Are the smart getting richer?

http://dilbert.com/blog/entry/redistribution_of_wealth/

by cwan • 17 years ago

59 58 17 years ago

madair2• 17 years ago

Social darwinism rears its ugly head in odd places.

Luck and intelligence can each work alone to produce fortunes. But after the initial fortune is made, only intelligence helps grow it.

Wow.

hughprime2• 17 years ago

You can't just disagree with something by saying "Wow".

madair2• 17 years ago

I can disagree by deconstructing the ideas to relatives of Social Darwinism, the friend of colonialists and the entitled alike.

jsankey• 17 years ago

This appears to completely ignore the fact that money gives you power, privilege and opportunity - and that can be used to make more money. It's not impossible to get rich from nothing, but you start with a huge disadvantage.

HeyLaughingBoy3• 17 years ago

I think if you studied it, you'd find that most people who start out with a lot of money, end up with less, not more. The smart poor are hungrier and more willing to take risks.

And that's what really hit home for me: when he made the comment that risk counted more than hard work. I work for a company whose stock was severely depressed last spring. I know our fundamentals are good, we're a leader in a growing, relatively recession-resistant industry and that the stock would probably bounce back in a year. So I considered buying a $10k block of it when it dropped below half normal price, but chickened out when I realized that I couldn't afford to lose $10k or so if I was wrong. What happened? Exactly what I guessed: the stock is now back to to its high 60's-low 70's level and I would have made an easy $10,000 had I made the investment a year ago.

Reminds me how bourgeois I've become :-( Losing my stomach for risk!!

barrkel• 17 years ago

I can make exactly the opposite argument: the poor can't afford to take risks, so the smart poor don't.

It's one thing to be poor and desperate enough to take risks to survive, but when you have enough to survive reasonably comfortably, you need another buffer before you can take risks that can really pay off.

Someone with 10K to spare - I mean really to spare - in your situation would have made that money. If you were even tighter for money, I don't think you would have been less risk averse - on the contrary, you'd be even tighter with it.

sokoloff• 17 years ago

If you literally couldn't afford the $10K loss, then you did the right thing. Move along...

gjm112• 17 years ago

I don't see any inconsistency between what you've said and the idea that having more money makes it easier to get more money.

If you start with $10M then, sure, you may well end up with less than that, especially if you aggressively try to turn it into much more. On the other hand, you're also much much more likely to turn it into $100M in ten years or so than someone who starts with $1M -- who, in turn, is much much more likely to be able to turn that into $100M than someone who starts with $100k.

If you're claiming that someone who starts with $10M is likely to end up with less than someone who starts with $1M then, sorry, I don't believe you. (But feel free to convince me otherwise.)

biohacker422• 17 years ago

I think if you studied it, you'd find that most people who start out with a lot of money, end up with less, not more

I don't have any hard proof to cite right now, but I have a gut (Steven Colbert like) feeling the history of capitalism proves you wrong.

When you have enough money to live off it while it still grows even with only hyper conservative investment, I think most of the time you die with more money then you started with.

m_eiman• 17 years ago

This makes me remember a passage I read in Nexus by Mark Buchanan (good book, read it!), where someone did an experiment to try to find the root of "the rich get richer". They construct a simulation of an economy, seed the participants in it with a random amount of money, and let it run for "a long time".

They end up with a distrubution of wealth that is very similar to what we see in the real world. The moral of the story: random chance will create the structure we're seeing in real life; being rich isn't proof that you're "better" than everyone else (supply your own definition of good), it's just as or more likely that you happened to be at the right place at the right time.

astine• 17 years ago

No it doesn't. He said that the expression, 'the rich are getting richer,' is a generalization (which it is) but that it is 'true enough.' Money is a tool with which you can aquire more wealth, but all the tools in the world are worthless if you don't have the knowhow to use them.

dstorrs• 17 years ago

The bar is pretty low for "enough knowhow" in this case, however. Basically:

1) I have $10M.

2) I don't know a dang thing about investing.

3) I better find someone who does (e.g., Vanguard), and let them manage my money for me while I keep an eye on them to make sure they behave responsibly.

-----------

OT joke that amused me: Stock call? Is that when you stand on the porch and yell for the cows?

abossy• 17 years ago

There was a recent discussion in the econoblogosphere that provides statistical evidence to back up jsankey's argument:

Initial post: http://gregmankiw.blogspot.com/2009/08/least-surprising-corr...

Response: http://krugman.blogs.nytimes.com/2009/08/28/heredity-environ...

Conclusion: http://gregmankiw.blogspot.com/2009/08/test-scores-and-incom...

