep the resource allocation thing mostly intact you can manipulate all other aspects of it, like adding lots of taxes, giving aid to the poor etc. None of that messes with the main feature of resource allocation, which is why Scandinavian countries still have good economies.
Ah, but you have to make the difference between resources. There's capital, which I agree are often better allocated in capitalism, but other kinds of resources aren't problematic.
Which is pretty much what I said :). Organizing production was a proxy for capital allocation.
> The amount of value you can obtain by trading something is by definition what it is worth.
That is one important definition, but it's just a statement of ideology.
Was Instagram only worth $1bn when they sold to Facebook in 2012. Are we supposed to ignore the fact that Instagram's options were sell for $1bn or face "Zuckerberg destroy mode"?
I feel like there's a false equivalence being made here. You're comparing wage to net worth. Zuckerberg's net worth is not a function of his replacement cost. It's the percentage of his own company that he owns, valued at market price. This happens to be worth $100B at current market levels, but it is independent of whether he continues to work at Facebook or anywhere else. It's not compensation for labour.
Your point is truthful but not completely relevant: Bezos, at least, did receive a considerable amount of money as funding for Amazon from his family. My point is that the money received from parents most often is, in fact, an advantage. Now that I wrote it down explicitly, I wonder why is it that I have to argue this, seems quite obvious.
(Note: I'm not saying the funding from parents was sufficient, or even necessary in Bezos' case.)
I see! It's a transfer between generations, though not an inheritance (which some people suggest to tax heavily).
Again, Bezos got about $300k from his family (both his parents were doctors), which, I think, is far below the level of "unjust inherited fortune" or what is usually people suggest to tax into oblivion.
Yes, when your parents help you, it's helpful — it's nearly tautologically true. This is why I as a parent do help my grown-up son sometimes. Limiting this behavior is not quite realistic, and would be met with a huge backlash (justly, to my mind).
The problem is not intergenerational help, that existed at least as much if not more in times of less inequality. The problem is the size of the spoils. Intergenerational help is only brought up as a counter to the tired "it's your fault if you aren't a billionaire" defense (which is rarely brought up by billionaires themselves but all the time by their broke admirers)
It's a lot easier to make billions when you already have millions (like Elon Musk's dad, who joked about how he had too much money in his safe to be able shut the door when his gemstone mine was doing well).
It's a lot riskier to be an entrepreneur when you're living paycheck to paycheck and don't have a family fortune to fall back on.
Extraordinary people also often have extraordinary childhoods. Most teenagers can't borrow their dad's private jet to go sell emeralds to Tiffany&Co, but I imagine that sort of experience comes in handy for a businessman
The fact that Musk's dad had millions does not imply that Musk himself had access to them; according to Wikipedia, their relations were not very good. But yes, being around people who have businesses and millions does give you certain experience and perspective. Despite that, Musk was heavily bullied at school; apparently dad's money could not buy him a private school, or maybe just a better school.
Indeed some childhoods of billionaires are special, like that of Steve Jobs, a highly problematic adopted child who suffered at school so much his working-class family decided to move to get him to another school district.
OTOH, neither Mark Zuckerberg, nor Jeff Bezos appear to have had extraordinary childhoods, or family wealth above a normal middle-class level.
Many of them, though, were exposed to electronics and computers early, and their parents were wise enough to encourage it, or at least to allow.
Gates, Zuckerberg, Bezos, and Musk were all in the top 1% before they started their companies. Jobs's family was middle class, but well off enough to own a house with an empty garage and enough money to get him started. They also fed, housed, and clothed him while he started his company.
That's not the point at all. The point is that starting a company was not a risk for these men, because they would be just fine if they failed.
And I think you're way off with that hundreds of millions number. I doubt there are that many people that can fully support their adult children, including footing the bill for all startup costs.
>>> I always like to say that we live in an exponential meritocracy, where your accumulated merit enhances your ability to accumulate more merit, eventually resulting in a small minority rapidly pulling ahead of the pack. Goes with the old adage: turning $100 into $120 is work; turning $100 million into $120 million is inevitable. Perhaps we need a linear meritocratic function.
>> So basically, some way to prevent wealth from being passed across generations?
> Neither Gates, nor Jobs, nor Zuckerberg, nor Bezos, nor Musk inherited their billions. At best they inherited access to the social circles of their parents, and maybe paid-for education (too lazy to check). Knowing the right people is not something you can, or want, to limit or forbid.
But, there are others who did. For instance, just off the top of my head: the Koch brothers, who combined inherited wealth with extensive political activism.
Also, the fortunes of most "self-made" meritocrats can be traced to building exponentially on some elite inherited opportunity, then that kneecaps a lot of the moral reasoning used to justify that those people deserve full control of those fortunes (and thus shouldn't be subjected to heavy taxes).
> So basically, some way to prevent wealth from being passed across generations?
That wouldn't help much. The children of the wealthy benefit from connections obtained while their parents are still alive. They receive a head start from birth. By the time they are in line to receive an inheritance, they have already had more opportunities for success than the general public.
> The children of the wealthy benefit from connections obtained while their parents are still alive. They receive a head start from birth.
what about the children of parents who has good genes? If a child is athletic/healthy/good-looking, because their parents had good genes (and the good luck for a good combination), do you also resent that the child has a head-start?
parents helping the children get ahead is natural, and should be encouraged imho.
The difference is that we can easily redistribute wealth. It is much more difficult to redistribute "health."
IMO our goal shouldn't be for everyone to be objectively equal in all ways, but rather to be provided enough resources and opportunities to live a good life.
Like on the opposite end of your example, if I was born with a congenital condition, or became injured, I should still be able to live a good life with my needs met and opportunities to do good work. The fact that we don't have that today, due to lack of a social safety net and accessibility, is a problem.
> what about the children of parents who has good genes?
That's an absurd comparison. Children of parents who are poor and don't have connections can still compete, but simply cannot benefit from their parents trafficking influence.
If you really want to go with a sports metaphor, your example is like barring children from having a fair shot at sports because their parents aren't rubbing elbows with the coaches.
children of parents who don't have inheritance can still compete economically. So no, it's not an absurd comparison between inherited wealth and inherited genes.
Coincidentally, we've got a covid relief bill, and you can see what the wealthy and power fear above all else -- blanket grants to the people that make them less beholden while increasing inflation.
Nobody actually cares about the deficit, it's all about maintaining hierarchy.
The issue is a falling share of productive growth going to the not-richest. That is the problem, not the "size of the pie," as it were. In this sense, "incentivizing wealthy into investing it productively" is nothing more than "attempting to con the wealthy into giving up a portion of their share." The alternatives are that nothing changes, or that the wealthy receive an even greater share of growth going forward. But those are prima facie counter to the goal, if you take the findings of the OP to be concerning. In any case, the wealthy are not going to fall for it. They want to maintain or expand their holdings and influence. If you're okay with that - essentially, if you subscribe to trickle-down economics, however misguided that may be - then I supposed that's fine. But either way, we have to be clear what the goal is, and who is going to be helped and and who is going to be hurt by achieving it.
It can be argued that the barely-rich are also a huge part of "the problem." Collectively, they wield a great deal of influence through their wealth, networks, and savvy, and instead of using it to solve "the problem," they are largely involved in an intra-class competition to secure the next open actually-rich spot (or to simply maintain their standard of living, and particularly that of their children, regardless of merit). Fortunes that could go to feeding dozens of children, educating dozens of youths, housing dozens of homeless men and women, instead go to ensuring that a handful of people can keep up with their neighbors in vying for a spot at Yale for their boy or girl. Sure, in the process many salaries are paid, but you could also use that same amount of money and have the recipients of that aid number in the dozens or hundreds rather than be a handful or so.
In the end, that spot at Yale will still be filled. The needle on the chances of it being Dr. and Mr. Irgendwas' child probably doesn't move that much, either.
Hate to burst your bubble but if you're one of the 25% of Americans who has an undergraduate degree or above you're likely part of that barely-rich who are part of "the problem" (from a global perspective making over $50k a year counts as barely rich). No one wants to admit to being a part of some "elite" minority because there's always someone else to blame who's higher up on the ladder.
Ultimately policy makes change not some expectation for individual morality.
