Never mind the 1 percent Let's talk about the 0.01 percent (2017)

https://review.chicagobooth.edu/economics/2017/article/never-mind-1-percent-lets-talk-about-001-percent

by nabla9 • 7 years ago

148 188 7 years ago

review.chicagobooth.edu

Is anyone else getting bored with this kind of “analysis”? Yes—people in the 99.9th percentile are significantly more <anything> than people in the 99th percentile.

“Never mind the 0.01 percent. Let’s talk about the 0.0001%!” would be even more crazy, considering the exponential distribution of wealth.

VeninVidiaVicii2• 7 years ago

"...considering the exponential distribution of wealth."

_That_ is the point

Enginerrrd3• 7 years ago

What is the point exactly? No policy is going to change the fact that the natural equilibrium for such systems is a Pareto distribution, AKA it follows a power law. We can definitely hope to change the constants of the distribution, but to fundamentally change such a distribution would really be a fool's errand.

gist• 7 years ago

Is anyone else getting bored with this kind of

People who write don't earn a great deal of money. Nor (typically) do they have the potential to do so. Other professions can at least dream that they will hit it big or earn a good steady income if that is not the case. People at the bottom can't even dream but 'they know their place'. News articles with head lines like that draw readers sure but I think it's more than that ('people who write...'). This is human nature. Very generally the middle class that are employed and not taking on credit card debt and spending over their means (which they do) don't care that there are super wealthy people.

What is to stop people in some dirt poor foreign country from talking about how it's not fair that people in the US, even our poorest, very likely have it better than they do? (Well nobody other than the writers in our country will say anything and quite frankly nobody in our country would care enough to give them anything that we have so it doesn't matter). When was the last time you heard of a tax specifically to help people in dirt poor countries? (Not talking about aid but actual 'we will take your income', well never).

You know what has changed more than anything? What we know about what others are earning and what they have that is what material goods.

As many older HN readers will probably agree when I was growing up their were the Rockefellers, Howard Hughes and maybe a few other people. There were movie stars and the Beverly Hillbillies. You didn't really care that they were wealthy it was just the way it was. There was no revolt of the masses. Sure there are more people will money today but what there is grossly more of is attention and that it's in everyone's face (and of course the people who write and broadcast about it).

rgoulter• 7 years ago

It kinda reminds me of this visualisation from some survey of Americans in 2011. https://www.businessinsider.com/inequality-is-worse-than-you...

The respondents weren't opposed to an exponential distribution as such; but the images of the disparities between what they thought was ideal, what they thought the reality is, and what the surveyors say the distribution is is still striking.

ananth22by7• 7 years ago

I agree with you. These blogs seem to be full of resentment and insecurity, leading to whining and finger pointing. It seems they’re always interested in other people’s money and their success. It’s tiresome. Let’s maybe focus on how we can do good to the world, instead plotting how we can bring other people down.

xwdv2• 7 years ago

Every time you talk about the top 1% or even the top 0.01%, you eliminate an opportunity to talk about how you can really help the bottom 50%.

By constantly painting things as hopeless and unfair, all you do is stimulate rage.

hannasanarion16• 7 years ago

That rage needs to be there so that we can change the system that produces and perpetuates the unfairness. Rage is a tool for electoral mobilization.

algaeontoast4• 7 years ago

No, it’s not. Rage removes the ability to discuss anything and fuels the “us vs them” mentality which has been proven time and time again to be unhealthy and NOT productive.

Fellshard• 7 years ago

Rage is a tool for the destruction of polity and the elimination of power to help /anyone /, much less those who need it most. Rage deals more long-lasting damage in its application than it does mobilization. The bitterness and wrath remain kindled long after the desired short-term outcomes have been achieved.

foogazi• 7 years ago

Rage about what?

juliushuijnk• 7 years ago

You can talk about both.

Also, if it's not just painting, but actually unfair, then it's up to the reader to have an emotional reaction or not.

3fe9a03ccd14ca53• 7 years ago

My issue with all of these discussions is that they invariably present ideas that are just too complicated, and our tax code is just too complicated as it is.

Create a system that can be applied evenly, and fairly, from the top to the bottom and then I think you’ve got a great and novel idea.

crooked-v2• 7 years ago

When it comes to taxes, "evenly" and "fairly" are not the same thing. That's the whole reason we have tax brackets in the first place.

3fe9a03ccd14ca53• 7 years ago

Why is it impossible to be both even and fair?

swebs2• 7 years ago

The Fair Tax plan was a neat idea. Tax everyone at X percent, while giving everyone back Y dollars per month as a form of UBI. The values of X and Y are chosen so those below the poverty line gain more money than they are taxed.

https://en.wikipedia.org/wiki/FairTax

rklaehn5• 7 years ago

I was a huge fan of this concept. It has been invented independently by people on the right (Milton Friedman) and the left. But unfortunately that is not how politics works. Politics is selling a particular group an advantage over the majority in exchange for votes. That is true both for the left and the right, the only difference is which groups they target.

And a fair tax is just too simple. Politicians wouldn't have anything to sell anymore...

jmpman• 7 years ago

Although these tax systems likely poll well, all tax systems are just transfer functions. Any tax system which results in significantly reduced taxes for the >1% raises my suspicions. If you couples this system with an inheritance tax of 100% for greater than $10M, I’m interested.

hannasanarion16• 7 years ago

"evenly" is not the same as "fairly".

If you take 10% from someone making $1000/month, they can't pay their electric bills.

If you take 10% from someone making 1,000,000/month, they have to wait a little longer to buy their third superyacht.

DiogenesKynikos2• 7 years ago

Tax brackets are not what make doing taxes difficult. The tricky thing about doing taxes is figuring out what counts as taxable income, what can be deducted from income, what credits one qualifies for, and other details.

