Inequality by itself is not a bad thing. Let's start from there. If 90% of the population had a (sustainable) lifestyle of current dollar millionaires, and the remaining 10% had a (sustainable) lifestyle of dollar billionaires, there would be lots of inequality, but it wouldn't be problematic.
Inequality is only bad if you're in a zero-sum game. The rich do have the power to extract rents and "rig the system" to cement their wealth and power. Those are things Graham is clearly against. But an entrepreneur who gets rich by reducing waste and improving productivity by harnessing technology deserves our praise. They're not causing the "poor to get poorer".
And comparing the wealth distribution of today to that of 1980 is pretty silly. We're in a global economy now, so if you want to be fair, you need to look at it from a global perspective. Almost all Americans are going to fall in the top 10% of earners globally. And global poverty has collapsed since 1980. Yes, you no longer get a comfy middle class life just by virtue of being born in the US (regardless of skills) anymore. I personally don't believe that an unskilled worker in the US deserves to be paid 10X what an equivalent worker in Bangladesh makes just because they were lucky enough to be born here.
If you did not need to pay when you need healthcare, if education was free with equal opportunity, and everybody had enough to eat and a half decent place to live, I would entertain discussing this.
You could have this today in the US, it exists elsewhere. Yes, it would probably cost a bit more for the wealthiest people.
Until then, I believe we should not try to justify inequality based on irrealistic theoretical arguments. I see just a ploy to preserve the current situation by people in a good situation.
Because inequality and poverty is all too real. It hurts real people, unfairly. In the US. And it could change.
> Yes, it would probably cost a bit more for the wealthiest people.
No, at least in those places you mention, it costs more for the middle class. And I'm not sure it's just "a bit" - the difference in taxes between the US and the multiple European countries I've lived in is quite significant.
It's fine if you believe that's part of a fair social contract. I'm European and I do, mostly - I certainly want everyone to have access to quality education and healthcare. (It's some of the other public expenditure I despise... Public TV in this day and age, seriously?)
At any rate let's not pretend Bill Gates, Warren Buffett and Bezos can shoulder everyone's education in the US.
When you are building wealth, you are likely to be young (so often healthy) and there is so much information online, libraries cost nothing. So I don't think this is a valid argument.
Note that when you're poor your surroundings are usually also poor. So even if you are young and not yet burdened by health care costs and maybe even have free/good education you might need to drop out or at least spend a lot of your time and money to take care for your relatives.
Only when everybody you care about has a stable health/housing/food/(work) situation you get a chance to do something for yourself. Only if people around you are privileged enough to they have time to invest in you. You can start to build wealth. I don't mean with investing money. Maybe just by
- Lending you their garage
- Allowing you to work without income for a few months
- Taking care of your kids while you work a few times a week
- etc...
TDLR: if all you and your surrounding is doing is directly aimed at surviving you cannot build wealth.
The majority here don’t understand the downward pull of poverty. Entrepreneurship could work with UBI or a similar solution where those at the bottom are allowed stakes. Currently they are not. They are exhausted working 40 hour weeks on ten dollars with no healthcare.
> If 90% of the population had a (sustainable) lifestyle of current dollar millionaires, and the remaining 10% had a (sustainable) lifestyle of dollar billionaires, there would be lots of inequality, but it wouldn't be problematic.
I strongly disagree with this and I think it runs counter to human nature. You're looking at quality of life as if there were some kind of absolute measure of it, but it really doesn't work like that. Quality of life is always measured relative to the people around us or to whom we are exposed in media or social media.
If you look at modern Americans they have fabulously lavish quality of life in comparison to 19th century factory workers or 11th century peasants. Even people in the poorest quintile have access to safety, food, housing and entertainment that would have made people from centuries past gasp in awe. Antibiotics! Virtual reality! Same day shipping!
But what really counts is how we perceive we are doing versus people we can compare ourselves to. That's where the suffering comes from. You have running hot water but your neighbor has a spa tub. You have the iPhone 6 but a friend just got the 12. You have a safe job that pays your bills but a classmate vacations in Portugal. I've been in other countries where the average quality of life was much lower than the US, and no one knew the difference or had any shame or sadness in their smaller cars, smaller bathrooms or lower square footage.
If there were trillionaires but they all lived on Mars or some faraway continent and we knew nothing about them then they wouldn't cause us social suffering.
What you describe seems to be term called "relative poverty" which is contrastable with "absolute poverty", which I just learned about recently.
What I read recently made the case for "relative poverty" being more psychologically damaging than "absolute poverty". e.g. if everyone one in your society is the same poor then it isn't as bad as being poor in a society of wealth. This made a lot of sense to me as I tasted relative poverty a few times, and there seemed to be a feeling of shame around it. Not that anyone tried to shame the (relatively) poor but it just felt shameful. I never wanted to invite my millionaire family classmates over to my tiny, run down house for example, as it was too embarrassing. I eventually moved back to a place where we had similar levels of income and there was only a single millionaire and it felt a lot better.
But is it really "human nature"? Go back a few centuries, and everything belonged to a monarchy, and by everything, I mean even your life and your family. Were people unhappy "because of it"? For the vast majority of humans, I doubt it. They had just learned not to compare themselves with the king.
For something to be human nature, I think it needs more time. And if peasants knew that comparing themselves to the king just does not make sense, maybe we can learn to have the same attitude towards Jeff Bezos.
Nice response. Part of the problem is "pull yourself up by bootstraps" PG-tier p0rn. With a king, an average person isn't being told everyday that they too can become a king, if only they worked harder. With people like startup founders, VCs, Musk, Bezos and the like, constantly writing articles on how you too can become rich like them: http://paulgraham.com/richnow.html, average people view this life as achievable and it harbors disappointment and insecurity to not achieve those levels.
Absolutely. I think (hope) that what PG meant in that essay is that the rich people today get there by displaying more "sportsmanship" than 200 years ago. And I generally agree with that. And I think if you compare Bezos and Musk with whoever would rank similarly to them on Forbes list in 1821, you would agree too. But it absolutely does not mean that anyone can get there.
The fact that Michael Phelps and Usain Bolt have won so many medals without (hopefully) juicing or bribing officials is great, and maybe even a cause for celebration for the human race, but it absolutely does not mean that anyone can do those things.
I think using sporting analogies often fail because sports are zero-sum games (only one winner), whereas more than one person can win playing business, and transactions where both sides win are common in non-sporting contexts.
> The fact that Michael Phelps and Usain Bolt have won so many medals without (hopefully) juicing or bribing officials is great, and maybe even a cause for celebration for the human race, but it absolutely does not mean that anyone can do those things.
But if significantly more people tried to do those things, I'm sure some of them would beat those champions.
I would guide the comparison to the people closest to you, peers, bosses, schoolmates, people whose pet pictures you look at on Facebook. If those people are doing a lot better than you then it can cause some seriously negative emotions. I think the negative impact of social media is that we would have been previously unaware of the lives of more distantly related social connections such as old school friends or coworkers we'd fallen out of touch with and would only have people from our own family and town to compare with. Now you can see that Jimmy just got promoted at Google and took his last vacation to Nepal and you know for sure you've fallen behind on the hedonic treadmill.
Agreed. The focus of the original article was the widening gap between the top 1% (or 5, or 10) and the rest of the population. I doubt that it will cause "unhappiness". Unhappiness exists when you compare yourself with people within your percentiles (+- 5%).
A plumber in West Virginia is not unhappy because Bezos is so rich. He is unhappy because his welder brother-in-law just got paid after a better paying contract job (or is heavily in debt) and bought a used Audi.
And go back to most of human existence as hunter gatherers humans were very equal. 10,000 years ago the new technology called Agriculture changed this.
Technology has generally always created inequality.
No, not at all. Read The Spirit Level and also a bunch of happiness psychology. Relative equality and perception of fairness matter quite a lot to humans.
> I strongly disagree with this and I think it runs counter to human nature. You're looking at quality of life as if there were some kind of absolute measure of it, but it really doesn't work like that. Quality of life is always measured relative to the people around us or to whom we are exposed in media or social media.
If you're looking for validation and happiness based on what you see in social media, quality of life is the least of your concerns.
Instead of accepting this as a matter of fact, why don't you look inward at the culture and ask yourself if this is a productive attitude to have, rather than trying to coerce the world to fit your view on human nature.
Because when you say "oh I'm happy with Bezos and Zuck having over 100 billion when I'm lucky to put food in my kid's mouths" you are going to revert back to the monarchy, we need to continue to fight these people who think that the rich should continue to trample the poor, especially the really poor of the world. I have no problem with an upper crust, but currently we're moving back to just a few people controlling the world, politics, and freedom.
And if pithy comments didn't exist... we'ed have to accept that no single thing, or small cohort of factors decided the overall trajectory of society.
Wealth, and power carry a social momentum. Antipodal to that is the high amount of frictional cost associated with change at scale. Those properties of our current economy effect what change is possible and when.
The modern economy exists in this unequal hodgepodge for the same reason some animal look alien to you, because it was not planned. Unfortunately for us, unlike animal evolution, the rate of change of the economy, tech progress, political winds, and all the social tendrils that stem from that unholy amalgam grow rapidly and defy organization.
You can call it the expected end result of human nature if it eases you. But. to me, it looks like a problem looking for some good engineering.
Are you arguing that if we take away the bad parts of human nature, the economy would collapse? What useful function does greed, vanity, and materialism serve in the modern economy?
I am arguing the economy would change and probably look nothing like it does now. Market economies basically have taken the "bad" aspects of human nature and use them to drive price discovery, demand creation, and efficiency gains. There would be other ways to do these things, but working within the bounds of normal human behavior has it's advantages. The economy can function on "whatever works" not just our better angels.
You've made the case that what you call "social suffering" exists, but you haven't made the case that we should care about it. There are people struggling to survive, even in a country like the US. We have people dying in hospitals at differential rates based on their poverty level.
One sweet day when everyone is guaranteed the most basic of human necessities, maybe then we'll start caring about the anxiety a (small-minded) percentage of us feel when our neighbor has two Teslas and we only have a Leaf.
It sounds to me like you do agree with them. The OP wasn't saying Americans feel wealthier, but rather that the quality of life relative to the past is higher.
Could it not be people's own responsibility to practice managing their perception of what they do have? This might be a more pragmatic solution for reducing social suffering, and I've found that you can learn to let material things have less importance in your life. Caveat: this is coming from someone in a relatively well-off country with decent welfare
> I personally don't believe that an unskilled worker in the US deserves to be paid 10X what an equivalent worker in Bangladesh makes just because they were lucky enough to be born here.
This is a crucial point that gets missed in these debates. Labour price inequality is a driving force of globalisation. That is how Nike pays 1$/day wage to Bangladeshi labourers to manufacture shoes and sell them at $500. And the reason people in Bangladesh are OK with it is because they don't have alternatives and the government is happy to flout all sorts of labour and environmental rules to retain Nike.
To elaborate, there are two conditions under which globalisation works to generate massive profits. Low barrier for the international movement of goods and capital and huge barriers (insurmountable in most cases) for free movement of people across the border. If one follows international trade agreements and immigration policies over last 40-50 years a clear pattern emerges where trade/capital movements restrictions have been continuously whittled down and immigration criteria have been tightened. The net result being incredible profits for multinational corporations.
For sure, the manufacturing countries have benefitted from the newly created jobs. India and China are good examples. China, in fact has been enormously benefitted to an extent where hundreds of millions have emerged out of poverty into middle class. To an extent where China's middle class now is a forced to be reckoned with and many believe the next wave of growth will be driven by Asian consumers.
The flip side though is the divide between rich and poor has reached unheard of levels in, paradoxically, the richest country on earth. Not only that, the poor just don't have a community or governmental support to fall back on. It boggles my mind to see the richest nation's health infrastructure crumble in the wake of COVID-19.
I find it interesting that both you and the parent poster more or less agree on the same facts, but the framing is diametrically opposed.
From my perspective globalisation is fundamentally broken. Restricting labour flow with unrestricted capital flows between countries is a destabilising force in both economics and politics.
China is also a special case as they fully understood the game that America and the West was playing and hence had a good counterstrategy. The West would promote free trade resulting in investment in developing countries. In return they open up to capital flows and their internal markets, which is what China kept resisting. With the amount of trade deficit most western countries have with China in the past 2 decades, the Chinese market should be a lot more open than it is at the moment. By delaying this the Chinese hope to avoid the middle-income trap that many developing countries fall in to under the globalisation model.
Wealth inequality is in direct conflict with a core value of democracy: one person one vote is reduced to a bit of a joke when there are people who can easily afford to pay an army of hundreds of political operatives to flood public discourse with their opinion.
A little inequality doesn't hurt, but the existence of billionaires (even 100 millionaires, really) is a problem for democracy.
That sounds like a systemic problem with democracy, not wealth inequality. You want to put people in charge of making decisions both for themselves and for others, but you don't trust them to make those decisions properly. The issue here isn't so much the influence of money on public discourse as the ever-increasing divergence between the myriad things the government involves itself in and the naturally limited qualifications (and standing) of the average voter regarding each of those complex issues.
> I personally don't believe that an unskilled worker in the US deserves to be paid 10X what an equivalent worker in Bangladesh makes just because they were lucky enough to be born here.
So you're saying we need a 100% estate tax? Because the same applies to those lucky enough to be born into rich families.
Yes, without getting into all the practicalities (and there are many deep dives into all of them), the general argument is go ahead and get rich off a mixture of your luck, work, and all the benefits that society collectively owns (well-educated workers, roads, etc etc etc) and enjoy it. Be a multi-millionaire. But after you die, whatever is left goes back into the common pool for all kids to have, for example, savings accounts that they access when they are 18
What about non-monetary inheritance? Even if rich kids don't inherit anything, they can still get advantages from parental connections, educational opportunities, genetics, etc.
I think zero inheritance is probably not gonna work. You'll just incentivize a black market (think jewels, cash in mattresses, gold, whatever...people will get creative). You want to find the level where the benefits outweigh the costs. That's probably some significant amount of inheritance, but also a very hefty tax. I don't know where exactly it is, and it'll probably vary with a lot of factors.
> But an entrepreneur who gets rich by reducing waste and improving productivity by harnessing technology deserves our praise. They're not causing the "poor to get poorer".
Extracting more work from the poor is often veiled under the guise of "improved productivity", so this measure of praise is not particularly helpful.
When companies measure labour productivity by the bottom line "Revenue output per Wage input" rather than "GDP output per worker" this ignores a subtle distinction that has severe societal impact.
There are ways to mitigate the negative effects there, but you can't get rid of it entirely; there's only ever so much land around. The more money the affluent have, the worse off the working class are, even if the working class' wealth itself stays constant.
You tend to see this with home prices in booming areas: if your income stays constant as the metro's economy booms, you'll end up worse off than you were before, unless you managed to buy a house before the boom.
Is there a global economy for basic healthcare? For rent? Home services? Insurance?
Most people are still at the mercy of the zip code they live in. The "global" economy has pushed wages down and made cheap goods cheaper, but claiming that a bottom 10% American has a good life because they are still the top 10% globally is idiotic.
> I personally don't believe that an unskilled worker in the US deserves to be paid 10X...
A full-time worker deserves to be paid enough to live, period. Unskilled or not. They deserve a roof over their head, food on the table, and basic healthcare. Cost of living varies greatly based on locale, and comparing that number to the poverty wage in Bangladesh is what the invisible hand does, yes, but it's absolutely not what's fair or what's deserved.
Ah yes, a common refrain these days! It feels nice, but as I think carefully about it there are problems. The biggest one is: what's "enough to live"? Enough so you don't die of deprivation of something? That's not enough. But people in America would claim that millions and millions of Americans don't have "enough to live". And yet, I promise you they do. Our poor are fat.
I think the basic issue is: people will disagree vehemently about what "enough to live is", and so your sentiment, while well-meaning, becomes an empty platitude in public discourse.
> What's "enough to live"? Enough so you don't die of deprivation of something? That's not enough.
It'd be a decent start. Yes, America's destitute have enough food, and yes, the "enough-to live" line is arbitrary: if you're poor in France, the government will provide you with a computer and an internet connection. I'd be happy to have a debate about whether we as a society want to pay for something like that.
But providing all citizens with basic shelter and healthcare should be non-negotiable in the richest nation on earth.
No - that type of job shouldn't exist. Automate them, offshore them, let the business models that depend on this type of exploitive labor fail. Eventually, this sort of job is going to disappear anyway.
If paired with robust social safety nets, we can absolutely require jobs to pay a living wage.
There are people willing to take those jobs. You would be taking a job away from a willing worker and doing what? Tell them to take welfare? Not everyone in the workforce is a sole breadwinner for their family. Regulating those jobs makes all of those workers worse off and is an economic loss to the system.
They're willing to take the jobs because that's (presumably) all they can do now. The social safety safety nets I'm proposing would include robust access to quality education for the economically displaced.
I firmly believe that any currently "unskilled" worker can re-tool and become much more productive if given the opportunity.
It's not just about QoL, income inequality corrupts political systems, which unravels everything else.
It's also worth saying that a very easy way of increasing the QoL of those at the bottom is to take a tiny fraction from those at the top.
And generally, people aren't talking about the average small business owner who makes $200k/yr profit. We're talking about people who have more than $50m in a big money vault. It's a straw man to replace people like pg with like, the people who run email octopus or your local credit union.
> We're talking about people who have more than $50m in a big money vault.
"Those at the top" don't generally have that much cash. They have shares in companies, often ones they started themselves, which happen to be worth a large amount on paper. If you wanted to distribute that in a form people could actually spend (not just moving shares around) you would have to liquidate the companies those shares represent. In the process you would destroy far more wealth than you distributed and eliminate services and production capacity which were previously working for the benefit of the very people you're claiming to help.
People like to complain about public companies and their alleged focus on short-term gains, but that's exactly what this proposal represents: a short-lived and highly diffuse gain in short-term consumption for the masses at the expense of long-term capital investment and productivity.
> And generally, people aren't talking about the average small business owner who makes $200k/yr profit. We're talking about people who have more than $50m in a big money vault. It's a straw man to replace people like pg with like, the people who run email octopus or your local credit union.
If you have a "small business" in your assets worth $49m, no worries! If you have one worth $50m, that'll be 2% please. This affects something like the richest 100,000 Americans, and they're not going to have to like, sell bricks out of the family's car wash business in order to pay it. They may spitefully lay people off or raise prices rather than pay out of their personal/business assets, but that's capitalism for you. I wouldn't blame taxes, I would blame jerks.
The amount of catastrophizing and backseat economizing around a wealth tax is super strange. Income and wealth inequality in the US is by all measures extremely high. 66% of Americans support a wealth tax, including 55% of Republicans. Does anyone really think it's better to have billionaires than universal health care?
> If 90% of the population had a (sustainable) lifestyle of current dollar millionaires, and the remaining 10% had a (sustainable) lifestyle of dollar billionaires, there would be lots of inequality, but it wouldn't be problematic.
You are looking at this from a world where that isn’t the case. Money would be worth less in that scenario, and that 10% owns 99% of the wealth, which is still going to cause problems.
In this fictitious world I'm sure there would be other problems, perhaps some we can't foresee and might look like privilege to us today. We don't complain about "issues of the poor" from the past such as child labour (with some exceptions) today. Significant inequality will cause problems regardless of the baseline standard of living.
that hypothetical can't exist though, so what is the point in entertaining it. The world have finite resources, money (no matter the inflation) is a way to ration this to people. Not every single person can have a mansion in SF.
A phone in your pocket is not wealth, hard to believe this example comes up so often in these discussions.
It's a gadget, a depreciating asset.
Actual wealth produces more wealth, which is why the very rich get richer even while they sleep. A gadget makes its owner a tiny bit poorer every day as it depreciates.
The problem with defining wealth in that manner is, you can argue a person has literally every material possession they could ever want, from entertainment to knowledge to health and nutrition, and have no desire or use for further "wealth" and yet sitll be considered poor. Yet, it is easy to imagine several of these depreciating assets being more valuable to a person than any imaginable level of wealth, were they unable to use the wealth to obtain those assets.
> Actual wealth produces more wealth
I used my computer to learn to program getting a higher salary than I"ve ever held previously. It produced quite a bit of wealth for me that would have been unatainable without it. Does that impact your stance in any manner?
Well, "poor", no. But if someone who inherited vast wealth used it all up on depreciating assets (even if it is superyachts instead of phones) then yes, they'll eventually end up with no wealth.
Of course, for sufficiently large amounts of wealth, it is effectively impossible to use it all up so it may take many generations. Jeff Bezos kids will never be able to be poor no matter what.
> Does that impact your stance in any manner?
No. The computer (depreciating asset) didn't produce any wealth. Your hard work and learning, while using it as a tool, is what produced wealth. The computer itself depreciated to zero.
> The computer (depreciating asset) didn't produce any wealth. Your hard work and learning,
No amount of hard work and learning would have been sufficient without the computer though? The computer is an absolute requirement to become a programmer. No computer, no wealthy career in programming.
Amusingly, I learned to program on paper because I couldn't afford a computer. I'd write all these programs during the week on paper and then on weekends go to a friendly Radio Shack to type them in and test them.
it is still not wealth. A certain amount of wealth is even needed to do what you are talking about. You need sufficient housing, food, health, and free time to learn to program. All of which would scale with inflation
So were you to choose between ever having a computer / smart phone or ever having a house, it would be the house? Beacuse personally I would much rather own a computer, information access, my guitar, several other things I can think of, before trading any for a home or land -- I'd be happy to rent. "Things that matter" beyond a roof of any kind over your head, safety, and basic nutrition I am sure varies widely depending on the person. What good are riches if you can't purchase anything you want?
> Inequality is only bad if you're in a zero-sum game.
Which we are, because inequality enables advantages in grabbing pieces of various natural monopolies. Land is a prime example; real estate is a zero-sum game (the oblate spheroid we call "Earth" has a finite geographical area, and therefore so does any portion thereof), and rich people are able to play it by "investing" in real estate (read: hoarding land with the understanding that its value will increase perpetually on average due to the fixed supply and population-scaled demand). This is inherently exploitative of anyone lacking such an ability, and inherently results in the transfer of wealth from the working class to the ownership class - both directly (via rent) and indirectly (via opportunity costs).
It's if you consider X,Y dimensions. Z axis is controlled by law as well so we can't build up to alleviate the congestion in X,Y plane. Furthermore, parking lots and accessibility laws take up a lot of space in cities which take up the free-available X,Y supply.
IMO the biggest problem is Z axis and the infrastructure enabling it (public transportation) for example.
However, since Z axis is stuck, we choose to suburbanize and infinitely expand beyond reasonable sized cities effectively making unlimited supply of real estate. Look at Phoenix and Houston.
So, what you're talking about is real-estate in places like Bay Area and New York cities. Which is not a general argument.
Agreed that a rising-but-unequal quality of life is better than a falling-but-level, and also re: the global perspective on wealth distribution.
But that doesn't account for the decline of opportunity in the USA. As the article points out at the end, just because the rich aren't directly inheriting their wealth doesn't mean that they aren't inheriting opportunities that are restricted to a narrow class, and there's a lot of data showing that to be the case [1].
I personally don't mind "rich, middle class poor" what I do mind is the vast difference in that spectrum and how bad the bottom 20% of the USA really do have it. You shouldn't have to work 12-16 hours a day of unskilled labor to have a car and decent place to live. No to mention the few million homeless that we have. While the upper 0.1% are grotesquely richer than the rest of us and continue to only enlarge that gap. I can't agree with you at all. With technology improvements we should have a decent spread in wealth and it should be diminishing not increasing. This is indeed where the government should come in with wealth distribution. For a human being it doesn't matter if you have 1 billion or 100 billion you really still have far more than enough money.
The absolute rate of other kinds of poverty have not collapsed. But that statistic hides the fact that the population who are that poor has changed. People who were there moved up and out, while people who were poorer have moved up to that bracket.
It is only after people stop moving out of extreme poverty to the tune of a quarter million per day that we can expect to see reductions in less severe poverty brackets.
You're sort of subtly changing the argument to a utilitarian one, about whether allowing the status quo is good from a systemic perspective. This is a different argument about whether or not the current circumstances are justified, or what might be better.
These sorts of discussions also always seem to skim over the surface in many ways. For example, you make statements like this -- "an entrepreneur who gets rich by reducing waste and improving productivity by harnessing technology" -- as if the reasons someone got rich are by reducing waste and improving productivity, in a way that is clearly demonstrable, when the validity of this assumption is the very thing in question. There's a circularity to these kinds of assumptions that is of the form Person A is rich by virtue of their position at X, which has been associated with an increase in efficiency; therefore Person A caused the increase in efficiency at X, and therefore deserve to be rich. The problem with this argument is that not only is the "do they deserve such wealth given the other assumptions?" complex, it's also the case that the "did they cause these desirable things" and "did they alone cause these things?" is in question.
I agree inequality isn't necessarily a problem in itself. What is a problem is inequity, or lack of correspondence between income and "true merit" in a idealized sense (including one with true competition). My sense is that this is the real argument: is it fair that someone like Bezos has the wealth he does, even as one of his workers is struggling to make ends meet? (Consider what would happen if all Amazon workers left their positions simultaneously and permanently, and could not be replaced. Is Bezos responsible for Amazon's operations?) The inequality per se is one level of argument, but the real argument is something more like "is Amazon a good or bad thing? Should Bezos as an individual deserve the credit for whatever net goodness Amazon has accrued? Is it the case that whatever credit he does deserve, do to his actions per se, or the circumstances he found himself in?"
I suspect that in a fair world, incomes would be much less disparate, even globally, and there would be much more movement up and down, and back again. There's too much idolizing of the individual, as a static unchanging thing, one way or another. I think a lot of societal ills stem from this sort of perniciousness, including "cancel culture" and many other things: the fruit you see beneath the tree is due to that tree, and will never change one way or another, and cannot be changed.
I agree, and would go further and argue that the lives of most middle class is perfectly fine right now.
I think the lives of the bottom 20% could be improved, and I think that we should ask those at the top 10% to help them out.
I think there are other more specific things we could worry about, like house prices out of control, nobody is paying to clean up the waste they produce, governments baling out rich people etc.
Talking about "inequality" in the abstract is not worthwhile.
> I think there are other more specific things we could worry about, like house prices out of control, nobody is paying to clean up the waste they produce, governments baling out rich people etc.
> Talking about "inequality" in the abstract is not worthwhile.
I thought the connection between the problems you state and inequality was obvious. I guess it has to be spelt out: inequality means the super-rich become literal rent-seekers by buying houses - not to live in, but for speculative investment purposes - hence current cash-only offers at ridiculous, above-asking prices. They don't care about negative externalities because they want more money now, and there is nothing to act as a check on their desires (since that requires money) so there's a lot of uncleaned waste. Lastly, the government bails them out because they are king-makers and politicians come to kiss the ring during election fundraisers. Elected positions are at risk ever so often during election season, but being wealthy is usually a lifetime "appointment", and wealthy people have more solidarity than politicians - and that's to politicians disadvantage.
Inequality results in power imbalances; the societal problems are second-order effects of the power imbalance. It is not "abstract" to point out that the first-order effect is problematic of, and by itself.
I right there with you when you talk about power imbalance, and although wealth and power are tightly linked, I think they can be discussed separately. I have no problem with the 1% having all the money as long as they are not using it to wield power and extracting rent from the rest of us.
I think there are issues with our Democracy and our Media, not with our Capitalism.
PS: if we wanted to, a democracy could simply make it illegal buy investment property insuring that everybody had somewhere to live. Freeing people from the burden of rent. The government could probably even provide mortgages "at cost" so that the bank leaches didn't take their pound of flesh too.
We could examine our society at large and free ourselves of rent seeking behavior.
> I think there are issues with our Democracy and our Media, not with our Capitalism.
The question is, how do you stop Capitalism from subverting Democracy and the Media to perpetuate itself? I think one can successfully argue that capitalism is a human-scale paperclip maximizer, but for capital.
> PS: if we wanted to, a democracy could simply make it illegal buy investment property insuring that everybody had somewhere to live. Freeing people from the burden of rent.
Only if the wealthy allow it. You don't have to look very hard to find dead-in-the-water concepts/projects that have the support of a large majority of Americans across the political spectrum, but are hated by the wealthy, and therefore their politician proxies. These tend to die despite public popularity - alas, that's the downside of representative democracy.
>The question is, how do you stop Capitalism from subverting Democracy and the Media to perpetuate itself?
You craft a set of rules that Capitalism must play within. We have a pretty good set of rules now. No murder, no slaves, no obvious pollution. But there is room for improvement.
My suggestions are... 1. More media diversity (Media ownership rules). 2. Cap political donations to something that everybody can afford. (Say for example no more than $500 per person per year, no company donations)
I also sometimes suggest that the media (and social networks) should be held more accountable for the things they print and broadcast. (it's an unpopular opinion)
America is a lot bigger than where I am in Australia. Here, I'm optimistic that we can see small incremental changes that will help us balance power. regardless of the opinions of the super rich.
With a diverse media, enough pressure can occasionally be applied in key areas.
Do you have any data to support anything you said here? The middle class has been getting decimated the past 20 years. They used to live comfortably on a single income, now both parents slave the week away and have even less purchasing power.
Also, housing prices aren't "out of control" at all. Inflation is reducing the value of the dollar, and it's showing up in the real estate market. Inflation hurts anyone on a salary, not people with income dependent on assets that appreciate alongside inflation.
Also, the they in the "waste they produce" is referencing the richest business owners. They are reaping the benefits of the production processes and leaving everyone else with the pollution.
The root cause of all these things is the upper class either feeding on or taking advantage of the middle and lower classes. "Inequality" is just a term used as a window to look between the different classes.
My data is anecdotal. I live in the suburbs surrounded my middle class people like myself. Food / clothes / tools / entertainment are plentiful. People are living a good life.
Here in Australia, house prices are rising significantly faster than inflation. My personal suspicion is that its because everything else is so cheap, the middle class can afford borrow and spend more of their dual income salaries on their houses.
Yes sure, the "they" is business owners, but its expected that the business owners should then pass that cost down to the consumers that buy the products. Yes, the business owners are reaping the rewards, but so are all of us consumers. (It's future generations that will pay the price.)
The root cause may be that we allow some people to have too much power in our society. But the amount of money they have in their bank accounts is irrelevant. We live in a democracy so we can make rules that balances power, but we choose to allow people with a lot of money to have a lot of power.
I think its much more interesting to look at inequality of power than inequality of money.
Food/clothes/tools became cheaper over the past 100 years as economies of scale were built, but they were much cheaper 10-15 years ago when you compare price to purchasing power of income. This is a somewhat recent trend we're talking about (last ~25 years or so).
I think inflation is rising a lot faster than you think. They don't admit there's actual inflation until it's already been here for a while.
> We live in a democracy so we can make rules that balances power
Not true and never has been. This is a pipe dream for suckers. The golden rule is that those with the gold make the rules.
> inequality of power vs inequality of money
Money buys power (lobbyists, legal bribes, media access, etc), so these are basically the same thing if someone with lots of money is interested in spending it on obtaining power.
How does that account for items we have today which were unavailable 20-30 years ago? E.g. even if I were rich in 1990 I wouldn't have a super computer in my pocket with access to infinite knowledge and entertainment.
> Inflation hurts anyone on a salary
And anyone with savings.
> They are reaping the benefits of the production processes and leaving everyone else with the pollution.
A CO2 tax would be more burdensome the further you go down the chain. Everyone is reaping the benefits there. Sure, _some_ mega corp executives get extra benefits, but in general waste producing fossil fuel burning ecosystem destroying processes have been the literal thing that has lifted people out of poverty. (To be clear I am very pro environmental regulation, climate change, etc, but am skeptical the impacts won't be felt the greatest at the bottom of the income brackets)
>> the lives of the bottom 20% could be improved, and I think that we should ask those at the top 10% to help them out
Governments are taking money out of people's pockets by running a printing press / increasing taxes and using them for personal gains. Solution? Ask the government to take even more money. They will be ashamed and start working in the interests of every citizen.
Economy is closer to a zero-sum game, after all theres limited resources in a period of time. We cannot be all rich because we cannot all own the capital, if we did, who does the work? To invest you need workers, to produce you need consumers, to rent you need renter, etc. Then the rich class exist because theres a poor class, a zero-sum game.
> Economy is closer to a zero-sum game, after all theres limited resources in a period of time.
The "economy" is so much more than just the extraction of natural resources, and it's not a zero-sum game in general. Maybe you're conflating "money" with "wealth"?
