This isn't honestly terribly surprising. When the sky started falling, plenty of folks were happy to mention that bad times are only bad for people who can't afford to take advantage of them.
When stocks are crashing? That just means they become cheaper to pick up for the very rich, who get even richer when the economy straightens out again. Meanwhile, everyone who had to dump their investments to survive has to start over with less.
It shouldn't be hard to recognize that there's something terribly wrong going on here, but the tough part is trying to figure out just what to do to fix it. Hell if I know.
Whenever I read an article about income inequality, I can't help but ponder the phrase "the rich get richer." Consider the process by which people acquire extreme wealth: invest your money in various vehicles, hopefully collect gains (money, prestige, experience), reinvest the gains. This process doesn't by any means guarantee wealth, but it can be very kind to those blessed with good judgement, good fortune, and initial excess capital.
In a discussion of income inequality, the most relevant factor is excess capital. For those on the bottom of the ladder, whose money goes toward basic expenses, this potentially virtuous cycle is completely out of reach. Their money is best spent on purchasing stability rather than attempting to secure wealth. For those in the middle nurturing already-comfortable lives, the upside of shooting the moon in an attempt to gain wealth is often outweighed by the risk of sustaining financially disruptive losses, as well as the discomfort inherent in turning away from a lifestyle that pleases them. [1]
Then there are the wealthy. I'm not talking about the faux-wealthy whose lifestyle preferences drive them to buy Maseratis and condos on credit and spending the rest of their lives wearing golden handcuffs. I'm talking about those who have money left over after they've secured themselves a comfortable lifestyle. They have excess capital. Ten thousand dollars can go into the stock market, a hundred thousand dollars can go into a small business, a million dollars can go into a more sizable business, ten million can go into multiple sizable businesses, etc.
The opportunities for growth scale with the size of your disposable income. If you take this view, it suddenly becomes stupidly obvious why the one percent of the one percent makes so much more than the ninety-nine percent of the one percent: they had more to begin with. I'm all but certain if you zoom in on the the one percent of the one percent of the one percent, you'll see a similar disparity.
Unrelated corollary:
This also helps to explain both why traditional entrepreneurs are older, and why tech entrepreneurs tend to be younger: non-tech leaders spend their lives amassing wealth, techies are so in demand they get a good dose of it when they're young. Although the acquisition appetites of behemoths like Google and Facebook certainly don't hurt.
[1] I'm so certain someone will respond to this comment by quoting that one study where happiness flattens around like $75,000 that I won't even bother finding it myself.
Keep in mind that many people who believe they're hitting the limits of their means simply don't have the personal will(not that it's their fault) to pick up that book which would tell them they could save enough and invest pretty well with some basic knowledge. And typically they wouldn't need to sacrifice quality of life.
I know lots of young people here in Canada at least work paycheck-to-paycheck but instead of buying stocks or at least saving, they will spend their unaccounted money on booze and video games(if they have any at all), it wouldn't take much for them to save up a couple thousand bucks and invest in something better for themselves. They just don't want to, or don't know how to make that sort of decision.
Then of course there are people who are ACTUALLY poor, that's where my empathy starts. I recently helped a homeless man work the computers at the local library(not that I consider that a significant act in itself), and I know just how hard it is to work with people who are seriously SOL; they're even resistant to help. That said, I don't think being harder on billionaires is going to help people down on their luck, it's only going to serve the egos of those who have no idea what it means to be in either of those positions.
EDIT: It seems people misunderstood what I meant by investment. I include in this investing in things like transportation, raw materials, and (if applicable) time off to pursue greater potential, and not just playing markets and buying shares.
Past food and shelter, people need leisure as part of a healthy lifestyle.
Spending excess money on drinks and video games is not simply a matter of being to undisciplined, it's a real need, just one that can be put off. Putting it off indefinitely to invest is not healthy.
The people who are actually wealthy are the people who buy their booze and video games, or the equivalent, and then still have something left over to invest.
The other reality is that it doesn't significantly matter if you invest that $100/month that you'd otherwise spend on beer and food. If you invest 1200/year into mutual funds every month for 20 years and make 10% per year, sure, you'll make yourself some $70,000 over those 20 years, but that's not going to make you change from being lower middle class.
You can do something riskier, but what happens if that fails? And all the while you've denied yourself the simple pleasures of drinking a beer and playing video games at the end of the day.
It's discouraging because no matter how hard you save, when you start at 0, and earn a wage, you aren't going to touch the levels of wealth that some of these people have. But we still like to tell people if only they remove all of the extravagant things from their lives, like nights out with friends and hobbies, that they will get rich too. But it's not true, it's not even close. There's no way that you could ever work as an employee and make a billion dollars without either very risky and lucky investment, or a CEO's salary. And if you get into the position where you could get yourself to billionaire status, you won't be in the position where you have to give up booze or video games to do it.
You don't start at 0. You start in the negatives. Those that are uber wealthy tend to start with a massive, massive head start.
Combine massive debt loads, poor job prospects, and you get a hopeless generation of youth. They would rather buy video games and beer to forget about how crappy their life is than to invest and plan for the future.
Basic human tendency is to ignore and/or avoid pain.
You don't need to pay for leisure, there are tonnes of free concerts, free activities(like playing frisbee with strangers in the park), plenty of fountains etc.
You /certainly/ don't need to drink booze to live a rich life, I'd be miserable if that were the case.
While it is nice to be able to pick your vices and have funds left over, that's just not a realistic way for most people to live their lives.
Nobody starts at zero by the way, you start much of the way to the junction point of life enjoyment, I'm not sure how reliable these studies are, but some suggest that enjoyment in relation to wealth follows a law of diminishing returns, with a juncture around $80-100k(I don't remember the exact figures); so ostensibly the goal is not to become the richest man on earth from a homeless orphan, but to gravitate toward that juncture.