That's why the idea that taxes could be made easier by getting rid of brackets never made any sense. That argument is just a cover for undoing the progressive nature of the tax system (as in, the more you make, the larger the percentage you pay in taxes).

swebs2• 7 years ago

The parent comment never mentioned tax brackets. I think you're actually agreeing with each other.

hacker_9• 7 years ago

If you provide a service people want/need, you are going to end up with more money.. It's not rocket science. This is how the capitalist cogs turn.

lobotryas2• 7 years ago

You are right. What some people want is to punish your success by arbitrarily deciding how much money is “too much” and using taxes to take away what they think you should not have.

hannasanarion16• 7 years ago

What "Service" does Bill Gates provide? He hasn't worked in 15 years, but his net worth has more than doubled.

lucaspm984• 7 years ago

Is that a serious question? Bill Gates provided a very valuable service that runs most personal computers to this day along with productivity tools that have improved almost every business in the world. He also built one of the largest companies in the world that now employs over 100 thousand people. If there is anyone who should be disproportionately rewarded it would be Bill Gates. He now has a large fortune, which after paying the highest tax rates possible he can invest in other companies further adding to the economy or give away to improve the world altruistically.

dijit• 7 years ago

Wasn’t that always the case. Nobody cares about the guy earning 250k/y.

It’s the handful of people who control 90% of all wealth. “1%” was a catchy soundbite but it was always the 0.0001%

rboyd• 7 years ago

Seems like there were plenty of people in the 1% cohort that would have taken up the movement if they had found an even catchier soundbite.

Mountain_Skies2• 7 years ago

Yes. Call it "The Millionth", which would include the 300ish wealthiest Americans. Everyone in the Forbes 400 has a net worth of over two billion. Even though within that group there is a wide gap between the top and bottom of the list, it's nothing compared to be difference between the top and bottom of the 1%.

dmitryminkovsky• 7 years ago

Nobody cares about the guy earning 250k/y.

lobotryas2• 7 years ago

No, because it’s easier to go after and strong-arm or pass legislation against a guy earning 250k than a guy earning 250mm.

algaeontoast4• 7 years ago

Yeah, unfortunately this is a sad truth.

jjeaff• 7 years ago

That's not really the issue. The thing is, taxing people making 250k year amounts to a lot more revenue than taxing only people making 250m+.

The wealthiest make a lot of money, but it's nothing compared to the aggregate of millions of Americans making upper middle class wages.

algaeontoast4• 7 years ago

Yeah, I really don’t understand why the bracket of “extreme wealth” is $250k? I’d be all for adding some bracket for earners over $1MM or over a certain amount of capital gains tax. However, a lot of people rely on capital gains for their retirement, so a tax on that money would negatively affect anyone who puts money in the stock market for retirement...

Taxing the super rich is a great idea, but at the end of the day the govt just needs to spend less money on programs that don’t work or aren’t needed.

Mountain_Skies2• 7 years ago

Unfortunately there is little agreement on which programs aren't working or aren't needed.

salawat• 7 years ago

Taxing the super rich is a great idea, but at the end of the day the govt just needs to spend less money on programs that don’t work or aren’t needed.

Translation:

You could recover some of the wealth that is systemically siphoned (by inflation)/withheld (via wage suppression) from everyone, but you really should look at that whole wealth redistribution mechanism working against centralization of capital in private hands. That's the problem.

Not really buying it. The fact you're pushing these systems off as not working leads me to conclude you've not met the level of understanding to safely do away with Chesterton's fence. There is tons of room for improvement in the execution of these safety nets; but the Market doesn't want people feeling safe. Risk aversion from guaranteed stability makes exploitative employment/compensation schemes more difficult to sustain.

mrep• 7 years ago

However, a lot of people rely on capital gains for their retirement, so a tax on that money would negatively affect anyone who puts money in the stock market for retirement...

That's pretty much already solved with 401ks and IRAs which are retirement investment accounts with tax advantages.

odiroot• 7 years ago

Unfortunately that's not always the case. Living in Germany, I've heard and read (good example /de/ subreddit) loads of hate against middle and upper-middle class people. People who are nowhere near close to being rich. This is also a group that's being taxed as much as the actual rich, or in practice even more, because the rich can afford to "optimise" their taxes.

There's a sizeable group of people that just cannot stand someone working hard and reaping the fruits. Again I'm not talking about Lambo-driving, yacht owners but an average doctor, small business owner or an engineer for that matter.

Per the old meme, success breeds jealousy, but unfortunately recently it breeds hate and violence.

tanderson92• 7 years ago

Doctors' trade group actively lobbies to keep the supply of physicians below demand so as to inflate their guilds' average salary.

Critiques of the merely well-off can sometimes be more indicative of the major problems facing America, since there are so many more in this category. For example, by critiquing this 1% class you also get into very interesting questions about land use in California.

uoaei• 7 years ago

Lots of people "work hard", and almost none of them are rich. So obviously it's not "working hard" that gives you that money.

At some point very early on, your money starts making money and you cease to do "work" to make that number grow. It seems inappropriate to equivocate capital gains with gainful employment.

rklaehn5• 7 years ago

On the contrary: you always target exactly "the guy earning 250k/y". Because people earning a lot of money but still earning through work are the easiest to target, since they can not just move somewhere else easily.

tomaskafka• 7 years ago

This. I'd love to see a histogram of tax revenue by income bracket.

rapind2• 7 years ago

The real issue should be the multiplier on CEO pay and boards. 300x or more is pretty obviously ridiculous. Hard work should be rewarding, but is anyone really working 300 times harder than the delivery guy? I could believe 10x I guess.

airstrike2• 7 years ago

It's not about how hard you work, but how hard it is to find someone else to do that job. Anyone can deliver packages.

stale20029• 7 years ago

The difference between a good and a bad CEO might only change the value of a company by 1%. But it turns out that 1% of 100 billion dollars, is 1 billion dollars.