The pro-communist argument really is founded on two points:
a) it's impossible for everyone to be a (successful) businessman: somebody has to be an employee and do the actual work, y'know?
b) to be "actually rich" -- which is not just "being on the level of personally comfortable standard of living", it's more of "having certain level of personal influence" -- you have to own a share in a commercial enterprise and get the dividends from it; rare exceptions like a prominent lawyer or a genius surgeon notwithstanding.
These two are mostly empirical observations, and you can frame it very differently depending on your liking; the "exploitation of the worker class" is only one such frame, there are many other.
These points seem to forget about income mobility. How about the fact that almost nobody under 40 is a millionaire (rich), but just about 20% of Americans over 65 are? We can’t all be rich at the same time, but we can all be rich by taking turns, which tends to be what happens as people accumulate wealth over decades. The rich people today were more often than not the poor and middle class of yesterday.
And those points "ignore" income mobility because it mostly comes from transitioning from being a worker to being a entrepreneur of sorts. You don't generally work your whole life as a welder, for example, or a woodworker, and retire with $1M in the savings account (perhaps if you work as a surgeon, you do...)
Also, should we perhaps count the people who didn't manage to live to be over 65 in this percentage calculation of "20%"? That'll move that number down quite a bit, I am afraid.
> The rich people today were more often than not the poor and middle class of yesterday.
Well, poor people today are more often than not were the poor and middle class of yesterday too.
Also not everyone can be good looking, a great singer or a professional basketball player.
But you are right communism solves all equality problems by making everybody (except a few select and their families) miserly poor, prevents people (again except a select few) with talent to stand out and kills everyone else who is too unhappy with how things are.
The most hilarious thing about "a few select and their families" being rich is that it's not even true. Having a roomish (1 room per person + a living ropm) flat, a car with the personal driver, a small villa, and access to "closed for others" food and clothing stores was pretty much the most one could achieve -- and non of those things could be bought by money. Heck, that car and the villa? State-owned and attached to the position, you lose your place -- your successor gets them. Money simply could not buy one a lot: there was either nothing to buy, or the thing you wanted wasn't being sold.
And yeah, the common populace did object to the higher-ranking party members and bureaucrats having those privileges. One of the slogans of perestroika was "away with privileges", I kid you not -- people would rather elites be as poor as them. Well, the irony is palpable: thirty years later, the common populace is not much richer than it used to be (teachers used to be able to easily travel by plane on their wage, not anymore), but the top-level government officials are way, way better off than they used to be.
Of course they were richer, way richer than common folk. You forgot to write access to western goods, skipping the lines for healthcare (some had privilege to use foreign healthcare), best schools, best food,... Compare that to hungry peasant dying by millions.
Yes, because workers don't as a general rule get rich, the masters do. Again, my comment was not trying to argue for the benefits of Communism, but to explain why it does keep coming up.
And it's because you can always come to the line personnel and tell them: "Don't you just hate it that while you do most of the actual work, the upper-ups earn hundreds times as much as you? Well, here's a solution: ..." And this solution was socialism and trade-unionism in the XIX century, communism in the XX, heck, even capitalism was sold as one in the very late Soviet Union, no kidding — it was seriously argued in the media that privately-owned firms would pay workers better than the state-owned enterprises, just look at the West, and many people actually belived that, really.
Of course, none of those solution ever worked, and that's exactly why they will always be proposed, in one shape or another — socialism itself didn't appear out of nothing, "when Adam delved and Eve span, who was then the gentleman?" was uttered in 1381. So there you go: the spectre of communism will haunt us all as long as inequality exists, that is, until the humanity stops existing.
>> Heck, that car and the villa? State-owned and attached to the position, you lose your place -- your successor gets them
What country are you describing, pal? In Soviet Union it was "вольнодумство" ("freethinking"), which was a bad thing, to own personal cars / dachas by the highest members of partocracy only. Because that raised questions concerning their loyalty and belief in the system. But even they bought all that under the name of their wives and children. We've got plenty of memoirs of their scions to stop perpetuating the lies.
You can be rich, invest, and still work. You don’t magically putter around all day once you make money. Or at least all the self-made wealthy I know are still actively productive.
That completly misses the point, first, rich people earnings come mostly from their investments, not their work. Second, the money earned through investment necesarily comes from the work produced by other people and thats completly independent if the rich person works or not.
The person who "earns by investing and working in both nearly equal proportion" doesnt really exist beyond outliers, this is empirical, the 1% owns as much wealth as the entire middle class, this is where their yearly income comes from,they get money because they own stuff, not by being superworkers, otherwise the inequality wouldnt be growing.
I get the sense that you’ve read a lot of theory without any observational facts.
The vast majority of the 1% and 0.1% get most of their income from labor nowadays. This is a phenomenon called “The Rise of the Working Rich”. This looks like CEO compensation, top athletes, too musicians, business owners, and so on. On average, the 0.1% gets about 20% of their income from investments and 60%+ from their actual labor.
70% of the Forbes 400 are self-made, the vast majority of millionaires receive $10k or less in total inheritance, 11% of Americans will be in the 1% for at least 1 year in their lifetime, and the majority of Americans will be in the top 20% for at least 1 year in their lifetime. If you chop off the top 1% in developed countries, their Gini coefficients are very similar, implying that the US doesn’t have exceptional levels of suffering from inequality, it just produces a lot of rich people.
> Inequality by itself is not a bad thing. Let's start from there. If 90% of the population had a (sustainable) lifestyle of current dollar millionaires, and the remaining 10% had a (sustainable) lifestyle of dollar billionaires, there would be lots of inequality, but it wouldn't be problematic.
You're correct, but inequality would be far, far lower than it is today.
Inequality is a good theme to buy and rally voters, however. Also, what's better than stealing some stuff from rich people instead of figuring out how to fix the economy and create new wealth.
Check this out: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq... Inequality has nothing to do with standards of living, freedom and human rights, or how well developed a country is. It's a completely irrelevant thing. Sweden has more inequality than the Ukraine and most of the world; however, many people will vote to live in Sweden than anywhere else.
A lot of people who are just as smart and motived as Elon Musk or Steve Jobs will never be able to start their own companies and get rich.
Because they have family obligations that take priority.
Because they live outside high-income countries.
Because they have no access to support network, so when they fail, they fall all the way to bottom.
Because they may have made a crippling mistake in their pasts that now prevents them from reaching their full potential.
And so on and on. While I would still recommend everyone to pursue the dreams over never trying to do so - being poor is the single most powerful force that prevents people from doing that.
This. Poverty doesn't just cause immediate issues it
can also cause long term issues that can effect not only adults, but the children who grew up in that environment. This is largely because families in poverty tend to also abuse their kids at higher rates (this includes mental abuse) or at least foster an extremely unhealthy environment due to the stress it causes. So even a generation later it can be difficult for a family tree to be lifted out of that situation. It's brutal not having a support system in place for people. What sucks is that it's probably bad for overall productivity to not help people in these situations, but the usa has chosen to say screw it for many years (hopefully that is changing).
Imo forget being "rich", just growing up in a relatively sane environment is an advantage.
I grew up in a family of 7 (4 younger siblings), during civil war, father was into gamling and drinking, mother was unemployed and constantly on the verge of a mental breakdown (understandable given the conditions she was living in). To paint the picture, I have vivid memories of vomiting a boiled onion I ate after not eating for days (I think I was arround 5 years old). And we were poor well into my early 20s untill I left home.
It took a long time to get out of that, and material problems were an issue for sure, but I would say the biggest obstacle for me was that I had no rolemodel and was forced to discover everything on my own. In retrospect I had plenty of opportunities to get out of my situation way earlier and I could have done a lot of things better, and it was pretty common sense to most normal/functioning people - but I didn't have a lot of those arround me.
And that wouldn't change if you gave my parents money - after my grandparents died my mother inherited some land and a house, in a year she managed to squander it away with terrible spending decisions and no long term planning (coupled with the sense of entitlement and expectation that things will just work out).
I also never viewed school as something relevant, teachers were hardly authoritative figures (from my perspective their job was to babysit me and they were poorly paid - why would I accept them as authority on anything).
So I don't think it's something you can solve with money alone, having functional parents is always going to set you up to do better in life.
This is probably not the place to say the following, but I just have to.
Reading your comment nearly made me cry, because it (strikingly) reminded me of my own story. You are not alone.
Keep your head up (as you seem to always have done), and if you can, make peace with the past and your parents. This took me a LOT of time, but it helped me.
Thank you, it's been a while now since I started improving things so it's easier to look at this more objectively.
I was harsh on my parents in that post, they were dysfunctional but my mother loved all of us in her own way and spent her whole life arround us, and I can't say a lot of good things about my father - dealing with my mother in those days would break anyone.
I'm on good terms with them now and they are in a better place now that we're grown up and independent.
I wonder if things would have turned out the same if your mother hadn't cared about you. My theory is that love from parents and family growing up is hugely important for a happy life.
Hard to optimise through political solutions, unfortunately. Just handing out money probably won't help so much, like you observed. Generous parental leave rules might be useful.
And a well functioning social safety net (which also requires money from the state) to catch the youth who suffer from parental neglect and/or lack or resources. You can have role models aside from your parents.
Unfortunately the dysfunction and poverty may go hand in hand a lot of the time. There is strong indication that scarcity affects cognitive function.
"Scarcity: Why having too little means so much" is a great book on this.
In essence it is not that people in poverty have less innate executive control / cognitive capacity, but that the situation of poverty causes anyone to lose some significant points of executive control / cognitive capacity.
There are some illuminating (but terryfing) experiments in the book, where they show you can literally sabotage a low income persons score on an IQ test by mentioning a hypothetical car repair of 2000 dollars before they take it.
I absolutely think this is a thing, speaking from experience. Working freelance and suddenly see your savings / income dry up due to circumstances. You start to go into “survival” mode which means you start making radical different decisions that work in favour of near future results (aka surviving) but cost dearly in long term health, independence and economic strength.
Imagine two rooms, each with a caged bear. The bear is not happy being in a cage. A rich man, and a poor man, are ushered into their respective rooms, and told that the lock on the cage isn't all that reliable.
I'd wager that they'd both suffer roughly equally on a provided IQ test.
If you can't afford it, that car repair is an existential threat.
You don't get that car fixed, you don't get to work, you lose your job, and then everything else that goes with that. Not to mention figuring out what you're going to do while your car is in the shop. Maybe you skimp on the repair, just do what you need to get it running again, and hope it doesn't turn into a bigger problem down the road.
If you can afford it, it's an inconvenience.
You drop your car off with the mechanic, get a rental or just Uber it to work, and pick up your car when it's ready. You'll pay to fix things properly, of course, because you can.
I think it's not scarcity itself, but constantly living under existential fear that causes so many problems.
> There are some illuminating (but terryfing) experiments in the book, where they show you can literally sabotage a low income persons score on an IQ test by mentioning a hypothetical car repair of 2000 dollars before they take it.
Modern humans have existed for something like 100,000 years give or take a few tens of thousands, and yet we only started building anything particularly innovative in the last ~10,000 or so. So we spent 90% of our species' history doing very little in the way of cognitively challenging innovation.
I wonder if this might not be the reason. Some have observed that hunter-gatherers often had better nutrition and were healthier than at least early civilized humans, but maybe they also lived under a perpetual cloud of fear about the next famine, raid, or plague. Maybe that basically shut down their capacity for higher cognition. Maybe they didn't have any time to sit down and think and do so free of concern about the future.
I think you're defining innovation too narrowly. There are lots of social, political, and behavioral innovations in hunter gatherer societies that may not necessarily manifest as technological innovations, but are no less innovative or clever.
In my limited experience with these people, they are absolutely capable of higher cognition, including planning into the distant future.
Another factor seems to be becoming sedentary as a species and gaining more sugars favoured the energy needs of the brain. That in turn allowed for people to focus on land ownership and dominance over others to secure this income.
Sorry, this may be too inflammable, but there is also evidence that cognitive ability is negatively correlated with conservativity. [1]
So, what to do if you are conservative politician and want more voters? Do you try to make poor people better or worse off given these two data points (whose scientific validity I am not able to judge, but I have to admit, they do seem to make sense)?
I had a similar life and I fully concur to your sentiment - it took me the better part of my life to get out of poverty, and I missed out on so many things that normal people regard as a given.
These days I‘m studying physics and mathematics while having a cushy engineering job and I‘m so genuinely happy that I can sit down and study for hours without having to worry about making ends meet at the end of the month. It’s a blessing.
I think calling it a wealth gap really misses the point - it's a stability gap. Most upper-middle individuals pass on socio-economic stability to the next generation. Most middle and lower class pass on instability. Wealth is a small part of it.
I was agreeing with your comment until the last sentence. Wealth is stable access to money, which is a fungible resource. Used appropriately, it can provide access to stability that would otherwise be inaccessible. Without such a resource, other factors of instability more likely to be chronic or even inescapable.
Education is actually much more important than wealth. So is city and community infrastructure, a positive family environment, etiquette / upbringing, values passed down, positive / helpful relations, mentorship, trauma free environments/mental health, and good social practice. Wealth is a very small part of stability.
I don't think anyone is suggesting problems can be solved with money alone. What's very obvious is that a capable person without resources will struggle while a much less capable person who has the safety net of a wealthy background can still be successful. No one is suggesting it's guaranteed though.
Obviously money will not change everything but if you get a monthly allowance to feed your children it will probably decrease the incidence of onion vomit for a substantial portion of them. Which seems valuable in its own right. Dealing with a large lump sum payment is inherently much harder.
We have this in Poland. It's a big wealth transfer from productive responsible people to those who have a lot of children regardless of their economic situation. I think there are two problems with it:
-People who wait with having children till their situation stabilizes are now subsidizing those who don't. I think this is simply immoral and will result in more productive/responible/better educated people having even fewer children.
-the money goes to often dysfunctional parents and is spent on pointless consumption and alcohol. It's not a meme that if you want to see a lot expensive brand clothes or shoes you just need to visit a poor part of the town (I live in a very homogeneous country so no race/religion/culture undertones there).
I would much prefer the money to be spent on infrastructure making life better for the kids. Making sure children can get quality food, educational materials, help from social workers, can spend quality time outside of their dysfunctional homes and maybe get exposed to different ways life could be would be in my view way more helpful.
Making sure preschool children have their needs met is a more difficult problem. Still I think giving people free access to quality nutrition, clothes, medical care, toys etc would be a better way.
Sure there is a % of people who w can manage money and prioritize their children but those people would do well anyway if the money came as free stuff you can get for your children instead of buying it yourself.
Since (very modest for western standard) ubi like program was introduced we have seen huge raise in tourism and alcohol consumption. The numbers are there. It's just people who end up in bottom % economically are usually very bad with money and decision making.
I guess we can live with that one we can afford ubi for everyone but for now the priorities should be about giving children of shitty parents a fair shot at life. Good unfortunate parents will be able to use other programs as well.
Considering most developing countries have aging populations that's actually a good thing, especially if you provide the resources for those children to turn into productive members of society.
It is much easier to be functional parent when your material needs are met and you are not under big stress. That is my experience from my parenting and from family history.
It is much easier for me to be functional and caring parent when I am happy and content. It gets harder when the period is stressful. I would be failing at that way more if I had one of those real big problems.
Yep. I grew up very financially comfortable, but my mother died when I was eight, and even now in my forties I still see mother-child interactions in which I notice an implicit lesson or guidance that I missed out on.
> So I don't think it's something you can solve with money alone, having functional parents is always going to set you up to do better in life.
Do you think your parents being in poverty (if they were) or a similar situation made it as difficult for them as it was for you? It seems to be an obviously vicious cycle that is difficult to break without education and opportunity for people in these situations.
I don't know how much you can generalise from my story, but both of my parents came from middle class families, they got the money to buy our first studio apartment from them, father got jobs through family connections. But he was a weak willed man who got evertyhing from his parents and had no ambition or drive, he fumbled several easy jobs, I can remember the arguments he got into with my mother over not working saturdays because "it's not worth it". At some point he got in to gambling too. Mother was unstable personality and she detiriorated as father was screwing up, leading to both sides of the family cutting us off (because of how hostile she was) - very self entitled in the sense that she expected things to be a certain way and others were to make it happen for her (not in the sefish way tho, she invested most of what she had into us, even if it wasn't in best ways). So those two were just a dystfunctional feedback loop, and yet somehow they ended up having 6 kids.
That's the classic "you shouldn't give money to poor people, they are just going to spend it on alcohol, drugs etc." argument. This ignores that there are a lot of people who are unable to make ends meet despite having not one but sometimes several jobs. Maybe people would be less stressed if they knew they wouldn't lose their job if their car (>20 years old, which they can't afford to repair) breaks down...
Sorry if my comment came across as insensitive, especially since it's your own family history, but you should be aware that people might read your comment that way: "father was into gamling and drinking [...] So I don't think it's something you can solve with money alone". And yeah, the "working poor" I mentioned is a "first world issue" (even though, for the people involved, it's still not a good situation), other countries have worse problems (civil wars, rampant corruption etc.).
But the "semi-socialistic" policies people advocate are the usual Nordic policies of free healthcare, free education, proper maternity leave and safety nets. Or were you talking about some fringe discussions? I don't think anyone is planning to seize the means of production if that's your worry.
> Poverty doesn't just cause immediate issues it can also cause long term issues that can effect not only adults, but the children who grew up in that environment.
This is absolutely true!
> This is largely because families in poverty tend to also abuse their kids at higher rates (this includes mental abuse) or at least foster an extremely unhealthy environment due to the stress it causes.
This could be true with some families, but most parents try at least not to go below the financial level they are at. I remember my parent use to get all jittery even at a slight stress on the finances fearing that they will not be able to sustain. They had prioritised education, food, clothing in that order. Unfortunately, after education and food nothing was left! I remember wearing same set of clothes for almost a decade. Even now, even though I can afford to spend, I got into that habbit of wearing same clothes most of the time. I still use clothes that are almost 10 years old! I remember we(I and my friends, they too were from the same financial status) use to wear same worn-out/torn school uniforms by doing something called "rafoo". That made us kids understand value of money and the determination to get out of the situation as soon as possible. The problem we faced was lack of information and support network. We had to build it ourselves from scratch, most of the time stumbling. It also dents the confidence as you don't know how long it is going to take to achieve your goals, if at all it can be acheived!
Sure. A quick Google search yielded the articles below. I don't have authoritative papers to reference, so you'll have to do your own digging too. But it also makes sense when you are aware of the realities of being in poverty. You also left out what I put in parentheses. Mental abuse is abuse and many children are subject to it. I explicitly called it out because I personally feel that people underestimate the damage it does primarily because it's something that is just completely alien to many people and cannot be related to. I also think people do not tend to realize what mental abuse is and in how many ways it can take shape.
Also, not to make excuses but I think in the mental abuse case people don't always know they are doing it. They do what their parents did or learned from those around them who also didn't know what they were doing.
The thing that I'd expand upon is the support network.
Somehow I have a wider range of friends and family than most people, and the thing that is missing from this conversation is that most people by far don't know anyone wealthy, especially if they're not themselves wealthy.
The issue with that isn't just the money and connections themselves. There's a cultural gap of "I couldn't do that, only people on TV do that" whether it's starting a startup or pursuing one of those one in a million type careers like acting or sports.
There's a risk behaviour that is also affected by background. Basically you're pushed to not take too much risk: your parents' entire productive output has gone into your education, you can't just take a chance on it.
Case in point is my family. The parents all got spread around the world as refugees back in the 1970s. Everyone worked really hard but they told their kids to go the safe route.
I have a cluster of cousins in the bay area, what do they do? None of them do startups. Doctors, nurses, and Google.
I have a cluster of cousins in the bay area, what do they do? None of them do startups. Doctors, nurses, and Google.
I wouldn't describe this as risk-averse behaviour. The simple fact is in the modern startup ecosystem, even if the startup has a successful exit, even early stage engineers will see very little wealth having been massively diluted, and would have been much, much better off having worked for an established company over the same time period. An early stage employee takes all the risk but all the reward goes to the founders and the VCs. It's not worth it.
Maybe I should have expanded upon it. When I went to visit SF with a startup, I naturally thought one of my dozen cousins in the area would know someone who did something with one of the many startups in the world's startup capital. They don't just not work in startups, they seem to not have any connections to it. Granted, I didn't do a thorough survey, but if they knew someone in a prominent firm I think they'd have told me.
Which is kinda surprising, but I guess for all the noise they make it's still a pretty small network.
Honest question: why do you think working for startup would be better for them then working for google? Why do you think a doctor would be better off or happy working for startup? Why do you assume having seeking connection to startup world is a think they miss in their lives?
On hn, there is sort of bubble of people who think that working for startup is best thing ever and everyone else is selling the soul. What if it is not true and some people really wanted to be doctors/nurses or find their job at google happy place?
I wasn't commenting on what they ought to do, it's not like I'm disappointed they didn't do a startup (lol how could I be disappointed in someone becoming a doctor when I'm the kid of refugees?) . Just commenting on the dynamics of who decides to try, and who knows who.
Keep in mind that as an immigrant you also you also only know a few traditional things a kid can do. The main thing that would get you into a startup is probably a CS degree, which what not high on the list for my aunts and uncles.
This might also be something about American society. People seem to cluster very closely with similar people. At least when I go there it seems that way.
On hn, there is sort of bubble of people who think that working for startup is best thing ever and everyone else is selling the soul.
HN, for obvious reasons, over-estimates how likely it is a startup will succeed, and over-estimates how much an early-stage employee will make on an exit, and also over-estimates how many valuable experiences an early-stage employee will be exposed to. Vastly.
Beside the fact, that being a doctor or working at Google makes you much more money on average than founding a start up, you anecdote also seems to be an anomaly: The most high profile start ups have been founded by immigrants. Even the one you have given as an example for a boring job.
> when they fail, they fall all the way to bottom.
Thank you for this. I love when HN provides a view outside a typical Western middle-class cohort.
At a larger scale, I think the same thing could be said to an entire society. In a poor society, your small mistake might lead to loss of healthcare, loss of voting rights, arrest by secret police, mob lynching, public shaming, or other forms of social bullying. There are many rich people who live in such a society, but they're always in a somewhat precarious position. I don't envy that.
And a lot of people who are as smart and motivated will start their own company but will not get rich because they are not as lucky. Luck play a big part in success
Are you sure? From what I see around me, people who have money are a constant target of other people who want to drop their beaks into it, so to say.
Starting with distant relatives that got into trouble and suddenly found a familial love for them, continuing with various false friends, gold diggers of both sexes and people hustling investment opportunities. Ending with lawyers and doctors who might induce you to undergo procedures that are more expensive, but not necessarily in the best interest for you.
The price for being rich is being on constant alert and distrust against "luck" that isn't really luck, but a veiled threat.
Edit: OK, I get it, not everywhere is Eastern Europe. Countries with old money have systems in place that mitigate this problem. (Although I am not so sure about mafia-heavy countries like Italy.)
Yes. Having extra cash means you can eat out (saves 1+ hour a day), buy an automated vacuum, dishwasher (extra 30 minutes a day), get a car or use taxi (1-2 hours, depending on location), hire a personal assistant (better organization, hard to estimate), get better medical care (less pain = better concentration)...
You also have access to specialists. You can hire a lawyer, people to help you with research, people to help you present yourself on social media.
In the end, you can extend your day and improve your productivity significantly, resulting in more hours available "to get lucky" effectively. I mean, being lucky when washing dishes does not help a lot, but being lucky when shopping for business opportunities...
Additionally being rich gives you a network of friends who are also rich, resulting in even more opportunities.
Your friend who owns a house in Chamonix and will let you use it for free during your vacations, your friends CEO of a big company who will give a high level internship to your son, your friends starting a new company and asking you early if you want to invest in it, etc...
Being rich is like getting extra at-bats in a baseball game. If you're normal or poor, you typically get one strike and you're out. You saved your capital, invested it, and if you fail, you're gone.
When you're rich, you get to swing several times at the ball. When you miss, you fall back to your wealth/family to support you while you save up for your next swing. Then, when you finally hit, as you're running the bases you can boast to everyone about how self-made your success is.
When you're filthy rich, you have infinite at-bats, and basically it doesn't matter how good a baseball player you are, you're going to win.
Oh yes, but depending on where you live, these effects kick in way under the "being rich" threshold. (America with its strange and expensive healthcare being an outlier in the developed world, I understand that.)
What I was speaking about was the simplistic "more of X, more of Y" approach of the OP, though I understand that it was mostly sarcastic in nature.
I would even argue that there is a sweet spot where you have enough money to live comfortably, but not enough to be a promising scam/crime target.
- If you don't have to work two jobs to survive, you have the time to pursue other things, and you're more "lucky".
- If you have the ability to not work and can spend a year/two/five working out of a "garage", you're more "lucky" than those who can't.
- If you have the ability to send your kids to an expensive college without you or them going into life-long debt, then those kids can create lasting connections (a.k.a. networking) and be significantly more "lucky" than those who can't.
- If you have the money for good food, leisure, home, travel, medicine, etc., you're significantly more "lucky" than those who have to balance those things, and may not even have access to those things with all the consequences: chronic illnesses, stress etc.
This is quite a huge spectrum of "rich" and "lucky". From absolutely basic things to expensive college.
I cannot afford a vacation in Macchu Picchu, but it does not detract from my feeling of being lucky/unlucky. Local vacations in Europe or even in my own country are fine. If anything, Covid era was a good teacher in what really matters.
And the college and networking is begging the question (IDK if I use the expression correctly). I do not doubt that Harvard graduates have it easier in general, but they are probably less prepared for a possible black swan event after which their degree won't have the weight it currently has. Shelling out enormous money for getting connections is a conformist (expensive and lazy) way of building career. I do not find much luck in that.
> does not detract from my feeling of being lucky/unlucky
The question isn't about feeling lucky/unlucky.
It doesn't matter if you can't take a vacation in Macchu Picchu.
- Can you take a vacation any time you want?
- Can you take a vacation for as long as you can?
- Can you afford to take a full year (or more) to work on a passion project? Or on any project? On a startup idea?
See, the more money you have, the more readily your answer will be yes to all the questions above.
> Shelling out enormous money for getting connections is a conformist (expensive and lazy) way of building career. I do not find much luck in that.
You can spend enormous money and have all the connections you need in four years. Or you can work your entire life and still never get those connections.
> but they are probably less prepared for a possible black swan event
Something tells me that Harvard graduates "survive" any and all black swan events significantly better than many others.
Luck is, IMHO, a subjective feeling per se. Alice and Bob may feel very lucky meeting each other while Carol is pissed off at meeting both of them.
Out of your questions: "Can you take a vacation any time you want?" is an interesting case. This depends on your career a lot, not just on net income. Some well-paid careers are notorious for being time-intensive and competitive to the threshold of burning out. You can take a long vacation, but your job might not be there when you return. I opted out of this rat race a long time ago.
"Something tells me that Harvard graduates "survive" any and all black swan events significantly better than many others."
Where I live, the Holocaust and the Communist coup were two notable exceptions. People who had a lot of property to lose often hesitated too long before GTFOut and found the way shut after rationalizing the first warning signs away.
It is possible that the USA is protected enough that something like this will never happen there.
This might be some of the actual disagreement in this thread.
Feeling lucky and being lucky is not always related. You can feel lucky for having met "the one" in your life or for finding $100 on the street, and none think that luck comes from hard work. The part where many underestimate luck regarding success in business is how much luck is needed on top of hard work, and having the right knowledge, and being at the right place at the right time for any business to be a huge success.
The success stories from business always are about the hard work that was done and not about the incredible amount of luck that also was involved (Thinking fast and slow have a chapter about this)
"If my memory serves me right, most rich folks successfully escaped both the Holocaust and the Communist coup."
Black swans are by definition uncommon. Being a Loyalist in America of the 1770s was a huge black swan, for example. While their counterparts a little bit to the north in Canada did just fine.
Prague is full of big villas and other real property whose original owners perished with their entire family. There was literally no one left to claim them after the war. Same in Poland or Germany.
People back then did not want to believe that something as barbaric will be done to them, until it was.
I do not think that exact stats exist how many rich and poor survived the Holocaust, but considering the vast amount of abandoned valuable property after the war, including the infamous sleeping accounts of Switzerland, I do not believe that most rich folks escaped successfully.
Surely they had better chances to act in time, yes. If they had the foresight to do so. One of my points is that once you are a part of the conventional elite, you are motivated to try to weather the problems in place, because uprooting yourself and your family is a huge loss.
I am partly influenced by my own personal history. I grew up with a single mother and no child support from a father that lived abroad. We were somewhere in the lowest fourth of the income distribution.
Yet it helped me to be an independent person, paradoxically. I never had to take into account what my neighbors or rich, soon-to-die relatives think about me, what are "suitable" careers for a young man of X years and Y parents, what kind of real property binds my feet from moving anywhere. No one was interested in me and it felt very liberating.
Knowing my colleagues from school who were restrained by all those concerns and had to play a "role" instead of being themselves, I did not envy them the least.
I'm also a single child of a single mother from a country which has long been battling for the title of "the poorest country in Europe", Moldova.
And yes, everything, from having a computer at 10, not at 18 to unconstrained ability to travel would've helped me significantly more than the proverbial "having to pull myself up by bootstraps".
And this has nothing to do with "being independent" or "feeling lucky".
The CEO of a company I worked for came up with the idea for his company while having a year-long sabbatical from the university while traveling around (literally around) the world with his friends.
At university I was often chosing between buying a new T-shirt or (exclusive or) cheap bread.
So no. Luck has very little to do with where you are now. Money does.
University was a pretty tough time for me as well. The kind of trade-offs (t-shirt vs. food) is not exactly unknown to me. I had a first old PC XT at 17, too.
And yet I do not believe that if my single parent was richer, I would have been a better programmer or writer. I made some money teaching well-off, but pretty dim youngsters whose parents, even though rich by my standards (which meant middle class, probably), were concerned about their future. Even private tuition only gets you so far.
That said, the fact that I was born with a fairly good brain that could soak up both English and mathematics/programming easily, is by no means my own work. It is precisely random luck, together with the fact that I was born precisely at that period of history when such skills are considered useful and marketable.
> And yet I do not believe that if my single parent was richer, I would have been a better programmer or writer.
This has nothing to do with your belief.
The level you're at now? You could've reached it a decade earlier, had you had money. As could I.
Poor people fail significantly more than rich people. For every one of you or me there will be 100 others who couldn't make it. At a certain level of wealth, however, it does't matter if you're a "better programmer". You will still be able to enjoy life and achieve fulfilment, but at a vastly reduced timescale.
> It is precisely random luck
Yes. There are random chances, such as where you're born. Apart from that the chances of misfortune decrease exponentially with money.
- You're Einstein but born in poverty? Hello, malnourishment, no access to good education, menial jobs until the end of your life.
- You're a regular Joe, but born into well-to-do family? Hello, happy childhood, good education, necessary connections, largely stress-free life of your chosing.
There's 150 000 shades in bteween, of course, but luck has little to do with chance, and has a lot of to do with money.
You sound like someone, who does not want to be wrong on the Internet, so he brings up the ultimate argument.
It does not make any sense, too. Harvard graduates are globalists, who are more likely to allocate their assets globally, which is what saves you from such events.
It is. But in the context of the discussion, the question is mostly around access to opportunities. And this access increases with the money you have.
> This depends on your career a lot, not just on net income. Some well-paid careers are notorious for being time-intensive and competitive to the threshold of burning out.
Once again, it means that you may not have enough money to afford having a vacation at any time.
> Where I live, the Holocaust and the Communist coup were two notable exceptions.
Ah, yes. Because these events are so common that Harvard graduates are uniquely unprepared for them. Unlike, you know, common folk.
If my memory serves me right, most rich folks successfully escaped both the Holocaust and the Communist coup. Unlike those who couldn't afford it.
> Are you sure? From what I see around me, people who have money are a constant target of other people who want to drop their beaks into it, so to say.
I'd say that's largely a new-rich problem. People born in rich families generally have the wealth management groomed in. I'm far from being rich, but that's something I'll teach my kids, as I believe one major driving factor in poor families staying poor is lack of education in economy and finance.
I can see that happening. In my country rich families don't fall for such things, except for the odd black sheep.
Here you see that happening the most with lottery winners, particularly because people playing lotto are generally poor, and most among them financially illiterate.
Top special price of the state lottery is around 500k€, and some stats showed that 90% of the winners lost 50% of that wealth within 2 years, while just putting it in some fund and sitting on that money would easily double their income while keeping their wealth.
On that line, certain wealthy people tend to win the lotto a lot! It's a sign of fraud: they buy the tickets from the winners for a bigger amount than the prize, so they can insta-launder large sums of money. Then the actual winner sits on a slightly larger amount of money that can't be used for anything other than spending it, which financially is a terrible deal. But they all seem happy to do it, because they don't know any better.
