There are two core insights here that are actually pretty obvious:
1. 20% of 1200 is more than 20% of 800. Duh! But the practical insight is simply that people with more wealth can afford bigger bets and expect bigger payouts.
2. Many systems are sensitive to initial conditions. In this model, the first coin flip matter vastly more than all others and determines almost the entire outcome.
As others have pointed out this is really not a good description of the economy as a whole due to its zero-sum assumption.
However I think it’s a relatively useful analogy for the stock market and how other passive investment markets work.
Passive investment is a larger percentage of the economy than ever before and is increasingly how the “rich get richer.”
A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally. But of course this has been considered and hasn’t gained traction.
Another solution is to disrupt passive investment markets. The one that comes to mind is rental housing. If we made it much much easier to build housing then then rental housing market would be like the used car market: viable but not an easy place to sit back and make passive income.
> A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally. But of course this has been considered and hasn’t gained traction.
A reason why it hasn't gained traction though is that wealth doesn't just give you buying power but also political influence. So especially those who already have excessive wealth would be in a position to block such a measure.
That, and economists broadly agree that taxing businesses and investment is a bad idea, and that the most efficient thing is a consumption tax: https://www.npr.org/sections/money/2012/07/19/157047211/six-.... Note that this article is from NPR of all things.
I remain convinced that unbridled capitalism is incompatible with democracy in the long term, particularly when buying political influence is legitimized.
> If we made it much much easier to build housing then then rental housing market would be like the used car market: viable but not an easy place to sit back and make passive income.
You're overthinking it. Sweden made renting out apartments unattractive without all this sophistication, they just regulate the prices and keep them low.
…and has consequently created a housing shortage so severe that their decade-plus waiting list was at one time being considered for the Guinness Book of World Records[0].
Price controls leading to shortages and rationing is basically the microeconomics version of the First Law of Thermodynamics. It has had the same result literally everywhere it has been tried.
The solution lies in the supply. Always. If you want more people to have more of something at an affordable price, you have to make more of that thing.
Another solution is for the fed to stop pumping the stock market for the last 14 years like crazy and offering free money to the finance sector.
Frankly blaming actual entrepreneurs and business owners for the gains in the stock market is such a misguided target it’s insane. The only reason Musk, bezos and others have gotten so insanely rich recently is because the fed had increased its balance sheet by about $8trn. That money went somewhere.
But it’s not because of “rich people”.
It’s because a bunch of bankers destroyed the financial system in 2008, got bailed out, and never got criminally charged. It’s absolutely insane and it’s fuelling this completely misplaced neo Marxism.
The other part is the stock market basically became a government-enforced ponzi scheme through 401ks, 403ba, HSAs, IRAs and other tax advantaged accounts. Of course stock prices will go up as long as people are forced to use arbitrary stock funds for retirement to avoid crippling taxes.
>A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally.
An even more simpler solution would be to take away the all wealth of rich people and divide it among all people. The calculations would be a lot easier. Taxes are complicated.
Someone tried this, it was called "USSR" (a.k.a. Soviet Union)! They started by nationalizing all businesses, and had all sort of interesting laws, like jail time for people without "real" jobs (to prevent people living off passive income). Or jail time for people who were trying to get rich by selling stuff for too high of a price.
Look it up, pretty interesting story. They did have to build a strong border protection force to prevent people from trying to escape the country, but the country still lasted 69 years.
Bezos is wealthy because Amazon investors want to give him money; they don’t want to give you money, so if you had the Amazon shares they simply wouldn’t be worth anything.
Had 2 people fall for this already, fellow HNers, my above statement was said in sarcasm. Of course there are people here who are stupid enough to suggest it for real.
Something to keep in mind is that Capital gains are not as privileged as they appear in most places because people making that claim are usually not comparing earning a dollar as a person vs earning a dollar in a corp and flowing it through to the individual, they are comparing earning a dollar as a person to earning a dividend or selling a business. There is still a net positive if you hold in the corp for a long time and avoid the personal dividend tax for years and there are some capital gains exemptions for selling corps but they are smaller than most claims on the subject espouse. If you want to harmonize you have to be cognizant of this and not switch to overtaxing earning through corps
> wealth can afford bigger bets and expect bigger payouts
Indeed. It's also quite nonlinear. Being able to afford those gambles whole also reserving a cushion that protects your house and apply to eat is very expensive. Not many people can make signify passive income without leveraging anything. But once you can, it becomes a compounding upward curve. Most people die before they get to the second half of the chess board.
> A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally. But of course this has been considered and hasn’t gained traction.
There's one substantive and one political issue that are important; the substantive issues is that in an annual progressive income tax system, there are real fairness issues with taxing the outcome of multiyear processes as current-year income at full (whether nominal or, using inflation indexed basis value, real gains). [0]
The political one is that the vrry rich havr predominantly capital gains, and progressive tax with reduced capital gains tax rates is how the capitalist class maintains “the rich pay higher income taxes” as a propaganda point while actually paying lower taxes.
[0] there are fairly straightforward solutions for this, which make irregular income from sources already subject to normal income tax more fair, but they add a little more complication to the overall solution.
This yard-sale model isn't really how the economy works though, people don't continuously bet 20% of their net worth. It's something similar going on though, I think a lot of these variables would seem to be explained by considering the lognormal distribution for personal wealth.
In a normal distribution, the shape of the distribution comes from a "random walk" left and right from a large number of steps of varying size.
In a lognormal distribution, on the other hand, the random steps are not additive but multiplicative: e.g you multiply the previous figure by a (Gaussian) random variable many times.
This seems to reflect economic reality that people make decisions proportional to the scale of their current wealth. If I make 10k, it would take 2k extra to entice me to a different job. If I make (or lose) 10% on an investment, etc. It's all multiplicative.
The lognormal distribution also has a fatter "right tail" than a Gaussian, which is what we see IRL.
I'm not sure it's intended to reflect the real economy. It's a useful model that shows how success and wealth inequality can arise for reasons of pure luck, and can have nothing to do with meritocracy. I'm not sure any of the points you raise really change the fundamental dynamics of what's shown here.
The whole yard sale model suffers from the fallacy that there is a predefined amount of wealth. If that were true, we’d have exactly as much wealth as our cavemen brethren did, which is clearly not the case. Every time anyone creates something more valuable than the sum of its parts, value is added to the system. A bow is far more valuable than the wood used to build it. A hammer and nails far more valuable than the raw iron in stone.
> What can the yard sale model tell us?
Literally nothing. It fails to model any part of the actual system. It’s not just lacking complexity, it’s a facetious model lacking in any real aspects of anything involved. There is no choice, no intelligence, no reason. Just random chance.
92% of the US including 86% of people without homes in this country have Internet access. We can all make incredibly informed decisions these days. Better informed decisions than ever possible by all the wealthiest royalty in human history, in literally seconds.
The author could have easily Googled the price for the exorbitant watch before they bought it. That’s entirely on them.
Nonsense. It doesn't have to be a perfect model to still be a useful one. It's precisely because it's so unintuitive that it's interesting. Your introduction of a positive sum mechanic doesn't invalidate the model. Introducing a $new_value component still begs questions around who gets access to that value - and if the yard sale model holds, even perfectly equal distribution of that $new_value suffers from exponential outcome drift for anything except ridiculously high ratios of $new:$old - and in the real world, value is disproportionately captured by the already wealthy [0].
But hey, internet for you lazy proles, pull yourselves up by your shoelaces etc.
[0] - https://wir2022.wid.world -- The richest 1% captured 38% of all new wealth since '95, the bottom 50% captured 2%.
> value is disproportionately captured by the already wealthy
value is generated using both capital from the already rich, and labour from the poor.
Over time, labour isn't increasing in productivity. It's capital that's increasing productivity, such as by improving labour's efficiency.