>>Spending excess money on drinks and video games is not simply a matter of being to undisciplined, it's a real need
Sorry but this is the most absurd statement I've read today. I'm not sure why this happens to most people, but they are deluded to think that small leaks here and there don't matter. While the fact is that preventing those small leaks and then saving that money is all that matters sometimes.
In my country(India) its often a heart burn to most people when they realize some one earning 1/10th their income is financially light years ahead only because over the past two decades, they invested the money they consider 'leaks' buying stuff like real estate, generating rent income and reinvesting that money to buy more real estate. Or Gold.
You will be surprised how far you can by just routinely investing small money.
>> There's no way that you could ever work as an employee and make a billion dollars without either very risky and lucky investment, or a CEO's salary.
You can never devise a general strategy to achieve exceptional goals.
But in most common cases saving and investing a little routinely will keep you rich. You can choose not to believe in it, or you can believe in it and do it.
Either way you will know. You will get rich yourself or you will see someone else getting rich. In things like these time can be a big factor(Think compounding). Those who started early are mid way, and soon will be ahead.
That is true. Best thing to do is start with small changes so that you don't even notice it and all of a sudden, your bank account has more money in it.
I have to agree with the small changes point, lottery winners tend to screw up very badly when they get their deposit, the same is true for those born into large unconditional trust funds(lots of rich kids go bankrupt).
Book recommendations are a tough thing for me to make, I studied more gradually since I started in my early youth, and was already interested in mathematics.
I suspect most of the "top ten personal finance books" articles favoured by PageRank™ are pretty reasonable, and a good start for most people.
My personal method was perusing Wikipedia for accounting and economics information, and looking at people close to me. Sorry I can't fob the right book title though.
Seconded; while I am very skeptical of the "invest to get (a little) rich(er)" approach[1], I'm open to and curious of what books the GP considers good.
[1] - Every single way of investing that I've looked at is either (1) not worth it (doesn't even beat inflation) and/or (2) more work than it's worth (I've already got hobbies I like; why should I waste my unpaid time playing even more into the rat race by tracking markets and probably never making a profit?)
That's an important distinction to make, I don't necessarily mean financial institution investments, I would include personal capital investment as well(like buying a personal computer as a writer, or buying some raw materials to make some handcrafted good, or buying source chemicals to make useful compounds. etc.)
Financial investment is a difficult bar to hit just because there are usually people more capable of it, and with better judgement for it than you. Investing in capital goods on the other hand can be best understood by the people capable of using the goods.
For example, you may commute to a job every day, and take public transit to get there. If you're within bicycle range perhaps you could get a used bicycle(good commuter bikes can be had for a hundred bucks here, and we don't even have the usual number of surplus bikes.)
Good points! I feel (perhaps wrongly) that I already "invest" a lot in myself, but I also feel I could be doing more, or finding a "quick and dirty" solution to an early retirement. I just get frustrated to no end when someone says "invest in the stock market! It's easy!", then they explain that all you have to do is keep tabs of a zillion different little market factors everyday, and oh by the way, pay for their super secret money making formula. The painstaking research on companies and the environments in which they operate might be fun for some (dare I say, most fantasy sports people or sports fans in general would be better served by putting their stats minded heads towards financial matters?), but it sounds too much like a second job to me.
The point about bicycle commuting is extremely cogent, however, as I do have a working bicycle and a commute that lends itself well to it. But I am lazy, at what I estimate of cost of between 800-1200USD a year, and it's only going to go up. Still, I might be able to motivate myself with some righteousness about being better than all the gas guzzlers . . .
All that aside, I can say one of my favorite "get rich slowly" books (that came out before that phrase was invented) is "Your Money or Your Life", although it's fairly dated (T-Notes at 15%? I wish!)
The Automatic Millionaire. It's not as extreme as the title suggests. It's really about practical life decisions and investments for a comfortable retirement.
Agreed but that alone does not explain all the plot [1]: the slope of all the curves was zero or even slightly negative until 1980. Then the share of the top 0.01% started to climb very significantly.
I don't know what could explain such a change. Were the capital gains taxes prior to 1980 high enough to ensure a strong enough redistribution of the wealth creation so that the shares were almost stable over time? Arguably the maximum capital gains rate has decreased after 1980 [2]. But could that explain everything? Or maybe the rich US residents are getting much better at finding creative ways to evade US taxes nowadays (legally or not)?
"Trickle-Down Economics" became a big thing right about that time. Also massive military-industrial-complex investment. Between them they probably accounted for a big stock market boom, and based on the article most of that boom probably went to the 0.01% bankers and investors.
There is a book called "Capital in the Twenty-First Century" currently being discussed in the economics world that examines this phenomenon (wealth, however, not income). The tl;dr is that World War I, The Great Depression, and World War II distorted wealth accumulation, and the world is back on track to straight line wealth capture.
Why? As excess capital accumulates it compounds earning potential by creating more excess capital with new earnings. Given a favourable environment one would expect something greater than straight line growth, right?
"but it can be very kind to those blessed with good judgement, good fortune, and initial excess capital"
Those with excess capital can purchase good judgement, which increases your odds of good fortune. In fact purchasing good judgement may not even be necessary, since you can probably get buy simply copying what other wealthy are doing (ie. the people you talk to most).
So all you really need is excess capital, and not have really bad judgement.
The "rich get richer" is not always a given. When the top tax rate was 90% the "rich stay rich". Robert Reich addressed growing income inequality and the virtuous cycle in his recent documentary inequalityforall.com. Taxation, when used effectively, can encourage individuals with low or no marginal propensity to consume to focus on consuming rather than investing or sitting on piles of cash.