The summary is that for both adopted children and non-adopted children, the higher the father's income, the higher the resulting test scores. Hence, money makes you smarter.

known• 17 years ago

aka http://en.wikipedia.org/wiki/Peter_Principle

biohacker422• 17 years ago

Wow. I know he's cartoonist and it is literally his job to over simply, but still wow!

dschobel• 17 years ago

http://news.ycombinator.com/item?id=858163

david927• 17 years ago

I don't know why you were voted down: as a cartoonist, his over-simplifications are funny, but as an essayist they just make you scratch your head.

jpwagner3• 17 years ago

Two comments:

1. "Smart" is not a scalar; "rich" is.

2. True that hard work alone will not make you rich, but [extreme] hard work coupled with working-on-the-right-thing has a very high chance of making you rich.

mmt• 17 years ago

I don't believe "rich" is a scalar, either.

When I look for a firm definition, it appears to be, in effect, accumulated wealth (however one might define it). However, especially in a taxation context, I hear it associated with, if not equated to, income. (Granted, this could merely be an artifact of a taxation system which relies heavily on taxing income).

Let's put that aside and use the "something people want" definition of wealth.

One can certainly convert to a scalar value (money) a particular form of wealth (asset) at a particular point in time (i.e. sell it). However, since the reverse is not true, (e.g. just because, if I had it, I could sell the Mona Lisa for $X does not mean there is a value of $Y for which I could buy it if I didn't have it), it seems safe to say they are of a different type.

Although that doesn't mean that wealth itself is not a scalar, I contend that any additional dimension, not bidirectionally convertible to a scalar does. Risk (e.g. that people will want an item more or less) is such a dimension. Inherent depreciation is another. Scarcity is, arguably, another.

Perhaps a more compelling situation is where a particular asset is worth more when concentrated, such as fissionable material or arable land. The former has what one could consider a sharp increase in value at "critical mass," whereas the latter increases more steadily due to economy of scale.

Perhaps "smart" is the same kind of non-scalar, but I'll let someone else exercise that conjecture.

jpwagner3• 17 years ago

I'd define "rich" as |wealth|

You may define it differently, but that's language isn't it.

rauljara• 17 years ago

The formula for success is apparently: Intelligence + hard work + risk taking + luck

I want to focus on risk taking, because Mr. Adams mentioned that the degree to which risk taking rewards you is a function of intelligence. It seems like in the recent economic downturn capitalism did reward good risk taking in say, the banking industry, but it also failed to punish bad risk taking, as many of the same people who caused the crisis still received their bonuses, and probably will well into the future.

The phrase the rich get richer tends to resonate because very often the rich engage in behaviors which would result in serious consequences for the poor, but for which the rich only seem to get rewarded.

pchristensen• 17 years ago

There are two ways to take a risk:

1) Bet on something unlikely and get lucky

2) Have an advantage over others so that your chance of success is higher than the average chance of success.

#2 is pg's approach to startups - starting a company is "risky", but starting a company if you're determined, smart, and connected to a system that turns entrepreneurs into companies isn't risky at all, with a ~50%+ success rate.

On a sinister note, insider trading falls into this category too - the market isn't a random walk if you know information that will move it, and your information gives you an advantage over the average investor.

roc3• 17 years ago

I have met many smart poor people. I have met many dumb rich people. I've never met someone with business savvy who was poor (for long).

As near as I can tell, capitalism doesn't reward the smart at all. But it rewards those with business savvy. Maybe some people call that intelligence. I don't. It's more an ability to shrewdly calculate just how much you can take advantage of other people and get away with.

ajju2• 17 years ago

Are you saying that being business savvy always requires taking advantage of other people?

roc3• 17 years ago

No. I'm saying that it requires the awareness of how you could. E.g. Being an intelligent chemist necessarily implies that you could, say, build a bomb. You might never do it. And if you did, you might do it in as-ethical a way as possible. But you still need to know how to blow things up.

Similarly with business. You may never leverage that knowledge, but someone else might. And you need to know how to protect yourself from that.

gjm112• 17 years ago

Suppose you meet someone who is poor. How do you tell whether they have "business savvy", and how do you avoid your judgement of that being affected by the fact that you know they're poor?

roc3• 17 years ago

It's all just anecdotal evidence. You can't just point at someone and I could to tell you how savvy they are.

I just note the people I know who come out ahead or behind in their dealings, just as I note when someone says something fairly profound, finds a rather ingenious solution or writes a bit of clever code to guesstimate intelligence.

I wasn't representing it as anything other than a working theory from personal data. But it's not like Adams started from a statistical argument either.

I figured my experiences and generalizations were a fair response to his.

lionhearted• 17 years ago

> It's more an ability to shrewdly calculate just how much you can take advantage of other people and get away with.