I've seen the stereotypical difference between new and old-rich many times: the first ones tend to show off and overstate their wealth, the latter do the very opposite.
What part of your economic education will prepare your kids for climate change? Now finance is more interesting because the finance community is really scared about what climate change will bring. Economists? Not so much.
Extremely rich people around rookie who aren’t rich are likely targets, because frankly on a whim that extremely rich person can solve most of the poor persons material problems in an instant. That’s why rich people live in secluded communities so they don’t have to deal with the consequences of obscene wealth.
The consequences of segregating society like this compound over time. This is why we're seeing a growing number of people unironically calling for the return of the guillotine. Kick a dog enough and it'll bite, or whatever.
When wealth disparity is already above that of 18th century France, one would probably be right to worry about the inevitable backlash, unless they can somehow keep people voting against their own economic interests for another few decades.
When you're poor, you're also a constant target of other people. When you're rich, perhaps that single aspect is the same but everything else in your life is so much better that it's kind of disingenuous to ignore it.
What is that supposed to mean? Fail fast and move on is one of the mantras of the industry and as far as I can tell from reading HN most startup founders and employees all have numerous startups under their belt unless they accidently unicorned their very first one.
It means, as you succinctly captured, that the startup is dead. The founders may well move on, but the original venture is toast. Point being: generally a startup doesn't have sufficient resource to recover from any serious missteps, particularly in the earlier parts of the game. All you can do is close the doors and move on to the next thing. Or get a job. The people survive (though frequently not without taking some damage, emotional, personal, financial or other) but the venture itself... no.
source: Me. ~Veteran~ Survivor of 3 failed startups ;)
Veritasium had a video about success vs luck and survivor bias. There's a bit of that here too.
That said, I'd love to have a graph or model (or book even) to describe the tipping point at which things become increasingly better and easier.
I observed that in the crypto bubble. Once you lifted off (fortune by accident maybe) you can comfortably ride the game from the back seat and pick what kind of new wealth you're gonna pick up this month.
This !
So much easier to hussle if you have a clear goal in mind.
The threshold to « wealth » should be clearer. FIRE « levels » seems a good approximation but more detailed studies would be great.
Honestly I wasn't even trying to make it easier to get rich but so that everybody can understand how easy some have it and how hard other may have it.
It's difficult to understand unless you lived in it, and I only had a small taste of the bad. Urgency forces you to lower places where you get less and less acceptable conditions and you don't even have time to think about getting rich.
On HN I see the sentiment that you expressed a lot of times.
I live in a country which will be categorized by western countries as a developing country.
There is no social support system in my country, you are pretty much on your own. Nobody is coming to help you.
And I have made serious mistakes when I was in school which resulted in not being able to go to a good college which makes things in my country ten times more harder. Even today if I were to apply to a good company (There are Google, Amazon Dev centers in my country), my resume would not get through the first pass, because I do not have a good college name on my resume.
I make 5 times what my school mates and my college mates make, which makes me a lot more successful, atleast financially.
When I meet anyone from my school or college they tell me the same things that you are writing here. They attribute my success to -
Having no family obligations
- Which is BS, My parents are middle class, I have been taking care of them since I got a job.
Having good parents, support network
- I have zero support from my parents, they were downright abusive. Since, I have been a teenager, there has not been one week where my father has not told me that I will be failure in life. My mother tried to pressure me to commit suicide on numerous occastions.
Getting Lucky
- I had the same education that my peers had, same economic level. Same razor thin opportunites that they had.
The only differentiator is that whatever tiny opportunity I got however small, I fought tooth and nail to capitalize on it. Worked for 15 hours every day, only 5 hour sleep. Ate one meal a day to save money and time.
I hate it when people like you, my school friends, my college friends try to attibute it to some external factor. You will attibute my success to anything in the world, except my relentless hardwork.
I have taken huge risks whose downside was total ruin. There is no social security checks, some benevolent relative waiting for me to fail. If I fail, I die, my family will perish. That's how high the stakes are.
Everything I had, I earned it with blood, sweat and tears. I have spent 12 hours coding in high fever just to make the release.
I will close off this rant with one last statement.
It all comes to down to how much you want and how much are will sacrifice and work hard for it. Rest are just excuses.
This sounds like a motivational cliche but it is true.
For some reason it reminds me of what some political philosophers think is the most interesting subconscious axiom that divides and subtly defines the ‘left/right’ political debate; and that is the belief in free will (versus determinism).
Those on the left tend to default towards determinism, while those on the right point to stories like yours as proof that people can rise above their circumstances. (And then the left will retort that your particular circumstances determined your success somehow etc etc)
This debate opened my mind to why there is disagreement on almost every political issue. It is also an amazing starting point to many great discussions on being human.
What you did is great, but there is still a part where luck made a role: you are still probably healthy, and you don't yet know how to live together with a chronic disease.
As a person who is successful in terms of money, but sacrifised my health, I suggest you to start taking your health seriously (sleep, nutrition, gym, air quality for you home). The problem is that nobody can tell you when you will start having real problems with it.
congratulations. that truly sounds awful, and i'm glad you've got this far so we can even have this discussion.
without attempting to belittle your story, i'd place a large bet that for every one of you, there are tens - if not hundreds - of people with a better start/more luck in life, that have worked harder than you, and have less than you do.
I mean good for you, and there are definitely people who are smart and hard working who make it despite various difficulties. But on-average those who are successful have more advantages than those who haven't. If you feel like you aren't one of the privileged ones then there's no reason for you to feel attacked .
It's somewhat "ironic" that pg seemingly has a blind spot on this when the norm for startups is to start with a "family and friends" funding round.
Most people don't have family and friends able to lend them a few thousand dollars, let alone tens of thousands, to invest in a complete moonshot (given that we all agree that most startups fail, i.e. lose the investment).
This makes the startup scene extremely self-selecting. Even if you pretend that Elon Musk is a rags to riches story because he says he had to sleep in the office when he started out, he wouldn't have had the millions of dollars to invest in Tesla if he hadn't had an extremely lucky exit with Global Link and then again with X.com. Not to mention that he had previous access to both UPenn and Stanford, which also means massive networking opportunities (assuming he had access to those networks, which again requires a certain inherited status).
Rich people with supportive networks of course can pursuit their goals easier.
Occasionally people from not very good families can do this as well because they're so screwed by the environment and tried to get rid of everything in (the book 'Masters of DOOM' is an example assuming it doesn't try to be too dramatic).
It's much harder to do the same as middle classes with a lot of life obligations, distractions, and most importantly they are by default need to follow linear career developments - it's much harder to be adventurous to had drastic improvement compared to previous categories.
I'm always reminded of this quote by Stephen Jay Gould:
> I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.
One of example that pops into my mind watching Elon Mush show, he said something along the lines "it is not difficult to get money there is plenty of money and investors who want to invest, I can just turn few phone and I will have investment of few hundred millions". Because hast that type of the network.
For me and probably most of the people I know, I do not know where to begin, most average income people networks are not investors type, so we do not have a clue, where to even find people who are willing to listen for a five minute pitch, without feeling that you are begging for money...
In that regard poor or middle class will never be the same as rich, it is amount of struggling to keep up the daily needs.
If rich person gets bankrupt, he can easily bounce back, with connections he has, he can turn few phone calls and again pop up on the ladder, issue with other people they are not even close to ladder, until you get to ladder, there is path through swamp, forest, dark cave, and dragon on two ...
How can you compare Elon or Steve Jobs wealth level to well anyone?
There are CEO's of successful companies that worked their whole lives and never got to that level. Aiming for that is well crippling. People should aim to have a good life...
I know what I want from life, and what it costs, and I don't want extravagance. I don't have the capital to spend the 4-12 years training to increase my earning potential. My lack of capital is no fault of my own, I lost the womb lottery, why must I be relegated to live a meager life toiling for decades and have nothing to show for it while these billionaires you mentioned steal more money in a month than I'll see in 10 lifetimes?
Why do you focus on these billionaires? There are literally scum people who sell drugs, are working on human trafficking and chop people heads off to be billionaires, maybe you want to focus your anger more on people like Pablo Escobar than Bill Gates?
Every billionaire is a failure of government, culture, and society. Pablo Escobar is dead, why should I waste my breath on a corpse? Bill Gates behaves like a king, moving his pawns around the world, controlling people and resources in a way that Hitler could not even imagine. Zuckerberg benefits from, enables, and has helped fascists take power, commit genocides, and mislead hundreds of millions-billions of people while having a direct hand on scales of public discourse the world over. Musk is an imperialist technofacist. So, I guess a better question, is why do you revere these sociopaths and not the more overt ones too? What's the difference between idolizing a child pump, drug dealer, hit man, or racketeer and a person that treats their staff as slaves, or one who funds experimentation on humans in the third world, or who leverages their capital to coup a democratic government for natural resources? They're all the same scum to me. No amount of money spent on PR will erase the harm they caused to get their plunder.
>No amount of charity and spending such fortunes can compensate in any way for the misconduct in acquiring them. -Teddy Roosevelt
There's a severe lack of small businesses in the USA. Totally fixable. So many low hanging fruit. Affordable health insurance and childcare would be revolutionary.
I forfeited my fledgling software startup, just as it started to gain traction, once we got pregnant. I needed insurance for my family.
For decades, young parents have struggled with health insurance, day care, and other really basic stuff. 30 years ago, cost of childcare was ridiculous, and very hard to find. Today, it's completely insane.
Of course new business formation is at historical lows. (Pre-pandemic, of course, in anticipation of the inevitable pedantry.)
Not that I disagree with anything you said necessarily, but it's so much more complicated than this.
Sometimes being less fortunate is what motivates people to become rich. The truth is I had a huge amount of stuff holding me back as a child, and still do, but imo that is why I managed to succeed (relatively at least) where others I knew who had similar intelligence and better backgrounds did not. Even in my own family the difference between my sister and myself is massive, she's probably in the bottom 10% and I'm probably in the top 1-2%, yet she has almost the exact same background as myself.
Being poor might just be the single greatest motivator. It also teaches people a lot of valuable lessons for acquiring wealth such as how to save and ration. If you look at wealth statistics in the UK some of the wealthy people here are immigrants or second generation immigrants from India and East Asia which doesn't really fit with this narrative of rich people get rich, while poor people stay poor.
I understand sometimes people are so unlucky that the obstacles in front of them are insurmountable, but I also don't think this paints a full picture. I also generally agree with the article, although I think it's easy to criticise without providing answers. It would have been nice to see some suggestions on how to fix the problem of wealth inequality, because unfortunately many of the popular solutions (raising taxes, expanding welfare programs, etc) could just make things worse.
Being poor is only a motivator for an incredibly tiny number of people who are probably prone to risk-taking anyway. The unfortunate reality is that some of them shade into outright narcissism.
It's vastly easier to become rich if you don't care about employees, customers, tenants, and co-workers, or if you can persuade yourself that people who don't take risks and succeed are somehow inherently morally inferior and deficient.
In fact a good safety net is likely to increase entrepreneurial activity, because it makes it possible to fail into a safety net instead of failing into homelessness and catastrophe.
Tax increases are a separate issue. But generally wealth inequality is politically as well as financially toxic.
You want to reward smart, clever, inventive individuals. But you do also want to make sure they don't automatically get privileged legal or ethical treatment which encourages destructive narcissistic and authoritarian behaviours in the culture as a whole.
>You want to reward smart, clever, inventive individuals. But you do also want to make sure they don't automatically get privileged legal or ethical treatment which encourages destructive narcissistic and authoritarian behaviours in the culture as a whole.
How would you address this? It seems that you're making a point that if a person became rich AND they didn't have a safety net — they are most probably toxic individuals. If I understood you correctly, it feels that such rhetoric penalizes the "smart, clever, inventive individuals" that come from poor background. As someone coming from poverty I find these statements unfair and paternalistic.
I think there is some truth to this. Obviously too complicated subject for me to understand everything, but I wanted to add my own experience.
One of the most motivating things I did to get a well-paying job and work hard to earn it was by having a deadend job as a kid. There is nothing that has motivated me to study hard as much as the realization that some people will be stuck stacking boxes their entire life.
Motivation makes a big difference, but obviously those who always think about how to make rent and still have food on the table don't always have the opportunity to live a better life...
This.
I come from a coal mining village in the eastern Ukraine, where people didn't get salaries for 4-5 months and would live off the food that they grew in the back yard. My home village is controlled by the DPR separatists, my parents became refugees in their 50s.
I made it to the top ~5% in Germany. Of course there are many factors to it: my parents saved up to buy me a computer, I was fond of western culture to an extent of self-learning English and of course I was just very lucky. Now, here in Germany, all of a sudden I get treated as if I had a head start over the other 95%, especially given my skin color and gender.
I'm definitely not a fan of Ayn Rand, but some tirades about people who are not poor get more and more resemblance with the monologues of her grotesque looter characters.
All this is true but you've left out an even big key differentiator: most people cannot get a 250,000$ "business loan" from their mom and dad like eg. Bezos did.
You left out the most significant reason: that most people just aren't as lucky as those guys. In the US, you can become a millionaire through hard work and dedication and not much luck. However, there is nowhere that you can become a billionaire without tremendous luck.
Amassing that type of wealth depends on many other people embracing your ideas, and random events that are entirely beyond your control working out in your favor. There are ways to improve your odds of reaching this level of success - if you never start a business, your odds are zero. But luck is the ultimate decider of who becomes a "self-made" billionaire out of those that are actively trying to become one.
I think also coming from "humble" beginnings can mean you're happy to "settle for less" as some may see it. I'm a mid-level developer, reasonably successful, with one bachelor's degree, and a modest home I bought. Some folk might not see that as much and want to achieve more, but I am already much better off than I imagined I'd be 15 years ago, growing up in a financially poor family in council housing.
Increasing income inequality does not necessarily imply that. In fact, the US poverty rate has been more or less stable for the past 50 years[1]. And the worldwide poverty rate is dropping like a stone.
[1] To be clear, I very much view this as a failure given how much richer the US has become in the same period. Nevertheless, it is not true (or at least not clear) that the portion of people who are able to actualize their potential is falling.
This statistic is misleading. The U.S. government defines the poverty line based on a 1955 model of spending patterns. It's completely inadequate for modern needs.
The poverty line for a family of four is defined as a household income of $26,200. Any reasonable person knows it's impossible to pay rent and feed and clothe two adults and two kids on less than $2200 a month. Nevermind owning a home, having a car, saving for emergencies or retiring. Yet the U.S. government does not consider that to be poverty. From Wikipedia:
> Most experts and the public agree that the official poverty line in the United States is substantially lower than the actual cost of basic needs. In particular, a 2017 Urban Institute study found that 61% of non-elderly adults earning between 100–200% of the poverty line reported at least one material hardship, not significantly different from those below the poverty line. The cause of the discrepancy is believed to be an outdated model of spending patterns based on actual spending in the year 1955; the number and proportion of material needs has risen substantially since then.
The reality is that poverty in the U.S. is increasing. It has been for decades.
> Any reasonable person knows it's impossible to pay rent and feed and clothe two adults and two kids on less than $2200 a month.
Step outside of your bubble. This is very feasible in low CoL areas all over the US. And remember that’s the line so it’s going to be difficult, but it can be done.
The lowest CoL areas in the US are low because nobody wants to live their because there is no money to be made their either. 80% of Americans live in urban areas where the jobs are.
> The lowest CoL areas in the US are low because nobody wants to live their because there is no money to be made their either. 80% of Americans live in urban areas where the jobs are.
I’m talking about basically every city outside of the Bay Area, LA, Seattle, and NYC. $1000/mo can you a livable apartment in most of the US cities.
The poverty line is supposed to mark the very bottom of the scale, not the middle. $2200 is still a ton of purchasing power compared to almost any other country.
> $2200 is still a ton of purchasing power compared to almost any other country.
$2200 is the income, not the purchasing power. Purchasing power is income normalized by domestic price level. This isn't to nitpick, it actually means purchasing power is quite different when compared to other rich nations. For example PP in the US is 25% lower than in Germany: https://data.worldbank.org/indicator/PA.NUS.PRVT.PP?location...
In other words: With a household income of $2200 in the US and a household income of $1650 in Germany you can buy about the same amount of things.
The more important point however: Most rich countries use the concept of relative poverty as the poverty threshold. This has the nice benefit of automatically updating itself if wage and thus price level increases. It usually is defined as 60% of the median income.
US median income in 2019 was $31133. For a household of two adults that means the poverty line for the US should be set at $3113[0] - quite the difference.
You’re saying the poverty line should follow median income, and that’s exactly what I argued against. The poverty line marks poverty, as in having trouble eating properly, losing opportunities; not an inability to pay your car financing.
Germany is one of the top world powers. For the purpose of this discussion the US and Germany are equals. I was thinking more of Ghana, Argentina, South Sudan, Kazakhstan, etc. you know, the other 95% of the word.
This is so out of touch I barely have the will to argue :/
In the small city where I live a 2 BR apartment will run you at least 1200 and they wont rent to you unless you take home about 2.5x that.
After taxes someone or 2 someone's making 26,200 would be taking home 835 every 2 weeks. Realistically speaking even if anyone would rent to you, which they wont, you couldn't afford to pay rent, keep the lights on, and eat.
You are right of course if they could figure out a way to make french fries at McDonalds remotely while living in some poorer part of the world they would totally have substantial buying power.
What you mean is called absolute poverty in the social sciences. What most other people talk about is called relative poverty. Almost all OECD countries measure relative poverty as a share of median income.
Hell if you like to sleep indoors in the urban areas where 80% of the US population lives and most of the jobs are 26k with a family of 4 is pretty close to absolute poverty too.
Americans interested in inveighing against the rich don’t want to hear or think about people in other countries. Because if they do, then that means they are the rich and it muddies all their narratives about good guys and bad guys.
This is the same reason you see people talking about the .1% and then billionaires. Because they or people they care about fall into the 1% or the .1% so they have to push the boogeyman further out.
Income equality tells you nothing about the conditions of the middle or lower class. An economy in which all classes grow income and wealth can still increase inequality if it allows more people than before to become rich.
> Income equality tells you nothing about the conditions of the middle or lower class.
There's a graph in TFA showing that, after adjusting for inflation, the per-individual wealth of the middle and lower classes decreased by 20% and 45% respectively between 2001 and 2016. The individual wealth of the upper class increased by 33% in this time period.
I agree, but I’d add that hard working talented people can still do great things without money and despite difficulties. It’s just that the reach or scale is amplified by the money. Money and opportunity are amplifiers.
You can be the “Elon musk” of your world, that is you can hit the ceiling of what you were offered. Don’t compare yourself to Elon musk, compare yourself to what was possible for you.
Maybe that’s depressing for some people but I see it as liberating.
It might be more liberating if the success narrative in the US focused on relative success instead of “absolute” success. But afaik and have seen in my life thus far, the people everyone knows, worships, or revered for their <INSERT_ACCOMPLISHMENT> are 95% of the time the absolute best (sports star, movie star, fortune 50 CEO, bigwig politician, superstar dev, most well known doctor, most fancy medical practice in the US/world, etc)
> And so on and on. While I would still recommend everyone to pursue the dreams over never trying to do so - being poor is the single most powerful force that prevents people from doing that.
IMO this is what offsets the dystopia of the coming human IPO market. Many millions of humans would economically benefit from having their own board of directors.
Agreed. It is not only about discrete circumstances ... environment also nurtures and affects development of people over time. Being exposed to better odds over time is also a factor (ppl that were able to create good networks in their youth vs ppl that somehow "made it" later in life...).
For someone as smart as Elon Musk to never be able to start their own companies they really have to be born in a real shit hole country, in a real shit hole part of the country. Even in India or China they would be identified and given opportunity.
So? Is this somehow related to the fact that getting rich by creating these companies is now an option? Just because you can think of 99 reasons people can’t do this doesn’t mean app people shouldn’t.
It's never been easier to start a company in the US. All you need is a computer. You can create a product on it and reach a worldwide audience, all for free.
As for Jobs, he started Apple for a few hundred bucks. It's a pretty low bar.
Plus free time. Plus motivation and energy which is probably in short supply when you've already done 8 hours in a supermarket / your second job / a full day of childcare / etc.
> a few hundred bucks. It's a pretty low bar.
For a lot of people in the US, a few hundred bucks is the difference between eating that month and going without. Or being able to pay the rent and not be evicted. Or being able to afford transport to/from their job.
Of course they’re not talking about “those people”, aka the 63% of Americans who live paycheck to paycheck. When the ultra rich speak they’re only speaking to the upper middle 40%. We love a good rags to riches story but economic class changes less in the US than many other countries, despite this “ease”.
Show me any group of founders and you can point to a few outliers but people who have had jobs like grocery store clerk by and large do not go on to make a business. The bar is lowered enough for upper middle class only, with few exceptions.
That doesn't mean they're poor. I've known many, many people with zero savings living paycheck to paycheck. They had new cars, nice houses, good furniture, expensive clothes, took vacations, and ate regularly at restaurants.
You are truly out of touch with people who are in poverty or near it. My parents each work 60-70+ hour manual labor jobs not including brutal commutes. We were paycheck to paycheck for over a decade until my mom became a nurse (being able to pay for it was complete luck). My father didn't take a day off for over a decade include the weekends it felt like (obviously slight exaggeration) and injured himself multiple times on the job due to the stress. It's truly insulting and saddening to see this sentiment expressed. It is so out of touch.
I didn't deny the existence of poverty. I do not deny your personal experience. There's a lot of poverty. I said that living paycheck to paycheck does not necessarily mean poverty.
According to google, the percentage of Americans in poverty is 9.2% for 2020, not 63%.
FWIW I agree that paycheck to paycheck doesn’t mean poverty, but to say it’s only the people below the poverty line that can’t afford to take any risks with their source of income is also quite wrong.
Finances are quite tight overall - for the upper middle class that might mean living in an expensive area. For the middle class that might mean holding onto house and childcare payments. Those are choices sometimes, and others not.
What is also very common is to want a different job but not have the skillset people need, and no way to sacrifice the time it’d take to gain that skillset. Also age, if you wanted to be a programmer at 40 you could go to school for 4 years only to find there’s almost nobody willing to hire you at that age. This leads to people basically being stuck, unable to change their situation and certainly not able to have the runway to try to build out a business without an old fashioned bank loan.
Software engineers have a completely different set of problems than people who don’t work in tech.
My first job after college was at Boeing, where I received an entry level paycheck. We were paid every other Thursday at noon. Just before noon, there was a mad rush of people out the door, running to their cars and zooming off. I asked one of the old timers what was up with that, and he laughed and said they're running to the bank to deposit the paycheck before their checks bounced.
These were middle class people, paid much more than myself.
They had no money, but they had plenty of income. They just spent it all. And there were a lot of them. I can give you many, many real life examples.
As for unemployable ancient programmers, I'm one of them. I know about it.
The solution is hire yourself. Nobody can stop you from buying a computer and hanging out your shingle. Companies are much more likely to hire an older person as a consultant than as an employee.
Contribute to open source to build a reputation. Several companies regularly scan the D programming language forums looking for people to hire, and they'll often hire remotely.
Everybody has some opportunities that are closed off to them. But they do have avenues that are available to be exploited. Focus on those.
I think, and I mean this softly and in a non-accusatory manner, that you may overestimate the level of opportunity that passes by people. Many people don't end up completing college. Many people who do end up completing college don't end up getting a leg up from their degree. I know quite a few restaurant servers with decent degrees.
> Everybody has some opportunities that are closed off to them. But they do have avenues that are available to be exploited. Focus on those.
Are you sure about that, honestly? Or is it that it worked out for you, with your particular set of prerequisites and willpower? I too believe there are more opportunities for people than they realize, but much of my adult life has been doing all I can to mentor and help people find and hop onto opportunities. I've done this enough to see a lot more failures than successes. It makes me think that people, while they may think its "hard", still really underestimate how much further ahead they were of people who weren't doing as well as them. Mental health and childhood trauma being one of the biggest factors that people don't end up considering, but also just how deep the cycle and mindset of poverty gets ingrained into people.
Don't underestimate the tremendous advantage both Wozniak and Bill Gates had even having access to computers at the time. And that access was simply not available to most people.
Similarly, "all you need is a computer" is still very much an indicator of privilege on a global level. Good luck if you live in a favella in Brazil or slums in South Africa or India. It is easier than it was in the 70s, but by no means universally available.
I am not very familiar with other countries, I am talking about the US.
Last week, here in the US, I bought a decent laptop for $40 from the pawn shop. It was marked down to $40 because the battery didn't work (it worked fine on the charger) and there was cosmetic damage to the underside.
The US is a country where nearly everyone has a computer in their pocket that is thousands of times more powerful than ones in the 1970's.
If I recall correctly, Woz hand-assembled his early Apple software. That implies he did not have access to a computer running an assembler. Hand assembling code on notebook paper is tedious, but is certainly possible.
By the late 70's, there was a Byte shop within walking distance with many different PCs one could buy, and a heluva lot did and started businesses. Apple and other PC makers' success did not come from selling computers to the 1%.
Of course all of that is true but it's irrelevant because you have to take a systemic view when talking about economics. The fact is that capitalism and entrepreneurship, while not fair in the cosmic sense you present it, is the best system we have for creating wealth for both the poor and the rich.
There are many knobs and levers. The extent to which it harnesses "capitalism and entrepreneurship" for wealth creation is not the only thing defining an economic system, and arguably the poor are not best served by maximising capitalism and entrepreneurship.
I'm sorry but this is consolations for the losers. This will sound really harsh and I'm not directing it at you (except where I say "you") but at this kind of tall tale I see a lot.
If they (in the above story) were so smart and motivated (towards starting corps and getting rich), why'd they:
Make a family and let that get in the way of that?
Not H1B or student-visa / postgrad it to "high-income countries"?
Not cultivate and create their support network?
Not overcome "crippling" mistake?
And so on? And endless list of weak excuses for why they'll only ever be mediocre, but hey, they're just as smart as Elon Must and Steve Jobs. That idea can buzz off. If they were, they'd be doing like them.
Did Musk and Jobs always "have it easy"? No, they got back up. Take 100 Musk and Jobs clones, I think only 25 will make it to the same approximate place they did. The rest will get done in by random stuff, and scattered across various levels of successful but not super successful. But I think only 1 or 2 will be "failures" or "average people" without any major success.
That's the character of these people. Succeed anywhere. But the "story" about it in the above comment, this story make it like choices don't matter.
A story to excuse "they"s own failure. A smug content, well, "coulda shoulda woulda" while wrongly taking the responsibility away from "they" and the "Musks and Jobses" for what they each got.
Consolation that disempowers. It's bad to do so. To tell people "poor is a state that something else decided for you. You have not much power to escape."
A person I think must have had it so easy to never have to work out how much you can accomplish if you commit and persevere.
This sort of "smug, content, rich country attitude" that people in "high income countries" can afford to take, because everything, even the "poor levels" are so comfortable.
Easy times, so they never have to get pushed to learn to take themselves higher. Symptom of privilege and an easy, unchallenged life to have these armchair opinions that success is meted out by powerful forces outside the ken of individuals and their choices.
If one comes from adversity, one is more likely to learn their own power. But the easy-rich-country folk can choose to give themselves adversity to make up for this. Sad to see delusions like the above story. This delusion is the poverty of privilege, a sickness of the easy-riding armchair theorists content to coast through effortless existence.
Adversity does crush, and does demoralize, but I bet you 10 folk from "low income countries" have twice the mettle, grit and heart that 100 folks from easy-riding "high income countries" with their easy excuses, and zero-cost "regrets" can afford. Give me 10 of the first lot anyday, better than the whining mewling of ne'er-do-wells too lucky to know how impoverished they really are in spirit, and how much they could have accomplished had they wanted it more.
Heavy sigh. All these loser excuses the above "story" describes here pathetic and not the stuff that these "Musks and Jobses" would let get in their way. I think from the way you write about it, you have no idea.
I think you, and many others, are blind to the absolute smug arrogance (and waste via consoling thinking) of telling yourself sure that guy could be as good as Musk but he didn't set it up that way, and made all these mistakes he couldn't recover from, is blaming externalities when he had choices. How dare you take that from them. How dare you take that from yourself. What you chose.
Musk's hardships: awful father, abusive father-son relationship, no SA support network, social anxiety, had to leave SA over "crippling mistake"
Jobs hardships: didn't know his real father, never felt belonged to the adoptive family, no support network had to go his own way, had child early and paid for the "crippling mistake" of abandoning that family, no money in 1976
Bezos hardships: didn't know his real father, bullied in high school, had kids early, made plenty of mistakes
Others: Keanu Reeves, Meghan Markle, you think you can take these people and just say, "they had it easy, the cream floats to the top", any woman who's been successful (has to have 10x the grit of men to move through all the shit they get), any person who gets successful (has to have 10x the grit of non-successful people to get there, and stay there).
Again, I'm sorry this is not at you, but this story that poor stops people, is such a broken story.
I agree, but I don't see a solution on the present political landscape.
Free enterprise seems to allow some tiny fraction of such highly motivated geniuses to excel, lets say 0.0000001%. Other systems seem to allow 0% of these people to excel, or at least to do so anywhere near their full potential. The comparison seems to be between a horrible system where almost nobody can excel and more horrible systems where absolutely nobody can excel.
You occasionally get historical anomalies where bureaucratic or authoritarian states innovate, such as when the state machinery of the US and USSR raced to the Moon or the burst of innovation in Nazi Germany. In that case the forcing function was war (or Cold War in the US/USSR sense), and war seems the only thing capable of motivating bureaucracies. I guess the other source of historical anomalies is when you have the explicit blessing of a king or someone really close to the throne, but the bandwidth for that is strictly limited and you often get long periods of idiot kings where nothing happens.
Without war or extreme will at the top all you get is meetings to plan the meeting to do a study on the effectiveness of more meetings. In more militaristic/fascist state regimes you also get a perpetual "game of thrones" at the upper echelons.
Maybe what we need is a more egalitarian socialist system coupled with a perpetual threat of alien invasion? Wait... isn't this sort of how you got the Star Trek socialist utopia? We need some Klingons.
Edit: the trouble, I think, is that innovation and achievement are antisocial. We often like the result, but the act is always a form of rebellion. It's often a rebellion limited to the mind of the actor, but it's rebellion nonetheless. All human social systems act to suppress deviance, so what you need for innovation is a system that tolerates deviance and manages to do so in a peaceful way.
Interdependent social structures of any kind suppress rebellion and channel human effort into social game playing such as the "meetings about meetings" and "game of thrones" phenomena I mentioned.
Capitalism is the only system I know of that allows non-violent antisocial acts of innovation at scale. By violence in this context I am including lies, bureaucratic subterfuge, and fraud. (Yes you do get those in capitalism but they're not required. There is a way to get there without them.) In all the other systems you have to hack your way out of the social jungle with a machete to innovate... or you have to be king and there's only one of those.
In any other system Elon Musk would probably have had to engineer a coup at the space agency by getting its present head thrown in prison for "corruption" (as they do in China) to assume his position and have an opportunity to get Falcon or Starship built. To get them across the finish line he'd probably have to focus a great deal of his energy on planting knives in the backs of his bureaucratic challengers. There would be only one space agency so there would be only one such throne to fight over, so if Elon's approach failed there would be no Blue Origin or RocketLab.
Basically we suck at politics. Every political system is horrible. I think this is largely because politics is still pre-scientific. We think in terms of political ideologies (fantasies more or less) dreamed up in an irrational evidence-free manner by arrogant mountebanks or populist meme wars. Instead we should start with game theory. AFAIK game theory and simulation have never even been leveraged to cook up a hypothetical political system.
You can't just take an Uber to a rich country. You have to do a lot of work to get there. All that work is wasted years compared to someone who was just born there in the first place and can focus 100% on their actual path of getting rich.
Maybe the US is but if you have proper education nothing stops you from migrating to switzerland. Dont like german? No worries french and italian are options too.
Did you actually see how this really works before forming your opinion? The only thing my family needed to migrate to Switzerland was one job contract for my mum, not even a well paid job but some future potential due to relatively good education. The most complicated part was not paying way to much to get our stuff over here.
Its not to different in many other countries. The thing is, if you are somewhat valueable (i.e. learned a job that has a higher need) you have a realistic chance.
None i guess, but gladly many people have the possibility to get some kind of degree these days. Just because you come from a poor country does not mean you have no means of learning a job.
I spent a few months in SEA (Combodia, Thailand, Malaysia) and i met several people who moved from their poor families in the country sides to the cities worked at a job and some even studied next to working. I honestly don't know how the economics work out, but these people decided they want more and changed to life in a way to make this work.