The reason why CEOs get paid so much is not because of how hard they work, it is because the effect of their actions is massive, and eaking out that extra 1% is worth it.

klaudius• 7 years ago

   It’s the handful of people who control 90% of all wealth.

In reality you have a power law distribution where ~20% have 80-90% of the wealth.

claudeganon• 7 years ago

The answer I think depends on where their allegiances lie. The reason why the reactionary “PMC” [0] has become something of a meme is because you’ll often encounter people at this level of affluence who defend the ultrawealthy and their predation of the poor through things like the private healthcare system in the US.

From a material perspective, it makes sense that they behave this way (the ultrawealthy are more likely to sign their paychecks and they’re less exposed to many of the harms present further down the income chain), but does allow for a politics of resentment to develop around the position they occupy in society. Most working class people are unlikely to encounter a billionaire in their lifetimes, but will come across many upper income individuals who will tell them (either directly or indirectly) that they deserve their low station or that nothing can really be done to improve their material standing.

[0] https://www.dissentmagazine.org/online_articles/on-the-origi...

Gibbon12• 7 years ago

Friend of mine has no particular family wealth. But with 20 years under his belt is a mid level manager. Sends his kid to a private school. Says the other parents at his private school are all upper class. And assume he is too. The things they casually say makes him hate them.

nine_zeros• 7 years ago

I'm not sure wtf they were expecting when they did QE, and kept it running for so long. It's literally cause and effect.

refurb3• 7 years ago

I’d love to see an analysis of who the top 0.01% are, in terms of income.

My guess is the people who make the list this year, drop off the next and never end up on it again.

The top people (again income) are the folks that sell their company or equity stake. It’s a huge windfall, but they never make that much again.

Ma8ee2• 7 years ago

My guess is the opposite. The top people are the owners of very large, very often inherited, fortunes. Few people leave that group and few people enter it.

wyldfire• 7 years ago

very large, very often inherited, fortunes

The article addresses inherited wealth:

On the 2016 rich list, two-thirds were self-made and one-third had inherited at least part of their fortune. More than 10 percent were immigrants to the US.

refurb3• 7 years ago

That’s wealth, not income.

And if you own a large company, you have no income (beyond a salary) unless you sell equity.

There are probably people worth $1B+ who aren’t in the top 0.01% because they’re money stays invested and they don’t pull income from selling.

seattle_spring• 7 years ago

This is exactly why this discussion should be about the top x% wealth and not income.

abvdasker2• 7 years ago

My guess is that such a list is probably mostly the same as the wealthiest people due to the nature of capital gains. If you have a billion dollars, you get probably 10 million a year with the most conservative investments (in reality it's probably closer to a 5-15% rate of return). On top of that, the favorable tax treatment of long term capital gains means you pay way less in taxes than the schmuck who gets paid 10 million a year as salary.

refurb3• 7 years ago

You only have income if you sell. The rest is unrealized gains not reported as income.

allovernow• 7 years ago

Smith, Yagan, Zidar, and Zwick find that the 1 percent’s income is being driven by owner-managers, mostly of small and medium-sized companies—specifically S corporations, partnerships, and limited liability companies. These are talented managers: the researchers find that profits of companies run by these 1 percent-ers are far higher than those of businesses owned by people in the top 5-–10 percent
“The demand for top skill has outpaced its supply, with the returns to top skill increasingly taking the form of business income.”

This really doesn't come off as a problem that needs solving and instead sounds like a purely political war cry. These aren't lords abusing powerless peasants, they're contributing members of society being disproportionately rewarded for their disproportionate contributions. Wealth inequality needs to be considered in the context of overall prosperity and despite the fearmongering you see online, most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure - eating the evil rich and redistributing their wealth is unlikely to solve any of the major issues in the country, as we're already throwing tons of money at schooling and healthcare and the like.

FireBeyond• 7 years ago

Even our poor have modern conveniences, access to emergency healthcare

It'd be far nicer if even the poor had access to non-emergency medicine, too, though.

Ironically, the poor tend to contribute a disproportionate amount of their income to things like taxes and infrastructure, being without the ability to shield their "wealth".

fzeroracer• 7 years ago

As a poor I certainly didn't have access to many modern conveniences. Especially when I had to deal with rotting teeth and dental abscesses without a way of affording the fix.

blunte4• 7 years ago

disproportionate contributions

Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?

And in the case of heirs, such as the Walton family, are they contributing so vastly more than the guy who mows people's lawns during the day and cooks their dinners in a restaurant at night?

Or how about the Renaissance folks. They (whether fully legally or secretly illegally) reap huge rewards yearly, certainly using some advantages and situations most people do not have access to. Are they likewise contributing to society so much more than the average person?

Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?

isoskeles• 7 years ago

The comment was referring to 1%ers, not 0.01%ers.

hailwren2• 7 years ago

Why should it be a linear relationship? If talent is normally distributed then supply should decrease exponentially. Assuming that a company can afford it, wouldn't this make a linear demand produce an exponential forcing on salary?

ci5er• 7 years ago

Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?

On an individual basis, leveraged through his organization - I think that it is objectively clear that the answer is: yes.

stale20029• 7 years ago

Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?

Yes. That is because of of the impact of their actions.

Let's take the example of a CEO of a major company. The difference between a good CEO, and a great CEO might only change the value of a company by 1%. But 1% of a 100 billion dollar company, is 1 billion dollars.

So if you are effecting a large enough company or area, then only being a little bit better than everyone else, turns out to be massively valuable, and therefore this value needs to be incentivized.

6gvONxR4sf7o2• 7 years ago

Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?