This assumes that the path to getting wealthy is "taking advantage of other people just how much you can get away with it" - it's not. Most wealth building are positive sum games.

http://www.paulgraham.com/gap.html

ahlatimer3• 17 years ago

I've known plenty of people that have risen to the top without stepping on everyone along their way. My father, for one, built his own small fortune without having to destroy others along the way. He happened to take the right risks, work his ass off, and became a leader in an industry. If you talk to anyone who has worked with or for him, you'd find very, very few people that have anything negative to say about him. In fact, his ability to do things without "taking advantage of others" has bred a huge amount of loyalty in those that worked with him. I'd reckon that loyalty is what made him successful more so than anything else.

ajscherer• 17 years ago

He dismisses hard work because it exists at all income levels, yet intelligence also exists at all income levels and he considers it the dominant factor. He needs to demonstrate that intelligence is more correlated to present wealth than work ethic is.

He also dismisses risk taking as only being useful in combination with intelligence. Can he provide an example of an intelligent person who became rich in the absence of risk taking, hard work, and luck?

Wealth being equivalent to intelligence must be a very flattering idea if you are rich, but I have observed many smart and hard working people who do not become rich.

jibiki• 17 years ago

I had expected the opposite argument. Dilbert is pretty smart, but he sure isn't rich. His boss, on the other hand...

varjag• 17 years ago

His boss isn't rich either.

gwern2• 17 years ago

But his boss's boss, Dogbert, is.

pradocchia• 17 years ago

Am I the only one who finds some irony here?

I mean, the man made his fortunate satirizing the managerial class.

johnnybgoode• 17 years ago

This sounds a lot like some of PG's essays, where he tries to break something complex down into a few character traits. I wonder if the reactions here would be different if PG had written this, too.

unalone• 17 years ago

They would be. I don't think it's just that Paul is famous here and Scott Adams isn't, though certainly there's always a pro-YC bias present. Part of it is also that Paul's essays have a very clear style about them, and they've got a confidence about what they're saying. So combine something convincing along with a community inclined to like the something and you get overwhelming support.

That's why I was astonished the first time I read MeFi's commentary on a Graham essay. There, the community is much more critical, and it's more built to support multiple viewpoints. There was some interesting criticism that I found myself agreeing with a lot, and there were a few people that really hated both his essays and the YCombinator crowd. While I can't say I agree with their vitriol in full, it reminded me that even a bright, argumentative community has blind spots.

DanielBMarkham2• 17 years ago

"Smart" is a word you can drive a truck through.

"Smart" like Sam Walton? You betcha. As it should be

"Smart" like a Nobel prize winner? Nope, and Nobel prize winners shouldn't all be rich.

Smart can mean knowing things, discovering things, applying things, or a combination of all of those attributes and more.

In this case, the word "smart" is very misleading.

hyperbovine• 17 years ago

What is smart? There is no proper definition of smart so it's a pointless question. Many people seem to define "smart" as "good at making money" in which case of course the smart are getting richer. If you consider musical smarts, artistic smart, being a great teacher, carpenter, whatever.. very often those don't make any money, and yet I have met people who do each of those who are absolute geniuses.

ahlatimer3• 17 years ago

Part of being business savvy is working on the right thing. Most artists I know, and some of them are damn fine artists, aren't really working on the right thing because art isn't typically a good way to make a large some of money. Sure, you may end up catching a break and ending up becoming super famous, but that isn't the norm. If those incredibly intelligent people were to direct their interest towards business, my guess is that they'd be more than capable of making money.

budu3• 17 years ago

I clicked on the link expecting some revealing statistics showing that the smart were getting richer.

notjeffgoldblum• 17 years ago

[quoted from some website]"It turns out that Mensa has an investment club. Wow. That must be one heck of a way to make money, right? The smartest people in the world making investment decisions.

Well, not so fast. During the 15-year period 1986 to 2001, the S&P 500 had average annual returns of 15.3%, but the Mensa investment club's performance averaged returns of just 2.5%. Let's see, that would be 84% worse than the index.

How could this be? An amusing article by Eleanor Laise ("If We're So Smart, Why Aren't We Rich?") details the smart-but-undisciplined investment approach that reduced Mensa's returns to fiasco status. In brief, the investing "strategy" of the club relied on trendy tech stocks, horrible timing, and over-reliance on charting. The "strategy" was constantly changed. Some stock picks were taken straight from Internet message boards. One member described the approach as "buy low, sell lower.""[/quote]

also: http://minvestmentclub.com/

sexy web design is sexy

nazgulnarsil• 17 years ago

I think our society often thinks a person is smart when the person merely came up with a clever new way to be dumb. truly brilliant ideas often get a reaction of "that's dumb" from the general populace. too far outside their scope.

gaius• 17 years ago

Malcolm Gladwell says, a gifted child is a gifted learner but a gifted adult is a gifted doer and the two are quite different.

Mensa members are gifted children who never grew up.

Are the smart getting richer?

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