> No one wants to admit to being a part of some "elite" minority because there's always someone else to blame who's higher up on the ladder.
The problem with that point of view is that ignores the corollary that most of the people are not held do blame because there's always someone else which is privileged and has direct control over their lives and livelihood.
Complaining that someone in the US earning $50k/year is responsible for the current state of affairs, when they can't even control their own lives, is miopic and sheer idiocy.
Agreed, that's the point. How do you think the doctors and lawyers feel (or to be more specific to HN--the people doing well in the tech sector)? Having a finger pointed at you for living your life without "doing something" when you're not part of the country leadership is an aspect of the "change" myth we're often subject to (i.e. it's your fault things are bad, not the actual people in charge).
*also depending on where you live, even within the US, $50k can be a decent salary.
Doctors and lawyers are not making $50k a year. $50k is not even the average annual income in this country; it is not the income of the barely-wealthy. This is the problem: people making multiples of $50k live fundamentally different lives from those making sub-$50k. They have money to burn, and they do just that, often on self-serving goods and services with limited ROI compared to what the same amount of money would buy people with more basic concerns. However, they want to align themselves with struggling families and individuals culturally, because it absolves them of responsibility for changing private and public policy towards the nature of labor and welfare, and provides cover for them to continue their mindless march into the Moloch of a false meritocracy.
If you're paying $30k-$50k a year to send your kid to a private school, we're not talking about the same kind of family as a people working one or two jobs sub-$20/hr just to make rent. No one listens to the latter; if you're the former, you have positioned yourself socially to be heard by the decision-makers and policy-executors. If you don't say anything except in your own defense, knowing what an educated person should know about poverty and suffering in America, even somehow envisioning yourself as among those suffering, that's a choice.
> $50k is not even the average annual income in this country
That depends which average you are referring to. It's well above the median personal income (around $35K)—the median being usually the useful average for income statistics, but a little bit less than the mean personal income. (The most common “average income” number, though, is neither of those, but the median household income, which is close it $70K, but it doesn't really make sense to talk about an individual's income being average or not and looking at a household, instead of individual, metric to judge that.)
Generally, when one says average, they mean average. I used it deliberately because of the implicit comparison to be made between it and the median, and because of where it compares to the arbitrary $50k figure grandparent chose to swing the conversation around.
I've heard of the median and mode being associated closely with the "average," but never as a synonym. Actually, I think it's much safer to assume that someone speaking of the average is referring to the mean unless they specifically say "median."
> I've heard of the median and mode being associated closely with the "average," but never as a synonym.
They aren't synonyms, they are more specific terms.
In colloquial language, an average is a single number taken as representative of a list of numbers. Different concepts of average are used in different contexts. Often "average" refers to the arithmetic mean, the sum of the numbers divided by how many numbers are being averaged. In statistics, mean, median, and mode are all known as measures of central tendency, and in colloquial usage any of these might be called an average value.
Further, if you go into the definitions of median, mean, and mode on Merriam Webster's, only "mean" actually mentions the word "average." It shows up in the "synonyms" section for median, hilariously, but not in the definition itself. It is then probably least incorrect to assume that average refers to the mean unless there is some previous understanding that it doesn't (and since you presented the other meanings within a hypothetical, obviously there was no such understanding).
In any case, since I brought up the word "average" in the first place, and in all reasonability meant it to refer to the mean, I don't know why you're still arguing with me about this. You read an marginal meaning into my text to make a pedantic point and have wasted both our times.
> $50k is not even the average annual income in this country;
You really should refresh your statistics. Average means absolutely nothing if you don't take into account how uneven the income distribution is, specially in the US where income inequality reached abismal levels.
To focus on the facts, the median household income in the US is close to $63k. Note it's median, not average, and note it's household income, and not anual income.
That means that in half of US households you still get a household income lower than those $63k even if you add two incomes. That's how half of the US population lives.
>[...] if you don't take into account how uneven the income distribution is, specially in the US where income inequality reached abismal levels.
I did, which is precisely why I used that figure in the first place. I made the (evidently correct) assumption that most people would know that the median income is lower than $50k and the average. Grandparent's "barely rich" figure doesn't even hit the (high-earner overburdened) average, yet is higher than the income the median earner brings home. It's damning and inappropriate from two angles, which brings into question his entire argument.
> The ultra rich don't pay the current tax rate, why would raising a tax they don't pay have any effect?
The ultra rich don't pay the current nominal income tax rate, because their income isn’t of the kind subject to income taxes, much less the additional taxes levied on labor income. The simple solution to that is to wipe away the distinctions about source of income in taxation policy (for payroll taxes, that means also eliminating limitations in source of income that qualifies for benefits and the quantity of annual income taxed, but that doesn't prevent, e.g., additional “bend points” in benefit formulas to limit the benefit impact of larger incomes.)
> Until there's an aggressive international agreement on closing tax loopholes, raising the taxes only impacts the barely-rich (doctors, lawyers, etc).
That's only true if you raise taxes on the kind and amount of income that doctors and lawyers typically make. Equalizing taxes on capital and labor income by doing away with payroll tax limits and favorable treatment of long-term capital gains while dealing with non-repeatable income (like most long-term capital gains for any but the ultra-rich) by allowing both advance tax recognition of anticipated gains and deferment of windfall gains over a period of years would impact the haut bourgeoisie, but have only modest, and mixed, impacts on the barely rich.
> That's only true if you raise taxes on the kind and amount of income that doctors and lawyers typically make.
That's what Biden wants to do, terrible idea.
Removing favorable treatment of long term capital gains is also a terrible idea. Ideally, there should be 0% gains tax (and income tax), but people will settle for favorable treatment compared to income tax.
> Ideally, there should be 0% gains tax (and income tax) (...)
Why? Your income is disproportionally dependent on investments and expenditure made by society to pave the way to your ability to generate income. It's fair that those who benefit the most from society also help the most to preserve its uplifting impact on the people.
Question: what do you think about a tax rate determined by wealth, rather than the first derivative of wealth (i.e. income)? When a person whose net worth is $10,000 earns $5,000, should they be taxed the same way a person whose net worth is $1000,000,000 earns $5,000 is taxed?
The reason your tax rate should be determined by your income, rather than the first integration of your income (i.e. wealth), is because just having wealth isn't hurting anyone. If I spend every evening in my garage fixing up an old car, and increase its value from $1000 to $2000, I've increased my wealth but I haven't negatively (or positively) affected anyone else. It might be useful as a means of generating government revenue but it isn't something that needs to be taxed on its own.
Spending money, however, does affect other people - it reorganizes their incentives to produce more of the thing you spent money on. This can lead to weird situations where a homeless person has 0 effect on market incentives even though all they want is a blanket, but a rich person can motivate tens of thousands of people to assemble her another yacht to leave at her vacation home. So you can make your car aa valueble as you like in the privacy of your own home, but as soon as you want to use that to start affecting market incentives (by selling it then spending the money), prepare to get taxed.
Technically a consumption tax would be better than an income tax, but most people spend most of their income so it isn't that different and it's easier to make an income tax progressive
Wealth doesn't, income does. If I buy a car and work on it to add $1000 to its value, I've increased my wealth but have not changed my income or purchasing power until I realize those gains, at which point my $1000 income is taxed (as it should be)
The superior model that has proven to work is Islam's Zakat. It's sort-of-but-not-really a wealth tax. 0% income tax, 0% gains tax, and only people who hold commodities over a certain threshold are taxed (meaning the poor are exempted). Gold and silver holdings for example are taxed at 2.5%, with a different percentage for cattle and produce.
As to your example, you won't pay a wealth tax on your car if you increase its value under Zakat. Now if you want to use it as a currency (start flipping cars) then it's different.
We already do have such a tax: inflation. The fed increases the monetary supply and uses it to buy treasuries which help fund the government.
The problem is the rich have lots of options so you need to consider second order effects. If you print lots of money (as we are now), people and especially the rich tend to exchange their dollars for assets, such as stocks, art, etc. If you attempt to tax those assets as well, people will purchase other untaxed assets.