I totally agree that this is not possible for everyone. Even in Switzerland a percentage of unfortunate people never really had a chance based on their inability to help themselfs or function within the system.
Of course several million people coming from poverty have had good outcomes via education. Heck, I moved myself from a 3rd world country to a first world country. But for the vast majority college education is inaccessible. Even the state sponsored free primary education is pretty much inaccessible with absent teachers and barely functioning schools.
BTW, Malaysia is a middle income country. Visit some of the displaced tribal communities in India and you will have a different perspective.
Oh no! I have to do work? Guess it is time to roll over and just die. You can't expect me to work for something!
> All that work is wasted years compared to someone who was just born there in the first place and can focus 100% on their actual path of getting rich.
All your work of getting rich is wasted years compared to someone who was just born rich in the first place and can focus 100% on their actual path of getting uber rich.
How's that sound? Maybe instead of focusing on some abstract definition of rich you should focus on what amount makes you happy?
First step to happiness is to stop having destructive mindset of "bah, he started with more money than I did".
I probably won't buy Ferrari in my life, and I'm okay with that. I probably won't buy luxurious house or start unicorn startup. And I'm okay with that. But I will achieve relatively wealthy and good life and be content with that.
> I "potentially" could've been next Ali, Tyson or Lomachenko, I'm not. Is that because if my mistake, or mistake of my parents or who else?
It's unfortunate, but yes it's your mistake and your mistake alone, not any outside factor like genetics. You should work harder, get stronger, be better to reach your potential and achieve the dream.
A) you have no idea about my genetics, but you assumed for some reason that I was limited by it
B) not sure what your sarcasm means in this case, that chances of me becoming next Tyson are non-existent? I acknowledge that, and found passion in something else. And you don't see me complaining everywhere that it is Tyson's problem that I didn't become world champion in boxing. Like it is a zero sum game somehow.
If you are born poor it is extremely difficult to escape poverty, especially because of high taxes that you are going to experience as soon as your education and determination lands you a good job. This severely inhibits your means to save or to invest. The progressive taxation is like a back-stop to keep everyone in check and prevent people from going up the class ladder.
Meanwhile the rich, that are supposed to be the target of progressive tax, laugh and carry on paying very little.
> If you are born poor it is extremely difficult to escape poverty, especially because of high taxes that you are going to experience as soon as your education and determination lands you a good job
That's very easy to test, by comparing social mobility in countries with more or less progressive tax rates. I think the results say the opposite: progressive tax rates encourage greater mobility (because those taxes go to pay for free higher education, better public transport, mobility initiatives etc)
Most countries (at least here in Europe) have very high taxes, so whenever you go, you'll pay pretty much the same. So if people move, they do it for what they can get back for the money they pay.
However the problem is that the system is setup so that it penalises ambitious people while protecting the rich.
In many countries the governing parties see people as their clients and in their interest is to keep everyone dependent on benefits or being on the verge of needing them. That's how you game democracy and as a side effect you severely inhibit growth. (Good example is how little "unicorns" Europe has)
> whenever you go, you'll pay pretty much the same
Perhaps in terms of tax you are right (though I know of at least 10+% differences even between the richer countries, so I doubt it), but the cost of living varies dramatically even within Europe. You don't need to move to a poor/bad part of Europe to profit either, as for example Lissabon is relatively cheap.
It reads like you think progressive taxation is not bracketed. Which is something often found with people from poor background.
Let's say you have some system where your taxed 0% for income < $20k, 10% between $20k and $40k and 30% for $40k+. You currently earn $39k. You have to pay 10% of $19k so $1900, you keep $37.1k after tax. You're offered a $2k raise. Lot of poor people think that you'll suddenly have to pay 30% * $41k so $12k and lose money. But the 30% is only applied to the portion of revenue you get over $40k. With your raise you know have to pay 10% of $20k + 30% of $1k so $2.3k so you keep $38.7k after taxes, so your raise end up being $1.6k. You have not lost anything.
Now the problem comes from social benefits which usually are not regressive and work on a all or nothing system.
The problem is when you get a good job that pays $100k or more. You are not rich, but you are targeted by a tax supposedly for the rich (which they don't pay as they have means to avoid it).
Do you have any examples of countries where progressive taxation would be a hindrance for escaping poverty? This frankly sounds like a made-up argument against taxation.
Spain. There are levels of taxation that provokes the following: your small company (1 to 10 employees) is doing really well so you try to increase the number of employees and business. And what happens is that when passing some threshold you will have to pay the next level of taxes and end up earning less after taxes than when you were smaller. So we have a lot of small companies that cannot or don't want to take that risk.
Good example is UK. As a specialist you would be in area of 40% effective tax rate, but going over 50% is not uncommon (after IR35 changes some workers have to pay employer's NI) plus there are other taxes like council tax or high VAT.
I would think a specialist paying 40% in taxes has already escaped poverty? That's my confusion here, poverty suggests such a low income that progressive taxation shouldn't really affect yet.
The thing is that the costs of living are so high in cities that offer such pay, you can hardly save anything and if you started with 0, it will take decades to have some security. Sure you make a lot of money, but you are still essentially living paycheck to paycheck. My definition of poor is someone who doesn't have their own home or flat, savings that let them withstand at least a year of unemployment without having to use state benefits and so on.
Taxes isn't the reason why more people aren't richer. In fact, taxes is the reason why more people aren't poorer, because they pay for essential social services. At least in most countries, when receiving hospital bills you're not afraid to end up with crippling debt.
The reason more people aren't richer is because of private property and the capitalist system. As a whole, humanity is pretty rich and is severely destroying the environment to make sure of that. Only a fucked up economic system with all the wrong incentives makes sure some people starve when we produce more food than needed to feed the entire population, sleep on the streets when there's millions of empty/abandoned housing units, etc.
So, to be honest with you, i don't think taxes is the solution, because as long as money and private property are a thing, taxes will only be a band-aid on this cancer. Arguably, taxes are also often misused to fund more human misery in the form of military and police services and other harmful institutions we should entirely get rid of. But i would say claiming high taxes is responsible for poverty is really missing the point of how capitalism works.
Give a viable alternative that doesn't descend into fascism. Capitalism is called the 'least worst' system for a reason, and some countries have an excellent QoL under it.
Social market economy. Socializing some things does not mean you have to put up red flags everywhere, hold big party meetings and kill all the intellectuals. You can still keep markets where they make sense and outcompete others in a global capitalist system. Extremists are always wrong.
Go read a history book. Rejecting slavery wasn't extreme, in fact, America fought a civil war in no small part due to it. Something with half the support of a country is not extreme.
> This is a false dichotomy and huge oversimplification.
Exactly. It is more or less the oversimplification Americans thinking about socialism do.
You are taking my human sentences and try to work with them like code. This conversation makes no sense. There is even an obvious nitpick counter to your slavery example (are/have been) but you are not interested in what I originally said anyway.
Absolutely true, but the sad reality is that after a while with a comfortable living situation people tend to vote against their own self-interest. This then leads to dismantling of safety nets, which certainly doesn't help radicalisation.
> after a while with a comfortable living situation people tend to vote against their own self-interest
There's probably some truth to that, but i don't think getting cozy is the only explanation. The "engineering of consent" is a thing, and in an era of mass corporate media owned by vicious psychopaths, proper information/journalism is hard to come by. Noam Chomsky has plenty to say on that topic, if you're interested
Capitalism is only called "least worst" by capitalists themselves. Much of humanity considers capitalism "the worst".
> Give a viable alternative that doesn't descend into fascism
So, to give some historic perspective, capitalism is precisely the root cause of fascism. All totalitarian systems are capitalist by essence, and historic fascism in France, Germany, Italy, Greece (etc) was pushed not by popular support but by industry leaders. Mussolini himself even argued fascism should be called "corporatism" because such was its true nature. If you'd like to learn more about this, i strongly recommend a documentary called "Fascism Inc".
Now, i'm guessing you believe the USSR was a fascist alternative to capitalism. As an anarchist, i understand the USSR to be a form of State capitalism, not communism. Communism is when power and resources are shared, which is what the Soviet (workers councils) revolution was about before the Bolsheviks (Lenin's sect) seized power and murdered the revolutionaries to establish their dictatorship ("of the proletariat", or so they say).
To people in the USSR, the police was the same. The prison was the same. The factory was the same. The same cult of control and productivity plagued their lives under Lenin as it did under the tsar. And the same political persecution hit them with Trotsky's Red Army as with the Tsar's Okrana. If it looks like capitalism, that's because it is capitalism.
So, now that "dictatorship of the proletariat", "fascism" and "capitalism" have been ruled out as potential candidates for making society better, what about an actual democracy (anarchy)? What about a society in which nobody has to worry for a place to sleep and food to feed their children? In which nobody has to work side gigs to pay for education or health bills? In which regulations are decided not by a national parliament full of the worst psychopaths this planet holds, but by a local assembly of peers where people can decide for themselves?
Our current political systems in the west claim to be democracies but those claims fail any form of scrutiny. The designers of our political systems (in France and USA at least) were either slave owners or colonization advocates, and were in any case strongly opposed to women having political rights. For example Jules Ferry, who is revered in France as the founder of public schools, is less famous for his take on how "superior races" had a duty to civilize "inferior races"... which explains how and why the french public school system was used as a tool of colonization to destroy local cultures.
If you really think you live in a democracy, think about it. Were you given any occasion to vote on actual topics? If your neighborhood opposes a national law, are you free to have your own local regulation supersede the national law? Are you free to study how power applies in your country, and to report on it for your peers? At work, are you free to decide with your peers how to manage the company, or is a boss deciding for you? Are you reaping the benefits of your work, or is a boss and some shareholders reaping them for you?
This system is hated by most because it's ruining lives and killing millions of people. Capitalism is just as rude as Mao's rule, you just can't see it if you're part of the tiny privileged elite (as most of us on HN are). If you're looking for alternatives, please read some anarchist/liberation literature. There's centuries of social criticism and ideas on how to improve things... it just so happens the people formulating these are hunted/jailed/assassinated by those in power. A few names to get started: emma goldman, kropotkin, bell hooks, noam chomsky, david graeber, angela davis...
You are making the same mistake as all the revolutionaries you mention - you completely disregard the problem of efficiently allocating limited resources, and that there are vast differences in capabilities of different people to do it. In other words, merely putting the means of production into hands of workers and asking them to manage these by consensus does not guarantee "society in which nobody has to worry for a place to sleep and food to feed their children". There are some cases which succeeded, yes, but also many that failed.
State capitalism is the only viable implementation of communism. Humans will not share unless co-opted, so the use of violence is required for the proletariat to seize resources.
> What about a society in which nobody has to worry for a place to sleep and food to feed their children?
We have this society, today. There are a few outliers, and yes, life is tough for many (most?), but we are way way better off as compared to any other time in history.
> In which nobody has to work side gigs to pay for education or health bills?
This is an issue with America, not capitalism. Fight for single payer and to cap student loans to ~$10,000/year like most other countries did.
> Communism is when power and resources are shared, which is what the Soviet (workers councils) revolution was about before the Bolsheviks (Lenin's sect)
This is an issue in itself though. If state violence is required to force people to share, then anyone who co-opts control of the state is suddenly in the position of a dictator, with effectively unlimited power over all resources. Capitalist parliaments are a magnet for psychopaths, true, and it's worse in a communist system because the only way you can survive is by making sure the ones in charge like you.
> Capitalism is just as rude as Mao's rule, you just can't see it if you're part of the tiny privileged elite (as most of us on HN are)
Excuse me, but I make ~O(£20k) per year. I am not rich, nor am I poor, but you can fuck right off calling me part of "the tiny privileged elite".
To be honest, after that statement, I cannot any further path for good faith debate here, so I will leave it at that.
There's ample evidence otherwise in the body of social sciences. Cooperation is a fundamental characteristic found all across nature and is a pillar of human civilizations throughout the ages. I would argue it takes a lot of resources/energy to coerce people into NOT sharing, like when school teachers will try to make you believe copying is cheating despite your guts telling that helping one another is perfectly fine.
You could read Kropotkin on Mutual Aid, if you're interested on more information (though outdated by over a century of research) on how selfishness is definitely not a natural state of things.
> This is an issue with America, not capitalism.
No, it's a problem with money and profit and does not only affect America. The same issues have reached the UK and every other place where "neoliberalism" got a foothold. In fact, even in France where neoliberalism isn't quite established just yet and education is still rather cheap (<500€/year in public universities), most students are forced to have a sidejob because the study grants they receive are not enough to live (hardly pays for rent) and the student status does not grant you other social benefits (need to be over 25 to have support from the State).
> If state violence is required to force people to share
It is not. In fact, state violence can only be used to PREVENT people from sharing. If there was no police, there would be no poverty because we'd have expropriated the rich long ago, as the vast majority of people agree that's the only sane thing to do. Or do you know a lot of people defending banks and billionaires? Personally i don't know a single one in my neighborhood.
> I make ~O(£20k) per year (...) calling me part of "the tiny privileged elite"
So depending on where you live you're either very rich or rather poor. In the UK that's definitely not a rich income, but in other parts of the world £20k/year makes you a rich person. In any case, any form of salary in the Global North makes us considerably richer than most people in the Global South.
Also, please note i did not call you part of the tiny privileged elite, as i do not know you. The "you" employed was a generic, impersonal you. The tiny privileged elite was "most of us on HN", which you and me are apparently not a part of (i make < €10K/year).
EDIT: Also worth noting about the human tendency to sharing. Marxism-leninism never was a form of sharing. There were richer and poorer folks in the USSR, as in every "dictatorship of the proletariat". In fact, the political police hunted down people who wanted to share, such as the peasants cooperatives of Ukraine (defended by the Makhnovtchina peasant's army) or the soviet of Kronstadt... both of which were eradicated in blood by Lenin and Trotsky's red army because they were actual communists and not power-hungry tyrants.
> There's ample evidence otherwise in the body of social sciences. Cooperation is a fundamental characteristic found all across nature and is a pillar of human civilizations throughout the ages. I would argue it takes a lot of resources/energy to coerce people into NOT sharing, like when school teachers will try to make you believe copying is cheating despite your guts telling that helping one another is perfectly fine.
Selfishness absolutely is a human characteristic too. We are not inherently bad, but we are not inherently good either. Our entire evolutionary chain is defined by ruthless competition, wars, etc... We as humans do not tend to play well with more than a few dozen people outside "our tribe". It's the reason I would die for my one individual in my family, but don't bat an eyelid at Covid death statistics.
> No, it's a problem with money and profit and does not only affect America. The same issues have reached the UK and every other place where "neoliberalism" got a foothold. In fact, even in France where neoliberalism isn't quite established just yet and education is still rather cheap (<500€/year in public universities), most students are forced to have a sidejob because the study grants they receive are not enough to live (hardly pays for rent) and the student status does not grant you other social benefits (need to be over 25 to have support from the State).
Higher education is supposed to be an investment. Not free. Personally, I love the idea of becoming an indie developer, but until I've produced something valuable enough for others to enjoy, why should I get to do it without having another job alongside? Remember, as a student, the taxpayer (your parents, your grandparents, friends, enemies, friendly robots, etc...) are all paying for you to go to university in the first place. It's not for you, but for greater society as a whole.
The fact that school is cheap in France is a boon for arts and culture. There is nothing wrong with having to put in hard work for dreams.
> It is not. In fact, state violence can only be used to PREVENT people from sharing. If there was no police, there would be no poverty because we'd have expropriated the rich long ago, as the vast majority of people agree that's the only sane thing to do. Or do you know a lot of people defending banks and billionaires? Personally i don't know a single one in my neighborhood.
Stealing from the well-to-do is a really generous redefinition.
Let's say we gut the 1% and take everything they have. What happens next? Some of that money will undoubtedly go towards building businesses, etc... and then the next 1% comes around. The smartest ones will flee the country, because they know that any success will be punished by having their life work taken by the state. It actively dis-incentives any innovation or development that isn't rewarded top-down.
It's easy to tell yourself you are as good as Musk or Jobs or Bezos. And comforting. But there's also the possibility that they are truly different. More talented, more focused, more hard working, more driven. And more willing to take risks.
I don't know any of these guys, but I know plenty of people who got much farther in life than me because they were simply better than me in some respect.
I also know some people who got farther by pure luck, but the thing is, when I look around me, I find more cases of merit- than luck-based advancement.
So, yes, this, or that or that can hold you back in life. But, conversely, when you don't succeed in life, we always find excuses, don't we? It's never "I wasted hours on social media sites", it's "I didn't have the same connections as Gates".
Even if you aren't the most talented and smartest person, having the advantages they did would still almost certainly mean you'd be in a better position then you would be without them.
Yet, there are many examples of those who made big from rags to riches. Am not talking about movie stars but business tycoons. Carol Bartz, Dhirubai Ambani, Naval Ravikant, Chamath to name a few.
Bartz for instance
"Bartz was born in Winona, Minnesota. After losing her mother at a young age, she moved with her brother to her grandparent's farm in Alma, Wisconsin. She took a job at a bank at age 15 to help support her family. Good grades in high school earned her a scholarship to William Woods, a prestigious all-girls college in Missouri. She transferred to the University of Wisconsin-Madison and worked her way through college as a waitress. In 1971, she earned her degree in computer science."
Being poor can work as the single most powerful force for people to get out of poverty and pursue their dreams.
Not to be rude, but for those who want to find excuses will find excuses. Those who want to break out and go get things done, will find no excuses.
You're making a giant leap between getting out of poverty and becoming a business executive. Most people don't aim to manage other people, they're happy doing whatever they want to do (doctor, nurse, teacher, whatever) while not having to worry about having their basic needs met (food, shelter, similar). Can they achieve that under our current system?
For one poverty. I believe it is in your control to crawl yourself out of poverty, may be not in childhood but in your high school or once you turn 18. Am not saying everyone should become rich but you don't have to be poor.
Your mind is in your control. Keeping your body and brain healthy is in your control but for medical conditions though.
Half of that is caused by their own past decisions and the other half by their own present decision to not put 100% of their effort into changing it.
>being poor is the single most powerful force that prevents people from doing that.
IMO absolutely wrong. The real reason is people dont try and risk it all. And they search for reasons why they would not be able to make it, including the oh so unfair starting points in this "game". Yes its unfair very very unfair even. But it is so for almost everyone. And more importantly it can not be changed and even if it would, it would not retroactively have an effect on existing people.
Everyone has one life and the number one reason to not reach a set goal is if it was not set and not attempted. You can make up all the good reasons why you would not attempt it because life is unfair but that doesn't change the fact that you yourself reduced your chance to reach it to zero by your own decision to let circumvention stop you from trying.
>Because they have no access to support network, so when they fail, they fall all the way to bottom.
Failing is an possibility if you try, if you dont, its certain.
Also what exactly is so "scary" about failing? Do people think they end up homeless under a bridge or something? I see a practically zero chance that could ever happen to someone who fights.
You need to have some serious mental health problems and probably drugs to fall this deep. And given that health in unfair too you may get this anyway so even more reason to get yourself in a poison where health problems wont make you fall to the bottom.
Ive financially failed before, as long as zero is the bottom (I dont make debts) is just a setback its not stopping me. I certainly had a good start in life but money was never given to me. I started form zero as a teenager and I almost went back to zero in my early twenties partially do to circumstances outside of my control partially due to bad decisions. I could have another 50 years trying so why would that stop me.
My goals a higher than ever and the speed at which I chase them only got faster.
Also what exactly is so "scary" about failing? Do people think they end up homeless under a bridge or something? I see a practically zero chance that could ever happen to someone who fights. You need to have some serious mental health problems and probably drugs to fall this deep.
Well this is just not true. You have a fantasy view of life that does not ally with reality.
So you think you could end up homeless under a bridge even trough you would do everything you can do avoid that?
I dont think so. Long time homeless people are a very niche type of persons that "gave up" for whatever reason. Usually mental health, age, drugs. I worked for 2 year with someone who was homeless for a few months. The reason he wasn't anymore and other still are is solely his own actions. But he was young didn't do hard drugs and had the will to do whatever it takes to get out.
I think you've changed what you were talking about. Suddenly you're talking about "long term" homeless, which makes me think you realised you made a mistake and now are backtracking.
I see that you're also presenting one single case known to you; this is effectively meaningless, and you know it.
No, I talked about the risk of becoming homeless due to striving for wealth and total failure on the way.
I see this risk as extremely minimal, not because people can get out of homelessness or only experience "shot term homelessness", but because I dont think you ever end up in this situation in the first place. Going 100% at becoming wealthy doesn't mean you turn stupid and irresponsible and also loose any friend and everything that could keep you afloat if you totally fail. That's just not realistic.
The example I bough up may be anecdotal but It wasn't mean to show that people can get out of homelessness if they mess up and end there but rather to underline my argument that homelessness in general is only an "option" for a very niche type of person. There are also way way less female homeless people and it certainly isn't because females are somehow
more capable to avoid total failure.
The person I worked with was homeless due to his family abandoning him (they where part of a religious sect) before he ever had the chance to stand on his own feet. But he was not the type of person that would accept homelessness and that's the sole reason he isn't anymore.
In the end people are scared to fall really low by trying to go high but while you indeed fall longer and further down when you fall from high you dont really end up lower. It just hurts more especially if you worked very hard to get up. With the exception of age/metal decline and health problems you very very likely get back up higher than where you started no matter what causes you to fail.
While I agree to some extent with the point your trying to make, the way you phrase and portray this sounds like more of an excuse than a strong argument.
>Because they have family obligations that take priority
This is on you. If your serious about it you should see this coming. Elons familial situation isn't exactly all flowers and roses. A lot of my friends who managed to start successful business started yong precisely because they saw this coming and new it would be difficult to do with a family. I would argue the exception is if you have parents who are sick or need heavy financial support or whatever. If this is the case, would be a fair argument in favor of being rich (or at least middle class) helps you get rich.
>Because they live outside high-income countries
I would argue this goes both ways. If anything a lot of countries are trying to pile into developing countries now cause that's where the growth is. Similarly I used to work in hk where living costs are absurd. Then I was relocated to China and after a while I quite my job to try my own thing because it was affordable to take the risk. You could live decently by being frugal with some savings and the benefit is still vastly in favor of being an owner than an employee. Access to education might be a differentiator but so many things are available for free online now.
>Because they have no access to support network, so when they fail, they fall all the way to bottom
I think this is related to two somewhat. It's also totally feasible to position yourself so that even if you fail you can still land on your feet, you just have to be conscious of it.
>Because they may have made a crippling mistake in their pasts that now prevents them from reaching their full potential
Again this is the same for everyone and is on you personally. Don't do anything stupid.
But like I said, I generally agree that being rich or middle class definitely helps you become rich, but if you can go on and on about all these reasons your probably want to adjust your mindset as well
Well, I don't want to present my view in an absolutist manner, but there is a lot of survivorship bias in success stories.
People tend not to note positive environment factors if they lived all their lives with them. And if you got burned through externalities beyond your control, you tend to be a bit sceptical on fairness of the game.
Last, but not the least - "don't do anything stupid" is easy post-hoc, but think of your teenage mistakes and consequences of "doing stupid" during those years.
Your mention of Musk should raise an alarm to your sense of reality. He comes from a well off family, moved to Canada at 17 to attend university. This alone already puts him at the top 1% of humanity in terms of privilege. Then he went on to attend Stanford...
Not that it takes away from any of his achievements, but you are failing hard at realizing what things actually look like.
> It's also totally feasible to position yourself so that even if you fail you can still land on your feet, you just have to be conscious of it
This is the famous “pull yourself up by your bootstraps” said by someone who’s obviously never had to.
My point about musk was more about his own children and relationships and how "family obligations" should be an obvious consideration if you want to start your own company. You shouldn't really complain about it after the fact.
But fair enough, I'm not going to argue too much. Reading through the comments it seems that access to decent education and a stable family seems to be a generous assumption for many people around the world. I would say where I grow up in Asia, cases of abusive/dysfunctional families tends to be less than the west, and people in general have decent access to and awareness of the importance of education. There are a fair number of successful entrepreneurs who used to be villagers, mostly because a fairly large portion of people were farmers back then
Great article, I wasn't aware the share of the middle class had dropped so significantly.
I think there is also another factor that plays a role in the de-democratization of wealth. In the olden days you could be the biggest fish in your pond, but as that pond grows it's becoming more and more a winner takes all ocean.
> As more occupations become scalable, jobs that were previously stable are becoming risky. Telehealth enables superstar doctors to serve customers in markets that were previously inaccessible to them. Connected fitness devices like Peloton allow superstar instructors to serve thousands of customers at a time, making the average instructor in your local gym redundant. The same dynamic applies to many other service and knowledge jobs.
PDF: https://economics.mit.edu/files/11563 about the disappearing middle-income jobs (because those are the things that sit at the optimum point on the cost-benefit curve for innovation - be that automation, offshoring, better organization, standardization, etc)
The problem is, there's too big of a labor market force pushing wages down in the low-income segment.
Economics aside, let's not forget that personal relationships are inherently unscalable.
Sure we can get "5 personalized minutes" with that superstar doctor or fitness instructor, but maybe we're missing out on more human connections with average locals.
It can also be seen as a huge opportunity to create niche-stars. There is little value for the world in thousands copycats when you can have a large distribution. However, there is value to find the best fit. I have hope in a future in which everyone can find the best doctor to fit its own needs or even better, where the number of doctor "specialities" is broader.
There's a little company called MyTeksi. My is a for-profit social startup with a mission to revolutionise the taxi industry.
They started GrabCar, which killed off the taxi industry with higher wages, higher quality services, lower prices. To win the war against Uber, they'd lie about how long it took for a car to arrive, and they'd deceive drivers as well. A driver might be promised a $100 bonus for driving into an inaccessible area. And for the bonuses they could claim they'd be paid 70% because their fee was deducted from the bonus. Sometimes they'd ban a driver for small reasons like a customer complaining about leaving a water bottle. Not only would they fire you despite your 4.7 star rating, they'd take all your earnings.
Eventually, they outlasted Uber, acquired them. They didn't raise prices but they no longer offered discounts. Now they're simply called Grab.
They still hold on to the idea that they are the good guys who are improving the lives of others, but whose lives? It's billionaires getting rich off the hard labor of others. Don't get me wrong - the billionaires worked hard and took risks, but is it as hard as the drivers that they kick off the platform?
This is similar in vein to what DeliveryHero is doing in South and SE Asia. They closed shop in Europe once the regulations made it difficult to keep rider wages artificially low, and now majority of their operations are in the Developing world. The lax nature of regulations in Asia make it easier to do "naughty" things and move up the ladder.
Isn't doing it cheaper, faster, and better how most countries have risen to success since the industrial revolution? Regulations are a barrier to entry. Just because a government makes a regulation doesn't mean the reason behind is done with the best motives or outcomes in mind.
No, that's just the marketing bullshit they peddle to the masses. Uber didn't accidentally become the rolling ethical and legal disaster it's been for the past 7+ years. Illegal activity was literally their business model from the very first moment they introduced UberX.
Income inequality is growing, yes. But are the wealthy somehow responsible for it? Is their "getting richer" directly responsible for it? There seems to be a growing consensus on the left that they are. I have yet to see a convincing argument to show this though.
Someone who builds a company worth 100m didn't have to steal money from me (or anyone else) to do it. If they did steal, then that's what needs fixed. Prevent the stealing.
The individual who has 100k to invest can watch that 100k grow if they invest wisely over time. They can pile the earnings on top of their savings from their salary, and get richer faster than someone without the 100k invested. The rest of us who don't have 100k to invest don't see that same benefit--but merely because the 1% chooses to invest and to watch their money grow isn't a bad thing. Now if they're doing corrupt things with that money, then yea--fix that.
This concept of a wealth tax "fixing" income inequality is folly. It won't fix anything. It's at best a band-aid attempting to treat a symptom caused from underlying issues. We need to treat those underlying issues--not the symptom. Wealth tax happens to garner a lot of support though because many of the 99% love the idea of receiving something for free that's taken from the 1%. But it's not the governments job to legalize theft and pick the winners and losers, it's the governments job to fix the underlying issues.
> Someone who builds a company worth 100m didn't have to steal money from me (or anyone else) to do it.
Wage theft makes up the major part of all theft in the US [1]. At least some part of the value of companies is coming from this theft. As an example, look at Amazon and how they treat their warehouse and delivery workers. They're not just working them like this for the sake of it, but rather it's an example of concious wage theft in order to save money and, thus, increase the value of the company.
I (leftie) don't see growing wealth inequality necessarily as a problem; however, it does factor into which solutions are available for the problems I do care about. One of the problems I care about are the living conditions of those who are worst off. Despite economic growth, the conditions for these people have, depending on the area, barely improved, stagnated, or even deteriorated over the last decades in many wealthy nations.
The question then is: why does this happen, and how do we fix it? There are broadly speaking two options: either the economy is performing poorly and not generating enough wealth for everyone to thrive, or it is generating enough wealth, but the spoils are being distributed unequally. The fact that we have huge inequality points to us being in the second situation, and the solution is, accordingly, redistribution.
As an aside, I'm quite curious what you mean by "underlying issues".
I agree with you--peoples living conditions should be improving and at a good rate. One thing to consider though, is when people talk about the affordability of anything from X years ago to now, oftentimes those "things" have changed significantly. For example, house sizes have gone up drastically over time, and at the same time house fewer people. In 1950's houses average 292 sq ft / person, where in 2010 it's up to 924 sq ft [1]. Healthcare "cost" have changed as a result of advancements in treatments but also due to a population living longer and longer. We need to take these things into account because it's going to be more difficult to buy a home that's 3x the size, and likely has a lot more expensive electronics and other appliances in it. You can't just wave the hand over what a home is today vs what it was 70 years ago.
I don't believe everyone needs a new iPhone every 12/24 months (or even one at all), or a 2000 sq ft house to themselves, but everyone does need food, shelter, affordable healthcare, and again I'm open to the argument for education.
I bring these points up primarily because there are ample examples of people from the FIRE community (financial independence retire early) who live on a minimal income but save and are able to retire early. In my opinion, they're able to save more simply because they focus on only buying what they really, truly need. And they're able to resist advertisements that attempt to convince them a want is a need. Many of the crazy successful examples from the community are dual income 6 figure earners, but there are examples of teachers retiring early by living frugally. One of the interesting things of capitalism is it's convinced society that many wants are needs. If you can outsmart society, you can profit/benefit.
I agree redistribution is what's needed, but where I disagree is on the how. I'd rather see more opportunity given instead of reward taken. I don't think a lack of government funds is the issue.
> As an aside, I'm quite curious what you mean by "underlying issues".
At a high level the problem that I think we'd agree on is more people need to be able to cover basic needs. Housing, food, healthcare, and arguably education. I'm not an expert in any one of these, but I have worked with hospitals before. There's a massive amount of resistance to change within hospitals. They move and innovate (and as a result improve) extremely slowly. They're very inefficient (25% of hospital costs amount to waste [2]). I'd argue this is one underlying issue under the umbrella of the "healthcare" issues. I don't wish to propose a solution--because I honestly don't claim to have one. There are some arguable reasons for why healthcare moves slowly--extreme risk aversion. But I think that's why we employ politicians with our tax dollars--to propose and implement solutions. A failure to fix these issues is a failure of our politicians, and since we vote them into office, a failure on our part.
Just as another example, I've been told that permits alone to build a home in my area cost ~35k. I've also been told that about 50% of construction costs (or perhaps it was only construction labor costs?) end up going to taxes. I don't have any sources to back this up--just heard from various sources I deemed semi reliable.
>It's at best a band-aid attempting to treat a symptom caused from underlying issues. We need to treat those underlying issues--not the symptom.
The underlying problem is that the economy is breaking basic macroeconomic equations, namely that savings must be invested. A wealth tax would force such an outcome. This is unpopular for republicans. Government investment would force such an outcome. It's still unpopular for republicans. Building more houses would force such an outcome, it's unpopular for democrats. Deeply negative interest rates for consumers would force such an outcome except that cannot happen because people will just hoard cash.
I can list more and more things. The pattern is clear, all the options are disappearing and we are left with nothing to do. The reason why economics doesn't work isn't that the textbook is wrong, it's that people come up with more and more sophisticated ways to prevent the textbook rules from functioning.
I'm curious what it means to say that savings must be invested. I have an account with an online broker/trading platform in which I put a portion of my money each month (most goes into stocks, some into ETFs). I think that counts as investing, but I also save money in the bank for paying bills, rent, food, and emergencies. That's not invested, and it makes up a large portion of my 'wealth'.
I think that in that context, investing means putting money back in circulation. For example you invest in a company and that money goes to pay providers, salaries, taxes, etc. It gets back into circulation straight away. But I don't think that's the case with most stocks and ETFs, most of that money just circulates in the stock market for speculation, maybe a small part of it goes back with comissions and brokers and taxes, but it doesn't do that much good in the overall economy.