With this in mind, why is it that the rich shouldnt be the ones to capture the new/increased productivity? After all, it is their investment that would make such productivity possible. If you had told the rich that their investments would not actually gain them profit (because labour captured the increases that produces the profit), they would not have invested in the first place.
One way to break out of this cycle is for labour to provide something more than unskilled labour and merely using capital to produce goods/services. For example, research and development, knowledge/skill from education, etc.
> 92% of the US including 86% of people without homes in this country have Internet access.
Good point, but...
> We can all make incredibly informed decisions these days.
You need more than internet access to make good decisions. I cannot imagine living without a house or healthcare, eating food picked out of a dumpster behind a supermarket, and then being criticized because I made "less-informed" decisions even though I nominally have internet access at a library where the patrons scowl every time they see me in their peripheral vision.
People won't be able to magically make better informed decisions even with access to the information if they are too busy working three jobs to afford food, rent, or healthcare.
> We can all make incredibly informed decisions these day. Better informed decisions than ever possible by all the wealthiest royalty in human history, in literally seconds.
And yet there were numerous stock investing experiments in which random choice delivered similar or better results than respected investment specialists.
It's almost as if, at the end of the day, we don't actually make "incredibly informed decisions".
Yes, but value is not created out of thin air, you need capital to create value, i.e. you need to be wealthy.
So you could extend the yard-sale model and include a rule that after each round, each $ will turn into $1.5 with some probability.
Guess what? Now the rich players can't just risk higher stakes in the coinflip games, they will also have more opportunity to introduce more money into the game through value creation.
So that would make the outcome even more extreme than the standard yard-sale model, not less.
I think there is a problem with using money to measure wealth. Maybe a better question may be to check how land or housing is distributed among people? If 10% wealthiest decided one day to e.g. purchase land, the effect would be: 1) equity/bonds or whatever they are using to store their wealth would plummet and crash 2) land price would skyrocket. So suddenly they would not be that rich. I think much of the wealth is overvalued currently, it is like with Bitcoin, the price is crazy because not much people are willing to sell.
To solve all this, it's pretty simple, and the U.S. actually used to do it: heavily tax the super rich. Heavy taxation and then appropriate use of those funds for education, R&D funding, infrastructure, etc. is actual trickle-down economics. And mega corporations should be heavily taxed instead of holding the country economically hostage. They jumpstart their companies off of government funding and R&D and then act abused when asked to help give back.
Right now, the middle class is getting slammed with taxes. They make almost all their money through salary and get taxed heavily, while the super rich pay either no tax or a maximum of capital gains, so almost 40% or less than upper middle class in terms of percentage.
Corporations and the super rich have bought out democracy, and what is crazy is that they are supported by the very groups they intrinsically hate and hurt through their policies.
One thing I've noticed consistently, is when politicians talk about "taxing the wealthy", they almost always follow that with "earning more than $xxxk a year". This is conflating wealth with income.
Being within this tax bracket myself, I do not deny that I am biased, but I do hope this bullshit gets called out hard whenever someone brings up yet another underhanded measure to milk us (typical SFBay SWE) above and beyond the ~40% levels we're already facing...
As a practical matter, it is very difficult to tax wealth (and even harder to do it fairly.) I don't think the issue is lack of will but lack of plan that actually works in the face of assets with unclear value and/or difficult to liquidate.
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.
The politicians make money via insider trading, so of course they propose a income tax as opposed to a capital gains tax to "tax the rich". Many of them have been in power for 40+ years, if they were going to tax themselves it would've already been done.
Only the super-rich in America feel wealthy. Everyone else is trapped in an unwinnable game of keeping up with the Jonses. I can almost guarantee that if you actually listed the concrete reasons that you don’t think of yourself as wealthy, they would seem ridiculous to the majority of middle class Americans. (Although obviously I don’t know your personal circumstances. I am thinking of the general case of a seniorish software engineer working for a big tech company in SF.)
FYI, if you make several hundred thousand dollars a year, because you are a SFBay SWE, you are SIGNIFICANTLY different from an average american, and you should realize that. You ARE the wealthy that would and possibly should get taxed. It's not poor people's fault California refuses to do anything about having enough housing. It's not poor people's fault that google and facebook require you to live in california for no reason. Making hundreds of thousands of dollars in salary per year is a very privileged position.
Don't get mad at average americans trying to make the world a better and more fair place, get mad at google and facebook that make several million dollars off the code that you write and kick back a pittance of a salary, and coordinate with each other to keep your compensation low. Even at $400k a year, you are literally being underpaid.
Exactly, this is going on every single day. They run stock reels of Bezos and mega yachts and private jets and then introduce their plan to raise taxes on people who have enough income to renting a 1 bedroom apartment without roommates and have a reasonable chance at saving up enough to buy a home someday.
For the majority of the time there has been a Federal Income Tax, there have been top brackets in the 70% range. This was a burden begrudgingly borne by the wealthy for many generations. It funded the US leaving an agrarian lifestyle and becoming a superpower.
Did a 70% top-tax bracket force any of the uber-high earners to stop earning money because they didn't want to give 70% to Uncle Sam? No, the super rich will always want more money/property/dividends/etc no matter how burdensome the tax bracket they fall in might be.
Because spending money on education doesn't equate to better outcomes. It creates more bureaucracy, bigger councils, etc.
Teacher pay is still abysmal, especially considering the fact they are expected to act as guardians and even security these days. And you'll never get better outcomes if you can't attract smart people to actually teach, no matter how much you pay the superintendent.
US public education should be called what it is, a government sponsored day care.
My partner is a teacher, and the money certainly does not reach educators or kids in need. It mostly gets stuck at the administrative level or is spent for expensive football teams. Hell, there is still a national debate about kids going into debt to pay for lunch
I'm not for sure I agree, but that's a separate issue than de-concentrating wealth. What to do with tax funds, how to appropriately distribute them, etc. is another discussion. Just because those problems exist, we should allow more and more wealth to be concentrated?
You’d expect education costs to be rising, though, as people are expected to have a higher level of education before entering the workforce than they were previously, and because career changes and reskilling are far more common than previously. It’s a bit like healthcare. You can be spending far more than you were when there was a younger population and fewer sophisticated and expensive treatments, and yet still not be spending enough.
The funny thing is, you don't even need to tax the rich all that much. The money is there. It's just spent on ludicrous stuff. The US annual defense budget is 800 billion dollars a year. Even when you argue that national defense and a well equipped military are necessary (which I believe them to be), I've seen military cost receipts. They're outrageous. You don't need 50 dollar rolls of toilet paper.
Your assumption is that the state will apply that money optimally (or at least more optimally than the super rich - also, notice you didn’t define what super rich are).
Looking at historical and present data, I can be absolutely sure that the state will mismanage that money in almost every country.
I’m Portuguese, my government is collecting more ~ 25% taxes than it collected 6 years ago when the current ruling party got into power. Almost everyone (left and right) agrees that public services and administration are much worst. So, it begs the question: why giving the government even more money, will solve anything?
To be honest I think this is strawman argument. I think it is absolutely true that the government will mismanage some of that money. The question is whether that money used with not 100% efficiency is better than a billionaire who may spend that money on anything. I certainly agree there are rich people who donate their money effectively but even then they decide what to spend the money on. So in my opinion some government mismanagement is not the reason to have some redistribution, but rather a reason to ensure that governments are properly accountable etc. And even if that is a government spending it can be still tendered to private companies depending on what's being done.
That implies that privately owned organizations manage money well, which is not the case either. The larger an organization is, the more inefficiencies it accumulates. Plus, don't forget that states usually provide a lot of subsidies to companies and also pay businesses/consultants to do some of their work.
The idea of the “middle class” is propaganda. The whole point of this as well as any number of wedge social issues is to sow division and direct your anger at marginalized groups instead of the wealthy and powerful.