And today offers more opportunities for rapid scaling of successful investments (key word: rapid) than ever before - which is why the rich are getting richer faster.
Which modified wealth as a stochastic multiplicative process beyond a certain threshold (and that threshold was basically the lower end of "upper middle class") and derived results that match the observed distribution very closely.
While what you say is certainly true, I also wonder about political aspects to this. To what extent is the extreme hockey stick here indirect evidence of the existence of an oligarchy with the ability to subvert or sidestep (e.g. access to Federal contracts, Fed bailouts and 0% interest loans, etc.) the market?
Since I think it might not be clear, Amir Sufi's analysis concerns wealth, not income - so the 3rd graph in the article is about wealth, but the first two are about income. The Atlantic article is pretty bad about making this clear, though other reporting of Sufi's research is better.
"The 0.1 percent isn't the same group of people every year. "
This makes it sound like some if not many members of this group are one-time members who have huge capital gains that calendar year; many of those could be entrepreneurs who sold their company or those that had a huge gain in some investment.
I think that makes sense. They're using the IRS list of the 400 richest tax returns. I think when you're making money at that level you can hire enough tax attorneys and accountants to make sure your actual taxable income is not among the 400 highest in the country unless you have some major event like selling a company. It would make sense then that there's a lot of turnover in that metric.
The 'churn' mentioned in the article is somewhat illusory, due by the use of a sliding scale. If you used a fixed threshold and identified those above that threshold, I think you'd see a much more stable picture at the top. The names at the peak may change, but that doesn't mean that the previous top wealth holders lost any, only that others gained faster.
The differing quantities on the y axes of the graphs make them quite misleading. In particular between the first and tend second where the first is a relative increase and the second is in absolute income. This gives the immediate impression that the 0.01% is pulling ahead of the 0.1% at a high rate. Looking instead at the last graph we see that the 0.1% is keeping up kinda OK.
This change in quantities also makes it impossible to compare the first and second graph at all.
Using graphs is supposed to aid understanding, not impede it.
> 1) The composition of the 1%, 0.1%, 0.01%, etc. never changes -- not in generations. I.e. there's an entrenched aristocracy.
Leave 1% out of this. Any couple making 150k each fits in that. That means anyone with a college degree, 15-20 years of experience, and senior managerial position. Also included in this are doctors, lawyers, and engineers. There is a lot to be said about mobility and meritocracy but I don't think you get to be a senior engineer or doctor solely because your parents were.
> I don't think you get to be a senior engineer or doctor solely because your parents were.
True enough. But yet... I'm a senior engineer. My parents were in the medical profession. I had a lot of help going to school (not all paid for, but I graduated without significant debt). I was encouraged in my study and shielded from a lot of disruptive factors by a stable home life, which in turn is related to the stable financial situation my parents had. I'm not disavowing responsibility -- I worked hard! But I'm also conscious that that happened in an environment that was specifically and consciously tuned (thanks, Mom and Dad!) to enable me to do it.
As long as gains in total wealth (and thus absolute wealth gains for all parts of society) occur as they always have (ie a 10% wealth increase at all levels of wealth), income inequality will always have a strong tendency to rise. The important question is whether it is better to focus on absolute rise in wealth (Is the bottom 20% of the world today in better shape than 100 years ago, if only because that bottom 20% would likely not have survived then?) or on income inequality (is the absolute wealth gain of the bottom 20% irrelevant if there is now a greater distance between them and the top 20%?). I lean towards the former, but have never been absolutely convinced to the point of becoming dogmatic. I really haven't seen anything substantially convincing about the latter, though.
In general, each dollar one has makes it easier to obtain the next dollar. That's what this chart shows - wealth accumulation accelerates as wealth grows. The rich aren't necessarily doing anything wrong to achieve that effect - it's just how a capitalist system works.
If society finds this type of inequality to be objectionable, then it is society's responsibility to implement laws and policies that encourage those holding the money to reinvest it in a way that gives others access to that capital.
Exactly. When you have more capital, you have more opportunities to invest.
I remember a good friend of mine who's quite wealthy was talking to my brother-in-law and I at lunch. My brother-in-law had recently closed on a house he was intending to flip. My friend then said to my brother-in-law, "Next time you see an offer like that come through, call me. I can get you that money within 24 hours." Somewhat stunned at with my friend's offer, I then realized that the more capital you have, the more investments routes you have to your disposal.
I wouldn't call it "investment money". Have you seen the graphs going down(tech bubble burst 2001 and 2008).
I will call it "Money press printing money", or
"let's save those that make poor decisions in the past so they don't bankrupt" money,
"let's give this people free public money at 0% interest rates so they can lend to the public at high interest rates" money.
"privatizing the profit, making public the loses" money.
Those people had basically sh#t as assets, but the central banks bought their sh#t with good money so they do not collapse the economy. The bailouts mean the public is underwater now and revolutions are coming all around the planet.
The problems are not solved, those that make bad investments have been rewarded taking money from those that create wealth.
But everything has a limit, Japan is paying 56% of their taxes in debt payment and growing. China bubble is bursting soon.
Clearly, people are determining their "ideal" without doing the math. This makes it hard to take their opposition to "this change in distribution" seriously as well.
What this really shows is an increase in the frequency of 1-time events such as IPOs or sales. There is no value, one way or the other, in using cross-sectional data (this article) to describe longitudinal shifts (the rich get richer). It's just irrelevant.
I'm actually really looking forward to the day that technical people become more financially literate. There's a reason why Elon Musk is such an unstoppable force in the business world. Technical people have such a deep love of science and tech that they sometimes forget about the economic and political realities of modern western societies: capital rules all.