I've been thinking about this lately. A schoolteacher generates huge value for dozens of people per year. A CEO of a big firm may generate tiny value for millions or billions of people per year. If the schoolteacher is generating a thousand times more value for each of their students than the CEO does for each of their customers, then the CEO still generated a ton more value to humanity.

My napkin math is that teachers make about $200B/year in the U.S. (3.2M teachers * $60k/year). The top 0.01% seems to make about $100B/year (16k families * $7M/year). So we're in a situation where yes teachers make more value than the 0.01%, but they also earn almost twice as much. (To be fair, it seem reasonable that teachers should earn more than 2x more, but that's a separate conversation).

The scale factor is a weird one for fairness. If someone's value to others is the value per person (X) times the number of people (Y), it seems like our society or technology or something is set up so that it's much easier to maximize X*Y by making Y huge and lowering X than it is to make X huge and lower Y. You can make your firm serve a million times more people, but you can't teach a million times better. Framed this way, no wonder a "value" maximizing world is getting less personal and more corporate as people lower X wherever they can to explode Y.

ben_w• 7 years ago

Here’s a counter-argument I’d like to try out. I don’t know how good this one is, but…

The value that you add depends on what you do.

First example: someone who manufactures useful widgets is useful to society roughly in proportion to the number of widgets they make — this is probably non-linear diminishing return of usefulness with more production, but I think in practice we can ignore that most of the time for simple manufacturing jobs.

The range here is small, perhaps only a factor of 2-10.

Second example: an inventor who makes a machine that makes it easier to make those widgets. Their value to society could be as much as “difference in number of widgets produced by everyone combined, totalled over a period which is hard to even estimate”, unless that number is so large that diminishing returns is relevant. Unlike the people who actually make the widget, it’s reasonably likely for the person who invents a widget-making-machine to reqch this point. You might even get some extra problems from technological unemployment - short term or long term, it’s still a problem - or the waste of overproduction.

It isn’t as simple as saying “Tim Berners-Lee is as valuable as the entire internet”, because of all the work of other people that built on his, but even a single invention can benefit society to the tune of billions.

Third example: an entrepreneur who recognises a problem in the world and creates a solution. A new type of widget, or whatever. In an optimistic case, they might hire people that would otherwise be unemployed.

I’m not saying this always happens - and “wealth creator” as a term seems to be used to describe people that get rich by moving money around rather than just those who get rich by doing what I describe here - but that it could happen means it’s worth keeping track of.

I would argue that creating a thousand new jobs is at least as valuable to society as the cost of a thousand unemployed people, though almost certainly not as valuable as the wages those thousand earn in the new jobs, because that would be double-counting.

This could still easily be worth millions per year.

Fourth example: Management. Most work is done by teams, and a manager who can make their team 10% more productive is worth as much to society as that productivity boost, summed over the entire team.

I will acknowledge that management can be bad as well as good, so the sort of manager which makes everyone in the team resign (a friend mine recently left such a team because of such a manager) is worth negative their combined productivity.

I can easily believe that Bezos has been an enormous force multiplier because of all the other retailers that have not grown like Amazon. I can believe that Musk is great for SpaceX and entirely average for Tesla, because of how well SpaceX is doing and how averagely Tesla is doing.

How much is SpaceX worth? How much is reducing launch costs by a factor of three worth? I’m not sure, but it’s a lot, and SpaceX succeeded where all the other launch providers — and their, I assume, equally smart engineers — failed.

—

As a separate point, I totally agree with your implicit claim that productivity != income.

AndrewKemendo• 7 years ago

The questions you ask are effectively asking that the markets use the Labor Theory of Value [1] to price labor (and this goods) rather than the way labor is priced currently which is a form of Supply and Demand [2].

The current form of global capitalism doesn't really have a direct corollary to the LTV pricing mechanism.

[1] https://en.wikipedia.org/wiki/Labor_theory_of_value

[2] https://en.wikipedia.org/wiki/Supply_and_demand

anderber2• 7 years ago

I guess I'd have to disagree with your assessment. But I respect your opinion.

they're contributing members of society being disproportionately rewarded for their disproportionate contributions

Are they contributing for their level of wealth being rewarded? Are they contributing 5,400+ times the average American is?

Our schools need funding (teachers are buying their own supplies), infrastructure needs funding (bridges are collapsing), and our healthcare is extremely expensive for the average person.

patja2• 7 years ago

I agree that the aggregate standards and quality of life are much improved over 20, 40, or 60 years ago, but I don't share your satisfaction with the status quo. I would prefer we made some changes that enabled the poor to be housed and receive more than emergency room reactive access to health care. No man is an island, and a devotion to meritocracy can blind you to the reality that the accomplishments attributed to merit and hard work are often simply correlated to the ZIP code where you spent your childhood.

In a nation with as much wealth as we enjoy, it is shameful how we relegate our neighbors to defecating on sidewalks, living in tents with no heat or plumbing, and raving in the streets due to lack of mental health care.

coldtea• 7 years ago

I agree that the aggregate standards and quality of life are much improved over 20, 40, or 60 years ago

Over 100 years ago sure. Over 40 or 60 has it really? People usually consider more stuff (access to cheaper and more gadgets, the internet, etc) as an improved standard of living or quality of life. In other words they conflate technology making some products cheaper for a better standard of living.

But even more important factors, for a large part of society is access to healthcare, education, house, etc -- all of which have gotten more expensive. There was a time when a single earner could buy a house at 25 or 35 and get their kids to college. Now two earner families often struggle.

Middle class jobs have also become more stressful and pressing, while many middle and working class wages, inflation adjusted, have stagnated for decades, despite the increased stress, working hours, and productivity gains.

happytoexplain• 7 years ago

Encouraging people to believe that their contributions are as disproportionate as their rewards is absurd, even dangerous.