There are only two groups when it comes to economic status: labor and the capital-owning class. Labor is anyone who derives their income from their labor and goes all the way from the janitor to doctors and professional athletes.
Th idea of the middle class was invented to sow division with the “lower classes”. I mean look at your comment. You assert the “middle class” is getting slammed with taxes. Some (not necessarily you) imply the lower classes are somehow getting a free ride or are lazy. This is the propaganda.
We live in the wealthiest nation on earth. People without housing or food security is completely unnecessary. Charging people $1000/month for insulin, without which they would die, is only that way for corporate profits. Think about that.
I don't think it was *invented* to sow division, but I agree with you that it can definitely be used for it.
There's different ways to categorize things - lower-class, middle-class and upper-class is a sort of intuitive way which throughout history has made some sense, somewhat, with different names. However, I get that maybe it's not the most useful currently, because there's such a ridiculous divide between upper-class (rich) and the other two, that we, belonging to the bottom 2, should band together to bring change favorable to us.
You're right, but this misdirection goes both ways. Logically, it would make more sence for the "lower" and the "middle" class to present a unified political front to tax the capital-owning class. But with the division in place, politicians backed by capital can sell a tax plan that is mostly, in fact, about raising taxes on the middle class but not the capital (most proposals that focus on personal income tax rates are in this category) to the "lower" class.
I find it really frustrating that the discourse around taxing the super rich does not emphasize how absurdly rich the super rich are. Even if you are worth 500 million dollars, own a mansion, fancy cars, etc., you are still extremely poor compared to a billionaire. And even among billionaires, someone like Bill Gates is massively more wealthy. On /r/nba some people were remarking about how even among NBA owners, not exactly a poor group, Steve Ballmer is so absurdly rich that he could probably buy the entire NBA (obviously not with his liquid cash, although he did literally buy the Clippers in cash).
Like the phrase "tax the rich" makes people think of their neighbor George who as a nice house or even themselves if they make six figures. Nah man, tax the person who can literally buy the NBA and still be a billionaire.
I have already covered this elsewhere, but that's an excuse and actually only points to how concentrated the wealth is. Too bad they pay more money than others. Tax them more.
Top 1% of salary earners. The CEOs, highly paid doctors, engineers. The real capitalists - those who hold the assets and pay for their yachts with stock-backed loans - they don't pay 40% of the federal tax revenue. Their salary is $1/year.
While interesting data points, I'm not seeing an argument that they are paying enough, which seems to be your implication. Maybe it should be 90%. Maybe it should be even more.
Billionaires should not exist. When one gets to a certain amount of wealth, TBD, there they should get a golden plate saying "Congratulations, you won capitalism" and from them on, tax rate is 100%.
Ah, the mythical "super-rich" who could fund all of our solutions, if only we could prise their money out of their clutching hands!
It's funny how they always exist, even in countries like the UK and France which in reality have taxed them out of existence, and payscales are absurdly compressed compared to the US.
Careful what you wish for, you are someone else's "super rich".
>the UK and France which in reality have taxed them out of existence
You're making it sound like billionaires are an endangered species there. :) Last time I checked there's more than enough billionaires living in the UK and France[1].
The solution is to cut the size of government first. The inefficiency and outright grift happening in all federal agencies would make any entrepreneur’s head spin. Imagine if Congress had to answer to VCs for their spending. They would all be blackballed from the investor community overnight.
The “tax the rich more” line is a little naive. The world is a different place after the Rothschilds figured out how to shield their wealth from monarchies. It’s easier than ever to offshore wealth, remember the Panama papers that promptly disappeared from the news?
The “solution” of global governments is a cure that’s likely far worse than the disease.
It’s a complicated situation. A progressive VAT tax that is consistent across jurisdictions would be a good start. The tax code (at least in the US) needs to be thrown out and replaced. Monetary policy and taxation via inflation is also primitive and in dire need of reform.
The problem with this live of thinking is that in reality most taxes are paid by wealthy people. The majority of people actually pay 0 taxes and in fact receive credits above their burden of 0.
Whine there’s certainly room to address fair taxation rates we should seriously consider how we spend tax revenues today. A 1.5 trillion omnibus is being rushed through Congress that’s full of pork and special interests. We just sent however many billions to a country to fight a war that has nothing to do with us.
So we spend all this money and of course it’s not enough. People say “more! Tax the rich!” Without considering the reality.
That's not a problem at all. The concern is not the absolute dollars paid. The concern are the percentages and the concentration of wealth. That the rich pay a lot of tax is basically immaterial except that it points out just how skewed the wealth distribution is.
The "rich pay the majority of taxes" is an excuse.
This all presupposes that the government is an efficient user of capital, when its pretty clear its not. Heavy taxes on the rich, means that capital investments that a rich person might finance, become government programmes and bureaucracies. Theres obviously a sweet spot here - but rich folks are good at creating capital and governments are notorious for wasting it.
Now in the US I probably don’t have to tell you where most of the money goes - hint military - so more rich folks money into the governments coffers - what industry do you think benefits the most from a policy like this?
> but rich folks are good at creating capital and governments are notorious for wasting it.
There is more than a little nuance here:
- governments are notorious for being called out on supposed inefficiencies.
Too often, it turns out that there were very good reasons for those inefficiencies, but the criticasters forgot the lesson.
- "rich folks are good..."
I wouldn't know. Superrich folks are good at manipulating the system and extracting wealth from others, that I can believe. We see that happen often enough - the superrich lose money if they were to pick up a 100 dollar bill (they make more money in that time if they work), while their employees have to pee in water bottles or are exploited in other ways.
I strongly doubt that the superrich are better than governments at creating capital for anyone else but themselves in an ethical, human-respecting manner.
Most of our money does not go to the military. Defense spending is about 700b per year, while the budget is over 4t.
The government doesn't need to handle capitol allocation. We can simply shift the tax burden upwards. Poorer people get reduced tax, rich people get more.
> This all presupposes that the government is an efficient user of capital, when its pretty clear its not.
It's not a presupposition. That's a separate discussion and should also be improved. We shouldn't say, "oh, we're bad at redistribution, so let's not".
The Yard sale model in this post demonstrates that rich people are not necessarily better at allocating capital even if/as they accumulate and compound it faster.
The military is NOT where most spending goes - most spending goes to the entitlement programs: social security and Medicare.
Rich folks are only so seemingly "efficient" and good at creating capital because they decline to do what the government does.
The ultra wealthy property developer only builds what is profitable, and so slices off to serve only the most profitable part of the market to serve, and accordingly only builds luxury condos.
Meanwhile the government is obliged to serve everyone, the disabled, the poor, etc, and so with its housing whatever profits are gained by its market priced rents to the middle class are leveraged toward sustaining the unprofitable housing it is obliged to create, and the whole enterprise isn't profitable and needs outside subsidy to continue. We disparage this as "inefficient" government yada yada.
These two different groups aren't working on the same problems.
Adding on to this, we absolutely know how to tax assets. We do it all the time: property (i.e. house) taxes. The unfortunate thing for middle class home owners is that houses are a type of wealth that is taxed just for having it whereas art, corporate shares, bonds, and trust funds are not.
Another contributor is dividends getting taxes lower than earned income (like from a job). Why would money you got from sitting on your ass doing nothing be taxed less than money you got by working a job?
As if the wealthy have never thought of ways to hide their money... The best you'll do is tax those who are actually turning up to get a salary. Ie you will tax people who arguably might be producing something, as opposed to the inter-generational, rent-seeking families that own so much of our world.
If you ask me, and you accept overt governmental control of everything, the best thing to do would be a system of openess about ownership, so that ownership of everything can be seen by everyone - with no murky legal instruments.
If you have the information about who owns what - and everything is owned by people, individuals, even if they hide behind legal and corporate instruments - you can then consider addressing what would be an equitable may to proceed.