Understanding and managing time and capital is the most important task any individual is faced with in the western world. As I've said many times, every single person reading HN most likely undervalues their time, and ends up severely miscalculating their opportunity costs as a result. The nature of capitalism is such that taking risk is the only path forward, regardless of how many failures it results in.
As the commenters above have noted, very few become billionaires by working 9 to 5 for someone else. Work for yourself, and with equals (as co-founders). Never work as an employee. If you need to contract your services out, do it as a consultant on a milestone or hourly basis. Take absolute control of your time. No overtime, no crunch time, no favors.
Understand the system we operate in, and optimize for it. Don't be sucked in by stupid hype, marketing, "culture", free pop, ping pong tables, personality cults, or any such nonsense. Your time is worth just as much as the CEO's.
I'm hoping that once the tech world wakes up to this reality, we'll start exerting far more influence over big corps, big finance, and big government. This is the only way we can really change the world for the better. Not by being employees to big corps, but by running the show.
The Hacker mentality espouses efficiency and ingenuity. It's nigh time we applied this to our lives. It's not enough for me to do it on my own, everyone here needs to do this so that we can collectively exert influence to enact real change.
P.S. I know it may be hard to herd cats, but I've seen the community here rally around many great ideas. I want gigabit fiber everywhere, renewable energy cities, preventive genetic medicine for all, and colonies on Mars. Why haven't these happened? Because the people in charge have no vision, and are caught by the institutional quagmire of a country established 300 years ago. Just because this is the way it is, doesn't mean that it will always have to be this way.
> I've seen the community here rally around many great ideas. I want gigabit fiber everywhere, renewable energy cities, preventive genetic medicine for all, and colonies on Mars. Why haven't these happened? Because the people in charge have no vision, and are caught by the institutional quagmire of a country established 300 years ago.
I would argue that those things haven't happened because no one (including us technical people) have developed business models for those activities.
Because of the rhetoric being used in the political arena. If "the 1%" almost entirely changes every year, well... what's the problem with that? You're always going to have a top 1%. Don't we want it to have a significant amount of turnover? Indeed, these numbers sound perhaps a bit low, if anything (is it really that unstable up there? That's not obviously good to me.). If it's not the same people all the time, it's not obviously useful to be talking about them as a distinct group.
Maybe it is useful. But it's something that goes from almost self-evident, to badly in need of being established.
On the other hand, the idea that a small handful of people have concentrated such vast wealth that they've disenfranchised the rest of us, a handful that is a great deal less than "the 1%", is actually a wildly more potent political story. Even this here libertarian type might be open to some significant actions taken to ensure that such concentrations of wealth are ameliorated, as a key part of my personal libertarianism is that monopoly busting is a key useful function of government, and I'd consider this to fit in, if it is true. It's still something that needs establishing, though, not mere assertion.
One has a hard time not imagining the .001% cackling with glee as the press focuses on "the 1%"; it still leaves them lost in crowd of millions, hardly singling them out for any treatment, while the 1% itself is peopled with a significant number of people who apparently worked their way up the ladder, however briefly that may have been. That doesn't sound like a good set of people to target, if there's no actual "institution" there.
And now, let me reiterate my first sentence; this is because of the political rhetoric being used. If it wasn't for that, this would be a relatively uninteresting question. But if it's going to become essentially part of the platform of one of the major parties, it's worth examining for truth value.
The evidence we have so far points to a higher churn rate the closer to the top you are. According to this [1], the top 1% had a churn rate of > 50% over a decade, while the top .01% had a churn rate of > 75% over the same period. The "Fortunate 400" mentioned by the article is something like the top .0001%, and had a churn rate of 99% over two decades.
I'd love to see deeper analysis though. What does the churn rate look like as a function of top percentile size? Do the choice of endpoint years matter significantly? Also, as you ask, what might be the optimal churn rate economically?
I agree, I would love to see more detailed analysis, as well as a fresh, open-minded investigation into the question of what optimal is without very, very large assumptions being made casually. (Perhaps such things exist. Links welcomed.)
Step one is always always always identify the problem. As I said, I'm open to the idea that there is something that should be done here, but it is absolutely vital that we first identify the problem carefully, before we start throwing around solutions to non-problems. This is... or at least SHOULD be... a non-ideological statement. We will all most assuredly disagree about what optimal should be, and what actions we should take, but we should all be arguing from the same basis of facts, and this sort of discussion strongly suggests we are not in the possession of the facts we thought we collectively were (and/or that we were told we were, and/or that we collectively just assumed without examining... I know I didn't ask these questions personally, so this is not intended as an attack on anyone else). This is not something to be glossed over casually on the way to espousing the same ideas we would have anyhow... it's a big problem that should be solved first.
> If "the 1%" almost entirely changes every year, well... what's the problem with that? You're always going to have a top 1%. Don't we want it to have a significant amount of turnover? Indeed, these numbers sound perhaps a bit low, if anything (is it really that unstable up there? That's not obviously good to me.). If it's not the same people all the time, it's not obviously useful to be talking about them as a distinct group.
If the people in the "pool" competing for each year's exorbitant profits (the 0.1%) remain the same every year, there may still be a problem. That pool is called "the 1%"
this isnt new news. This has been brought up before.
They question really should be "is this bad?" I have yet to see a compelling argument on why income disparity is bad.
Unless you are stealing, scamming, or otherwise breaking the law to obtain enormous wealth then you deserve it. You are providing a good or service to the economy and are rewarded appropriately. If someone else can do it better than they reap the reward. Competition ensures that only the best deliverers of value are making the money. I am sure someone will cite some bankers <insert other regulated market here> raking in money with barriers to entry that are artificial...but that 99.99% of the time means that they lobbied the US Govt for regulations which protect them.