I'm also not sure it actually matters as much as people think. It's not like Gates, Bezos, Zuckerberg, or Musk are using their funds to compete with the average person, IE buy up all the beef. Them having less really won't make us more efficient at producing food or increase the amount of housing available in cities.
Yes, but one of those second order effects of inflation is the relentless drive for growth that's burning people out and contributing to climate change: inflation causes those with the most money to demand higher and higher rates of return on their investments (to keep up with inflation), which drives management (through pressure from the board) to drive organizations harder and harder, often to the detriment of long term objectives.
I would argue that drastically cutting inflation might help reduce income inequality over time.
Strawman. Also, the rich are not a minority. they project so much power that to call them a minority is almost racist.
It isn't about envy. I don't want everyone to have luxury cars and steak dinners every night. But I also don't think we should be subsidizing wal-mart, amazon, megacorps who continually rape our country and avoid taxes. We don't need to tax that much more to help balance the scales.
Of course, we can keep ignoring it. And then there will be blood. Look at history - it will come.
You're confounding stuff for no reason. There is absolutely nothing wrong with enjoying the profits of your work, which naturally including the return on investment in a company you started and put together from nothing.
There is a big difference between the product of one’s work and the profits of one’s work. The latter is a curious notion.
A fundamental component of capitalism is private ownership of means of production, which allows a few people to profit from the product of other people’s labor.
> There is a big difference between the product of one’s work and the profits of one’s work.
Of course. That's why you should face the fact that if no one puts in the money and the legwork to jump-start the company, there is no taxes to be made nor there is profit to be distributed.
"The rate of return you get on your capital increase as your capital increases" is the most interesting thing I've gotten from Piketty's book, and it's definitely been true for me.
I think this is true, but only to a point. It's certainly true when the comparison is 10K to invest vs 10M, as liquidity of markets is not yet a concern and the investor with 10M is suddenly "accredited", can afford to pay a financial advisor, etc.
However, at 10M vs 10B, the 10M investor is much better off. Liquidity becomes a real concern - there's just not that many assets or stocks that can support that kind of allocation.
Small, nimble investors can usually outperform large funds simply by being able to fully enter into positions where larger funds couldn't.
That's just another way of expressing the concept that opportunities are limited.
Large investors (like those with $10B) can certainly take advantage of small opportunities, but just not with their full amount. But because they are large, there may be multiple small opportunities which they participate in, and diversify on, rather than a small investor who must commit to a single small opportunity (which forces them to take on individual/concentrated risk).
So it's not true that the $10M investor is better off.
You are only one person, taking on more opportunities takes more of your time and subcontracting investments can only do so much. Jeff Bezos turned 300k start to 100 billions, a 300 000 times return on investment. Do you think he could have turned 100 billion to 30 quadrillions? Obviously not, it would be something like 100 billion to 1 trillion at best.
Investing in yourself or projects you run is the main way to get rich, otherwise you just get average returns but if you invest in yourself you can bet on you being much better at doing things than the rest of the world expects.
This comment here is kinda incredible at being "technically correct". The argument is "That's not always true, it only hold for 99.99% of the time".
As in even if you're in the 99.99% OPs reasoning still holds. And yet so much time on this site is spent arguing on behalf of the .001% Ie people with way above $400 million in net worth.
You realize you're talking about fewer than 3000 people in the entire USA. Why is this even worth discussing? And that's still assuming they're putting all of their net worth into a single investment which they aren't.
This is so far from the point of being discussed it's a complete distraction. The epitome of "well actually...".
It's not just 3000 people. My comment is relevant for entities like pension funds, mutual funds, hedge funds, insurance companies that have to allocate their float, conglomerates like Berkshire hathaway, and those "negligible" 3000 people that account for probably a quarter or higher of personal investment.
If this were true, institutional investors would only invest in the biggest hedge funds, ignoring the smaller ones. They don't, because the biggest hedge funds seldom have the best returns.
A better way to think about this is from the "Born On Third Base" report looking at the Forbes 400. In 2012, it was estimated only 35% of the wealthiest people grew up in low or middle class--as opposed to 95% of the general population.
Another way to say this is that 65% of the wealthiest people were born into the top 5%.
There's way too much wealth worship in the US. Yeah most rich people are smart but not exponentially smarter than everyone else.
A lot of wealth is luck. But wealthy people (like HN audience) don't like to hear that. I can't find a link but there's controlled studies that show the richer someone precieves they are, the more they attribute it to skill. Even in studies where outcomes are completely randomized.
Usually it's something like this: grow up as a citizen of one of the richest countries in the world. Have fairly stable family situation where you did well in school. Family wealthy enough that you went to a good primary school too. Family wealthy enough to fix overbite, scoliosis, speech impediment, and most other things that would handicap you professionally. Money/connections/grades to get into a good college. Skin color, gender, and culture to not be dicriminated against. Enough intelligence to pick a well paying career (maybe top ~25%). "Gifts" from parents early in life where wealth has decades to accumulate. Things like gifted cars, college education, wedding costs, first house. Ability to take arbitrary career risks because you always have family and their gifts to fall back on.
That probably describes more than half of people in well paying professions. And it's all 100% luck. The path to millions when you've already got so much going for you isn't so hard. You've already passed the barriers that stop 99% of people.
Merit isn't wealth. Wealth is mostly luck and we shouldn't worship wealthy people like Gods, hanging on their every word.
There's logical ways to measure class mobility and the US does badly compared to practically every wealthy country besides the UK
I don't really view the skill vs luck as a "moral" question. In the end, everything is luck - we're a product of our genes and our environment.
What you do want to ask is what the proper incentives need to be to have a functional society. Fundamentally, we're just trying to define some social utility function and maximizing it.. but even ignoring political problems, it's hard to understand how wealth transfers (or any equity improving policy) alter incentives, potentially leaving society worse off if done wrong.
The socialist "nanny state" democracies in europe have much lower wealth inequality, and much higher social mobility than the US. To me, it's a clear blueprint to follow.
The main difference is that the top 10% like software engineers and doctors earn much less and the bottom 50% earn more. So most people posting at HN would be much poorer while the top 0.1% are still very rich in Europe.
> So most people posting at HN would be much poorer
You have it completely backwards. Software Developer salaries would likely be higher, _yes higher_, in the US. The US has had very large GDP growth over the past 45+ years. But that's how much money has gone to capital vs labor since the 70s.
The clearest way to think of software engineer salaries is: median software engineer salary as a multiple of median country salary. US is 1.38, France is 1.21, Germany 1.33. [1] Overall our software salaries are proportionally no more or no less than expected based on median labor rate / salary in major European countries.
However, because all of the gains in wealth have gone to capital, overall salaries are actually suppressed. Salaries across the board in the US would be higher, if gains of the past ~45 years hadn't been siphoned off. Essentially if we had the same income distribution as we exited the 60s with, everyone today with a salary of < 200,000 would be making more money. So that covers the vast majority of software engineers. Even more so if you remove the 20% Cost of Living bump due to being in Bay Area. So even most FANG employees would be making more if the US still had a normal income distribution. [2]
I think that's the largest thing people don't understand. Devaluing labor, devalues labor for everyone. Software engineering salaries are vastly underpaid, vs the revenue they bring in - it's incredibly skewed and goes to ownership / capital. It's half the mantra behind all of push for doing your own startups: working as labor in software you're being vastly undervalued. Might as well do the same thing and have a chance at ownership / capital. It's all the same issue.
a lot of work was also outsourced. that led to global upward class mobility. it was win win because young professionals in india and vietnam and eastern europe were able to climb the salary/wealth ladder while american companies also made profits.
millions of jobs were created globally that did indeed have a role in erasing poverty in many countries. the wealth re-distribution was global. at the same time, noone became poorer in the united states and corporates flourished. to me, it is all win-win.
we forget that bay area was responsible for global change. it isnt just about california or america. silicon valley made the whole world a better place on average in the past two recent decades. this cannot be disputed.
No. Europe has lower income inequality, and higher wealth inequality.
Good numbers are hard to come by since:
1) Much of the wealth inequality in Europe does a nice job of hiding wealth. Old money doesn't talk about wealth. But there are families in Europe with fortunes dating back a half-millennium. A half-millennium of interest, even at the relatively low rates over most of history, is a lot of money.