My guess would be that something ludicrously minor like a 10% wealth tax on the top 0.01% of wealth owners, would cover us indefinitely.
The problem is that at the other end there is also dysfunction. With high taxes and regulations keeping companies and profits in line the result is also a combination of structural inflation and stagnation resulting from the high cost of almost any kind of investment or operations. This is what triggered the fundamental changes which occurred from the late 70s through the 80s with Thatcher and Reagan.
It might be helpful if we could construct metrics for social function that more clearly showed when we approach extremes that interfere with business or social functions.
So this redistribution... How will this ever be fair? If I work harder and smarter, save/invest instead of spending recklessly - how is it fair that the fruits of my effort are taken by the government (who incidentally created all the laws and loopholes we have now) to redistribute as THEY see fit (also known as Buying Votes).
How do you redistribute my house (expensive due to location) to others living in less expensive places? How about my car (expensive and fast). It costs more, drinks more fuel, and looks nearly new. Never mind that I paid a gasguzzler tax on purchase, sales tax, smog inspection since new(another tax in disguise). It looks new. But I care for it, handwash it, polish it, seal it, personally - my labor. I roundtrip it 90miles a day, so it as 135k miles. But it looks new. MY LABOR. Nobody offered to wash/wax it for me and make some cash. Just like I shovel snow off my driveway. And rake leaves. Nobody wants to do that work. They just want their part of the redistribution.
Y'all worry about these millionaires and their money, yet here you are, hoping to learn the secrets of success from Y-Combi companies... and become wealthy yourselves.
The problem with this plan is that modern economies need a lot of capital.
There are three places that capital can come from:
* the state, but we have voted year in and year out for tax cuts and spending rises, so the state is bankrupt. Not only is it not a source of capital, it is a major customer for it
* normal individuals saving and those small amounts being aggregated by banks etc. But rampant (and government supported) consumerism means most people are also consumers of capital not sources of it. Incidentally an example of the opposite of this is Germany where ordinary people save a lot more and don't have OTT mortgages and credit card debt. Mysteriously they have very few billionares...
* Billionaires. Which given the US (and UK where I live need their capital AND cannot get it elsewhere are able to charge a premium for it and cannot really be taxed etc without pain spreading all over the rest of the economy.
But if you try and tell people to spend less, save more, pay their taxes and accept less services in order to have a better, fairer, more equal, ultimately richer life they bulk...
This focus on super-rich individuals is totally misguided. What's important is the economic system. Rich individuals are simply a nauseating side-effect of capitalism. Nobody really likes it, but there simply isn't anything better. The burden of proof is on the complainers. Even Marxist-sympathetic Peter Singer gets it.
>Look, I think it would be better if you had an economic system in which we didn’t have billionaires—but the productivity that billionaires have generated was still there, and that money was more equitably distributed. But, really, there hasn’t been a system that has had equity in its distribution and the productivity that capitalism has had. I don’t see that happening anytime soon.
> This focus on super-rich individuals is totally misguided. What's important is the economic system. Rich individuals are simply a nauseating side-effect of capitalism. Nobody really likes it, but there simply isn't anything better. The burden of proof is on the complainers.
Serious critics aren't suggesting we do away with capitalism, they're suggesting that it has negative externalities that can be corrected by better taxation. The focus on billionaires is exactly right, because as the model in the article shows, taxation can suppress the extreme inequality that results.
I don't get the productivity argument. What productivity is enabled by billionaires or even individuals? Noam Chomsky has covered this, but most corporations benefit extensively from decades of government funded research and development. The socialist driven productivity is there, it's just that we slap capitalism on it at the end and think it was that that got us here.
Or alternatively realise that there isn't a fixed amount of money and therefore if 'rich people' want to count their coins let them do so.
(i) it solves the capital accumulation problem
(ii) you can accommodate the hoarding by guaranteeing people a job at the living wage, which then injects the right amount of new money, both temporally and spatially, to offset the hoarding.
Tax has nothing to do with raising money. Tax is about reducing the capacity of the private sector to hire people so the public sector can hire them instead. If there is unemployment then the public sector hasn't hired enough people or taxes are too high/ineffective.
There isn't a fixed amount of money. And taxes are only incidentally about public sector hiring.
There is (more or less) a fixed amount of power.
Taxes doesn't raise money, but they do redistribute and decentralise power, making it harder for the very rich to dominate economic and social strategy for their own ends.
This model does not resemble a free economy at all. Not only it doesn't consider the wealth-creation aspect of a free economy, but it assumes people "wagers" their wealth. No society does this and is a terrible model of how an economy works. Most people earn their wages, if they have some money left they may save that, but long term saving is not comparable with a bet on a coin flip, if you think it is, then you should not save at all because you will go broke with probability one. Again, that is not what happens in our societies.
Jumping to the conclusion that "taxing the rich" could solve anything is completely wrong. You would just make things more expensive and add extra incentives to take jobs abroad. It doesn't matter that the model is too simplistic, the problem is that this model is too far from reality.
There a thing called the Laffer Curve. It’s not as though politicians, whose job it is to spend money, and whom can easily get more popular votes by spending ever larger sums of money rather than budgeting in such a way that defers immediate gratification, have never thought of just taxing more (read history).
I think this time we should go above and beyond regular heavy taxation.
We should seek to extend republican norms within the corporate sphere and downright prohibit rent-seeking.
A country whose inhabitants have no say in its internal politics is called a tyranny. It's more than time to see the current workplace the same way.
> Corporations and the super rich have bought out democracy, and what is crazy is that they are supported by the very groups they intrinsically hate and hurt through their policies.
Oh yes, the "they don't know what's good for them" argument.
How does this "solve" anything? Do you actually think that if rich people start paying more, then that will result in a reduction in what poor/middle class people pay?
You are treating the government as if it had even the tiniest bit of fiscal discipline, as if it says, ok, we only have $x coming in, therefore we can only spend $x this year (or alternatively, we plan to spend x, therefore we're obliged to collect x in revenue, but no more than that.)
US government hasn't worked like this in decades. Our debt is out of control and growing exponentially. The government has the green light to spend spend spend without any caution whatsoever. Joe Biden has a 4000-page, $1.7 trillion spending bill working it's way through Congress right now that nobody has read. Do you think any politician actually cares how it's going to be paid for? Do you think there are enough ultra rich people in this country, that even if taxed at 99.9%, will dig us out from a 30+ trillion hole?
What is "that" that you're referring to? Tax rates have absolutely fallen. If you're referring the article's claim that the rich pay much more taxes in terms of dollar amount, that doesn't necessarily mean anything because the rich are wealthier and more concentrated than every before.
For example:
> According to investment bank Credit Suisse, the fraction of global household wealth held by the richest 1 percent of the world's population increased from 42.5 to 47.2 percent between the financial crisis of 2008 and 2018. To put it another way, as of 2010, 388 individuals possessed as much household wealth as the lower half of the world's population combined—about 3.5 billion people; today Oxfam estimates that number as 26.
Your source doesn't address the amount of tax collected from the ultra wealthy in relative proportion to their wealth. It only addresses the amount as a percentage of the federal budget.
The model clearly shows that while heavy taxation does not fully eliminate unequal distribution, it does dramatically suppress the inequality. Completely eliminating inequality is not necessarily a goal.
If the government is not bound by a balanced budget amendment (can spend more than it takes in), and can print money whenever it wants, why do I pay taxes?
If the entire monetary system is fake, why do they need 40+% of my paycheck?
Fair taxation doesn't work with regulatory capture. The US is a gross-unequal mafia colonial power. If it wasn't, campaign finance reform not only would've passed decades ago, it wouldn't be necessary. Instead, it's easy to be super rich and pay almost no taxes like Trump or Buffett.
> Corporations and the super rich have bought out democracy, and what is crazy is that they are supported by the very groups they intrinsically hate and hurt through their policies.