Ididntdothis• 7 years ago

“Wealth inequality needs to be considered in the context of overall prosperity and despite the fearmongering you see online, most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure - eating the evil rich and redistributing their wealth is unlikely to solve any of the major issues in the country, as we're already throwing tons of money at schooling and healthcare and the like.”

This line is extremely condescending. Why don’t we tell the top 0.1% who seem to always need more to do their valuable service to society that they have it much better than any king had it a hundred years ago? So why they need more every year? why is this line only used against the little guy? Fact is that more and more wealth goes to a small group of people. In my view this is extremely damaging to a society in the long run. some level of inequality is probably helpful to motivate people but it shouldn’t be growing constantly.

mam2• 7 years ago

They dont "need" more nor even look for it so much in fact.

What makes inequality increase is actually the mindset of poor people that their poverty is "someone else's fault" like this kind of comment ( and also that "the state should do something" like it is their mother ).

The hard truth is that inequality increases because poor people dont fight against and do nothing about it except complaining. Its always the fighting that has brought any of the social improvements, not the goodwill of politicians or anykind of "fair invisible hand".

pubutil• 7 years ago

I also have a big problem with the reasoning of the quoted argument, at least from a United States point of view.

Our poor do have modern conveniences, because that’s what the world does; it evolves with current technology. They have access to emergency healthcare, which will almost inevitably bankrupt them when they need treatment. “Generally safe food” is not good enough in what is supposed to be one of the top first world countries. Infrastructure? Sure. Depending on how poor you are you’ll have varying access to infrastructure.

This hasn’t happened out of concern for our poor. The poor are getting society’s leftovers.

I don’t particularly care if we’ve “thrown tons of money at schooling and healthcare and the like” when we spend exponentially more money on the US military. Teachers across our country are still underpaid, and our education system is still not taken seriously enough. The US is not in the top 10 most educated countries (K-12), despite being a top first world country. Admittedly, money wouldn’t fix all the problems with our education system, but it would make a big difference.

It sounds like this was written by someone with a limited frame of reference.

mistermann7• 7 years ago

This really doesn't come off as a problem

It doesn't "come off as" a problem, because that is how you have personally interpreted the situation.

that needs solving

It doesn't in fact "need" solving - life will go on, one way or another, regardless of whether policies are changed or not.

and instead sounds like a purely political war cry.

In may in fact be "a political war cry", but is it purely that, or might there actually be something here that deserves attention?

These aren't lords abusing powerless peasants

This is true, but colorful, rhetorical characterizations like this are an excellent way to persuade people without sticking to cold hard facts.

they're contributing members of society being disproportionately rewarded for their disproportionate contributions

This rhetorical device is effective in that it persuades readers to logically think of the issue as a binary rather than a continuum.

The proper question is: is their disproportionate reward proportional to their disproportionate contribution? And even this improved statement of the situation is flawed in that is kind of implicitly assumes that the relationship between contribution and reward should be linear, which is inconsistent with the general societal decision that taxes should be progressive (the tax rate(!) increases as the taxable amount increases).

And to be clear, I'm making no absolute claim that progressive taxes are "right", I am only stating that this is what society generally deems "proper". This aspect of the situation seems absent from your analysis, so it seems appropriate to point it out.

despite the fearmongering you see online

This style of rhetoric is persuasive, and it may even have some truth to it, but it is orthogonal to a proper logical analysis of the actual issue and should therefore be avoided.

...most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure

This style of rhetoric is persuasive in that it frames the issue according to one specific perspective (a subset of dimensions) on the overall (the entire subset of dimensions) issue.

A loose (and uncharitable) restatement of this might go something like: "Because most people are "doing well", then therefore there is nothing to see here." I will note that this isn't actually what you are saying, I'm just pointing out the beauty of rhetoric - when done well, it invokes a style of thinking, which results in real-time generation of certain "facts", without actually having to explicitly say certain things (ex: dog whistling). It can cause the reader to change the way they conceptualize the situation, and therefore change their conclusion from that which it would be if they were to engage in a purely factual analysis of the situation in its entirety.

This isn't to say that you are doing any of the above consciously and with intent to deceive, I'm simply pointing out some of the flaws that are ever-present in the way modern society, politicians, advocates, etc engage in communication. It's no wonder we've made such a mess of things.

People believe they think logically, based on facts, because this is how it seems to each of us. Bu in such matters what people actually do is think in narratives, that are very loosely (and often incorrectly) based on "facts" (most of which are also narratives), and then only a subset of the entirety. This is by necessity, because outside of the hard sciences, systems are far too complex and interconnected to think about using pure logic and facts. However, it's not a necessity to think we think in facts - this we are capable of realizing, and many philosophers and psychologists have amply demonstrated this, but the realization of the importance of this has not made it's way into widespread knowledge, and certainly not into behavior in discourse, even that between highly intelligent people.

I wonder if awareness of such complexities in communication was widespread throughout society, if we could improve the outcomes of our political process. I suspect we'll never know.

tracer42012• 7 years ago

This post reminds me of my leadership at a former employer who were insisting on releasing a game console that requires customers to download all content and games, regardless of the fact that unlike gigabit internet offered in our city, many Americans don’t have access to or cannot afford broadband. That leadership team only hanged course because the negative perception spread like wildfire and made them look extremely incompetent. They didn’t care about the customer - they only even changed course to manage their own careers but I digress.

In some cases, these people are lords abusing powerless peasants. Most of America isn’t Seattle, Austin, NYC, or the Silicon Valley. People can work for WalMart in the town I grew up in or go unemployed because WalMart swallowed competition. They’re literally at the mercy of whatever WalMart wants to pay them.

Our poor have emergency healthcare but will get bankrupted in the process.

They have safe food insofar as they won’t die of typhoid or hepatitis like in the developing world, but they don’t have healthy food. They have access to various forms of packaged, refined sugars. A diet based on cheap access to these goods will only lead to longer term health problems - there’s scientific data backing that claim.