2) The figures are biased by people with negative wealth (e.g. debt) in ways which are somewhat different from what one would hope to understand.
A model to follow is based on a modernized version of Islam -- a wealth tax.
I don't like the "skill" argument at all. It's not just skill vs luck, it's also willingness to throw everything else under the bus in favor of income.
Take for example US colleges: I'm pretty sure that tuition inflation doesn't quite lead to a large windfall for the best at teaching and researching, but surely for apex administrators. And considering the serpentine nature of career paths leading to the top of education administrations, low level administrators couldn't ever reach those positions through skill or hard work. The career path is basically feign academic ambition until there's window for defecting to administration. Similar compromise-paved ways to economic success exist in corporate cultures and even an entrepreneur will often be faced with a decision between money and other goals and qualities.
American culture likes to glorify greed as ambition, but there are more ambitions be had than money and power.
I see this applies even moreso with the cryptocurrency fanboys on HN that feel that their newfound wealth (on paper) makes them paragons of financial wisdom and success, spawning serious Dunning-Kruger effects. I would argue the cryptocurrency crowd is even more driven by stupid luck than anything else.
I wish they saw it primarily as an unregulated online casino and less of a serious replacement for M1 money supply, which it certainly isn't.
I think OP's comment is different. It's demand-side, not supply-side.
If a CEO causes 1000 employees to be 1% more efficient, that creates the same value as 1000 employees each being 1% more efficient. Ergo, if I'm an investor, if I believe a CEO will be slightly better than another CEO, it makes sense to pay a lot more.
If I have a market of 7 billion people in the world, and my software saves everyone a dollar, I've created $7E9 of value in the world, and probably monetized $7E7-$7E8 of value for myself. 40 years ago, my market was the US -- roughly 300 million people. With globalization, it's 7 billion.
If I'm making a search engine or webmail client, it's winner-takes-all. If I can hire two engineers, and I believe (statistically, per my lousy interview process) that one is 1% better than the other, I'll drop a shit-ton of money to hire them. See Mythical Man Month for why hiring an extra person with the "saved" money doesn't have the same effect.
And so on...
Economies of scale, winner-takes-all-markets, and zero marginal cost goods like IP fundamentally push salaries at the top up, even with small differences in performance, measured with noisy tools. I've worked with many CEOs. Someone who makes $10M isn't necessarily brighter than someone who makes $100k, but the demand-side economics still work out that way. The $10M salary often comes down to signalling; they've managed a big organization before, they have a nice elite university brand stamp, or they felt better the day of the interview. It STILL makes sense. My expected returns are STILL higher.
Where things break down a little bit is corruption and misaligned incentives -- lots of places, if you pay more, you get less -- but I think that's under-acknowledged. Things also break down is Simpson's Paradox. Globalization means income inequality WITHIN countries is getting worse, but worldwide, is getting better.
Your assumptions fall apart of you consider that it's not all skill, part of it is random.
You're falling into the same trap. You think someone is better when in all probability they got luckier. And you think that picking someone you think is better will statistically get you a better person when that's not true if credentials are highly luck based. It's like buying lotto tickets from a gas station that's produced more winners in the past.
I'm saying your measurements aren't going to be any better than whatever percent of "skill" is randomness. CEO candidate 2 went to a better school but you don't know that it was his grandpa's alma matter who pulled some strings. Candidate 3 might be a multimillionaire but it's because he got a settlement from a malfunctioning ski lift when he was 10.
A lot of the "signals" companies use to determine if somebody would be a good leader or employee are 100% luck based. You could statistically pick a worse candidate every time that looks betters if you're looking at the wrong signals.
They don't fall apart. You need to look at it as expected values. Most signals are not 100% noise, but e.g. 90% noise and 10% signal.
If you have a candidate from Harvard, it's a mixture of ALDCs and really smart people with some bias for policies like affirmative action. You might not know what you're getting, but there are odds of scoring that genius. Ditto with most other low-quality signals.
And statistically, you do get someone better than a random schmuck off the street. I mean, the processes are noisy, and perhaps 10% of your workforce might make a better CEO, but you have no way of finding those 10%.
(And the noisy signals problem in hiring isn't specific to CEOs).
Discussing CEOs is completely missing the point. There are fewer than 2000 businesses in the entire country with more than 10,000 employees. Meaning fewer than 2000 CEOs of them.
The issues are that fundamentally capital naturally accrues capital - it's is not a stable equilibrium. Capital is sticky and pulls in other capital. The second is that when a country grows in productivity and wealth those gains go to some split of capital and to labor, and in the US for the past 55 years they have gone exclusively to capital.
To explain this, imaging there are two rooms, and everyone enters a room. The one on the left or the one on the right. You enter with the money you own. Then when inside each room, once a day you pick a number from 1-100 and get paid (or debited) based on the number chosen. The issue is the distributions in each room are different. In the room on the left, 70% of numbers pay a positive return based on what you brought in (the rest take money from you). In the room on the right, only 20% of numbers pay a positive return and it's a flat amount from the distribution.
People in the room on the left spend all this time discussing how they have the greatest picking strategy, and how much better they are at picking, when fundamentally the difference is that they're in the room on the left and that's the distribution where all the gains are.
And all of the above ignores the fact that you can split your wealth and use it to pick multiple numbers in the room on the left and so reducing your risk of losing overall, while the room on the right you have to pick one and bet it all on it.
The fundamental issue is that all income gains are going to capital, and not to labor. The end state of this is that most of the room on the right all goes bankrupt.
So why doesn't everyone everyone go in the room on the left? There is a daily fee to be alive and unless you have the wealth to start, even if you hit the best distribution in the left, you still won't have enough to cover the flat fee.
That gets you to the second issue. Investing in capital markets it's some genius plan that only wealthy people can think of. Fundamentally it's not all that different from sports betting or any of another different fields. Why doesn't everyone do it? Because only some people can afford to do so and get returns that are worth it. And people really underappreciate how little of a meritocracy it is.
Imaging you come up with a genius investing plan and manage to average 20% returns every year for 20 years. This is brilliant and almost impossible. But your initial investment is all you have: a single dollar. At the end of that period, you've got <$40.
Someone else who does the exact same work, has the exact same insight, just as exceptional comes up with the same plan, but start with $1MM, and they end up with $40MM. Capital naturally accumulates. And money paid on capital is not due to additional effort, or harder work, or producing more value. Additional money is paid because in the beginning they had additional capital. It's that simple.
The idea that there is a meritocracy in capital investing is completely false. In the split between capital and labor, it is heavily weighed towards capital for 45 years and we're seeing the result of that. And within capital markets it's heavily weighted towards those with capital.
The overall most prosperous time in the US society was the period where there was the least income inequality. And that was intentionally instituted.
There are two "natural" states of wealth distribution. No private ownership / property - which means we're essentially back to hunter / gatherer states. Or aristocracy / 1% and almost everyone else poor. That's essentially been the state of the world for a couple thousand years. If you want any other wealth distribution in society (and I think most people do, and like the concept of social mobility), you need to include methods of enforcing it against the n...
i agree. thats why people shouldnt talk about other people's wealth. it is very rude and useless gossip. age, wealth and politics...it's just impolite to discuss or gossip or be nosy about these things. its personal.
Wealth seems to be accumulating in the hands of already rich families that use that cash to provide their kids with a decent education that includes secret-handshake-introduction to other moneyed oligarchs to further secure all their positions on top of the wealth-extraction pyramid.
I seldom see addressed how they factor changes in group composition. If the 1% are a constantly changing bunch, the narrative is very different than if it's always the same group of people. I wonder if age composition also has something to do with it (I imagine retiree income differences are much more stark than at 30y)
The analysis needs to be deeper to draw any conclusions. For example, ~7% of U.S. GDP in 2017 is "Digital Economy", which basically did not exist in 1975 and does not involve a lot of bottom incomers to produce.