This is known since at least Marx, and still it doesn't change. This makes me very sad.
But tell me, how are you going to tax the super rich? It's incredibly difficult to tax someone who's actually poor on paper. Most super rich people actually don't seem to have much wealth officially declared, all of their wealth is sort of like "pseudo" in that it's all tied up in assets, and sometimes assets that aren't directly owned by them but their companies etc. and they have a lot of shortcuts for tax breaks on the stuff that can be taxed. With the current system in place then it's impossible to actually tax the rich.
> It's incredibly difficult to tax someone who's actually poor on paper
You think this because the super rich want you to think this. Actually, it's not hard and there are some good ideas floating around (e.g. more inheritance tax, don't let them get loans without taxes againt their illiquid wealth). Does it require a change of laws? Yes, but that's the whole point of democracy.
It isn't difficult at all. This is an oft repeated excuse. The rich use their wealth as collateral to purchase things, like homes, companies, investments, etc. and transfer wealth to inheritors with basically no tax. So stop worrying about trying to figure out how to tax unrealized wealth and start taxing the things that unrealized wealth helps secure and purchases. This is one way to force realization of that wealth and thus tax it as well and get it back into circulation.
Right now, the rich are extremely incentivized to remain "poor on paper", so we should remove those incentives.
Some rich person says “teehee, I actually have no money! It’s all in (some country)!” and the US gov says “oops! Guess you really are poor!”
They take a letter of the law instead of a spirit of the law approach with taxes. If they start seizing mansions because clearly they have no money and the only way they could afford it is through ill-gotten means, people will start paying. Police already take cash from the wallets of random people because they assume it’s illegal—meanwhile the IRS knows full well where your money comes from but they pretend to believe the tricks of the mega rich.
Plus the IRS literally have access to banks around the world. You’re required to give them proof of foreign bank accounts or face imprisonment and other countries comply with IRS requests. They can literally seize wealth and know it’s yours. They choose not to.
Of course you can track down de facto ownership and streams of income regardless of de jure separation. This is a question of political will, not economical (im)possibilities.
Whenever you try making rich people responsible, they move abroad. In Norway, the super rich are becoming Swiss citizens after a recent change in taxation. Unless Switzerland takes social responsibility, they're getting away with it. But if Switzerland does the right thing, the rich will find another safe haven.
However, this is a short term issue. The long term changes require a historical change in culture and policy. Otherwise we're still very much catering to the will of old money and power structures that resembles autocracy.
(I'm just an armchair socialist and no expert by any measure, ymmv.)
This smells misleading / overly simplistic but I can’t quite quite put my finger on precisely why?
Some thoughts
- consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
- something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
> - consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
Not all trades are exactly "consensual". The sandwich seller can probably live without selling a sandwich, I can't live without food, so the seller has far more power to set the price. Existing power imbalances make trades less fair, specially with essential goods (and that includes jobs, which is why a lot of poor people end up massively underpaid).
> - something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
HPSquared said this in another comment [1] and I agree: what matters on this model is that every step is not additive but multiplicative, which is what leads to the inequality.
- people enthusiastically lining up to get the latest sneaker / iPhone.
- mildly enthusiastic grocery shopping.
- overpriced medical drugs due to a monopoly.
- taxation.
- outright theft at gunpoint
2. Insightful, thanks. I think one variable the model doesn’t account for is time (which is not multiplicative and scarce).
Money and power can be multiplicative so maybe most of us are playing the non-multiplicative game of spending our time to make money, while the rich are leveraged time to play multiplicative games where they spend money to make more money and happened to win a bunch of times.
In the real world, there is more than one sandwich seller and they compete with each other. When was the last time you non-consensually bought a sandwich?
Even homeless people on the street will sometimes refuse free food, so the idea that sandwich-sellers can set any arbitrary price they want or people will starve is just not something that happens in practice.
The thesis was an investigation into whether the super-rich are better at making money, but they just took widely known distributions to tell a story enforcing that view without diving in as to why that's the case.
It's the classic case of using statistics as a method to divert blame onto something else. You learn nothing but a sense of despair from these kinds of analysis.
Zero-sum assumption and lack of returns on bets seem suspicious.
Betting is a bad deal for everyone in this model (even the rich person) since each coin flip is variance for no expected gain. Kelly betting implies you should bet nothing in this game.
If you increase the payoff of the bet, it might prevent the poorest from becoming destitute, but the relative effect (where wealth concentrates in a few people) intuitively would still be present.
The most obvious omission from that model is that in a real economy people voluntarily give money to others in exchange for goods and services. If everyone was equally good at producing useful goods and services then even if the yard-sale effect was occurring due to investment/wagering behaviour it's unlikely to lead to the extreme inequality the "pure" version does.
It's also fairly obvious that in the real economy there's virtually nobody in the super-rich list that's got there purely by being lucky with investments. To what degree that's true only because we do have redistributive taxation systems I don't know.
The yard sale model doesn't attempt to model an actual economy. It's a thought experiment to counter causality bias.
Human minds tend to be biased towards causal explanations. So if we see huge wealth disparities, we're biased towards thinking that these disparities must exist for some deeper reason (often argued to be meritocracy). The model counters that thinking, by showing that, even in a very simple model with rules that seem fair to everyone, huge disparities can appear entirely at random.
It doesn't prove that the disparities we see in the real world are fully random. It invites us to question the assumption that they aren't.
The model is zero-sum, there are no gains from trade, the people just speculate. In this context, trading is harmful and this type of activity should be banned, or at least heavily taxed.
If economic activity is valuable, but leads to inequality, then you need some framework to trade off the value created vs. the social benefits of greater equality.
I did think that but even if you extended the model to be one where money could be created via "successful" investments, I suspect much the same result would transpire - wealth would concentrate fairly rapidly if everyone kept re-investing %x of their wealth, such that a certain % of investments would result in wealth creation and others simple loss of funds.
If you make a model like this, for different parameters of speculation vs. value creation you can then test what the most socially beneficial rates of tax are.
More tax will lead to smaller but more equal economies and laissez-faire shouldn’t be optimal.
I would just want the model to acknowledge the non-speculation part, because many of the things I buy are from spectacularly rich companies, but that are genuinely useful to me.
The article mentions that instituting a 0.5% tax made the coin flipping exercise much fairer. Since the income tax rates in the USA are way higher than that, it seems like I might be able to conclude that the USA treats people fairly. Articles like this one are hinting that people only improve their lot in life through luck. While luck does play a part in life, focusing on that seems counterproductive to me.
I am a devout capitalist with an accounting degree and an MBA. I believe the theory and data indicates that wealth is a mix of (in order): luck, family wealth, social ability, attractiveness, height, intelligence, natural abilities which align well with making money (conscientiousness, ability to delay gratification, affinity for work in scalable professions like IT, etc), culture, place of residence, likelihood of sociopathy, and many more.
Luck is part of it, but there are so many other factors here. When they converge, we often end up with people extremely good at making money. Under capitalism and in principle, this isn't a bad thing. It means they're generating outsized benefit for society. However problems quickly emerge: with economic power comes market inefficiencies. The wealthy can use their power to buy out competition, under-price them (below profit), out-market them, and leverage their efficiencies of scale and bargaining power to maintain a permanent moat. We are seeing all of this occur to an extreme degree in the modern software space. Frustratingly, anti-competitive laws have been on the books for a century, and are sufficiently broad to use. It's just that U.S. politicians lack the will.
Existentially, I believe that power corrupts. Billionaires are billionaires because they created a lot of value for society. Great. But once they're billionaires, they can control the destiny of countries, and this undermines democracy and greater social outcomes. I believe therefore that a balance must exist between deterrent effect which occurs with aggressive redistribution (and the effect is undeniable), and preventing the emergence of ultra powerful individuals.
Do billionaires really create enough value to warrant obscene wealth? Sure they deserve some wealth, but do they really deserve a billion dollars?