Interesting how you frame your argument - that the poor aren’t as horribly off as perhaps in another century or in the developing world, and so it’s good enough. The same argument can and should be used to call out the endless greed, especially of the 0.1%. Don’t have they have enough? Are they they some of the richest folks in human history?

anoncake2• 7 years ago

1. Outsized rewards don't imply outsized contributions, rent-seeking exists. The contributions don't even have to be positive, see Facebook.

2. Outsized contributions shouldn't result in outsized rewards. The marginal utility of additional wealth is much higher if you're poor. Inequality is inefficient. Also, if you are rewarded as much as you contribute, your net contributions are zero.

Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure.

Dude. Emergency healthcare and generally safe food isn't something to be proud of unless you're a developing country.

parrellel2• 7 years ago

And this is exactly why the 99% campaign was stupid and destructive. The world isn't being screwed over by the professional class. It's being screwed over by the population of a midsized town with more money then sense.

nnnmnten• 7 years ago

Here in Denmark the highest tax bracket applies to almost 10% of the Danish population. The Top 1%, Top 0.01% and billionaires are not taxed more than the Top 10%.

I belong to the Top 10% and I'm fine with that.

Why do Americans focus so much on the "ultra-rich" and the billionaires when you can build a successful welfare state by just taxing the Top 10% a little more?

anderber2• 7 years ago

It could be because income inequality is much higher in the US.

annoyingnoob• 7 years ago

Its because those that control the majority of the money also control the majority of the power. Us plebs don't have the power to fix the tax code. The US tax code is a mess and its very unbalanced, where the folks in the upper middle pay all of the taxes with the outliers on either side paying very little (on a percentage basis).

I know a few folks in the top percentiles that feel like they pay the same number of dollars or more than everyone else - they see this as fair. They seem to miss the fact that they get to keep a larger percentage of their money every year. If you get to keep more of your money every year than everyone else then its easier to build your wealth at the expense of everyone else.

parrellel2• 7 years ago

In America the top 1% control about 40% of the money, with most of that, as this article shows going to the wealthiest. In Denmark its roughly 20% of the money to the top 1% - the lowest inequality of any of the OECD nations. At the same time we have political movements dedicated to wrecking our social safety nets in an attempt to get us back to "The Jungle" style nastiness - often funded by that same fraction of a percent at the top.

So, some bitterness there. :D

Or, more simply, your country doesn't have anywhere near the same systemic and cultural issues the US does currently.

ghouse3• 7 years ago

Here in Denmark the highest tax bracket applies to almost 10% of the Danish population. The Top 1%, Top 0.01% and billionaires are not taxed more than the Top 10%.

Because in America, the top 0.01% makes their wealth through investment income, which is taxed at a lower rate. So, the top 0.1% pay a considerably lower rate than the balance of the top 1%.

jvanderbot• 7 years ago

I'm getting mildly amused at the spate of articles that zoom in on exponentially-distributed phenomena and find some kind of scale invariance.

known• 7 years ago

Appropriate Inheritance tax can cure it;

Applejinx3• 7 years ago

Surprisingly tiny Wealth Tax is even more effective at curing it. The part that's interesting is not where it's transferred from one entity to another, it's the extremity of the phenomenon in the first place.

The distributions we currently see have no excuse or purpose. It's fine talking about the value of exceptional individuals, but if a Jeff Bezos is even ten thousand times better than your average schmoe, never mind 'millions of times better', then he would be able to have his influence without the aggregated power given him through accumulation of capital.

Never mind whether his dumb kid deserves to have the accumulated power of entire countries abstracted into the form of capital: HE himself has no business possessing that kind of power on top of his functional exceptionalness. He can damned well fend for himself, and will likely still be a big winner and have all he could wish. He has no right to the accumulated power our system awards him, on top of what he can do with his own intelligence and efforts. It's a magnifying effect, fully exploited by just the sort of person Bezos is.

Concerns of inheritance only highlight the problem. The parent is not that much superior to the dumb kid, and humans do not merit so much importance (as 'exceptional individuals') as our system claims they do. The BEST you can hope for is a crazy person like Elon Musk, aiming for some quixotic goal while they blunder around causing damage… and that's a best case scenario.

blunte4• 7 years ago

This essay presents interesting comparisons and data, but then it goes on to try to explain that the top 0.01% are getting richer faster because they have special skills and technologies (such as being able to scale a business up using foreign workers, or manage 20bn assets because of computers).

What is not mentioned but certainly plays a key role in one's ability to perform so well financially is the special opportunities the top 0.01% have and circumstances they operate within compared to the lessers. If we were to review each person in the top 0.01%, I expect most of them would be making their huge gains not by exercise of special skills but rather by exercise of special circumstances.

RISK - As we have seen with the 2007/8 financial crisis, there is a small group of very wealthy, very powerful finance people who can take enormous risks with other people's money, profiting whether they win or lose. The 07/08 crisis cost the general public (in bailout using public funds (debt)) hundreds of billions of dollars. But the stratospheric executive bonuses paid to fund managers and bank executives during the lead up years was not retracted. So the people that took unreasonable risks profited greatly, and the public paid for their profit and then some. Even during the following years, the executives and fund managers received significant bonuses. And thanks to golden parachutes, the exit/firing of some of them resulted in even bigger profits for that group.

OPPORTUNITY - The wealthier one is, the easier it is for them to get credit. Even in cases such as Trump where he has a long history of running businesses into the ground and leaving debtors unpaid, he was famously able to secure very large loans to take even bigger actions (which similarly often resulted in underperforming businesses which would later seek forgiveness or reductions of debts). The point is, once you're rich enough, you need never risk your own money. You can borrow huge sums to seize opportunities. When you win, you win big. When you lose, you can probably get away with no personal loss.