Macro-analyses like this aren't particularly representative of any relevant point. For one thing GDP is a poor measure of the general increases of wealth. The US's pivot to services isn't represented in GDP since it only accurately measures physical production (Microsoft/Google/Facebook etc. aren't accurately represented). The actual increases that wind up going into salaries (particularly at the top half) are heavily impacted by these intangible aspects of the economy (so if you isolated this report to just Mark Zuckerberg you'd see billions in wealth but no growth to account for it). At the lower end of the income spectrum, you'd miss the growth of surplus labor. Only 25% of people in the US have an undergraduate degree or higher, and of the people that don't, labor participation is only around 49%. So seeing limited gains in the people who still have jobs isn't that shocking. Whatever general idea of "inequality" this shallow report is meant to convey isn't particularly instructive. Enough data is available to make more interesting analyses.
Digital services have always been either improperly factored or not factored at all. Software was only included after 1999, tech growth from Google and Facebook are still not included since they offer "free" services.
It would seem services like cloud services, ad services, etc (Google, FB, MSFT) would be included in GDP.
> GDP is perhaps the most closely-watched and important economic indicator for both economists and investors alike because it is a representation of the total dollar value of all goods and services produced by an economy over a specific time period.
And as far as Microsoft: software was only added after 1999 and its relevance is only measured in sales not actual productivity. GDP assumes the production of more of something is growth--software doesn't work like that so its inclusion still fails as an accurate measure.
I'm trying hard to understand your point, but it still feels to me like you're off the mark here.
GDP is not a measure of productivity. It's a measure of output per capita. If you're saying that productivity when up due to software, then output (per capita per hours worked) must have gone up somewhere due to using that software. And as a result it would be captured in GDP.
Imaging for example I sold a manual tool to tend the field when growing crops. If I suddenly invent a new tool that makes you twice as productive, then yes I may sell the exact same number of tools (so it's not captured in GDP), but now every farmer buying it will be making twice a much crop which will be captured in GDP. Or they'll be making the same amount of crop in half the time which would show up as reduced hours worked (which is not what we see).
Having twice as many crops may decrease the price per unit of crop. So, in this economy consisting of nothing other than the crop, we might not see 2x dollar valuation in products sold even though the technical innovation doubled the number of crops. Diminishing returns, etc.
Services make up 80% of US GDP, so it is definitely being measured to a large degree.
I think you have a valid point to make about GDP being a poor measure of certain things, but I think you would find it worthwhile to study more about what exactly it is measuring and why it is still so useful.
It is useful. Just not in the context suggested by this article. Highly broad "what if" studies like this are shallow but offer suggestive assumptions that aren't particularly helpful to understand aspects of the economy like wealth, incomes and inequality
A more apt comparison would be incomes vs. (GDP / size of labor force). Therefore GDP growth should always be higher than individual income if the size of the labor population is growing.
However, the article is more-so comparing how this number has changed over time, which should be even more accentuated if you make the population adjustment, since the population was growing faster in the baby boomer period.
The article is just presenting data, but if you're interested in why this phenomenon exists, research Bretton Woods and US inflation figures over the 20th century to the present.
Surprise: when you make your currency inflationary and wealth management becomes more complex than saving money in a mattress, those at the top will fare exponentially better than those at the bottom. Working class people shouldn't be forced to become "financially literate" to accumulate meaningful wealth (which is simply not realistic -- public market investing is game theory and some elements of it are zero-sum), but in today's society it's a prerequisite.
Odd to see no discussion of gold. In 1971 the dollar began to float in relation to gold. For most people operating in the realm of dollars their net worth decreases as the dollar price deviates from gold. For wealthy individuals, most of their wealth is not in dollars but in property and equities. As the value of the dollar decreases, asset prices increase - great if you own assets, bad if you just own dollars.
Not that gold is the be-all, end-all of real money, but in the past when people owned dollars, they effectively owned a commodity with utility. Meanwhile, at the top, the wealthy are largely paid in equity with a much smaller portion of income in dollars.
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[ 5.0 ms ] story [ 207 ms ] threadAs far as I know, the distribution of wealth is even more skewed in favour of the rich, with some fraction of people at the bottom having 'negative wealth' i.e. more debts than assets. Wealth also seems to have a compounding effect, in that richer people have a higher savings rate and access to better investment opportunities. So would more equal income growth necessarily lead to a more equal wealth distribution, or are there other factors to account for?
Doesn't seem like something you could replicate worldwide. Not all countries can be winners all the time.
[1] https://www.epi.org/publication/charting-wage-stagnation/ (see figure 2)
So basically, some way to prevent wealth from being passed across generations?
Should anyone suggest to prevent passing as much as, say, $100k to your child (an approximate price of a university tuition), said anyone will see a massive push back from basically all strata of the society.
Zuckerberg is worth >3x the annual income of all surgeons in the US. It is implausible that his net worth reflects his replacement cost. Even PG has said (to Zuckerberg) that if it wasn't him, it would have been someone else.
> It is implausible that his net worth reflects his replacement cost.
Why should it? His net worth reflects the expected value of the portion of Facebook that he owns. Why would it have anything to do with his replacement cost?
As a society, the only thing that we take out of Zuckerberg is his labour, so he shouldn't get anymore than the replacement cost of his labour. In other words, if someone would have done Zuckerberg's work for less compensation - and the GP asserts it is the case - then we as a society lose by having Zuckerberg do it instead of the lower compensated alternative.
In other words, when someone gets paid more than their replacement cost, there is a market inefficiency that causes loss to the vast majority.
Zuckerberg is not employed by society. We're not all collectively paying him a salary.
If you're saying we should completely abolish private property, that's a different thing altogether.
We allow people to own capital because it motivates them to do some types of work. If we allow people to concentrate more capital than necessary to motivate them to do that work, we lose.
Shares of stock, the secondary stock market - these are also arbitrary constructs which have been created to serve some purpose.
There’s some magical thinking regarding capitalism - that it practically runs itself; that is ensures efficient allocation of capital.
Capitalism may tend to decentralize economic decision-making, and it may tend to align production incentives with actual demand. But, that doesn’t mean it’s efficient. Efficiency would mean that incentives would nearly match the minimum to ensure satisfaction of demand. What we in America have is a system which highly rewards people who control the labor of others. Our society values wealth, not work.
Outside of it, capitalist ideology also has the idea of the divine invisible hand of the free market, which is certainly an exageration, but in the real world markets with the proper conditions and regulations are pretty good at allocating capital.
You only really own something if enough people in society ("we") agree that you do own it. If enough of "us" change our mind (for instance, if your ownership is no longer useful to us), then you don't really own that thing anymore.
The fact that most people are not doing that should tell you that you are not as much a part of the dominant "we" as you think.
> The fact that most people are not doing that should tell you that you are not as much a part of the dominant "we" as you think.
You missed the point that I was making entirely.
If someone found a way to motivate people to do those kinds of labour properly - and force doesn't work well for many reasons, so it would have to be non-violent, but without having to allow ownership of capital and wealth concentration, why wouldn't we consider it? The Communists of old thought they found a way to do so and were wrong, but if someone today found a way to do it that doesn't cause many drawbacks, it would be foolish and dogmatic not to consider it, and if it works well, implement it.
However this also means that as long as we keep the resource allocation thing mostly intact you can manipulate all other aspects of it, like adding lots of taxes, giving aid to the poor etc. None of that messes with the main feature of resource allocation, which is why Scandinavian countries still have good economies.
Which is pretty much what I said :). Organizing production was a proxy for capital allocation.
That is one important definition, but it's just a statement of ideology.
Was Instagram only worth $1bn when they sold to Facebook in 2012. Are we supposed to ignore the fact that Instagram's options were sell for $1bn or face "Zuckerberg destroy mode"?
(Note: I'm not saying the funding from parents was sufficient, or even necessary in Bezos' case.)
Again, Bezos got about $300k from his family (both his parents were doctors), which, I think, is far below the level of "unjust inherited fortune" or what is usually people suggest to tax into oblivion.
Yes, when your parents help you, it's helpful — it's nearly tautologically true. This is why I as a parent do help my grown-up son sometimes. Limiting this behavior is not quite realistic, and would be met with a huge backlash (justly, to my mind).
It's a lot riskier to be an entrepreneur when you're living paycheck to paycheck and don't have a family fortune to fall back on.