Are you forgetting the thousands of employees that are enabling them to become obscenely wealthy?
And I don’t buy the “deterrent effect” argument. IMO discouraging billionaires from acquiring more is a good thing and opens the door for other people to step up.
> I believe the theory and data indicates that wealth is a mix of (in order): luck, family wealth, social ability, attractiveness, height, intelligence, natural abilities which align well with making money (conscientiousness, ability to delay gratification, affinity for work in scalable professions like IT, etc), culture, place of residence, likelihood of sociopathy, and many more.
One could argue that most (if not all) of these factors still come down to being lucky
Readit News
1. 20% of 1200 is more than 20% of 800. Duh! But the practical insight is simply that people with more wealth can afford bigger bets and expect bigger payouts.
2. Many systems are sensitive to initial conditions. In this model, the first coin flip matter vastly more than all others and determines almost the entire outcome.
As others have pointed out this is really not a good description of the economy as a whole due to its zero-sum assumption.
However I think it’s a relatively useful analogy for the stock market and how other passive investment markets work.
Passive investment is a larger percentage of the economy than ever before and is increasingly how the “rich get richer.”
A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally. But of course this has been considered and hasn’t gained traction.
Another solution is to disrupt passive investment markets. The one that comes to mind is rental housing. If we made it much much easier to build housing then then rental housing market would be like the used car market: viable but not an easy place to sit back and make passive income.
A reason why it hasn't gained traction though is that wealth doesn't just give you buying power but also political influence. So especially those who already have excessive wealth would be in a position to block such a measure.
You're overthinking it. Sweden made renting out apartments unattractive without all this sophistication, they just regulate the prices and keep them low.
Price controls leading to shortages and rationing is basically the microeconomics version of the First Law of Thermodynamics. It has had the same result literally everywhere it has been tried.
The solution lies in the supply. Always. If you want more people to have more of something at an affordable price, you have to make more of that thing.
[0]: https://www.bbc.com/worklife/article/20160517-this-is-one-ci...
They also can’t seem to get a sufficient supply of washing machines and instead have a laundry bureaucracy.
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Frankly blaming actual entrepreneurs and business owners for the gains in the stock market is such a misguided target it’s insane. The only reason Musk, bezos and others have gotten so insanely rich recently is because the fed had increased its balance sheet by about $8trn. That money went somewhere.
But it’s not because of “rich people”.
It’s because a bunch of bankers destroyed the financial system in 2008, got bailed out, and never got criminally charged. It’s absolutely insane and it’s fuelling this completely misplaced neo Marxism.
An even more simpler solution would be to take away the all wealth of rich people and divide it among all people. The calculations would be a lot easier. Taxes are complicated.
Look it up, pretty interesting story. They did have to build a strong border protection force to prevent people from trying to escape the country, but the country still lasted 69 years.
Bezos is wealthy because Amazon investors want to give him money; they don’t want to give you money, so if you had the Amazon shares they simply wouldn’t be worth anything.
Indeed. It's also quite nonlinear. Being able to afford those gambles whole also reserving a cushion that protects your house and apply to eat is very expensive. Not many people can make signify passive income without leveraging anything. But once you can, it becomes a compounding upward curve. Most people die before they get to the second half of the chess board.
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There's one substantive and one political issue that are important; the substantive issues is that in an annual progressive income tax system, there are real fairness issues with taxing the outcome of multiyear processes as current-year income at full (whether nominal or, using inflation indexed basis value, real gains). [0]
The political one is that the vrry rich havr predominantly capital gains, and progressive tax with reduced capital gains tax rates is how the capitalist class maintains “the rich pay higher income taxes” as a propaganda point while actually paying lower taxes.
[0] there are fairly straightforward solutions for this, which make irregular income from sources already subject to normal income tax more fair, but they add a little more complication to the overall solution.
In a normal distribution, the shape of the distribution comes from a "random walk" left and right from a large number of steps of varying size.
In a lognormal distribution, on the other hand, the random steps are not additive but multiplicative: e.g you multiply the previous figure by a (Gaussian) random variable many times.
This seems to reflect economic reality that people make decisions proportional to the scale of their current wealth. If I make 10k, it would take 2k extra to entice me to a different job. If I make (or lose) 10% on an investment, etc. It's all multiplicative.
The lognormal distribution also has a fatter "right tail" than a Gaussian, which is what we see IRL.
> What can the yard sale model tell us?
Literally nothing. It fails to model any part of the actual system. It’s not just lacking complexity, it’s a facetious model lacking in any real aspects of anything involved. There is no choice, no intelligence, no reason. Just random chance.
92% of the US including 86% of people without homes in this country have Internet access. We can all make incredibly informed decisions these days. Better informed decisions than ever possible by all the wealthiest royalty in human history, in literally seconds.
The author could have easily Googled the price for the exorbitant watch before they bought it. That’s entirely on them.
But hey, internet for you lazy proles, pull yourselves up by your shoelaces etc.
[0] - https://wir2022.wid.world -- The richest 1% captured 38% of all new wealth since '95, the bottom 50% captured 2%.
value is generated using both capital from the already rich, and labour from the poor.
Over time, labour isn't increasing in productivity. It's capital that's increasing productivity, such as by improving labour's efficiency.
With this in mind, why is it that the rich shouldnt be the ones to capture the new/increased productivity? After all, it is their investment that would make such productivity possible. If you had told the rich that their investments would not actually gain them profit (because labour captured the increases that produces the profit), they would not have invested in the first place.
One way to break out of this cycle is for labour to provide something more than unskilled labour and merely using capital to produce goods/services. For example, research and development, knowledge/skill from education, etc.
Good point, but...
> We can all make incredibly informed decisions these days.
You need more than internet access to make good decisions. I cannot imagine living without a house or healthcare, eating food picked out of a dumpster behind a supermarket, and then being criticized because I made "less-informed" decisions even though I nominally have internet access at a library where the patrons scowl every time they see me in their peripheral vision.
People won't be able to magically make better informed decisions even with access to the information if they are too busy working three jobs to afford food, rent, or healthcare.
And yet there were numerous stock investing experiments in which random choice delivered similar or better results than respected investment specialists.
It's almost as if, at the end of the day, we don't actually make "incredibly informed decisions".
the original argument differentiates between "can" and "do".
It is a form of "victim blaming" - they could've made good decisions, but because they didnt, the outcomes they had were "self-inflicted".
So you could extend the yard-sale model and include a rule that after each round, each $ will turn into $1.5 with some probability.
Guess what? Now the rich players can't just risk higher stakes in the coinflip games, they will also have more opportunity to introduce more money into the game through value creation.
So that would make the outcome even more extreme than the standard yard-sale model, not less.
Therefore, the fact that new options exist at the yard sale is itself a form of wealth.
I really like this angle, although the value of 'something' can vary for different people.
Right now, the middle class is getting slammed with taxes. They make almost all their money through salary and get taxed heavily, while the super rich pay either no tax or a maximum of capital gains, so almost 40% or less than upper middle class in terms of percentage.
Corporations and the super rich have bought out democracy, and what is crazy is that they are supported by the very groups they intrinsically hate and hurt through their policies.
Being within this tax bracket myself, I do not deny that I am biased, but I do hope this bullshit gets called out hard whenever someone brings up yet another underhanded measure to milk us (typical SFBay SWE) above and beyond the ~40% levels we're already facing...
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.
Is it worth it, just to live in a shockingly civilized society under a highly functional government?
Don't get mad at average americans trying to make the world a better and more fair place, get mad at google and facebook that make several million dollars off the code that you write and kick back a pittance of a salary, and coordinate with each other to keep your compensation low. Even at $400k a year, you are literally being underpaid.
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Did a 70% top-tax bracket force any of the uber-high earners to stop earning money because they didn't want to give 70% to Uncle Sam? No, the super rich will always want more money/property/dividends/etc no matter how burdensome the tax bracket they fall in might be.