LAWS - With wealth and power comes influence. You can afford to lobby (sometimes a polite term for bribe) to get special laws or loopholes that have direct financial benefits for you. Perhaps it relates to a defense contract, and you hold a lot of Boeing stock. Or perhaps it relates to an FAA regulation and you hold a lot of Boeing stock. Or it's a special rule that lets you write off the purchase of a piece of luxury property as a business expense.

TAXES - This is a huge space for gaining an advantage over the normal people. Not only do you have the means to play the offshore/shell-company game (reducing your tax burden, perhaps to zero), but you also can do strange things like deferring your taxes indefinitely if you're a hedge manager.

I could go on with plenty more examples of special advantages that the top 0.01% have compared to everyone else. These advantages, even if modest, represent an exponential benefit in terms of financial growth over time.

bradleyjg• 7 years ago

The purpose of these exercises is always to push the perceived issue on to some other. So if you are union tradesman in NYC pulling down $90k/year you don't want to hear about the top quintile, you'd rather talk about the top 5%. If you are software engineer making $250k you don't want to talk about the top 5% but instead point to the 1%. If you are a specialist physician making $600k/year (or the subsidized journalist child of specialist physician) then it's not really about the 1% but instead about the .1%.

And so forth and so on. This is far more about resentments and insecurities than policy.

The fact of the matter is if you want to re-adjust the economic landscape towards the poor in a meaningful way it is going to realistically require harming the economic interest of all the current winners -- from the $90k/year tradesman all the way up to Jeff Bezos. In all likelihood it will probably also mean higher prices for goods and services as well as higher unemployment. Maybe those trade-offs are totally worth it, but we should be adults about these things and not pretend there's some magic policy that's going to make everything great for everyone except some tiny cabal of not-us that's probably evil anyway.

georgeburdell• 7 years ago

As the article notes, an increasingly common path to the 1% is through skilled labor. I think this type of earner would have more in common with a 50%er than a 0.1%er.

My family has been in the 1% for a few years and we’re just bottom-rung individual contributors at FAANGs. 50% of our net worth is in our house. We don’t run or have stakes in any private businesses. No investment properties. The only thing that sets us apart is while an upper middle class family might do a European vacation one year, buy a car the next, and redo their bathroom the next, we do in the same year. Otherwise, I imagine our lives and aspirations are similar.

hailwren2• 7 years ago

I was skeptical, then I checked [1] and apparently even if you separate by state you only need a household income of $512k to be in the top 1%. High, but certainly not unfathomably so to HN readers.

1 - https://www.cnbc.com/2018/07/27/how-much-you-have-to-earn-to...

appleiigs• 7 years ago

Important to note it's household income. If a family has 2 software devs at a FAANG (not the OP specifically), quite likely to get to 1% with work experience. If they are doing a european vacation, bathroom and a car one 1 year, definitely top 5%.

bretpiatt• 7 years ago

Many people end up in the 1% for a single year via sale of business, stock, etc.

There's a huge difference between that type of 1% for a year and age 30-40 dual (or very high single) annual income earners.

The former may retire with a $1-5M net worth, the latter is either spending heavily or retiring with a $10M+ (and likely $20M+ with reasonableiinvestment returns) nest egg.

opportune• 7 years ago

That may be true now, but if you are saving/investing any appreciable amount of money (say, $100k/yr) then in 30 years you will also likely have generational wealth, which is another big difference.

thomasahle• 7 years ago

There is an interesting podcast about this on the Ezra Klein show: https://www.stitcher.com/podcast/the-ezra-klein-show/e/64086...

Roughly the point is that while "the working elite" is much harder to be repelled by; it is still a problem that many tasks in society that could before be done by a medium educated middle class, is now done by a few highly educated people plus a swath of people with no education.

This causes the second group to have less part and prestige in their work, while the first group gets alienated from their own work, by being forced into the few fields that allow one to reach the 1%.

nabla9• 7 years ago

The origin of the 1% meme came from occupy movement "We are the 99%" and meant net wealth, not income. I think that's what the left still means with the 1%.

Mankiw noted that the 1 percent’s share of total income, excluding capital gains,...

I'm not completely sure how the discussion turned into top 1% of income earners and specially exuding capital gains. I think it's possible that there is intentional attempt to change the discussion.

If you are in the top 1% of wealth, your net wealth is roughly $7 million. If you get just 3 percent real return for you can get $210,000 a year income without working.

fnord77• 7 years ago

being ultra-wealthy gives a person tremendous amounts of political power.

the ultra-wealthy are literally an unelected shadow ruling class.

lucaspm984• 7 years ago

There is definitely some truth in this. However, what would you proposed to either prevent people from becoming ultra-wealthy or prevent them from having political power?

ghouse3• 7 years ago

The tax code enables and reinforces outlier wealth using tired arguments like "encouraging investment" and "double taxation." United States centric observations:

For example, charging lower tax rates on capital gains than ordinary income promotes a concentration of wealth to people with wealth. Suggesting this is purposeful policy for society to encourage investment is comical -- what else would wealthy people do with the wealth? Store it under the mattress? Or spend it (in which case that would accelerate the velocity of money, also good for society). Capital gains taxes are only on the gains -- income that had not yet been taxed. Actual double taxation is a wealth tax.

Similar tax policy that results in concentration of wealth are: 1) 1031 transfers (where income on sale of real property isn't taxed so long as the proceeds are used to purchase real property), 2) Qualified Small Business Stock (where federal tax isn't paid on gains of sale of small business stock) 3) Economic Opportunity Zones (where tax is deferred on gains so long as the gains are invested in an Opportunity Zone, and all additional gains aren't taxed).

jogjayr2• 7 years ago

charging lower tax rates on capital gains than ordinary income

I don't have a problem with the idea. It recognizes that income derived from investments is riskier than income from a paycheck, and applies a discount.