Extraordinary people also often have extraordinary childhoods. Most teenagers can't borrow their dad's private jet to go sell emeralds to Tiffany&Co, but I imagine that sort of experience comes in handy for a businessman
Indeed some childhoods of billionaires are special, like that of Steve Jobs, a highly problematic adopted child who suffered at school so much his working-class family decided to move to get him to another school district.
OTOH, neither Mark Zuckerberg, nor Jeff Bezos appear to have had extraordinary childhoods, or family wealth above a normal middle-class level.
Many of them, though, were exposed to electronics and computers early, and their parents were wise enough to encourage it, or at least to allow.
[Edited: typos.]
The same is true about that drivel about Tiffany.
And I think you're way off with that hundreds of millions number. I doubt there are that many people that can fully support their adult children, including footing the bill for all startup costs.
>> So basically, some way to prevent wealth from being passed across generations?
> Neither Gates, nor Jobs, nor Zuckerberg, nor Bezos, nor Musk inherited their billions. At best they inherited access to the social circles of their parents, and maybe paid-for education (too lazy to check). Knowing the right people is not something you can, or want, to limit or forbid.
But, there are others who did. For instance, just off the top of my head: the Koch brothers, who combined inherited wealth with extensive political activism.
Also, the fortunes of most "self-made" meritocrats can be traced to building exponentially on some elite inherited opportunity, then that kneecaps a lot of the moral reasoning used to justify that those people deserve full control of those fortunes (and thus shouldn't be subjected to heavy taxes).
That wouldn't help much. The children of the wealthy benefit from connections obtained while their parents are still alive. They receive a head start from birth. By the time they are in line to receive an inheritance, they have already had more opportunities for success than the general public.
what about the children of parents who has good genes? If a child is athletic/healthy/good-looking, because their parents had good genes (and the good luck for a good combination), do you also resent that the child has a head-start?
parents helping the children get ahead is natural, and should be encouraged imho.
IMO our goal shouldn't be for everyone to be objectively equal in all ways, but rather to be provided enough resources and opportunities to live a good life.
Like on the opposite end of your example, if I was born with a congenital condition, or became injured, I should still be able to live a good life with my needs met and opportunities to do good work. The fact that we don't have that today, due to lack of a social safety net and accessibility, is a problem.
That's an absurd comparison. Children of parents who are poor and don't have connections can still compete, but simply cannot benefit from their parents trafficking influence.
If you really want to go with a sports metaphor, your example is like barring children from having a fair shot at sports because their parents aren't rubbing elbows with the coaches.
children of parents who don't have inheritance can still compete economically. So no, it's not an absurd comparison between inherited wealth and inherited genes.
How can we better incentivize those with wealth into investing it productively.
Or perhaps, how can we incentivize the wealthy into investing in increasing the rate of growth of the real standard of living for everyone.
Coincidentally, we've got a covid relief bill, and you can see what the wealthy and power fear above all else -- blanket grants to the people that make them less beholden while increasing inflation.
Nobody actually cares about the deficit, it's all about maintaining hierarchy.
The issue is a falling share of productive growth going to the not-richest. That is the problem, not the "size of the pie," as it were. In this sense, "incentivizing wealthy into investing it productively" is nothing more than "attempting to con the wealthy into giving up a portion of their share." The alternatives are that nothing changes, or that the wealthy receive an even greater share of growth going forward. But those are prima facie counter to the goal, if you take the findings of the OP to be concerning. In any case, the wealthy are not going to fall for it. They want to maintain or expand their holdings and influence. If you're okay with that - essentially, if you subscribe to trickle-down economics, however misguided that may be - then I supposed that's fine. But either way, we have to be clear what the goal is, and who is going to be helped and and who is going to be hurt by achieving it.
it doesn't need to be communist russia. Just a little more money going around.
Edit: Hacker News, where even mentioning Bernie Sanders gets you downvoted.
Until there's an aggressive international agreement on closing tax loopholes, raising the taxes only impacts the barely-rich (doctors, lawyers, etc).
In the end, that spot at Yale will still be filled. The needle on the chances of it being Dr. and Mr. Irgendwas' child probably doesn't move that much, either.
Ultimately policy makes change not some expectation for individual morality.
The problem with that point of view is that ignores the corollary that most of the people are not held do blame because there's always someone else which is privileged and has direct control over their lives and livelihood.
Complaining that someone in the US earning $50k/year is responsible for the current state of affairs, when they can't even control their own lives, is miopic and sheer idiocy.
*also depending on where you live, even within the US, $50k can be a decent salary.
If you're paying $30k-$50k a year to send your kid to a private school, we're not talking about the same kind of family as a people working one or two jobs sub-$20/hr just to make rent. No one listens to the latter; if you're the former, you have positioned yourself socially to be heard by the decision-makers and policy-executors. If you don't say anything except in your own defense, knowing what an educated person should know about poverty and suffering in America, even somehow envisioning yourself as among those suffering, that's a choice.
For the most part, no.
> $50k is not even the average annual income in this country
That depends which average you are referring to. It's well above the median personal income (around $35K)—the median being usually the useful average for income statistics, but a little bit less than the mean personal income. (The most common “average income” number, though, is neither of those, but the median household income, which is close it $70K, but it doesn't really make sense to talk about an individual's income being average or not and looking at a household, instead of individual, metric to judge that.)
“Average” is an ambiguous term. The mode, median, and the various (harmonic, geometric, arithmetic) means are all averages.
In income statistics specifically, the usual average referenced is the median of the appropriate measure.
In context-neutral informal conversation, the arithmetic mean is the most common average.
If you want to be clear, its a good idea to avoid “average” and use the specific term for a measure.
They aren't synonyms, they are more specific terms.
In colloquial language, an average is a single number taken as representative of a list of numbers. Different concepts of average are used in different contexts. Often "average" refers to the arithmetic mean, the sum of the numbers divided by how many numbers are being averaged. In statistics, mean, median, and mode are all known as measures of central tendency, and in colloquial usage any of these might be called an average value.
https://en.m.wikipedia.org/wiki/Average
Average
1a: a single value (such as a mean, mode, or median) that summarizes or represents the general significance of a set of unequal values
https://www.merriam-webster.com/dictionary/average
Further, if you go into the definitions of median, mean, and mode on Merriam Webster's, only "mean" actually mentions the word "average." It shows up in the "synonyms" section for median, hilariously, but not in the definition itself. It is then probably least incorrect to assume that average refers to the mean unless there is some previous understanding that it doesn't (and since you presented the other meanings within a hypothetical, obviously there was no such understanding).
In any case, since I brought up the word "average" in the first place, and in all reasonability meant it to refer to the mean, I don't know why you're still arguing with me about this. You read an marginal meaning into my text to make a pedantic point and have wasted both our times.
You really should refresh your statistics. Average means absolutely nothing if you don't take into account how uneven the income distribution is, specially in the US where income inequality reached abismal levels.
To focus on the facts, the median household income in the US is close to $63k. Note it's median, not average, and note it's household income, and not anual income.
That means that in half of US households you still get a household income lower than those $63k even if you add two incomes. That's how half of the US population lives.
I did, which is precisely why I used that figure in the first place. I made the (evidently correct) assumption that most people would know that the median income is lower than $50k and the average. Grandparent's "barely rich" figure doesn't even hit the (high-earner overburdened) average, yet is higher than the income the median earner brings home. It's damning and inappropriate from two angles, which brings into question his entire argument.
The ultra rich don't pay the current nominal income tax rate, because their income isn’t of the kind subject to income taxes, much less the additional taxes levied on labor income. The simple solution to that is to wipe away the distinctions about source of income in taxation policy (for payroll taxes, that means also eliminating limitations in source of income that qualifies for benefits and the quantity of annual income taxed, but that doesn't prevent, e.g., additional “bend points” in benefit formulas to limit the benefit impact of larger incomes.)
> Until there's an aggressive international agreement on closing tax loopholes, raising the taxes only impacts the barely-rich (doctors, lawyers, etc).
That's only true if you raise taxes on the kind and amount of income that doctors and lawyers typically make. Equalizing taxes on capital and labor income by doing away with payroll tax limits and favorable treatment of long-term capital gains while dealing with non-repeatable income (like most long-term capital gains for any but the ultra-rich) by allowing both advance tax recognition of anticipated gains and deferment of windfall gains over a period of years would impact the haut bourgeoisie, but have only modest, and mixed, impacts on the barely rich.