To some extent that disparity is fine- it's the basis of capitalism. But as wealth disparity becomes higher, you have to work extra hard to ensure that poor people have the opportunity to be successful and not become trapped in the underclass. This means health - both mental (maternity/paternity leave) and physical (free healthcare) - and free good (i.e. not underfunded inner-city) education up through undergrad. This also includes welfare to help people with poor financial security to get back on their feet after a crisis.
Unfortunately, we're doing the opposite: the more power the upper class accumulates, the more it tries to cut such programs, because they personally wouldn't benefit. This is where the problem lies as I see it. The rich very rationally use their massive influence in government (cf Citizens United) to stay rich by passing tax cuts and reducing entitlement spending, while the majority of Americans get the shaft. And because of the two-party system and tactical voting, there's nothing we can do about it at the voting booth.
When is the last time entitlement spending went down in aggregate? Any 'cuts' I've seen have been merely been reducing the rate of automatic growth.
Clarification Edit: You made the assertion that entitlement spending is being cut by the influence of the 1%. I'm asking for where this has been the case. Vague allusions to population growth, college costs and inflation aren't sufficient. Growing college costs could even be indicative of an increase in entitlements.
Really? Well, the underlying population is growing, college is getting more expensive, inflation is making money worth less.. are you sure that they're not actually cuts per unit benefit?
> Unless you are [...] breaking the law [...] [y]ou are providing a good or service to the economy and are rewarded appropriately.
Not necessarily. You are providing a good or service to someone but it isn't necessarily doing any good to "the economy".
An example: You are a successful hedge fund manager. You and your team of quants have a bunch of ingenious strategies for predicting the stock market, spotting arbitrage opportunities in derivative prices, etc. You successfully help your investors to get rich, for which they pay you very handsomely. But, for the most part, what you're enabling them to do is get rich at the expense of other market participants. If you weren't doing your job, the net value of the equities and derivatives markets would be pretty much exactly the same; it's just that it would be parcelled up a little differently.
For the avoidance of doubt, I don't think there's anything wrong with any of that. Our hypothetical hedge fund manager isn't doing any net harm to speak of either. (There might be a bit of net good, through increasing liquidity and helping the market do its information-aggregating thing, and a bit of net good-or-harm depending on exactly who the fund's investors are.) The point is just that what a hedge fund manager is being rewarded for is making a particular set of people rich in what's largely a zero-sum game, not doing any net good overall.
Another example: You study baseball or American football and get very good at identifying undervalued players. You offer your service to a major team. They get some bargains, win a lot of games, and pay you a big pile of money. All very well, and again for the avoidance of doubt I don't think there's anything wrong with this -- but you've benefited one set of people at others' expense. The overall quality of play hasn't changed (the pool of players is the same and you haven't done anything to make them play better), you've just enabled one team to get a bigger slice of the same pie.
Note that none of this requires artificial barriers to entry, or crime, or even anything unethical. It's just that what you get paid for is benefiting the people who pay you and often the easiest way to do that is by moving value to them from elsewhere, rather than creating it anew.
Everyone loves to cite Hedge Funds. I am no hedge fund expert but you mention a few benefits that they do provide...liquidity and information aggregating (which has derivatives such as market signalling) are very much benefits to society. What good is a stock to anyone if there isnt a liquid market to sell into (and yes the buyer should make money on that transaction). A personal hunch is that some hedge funds are breaking some laws but largely the hedge fund industry provides a net benefit to the economy. The stock market and futures markets are NOT zero sum games. They provide capital, incentive structures, and a host of other benefits to both businesses AND everyday people (like you who has a retirement fund with lots of assets that pass through hedge funds). Businesses can (and do) grow and appreciate your assets (and hedge fund assets), etc etc.
Your second example is dead wrong. Identifying undervalued resources is an enormous efficiency gain in a market. They lower their cost structure while keeping quality high. It ensures that top athletes salaries are in check because they truly need to be twice as good (or 10x as good) to be paid millions of dollars. Which makes game tickets, jerseys, etc affordable to more fans who in turn buy more tickets, fan paraphernalia, etc. Yes indeed the pool of players is set (at all of humanity) but the wealth generated from quality entertainment is not capped (or capped at the leisure money of a market). Those sports leagues are always looking to expand their market and keeping costs low is one major strategy to that.
I agree that liquidity and information aggregation are benefits to society. I just don't think that they're what a hedge fund is getting paid for, and don't see any particular reason to think that the pay of hedge fund managers is (or should be) justified by those benefits.
I didn't say, didn't mean, and don't think, that the stock or futures markets are zero-sum games. I think that some things that happen in those markets are very close to zero-sum.
And, for the avoidance of doubt, I am not objecting to the existence of hedge funds nor to (most of?) what they do.
It is unclear to me how the activities of our hypothetical sports talent-spotter actually have the beneficial effect you describe. If she works for team A (and not for team B) then what happens isn't necessarily that A gets equally good players by spending less; more likely A has a fixed budget and gets better players, while B spends the same as before and gets worse players (because more of the good ones are now being taken by A). The overall quality of play stays about the same -- the teams, collectively, have the same players. The overall spending stays about the same -- each team has whatever budget it has. It's just that A is now doing better relative to B.
I'm sure there is a bit of overall benefit. For instance, the talent-spotter's activity slightly drives up the relative compensation of the better players, which means more correlation between pay and performance, which might eventually mean slightly better selection of who gets into professional sports in the first place, which would actually lead to better play overall. And perhaps making A do better relative to B means that in future A will have more budget and B less, and maybe that benefits everyone somehow. But this all seems like second-order stuff, and again it isn't what the talent-spotter is being paid for.