"If your income is 30% above the average income for this area or the national average (whichever is lower), that >30% is taxed at this rate..."
So then you can't have rich folks disappearing to less-taxed areas. It could make rich people communities where they all stick together.
looking forward to the future where currency is time (the movie In Time), and we can tax rich people to death.
Additionally they wealth already taxed in a previous era, and is currently taxed in this era any time they spend it via sales tax.
If of course you are spending all your money on personal groceries as a billionaire, then I’m 100% fine with not taxing you.
It has also been spending much more on education over the past decades[1]. With very little to show for it.
[1] https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
Teacher pay is still abysmal, especially considering the fact they are expected to act as guardians and even security these days. And you'll never get better outcomes if you can't attract smart people to actually teach, no matter how much you pay the superintendent.
US public education should be called what it is, a government sponsored day care.
Looking at historical and present data, I can be absolutely sure that the state will mismanage that money in almost every country.
I’m Portuguese, my government is collecting more ~ 25% taxes than it collected 6 years ago when the current ruling party got into power. Almost everyone (left and right) agrees that public services and administration are much worst. So, it begs the question: why giving the government even more money, will solve anything?
There are only two groups when it comes to economic status: labor and the capital-owning class. Labor is anyone who derives their income from their labor and goes all the way from the janitor to doctors and professional athletes.
Th idea of the middle class was invented to sow division with the “lower classes”. I mean look at your comment. You assert the “middle class” is getting slammed with taxes. Some (not necessarily you) imply the lower classes are somehow getting a free ride or are lazy. This is the propaganda.
We live in the wealthiest nation on earth. People without housing or food security is completely unnecessary. Charging people $1000/month for insulin, without which they would die, is only that way for corporate profits. Think about that.
There's different ways to categorize things - lower-class, middle-class and upper-class is a sort of intuitive way which throughout history has made some sense, somewhat, with different names. However, I get that maybe it's not the most useful currently, because there's such a ridiculous divide between upper-class (rich) and the other two, that we, belonging to the bottom 2, should band together to bring change favorable to us.
Like the phrase "tax the rich" makes people think of their neighbor George who as a nice house or even themselves if they make six figures. Nah man, tax the person who can literally buy the NBA and still be a billionaire.
California has the highest income tax at 13.3%, the highest federal tax rate is 37%.
That makes the top income tax rate 50%.
Imo we are well bellow the Laffer curve.
While interesting data points, I'm not seeing an argument that they are paying enough, which seems to be your implication. Maybe it should be 90%. Maybe it should be even more.
It's funny how they always exist, even in countries like the UK and France which in reality have taxed them out of existence, and payscales are absurdly compressed compared to the US.
Careful what you wish for, you are someone else's "super rich".
You're making it sound like billionaires are an endangered species there. :) Last time I checked there's more than enough billionaires living in the UK and France[1].
[1] https://en.wikipedia.org/wiki/Bernard_Arnault
FWIW, I think multinational corporations that engage in all manner of legal tax avoidance are probably more of a problem than individual billionaires.
The “tax the rich more” line is a little naive. The world is a different place after the Rothschilds figured out how to shield their wealth from monarchies. It’s easier than ever to offshore wealth, remember the Panama papers that promptly disappeared from the news?
The “solution” of global governments is a cure that’s likely far worse than the disease.
It’s a complicated situation. A progressive VAT tax that is consistent across jurisdictions would be a good start. The tax code (at least in the US) needs to be thrown out and replaced. Monetary policy and taxation via inflation is also primitive and in dire need of reform.
Whine there’s certainly room to address fair taxation rates we should seriously consider how we spend tax revenues today. A 1.5 trillion omnibus is being rushed through Congress that’s full of pork and special interests. We just sent however many billions to a country to fight a war that has nothing to do with us.
So we spend all this money and of course it’s not enough. People say “more! Tax the rich!” Without considering the reality.
The "rich pay the majority of taxes" is an excuse.
Now in the US I probably don’t have to tell you where most of the money goes - hint military - so more rich folks money into the governments coffers - what industry do you think benefits the most from a policy like this?
There is more than a little nuance here:
- governments are notorious for being called out on supposed inefficiencies.
Too often, it turns out that there were very good reasons for those inefficiencies, but the criticasters forgot the lesson.
- "rich folks are good..."
I wouldn't know. Superrich folks are good at manipulating the system and extracting wealth from others, that I can believe. We see that happen often enough - the superrich lose money if they were to pick up a 100 dollar bill (they make more money in that time if they work), while their employees have to pee in water bottles or are exploited in other ways.
I strongly doubt that the superrich are better than governments at creating capital for anyone else but themselves in an ethical, human-respecting manner.
The government doesn't need to handle capitol allocation. We can simply shift the tax burden upwards. Poorer people get reduced tax, rich people get more.
It's not a presupposition. That's a separate discussion and should also be improved. We shouldn't say, "oh, we're bad at redistribution, so let's not".
The military is NOT where most spending goes - most spending goes to the entitlement programs: social security and Medicare.
The ultra wealthy property developer only builds what is profitable, and so slices off to serve only the most profitable part of the market to serve, and accordingly only builds luxury condos.
Meanwhile the government is obliged to serve everyone, the disabled, the poor, etc, and so with its housing whatever profits are gained by its market priced rents to the middle class are leveraged toward sustaining the unprofitable housing it is obliged to create, and the whole enterprise isn't profitable and needs outside subsidy to continue. We disparage this as "inefficient" government yada yada.
These two different groups aren't working on the same problems.
If you ask me, and you accept overt governmental control of everything, the best thing to do would be a system of openess about ownership, so that ownership of everything can be seen by everyone - with no murky legal instruments.
If you have the information about who owns what - and everything is owned by people, individuals, even if they hide behind legal and corporate instruments - you can then consider addressing what would be an equitable may to proceed.
My guess would be that something ludicrously minor like a 10% wealth tax on the top 0.01% of wealth owners, would cover us indefinitely.
I feel if it was simple it would be fixed?
It might be helpful if we could construct metrics for social function that more clearly showed when we approach extremes that interfere with business or social functions.
They are two different problems.
Y'all worry about these millionaires and their money, yet here you are, hoping to learn the secrets of success from Y-Combi companies... and become wealthy yourselves.
There are three places that capital can come from:
* the state, but we have voted year in and year out for tax cuts and spending rises, so the state is bankrupt. Not only is it not a source of capital, it is a major customer for it
* normal individuals saving and those small amounts being aggregated by banks etc. But rampant (and government supported) consumerism means most people are also consumers of capital not sources of it. Incidentally an example of the opposite of this is Germany where ordinary people save a lot more and don't have OTT mortgages and credit card debt. Mysteriously they have very few billionares...
* Billionaires. Which given the US (and UK where I live need their capital AND cannot get it elsewhere are able to charge a premium for it and cannot really be taxed etc without pain spreading all over the rest of the economy.
But if you try and tell people to spend less, save more, pay their taxes and accept less services in order to have a better, fairer, more equal, ultimately richer life they bulk...
>Look, I think it would be better if you had an economic system in which we didn’t have billionaires—but the productivity that billionaires have generated was still there, and that money was more equitably distributed. But, really, there hasn’t been a system that has had equity in its distribution and the productivity that capitalism has had. I don’t see that happening anytime soon.
http://archive.today/2021.04.25-160837/https://www.newyorker...
Serious critics aren't suggesting we do away with capitalism, they're suggesting that it has negative externalities that can be corrected by better taxation. The focus on billionaires is exactly right, because as the model in the article shows, taxation can suppress the extreme inequality that results.
(i) it solves the capital accumulation problem (ii) you can accommodate the hoarding by guaranteeing people a job at the living wage, which then injects the right amount of new money, both temporally and spatially, to offset the hoarding.