That's what Biden wants to do, terrible idea.
Removing favorable treatment of long term capital gains is also a terrible idea. Ideally, there should be 0% gains tax (and income tax), but people will settle for favorable treatment compared to income tax.
Why? Your income is disproportionally dependent on investments and expenditure made by society to pave the way to your ability to generate income. It's fair that those who benefit the most from society also help the most to preserve its uplifting impact on the people.
Spending money, however, does affect other people - it reorganizes their incentives to produce more of the thing you spent money on. This can lead to weird situations where a homeless person has 0 effect on market incentives even though all they want is a blanket, but a rich person can motivate tens of thousands of people to assemble her another yacht to leave at her vacation home. So you can make your car aa valueble as you like in the privacy of your own home, but as soon as you want to use that to start affecting market incentives (by selling it then spending the money), prepare to get taxed.
Technically a consumption tax would be better than an income tax, but most people spend most of their income so it isn't that different and it's easier to make an income tax progressive
As to your example, you won't pay a wealth tax on your car if you increase its value under Zakat. Now if you want to use it as a currency (start flipping cars) then it's different.
The problem is the rich have lots of options so you need to consider second order effects. If you print lots of money (as we are now), people and especially the rich tend to exchange their dollars for assets, such as stocks, art, etc. If you attempt to tax those assets as well, people will purchase other untaxed assets.
I'm also not sure it actually matters as much as people think. It's not like Gates, Bezos, Zuckerberg, or Musk are using their funds to compete with the average person, IE buy up all the beef. Them having less really won't make us more efficient at producing food or increase the amount of housing available in cities.
I would argue that drastically cutting inflation might help reduce income inequality over time.
It isn't about envy. I don't want everyone to have luxury cars and steak dinners every night. But I also don't think we should be subsidizing wal-mart, amazon, megacorps who continually rape our country and avoid taxes. We don't need to tax that much more to help balance the scales.
Of course, we can keep ignoring it. And then there will be blood. Look at history - it will come.
A fundamental component of capitalism is private ownership of means of production, which allows a few people to profit from the product of other people’s labor.
Of course. That's why you should face the fact that if no one puts in the money and the legwork to jump-start the company, there is no taxes to be made nor there is profit to be distributed.
However, at 10M vs 10B, the 10M investor is much better off. Liquidity becomes a real concern - there's just not that many assets or stocks that can support that kind of allocation.
Small, nimble investors can usually outperform large funds simply by being able to fully enter into positions where larger funds couldn't.
Large investors (like those with $10B) can certainly take advantage of small opportunities, but just not with their full amount. But because they are large, there may be multiple small opportunities which they participate in, and diversify on, rather than a small investor who must commit to a single small opportunity (which forces them to take on individual/concentrated risk).
So it's not true that the $10M investor is better off.
Investing in yourself or projects you run is the main way to get rich, otherwise you just get average returns but if you invest in yourself you can bet on you being much better at doing things than the rest of the world expects.
This comment here is kinda incredible at being "technically correct". The argument is "That's not always true, it only hold for 99.99% of the time".
As in even if you're in the 99.99% OPs reasoning still holds. And yet so much time on this site is spent arguing on behalf of the .001% Ie people with way above $400 million in net worth.
You realize you're talking about fewer than 3000 people in the entire USA. Why is this even worth discussing? And that's still assuming they're putting all of their net worth into a single investment which they aren't.
This is so far from the point of being discussed it's a complete distraction. The epitome of "well actually...".
It's not just 3000 people. My comment is relevant for entities like pension funds, mutual funds, hedge funds, insurance companies that have to allocate their float, conglomerates like Berkshire hathaway, and those "negligible" 3000 people that account for probably a quarter or higher of personal investment.
Another way to say this is that 65% of the wealthiest people were born into the top 5%.
http://d3n8a8pro7vhmx.cloudfront.net/ufe/legacy_url/410/Born...
A lot of wealth is luck. But wealthy people (like HN audience) don't like to hear that. I can't find a link but there's controlled studies that show the richer someone precieves they are, the more they attribute it to skill. Even in studies where outcomes are completely randomized.
Usually it's something like this: grow up as a citizen of one of the richest countries in the world. Have fairly stable family situation where you did well in school. Family wealthy enough that you went to a good primary school too. Family wealthy enough to fix overbite, scoliosis, speech impediment, and most other things that would handicap you professionally. Money/connections/grades to get into a good college. Skin color, gender, and culture to not be dicriminated against. Enough intelligence to pick a well paying career (maybe top ~25%). "Gifts" from parents early in life where wealth has decades to accumulate. Things like gifted cars, college education, wedding costs, first house. Ability to take arbitrary career risks because you always have family and their gifts to fall back on.
That probably describes more than half of people in well paying professions. And it's all 100% luck. The path to millions when you've already got so much going for you isn't so hard. You've already passed the barriers that stop 99% of people.
Merit isn't wealth. Wealth is mostly luck and we shouldn't worship wealthy people like Gods, hanging on their every word.
There's logical ways to measure class mobility and the US does badly compared to practically every wealthy country besides the UK
What you do want to ask is what the proper incentives need to be to have a functional society. Fundamentally, we're just trying to define some social utility function and maximizing it.. but even ignoring political problems, it's hard to understand how wealth transfers (or any equity improving policy) alter incentives, potentially leaving society worse off if done wrong.
> . In 2016, the top 1 percent in Western Europe had about a 12-percent share of income, compared to 20 percent in the United States
You have it completely backwards. Software Developer salaries would likely be higher, _yes higher_, in the US. The US has had very large GDP growth over the past 45+ years. But that's how much money has gone to capital vs labor since the 70s.
The clearest way to think of software engineer salaries is: median software engineer salary as a multiple of median country salary. US is 1.38, France is 1.21, Germany 1.33. [1] Overall our software salaries are proportionally no more or no less than expected based on median labor rate / salary in major European countries.
However, because all of the gains in wealth have gone to capital, overall salaries are actually suppressed. Salaries across the board in the US would be higher, if gains of the past ~45 years hadn't been siphoned off. Essentially if we had the same income distribution as we exited the 60s with, everyone today with a salary of < 200,000 would be making more money. So that covers the vast majority of software engineers. Even more so if you remove the 20% Cost of Living bump due to being in Bay Area. So even most FANG employees would be making more if the US still had a normal income distribution. [2]
I think that's the largest thing people don't understand. Devaluing labor, devalues labor for everyone. Software engineering salaries are vastly underpaid, vs the revenue they bring in - it's incredibly skewed and goes to ownership / capital. It's half the mantra behind all of push for doing your own startups: working as labor in software you're being vastly undervalued. Might as well do the same thing and have a chance at ownership / capital. It's all the same issue.
1. http://swexperts.com/news/software-engineer-salaries-by-coun...
2. https://www.rand.org/blog/2020/10/a-25-trillion-question-wha...
millions of jobs were created globally that did indeed have a role in erasing poverty in many countries. the wealth re-distribution was global. at the same time, noone became poorer in the united states and corporates flourished. to me, it is all win-win.
we forget that bay area was responsible for global change. it isnt just about california or america. silicon valley made the whole world a better place on average in the past two recent decades. this cannot be disputed.
This is false.
Good numbers are hard to come by since:
1) Much of the wealth inequality in Europe does a nice job of hiding wealth. Old money doesn't talk about wealth. But there are families in Europe with fortunes dating back a half-millennium. A half-millennium of interest, even at the relatively low rates over most of history, is a lot of money.
2) The figures are biased by people with negative wealth (e.g. debt) in ways which are somewhat different from what one would hope to understand.
A model to follow is based on a modernized version of Islam -- a wealth tax.
Take for example US colleges: I'm pretty sure that tuition inflation doesn't quite lead to a large windfall for the best at teaching and researching, but surely for apex administrators. And considering the serpentine nature of career paths leading to the top of education administrations, low level administrators couldn't ever reach those positions through skill or hard work. The career path is basically feign academic ambition until there's window for defecting to administration. Similar compromise-paved ways to economic success exist in corporate cultures and even an entrepreneur will often be faced with a decision between money and other goals and qualities.