This money is effectively lent to the bank, which will then re-lend it. A small share to the Federal Reserve, the rest to mortgage holders, businesses trying to meet payroll and so on.
Then the textbook is wrong though. Most sciences operate by postulating models and then verifying experimentally whether their models hold up in practice. Economics is the only science I know of that seems to have almost a disdain for experimental verification, combined with the comically arrogant attitude that if reality doesn't conform to their models, then surely reality must be wrong.
There isn't a finite amount of "wealth" in the world. You can go out and make wealth every single day. The rich obtaining more of it doesn't mean there's less left over for you and I.
People need to be able to cover their needs. Food, housing, healthcare, and I'd be open to arguments in favor of education. But I don't see income inequality as bad necessarily. I see massive amounts of people unable to cover those needs as bad. Fix the problem that people can't cover their needs--not that fact that some fortunate entrepreneur got richer faster than me.
> There isn't a finite amount of "wealth" in the world. You can go out and make wealth every single day. The rich obtaining more of it doesn't mean there's less left over for you and I.
There is an essence of truth to that, but it certainly does not tell the whole story.
Consider what happens with Amazon. When they put a family-owned store out of business, those people need to work somewhere. They then turn to the only place left that has any jobs in their area: the Amazon fulfilment center. They then get a minimum wage job there. It is clear those people have directly lost wealth as a result of Amazon.
In some cases the "creating wealth" argument holds up, but in reality what is mostly happening in the age of globalism is wealth consolidation, not wealth creation. Amazon is not creating new wealth, they are simply taking all of the customers and wealth away from all of the smaller businesses and consolidating it into a single huge entity.
This obviously has strong negative consequences for the people who are losing wealth. There is a reason wages have remained stagnant for over 50 years while corporate profits keep on growing to record highs.
> In some cases the "creating wealth" argument holds up, but in reality what is mostly happening in the age of globalism is wealth consolidation, not wealth creation. Amazon is not creating new wealth, they are simply taking all of the customers and wealth away from all of the smaller businesses and consolidating it into a single huge entity.
I get where you're going with this... and I'm not in favor of monopolies and anti-competitive behavior... but Amazon is a hugely innovative company, and I do not believe that they've merely consolidated wealth without creating any. Think of just AWS as an example and all of the companies (and their employees) who've created more wealth as a result of it.
Amazon has no doubt created wealth as well. However, they have also consolidated wealth and put many small companies out of business. The extent to which they have created new wealth and the extent to which they have taken existing wealth can be argued over, but they have certainly done both. This is not exclusive to Amazon either. The same is done by all huge multinationals, and this has been happening for decades.
It is important to realize the effects that this consolidation has in terms of wage stagnation [1]. This is a very real effect that is felt by a very large percentage of the workforce. By consolidating wealth (and power) in the hands of few large companies those companies are able to pay a lot lower salaries to their employees. If your options are (1) work for Walmart for a low wage, (2) work for Amazon for a low wage, or (3) starve, you will accept whatever wage Amazon or Walmart will offer you.
In other words, as a direct consequence of these multinationals and their mode of operation, millions of people are getting lower salaries today than they would have gotten 50 years ago (adjusted for inflation) whereas overall productivity has gone up significantly. The difference is pocketed by executives and wealthy shareholders of these companies. As a result of those lower salaries, those people are now having trouble paying for core necessities (health care, education, housing).
This is the rising wealth inequality that people are talking about, and the rising wealth inequality that people want to fix.
Sure, Amazon wins by providing lower prices through economies of scale. The details of how they acquire customers of small businesses are not relevant because it does not influence the end result. Wealth is moved from one party (a small business) to another (a large multinational). There is a clear loser.
> There isn't a finite amount of "wealth" in the world.
Yes, there is. It is not limited, we can do more of it, but of course it is finite. It is also important that, the more wealth you have, the easier it becomes to make more of it. So, indeed, the rich obtaining more of it does mean there's less for you and me.
I can go outside and carve a wooden spoon out of a piece of fallen wood. I've just created wealth without taking it from anyone.
Even if I had to buy the wood from someone else, I took a $1 piece of wood and turned it into a $20 spoon. Wealth was just created without anyone loosing it. Wealth is infinite. Sure the amount of currency in circulation is finite, but currency isn't wealth.
> It is also important that, the more wealth you have, the easier it becomes to make more of it.
I agree--once you get to the point that you can make your wealth make more wealth for you, you've hit the point that you can scale beyond your time. Generally speaking having your wealth make more wealth requires investing your wealth, which is a good thing.
> So, indeed, the rich obtaining more of it does mean there's less for you and me.
This simply isn't true. See wooden spoon example above.
> Wealth was just created without anyone loosing it.
If you use the wood for the spoon, it means someone else cannot use that wood for making a ship or heating their house. You cannot go and make a million spoons to get rich without either having money to invest or breaking a few laws. And this happens because the amount of wood (or resources, in general) is not only finite but relatively scarce.
More fossil fuels can be done with enough time, so fossil fuels are infinite too as long as time doesn't cease to exist, right? Sorry, but I don't understand where you want to get. If we take that point of view, then everything is infinite, and it is impossible to have a discussion about economy in that context.
Not every wealth creation activity requires the consumption of wood. Some require nothing but time. The wooden spoon was merely a simple example of how someone can make wealth. Time is a resource that appears to be infinite--at least until an extinction level event that wipes all humans off the face of the planet (time would still exist, but our time to make wealth would be gone).
We have gone down a rabbit hole, and it sounds like you (and I too) no longer wish to dig any deeper. The point is when the rich get wealthy it doesn't demand the non-rich to get more poor.
The proportion is zero-sum by definition, and that's what's important.
Even if the pie keeps growing for everyone, the rich are taking a bigger and bigger proportion of the pie, and proportion is what makes you poor. If I have 10% of a $10M the pie today and you have 90%, and tomorrow I have 5% of a $20M pie and you have 95%, then you have proportionally taken from me, and I am worse off, despite having the same absolute dollars "pie equity".
Until roughly 1800, per capita wealth was roughly stagnant. Since then, it's increased roughly 50 times. Maybe more controversially, I'd say we're nowhere near the limits of further development to even greater wealth: technology is a long way from physical limits (e.g. compare biology to human tech), our access to resources has barely begun (e.g. solar power and resources from space).
How do you look at this history and think the right way to approach it is as a fight over who gets what part of an existing pie? That was the standard conceptualization in the beginning! It can't be the key to the 50x change. The recent headwinds against equality have also been a period of relative stagnation in productivity growth. Shouldn't we look really earnestly into how the hell progress happened in the first place?
Yes, we also have a big problem in that poverty should not exist in a society this rich. But this is genuinely a first-world problem. Job 1 is to not screw up what got us here in the first place.
>There isn't a finite amount of "wealth" in the world. You can go out and make wealth every single day. The rich obtaining more of it doesn't mean there's less left over for you and I.
Non invested savings are zero sum. This is just macro economics. If one person has a savings surplus, the other person has a savings deficit (unemployment). Buying existing housing isn't an investment. Building new housing is. Buying an existing company isn't an investment. Starting new companies or growing old companies is.
Non invested savings are growing, just look at treasury bond yields and interest rates. If you buy $100 worth of treasury bonds the government has to issue $100 in debt, otherwise yields drop. If the government doesn't issue additional debt it cannot invest the additional money on behalf of buyers of the treasury bonds. Conventionally, inflation would rise immediately because more money is circulating in the economy but it doesn't, implying excess savings that are not being invested.
> Buying existing housing isn't an investment....Buying an existing company isn't an investment.
yes it is - because the person you're buying it from now can invest the proceeds of that sale (to something else).
Buying shares off the sharemarket is investing - not because you're directly giving the company your money, but because your buying is the end of a chain of investment that directly leads to the IPO at the other end. Same with housing.
Your way of seeing only direct investment as "true" investment is too shallow, and lacks the actual nuance of how the financial markets operate. If you sell your shares to somebody else after an IPO, the IPO might not ever have happened, or that the raising of money costs more (to account for the risk of having to hold the bag till the company profits). By strata-ing the risk out to different people, the financial market allows all levels of risk to be bought, by all manner of different people.
The direct "investment only" method is as primitive as bartering for goods/services.
Assuming by "equality" you mean everyone is given the same amount of money regardless of what they do or achieve, then no it's not better than bare necessities.
A degree of struggle is good for us. It pushes us to become more than we could without it. Don't take this to mean I want everyone in poverty--that's not what I'm saying. But being motivated to work towards a financial goal is a good thing. I do not believe a life without struggle is a good life.
There are struggles outside of financial struggles too. So I understand that even if you remove the financial struggle by giving everyone the same amount of money some struggle will remain from other factors in life. But in general I've found I grow the most in difficult times. It's painful. But it's richly rewarding when you come out the other side of the struggle. Robbing life of struggle will rob you of a rich life.
Isn't it literally the government's job to legalize theft and pick the winners and losers? One of the government's main tools in regulating the outcomes of a country is tax policy and if you want to call that theft, sure, go ahead. It doesn't make it the wrong course of action to take. You even lay out a remarkably cohesive argument for that 'theft' in your statement: if wealth provides an excess of agency for the wealthy, the only way to optimize for maximal opportunity (or maximal innovation if you'd prefer that framing) is to reallocate opportunity capital from the hyper-rich to the general population. The way you get more entrepreneurialism is not by increasing the payout for 'winning' the startup lottery, it's by letting more people play.
> The way you get more entrepreneurialism is not by increasing the payout for 'winning' the startup lottery, it's by letting more people play.
I'm not arguing we need to increase the payout. Letting more people play is exactly what we need. I'm simply arguing that people winning more isn't what's preventing people from playing.
First. What do you say about prevention of the formation of unions? Who benefits from that? The owners of the companies certainly do. Are they stealing though? No. Is it still a problem and making inequality bigger? Yes, because then workers have no negotiating power and have to accept whatever salary they are offered. In the limit, that salary could be food, water and shelter, and we'd be back at slavery.
Second. If you have 1B to invest, and I have 1k to invest and we both invest... there is no stealing, and you're getting richer much faster than me. Now you're not to blame for having that money, or investing it, but it is undeniable that the wealth inequality between the two of us is only ever going to grow, all things equal.
Third. Ever heard of lobbying? Who do you think lobbies and for what purpose? Hey, Let's use the free market and have people pay as much as they can for insulin. Let's make it legal to do that. Let's say that's 500€/month. Welp. A poor person just lost half their monthly savings. A rich guy? Barely a blip. You know who's also a rich guy? The owner and co. of the company of makes insulin. Where is the stealing?
Cmon. Saying that unless there is stealing then it's ok is so uninformed I have no words for.
It is not. Ownership, wealth, money is an outcome of processes of the government -- like the existence of police and military, and that the majority of the population (in a democracy) agrees to only the state having a monopoly on violence, and agreeing on who owns what.
In a democracy, one asks everyone to agree a) that violence is monopolized, b) to protect ownership.
If wealth is then superconcentrated -- why would that work? Why would or should most people participate in that specific social arrangement?
A problem with capitalism without any form of wealth tax is that it is fundamentally unstable mathematically -- those with a lot already have more opportunities to get even more, making wealth more and more concentrated.
Without wealth tax, there is no stabilizing force.
This is about mathematics more than right or wrong. There just isn't a way a system that only concentrates wealth can keep working without mechanisms to redistribute wealth.
At some point, majority of people are slaves or starve and there isn't a way for that economy to progress further.
This is not hyperbole... it is human history. Historically, devastating wars and/or revolutions have been the mechanism to reset wealth distribution and happen all the time.
Tax on wealth isn't about "fair vs unfair", it is about whether one wants to construct a system that can be stable over more than a few hundred years.
You are correct. I never said, or intended to say, capitalism was the problem.
For example, waste is estimated to account for 25% of healthcare costs. I've worked with with hospitals, and they do things incredibly inefficiently due to all sorts of bureaucratic and political nonsense. There's a massive amount of resistance to change. I believe they're allowed to get away with it primarily because hospitals generally aren't allowed to fail. I'm not arguing we need to close up hospitals, but something needs to change there to encourage improvement.
This is pretty accurate. When I went through that essay (by PG), I got the similar idea.
The essay read to me like, "Oh, you are white guy, your parents are well off, you must have been studying in some tier 1 school, why not risk 1/2 yrs of your life to start a company, while you are in college. Chances are you may get some money from us too! You should try a lot. Infact the more you try, the better we earn."
edit:
What PG misses is worldwide perspective. Everything in his essay is limited to Silicon Valley and the social circle around it. Some people from east may have connections with the valley, and that can benefit them.
He even goes to mention, startup succeed because of social factor. There is a very small chance that people in US would trust a revolutionary product built outside. So unless the product is able to bootstrap itself in the home country, the chances are slim. And not every part of the world is as fortunate as SV folks and have startup culture.
You may say, why not move to one with good culture. My answer, "Goodluck getting out of third world country."
You don’t even need to go to the third world. SV culture is something quite unique where you can get funding for any stupid idea and run with it. In France for example the idea of a “risk capital” is that if you don’t have a solid plan on how to be profitable in 2-3 years you can forget about it. Also the funding itself is orders of magnitude below SV VCs.
The really shocking quote from the article is the part of the caption below one of the charts:
"Data for families in the first quintile (bottom 20%) are not shown. Their median wealth was as follows: 1989 — $0; 1998 — $0; 2007 - $36 and 2016 — negative $1,099."
BOTTOM 20%. Has has zero or negative wealth. And that has only changed for the worse during the last 30 years.
If one FIFTH of your country has $0 or negative wealth, and your country is the richest country in the world, I would say there is a significant problem.
After I finished school, as a software engineer I bought a home and a car (by taking a loan) and effectively I had negative wealth. I was by no means in a bad situation, I just consciously took a loan against my future earnings to improve my life quality now rather than after I saved up.
> After I finished school, as a software engineer I bought a home and a car (by taking a loan) and effectively I had negative wealth.
I mean, sure... but your wealth was only negative for a VERY short period of time. Your car still had value and you could close that gap in probably a few months and be net-worth positive.
I think there are way more people who are paycheck-to-paycheck at best. The average credit card debt in the USA is thousands of dollars. I don't think that's because people are just stupid with money, I think a lot of that comes out of necessity because they can't keep their head above water.
> Wealth, or net worth, is the difference between the value of assets owned by households and the value of the liabilities (or debt) held by the household. Assets include items such as the value of an owned home, value of a business, accounts in financial institutions, stocks and bonds, 401(k) and thrift accounts, individual retirement accounts and Keogh accounts, rental properties, motor vehicles and other personal property. Liabilities include home mortgages, credit card debt, student loans, vehicle loans and business debt. The SCF does not account for the discounted values of Social Security benefits or defined benefit pension plans.
Exactly. Which means when you finish school, if you have a student loan you have negative wealth. If you finished a good school and can expect a decent career you are not in a bad situation even though your wealth is negative.
The point of the parent was that you aren’t in net debt if you own a tangible asset, like a house or a car, on loan. If push comes to shove you could sell off your house, move into a cheaper rental house, and clear the debt.
Student loan gets you into negative wealth territory but not housing loan.
We forget so soon! Housing debt (which is secured with a tangible asset) can easily bring you into negative territory when your home value falls below your loan balance, which happens regularly, as real estate is cyclical.
Also, I'd bet many, if not most, car loans are underwater the first day the car is driven off the lot. Lots of people have to pay additional money to satisfy the loan, after selling their car.
As economist Russ Roberts often points out in these inequality discussions, the quintiles that are used to show growth only in the upper class does not refer to the same people over time. When you follow people over time, they generally move up into higher quintiles thus "getting richer."
This doesn't contradict Roberts. The chart at the top of your linked article shows that even for Gen X, poor people generally out earn their parents, and rich people are far less likely to out earn their parents.
Roberts just elides the fact that historically, an even higher percentage of poor and middle class people would out earn their parents.
So his statistics are not wrong, he just presents them in a certain light.
I'm concerned about the drop in mobility too. But stepping back for a bit, imagine mobility stayed the same, what would that mean? Would that mean everyone earns roughly the same after a few generations? Or would it mean the income inequality pyramid gets flipped upside down? Is that even feasible?
I feel like there has to be a better way to portray class mobility than statistics like % out earning parents. It seems that (im not an economist) out earning parents is crude because it doesn’t take actually moving classes into consideration. Can one not out earn their parents and still be poor or have not moved classes?
Wouldn't you expect that to be a one-off change that exhausted itself within a decade? And then a return to old income growth rates?
Like, middle class income growth has been stagnant for several decades now despite steadily increasing productivity, how can you explain that whole period using demographic shifts around 1972?
That's actually what I do the whole day. I give people good advice. I call myself a generous problem fixer.
Yesterday a poor man was complaining that the steel company he worked for closed a few years ago and since then he did not get any job. I saved his life by telling him the following: "The solution to your problem is easy. Stop being poor and start being rich. You made a mistake by choosing to be poor so my second advice is to stop making mistakes."
He thanked me and I am quite of proud that I saved his life. Going to write a book now.
I’m more of a maker because done is better than perfect.
Leave the two letters ‚in‘ out of the word and therefore eliminate inequality in favor of equality.
The message is clear:
Stop being unequal and start being equal!
Today is my AMA so feel free to ask for solutions to common problems of mankind.
I have a pretty busy agenda nowadays because the world is in a bad state and in order to fix it I am consulting a lot.
Convince me why my time is best spent with you when so many people need me.
Nothing truly insightful about the troubles of poverty has ever been said by someone who never lived it. Divorced of the appropriate context, advice and opinions are like the proverb says; everyone's got one and they all stink.
Orwell’s work on poverty is a treasure because he actually went and became a homeless person and a minimum wage slave to learn about the conditions of the poor.
Instead of reading Down and Out in Paris And London, PG is more likely to reread 1984 and use it to complain about getting cancelled on Clubhouse.
Recently I made the oldest startup mistake in the book:
Exercising too many ISOs and incurring the AMT to the tune of $350,000.
I have talked to probably a dozen various professionals - accountants, lawyers, wealth managers, liquidity providers, etc - and they all give the exact same advice:
1. Borrow from family or friends.
2. Leverage existing assets (mortgage, stocks) to pay it.
Every one of them has mentioned those 2 ways are how "most people" in my situation deal with it. Neither are an option for me.
To put it another way: already be rich. Whether personally or by proxy.
Paul Graham also neglected the necessity of the wealthy in creating new wealth because he is one of those gatekeepers. Whether they're the VCs benevolently funding your startup, or the "rich uncle" floating you a 1% loan for a year to pay AMT: it's much easier to become wealthy if you're already wealthy or have access to wealth. You need the wealth to fund your startup. You need the wealth to exercise your ISOs. You need the wealth to cover your AMT obligations. All of this is after you've managed to get the capital for a good education and everything else that goes into joining startups.
Oh and the wealthy get a cut every step of the way. The AMT may be flawed, but the wealthy also tax the rest of us. Not only that, but if we do get rich, since they've done you so many favors, now they have a new wealthy friend in their network to fall back on or raise capital from or obtain liquidity from. So many people who get rich from startups give their money right back to VCs to join funds. It's almost seen as an obligation to help out others. It's not. There's plenty of capital out there. Let the VCs risk their own, not yours. Build affordable housing or bootstrap your next thing; don't effectively give VCs their money back.
And let me be clear: if I do become wealthy from these lottery tickets I'm jumping through hoops to attain: it will be luck. I'm just one of hundreds of people who have built this startup, and if we do exit: the value will be as much more a factor of external market dynamics than intrinsic value created by the company and its labor. It's luck. It's lottery tickets. Don't let anyone fool you otherwise. A good product is one tiny piece of it.
You seem to be making the assumption that "A is easier if B" implies "A is impossible without B", which is not what is being said. I guess the question is, of the new wealthy, how many came from a situation of already having access to wealth (either directly or by proxy)?
Based on what you wrote, I agree with RHSeeger that you did indeed make that assumption. That you can’t see it speaks volumes about your analysis not matching the facts.
I don’t see how your unanswered question relates to RHSeeger’s statement, but your transparent attempt to deflect by continuing to bring it up, again, says more about the flaws in your thought process than it achieves your aim.
> If this was true in reality, then why are there so many new wealthy people that didn't come from wealth?
The way I am reading this is you are saying
> It is easier to become wealthy if you're already wealthy or have access to wealth
is disproven by the fact that
> There exist people that became wealthy without already <being wealthy or having access to wealth>
I do not see any other way to take your statement. If you meant it some other way, please explain.
Since the original statement is "it's easier with" not "it's impossible without", it is not disproven by the second item.
As to how I define "access to wealth", I mean you either have wealth yourself or are in a position to get it (borrow it from a bank or family, etc). To take an extreme example, a penniless, homeless person with no friends or family has 0 access to wealth; they do not have their own money available, nor can they borrow from a bank or family. Everything between that and "has 200 million under a mattress" is a matter of scale in between; and the definition of what counts as "wealth" depends on the context.
What PG also conveniently failed to mention was how the money shuffle results in a few people getting very wealthy (less specifically because they had a good idea and executed it well).
Money Flow:
Public Investors, Mutual Funds
V
Investor Round X
V
Investor Round ...
V
Investor Round A
V
Founders/Seed Investors
Each level of this Ponzi pays for the previous level, plus a healthy spillover. So when the IPO happens, everyone prior in the chain wins big.
Before the IPO, each funding round pays the previous investors up the chain to the founders/seeders (unless you made a foolish arrangement with one of the VC rounds).
The magic here is that all of this can be done without the company ever making a profit. That's where things have really changed. In the past, you had no hope of an IPO unless your company had a track record of reasonable profitability. Uber is the best example of how the general investing public got fleeced in order to pay each level of investors which basically fleeced the next. It was all a money shuffle.
It's a great system to take money from questionable regimes and pour them into this shuffle (Softbank).
the survival of the fittest is a means by which creatures may evolve from one species to a superior species. The challenge before us now is not how we could evolve further but:
to live together in a society and achieve the greatest amount of happiness for the greatest proportion of the worlds population
this could never be achieved by imitating the survival of the fittest
it happens in nature, it's just the way of the world
your child failed the SAT, so natural selection has taken place and we're feeding her to a pack of hyenas
we are human beings, with consciousness and a unique ability to see things from another person's point of view
the survival of the fittest created species
but what makes a decent society is the responsibility of the fittest
It's also worth noting that many startups are used to launder trust funds and family money. Daddy (or the family office) invests in my friends startup, I (I wish) get a job as "chief growth officer" or "chief of staff" or "COO" or similar - or even as an early stage dev. Daddy gets preference shares - ofc - I get early stage employee shares, Daddy gets a tax break and Daddy's investment ushers in Venture funding. With Venture funding & Daddy the company goes well (pretty often) and goes to a early exit which sees the investors make a minimal profit and the early employees (me, I wish) get a nice bonus too - and onward.
This is quite the skeptical take, but then again, a few startups ago I saw things that definitely suggested you are right. I often find myself wondering how some startups raise so much money. It’s tempting to think that VCs and many co-founders are playing an insider’s game. But even if so, this doesn’t imply malice or malfeasance. It implies what has always been true: tribes take care of their own in contrast to taking care of “the other”.
Of course, any VC, accelerator, or angel investor who desires success is going to work hard to make their investments identity-blind. But you can’t ignore that a startup’s success is affected by the breadth and depth of the cofounder’s network. Given two startups with equal talent, wouldn’t it be wiser to pick the cofounders who are sons and daughters with deep connections to the rich and powerful rather than the sons and daughters with no network? Objectively this is probably a rare edge-case. But startups are notoriously hard to evaluate objectively — it almost seems like a throw of the dice. This dynamic only strengthens the temptation to make judgments based on identity, as it is an easy and accurate judgment to make — are you one of us?
A large part of YC’s success is that they were able to choose winners based on merit rather than identity, because PG and team’s domain knowledge was “what it takes to be a successful startup.”
Is that the case today, when YC highlights their Alum network as a significant benefit to their startups? Presumably, YC has built a network based on merit rather than identity. But is the network itself strong enough to resist the temptation of relying on easy identity-evaluation rather than on hard merit-identification? Concretely — will two YC companies enter into business with one another due to shared identity rather than on measured merit?
There’s something really fascinating and subtle occurring here: the assumed coupling of merit with identity. Just as a good VC will try to avoid the lazy-thinking of identity-bound evaluation, I’m sure the YC alums strive to evaluate one another without reference to their shared heritage. But the temptation for a YC startup to outsource their decision-making to identity is amplified by the cognitive dissonance of trusting in their own YC-identity-as-merit while being skeptical of the other alums.
The aspiration to evaluate merit rather than identity is great, and is part of what makes America feel special to itself. But seems to me to be quite difficult to live up to that aspiration.
Also Ivy League : there are a number of mechanisms that make that seem like a perfected meritocracy (genuinely in the opinion of many running it) but if you are a bad person like wot I can be if I forget to be nice... there are dark strands of corruption flowing under and letting the scions of money get into the community.
A very well thought out and articulated essay. Essential to get the billionaires of the pedestal that they have perched on.
Put your money where your mouth is and fund the wealth tax.
Personally, I vehemently disagree with the 10x programmer narrative in IT. It fuels " management provides more value than replaceable workers". If there were no workers, then management is just sitting there coming up with random ideas. Everything else is management lingo which is fine and good but we all have 24 hours in a day. One thing doesn't make you more valuable than the rest.
Wealth stored as money is already taxed in a way in the form of inflation. I would much rather have a tax system based on consumption of non renewable and finite resources. Primarily that means tax on materials, fossil fuels and land.
Own a lot of land or a big house = pay a lot. Use a lot of fissile fuels = pay a lot. Leave your wealth in the bank and living like a hermit = pay very little. Basically align the tax system with your (or your company's) environmental footprint.
Why go straight to a wealth tax? In the US, there exists a comprehensive system for measuring economic activity and translating it to income. To measure wealth would require a huge invasion of privacy (not only of the wealthy but the 'suspected wealthy') and a whole new system of identifying and tracking things of value.
Why not fix the income tax? At least try fixing it using the existing system, before creating this huge new boondoggle.
Hint: the top income tax bracket is about 400K. It was 500K in 1913 (~13 million today adjusted with conservative, CPI-based inflation figures). There's your problem. Nobody should be making 10 times more than the top bracket in a year. If they are, you add a new bracket and skim an extra few percent. Right now, the wealthiest make ~10,000 times more than the highest income tax bracket, plus they are typically paying the capital gains bracket, which is even worse, so they end up paying less than doctors and engineers.
When politicians clamor for a wealth tax, it's because they are either A. clueless or B. don't actually care about the problem, but want more power and votes. I think it's the former for Bernie and the latter for Warren.
Because it's more nuanced then that: the point of the uber-wealthy is that their net worth is tied up in investments. But because those investments have theoretically actualizable values, they can still "spend" them in the form of taking out loans against their assessed value.
Which then compounds because a loan devalues with inflation, the bigger the loan the lower your interest rate and so on and so forth. So it winds up taking very little increase in their theoretical investments to offset a slow drip of "actual money" they're borrowing to fund their lifesystems or buy off politicians or what have you.
They don't pay income tax like you or I pay income tax because the volumes involved are large enough that the "startup capital" for tax evasion is practical.
You're proposing unnecessary complexity to solve a phantom problem. The wealthiest person in the world just sells a few billion worth of stock each year to fund his lifestyle/other companies. He pays the rate for the top capital gains bracket. It isn't that complicated. More brackets would normalize the wealth distribution.
Some of the wealthy do take out loans against assets, but these loans involve risk. Investments are not guaranteed to beat an interest rate, or banks would just buy the investment, instead of loaning out the money at the interest rate. Especially for the ultra wealthy, those assets are typically heavy in one or two companies (the companies they founded, for example). And even if they can beat the interest rate on average, they still are continually liquidating the asset over the course of the loan, incurring the income tax. They certainly aren't beating the income tax rate + interest rate, if you fix the brackets.
Nowadays, the Fed has almost taken an assured position that it will print enough money to rescue the market no matter what happens/melt your cash, but that's a separate issue. Address the inflationary monetary policy; don't create a huge wealth tax band-aid when a simpler solution exists.
> I vehemently disagree with the 10x programmer narrative in IT. It fuels "management provides more value than replaceable workers".
Eh? It's the 10X programmer narrative, not the 10X manager narrative. The lesson is that some workers are vastly less replaceable than others, which is quite empowering for talent.
Currently people owe capital gains tax on all their assets as if they were sold when they expatriate, which is pretty modest compared to any annual wealth tax. In my case, since being an arbitrageur or market maker means you pay income tax rates on all your gains, the expatriation tax is roughly 0.
But don't you lose out on a lot of benefits of citizenship as well (visa free travel, etc.)? If you want to trade in US markets you are still liable for US taxes regardless.
As a US citizen permanently living abroad, I'm really annoyed at having to file, but I'm not even contemplating renouncing my citizenship.
Quite honestly, I pay slightly higher income taxes in the country I live in, and I'm happy to do it. If I were ever eligible for a wealth tax (besides the property tax almost all middle class people pay, which is very much a wealth tax), I would be fine paying it.
I'm not sure why people think Paul Graham's perspective on wealth inequality is in response to a recent shift in public opinion; he's taken this position since at least 2004: http://www.paulgraham.com/gap.html (the basic premise of that essay was that in the tradeoff between freedom and wealth inequality, the latter didn't matter because everyone's living standards are converging). From that essay: Materially and socially, technology seems to be decreasing the gap between the rich and the poor, not increasing it
Paul is a smart guy; to paraphrase Richard Feynman, that makes it easier for him to fool himself. There is a genuine debate to be had about how to balance wealth equality with freedom, but the amount of motivated reasoning on display is enormous.
I was thinking the same when I read PG’s essay. Unfortunately, I sensed arrogance and entitlement rather than humility and reasoned thinking behind his words.
It’s a shame, really. This world needs not only more successful people, it also needs more compassionate people, too.
As usual, this entire argument, both the PG essay and the response, in focusing basically only on Silicon Valley and the US.
The real difference that nobody seem to notice is that 1982 rich people from Pg’s data were locally rich. Tech has enable a class of globally reach people, whose riches, even tho they live and prosper in Silicon Valley, is the product of global unregulated resources extraction.
Unlike oil and real estate, which were already quite regulated and fundamentally local (not limited to the country of the rich man, in case of multinationals, but definitely localized), tech prospers on the borderless nature of the Internet, and the borderless nature of media.
OP mentions PG’s article arguing against a wealth tax. That article is short, simple and to the point - Modelling a Wealth Tax (http://www.paulgraham.com/wtax.html). It is so compelling, but also misleading and wrong. Its not easy to spot the sleights of hand he uses. I wrote more about it here - Modelling a Wealth Tax Correctly (https://blog.nindalf.com/posts/wealth-tax/).
And yet, I think the simplicity of PG’s arguments is going to convince a lot of people. Simplicity sells, even if it deliberately obscures the truth.
I enjoy his blog posts, primarily because they show just how your brain can turn to pudding when it's more profitable to be willfully ignorant than otherwise. No one can read his recent obtuse entry and come away thinking his conclusions are supported by the carefully selected input. It's mindless at best, a clumsy, dishonest swipe at the poor at worst.
He's just a middleman between wealthy investors and children of privilege, and like all middlemen, desperate to demonstrate some kind of value he adds to the process before the actual players catch on to the pointlessness of having middlemen in the first place. It really becomes sad when a layer of entrenched middlemen starts to actually believe in their own necessity, so I honestly hope he is at least being disingenuous. Just not sure he could be so consistently dense if it weren't genuine.
One of the best satirical articles on SV I’ve ever read[0] nailed this exact subject perfectly:
> Having figured out a font and mastered Altman’s Ratio, your next step is to find something to say. For outsiders this can seem daunting, but it’s very easy, since every one of Silicon Valley’s self-styled radicals thinks exactly the same way. In fact, when you study their output carefully, you’ll find endless variations on the same three ideas:
I cannot imagine any founder being deterred to start a company because of this wealth tax. With or without it you'd be very rich under PG's assumptions
Because of a tiny wealth tax that is already lower than in many other countries?
You think a relatively well off individual from a less wealthy country facing many systemic problems for business will pass up the opportunity to migrate to the US because they may need to pay a couple percent if they strike gold?
I mean, isn’t that exactly what Singapore did to attract talent and capital? And it worked? And didn’t one of the Facebook founders give up his US citizenship and move there? Sure it’s one case, but it’s evidence at least some are motivated by taxes.
Sure, not every founder will make that choice and not right away, but you could see a slow shift over decades to more tax friendly locations.