>"If you weren't doing your job, the net value of the equities and derivatives markets would be pretty much exactly the same; it's just that it would be parcelled up a little differently."
This claim really does require a citation, because it is quite significant, and is not necessarily true.
Bethany McLean (author of "All the Devils are Here" and "The Smartest Guys in the Room") once made a great point about people shorting stocks; she said that they are the only ones looking for bubbles, excesses, and other problems in the stock market and asset pricing in general, their vigilance helps to pop the bubbles sooner than they would otherwise, thus reducing the impact of the tumult or recession which may follow.[1] I think this is a valid point, and you should take this kind of action into account when judging these market participants; their motives may not be beneficent, but they are still fulfilling a necessary task.
> Unless you are stealing, scamming, or otherwise breaking the law to obtain enormous wealth then you deserve it.
Yes.
> Competition ensures that only the best deliverers of value are making the money.
I'm not convinced that "competition" is occurring at that level. At least, not in any way comparable to the '2 entities competing in the market' sense.
PS: I like money, a lot. And I have no problems with other people having a lot more of it than I do.
I personally believe (and studies have backed this up) that a more equal society is better for everyone. So I have a problem when people earn money excessively (I'll leave the definition of that until I have had time to think about it. in some cases it is obvious).
You are taking that second quote out of context. My next statement is agreeing that there are industries (like banking) that have a very obvious lack of competition. My next point was that lack of competition is enabled by government and not the free market.
Historically, income disparity has resulted in a decided lack of stability in the societies where it is present, with unpleasant consequences for all involved.
Historically, income disparity was a result of robbery, corruption, or some form of oppression. Only recently did high income start correlating somewhat with creation of wealth rather than redistribution. Its hard to determine whether the unpleasant consequences were a result of the income disparity or just correlated with it.
I wonder how many of the products and services of the top 0.01% he used in creating that article. My bet: he used MS Word on a Mac, using Google at the very least.
His next article could be about how the products of the 0.01% people have enhanced his life.
It doesn't immediately follow from the fact that 0.01% people have made fantastic contributions that they should have disproportionately so much more money than the average person.
It seems intuitive (but not logically certain) that the person who has made the greatest contribution to the world should be the richest. But by how much isn't really clear.
What would happen if Bill Gates was the richest man in the world and had $50m, instead of billions. All the incentives scale. I don't think he'd have said 'screw this, I'm not making Word for less than $2 bn'. Sure, inequality is a fair way to reward hard work and brilliance, but what level?
Looking at it another way, sure Bill Gates is a fantastically insightful and driven guy with great business acumen. Is he 100,000 times better than the average person though? Because he's earned 100,000 more than the average American.
Warren Buffett makes the point that if he was born in Bangladesh he would probably be as poor as he was when he was born. Circumstances matter.
I realize you don't say it explicitly, but the implication of what your comment is that they is some kind of cosmic justice that made Larry Page or Steve Jobs billionaires. There isn't. The right level of remuneration is a moral question, not a feature of the natural order. If you really think these people deserve these huge concentrations of wealth, why not more? How amazing could Windows have been if we'd just paid Bill Gates another $50 billion?
You're looking at it from the perspective of a paycheck rather than a transaction. Like we are all sitting around the boardroom deciding who gets a raise.
Inherently business transactions imply that both parties gained value. It would follow that we should encourage everyone to make as many value gaining transactions as possible. Both on a meta level and an individual level.
E.g. Microsoft Word costs ~$70. If it weren't worth more than $70 to me I wouldn't buy it. For most people who author a number of documents it's an easy trade. I get at least a 10x return on office vs any alternative. I made Bill Gates richer because he made me richer. Additionally I gained much more than he did out of our deal individually. I would be ecstatic if MS/Bill Gates made another piece of software where I could make a similar gain. That he made another $X Billion in aggregate wouldn't bother me in the slightest.
On a meta scale we should encourage the maximum amount of people working to find/create these sorts of value adding transactions.
I tend to believe that people are paid commensurate to the degree of value they create. Bill Gates, in my opinion, has created much more than 100,000 times the value of what an average American creates. That doesn't mean he is a better human being, just that he has contributed far, far more.
Do you really think Bill Gates created equivalent value to 100,000 Americans? Bear in mind that if he hadn't created Windows, something similar would have taken its place - just as likely something better.
I've never seen a discussion of Microsoft that said its achievements are due to engineering genius. Definitely they must have had a great production line for software, but the reason Microsoft is Microsoft is that it secured itself a monopoly. That isn't adding any value.
But even if Bill Gates did add 100,000 times more value than the average American, it doesn't logically follow that he must be paid 100,000 times more. You might easily argue (I would) that the last million you pay to him doesn't make any difference at all to his happiness or motivation, and it could be much better spent else where.
> Do you really think Bill Gates created equivalent value to 100,000 Americans?
No. Not equivalent, in fact he created vastly more value than 100,000 Americans. Probably on the order of millions.
> Bear in mind that if he hadn't created Windows, something similar would have taken its place - just as likely something better.
How does this prove your point? If something better were available then there would be someone else rich that doesn't deserve it right? What do you envision here? A world where thousands of engineers mobilize to build software who's value will be determined later by committee?
> The reason Microsoft is Microsoft is that it secured itself a monopoly. That isn't adding any value.
For 10 years MS was dominant. Now the cracks are showing. MS has made plenty of engineering strides, and has some of the best executed backwards compatibility of any OS ecosystem. Again it hasn't captured even a tenth of the value it created.