The problem is with the execution. Why is the top rate for cap gains only 20% - even if you earn $10b, but 37% for a mere $510k in ordinary income? Surely there should be some amount of cap gains that can be taxed at 37%. Maybe it's $5m instead of $510k (to recognize the riskiness of the income stream) but it shouldn't cap out at 20%. Simply put, why aren't there more tax brackets for cap gains and other investment income?

ghouse3• 7 years ago

It recognizes that income derived from investments is riskier and applies a discount.

It's unclear why as a matter of tax policy we want to discount taxes because risk is taken. If an investment results in a loss, that loss is permitted to offset gains elsewhere.

take_a_breath• 7 years ago

== Simply put, why aren't there more tax brackets for cap gains and other investment income?==

Because the people who make large capital gains are the ones funding political campaigns and helping to write the laws.

tracer42012• 7 years ago

Working for someone, even at a FAANG, inherently also has risks. You don’t know the manager, the org, the team, etc when you first join. You have some ideas about the culture perhaps, but we take risks in our careers all the time.

The argument that one is riskier than the other and therefore entitled to lower tax rates doesn’t make sense to me.

Sure, investing in an asset might be riskier if you’re randomly throwing darts, but I thought these folks were all about personal responsibility.

To be clear, I work at a FAANG. My total comp was is near half a million, a significant chunk of which is equity. The only risk I take is not cashing out immediately and waiting a year for the long term capital gains tax. I don’t necessarily provide more output or value than someone like a teacher. The equity I sold this year was in the hundreds of thousands and I paid less taxes on it than what most teachers probably pay. It doesn’t make any sense, and this system in my opinion isn’t sustainable. The inequality is going to lead to conflict.

Razengan• 7 years ago

Having a guaranteed basic income, free money, or whatever you want to call it, would assuage a lot of the resentment surrounding the perceptions of effort, luck, opportunity, merit, worth, earnings, taxes, parentage, connections etcetera that inevitably come up in these discussions, as they have on this post.

patja2• 7 years ago

I also find this idea appealing. Reading the end of Gehttoside was an eye opener where the author describes how getting on SSDI (argued as being a limited form of basic income) for being unemployable (disabled) due to their history gang banging gave some former gangsters enough financial breathing room that they could break the cycle of relying on crime to get by. Sounds a little Polyanna-ish but it does have the ring of truth.

What are your thoughts on the counter-arguments that basic income will lead to a dystopian future where an underclass just sullenly gets by as dependents of the state. Plenty of scifi speculative descriptions of this future are a bit scary, but are they just scare-mongering?

jquery• 7 years ago

I’m not convinced that markets don’t work when high pay is involved. If this was true, there is a fortune to be made by creating a mutual fund that invests in companies that avoid superstar pay tiers. Does anyone know of such a fund? How is its performance?

I think we evolved the emotion of envy in a time when being rich meant hoarding. Markets break that evolutionary intuition.

sandoooo• 7 years ago

1. somehow the hate against the 0.01% always turns into policies that tax the upper 20%, or 10%, or 5%. why is that? Is there a way to formulate the arguments / policies so that it doesn't do this?

2. the wealth of the 0.01% are numbers stored in computers. They are claims on future production, yes, but the whole system only works because 99.99% of these claims never gets cashed out, because there are physical limits to what a handful of billionaires can consume, no matter how opulent their lifestyles. If you try to distribute this virtual wealth, people will try to turn it into physical consumables, only to find there really isn't enough for everybody, and the whole system will go to shit.

3. at some point, a guy I know made the observation that revolutions don't really redistribute much, mostly they just take the wealth from the wealthy and burn it. Well maybe how it works is the most important and expensive physical good - land - gets redistributed, most other physical goods are destroyed, and the virtual wealth is zeroed in a very expensive accounting exercise.

chongli• 7 years ago

Is there a way to formulate the arguments / policies so that it doesn't do this?

No. The upper .01 percent have tax lawyers and accountants and many other staff members (not to mention lobbyists) working full-time to reduce their taxes. In theory, anyone could do the same. In practice, the tax code is so enormously complex that only people who can afford to hire multiple college grads full time can pull it off.

eevilspock• 7 years ago

Never mind the 1 percent, let's talk about the 10 percent.

The richest 10% own 70-80% of the wealth in the U.S.

My point is that the entire wealth distribution curve should be looked at, and any serious discussion needs to go back to first principles and determine what the curve would look like in a fair society.

Of course there are wide philosophical-moral chasms between different notions of fairness, with HN readers, by nature of the hand that feeds them, skewed heavily toward the belief that market forces are the best arbiters of worth and fairness.

m0zg2• 7 years ago

An old and fitting Soviet joke about this:

An old man is relaxing on the couch in his apartment in 1917 Saint Petersburg. His grandson runs excitedly into the room and proclaims: "Grandfather, the revolution has begun, we're killing the rich, and nobody will be rich anymore." To which the old man wearily replies: "My generation fought so that nobody would be poor."

Simple arithmetic shows that if you were to completely strip the 0.01% of their wealth (which just isn't going to happen, since they own the Congress) and "give it all to the poor", the poor would still be pretty poor: 6T between 350M people is $17K per person, or about 3 years worth of Obamacare. And that's pre-tax.

The way you prop up the poor is by creating opportunity and competition for lower skilled labor and trades, by rejecting some parts of globalism, which forces "the rich" to pay more for their labor supply. That propping up seems to be happening as we speak: unemployment is at a 50 year low (https://www.wsj.com/articles/u-s-september-nonfarm-payrolls-...)

Historical reference: https://en.wikipedia.org/wiki/Decembrist_revolt

Never mind the 1 percent Let's talk about the 0.01 percent (2017)

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