You may be right. A small number of startups may be founded elsewhere. But the large income from a wealth tax likely provides a greater benefit.
We've had a wealth tax in the past. It worked. The only reason why it got removed was because the super rich used their vast influence. It's not something that's in the public's best interest.
You do realize that most European countries that has a wealth tax abandoned it and the recent ones never actually collected anything close to what was forecasted because it’s not that hard to move wealth around.
No, I don't think that's the kind of thing that GP means.
There are problems that your business faces once it's successful, and there are problems that prevent it from becoming successful.
This has come up in a number of other areas on HN. For example, scaling your technology is a problem you'd like to have, because it implies you actually have customers causing you to scale. Regardless of whether or not a wealth tax is a bad idea, it's certainly in the "problems you'd like to have" category.
That doesn't necessarily mean it's not a problem that business owners worry about, but it's a completely different category of problem from "I can't get my business off the ground at all." It's a problem that you only run into after you've (by many measures) already won the game.
A founder whose only agenda is to get rich and then put the proceeds into a mega-yacht and private island or worse yet, lobbyists and political contributions aimed at protecting his own privileged tax status, is one I'd prefer remained a citizen of some country other than my own.
Then go. If the price of having them here is that they get to not pay their fair share while taking advantage of our infrastructure and workforce, they can pound sand.
I'm not concerned with people with that little money. If you've got $10M, you're rich, but you're not part of the problem rich. The three walmart heirs are worth $180B between them. Jeff is worth that by himself. This isn't "being good at business" it's hording. I'm concerned with Billionaires. 800 people who control $3.4T in assets. I don't want to make them poor, I am completely happy if they remain obscenely rich, but you just can't have that much of the pie.
They come to the US because it continues to be the largest free market in the world with a stable jurisdiction. That's the reason for the success of the American economy: Being the largest free-market economy with a stable jurisdiction for the past ca. 200 years. That's why entrepreneurs come to the US. Nothing to do with taxes.
In the Netherlands we already have wealth tax (capital gains tax, but doesn't care whether you gained or not). It's nothing particularly disruptive. We still have the most wealth inequality in all the world. It might be a bit pointless to tax wealth in addition to capital gains though. You could just raise the former instead.
I think you need to revisit your assumption about wealth inequality in The Netherlands. It’s on par with that of most of Europe, significantly lower than in the US [1].
You linked an income inequality graph, which is distinct from wealth. If you look at the list on Wikipedia [1] and sort by Wealth Gini (2019) you will find that the Netherlands are #1.
Based on the Global Wealth Book 2018 and 2019 from Credit Suisse, comparing Table 3-1 in both books, it appears that the number of adults in "under 10.000" range increased significantly in 2019. This is likely not a real change, but rather a change of methodology or data sources. As far as I can tell however, this is not detailed in the text. I have directed an email to Credit Suisse on this, as it's a rather interesting piece of data.
In that case, perhaps the issue is not the existence of a wealth tax per se, but how large that tax is. I'm also dubious about the Netherlands having "the most wealth inequality in all the world." Do you have a source for that?
A bit surprising, huh? According to this Wikipedia page: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq... The Netherland, indeed, is the worst. It's close to having a minority own everything while everybody else has 0 (a 1.0 coefficient).
TL;DW Very liberal mortgage policy that encourages very low or negative wealth on the low end, and very old money that remains concentrated despite recent income equality.
The video doesn't quite explain the jump though. The amount of old money didn't jump between 2018 and 2019 and it is getting harder and rarer to be underwater on your mortgage.
see page 199 in this dataset[0] which is the dataset used for this list of countries on Wikipedia[1]. If you sort on Wealth Gini (2019), then Netherlands is ranked first.
I will add one more thing to your analysis of the possible negative outcomes: the market effects of the government selling the stocks of a company.
I suspect these two things will happen on the market:
1. You'd need to have a wealthy enough buyer for the assets - it's going to be kinda hard to convince the wealthy to buy back their own assets.
2. In the absence of sufficiently large market makers, the prices of these assets will certainly tank since these assets will have to be liquidated.
So where is the government going to find the buyers of the assets? What are the economic effects?
Well, we can look to Switzerland for that answer. It is one of the only countries that have wealth taxes, but it's on the canton level (the equivalent of the state level). It has no national wealth taxes. The difference in wealth tax rates makes a huge impact on the behavior of citizens and the wealth distribution:
"The evaluations with both datasets lead to similar estimates: an increase in the wealth tax rate by one tenth of a percent, whether this be at the cantonal or municipal level, reduces the amount of declared wealth by around 3%. This implies that the tax elasticity of wealth is at least twice as large as that of personal income.4 In other words, wealth reacts more sensitively to taxes. Our estimates also exceed the wealth tax elasticities of other studies, which is presumably due to the higher quality of the data available to us (panel data) (Seim 2017; Zoutman 2015)."
https://www.ifo.de/DocDL/dice-report-2018-2-bruelhart-schmid...
In essence, it second article highlights your point: the behavior isn't changed much in terms of productivity because wealthy people simply hire competent accountants to minimize their wealth tax burden with better accounting structures.
BTW, we do have a wealth tax in the US in terms of private property. Most states have private property taxes which are a form of wealth tax. The effect of that is that each person has to generate an income high enough to afford the tax or else they will get a lien on their assets.
Most stock is held by people worth less than $50m. All of those large pension funds and institutional investors invest on behalf of the "little guy" who are worth $10k-10m. That's a massive amount of wealth. If the super rich have to sell shares to afford their taxes, then these investors will buy. For example, no single individual holds more than 0.1% of Apple stock, while 15% is held by Vanguard and Blackrock alone.
Another example is McKenzie Scott selling billions in Amazon stock. There's no shortage of buyers for that.
> Most stock is held by people worth less than $50m. All of those large pension funds and institutional investors invest on behalf of the "little guy" who are worth $10k-10m. That's a massive amount of wealth. If the super rich have to sell shares to afford their taxes, then these investors will buy. For example, no single individual holds more than 0.1% of Apple stock, while 15% is held by Vanguard and Blackrock alone.
Why would they buy?! You're saying it as if the market-wide sale of a share of every billionaire's stocks that year would just be absorbed by the market without any negative economic consequences (at best) or without a massive economic crash.
> Another example is McKenzie Scott selling billions in Amazon stock. There's no shortage of buyers for that.
That wouldn't be the case if every "McKenzie Scott" is selling billions worth of stocks simultaneously. There would certainly be a shortage of buyers.
Thank you - Jesus Christ I don't know if people around here are being deliberately obtuse or if they just have no imagination whatsoever. I think they don't understand that wealth redistribution is in fact the entire fucking point.
What if the founder borrows against their stock to pay the wealth tax? Or uses a sale-and-repurchase agreement? That way, they can use the present value of the stock to pay their taxes, while hanging on to the upside.
You need to account for interest in this situation, but that should be less than the growth of the company.
PG's story doesn't even hold water in dollar terms.
Interesting article. I have difficult time grasping how the US government would every implement this with any real effect - even with their demanding reporting requirements. It looks like a colossal effort to gather that information and tax it appropriately. I don't see the IRS staffing up entire high specified units to go after and audit the super rich for wealth tax... the implementation of this would be painful and probably more money would go dark (my glass half full take).
Simple example that I use to wrap my head around:
What are the implications on equities? If you hold a lot of stock in a hot market you have to pay taxs on that stock this year (?) What would happen if next year the stock went to half of that? Imagine there was a wealth tax during the dot com era. Maybe it would curb speculative markets?
I also think your point on first order and second order effects is also interesting. The ramifications of something like this, while appearing to be quite fair and simple is likely to be anything but once implemented.
Also - I don't disagree with fixing wealth inequality - but a wealth tax is a fundamental shift in how everyone thinks the government derives money from the population.
You have a glaring mistake in your very first paragraph: 2% of $60 million is $1.2 million, not $120k. The calculations on your Google sheet look correct though.
I think you completely missed another important point hidden in PG's article, besides the obvious compounding effect, and that is that unrealized gains would be taxed under a wealth tax regime.
To simplify with a ridiculous example: suppose I have $0 to my name and I inherit a family art piece from my grandmother that happens to be valued at $2 million. The next year, under a wealth tax regime of 2% above $1 million, I owe $20,000 to the tax man even though I don't have the money in my account.
That is why I think a wealth tax is a stupid idea. Why not just impose greater capital gains and dividend taxes above a certain threshold, for example? That's where wealth is realized. Until then, you're talking about taxing "imaginary" wealth. (edit: or more generally speaking, taxation should happen on transactions, not on an assumed wealth "state")
You're making an obvious strawman argument by deliberately picking an asset that isn't fungible and doesn't increase in value like everything else. Any sensible person would, at that point, sell the art, so now we can talk in sensible terms, with real fungible and taxable assets.
Wealth compounds much, much faster than the tax burden grows. Someone who inherits $3 million (not much from the point of view of the very-wealthy) can live comfortably on the growth alone while still compounding their wealth further every year.
The only way a wealth tax would compound faster than the wealth itself is if it is larger than the growth rate of the wealth. And since the growth of wealth (e.g. by just putting it in the stock market) has averaged at ~8-10% over the past several decades, a 1% tax is not going to eat into a person's wealth over time. It's simply going to slightly slow that growth down.
Let's say you inherited a home in the US valued at $2 million. You would pay 2% of that ($40,000) as property taxes, every year. If you can't afford to pay the tax, you would sell the house and pocket the $2 million.
Is this so terrible? Doesn't seem to have stopped people investing in property.
Uh, if that's true then yes, that seems really awful, but the market probably also makes it so the real estate prices are adjusted to that taxation regime, because buyers and sellers can take that into account before settling the transaction.
With a wealth tax, you can't escape it. You would have to liquidate (parts of) your own company or other illiquid property (which might not even be possible depending on how illiquid it really is) in order to pay a tax. That doesn't seem right to me at all.
Again, why would you do that, if there are much better alternatives possible (like I said, higher capital gains taxes as an example).
(For context: I'm not from the USA and property taxes are not calculated on a percentage of the value of your property where I live. I'm just using USD in my example because I know there are mostly Americans here.)
> re-building all of the wealth your family spent generations accumulating, every 50 years.
Correct, that's the point.
> the more you save, the bigger your tax gets, while your income stays the same.
Only if you're a completely useless investor. Most people's income increases as their wealth increases. That's part of the problem. Especially the "r > g" question: are you growing the pie or simply sitting on a larger share?
On the other hand, this can and should be irrelevant to the average family. Start the wealth tax at $1m, say.
(I was also assuming it would operate like income tax allowances, where you deduct the $1m first and then apply the percentage to the remainder; and we should also consider families, so you could co-own a $2m home without hitting that limit)
The question of which inflation measure the number should keep pace with might be more important in the long term...
And the more you save, the more the returns on your money are. Wealth grows much faster than the tax.
If you have over $50 million (which is the target of this tax), or even if you have $5 million, you're not putting this in a savings account. Even just sticking it in an index fund and forgetting about it generates 8%, and has done so for decades.
But as I pointed out in my other comment, those returns are already taxed. If you think those returns are excessive, the solution is to raise the tax on them, not introduce an entirely different type of tax, with plenty of collateral damage.
Exactly, that's also what I try to point out to people: there are already tax mechanisms in place. Just raise tax rates if that's the goal.
It seems to me with a wealth tax they just want to force everyone to work & spend forever, except for the ultra rich who can afford it and who have the means to hide most of their capital offshore. It would be a devastating blow to the FIRE movement, where normal people have the goal the accumulate enough resources & invest them wisely so they and their family can "retire" early.
> That's re-building all of the wealth your family spent generations accumulating, every 50 years.
Only if you assume a 0% rate-of-return on your family's wealth. With a realistic assumption about rate-of-return, your wealth will never deplete because of a 2% wealth tax. It will simply grow more slowly.
You can't invest a family farm, or a painting. I will repeat myself a 3rd time - if the goal is to slow the growth of wealth, the right course of action is to raise the tax rate on the returns to that wealth. If you tax wealth itself, you're needlessly relying on the investability of said wealth, as well as on market returns.
Family farms produce income and are rarely large enough to hit the threshold for these proposed taxes.
As for case of non-income generating wealth, too bad. If you can't manage to generate the absolutely pathetically low returns (2%!) that would be needed, then you don't deserve to be rich forever.
This isn't even a downside. In a savings glut this is actually a desired outcome. Of course we don't want literally everyone to leave, only those on the margin.
> It's less a tutorial or analysis and more a thinly veiled attempt to ease concerns about wealth inequality.
Given in Graham's essay he comes out and discusses the Gini coefficient, it doesn't seem like a "thinly veiled" anything. The point of the essay is to discuss how much inequality itself matters (as opposed to, say poverty, lack of access to health care, or other things other people are raising as legitimate concerns).
> What he fails to mention is that concerns about wealth inequality aren't concerned with how wealth was generated but rather the growing wealth gap that has accelerated in recent decades.
My take away from Graham's article is that, all else being equal, we should care about how wealth was generated, and the gap itself is less important.
> Tech has made startups both cheaper and easier but only for a small percentage of people.
This is probably true, but again I think it misses the point that Graham is making: Creating a new company is overall simpler today than it was in the 1970's and 1980's, and so the "small percentage of people" who can start companies now is larger than it was 40 years ago.
> Paul paints a rosy picture but doesn't mention that incomes for lower and middle-class families have fallen since the 80s.
For a more thorough and balanced analysis of what this author refers to, see Russ Roberts's series on these questions: https://www.youtube.com/playlist?list=PLRZf05zFBLXIKLD3blbnn... . There are several factors that make these long-term trend analyses hard: changing family compositions, changing quality of goods, and challenges with price indexes.
> we should care about how wealth was generated, and the gap itself is less important.
I don't understand this. How does finding out what caused the wealth gap — and then nodding appreciatively that's it exists for the "right" reasons — help the bottom four-fifths who are getting more and more left behind?
If all that matters is that those attaining wealth are doing so now more "meritocratically," will it still be fine if the number of people becoming wealthy dwindles down to a smaller and smaller percent of the population, so long as they are all Bezoses who made their own companies?
> so the "small percentage of people" who can start companies now is larger than it was 40 years ago.
First of all, I'm not sure of your evidence of this — it may be "easier" in some sense, but is there actually more class mobility now, and is the percentage of people becoming wealthy actually growing? I think not [1] — but more importantly, if it's on the backs of the lower four-fifths of the population's wages stagnating or decreasing, how is it a good thing if one or two more percent can become wealthy?
The probability of the average American earning equal to or more than their parents is lower than it has even been. [2] So are these families supposed to be happy that a couple more MBAs are able to make ten million dollars selling an app that lets you apply augmented reality to your cat?
For 40 years, they've been telling me that a rising tide lifts all boats. As it turns out, that's false.
So what PG's saying now is "a rising tide doesn't really lift all boats, but the important thing is that the boats it does lift really deserve it!"
Paul, that's you and all your buddies' boats. Why does society need people who get insanely wealthy if no one else benefits? That seems like a bad deal for society. Society is waking up, and it's not listening to horseshit self-justifications from rich people anymore.
> we should care about how wealth was generated, and the gap itself is less important
what? what makes the gap less important? its a big deal if the rich get richer while the poor keep getting poorer. so what: we should just ignore that gap, and instead praise the rich because they are so smart, and talented?
> But it's also obvious to anyone outside the SV bubble that it's still only accessible to a small minority of people. Most people don't have the safety net or mental bandwidth to even consider entrepreneurship.
That is barely touching the surface of the problem. Having the bandwidth to become an entrepreneur is the least of anyone's problems.
I know many people who have gone to extraordinary lengths (like working non-stop 24/7 nights and weekends in addition to their day job) starting a startup, building a great product but it just doesn't grow.
There are a lot of monopolistic forces which prevent a startup from growing when you're not in the 'Silicon Valley Club'. Receiving VC funding is not even about money, the most important part about raising funding is the social aspect; that it makes you part of the club. The product you're working on doesn't matter at all. It's all about being in the club...
To join the club is all about your appearance and personality and not about skills.
The author posts some charts about wealth, then writes:
> Paul paints a rosy picture but doesn't mention that incomes for lower and middle-class families have fallen since the 80s.
If you don’t know the difference between wealth and income, maybe you shouldn’t be blogging about these topics.
This is not meant to be some low-brow dismissal. How can you have any serious discussion when two completely different things are used interchangeably?
P.S. a chart that shows shares each class’s percentage shares of total wealth is pointless. It doesn’t actually tell you if the middle class is getting poorer. The middle class and lower class can have a constant inflation adjusted wealth (or even wealth outpacing inflation) and this chart will still look bad if we have more people moving into the upper class.
It's probably due to the issue that Piketty noted in his book, getting reliable and comprehensive data on wealth is far, far harder than doing so for income.
I agree with your criticism but it doesn't seem entirely honest when the "hollowing out" of the Middle Class has been a well observed phenomenon for at least the past decade if not several more.
You can usually infer quite a lot from income data anyway given that wealth and income tend to be quite closely related. Obviously, there are exceptions but in general there is a strong correlation.
Furthermore, Piketty and other researchers have gone to great lengths to get reliable wealth data despite the difficulties.
The difficulty of performing these investigations rigorously is why I would prefer to trust studies from professional economists rather than a hot-take from a blog.
Absolute wealth has increased as the wealth gap increased. Standards of living for everyone have gotten better, but there is still an issue. Wealth is not just about your buying power it's also about your social status and power. A lot more status and power is concentrated with the few. This is a big problem if you care about individual freedoms. They tend to erode very quickly with a concentration of power.
I don't think there is a very clear line where money turns into political power. After all, the most influential non-elected people in Washington aren't billionaires or close to it, and if the 2020 election cycle taught us anything, it was that the effect money has on political advantage is hilariously overestimated.
How much did Bloomberg sink into his own race, as well as into backing the Florida Democrats, and also into backing McConnell's opponent in Kentucky? In excess of a billion dollars, and all of his backed candidates including himself failed spectacularly in their races.
I would agree with you 100% if it weren't for absolutely ludicrous house prices (for reference, I'm in Melbourne, but I've heard similar complaints from people in Canada and Hong Kong). My wife and I have a far higher than average household income, and even we're worried about how the hell we can afford to own our own home. God knows what the average single-income, working class family goes through.
I don't know if that's a symptom of a wealth gap or something else. What ever it is it's a real issue. I personally think prices are inflated by low interest rates and the bubble is going to pop at some point.
We've been saying that for 15 years though.. Sure the interest rates are rock-bottom right now but still most of our countries main investment is property. Until there's legislation to control rent or tax land, I think we're up shit creek.
Thank God you guys have Jacinda, though.
Our government doesn't have the balls to get rid of negative gearing, let alone completely nullifying tax deductions on mortgage repayments.
You have stamp duty and all sorts of other measures in place at a state level (looking at Land Tax in QLD) that at least generates revenue from this. New Zealand has none of these, and as a result property flipping is rampant - the turnover of property is 3-5x higher in parts of NZ than anywhere else in AU.
I agree to a point. Wealth redistribution is a huge problem for individual freedom, but extreme wealth in equality is a big problem too.
My solution would be to let things fail. No more government bail outs. Let people take big risks but make sure it falls on them. Prevent Monopolies and keep everyone honest.
This data of jump in equality is often cited, but it's often left out that the majority of the people lifted out in poverty is from a country where they have a planned economy and gladly lock up or even execute the rich that do not cooperate with measures to stimulate wealth equality.
Which do you think a more likely cause for improving circumstances in that case, totalitarianism or improved trade relations with the world's largest economy?
Putting money aside, in terms of quality of life, we are definitely well ahead. Remember, you had to spend a day in a public library, to answer a question, that you can now lookup in seconds. (Intentionally not using a verb derived from a name of a certain advertisement company).
The graph shows that middle class wealth increased from 1983 to 2001, then decreased from 2001 to 2016. The latter period (with the decrease) is the most pertinent considering the Graham essay is from 2021 and called "How People Get Rich Now" (emphasis mine).
Good attempt to use semantic confusion to distract from the point, but his main thesis that 'the rich are getting richer and the poor are getting poorer' stands up to your points.
Thats not what the graphs show, though. It shows the rich getting quite a bit richer, the middle getting a little bit richer, and the poor remaining approximately as poor.
If two sub groups of a distribution get a net positive in % that necessarily means the other part went net negative in the same proportion, seems a bit too far to argue against math just to defend the rich.
I am going to assume the original comment-or simply didn't think about inflation (common mistake...which is further understandable since the graphic doesn't make it obvious whether or not it is nominal dollars or adjusted dollars).
So in that spirit, here is another resource which talks about minimum wage and even included an adjusted minimum wage graph within:
The minimum wage is not the only measurement for this discussion, but it does seem like since the 1980's the purchasing power represented by minimum wage has been falling (but at the very least is less today than then).
> Even so, the gains for both lower- and middle-income families were outdistanced by upper-income families, whose median wealth increased by 85% over the same period, from $344,100 in 1983 to $636,000 in 2001. (Figures are expressed in 2018 dollars.)
This article draw's the clear gap of concentration of wealth between the top , middle and lower. I think more than hard-work, intelligence and money itself there are two more factors which i would say if does not work or are in your favor i bet you cannot succeed and that is LUCK and DESTINY (Note - I am not saying that these are the ONLY FACTOR, but for sure are the important factors). There are lot of people who literally put their effort, time , money and all hard-work to make things happen but fails coz either their luck does not work/ favor them or the success they were chasing was not written in their DESTINY. We have fail stories as well in our society but only success stories gets printed (despite of some failures they must have faced to achieve that success).
You see brothers started their journey but where are they today. https://www.diffen.com/difference/Anil_Ambani_vs_Mukesh_Amba...
keep working, keep struggling , be motivated let the nature decide.
Hoping for the better world with less suffering and more happiness
The creation and adoption of new technology has created a lot of new wealth. This has increased inequality just as it has done in the past. This creates power disparity and envy.
The creation and adoption of new technology has decreased the wealth of people obsoleted by new technology. Additionally, our system has grown many oligopolies including healthcare, education, utilities, etc... that increasingly leech off the system.
Poverty not only makes it harder to become wealthy but can also be debilitating. Some poverty has been alleviated by the social system but poverty's effect is lives long.
It is possible to retrain people who have been obsoleted by technology but in many cases people will end up with a lower pay than before.
I don't trust either side (this writer or Paul Graham) to come up with good solutions because both are partisan. The wealth redistributors focus on redistribution but actually cause wealth to be destroyed since they disincentize the creation of wealth for all. The other side does not spend enough energy on eliminating misery and dysfunction.
New technology could create new wealth for everyone, but instead it mostly creates wealth for the people who already own everything. If you own a bunch of factories, and someone combines a bunch of open-source technologies and concepts developed in public universities with a couple good new proprietary ideas to create a robot that replaces all your workforce, congrats! Someone else just made you a billionaire and now you get to cast off all those formerly heroic hard-working Americans into an uncaring libertarian hellscape where they become stupid lazy moochers whose death in the streets is a cheer-line for Republican conventions.
There has never been any evidence that taxes disincentivize wealth creation. That's a nonsense myth that doesn't hold up to historical evidence nor to a few seconds of personal introspection. You really think a wealth tax or a 70% tax on income over $10 million would make people like Jeff Bezos go "okay screw it I'm not going to do an Amazon anymore -- the world doesn't deserve my genius!" and just John Galt out of existence? That's nonsense.
That new technology benefited someone besides the entrepreneur. All the consumers of that technology benefited from it. Some of that technology was directed to providing services for the wealthy but a lot benefited people widely. That is blindingly obvious: smart phones, covid vaccines, cheap screens, etc...
A wealth tax of 100% has been tried before. That definitely disincentivized wealth creation. We have run that experiment before.
In fact, various experiments have been and are being run around the world. Go look at Europe to see how it is doing. Less wealth creation and less technological innovation but a higher floor.
Also, a wealth tax as others have mentioned is a very narrow minded approach. It reeks of envy and is not a considered approach. It makes far more sense to look widely both at ultimate problems and solutions.
When technologies like my example come about, we get to choose how widely people benefit from it. Automation replacing factory workers certainly could and should benefit people besides the factory owners, but my entire thesis is that the American economy is currently set up to almost entirely benefit the factory owners and shareholders, while being unbelievably heartless to the people being replaced. Sure, prices might fall for everyone, but monopolies and principal-agent problems make that harder. Note that the factory owners likely did nothing to reap that enormous benefit; they simply waited for technology to advance. Universal basic income is about recognizing that exponentially increasing automation is an amazing, unprecedented benefit to society and trying to make sure that benefit is widely shared instead of being hoarded by existing capital owners.
And can you please not replace my comment about taxing the rich more with some hyper-extreme 100% wealth tax? Nobody is suggesting that, so you're arguing with a straw-man. 100% is clearly insane. What are you even referring to, the French Revolution?
Suppose you tax wealth at 70% for anything over say 4 million. Now do that annually or at least periodically. What ends up happening is that unless that person’s wealth grows at greater than 70% for that period, you end up taking all their wealth above the 4 million. Your 70% tax is really a 100% tax minus 4 million.
It’s just math. .30^n as n goes up approaches 0. Do it once and you take 70%. Do it twice and you take 91%. Do it 5 times and you have taken about 99.75% of their wealth.
The factory system as you call it is generating most of the growth in the economy. The rest of the system is increasingly inefficient. Go look at education, healthcare, media, etc... Those are where costs have increased the most for decreasing benefits.
Your approach slows down the growth of the pie and reallocates it into leeches in the system, entrenching them further.
Notice how there is suddenly zero talk of decreasing healthcare costs or making education work better as a whole? Those industries hopped onto the bandwagon and are all for printing money which indirectly go to them.
I am actually for some UBI. My opinion is you create an AMT on revenue and use that to fund UBI. Also, I am for a higher estate/death tax. It resets the playing field but keeps the incentive structure for people to create wealth.
Nice! And we can even pay for it by using universal income, we just need to do an initial round of UBI and then it will bootstrap itself! Why nobody thought of that before?
The whole article by PG seemed like a defense of himself, a justification for wealth inequality.
Perhaps most billionaires did not come from other billionaires. But can we really act like tech billionaires didn't have enormous advantages?
Gates: Parents were quite well off and influential.
Bezos: Same, parents gave him hundreds of thousands to start.
Musk: Father owned an emerald mine.
I could go on, but I won't, because you get the idea. How many people in the wealthiest 1000 came from families in the bottom 50% of wealth/tax brackets? How many from broken homes?
And for the most important point, this doesn't even matter: the issue is that it is our financial and tax system, not talent or social contributions that allows billionaires to exist while others struggle. This system could just as easily say that nobody can control that much wealth and ensure a more just distribution, and many think it should. The whole article is a deflection and distraction from the point that a few people are unfairly awarded a disproportionate amount of resources.
It’s unfortunate that getting rich is limited to entrepreneurs or otherwise business owners. I’ve known a few successful entrepreneurs who more or less hated their lives because their work wasn’t “personally rewarding” but ultimately they made the sacrifice because the financial independence would allow them to be able to do whatever they wanted later in life. It’s something I learned too late in life but I’m trying to catch up now and I’ve given up coding to focus on moving money around efficiently for my customers (for a modest cut). Ultimately my family will benefit and I’ll code when I’m 60.
But what is disingenuous in the article is fact that it compares "wealth" I don't care about how wealthy someone is. If I can afford house and food having a better car is just a bonus.
Graphs going down for middle income does not mean that "rich people" are taking homes of middle income people and throwing them to the streets to die.
What Paul Graham is writing about, is that Economic Mobility has improved with internet and computers. Rich got a lot more rich but loads of people are out of poverty.
We all should focus on educating people and getting them out of poverty not about taking down ultra-rich.
“You would think, after having been on the side of labor in its fight with capital for almost two centuries, that the far left would be happy that labor has finally prevailed.”
This is listed as a quote from the PG essay. It seems to represent a fundamental misunderstanding of what “labor” means here. When the left fights for “labor” it is for all laborers to get a fair shake. PG seems to be talking about the fact that a tiny fraction of laborers get wealthy for their work. But that is not at all what the left fights for.
It’s amazing that rich people convince themselves they are so right about the world and they don’t even understand the critique of their position. For PG to say that the left should be happy with a tiny few getting super rich is to demonstrate a complete lack of understanding of what “the left” even means.
I’ve long wondered if even a single billionaire on Earth actually understands even the basics of Marxism from a Marxist perspective and I bet the percentage is very small.
Exactly. PG's essay completely misses the point of the left: it makes it about some vague idea of labor being a potential path to wealth. The left fights for worker solidarity, power, and people's democracy to end exploitation from the owning class.
Yep. Wealth being withheld by capital so it can be a carrot dangled in front of the worker is exactly the structure the left wants to dismantle. And we see with the gig economy and heavy use of contractors at big tech how much labor has lost. Absurd to say they should be happy. Folks have no healthcare, no job security, no free time, and no workplace satisfaction.
If anyone wealthy is reading this:
Go find some podcasts with David Harvey, Richard Wolff, Nina Turner, Angela Davis, and Bree Newsome Bass. Learn from the left what they actually want. If that sounds absurd to you listen to a few talks by Jonathan Haidt first and then you will see why it matters. The left makes a lot of sense but you won’t know that if you believe what shallow outsiders say about the left.
Ok, but the reason he (kind of) knows a bit about Marxism it is because he's a right-wing accelerationist (more specifically, a neoreactionary), and this needs to be properly said in context before just naively moving on with "he's a billionaire who has actually read Marx and has the caliber able to critique him".
Accelerationists are people who view that capitalism can be a liberating force for humanity, whether it can contradict and end itself to achieve a communisty society (left-wing), or its capitalist systems will supersede humanity itself towards a technological singularity (right-wing). There are also some other kinds such as U/acc (Unconditional accelerationism) and G/acc (Gender accelerationism). But regardless of political position they all acknowledge their influences from Marx (since he's one of the first scholars who have articulated the revolutionary aspect of non-linear capitalist growth, and often hailed as a proto-accelerationist). Though Deleuze/Guattari is perhaps the more important figure here, as (in their book Anti-Oedipus) they map out how capitalism is a deterritorializing force that scrambles away previous territories of tribe, nation, religion, family, and ideology.
To be honest, Thiel's perhaps far more dangerous than any previous right-wing populist such as Trump, since he actually has some capital and connections (and the will) in order to actually achieve his techno-feudalist dream. His dreams of an America as a monarchist society run by a CEO might be really good for the current rich elites in tech, but clearly the most of us are not them, and we would still be getting fucked anyway (previously by a corrupt neoliberal government, now by a fascist-libertarian one!). Even though some of his assessment of the pitfalls of liberal democracy in the US might be agreeable, we really should be able to think a better future society for the majority than anything of Thiel's vision.
Thanks for your comment. I wasn’t familiar with this so I googled Peter Thiel Marxism and found some stuff but it seemed off. Your explanation makes a lot of sense.
The profound irony of the PG piece and the growing wealth gap is that it just happens that 1982 was the point where the wealth gap was at its narrowest point (or very close to it). It has only widened since then, underlining the point in the posted article:
Personally, I think anyone who amasses oh, say, 100 lifetimes of wealth and can't stop trying to get more has a mental illness. And I don't mean that for laughs. They have a sickness and are not well.
If you've got a $300 million fortune, why can't you just go enjoy life already? It's not like enjoying your life by spending your money isn't going to also create jobs for other people. You don't need to be "a job creator" and build some huge business empire. In fact, it might create better jobs, as you want to buy better things--better furniture, a better home, art--that are not factory-produced crap made by slave labor in other lands. We'd have a better society if rich people could chill out, IMHO.
For a lot of the people that get to that level of wealth, it was never about the money. It was always about something else. I don't think the Bezos, Zuckerbergs, and Musks of the world wake up every morning wanting to make more money. They find fulfillment in their work. The external recognition is not bad either.
I think you're right that some people who want to continue making money are mentally ill, but there are other reasons people continue working. For some, the money is just a byproduct.
I very much doubt that bezos, zuck, and musk share a common purpose. And whether you're clamoring to amass more wealth, recognition, or control, the top posts point stands; obsession over a singular purpose to the detriment of everyday life is a bad pattern. at the worst, it will cause emotional stress and mental disorders - at best, it will divorce someone from an understanding of shared human experience.
In theory, sure, some are just motivated because they are driven types after a vision of conquering something or other. But this is just a story. In reality, incentives change behavior. Money motivates people. They tell themselves other things, but money motivates people. There's a reason why bonuses and equity are enormous. They attract and amplify financial greed in a vicious cycle.