> But even if Bill Gates did add 100,000 times more value than the average American, it doesn't logically follow that he must be paid 100,000 times more.
The more value generated by an endeavor, the more people will be motivated to follow. Could you imagine the sorry state of software if it was only a $100million/year industry?
Everyone along the chain benefited. Not just MS's customers, but also their shareholders and employees. BGates got rich by the unanimous agreement of all the parties involved. Show me any alternative arrangement that could possibly be better?
> You might easily argue (I would) that the last million you pay to him doesn't make any difference at all to his happiness or motivation, and it could be much better spent else where.
He's not keeping it under his mattress. Money by itself does nothing. Like most rich people he immediately looked for other possible investment opportunities. Finally he turned over the bulk of it to direct charity (including that last million). Where could this have gone 'better'?
What I'm advocating is not that a committee that determines the value of software, but that government does take an interest when a likely monopoly starts reporting really usually enormous profits.
> Bear in mind that if he hadn't created Windows...
An alternative vision is one where a plurality to vendors are in a competitive market where standards allow OSes to interoperate. In such a market, the Windows product would not have been nearly so lucrative.
>He's not keeping it under the mattress
I understand that money circulates, but clearly it's benefits mainly accrue to the owner of the money. If it really did flow around benefiting everyone as you suggest we could just give all the money to one person and it would make no difference. There would be no profit motive at all if money really worked like this.
>Finally he turned over the bulk of it to charity
I think that's extremely wise and very generous of him. I also think that it should tell you something about how he feels about his fortune. However, I don't really want to live a world where individuals can become so unreasonably wealthy, and then we cross our fingers and hope they give most of it away. Just like we don't want to live in a world where tax contributions are voluntary.
Ultimately for me there would only be sufficient inequality to persuade everyone to contribute as much as they can. That means paying some more to some very talented people to persuade them to work hard. Some people might end up 10 times richer than others, perhaps more, but no one has to be motivated by being paid 1000 times average salary.
Not that I agree with his point, but corporations are run and owned by people who often derive immense incomes from the endeavor. These people are disproportionately represented in the 1%.
The article starts out saying that this group (the top .01%) has income that is flying away from everyone else. As with most of these articles decrying the income distribution, there is the implication that there is something nefarious about this. At the end of the article, however, we learn that there is a lot of churn in the .01% from year to year, which indicates that some people are making a lot of money, but they aren't always the same people. I doubt that most years they are hurting terribly, but it is still a very different picture than the same people earning that much money year after year.
I doubt that most years they are hurting terribly...
They wouldn't have to 'hurt' at all, in fact they could experience personal records for income every year, year after year, and still drop out of the top 400 (or top .01%), since it's a sliding scale.
This is missing the point I think of the original distinction between 1% and 99%. The people below the cutoff live in a state of economic vulnerability that is ever-accelerating. The people above the line do not. If the goal was to critique power itself then yes the further divisions are necessary. I have not gotten a sense though that this is about ending inequality itself, but rather in limiting how far one should be allowed to fall in a civilized society, and how responsive a democratically elected government should be to the majority of the population's needs.
I've been thinking about this for a while. Last I checked, to be in the top 1% in the US you had to have about $250K of annual income. In the Bay Area, pretty much anyone who holds the title of Director or VP (and even Senior Manager at some places) at any sizable tech company makes that much, if not a lot more. So if you work at one of those companies, you might think your Director is doing well, but you probably don't think of them as insanely wealthy.
Because they probably aren't insanely wealthy. They just have a high income, and probably have high expenses as well.
Insanely wealthy, to me, is the condition of having assets that throw off net income that puts you into the top 1% of income before you've worked 200 hours in a year. (You might have to work a bit to oversee and manage the assets, but it shouldn't represent anything like a work-a-day job.)
The big problem with the article is that the author conflates wealth and income, and switches back and forth willy-nilly, so as to render all of his claims -- without further clarification -- meaningless.
It's apparently fairly hard to find up to date information on this, but your $250k figure is definitely too low; it might have been accurate 6-7 years ago. Everything I can find cites a number which is at least $350k and sometimes over $500k (http://economix.blogs.nytimes.com/2011/10/10/about-that-99-p...).
These numbers, of course, are the bare minimum for inclusion in this category. By definition, nearly everybody in the 1% makes more than this.
That's because this article, like many others, idiotically conflates "income" (money received as payments) and "wealth" (things of value in storage). Income is typically liquid; wealth, often not so much. Your Bay Area director might have high income but relatively little wealth. Gates and Buffet probably get substantial dividend income but it's their wealth that's so staggering. Grandma might have lots of wealth in her home but if she has no income to pay the taxes, trouble.
I just read this eyeopening little novel (http://marshallbrain.com/manna1.htm). The premise is America evolving technology + wealth/income inequality vs another state evolving technology + all citizens have "shares" (thus ownership) & relative wealth equality.
I keep seeing this "meme" - the "Star Trek Eutopia" vs. the massive inequality ("Elysium" being the usual fictional example).
What's interesting is that this argument ignores the "apocalyptic" scenarios I see in other contexts. They typically revolve around increasing scarcity, societal collapse due to depleted resources, etc.
They overlap only in one place; I've seen one "apocalyptic' one that argued the stratification of society means that collapse will occur because the rich/powerful are isolated from feeling the effects of the scarcity until it's too late.
But regardless; we can't have both - one where the earth's resources are depleted, and another where the bounty is so great everyone can enjoy a middle class standard of living, often without economically useful employment.
At first I thought you were joking, but then I realized that's actually a really good question.