Tax has nothing to do with raising money. Tax is about reducing the capacity of the private sector to hire people so the public sector can hire them instead. If there is unemployment then the public sector hasn't hired enough people or taxes are too high/ineffective.
It's never about money. It's always about stuff.
Here's how it works[1]
[1]: https://new-wayland.com/blog/how-the-job-guarantee-fixes-mai...
There is (more or less) a fixed amount of power.
Taxes doesn't raise money, but they do redistribute and decentralise power, making it harder for the very rich to dominate economic and social strategy for their own ends.
Jumping to the conclusion that "taxing the rich" could solve anything is completely wrong. You would just make things more expensive and add extra incentives to take jobs abroad. It doesn't matter that the model is too simplistic, the problem is that this model is too far from reality.
A country whose inhabitants have no say in its internal politics is called a tyranny. It's more than time to see the current workplace the same way.
Oh yes, the "they don't know what's good for them" argument.
You are treating the government as if it had even the tiniest bit of fiscal discipline, as if it says, ok, we only have $x coming in, therefore we can only spend $x this year (or alternatively, we plan to spend x, therefore we're obliged to collect x in revenue, but no more than that.)
US government hasn't worked like this in decades. Our debt is out of control and growing exponentially. The government has the green light to spend spend spend without any caution whatsoever. Joe Biden has a 4000-page, $1.7 trillion spending bill working it's way through Congress right now that nobody has read. Do you think any politician actually cares how it's going to be paid for? Do you think there are enough ultra rich people in this country, that even if taxed at 99.9%, will dig us out from a 30+ trillion hole?
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That never happened. https://mises.org/library/good-ol-days-when-tax-rates-were-9...
For example:
> According to investment bank Credit Suisse, the fraction of global household wealth held by the richest 1 percent of the world's population increased from 42.5 to 47.2 percent between the financial crisis of 2008 and 2018. To put it another way, as of 2010, 388 individuals possessed as much household wealth as the lower half of the world's population combined—about 3.5 billion people; today Oxfam estimates that number as 26.
https://www.scientificamerican.com/article/is-inequality-ine...
https://en.wikipedia.org/wiki/Austrian_School#Criticism
If the entire monetary system is fake, why do they need 40+% of my paycheck?
Funnily enough Britain just demoed that for everyone. the prior pm tried to reduce taxes a ton and everything nearly went to hell in a hand basket.
So at least we can be confident the taxes are actually doing things.
This is known since at least Marx, and still it doesn't change. This makes me very sad.
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OP has made a fundamental mistake in their logic. Poverty and earnings aren't based on "coin flips".
A common claim but never accompanied by actual evidence.
You think this because the super rich want you to think this. Actually, it's not hard and there are some good ideas floating around (e.g. more inheritance tax, don't let them get loans without taxes againt their illiquid wealth). Does it require a change of laws? Yes, but that's the whole point of democracy.
Right now, the rich are extremely incentivized to remain "poor on paper", so we should remove those incentives.
Some rich person says “teehee, I actually have no money! It’s all in (some country)!” and the US gov says “oops! Guess you really are poor!”
They take a letter of the law instead of a spirit of the law approach with taxes. If they start seizing mansions because clearly they have no money and the only way they could afford it is through ill-gotten means, people will start paying. Police already take cash from the wallets of random people because they assume it’s illegal—meanwhile the IRS knows full well where your money comes from but they pretend to believe the tricks of the mega rich.
Plus the IRS literally have access to banks around the world. You’re required to give them proof of foreign bank accounts or face imprisonment and other countries comply with IRS requests. They can literally seize wealth and know it’s yours. They choose not to.
Whenever you try making rich people responsible, they move abroad. In Norway, the super rich are becoming Swiss citizens after a recent change in taxation. Unless Switzerland takes social responsibility, they're getting away with it. But if Switzerland does the right thing, the rich will find another safe haven.
However, this is a short term issue. The long term changes require a historical change in culture and policy. Otherwise we're still very much catering to the will of old money and power structures that resembles autocracy.
(I'm just an armchair socialist and no expert by any measure, ymmv.)
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And even more importantly, they all live on low interest ELOCs.
There's also no reasonable way of fixing this.
Some thoughts
- consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
- something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
> - consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
Not all trades are exactly "consensual". The sandwich seller can probably live without selling a sandwich, I can't live without food, so the seller has far more power to set the price. Existing power imbalances make trades less fair, specially with essential goods (and that includes jobs, which is why a lot of poor people end up massively underpaid).
> - something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
HPSquared said this in another comment [1] and I agree: what matters on this model is that every step is not additive but multiplicative, which is what leads to the inequality.
1: https://news.ycombinator.com/item?id=34091339
- people enthusiastically lining up to get the latest sneaker / iPhone.
- mildly enthusiastic grocery shopping.
- overpriced medical drugs due to a monopoly.
- taxation.
- outright theft at gunpoint
2. Insightful, thanks. I think one variable the model doesn’t account for is time (which is not multiplicative and scarce).
Money and power can be multiplicative so maybe most of us are playing the non-multiplicative game of spending our time to make money, while the rich are leveraged time to play multiplicative games where they spend money to make more money and happened to win a bunch of times.
Even homeless people on the street will sometimes refuse free food, so the idea that sandwich-sellers can set any arbitrary price they want or people will starve is just not something that happens in practice.
Indeed, sandwiches are abundant and affordable.
It's the classic case of using statistics as a method to divert blame onto something else. You learn nothing but a sense of despair from these kinds of analysis.
Betting is a bad deal for everyone in this model (even the rich person) since each coin flip is variance for no expected gain. Kelly betting implies you should bet nothing in this game.
Human minds tend to be biased towards causal explanations. So if we see huge wealth disparities, we're biased towards thinking that these disparities must exist for some deeper reason (often argued to be meritocracy). The model counters that thinking, by showing that, even in a very simple model with rules that seem fair to everyone, huge disparities can appear entirely at random.
It doesn't prove that the disparities we see in the real world are fully random. It invites us to question the assumption that they aren't.
If economic activity is valuable, but leads to inequality, then you need some framework to trade off the value created vs. the social benefits of greater equality.
If you make a model like this, for different parameters of speculation vs. value creation you can then test what the most socially beneficial rates of tax are.
More tax will lead to smaller but more equal economies and laissez-faire shouldn’t be optimal.
I would just want the model to acknowledge the non-speculation part, because many of the things I buy are from spectacularly rich companies, but that are genuinely useful to me.
Luck is part of it, but there are so many other factors here. When they converge, we often end up with people extremely good at making money. Under capitalism and in principle, this isn't a bad thing. It means they're generating outsized benefit for society. However problems quickly emerge: with economic power comes market inefficiencies. The wealthy can use their power to buy out competition, under-price them (below profit), out-market them, and leverage their efficiencies of scale and bargaining power to maintain a permanent moat. We are seeing all of this occur to an extreme degree in the modern software space. Frustratingly, anti-competitive laws have been on the books for a century, and are sufficiently broad to use. It's just that U.S. politicians lack the will.
Existentially, I believe that power corrupts. Billionaires are billionaires because they created a lot of value for society. Great. But once they're billionaires, they can control the destiny of countries, and this undermines democracy and greater social outcomes. I believe therefore that a balance must exist between deterrent effect which occurs with aggressive redistribution (and the effect is undeniable), and preventing the emergence of ultra powerful individuals.
Are you forgetting the thousands of employees that are enabling them to become obscenely wealthy?
And I don’t buy the “deterrent effect” argument. IMO discouraging billionaires from acquiring more is a good thing and opens the door for other people to step up.
yes, as long as they did not undertake an illegal action to obtain that wealth.
The employees that enabled the wealth creation is surely paid, and not coerced into the deal.
One could argue that most (if not all) of these factors still come down to being lucky