I used to be a free market/libertarian type, so I understand the whole "let people do whatever the heck they want with their money, as long as it's not violent" but I'm not now. It's surprising that you can just...stop...believing that. Money and its protection, the market place, property...anything that is not a banana in your hand, anything you didn't literally make yourself from rocks and sticks, requires cooperation and dealing with other people, and obeying the rules. Today's instruments of wealth aren't chickens and bread; currency, money, debt; these are social constructions and social agreements. Everything from the government to the police to the courtesy not to rob someone in plain daylight makes currency and money possible; the entire structure of society is a protection scheme for money and property. It's a "safe place" for transactions. It took a ton of work to get here, and a ton of people to keep it going! Without the protection of society, we'd be at chests full of gold surrounded by people with spears. Instead, the system we have now is a social contract--a complex one--that requires a huge amount of cooperation from a lot of not very rich people doing their jobs so rich people don't get eaten alive.
I think it's entirely fair that as participants of that system, we decide what the cap on the number of gold coins you can put in your chest is. Because you can't really defend that level of wealth on your own, you need all of us to do that. So we have a say. (I would put that number, personally, at less than $1 billion. I literally believe that there should be a personal wealth cap of $1 billion. Full stop. It's actually OK to believe that, and I promise you, no one is going to die.)
The rich have so thoroughly blinded and corrupted our thinking about property. They hate scrutiny. They hate people thinking seriously about what the structure of society is. They hate when people notice how insanely unfair it all is. They'll just say Marxism, or Communism, or Socialism. And you're supposed to shut up because you're a monster like Stalin or Mao, apparently. And then the lies. The denial. The koolaid. It's amazing to me that people just accept their roles in holding up the pyramid so willingly. But I guess society would have fallen apart long ago if it didn't select for people willing to hold it up, no matter what the dumbness of the day is.
The thing is, once you reach that level of wealth you’re surrounded by people that wealthy. There’s always someone richer and the cycle of competition never ends. The way to stop the cycle is WAY before 300 million. Stop it once you have enough to live in a nice house with a nice car and you have enough to live off of it for the rest of your life. You only need like 1-5million to do this depending on your circumstances.
I think for a lot of people that attain that level of wealth, work is their life. In the Documentary film “American Factory” the billionaire founder of Fuyao said something to the affect of “work is life” which to me means “ my life would be meaningless without work.”
Changing the world according to your values can be extremely good or extremely bad. Considering the selection process for billionaires, I wouldn't assume it's good or even OK for them to have that power. For example, a few billionaires (opinions vary on which ones but it doesn't matter) have been quite instrumental in turning US politics into a toxic waste dump. Maybe values should come from a broader and more diverse population.
This is terrible and wrong. The middle class haven't gotten "poorer" for forty years, they've just grown less quickly than the richest - based on the phenomenon Paul pointed out.
What's happened is the uber-rich are becoming hyper-rich due to tech, and in RELATIVE terms everyone else is growing less quickly.
But that's literally exactly what you'd expect and it doesn't harm them one iota - the cheaper and more plentiful tech, however, helps them.
which defines wealth = "difference between the market value of assets owned by a family and the amount owed in debts..."
OR restated succinctly, household assets - liabilities.
The definition from the fed says nothing on income.
Now that we can state the problem the author has cited is regarding wealth inequality, let's talk about it.
One would expect wealth inequality to keep growing, perhaps infinitely, since the people earning income to buy more wealth (w2s , 1099s) have to contend with a continuously depreciating currency, which is not a problem for longtime wealth holders.
Inflation alone does not hurt stocks, real estate owners, etc. It hurts pensioners and labor directly, though.
A missing piece of this discussion is how American wealth got there in the first place: 19th century industrialization.
In that era you're either a farmer or an entrepreneur. America had a literal explosion of engineering, innovation, and entrepreneurship such that by Lincoln's death America was already the top global economy GDP (including per capita) and spearheading the industrial revolution.
This was much due to generally high edu levels especially technical education, specific regions of innovation (e.g. CT river valley creating interchangeable parts), and a lot of openness and mobility in the culture (and probably the general cultural obsession with commerce).
America doesn't exist like this anymore however it's a blueprint how inequality could be lowered... bring back a radical culture of entrepreneurship and innovation (not "go have a career at someone's company"), bring back widespread technical education, and bring back a whole lot more of our former industrial-manufacturing economy (which was like 80% of our economy in 1950 to like 10% today; "knowledge economy" is not going to get us there).
That's what happens when inflation is incredibly low. Wealth taxes are just a hack to introduce artificial inflation for the worst offenders of society.
Wealth beyond a certain point is highly deflationary. At some point you are earning so much you cannot possibly spend it all. Any factor that accelerates the growth rate of your wealth just makes it worse because the spending portion goes down as a percentage of your wealth.
Wealth is just savings which represents deferred consumption. Therefore either you invest your money (keeping money in the stock market isn't the same as actual economic activity, you still have to do something with the money) or someone else has to give up their savings because your lack of spending also caused a lack of employment on the other side.
Yes, savings are zero sum if the savings aren't investment. If one person saves and doesn't invest, then some other person has to lose out. Inflation exists to force investment and to punish those who refuse to invest.
I've seen lots of HN comments about indexing capital gains based on inflation, they just want to flee the obligation to invest their money.
I don’t agree with this at all - you see stocks as a place to “keep money” while stocks are actually part ownership in another company. When you invest your money in stocks you are using your money to buy means of production - it’s an asset that generates you more money.
And when you own the stock, you own more of the means of production in the economy, and get more money that would have gone to other investors.
Wealth is not a comparative measure. This is fundamental flaw in wealth-inequality concerns. Me being more wealthy does not make you less wealthy, but that's unfortunately how our covetous monkey brains interpret the world around us.
Wealth at its core is a proxy for quality of life. Today, as compared to 30 years ago, here's what even most low-income households can afford:
* airline flights that cost a small percentage of what they used to
* immediate access to any information via the internet
* vastly improved medical care & surgical procedures, ranging from cancer treatment to lower infant mortality rates
* the ability to easily keep in touch with loved ones wherever they are in the world
* high definition flat-screen TVs and the ability to watch any any show or movie as soon as desired
* online videos to learn how to do almost anything, for those motivated enough to learn
* digital cameras in our pocket that allow us to always be ready to capture an amazing moment or scene for our memories
Wealth disparity is only a problem if it is due to theft.
The problem with the argument is that it does nothing to address the central problem except to blame Mr Graham for it. Most people are getting poorer. That's a real issue and it would be very interesting if the poster tried to find a solution for it. Because it's very complicated. It touches everything from regulatory red tape to technology to tax policy, benefits, ownership rights. Basically everything. How do you get the amount of high paying jobs to increase so people can earn more money? How do you make sure regulations don't affect people's side hustles too much? How do you ensure zoning and land ownership rights are done in a fair way that does not significantly disadvantage newcomers? How do you make sure someones ownership rights do not affect someone else's ability to make a living? If you ask me this problem is largely self inflicted and is solvable but requires a different way of thinking.
Instead this piece justs blames the fact that rich people also defend their interests. It's nothing new.
The wealth gap has gotten so bad it’s almost unimaginable. I fear however that as bad as it is, that it’s going to be peanuts compared to what could theoretically be possible as AI and body modification Tech continues to advance at the pace it’s currently at. At some point the contradictions will be so massive, for all intents and purposes, they just won’t be visible.
"...keep in mind this is the same guy who argued against a wealth tax."
Everybody with a semblance of economic literacy should recognize that a wealth tax causes a lot of problems for what little income it creates. It is a distraction.
For the past decades, wealth inequality has been driven by asset price inflation, which is caused by the easy money policy required to finance government, corporate and private debt.
If interest rates were raised significantly, trillions would disappear off the balance sheets of all the billionaires. Immediately, all of us would be "more equal". The dollar would appreciate, and purchasing power would be restored to the average wage earner. Buying a house would become feasible again.
There's just one catch: Raising interest rates makes existing debt unservicable, causing a massive wave of bankruptcies and layoffs. At some point, even the US would have to default on its debt. The only way to avoid that would be to just print the money - and then we're back at square one.
I hate that quote. Personally I’m not envious of the rich, I despise them. I hate the fact that there are rich people, not because I want to be one some day, but because they ruin the party for the rest of us. The climate disaster is disproportionately the fault of the rich, yet it is the poor who are disproportionately affected by it.
I don’t envy the rich. When I see the rich, I see pitiful humans that work too much, that have a miserably family life, who hate dogs, and have ugly houses built for them. If I ever become a person like that, I would hate my self.
Why the bitterness? You could blame the politicians just as well for the climate disaster, or the corporations, why the wealthy?[1] What do you know of their family life or love of dogs?
I think the rich are not who you think - if you put less energy into hating them you may have more time to improve your own life, e.g. by studying personal finance or
investing:
https://www.reddit.com/r/personalfinance/wiki/commontopics
[1] Incidentally, one of the best climate mitigations, a source fuels carbon tax, has been blocked not because the wealthy but because its supposed impact on the poor (limiting travel & commuting). One hopes the Carbon Tax & Dividend proposals will gain traction, but how can they, when they pay out to the people, instead of the special interests? https://citizensclimatelobby.org
"The climate disaster is disproportionately the fault of the rich".
Most disasters would affect a poor person more than a rich person. If I lose my job but have years of savings, it's no factor that I lost a job. Sorry, I don't see that as a strong argument, not even discussing the evidence for it.
>>Average household size declined from 3.28 persons in 1967 to 2.62 by 2000 and 2.54 by 2017 (Census 2017b). Larger households can be expected to have greater income earning potential from the availability of more potential workers. It is thus important to adjust for household size in assessing the long-term growth of household income. Otherwise, the larger households at the beginning of the period would tend to exaggerate the income levels relative to household incomes toward the end of the period.
I couldn't find mention of Anand Giridharadas in the comments; He wrote a book called "Winners Take All: The Elite Charade of Changing the World" ; I haven't finished the book yet, and I don't find myself agreeing with him on many things, and his criticism at times is more simplistic than I would like it to be, but I also found it to be an intellectually challenging read.
He argues that the rich do much for the underprivileged, but what they never do is challenge the system which made them so rich in the first place. Philantrophy and the associated virtue signaling has the perverse effect of keeping the very system alive, which is (so he argues) fundamentally broken to begin with, and needs major overhaul. I think it's relevant to the discussion. https://en.wikipedia.org/wiki/Winners_Take_All:_The_Elite_Ch...
I found his conversation with Andrew Yang to be quite interesting https://youtu.be/2Ye-Jkql_jA?t=1742 (not pitching it out of ideological / political affiliation to either).
I personally am torn. From "the left" I think that personal responsibility often gets too little credit. The last thing you want to tell people is "it's not you, it's your situation, the government will fix it". The government is bad at fixing things, and you create a race for handouts, and a perverse game of victimhood claminig, to get sympathy and handouts. "I don't succeed because of X and someone else has to fix it" is not an empowering message. But many rich and privileged people are really blind to the sociological complexity in what determines success. Abundance of wealth doesn't necessarily make one happy, but lack of wealth and financial security makes one unhappy. And stressed. Stress in and of itself diminishes intellectual reasoning, decision making, affects mood, can be associated with psychological disorders, etc. "Well he's a truck driver, unhealthy, fears for his job due to automation? Well, he should become an app developer, or something similar. There are free courses everywhere, there are so many things to do. If he applies himself, he will find something, it's competition and our market system, which has made us so rich to begin with..."
I'm caricaturing ... but I don't know by how much.
I think that there is something that is being overlooked here and not mentioned by Paul G. nor Keenen and that is the source of income of the new upper class. I'm not talking here about select few at the top but the few thousands that follow. This is very much in focus of the new book by Branko Milanovic where he emphasizes that the source of income for the upper class changed from being mostly income from capital to being both income of capital and labor. I will quote him directly.
Branko Milanovic:"Homoploutia is a neologism I invented (after some consultation w/my Greek friends). It indicates that the same people (homo) are wealthy (ploutia) is the space of capital & labor; your neighborly CEO who is in the top 1% by labor income and also in the top 1% by shares he owns."
Question: What would it look like if the currency used to measure any of these statistics is being debased at an ever increasing rate of speed? Would not that make timing of obtaining one's wealth very, very important?
Second question: What would it look like if the person wondering about this lived in a land that expressed very clearly that there are rules for thee, but not for me? Would not that make many of the assumptions of a solid baseline not solid at all? And make the attempt at living within this structure rather flimsy, at best?
As I attempt to navigate forward, I find that many of the previous base assumptions no longer hold true...
A lot of people pre-suppose that “wealthy inequality” is a bad thing. But not everyone agrees, and many people think the greater good is served by things that might increase “the wealth gap” as a side effect. PG’s essay was exploring that very thought - maybe we want a higher Gini coefficient, maybe it’s good that vast fortunes are being accumulated by young tech entrepreneurs who provide goods/services that almost everyone in the world wants to use, maybe this is what the more dynamic and broadly enriching economy looks like, compared to the stodgier, class-divided alternative.
Can someone explain to me why "Wealth Inequality" is a problem?
If my neighbor has more then me, how is that an issue?
Now, I do understand that:
* Doing something illegal is wrong, but if someone aquired wealth legally, I don't see the inequality a problem.
* Poverty is a problem but poverty is a problem whether 100% of the population is poor, or is a minority of the population is poor, or the majority of the population is poor; because the problem is poverty, not the inequality
* I can also see how a different taxation philosophy would alleviate poverty, but then again that is a solution to poverty, not a solution to wealth inequality.
One argument could be that on some zero sum games, wealth inequalities create material inequalities.
An exemple is real estate. Major measures can be confort vs. business advantage: a large house in the middle of nowhere v. a small apartment in a 1-tier city. The wealthier you are, the more of a somewhat fixed quantity of space in a 1-st tier city you can have. It reduces the space available to less wealthier people, may decrease their confort and therefore their productivity.
I'm not sure working on wealth inequalities is the best way to work on that, but wanted to make the point that it can be seen as the root cause of certain problems, given the rules we have chosen to attribute certain ressources.
Is "illegal" the complete set of "wrong", in your opinion? I.e. is it possible to do something "wrong" that is legal/not illegal? If so, then it follows that it is possible that some have accumulated wealth "wrongly". For example, by exploiting laborers.
In those cases, it makes sense to really consider the implications of a system that supports that.
The author is talking about a definition of wealth in the top quintile, 20%, or top 80 million of Americans. In some other figures he talked about upper class in pew's research, which is double the national median income. Households in that income bracket earns a whopping $187,872 per year, and have $848,000 in wealth. Why are people talking about founders and the extremely wealthy in context of those numbers?
Most of those people are regular people with regular incomes with good saving habit, and/or got lucky because the house they bought 30 years ago happen to be in a boom area.
When you are poor, they ways to break thru to the next level say 50gs to 100gs in investable savings is almost the same for everyone, keep climbing the job ladder, save, don’t make mistakes, don’t let the bug corp marketing machine reel you in. Immense competition and obstacles.
The ways to break thru from 500gs to a million is immense and less competition. And most of these depend on the money from the lower classes.
What I meant to say is the system we all need to be in to get rich creates a feedback loop to keep the poor poor, it incentivize moat creation to stifle competition
I find that there is so much that we are missing from the articles posted, ie.
- An analysis of how happiness increased or decreased since 1980, are people nowadays happier than they were before?
- Do people "feel" like they have more opportunities now than they had before? ie. Do they know they could be doing more and better but just don't and continue procrastinating?
This is missing from the calculations, the mental, psychological, internal battle of humans.
My opinion about current wealth inequality, which I'm sure the entire world doesn't give a flying fuck about, so I started my own blog based on the comment so I can talk to myself like a loon in a dunce cap sitting alone in my little corner of the internet like the bad child most of the world seems hellbent on viewing me as:
When I was in kindergarten, I would draw pictures of dragons and give them to girls, saying "I drew you a picture of a dragon, it's not very good". And of course they would say "Oh no, this is a great dragon, thank you so much!" Very deliberate on my part.
If you think I am deliberately manipulating people: You are giving me waaaay too much credit for Machiavellian savvy I absolutely don't have. I'm just amazingly stressed out and losing my shit Cuz Reasons.
But I hope you got lots of kindy dates and held hands often. Go, you.
Not in my many years of lurking have I ever once seen someone point out that the metrics created by the world bank et al. are themselves terribly flawed. People just spout them out like they're magic. Thank you for being a voice of reason.
Author should consider data for wealth and class mobility. Inequality might be rising but also there is more mobility (upwards and downwards) than there ever has been. Meaning it has also never been easier for someone in poverty to become wealthy than it is today (not saying it's easy). And not saying things are great now or not, but mobility needs to be factored in when discussing inequality.
Such a timeless debate. The pandemic should rather teach everyone to adopt more left wing politics instead.
I've tried countless times to analyze the philosophical belief of those people, and it often is about social darwinism, a refusal to help the weak, individualism, and extending the concept of the survival of the fittest to society.
People at the top refuse to admit they are dominating others through opinions that favors them.
You would think civilization would let humans get out of their state of nature, but instead you end with people who prefer to imitate nature and dismiss the mutualistic aspect of society.
If that trend continues it's expected to witness social unrest and a diminishing trust towards capitalism.
I have a feeling that the problem for a lot of middle-class people isn't wealth inequality but lifestyle. It became normal that one has $500/month car payment for life (which cost you around $3,000,000 over 40 years), or a 2500 sqft house for a family of 2 or 3, or credit card debt of $30,000 on a $60,000/year income.
Wealth inequality is known to exist because you can scientifically derive it from data. Income independent of debt shows a huge wealth gap that was not prevalent in the past.
Be wary of data and whether or not your speculations contradict the data.
I don't contradict that wealth inequality exists, or even that it increases. But if middle class relies only on income from salaries and spend it like there's no tomorrow (because catching up with the Joneses, or simply they don't know better) instead of staying out of debt + saving + investing it, the gap will only increase.
Investments do not compound fast enough for middle class people for it to really matter. Most people must work for an economy to function. If everyone can stop working and rely on income from investment growth then there would be no more human capital to grow those investments because everyone is waiting for investments to grow rather then producing work and labor which is the true driver of growth.
Therefore, Anyone who relies on investments for income not only by the above economic logic must represent a very small minority... but people who get income off investments are gaining income off the backs of people who labor to grow those investments.
It is completely erroneous to think poor people are stupider than rich people so much so that middle class spending habits are responsible for most of their suffering.
It seems to me you're painting everything black or everything white, no shades in between.
I never said anyone must rely only on investment income. I also never said that everybody should stop working and live off of investments (of course it's unsustainable). But outright refusing to combine salary and investment income just because investments "don't compound fast enough" is like saying you don't want to ride a bicycle because BMW 750i is faster than bicycle, so you'd rather walk.
Look long term. I'm fairly and squarely in middle class. Yet, my family net worth went from -$11,000 to +$50,000 in less than 4 years. Was it luck? Inheritance? Heck no! We changed our habits, cut spending, got rid of debt, worked hard to increase income and then invested everything we could afford. I'm aware that my wife and me would still probably never be millionaires. But my kid? No doubt! If he ends with less than $5,000,000 net worth I would be disappointed.
I consider myself middle class. And I make what you made in 5 months what took you 4 years without any penny pinching schemes.
Not to mention I invest what I make. So yeah when I say it doesn't compound fast enough for poor people, I'm being honest. You don't even stand a chance catching up to me with just investing. Not to mention I'm still considered middle class.
Don't get me wrong. I'm not saying you won't make this kind of money ever. You could approach and likely surpass this income in the future. What I'm saying is investing won't get you anywhere at your stage. Not when baseline living costs are too high and compounding interest is too low.
Also I NEVER said to not invest. I'm saying investing doesn't close the gap nor does it alleviate hardship. It doesn't address the problem head on. To poor people investment is worth much less than it is to rich people, much much much less. So much less that a wage increase effects lifestyle more than gains on investment. See this: https://www.investopedia.com/financial-edge/0211/why-the-fir...
Wishing your kid will be worth 5 million is a pipe dream. First consider inflation. Second consider that every generation will have it harder than the last. Your kid will absolutely 100% have to rely on inheritance to get ahead. Both me and you didn't rely on inheritance but I doubt our kids will have any chance if they don't.
Well, then I can only say we revisit this thread in year 2081. I started investing when I was 40. My son started investing when he was 5. He has 60 more years of compounding ahead of him. Even if the rate of return drops to 7% instead of historical (around) 10.3%, he'll be good. Also, I wasn't referring to $5,000,000 in today's money, but in year 2081 money. I know it will be much less than today but heck, it will probably be much more than what is $50,000 today.
60 years compounding is a pipe dream. It can happen, but there are many issues with what you just said.
First of all 60 years. Basically you're dreaming about the next life. This is how they justified the caste system in India.
Second off, while your shit is compounding so are all my assets as well. So are the assets of rich people. The growth of stocks this century will be entirely different from the last century based solely off the fact that everybody is basically executing your exact same investment strategy.
Also keep in mind getting salary raises at where you are in the wealth equation is going to be maximally better than your investments for a long time to come. Even 10% of 1 million is much less than what I make.
Either way like I said, your kid is relying on your help (inheritance) to achieve this when he's 60 which is also near the end of his lifetime.
> Please don't limit lifetimes of other people's children.
assuming your kid lives to 100, which he won't. 60 years is already past half of his life time meaning he's nearer to the end than the beginning at the point in time he hits your aforementioned 5 million dollar goal.
>Please read and apply advice from "How to Win Friends and Influence People" by Dale Carnegie, it will improve your life.
I read the book and guess what it literally says.
It says never criticize anyone. If everyone around you takes that advice, you'd never receive any criticism. You'd blindly live in a world of lies an illusions. The advice you give when taken by me is good for me, but when given to me the effect on you is self harming.
The good thing about the internet is that you can use this avenue as an opportunity to get real opinions as No one, and I mean absolutely no one will say what I am saying to you now in real life.
The fact of the matter is, my argument is for you, I'm saying you are being treated unfairly under the current system. Your argument is just saying that you're not being treated unfairly and that most of what you experience is just a symptom of bad saving/investing habits.
You think anyone making more money than you in real life is ever going to tell you to your face and say the system is unfair and I am reaping the benefits by stepping on your head? No they lie to you. I'm not lying. I can say more then likely I make more money than you simply because I navigated the system better, not because I contributed more gdp to the economy. Arguably I alone contribute even less gdp than both you and your wife together yet I make much more.
The argument goes further, because there are plenty of people above me who do the same to me. As you go higher and higher up, you find people who do essentially nothing for the economy and just benefit off of economic growth. People on the bottom are the ones getting screwed, the closer you are to the bottom the more screwed you are.
I can assure you 100% it is not a spending habit/investing problem. It is genuinely a wealth inequality problem where rich people live off the labor of others. The ability for someone to purchase human capital as an "investment" is what enables this kind of thing.
I literally own a house where people pay me rent and I do nothing. I sit on my ass while they work and transfer the fruits of their labor to me. And this is all because I have enough money to own property. It's not fair, and absolutely you're never going to find someone in my position that will admit this to you.
“Tech has made startups both cheaper and easier but only for a small percentage of people”
I’d really like to see cold hard data on this. As best I can tell it is false- tech has made starting a business way easier and cheaper for more people from more walks of life than at any time in history. Sure, we should work to push that to more people.
Famous historical sentence of Marie Antoinette
"Let them eat cake"
The phrase was supposedly said by Marie Antoinette in 1789, during one of the famines.
https://en.wikipedia.org/wiki/Let_them_eat_cake
While there are real problems with poverty, there is also a real problem with a generation that doesn't believe in hard work at all, exemplified by the "pull yourselves up by your bootstraps LOL" of the author. Hard work get you far and it is time spoiled youth in the west remembered it.
It’s a valid point that a lot of rising inequality is due to the expansion of the wealthy class as it is no longer restricted to hereditary elites but is being infiltrated by meritocratic newcomers. That doesn’t really mean labor has won though - since the average worker is not getting a better deal.
Lots of personal attacks, zero thought towards solutions. A certain class of people seem to believe attacking rich dudes online magically reduces inequality. It’s just low effort social signalling :/
If you care so much, how about even considering some solutions? Should we raise the minimum wage more? Public healthcare?
Increasing taxes gets the government more money but does nothing to actually decide how to spend it. And given the huge amounts the govt spends on military, or covid this past year, the problem seems to be a lack of agreement and political will on how to spend money to effectively reduce inequality, not a lack of tax dollars.
It seems to me the right place to start raging is against half the government which doesn’t believe in spending money. Which in turn is supported by the ~50% of the US who votes republican and hates the idea of handouts.. so the root is a society wide disagreement, not scrooge mcduck.
The poor get poorer not because tech startups get richer.
If we remove tech startups, the poor wood get poorer just as fast.
The difference would be that there would be less tech-rich people to calculate the Gini coefficient.
The real question is: "why poor are getting poorer?"
It is a very complicated question involving taxes, capitalism and hundreds of broken policies and institutions, like mass incarceration that is guaranteed to make people poor.
> The rich are getting richer and the poor are getting poorer.
Here he understates his own point. The rich are getting richer and everyone else is getting poorer. The people getting poorer the fastest are the middle class.
I'm just gonna quote what I think is a very important part from the Graham piece itself
>"People who don't look any deeper than the Gini coefficient look back on the world of 1982 as the good old days, because those who got rich then didn't get as rich. But if you dig into how they got rich, the old days don't look so good. In 1982, 84% of the richest 100 people got rich by inheritance, extracting natural resources, or doing real estate deals. Is that really better than a world in which the richest people get rich by starting tech companies?"
And my answer to that question would be, arguably yes. Why? Because at least old money understands the concept of noblesse oblige. The real sinister psychological thing going on behind the Graham argument is that it's not at all about meritocracy, it's that this mentality of earned wealth completely rids the owner of any sort of responsibility.
The aristocrats and oligarchs of the olden days might have been corrupt, debauched and half-useless, but at least they knew it. This new, self-made entrepreneur class does not only think they have earned their money themselves, which as a sidenote is also kind of a fiction, but that they're intellectually superior, morally superior and virtuous in ways that anyone else just can't understand.
Old money might have ignored you and thrown a party, but Silicon Valley money wants to remake people in their images, they have a Protestant zealotry associated with their money that makes any oligarch look straight up sympathetic in comparison.
C.S Lewis:
"“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.”
The problem is all down to the basic human need of a home. In the 70s and 80s even 90s someone on a teacher's salary could own their own home in a major world city - say London. Now, literally zero chance. Because homes have become an asset class and the rich can outbid regular people so they are pushed out. That's the problem. I couldn't care less how many billionaires there are if regular people can afford a decent home
Pretty much every mainstream economist put the blame for this squarely on the massively increased regulation of the housing market since the 70s causing a massive decrease in the amount of new construction, not wealth itself.
That's simply not true. Economists who try to explain the housing crisis have pointed to increased regulation, cheap credit leading to an asset bubble, speculation, ill-advised tax cuts for homeowners, NIMBYism (not by government but by current residents), irrational buy vs. rent decisions, changing preferences for city vs. suburb, relaxed downpayment requirements, changing lifestyles and demographics with bachelors and asset-rich elderly people taking up a lot of housing stock, population increases, stricter building codes and demands for comfort, the rise of short-term rentals for tourism, reluctance by governments and builders to look too far into the future in case demand collapses, and so on, and so on. If you'd have to pick one factor, I'd have to guess it's easy money leading people to buy more expensive homes than they ought to, which drives up prices, but it probably depends a lot from country to country.
What about just, people buying multiple houses/apartments to rent them out? IANAE, but I have a sinking feeling the situation would quickly improve if ownership had per-person limits (and no easy way to pool the limits into a company).
Countries could build new housing faster than the population grows, but as long as it can be scooped up by the wealthy for renting out, the scarcity would prevail.
Not an expert in macroeconomics either, but in a perfect free market there shouldn't be a lot of difference between renting and buying: if you can get a 5% yearly return by renting out a house, then the person renting from you can probably also get a 5% yearly return by investing their freed-up capital elsewhere and/or by not having to pay interest. If renting is too expensive, you buy, and if buying is too expensive, you rent. If one kind of investment like land or housing turns out to be particularly lucrative, capital will flow towards that type of investment and drive down returns towards the average again. Companies rent and lease stuff all the time, even if they have the money to buy, because often it just makes more sense. So there has to be something to disturb that happy picture and benefit owners at the expense of renters: a wonky tax structure, speculation, rate of return on land consistently higher than for other asset classes, cultural norms that value homeownership, who knows. Ownership of multiple dwellings by the wealthy might play a role, but in itself it's not a sufficient condition for high housing prices.
(It would be different if the wealthy were buying these houses to live in them or to leave them empty, as that would increase demand and constrain supply. Happening in London, Vancouver and a bunch of other places, I think. Also sort of like what happened with the quinoa fad: https://en.wikipedia.org/wiki/Quinoa#Effects_of_rising_deman...)
> If renting is too expensive, you buy, and if buying is too expensive, you rent.
Buying a house is not that easy. You need a bank to approve your mortgage, plus pay upfront money (plus pay for furniture and such) that people might not have because high rent prices stop them from saving money. More renters and less buyers might cause more wealthy people entering the market for speculation, compensating the decrease of people that want to buy to live. And on the other hand, given that housing is a necessity and not something that people can live without, landlords can still push prices up even with increased offer.
In general, I see a lot of takes on the housing market that focus too much on the theory and forgets the reality: people need houses, moving is not easy nor cheap, speculators and realtors can push prices up without that much pressure, and a lot of people don't have enough to face the expenses of buying a house.
I agree, but my point was not that armchair economics is wonderful, what I tried to say was that it's often useful to find out precisely where theory and reality diverge and to focus solutions on those gaps, to avoid putting the blame on things that don't matter or suggesting regulation that won't work, like social housing (except as a short term solution), rent control or restrictions on who can buy.
I would use a formula based on the tax-assessed value of a property to set a maximum rent. Landlords should be free to reappraise their properties as often as they like to be able to raise rents at the end of a lease, but doing so will increase the tax bill as well. Call it market-adjusted rent control if you like, but there needs to be a tight range between rent and value if we want to encourage more housing starts.
> then the person renting from you can probably also get a 5% yearly return by investing their freed-up capital elsewhere and/or by not having to pay interest.
This might be true if one could get as cheap and deep leverage on alternative investments as a house mortgage.
You cannot have a "perfect free market" when huge swaths of the population are simply not anywhere near as free as the wealthy and privileged swaths. See the top comments for details.
Side note: It's heartening that the HN community has evolved in the last 10 years -- the current top comments wouldn't have been at the top 10 years ago, or even 5 years ago. While I think there is still a long way to go, it has come far from almost unbridled worship of PG, libertarianism and "meritocracy".
> I have a sinking feeling the situation would quickly improve if ownership had per-person limits
Running an economy on feelings is a sure way to ruin an economy. People who buy multiple dwellings would be more than happy to rent them. Renting is good. It provides a liquid market to access housing. If the market is efficient, rent or buy should be a preference rather than a financial decision: The financial impact should be the same.
If people refuse to rent, or sell their property then you have something wrong with your economy (too much regulations, people are afraid of devaluation, etc...). You don't fix a structural problem of an economy by implementing a per-person limit to buy houses.
"Rent" in an economic context refers to "any payment to an owner or factor of production in excess of the costs needed to bring that factor into production" (https://en.wikipedia.org/wiki/Economic_rent) as opposed to profits or wages: without a profit nobody would invest in anything and without wages nobody would work so these are both necessary costs. In a well-functioning market the monthly payment to your landlord is primarily a compensation for the cost of capital (profit) as well as administration and maintenance (wage), though of course if there's a bubble in the housing market, landlords will be happy to take advantage of that too (rent).
Someone who travels even more often (and I know several that do, due to business/a semi-nomadic lifestyle) would consider hotels and hostels to be pretty good for them, and yet I'd hope they'd still be able to understand that
- the hotel model is a poor one for general, large-scale provision of shelter, and
- the arrangement is heavily biased in favour of the hotel owner.
I always ask people who rent to take some time - whether now, or in the next ten or twenty years - to calculate how much they have spent on rent so far and how much they are still projected to spend for the rest of their lives. And then consider that they get no tangible asset for the often mind-boggling amounts the total comes to; that, in fact, they may have actually paid for other people's houses several times over with nothing to show for it. The situation is somewhat tenable when the landlords actually own their properties outright, but in the modern real estate world they are more often just middlemen that shuffle money between the renter and the bank.
I wish more people would question why the provision of shelter has become such a runaway profit-making machine, but I'm not holding my breath.