It'd be interesting to see a breakdown that took the top 1% of successively smaller chunks until we see just how small we can get until the chart starts to flatten out. But then again, maybe the author has already done that and just didn't feel it was important to mention. Maybe 0.01% is the point at which the disparity stops being so gigantic. E.g. the difference between the 0.001% and the 0.01% is not nearly as stark as the difference between the 0.01% and the 0.1% like we see on that second chart.
I'm afraid you've missed the point. Based on the data 1% is NOT "offenders" as you put it. That iss what's interesting.
Take another look at the last graph. The share of wealth for the 1% except the 0.1% has NOT changed in the last 50 years (~11%). Yet during same time period share of wealth for the 0.1% has quadrupled.
Where is all this leading? Is someone leading some kind of action to change this or are we just gazing at the issue making ourselves all feel terrible? Is it worth changing?
It seems like this situation is pretty historically standard anyway yet there is progress on all counts.
What a moronic idea, that a thousandth of a population can actually have a statistically significant effect on the entire population.
Equally moronic is the assumption that wealth is finite at any given moment, and that it can be evenly distributed, this seems very close to entirely false.
Junk journalism is driving unnecessary divisions in the U.S. culture, where it seems people used to have respect for achievers rather than resentment, and they would actually aspire to do better so they could spend that wealth the way they saw fit.
Not a day goes by without another story of resentful abuse toward people by mere association with "the 1%"(which we've already discussed to be an absurd idea).
For example, there was a story on HN not too long ago about police brutality in the bay area toward people who seemed to local cops like the same kid billionaires they see on TV, as though living where some tech giants came from makes you somebody so terrible they deserve to be locked in solitary for a day after asking basic questions to their captors.
How is the U.S. ever going to move forward if they carry nothing but hatred for people who happen to be capable of investing? Whether by personal growth, or by accident of birth, these are the kinds of people they should be seeking sincere help from, rather than trampling on their rights over petty coin.
We can all go on the internet and well up all the irrational hatred we want, pick your poison. You can go be a radical feminist on the internet and you'll spend hours building irrational hatred for men. You can go join radical transgender group and spend hours building irrational hatred for the majority of the human population. You can go on the internet and be a radical religious person(not going to bother being specific here) and justify all sorts of horrible atrocities in your mind.
But if you personally hate the fairly normal people that occupy these lots in life, regardless of their personal merits, be they "the 1%", or men, or people with heterosexual relationships, or people who don't agree with your religious views, then you're a monster. You're not even self-serving, you're destructive to everyone including yourself.
I read the first sentence above and was pretty sure this was a sarcastic comment but by the time I got to the end I was saddened to realize it was serious.
The perception that a major problem with current American society is "resentful abuse" towards the wealthy is strange because from a historical perspective to me it seems like this is the time the wealthy have been treated with the most reverence.
Americans generally venerate the wealthy and aspire to be wealthy themselves. The bitterness you're describing is primarily attributable to the very real sense that the game is rigged.
Just as "urban" and "welfare" have become stand-in buzzwords for poor African-Americans, so has the term "1%" become a phrase for, not just the wealthy, but for those among the wealthy who have gained at the expense of others through financial engineering and other schemes. For instance, these same people grew fabulously wealthy by wrecking the economy and not a single one received punishment. In fact, everyone else bailed them out and they went right back to the same schemes and obscene paydays.
Then, there's the general truth that, while people are working harder, wages are effectively stagnant for many and an increasingly larger share of the rewards are accruing to a shrinkingly tiny percentage of the population.
So, I think it's a naive false argument to blame people for "hating the rich". What they really hate is being pimped.
>You view welfare as having an ethnic connotation but 'greedy parasitic financiers' doesn't? Examine the very hateful history of your line of reasoning.
Defensive much? I never commented on the ethnicity of the financiers or any connotations thereof. In fact, ethnicity has nothing to do with my comment at all. It was a simple analogy intended to illustrate that, like the phrases I mentioned, the phrase "1%" is loaded and does not simply mean "the wealthy".
But, while you're pouncing and introducing an actual hateful "ethnic" implication, you should probably consider that bitterness towards the 1% supersedes race.
>Who exactly wrecked the economy and how? What schemes have been run?
If your obtuseness is genuine, then you might start with Google, one of the many books that have been written, or a documentary.
If your obtuseness is deliberate, then have fun with it. Either way, I won't engage in a debate about facts.
I didn't see anything in the article that was negative or hateful about the 1%, but it sounds like you're reading it that way. Do you think the 99% have a reason to hate the 1%?
How? They still have gobs of principal lying around making gains. Unless you mean it will help enable more progressive taxation and income redistribution via the federal government?
When people in the 1% prints a trillion dollars a year and hand it over to his cronies, it has nothing to do with working hard and having accumulated capital to invest and grow wealthy.
"Income Inequality" is a complete misnomer in this case because even according to this article, the wealth gains are made from investment income ("And it's this investment income, rather than ordinary earned income, that's creating this extraordinary wealth gap").
Increased investment income is a good thing because it points to investment income for everyone else, too: your grandma's pension, your 401(k), your stock portfolio. This is just evidence of the pie getting bigger, not a small handful of robber barons running off with everyone's money, as this amusing "1%-er" talking point is always presented to be.
Asking because I don't understand the thought process involved in these posts. Are you purposely choosing to ignore things like the first graph that shows more than 60% (almost 80%) of people having a net negative change in income over the last 30 years or just not understanding what that graph means?
When stocks are crashing? That just means they become cheaper to pick up for the very rich, who get even richer when the economy straightens out again. Meanwhile, everyone who had to dump their investments to survive has to start over with less.
It shouldn't be hard to recognize that there's something terribly wrong going on here, but the tough part is trying to figure out just what to do to fix it. Hell if I know.