American culture likes to glorify greed as ambition, but there are more ambitions be had than money and power.
I wish they saw it primarily as an unregulated online casino and less of a serious replacement for M1 money supply, which it certainly isn't.
If a CEO causes 1000 employees to be 1% more efficient, that creates the same value as 1000 employees each being 1% more efficient. Ergo, if I'm an investor, if I believe a CEO will be slightly better than another CEO, it makes sense to pay a lot more.
If I have a market of 7 billion people in the world, and my software saves everyone a dollar, I've created $7E9 of value in the world, and probably monetized $7E7-$7E8 of value for myself. 40 years ago, my market was the US -- roughly 300 million people. With globalization, it's 7 billion.
If I'm making a search engine or webmail client, it's winner-takes-all. If I can hire two engineers, and I believe (statistically, per my lousy interview process) that one is 1% better than the other, I'll drop a shit-ton of money to hire them. See Mythical Man Month for why hiring an extra person with the "saved" money doesn't have the same effect.
And so on...
Economies of scale, winner-takes-all-markets, and zero marginal cost goods like IP fundamentally push salaries at the top up, even with small differences in performance, measured with noisy tools. I've worked with many CEOs. Someone who makes $10M isn't necessarily brighter than someone who makes $100k, but the demand-side economics still work out that way. The $10M salary often comes down to signalling; they've managed a big organization before, they have a nice elite university brand stamp, or they felt better the day of the interview. It STILL makes sense. My expected returns are STILL higher.
Where things break down a little bit is corruption and misaligned incentives -- lots of places, if you pay more, you get less -- but I think that's under-acknowledged. Things also break down is Simpson's Paradox. Globalization means income inequality WITHIN countries is getting worse, but worldwide, is getting better.
You're falling into the same trap. You think someone is better when in all probability they got luckier. And you think that picking someone you think is better will statistically get you a better person when that's not true if credentials are highly luck based. It's like buying lotto tickets from a gas station that's produced more winners in the past.
I'm saying your measurements aren't going to be any better than whatever percent of "skill" is randomness. CEO candidate 2 went to a better school but you don't know that it was his grandpa's alma matter who pulled some strings. Candidate 3 might be a multimillionaire but it's because he got a settlement from a malfunctioning ski lift when he was 10.
A lot of the "signals" companies use to determine if somebody would be a good leader or employee are 100% luck based. You could statistically pick a worse candidate every time that looks betters if you're looking at the wrong signals.
If you have a candidate from Harvard, it's a mixture of ALDCs and really smart people with some bias for policies like affirmative action. You might not know what you're getting, but there are odds of scoring that genius. Ditto with most other low-quality signals.
And statistically, you do get someone better than a random schmuck off the street. I mean, the processes are noisy, and perhaps 10% of your workforce might make a better CEO, but you have no way of finding those 10%.
(And the noisy signals problem in hiring isn't specific to CEOs).
The issues are that fundamentally capital naturally accrues capital - it's is not a stable equilibrium. Capital is sticky and pulls in other capital. The second is that when a country grows in productivity and wealth those gains go to some split of capital and to labor, and in the US for the past 55 years they have gone exclusively to capital.
To explain this, imaging there are two rooms, and everyone enters a room. The one on the left or the one on the right. You enter with the money you own. Then when inside each room, once a day you pick a number from 1-100 and get paid (or debited) based on the number chosen. The issue is the distributions in each room are different. In the room on the left, 70% of numbers pay a positive return based on what you brought in (the rest take money from you). In the room on the right, only 20% of numbers pay a positive return and it's a flat amount from the distribution.
People in the room on the left spend all this time discussing how they have the greatest picking strategy, and how much better they are at picking, when fundamentally the difference is that they're in the room on the left and that's the distribution where all the gains are.
And all of the above ignores the fact that you can split your wealth and use it to pick multiple numbers in the room on the left and so reducing your risk of losing overall, while the room on the right you have to pick one and bet it all on it.
The fundamental issue is that all income gains are going to capital, and not to labor. The end state of this is that most of the room on the right all goes bankrupt.
So why doesn't everyone everyone go in the room on the left? There is a daily fee to be alive and unless you have the wealth to start, even if you hit the best distribution in the left, you still won't have enough to cover the flat fee.
That gets you to the second issue. Investing in capital markets it's some genius plan that only wealthy people can think of. Fundamentally it's not all that different from sports betting or any of another different fields. Why doesn't everyone do it? Because only some people can afford to do so and get returns that are worth it. And people really underappreciate how little of a meritocracy it is.
Imaging you come up with a genius investing plan and manage to average 20% returns every year for 20 years. This is brilliant and almost impossible. But your initial investment is all you have: a single dollar. At the end of that period, you've got <$40.
Someone else who does the exact same work, has the exact same insight, just as exceptional comes up with the same plan, but start with $1MM, and they end up with $40MM. Capital naturally accumulates. And money paid on capital is not due to additional effort, or harder work, or producing more value. Additional money is paid because in the beginning they had additional capital. It's that simple.
The idea that there is a meritocracy in capital investing is completely false. In the split between capital and labor, it is heavily weighed towards capital for 45 years and we're seeing the result of that. And within capital markets it's heavily weighted towards those with capital.
The overall most prosperous time in the US society was the period where there was the least income inequality. And that was intentionally instituted.
There are two "natural" states of wealth distribution. No private ownership / property - which means we're essentially back to hunter / gatherer states. Or aristocracy / 1% and almost everyone else poor. That's essentially been the state of the world for a couple thousand years. If you want any other wealth distribution in society (and I think most people do, and like the concept of social mobility), you need to include methods of enforcing it against the n...
Wealth seems to be accumulating in the hands of already rich families that use that cash to provide their kids with a decent education that includes secret-handshake-introduction to other moneyed oligarchs to further secure all their positions on top of the wealth-extraction pyramid.
There's nothing meritocratic about it.
I seldom see addressed how they factor changes in group composition. If the 1% are a constantly changing bunch, the narrative is very different than if it's always the same group of people. I wonder if age composition also has something to do with it (I imagine retiree income differences are much more stark than at 30y)
*edited for clarity
> GDP is perhaps the most closely-watched and important economic indicator for both economists and investors alike because it is a representation of the total dollar value of all goods and services produced by an economy over a specific time period.
https://www.investopedia.com/ask/answers/what-is-gdp-why-its...
https://www.forbes.com/sites/timworstall/2016/10/25/were-doi...
And as far as Microsoft: software was only added after 1999 and its relevance is only measured in sales not actual productivity. GDP assumes the production of more of something is growth--software doesn't work like that so its inclusion still fails as an accurate measure.
GDP is not a measure of productivity. It's a measure of output per capita. If you're saying that productivity when up due to software, then output (per capita per hours worked) must have gone up somewhere due to using that software. And as a result it would be captured in GDP.
Imaging for example I sold a manual tool to tend the field when growing crops. If I suddenly invent a new tool that makes you twice as productive, then yes I may sell the exact same number of tools (so it's not captured in GDP), but now every farmer buying it will be making twice a much crop which will be captured in GDP. Or they'll be making the same amount of crop in half the time which would show up as reduced hours worked (which is not what we see).
I think you have a valid point to make about GDP being a poor measure of certain things, but I think you would find it worthwhile to study more about what exactly it is measuring and why it is still so useful.
However, the article is more-so comparing how this number has changed over time, which should be even more accentuated if you make the population adjustment, since the population was growing faster in the baby boomer period.
The article is just presenting data, but if you're interested in why this phenomenon exists, research Bretton Woods and US inflation figures over the 20th century to the present.
Surprise: when you make your currency inflationary and wealth management becomes more complex than saving money in a mattress, those at the top will fare exponentially better than those at the bottom. Working class people shouldn't be forced to become "financially literate" to accumulate meaningful wealth (which is simply not realistic -- public market investing is game theory and some elements of it are zero-sum), but in today's society it's a prerequisite.
Not that gold is the be-all, end-all of real money, but in the past when people owned dollars, they effectively owned a commodity with utility. Meanwhile, at the top, the wealthy are largely paid in equity with a much smaller portion of income in dollars.