We recently bought the house we used to rent. If we would have continued to rent for 25 years, then, adjusting for inflation, that would cost us maybe 300K. That's a lot of money and you have nada at the end, you're absolutely right. But our loan plus interest plus insurance plus the leaky roof that is now up to us to fix plus 1% of your house's value for maintenance every year plus property taxes... napkin math puts it at 600K after 25 years. At that point it's ours, but meanwhile it will be harder for us to move if we have to, our monthly payment is twice what our rent was, and all of our savings are in the house so we have no money to invest in stock, less to save for retirement (tax-free) and less money if we decide we want to do something crazy like start a business. Psychologically it's a mixed bag as well: it's really nice to know something is yours, but you also start noticing a lot of things you don't like that previously you just didn't care about, and we're on the hook whenever something breaks down. We're happy with our choice, but surely you see that it's not a slam dunk in favor of one option or the other?
Interesting that for natural monopolies (water supplies, power distribution, telco, radio spectrum) governments tend to regulate and de-monopolise. For real estate it's almost opposite and oligopolies are protected.
When we were young my (now) wife kept jumping from job to job around the south east, and we'd move pretty much every year. As we were renting it didn't cost much to move - hire a van for a couple of days and job done.
However when we settled down with kids priorities changed, living close to a train station with good connections for work was less important, school catchment areas were, and the main importance is stability. The longest rental contract you can take in the UK is 3 years, after that who knows what will happen - maybe the owner will sell up, maybe they'll double the rent. A 5 year or even 10 year fixed mortgage gives certainty.
But the key thing is we wouldn't be able to rent if nobody owned properties they didn't live in.
It's a hard problem to tackle as it would have to be a national law but that goes into individual state jurisdiction. I would say if our goal is to increase affordable housing we just need more of it.
Ban renting of single family dwellings, but allow and encourage it where increased density is achieved (apartments, condos, multiplexes, etc). Owners of single family dwellings will scramble to convert their rentals to duplexes / multiplexes and create the additional inventory while companies acquire multiple properties to convert into apartment complexes.
It's very simple. If you have N house-seekers and M house-sellers then when N >> M: houses get expensive. Given it's hard to change N, raising M implies building more houses.
In the UK the equivalent of 'zoning' regulations keeps M low. Government 'help to buy' here exacerbates the problem as it directly increases N without directly increasing M.
I'd still be renting if it wasn't for help to buy. The mortgage payment was the same as we'd pay in rent, so affordable, but saving up even a 10% deposit would have been impossible.
Yes it lets more people without money buy houses, which I can see why socialists don't like that (same as they didn't like buying your council house - reducing dependency on the state)
The problem with the council house sell off was not replacing them on a 1:1 ratio -- for every house sold, a new one was built.
It also reduces the number of people renting, which lowers rental prices, which is also good.
It may increase the price of new houses for cash buyers. I have little sympathy for people that wealthy.
If you want to get more houses built, institute a land value tax. Taylor Wimpy owns 6,000 heactares of land. With just 25 houses per hectare, that's 150,000 unbuilt houses across the country. Assuming that a land value tax would replace council tax that would be about £1500 a year tax, or £225m a year in tax, maybe that would encourage them to speed up construction rather than building them at a rate that maximises profits.
> The problem with the council house sell off was not replacing them on a 1:1 ratio -- for every house sold, a new one was built.
At least you agree that there is a problem with supply.
> It also reduces the number of people renting, which lowers rental prices, which is also good.
Converting renters into buyers without building more housing reduces both the demand for and the supply of rental housing. This will not reduce rental prices.
> It may increase the price of new houses for cash buyers. I have little sympathy for people that wealthy.
Your sympathy is not required, but you should at least see how landlords paying higher prices for housing leads to higher rents for tenants.
> Converting renters into buyers without building more housing reduces both the demand for and the supply of rental housing. This will not reduce rental prices.
HTB is only available on new homes so not removing any stock
> Your sympathy is not required, but you should at least see how landlords paying higher prices for housing leads to higher rents for tenants.
Why? Someone is either willing to pay £1k a month for renting a place or not, they care not for the cost of the house they are renting.
> you should at least see how landlords paying higher prices for housing leads to higher rents for tenants
I owned a flat, I rented it out for the maximum amount of money I could get for it (balanced against other things like reliablity of tennant etc). It doesn't matter how much the flat sells for.
https://www.rightmove.co.uk/properties/75180448#/ sold in November 2006 for £150k, it's now worth about £320k, it's being rented out for £1k a month because people will pay £1k a month, it has nothing to do with how much it was bought for, only what people will pay.
> HTB is only available on new homes so not removing any stock
Okay, increasing the supply of housing will lower prices regardless of whether they are rented out or bought.
> Someone is either willing to pay £1k a month for renting a place or not, they care not for the cost of the house they are renting.
Sure, but landlords do care and won't buy property to make it available for renting if they don't expect to be able to cover the cost. This decreases the supply of rental housing, which means fewer options and higher prices for tenants. If they already own the property and can't manage to get tenants paying rent which represents a competitive return on their capital (i.e. the current market value of the property) then they'll sell to someone looking to either own the property outright or demolish it and redevelop some other form of property. Either way it removes the housing from the rental market.
> … now worth about £320k, it's being rented out for £1k a month because people will pay £1k a month …
So the owner is only getting a 3.75% return on their £320k investment. That's not completely terrible, but it still essentially has negative value compared to the opportunity cost of selling the property and investing the proceeds. This is not a sustainable situation.
> … it has nothing to do with how much it was bought for, only what people will pay.
That much is true. The original purchase price doesn't matter in hindsight. (Obviously it does matter when deciding whether the property is worth purchasing to begin with.) Aside from calculating capital gains/loss for taxes, what counts after the purchase is only what the property would sell for now, not the amount that was originally paid.
> So the owner is only getting a 3.75% return on their £320k investment. That's not completely terrible, but it still essentially has negative value compared to the opportunity cost of selling the property and investing the proceeds. This is not a sustainable situation.
They will charge what they can. If they aren't happy with the return, they can sell the house and invest the money in DOGE or whatever, that means more houses for people to buy, higher supply leads to lower prices, which is good (with very limited exceptions - mainly of those in negative equity looking to move or remortgage)
> Yes it lets more people without money buy houses, which I can see why socialists don't like that
Or libertarians, because government subsidies distort the market and all that.
> Taylor Wimpy owns 6,000 heactares of land.
UK has 25 million hectares of land, ~2m in the south east. The problem isn't Taylor Wimpy owning all of the unbuilt ones. The London greenbelt is 500k hectares. That's a more plausible bottleneck. Considering 'London greenbelt' is just one dimension of regulation on housing construction and Taylor Wimpy presumably owns land outside south east.
Wait, all mainstream economists put the blame on massive increase of regulation all around the developed world? I really doubt it's happened everywhere, from NYC, San Francisco, Los Angeles, Houston, Portland, Seattle to Berlin, Paris, Stockholm, Copenhagen, Oslo, München, Vienna, Brussels, Amsterdam and so on.
Everywhere housing prices went way up, I doubt everywhere had the same issues with regulations since the 70s.
Yes - GP is right. When they say regulation, they mean preventing market forces from building as much prices allow. This NIMBYism is a global phenomenon and the root cause.
All the other factors certainly contribute, but cheap credit only affects how much the most desperate buyer is able to pay. This becomes the limiting factor almost everywhere, meaning that prices would be equally unaffordable if credit wasn’t cheap.
Building much more is the only fundamental solution, as this will reduce the proportion of desperate buyers. But of course local democracy prevents that - meaning, the problem persists indefinitely and we’re only wasting time discussing it.
> cheap credit only affects how much the most desperate buyer is able to pay
I disagree with this statement, cheap credit allows banks to offer longer term mortgages and buyers able to afford a larger principal with the same per-month cost, pushing the prices upwards due to keeping payments low on a per-month basis, due to low interests and longer term plans.
This definitely pushes the price of all market upwards. It's a similar effect to tuition costs in the US, cheap credit, bankruptcy laws make them pretty safe for banks to take risk, flooding the market and allowing universities to hike prices.
Building is fundamental, but cheap credit has an upwards pressure in price, magnifying the effect.
All in all, I completely agree with your take on the solution. Build fucking more, population and specially cities have grown quite a lot on the past 3-4 decades, we still live with most dwellings built then than now.
The interest rate is the "price" of money. Central banks controlling the interest rate effectively practice price controls for debt. Much has been written about price controls, but fundamentally they create inefficiencies. Unfathomable amounts of debt have been completely misallocated in pursuit of whatever the goal of interest rate control has been.
> By 2013, some tenants who had purchased their council flats, sold them later to speculators, investors or property companies. By 2013, a one-bedroom council flat that sold for £50,000 in the early 1990s, for example, had a market price of £250,000.[9] A tight housing market led to increased rent as construction of new homes decreased.[9]
I keep hearing people debate about why housing prices are so high but it confuses me. Didn't housing prices fall dramatically in the 2008 financial crisis? Didn't various governments put vast amounts of money into the economy in an effort to ensure house prices returned to their previous levels and continued to rise?
It seems as if high housing prices are an explicit policy of most major powers at this time.
> Didn't various governments put vast amounts of money into the economy in an effort to ensure house prices returned to their previous levels and continued to rise?
No.
They put lots of money into the economy as Keynesian economic expansion policy, to combat unemployment.
House prices simply weren’t as dramatically effected as you seem to think. Check the statistics on the previous link if you don’t believe me.
No, housing prices didn't fall dramatically in the wake of the 2008 crisis. I mean, sure, they fell 33%, but they were still higher (compared to income) than at the beginning before the start of the 2000-2008 bubble, at least in the 80 years of records I can trivially look up.
That's true in the US and UK.
I'd contend that preventing massive asset depreciation, including housing, was an explicit policy of every major economic power in North America, Europe and China. I don't know, but suspect other major economic powers also participated in that, but I'm not as well versed.
(I should point out that in the 1950s it was just as large a multiplier of household income, but in that time we went from one wagerearner to two.)
Pretty much every mainstream economist defending the mainstream economy to preserve the status quo in that widening the income gap is a good thing for the mainstream economy you mean?
High housing prices is terrible for the economy. It's the cause of the decrease in worker mobility which is probably a big the part of the stagnation in productivity growth. Estimates put it at a full 10% of GDP lost.
There are actually loads of mainstream economists today who recognize and are looking to address the wealth gap. Most of the pushback I've read about has been objections that specific policies proposed to solve it have side-effects that create a whole new slew of problems.
Which is then snapped up in a lot of cities (London SF Vancouver) by the newly rich from places like China / Russia as a way to get their money out of the country.
The price of those houses should be 10% of what it is, but the problem is banks own them and if they reduce the price then their numbers look red. They are artificially inflated housing prices to keep bank bonds from plummeting.
The banks in question are essentially in agreement about prices and work together to keep them inflated. That's essentially cartel formation and needs to be prosecuted.
From a social standpoint, denying folks a roof over their head just because you want some numbers on a paper to look good should already mean that everyone ostracizes you. It's unquestionably evil.
I don't think our judiciary arm, which is supposedly independent from our government, but reality is much more messy than that, will do anything about this shit.
Revolving doors... and all.
Maybe change could be enacted on the local government level which is the power more easily sizeable by real people and not political drones, in order to hijack current zoning laws which as far as I know are heavily concentrated down to local adminstrations like -ayuntamientos-, which in itself seems to be what's making things more complicated as corruption is harder to spot there, even if it's more obviously done than at higher levels... Anyways...
Maybe a return to the ghost villages once a job is not easily found in a city but online, but remote seems hard to implement here locally on a culture level at least until a couple generations of older folks retire from management, where one could get cheap land and construct with fairly advanced and economically minded new construction processes, like 3d printing homes or whatever, maybe...
But at the end of the day, we're still fucked, paying high rents for small jails in highly contaminated city centres... One can only dream to retire on the countryside for now.
I mean, I'll be honest and share that I didn't know the housing regulations are so f-ed up in the US, but they are pretty complicated everywhere.
What drives housing prices is a deflation of living goods coupled with an inflation of luxury goods which makes finding safe investments for large sums of money with relatively high yields hard to find. This is driven by an increasing inequality gap, which makes rich people desperately trying to find more things to invest their money into. And they have found housing in urban areas is the safest bet right now. So houses are bought and sold for the millions in hopes somebody else buys it for higher prices or the area justifies the rent.
Sure, but that part immediately follows - there was a good piece from a property developer working in Los Angeles (which has a lot of those kind of regulations) that was posted here a couple of months back. Because of all these regulations (parking minimums, max heights, setback requirements and so on), the only kind of housing that is profitable or even possible to build is luxury housing - the land costs x, the things that the regulations require cost y, you have to charge a lot more than the city's existing housing stock (most of which is grandfathered in) so you can only justify that by targeting the high end.
There is definitely speculation in the housing market, but most or all of the price rise can be explained by simple supply and demand. And since housing demand is fairly inelastic (everyone needs a house), a small amount of undersupply means a big increase in price.
Many things driving housing pricing (nothing is monocausal!), but the main thing driving housing pricing in the locations where people constantly talk about housing pricing (SFBA, NYC, London, etc) are restrictions on building. That's basically it. Housing is a relatively poor investment vehicle compared to broad equity market indices; the only reason you'd want exposure as a "rich person" to it is for diversification, and for that you wouldn't really care to buy in overinflated markets with significant political risks.
Homes in the US today are much larger than they were in the 1970s. About 2x as large! Per square foot, the average home is actually cheaper today than it was then, inflation adjusted, and this isn't even factoring in the modern 2.2% mortgage rates vs the 13% mortgage rates of those days.
At least in Canada (massive housing bubble now), if you look at median income and average house payment (not house price as payment decrease with decreasing interest rates), thy aren’t that different - it takes about the same amount of median income to own a house.
Square footage is more a function of what builders are willing to build than what people actually want. Try getting a 1200 sq ft 2bd/2ba built today. Builders will laugh at you. All they want to build are large mcMansions and 'luxury' apartments, because that's where the profit margins are. There are in fact, lots of people out there who are perfectly willing to live in smaller, cheaper homes, but they simply aren't built anymore. Anyone who wants this has to go buy a little house from the 50's or 60's.
Looks like the housing problem comes from the fact that average incomes have not been adjusted for inflation... which means the income of the rich have been over adjusted.
There was a house for sale close to where I live. It was at a fairly comfortable price, a normal family could have potentially gotten a normal mortgage for it and paid it over time, eventually owning it. It was a modestly sized house, perhaps around 70-80m² enough for a couple with one kid and a dog. It needed some repairs, not anything serious, but some work over time; and the homeowners could live in it, perhaps get some savings over the next 5-10 years before starting the costly repairs. I was hopeful. I did consider it, but I thought if I didn’t get it some other nice working class family could move into it.
Alas, no mortgage agency would loan for this property, there was no central heating system, and the roof was suboptimal. Only people that had $200k at hand could possibly consider it. And off course a cash offer came from a rich family who lived there for a week, did some renovations and sold it again for more then double the price, more then anything that a normal family could afford, even with a mortgage.
World population crossed 4B in the 1970s and 5B in the 1980s, now we are about to cross 8B in the next few years. I agree with your point about real estate becoming more heavily securitized, as well as being used as a method to escape capital controls. But, you cant ignore the fact that there are a lot more people both rich and working class competing for those major world city houses than there were 40 or 50 years ago.
But the problem is the supply of housing hasn't kept up with that demand due to artificial limits placed on the market. Single-family zoning has made it illegal to build more of the dense housing that's needed in cities today.
Note, that kind of zoning is US specific issue. The situation zoning wise is quite different in Europe. At the same time Europe also has a housing crisis.
Don’t most European cities have pretty strict building height restrictions? Of course that’s not as bad as banning multi family housing complexes completely but it does seem like basically the same core issue
Yes, but even with a 5 or 6 story limit you can fit 10x as many families living in the same area of land than you can with single family detached housing. The problem is that people that own these detached houses don't want to see more dense housing being built in their area because that will "ruin the community feel" aka lower their property values.
To play devils advocate, surely removing the artifical limits won't help in the long run as the city will just continue to spraw until it hits natural limits?
Most American and European cities are significantly less dense than their Asian counterparts. There's a long way to go before they reach any natural limits.
which comes back to the original question - people who are used to larger spaces prefer to continue having those larger spaces. So houses are more sought after, which causes apartments' prices to not grow, which causes fewer of them to be built (as not as high appreciation).
The answer is to update codes to require new buildings have sprinkler systems, and not to put extremely flammable cladding on the side of a damned building. We absolutely need to be able to build more medium density housing more easily.
New buildings do have to have sprinkler systems - it's the older ones that are the problem. You can add cladding to a 1970s building without having to update it to the latest fire safety rules.
Also it is illegal to put extremely flammable cladding on the side of a building. The problem was that if someone sells you "non-flammable cladding" and they are lying, nobody properly checks.
Population in Germany has been pretty much constant since 1970. I'm relatively sure that this is true in many other developed nations too. A more important factor than total population is the fraction of people who want to live in a big city. Urbanization has been ongoing, because jobs have increasingly moved to urban centers. Real estate in small villages is quite cheap.
Its very similar in many european coutries. The problem is that cities are owned by someone else than people living in it. Many flats are empty because development cartels can wait long time before they rent it. This way they push the price and cost perception more and more. They will do so to infinity because they have monopoly.
Pretty much every landlord (also developers) is out there to stab the other landlords in the back if they have the option, which they don't have. The price increase is purely driven by the availability of people who are willing to pay for the price increase and the landlords are not allowed to solve the problem.
I've heard this a lot, but is it true? I know some flats are empty because they're between tenants or being renovated, but how many are actually empty for years at a time? The idea that not earning any rental now (and paying tax on the place) in the hope that you'll bump up prices years down the line seems risky to me.
I am not sure. I know how is it in my city. It got bought out by few foreign companies. The property tax is not very significant compared to having much higher rent in a year for foresable future.
Don't forget if nobody is renting then nobody is "destroying" the property. That's other tactic. You reconstruct everything so its "too good" to be rented cheap. This way you lower the pool of "normal" flats so their prices go up to a point where the "too good" is the only option.
It's apparent from the increasingly huge differences between rent prices. Often times the longtime landlords who own maybe one building are renting so it makes them enough money to take care of the property + good profit on side and they are happy. They don't check market prices often and are 30%+ cheaper. The rent prices are completely fabricated with no relation to running costs or price of the property.
Of course you will renovate it and rent it out to the top earners. You know what else? You'll ask for the highest deposit allowed since it doesn't cost you anything and filters out the problematic tenants.
You can do it differently when you are on the other side of the table. However you'll soon find out that most of these things are done for a reason.
It's pretty obvious that it's done for gatekeeping. Besides that whole insulting idea that lower middle class will trash your property.
Much more important question is that who has the right to live in a city. Maybe most of the people living in there, people who give that city its purpose and take care of it, want older cheaper flats.
Maybe these companies misjudged their customers and are just forcefully trying to feed on peoples need to live somewhere.
It may be insulting to you, it might be true that you or the people you know would never trash a property and still at the same time some people in your demographic might behave like that. Since it's zero cost to exclude the whole group, that's what the owner is going to do.
People with money are not perfect or of inherently better character, the banker that does coke on Friday is just less likely to use the floorboards as kindling compared to a junkie with more congruent background.
Some countries have wealth tax. Some countries don't.
It's sensible to park your money somewhere, where it's not taxed.
If you build more of it, yes, you will meet some of the housing demand (basically just for the richest), but housing is competing with rich people saving.
You need to tax unproductive behavior to rid of it.
Assuming we went this route, housing prices would obviously fall in spectacular fashion. What do you suggest is done with the houses already rented out, does the government buy them from the owners? If so is it at a fair market pre-announcement rate or at a rate that causes losses to the owners, if for a loss what happens to the economy when those losses hit? What happens to the banks that own those mortgages? In addition why would you not now have massive amounts of empty housing as banks refuse to lend to unqualified buyers?
In addition, how do you account for the massive drop in new development that occurs as much fewer new houses are built as the housing prices are being deflated due to investment being banned? What about apartment buildings?
All genuine questions I would be interested in hearing a solution too?
> In the 70s and 80s even 90s someone on a teacher's salary could own their own home in a major world city - say London.
You can still have that. All you need is a real estate tax. But nobody wants that. People don't want cheaper homes, they want to become part of the home-owner elite and get their own appreciating asset.
Property taxes in certain areas of the US (most of the East Coast, for example) are already ridiculous. You could buy a house in the midwest for you what you pay in property tax alone in New Jersey.
No, tax won't help. The reason is because the population grew and the amount of land available stayed the same. (Google London population growth charts).
Again, Google the population growth charts for London. It's been increasing since the 90's. Yet, there's still the same amount of space. Taxes will probably have unintended consequences, ripple down the whole economy. Another post-Brexit blow.
True - I'm in my late 40s in London and accepted some time ago I will never own a home. If UK renters had the same protections as they do in eg Germany it wouldn't be such a precarious existence.
I think its more than just that. I think less people are interested in actually owning their housing.
For me housing is the least thing i want to worry about, so i gladly rent and simply can fix any problems by calling my landlord who is by law obliged to keep the house in a liveable condition.
Also flexibility, i can move whenever i want without worrying about the value of my house (which in reality likely only looses value)
> I think less people are interested in actually owning their housing.
How do you reconcile this impression of yours with the fact that housing prices are shooting up in all major cities, and have been so for decades? Why is this happening if fewer people are actually interested in owning their own housing?
As a sidenote: in my own personal experience housing is the single major issue of all my close friends and family, but it's only an option for a small minority of them. In fact, I have never met a single person who was in the financial position to buy a house/apartment and didn't do so.
Simple, rich people looking for stable assets. I mean sure its not as simple as that but this is generally what is happening in my city. Old space with smaller houses is bought and built on by big housing companies. More and more space in the city is owned by a few big (some stock traded) companies.
I live in Switzerland and a lot of my social circle is in tech, so i know quite some people who have the financial means to own their housing but only few do. Most in the high income spectrum even use the flexibility of moving regularly.
I personally don't consider buying a house anytime soon either. I could prolly afford the house i rent, however i dont live near a city, i highly doubt the value would ever rise, more the opposite as the house is old and needs regular repairs. Buying the house would be like 350 times the rent, at least. Plus all the repairs are suddenly my problem.
But you lose the ability to continue to rent if the landlord doesn't want to continue, aka you can get kicked out.
And any costs to maintain a livable condition is going to just be added to the cost of the rent anyway, so it's not like you're actually saving money.
Buying as its own costs of course, and sometimes it's more cost effective to rent. The most unuseful answer, hence, is that it depends on the specifics.
I agree it really comes down to the individial situation.
However both points are kinda non issues due to our renting laws and the more or less standard contract around here. Getting kicked out only works with a reason, plus a prior notice from i think at least 3 months plus they are not allowed to increase the rent just for maintaining liveable conditions (i.e. repairs that have to be done).
But sure if you are willing to think and calculate in long terms (~30-50 years) buying often is the cheaper option. Yet comes with an additional workload (taxes, repairs, ...)
> who is by law obliged to keep the house in a liveable condition.
Depends on the country. In Poland, the landlord is only responsible for heavy/structural repairs (cracks in walls, broken windows etc.), while everything else, like clogged pipe, broken fridge etc., is actually tenant's responsibility by law, and they can be held responsible (witholding of deposit, lawsuit) if they neglect it.
The cost of healthcare is insane in the US. Recently had to put my family on cobra for a few months as I transitioned to a new job. $1500 a month for a family of 4. That is unsustainable.
You are right but homes is the only asset regular people can get a fair shake at and the government helps by making interest tax deductible. If you want to stop the rich from cornering the market on housing, you have to switch to a land tax instead of a property tax. Then you need to stop the NIMBY zoning nonsense.
A gas station attendant being able to afford a newly built house is a historical anomaly. The kind that only happens after half the population dying of plague or after a world war. The current trend is just a return to the normal state of affairs.
The rich outbidding poor people is not what is causing a housing shortage. There are only so many houses a rich person can occupy. Even if you assume that every rich person keeps a number of spare houses, there are not enough rich people to cause a housing shortage.
The problem isn't a "housing shortage". The problem is that interest rates are so low, so everyone who has a bit of money on the side tries to invest in the real estate market.
The result is that for every house thats sold, there isn't just someone who wants it as a living space, but also 5 people who want it as an investment. So 5 people outbid each other, the highest bidder gets it, and then the sucker who wanted to live there but couldn't afford to buy it ends up renting it.
The problem (at least where I live) is absolutely not that there's too little housing. The problem is that a lot of people want to make money from the real estate market, which drives up prices.
Also, because these investors really really want to make a profit, they'll rather let an appartment sit empty than charge lower rent. The appartement I live in was empty for a year because nobody wanted to pay the high rent. (I was able to negotiate a bit, but it's still pretty high)
Pretending that the people who use the real estate market as investment don't profit off the working class who can barely afford housing is laughable.
My brilliant* idea to solve the real estate problem is to tax the hell out of properties that are sitting empty.
Something like a 2x or 3x multiplier on property taxes or something, especially in densely populated areas, and especially in areas where there is rampant housing insecurity. The tax needs to be greater than the potential gamble of waiting for occupants. This should be both for residential and commercial use real estate.
It's a myth that there are just a ton empty houses sitting idly like that. The reality is that the most expensive housing markets are also the ones with the least vacant. Even after a ton of people temporarily moved out of NYC during the pandemic, like me, the vacancy rate of NYC is still less than that of the entire US.
> It's a myth that there are just a ton empty houses sitting idly like that.
Maybe where you live. NYC and SF are special in that they have very powerful people working to reduce the construction of new housing. This is obviously what needs to get fixed first in those markets, but it isn't a relatable problem in most of the US.
> The reality is that the most expensive housing markets are also the ones with the least vacant.
This is a basic supply and demand observation, and does not preclude the existence of people who allow their properties to sit vacant for long periods of time.
Looks to me like in NYC the vacancy rate is up to 6% (from a previous steady 2-3%) while housing insecurity is increasing.
This exists in Vancouver. Unfortunately, the richest people once again find ways out of it, such as claiming the unit is uninhabitable due to renovation, and proceeding with the slowest and most inefficient renovation process imaginable.
You don’t get taxed on improvements to the land, you get taxed on the value of the land (ie based on the value of the surrounding land... a vacant lot—or a lot being “renovated”—pays the ~same tax per acre as a 3 story apartment building next door instead of an order of magnitude less).
Not without pretty severe fallout for those on the other side of the equation. That same tax would force long-time homeowners and retirees out of their houses as soon as the neighbors start selling to build condos. Maybe this isn't a terrible thing if it leads to more density, but the profit still goes to the developer.
On the contrary, in your scenario, the profit goes to the retirees whose land is now super valuable. That they can’t afford to pay the wealth tax on that land without selling/mortgaging some of it doesn’t mean they’re not now very wealthy. A mortgage or a reverse mortgage would allow them to live the rest of their lives there if they really wanted to. But they’d have to pay their fair share of the tax on that wealth.
You could waive fees for primary residences and tax the hell out of investment properties. I don't understand why prop 13 in California didn't work this way.
I've often thought this about those dark strip malls and grocery stores. They need to be incentivized to either lower the prices so low that someone will move in, or to demolish the building. Just marking it off as a loss every year while it slowly decays destroys the property values nearby.
I have a different idea that maybe I can get some feedback on here. Maybe it's really dumb for obvious reasons, so please tell me.
Construction companies that build residences are clearly creating value for society, so they should be allowed to make some kind of profit. Real estate agencies that buy property from construction companies are doing a very bad thing by renting them as "luxury" housing to people who otherwise have no choice since their livelihood is tied to an urban area.
Why not put a cap on the profit that can be made from a residence? Something like 5x construction costs, plus ongoing costs of maintenance. Suddenly, the "luxury" housing market is no longer suffocating all the affordable housing out of town since the property owner can't expect to rake in the piles of money every month.
If we say "no more profit after 5x" then buildings will constantly be torn down and rebuilt or otherwise "re-constructed" to reset the clock. Renting property has its own ongoing risks as any landlord will tell you, and we reward risk with (potential) profit.
Many buildings are "luxury" in that they cost 15% more to build but then ask for 50% higher rent. It's not hard to find buildings that were once "luxury" but are now kinda gross since the veneer has peeled off. But there's not enough competition in housing to force the rent lower.
What gets people fed up is the seemingly universal constant of rents raising 10% every year despite no additional investment.
Monthly council tax will double for properties that do not have occupants. This is due to my area having over 10% of houses being bought as holiday homes or investments that stay empty for most of the year.
In the UK, it's not just low interest rates, it's also that the rules on renting have made it more attractive for landlords and less attractive for tenants. For example, you used to need a good reason to evict someone, now you can just evict them whenever you like.
Once you moved in, increases in rent used to be regulated. Now a landlord can charge whatever they want after the initial period and if you can't afford it you have to leave.
Landlords used to have to maintain and fix the property. While they still do in theory, in practise they often just threaten one of the two options above to anyone who wants a repair done.
> Landlords used to have to maintain and fix the property. While they still do in theory, in practise they often just threaten one of the two options above to anyone who wants a repair done.
That's not very smart. So the current tenant leaves, and then what? Good luck finding someone else to rent the property at the original price without fixing the issue…
I agree with the premise of what youre saying. I dont think the ratio is 5:1, but probably more like 1:5 -- but -- more importantly -- doesnt this make it good for renters because now there are investment properties in an ample environment looking for people to rent?
I would argue that it is low interest rates AND low supply. If supply was sufficient then renters would just rent the houses which were purchased, possibly at a discount.
It does not as the new owner now has to have the rates high enough to cover the mortgage on the house he just purchased in a bidding war. moreover, the person that wanted to buy it and live in it is now priced out and has to pay rent and misses out on the asset appreciation.
To cover the mortgage, the owner has to pass it to the renter. If the renter could afford the rent, he can afford the mortgage, which mean he can probably afford the house in the first place.
Sounds like the stupid people outbidding each other will lose money on the rent because renters are not outbidding each other.
> If the renter could afford the rent, he can afford the mortgage
This is not necessarily true. In Los Angeles, for example, the price-to-rent ratio is about 38, i.e. if you pay $1000 / month in rent for a place, buying a comparable place would cost you about $450,000 (38 * 12 * 1000). There are a lot of people who could afford to pay $12,000 / year for housing, but could not afford the down payment on a $450,000 mortgage.
For that matter, the interest payments alone mean that renting is cheaper than buying -- 3% interest on a $450,000 loan alone is already $13,500 / year, and that's before taking into account that you also have to pay property taxes (another $3,500 / year), maintenance (probably another couple thousand a year), and principle on the mortgage (about another $9,000 / year).
In less inflated housing markets, it is generally true that the cost of rent is similar to the cost of a mortgage, but that is definitely not true in all markets.
> ... which mean he can probably afford the house in the first place.
Not true. The people (or companies) winning the bidding war for these properties are paying cash. Normals don't have $900K cash laying around to buy a property originally listed at 550K.
You completely miss that a property that I purchase to live in will probably be both interest and loan while a property purchased to rent out will be interest only.
This means that someone buying it to rent out can get a loan for significantly more than someone looking to purchase, making it much easier to outbid them.
Not sure why you refer to the renter as "he", but anyway there are many reasons people cannot afford to buy a house such as living paycheck to paycheck, damaged credit, no collateral etc.
Well, real estate has always been one of the best ways to invest money. But the problem is that there's much more demand than there are supply in some places. If a lot of people wish to live in a specific place, then the price will go up, and vice versa. You could buy several houses in small cities for the price of only one house in Paris, for example.
I see you've been rightly downvoted. In the US, landlords also hold little risk, especially if they are corporate. Renters are stuck by leases and in many states, have little recourse to do anything when the property goes bad and the landlord won't fix things.
Every year they have more equity they can just cash out and walk away. Worst case, they lose the property and their credit gets ruined, exactly the same thing that happens to any renters that have to break their lease.
Landlords lose an investment, Renters lose a home and their kids might have to change schools, etc...
offset by property taxes? Maintenance? Inflation eroding the value of the equity. Time/cost of managing the property. Potentially depreciating property values, depending on area?
I've been a landlord. It's a money sink. Tenants brought in cats (against the lease) that peed all over, making the residence smell unbearable. Had to completely rip out carpet, reseal the floors to get the smell out. Ripped out stair case railings.
It's far from "little risk". It was a time and money sink.
The area itself did not appreciate in value. So after all said and done, definitely lost money.
I'm glad to be done.
I didn't "walk away" like the renters could. I fixed the house, the damage that the renters caused, I assumed the very liabilities that the renters get to punt on. Their leverage in the deal worked in their favor that time. They get to just move on.
Did it break you? Did it damage your family? "After all is said and done", you lost money. You walked away.
How is any of that different then a renter where the landlord sells the home, raises the rent (they can do that every year or so), refuses to fix something (or takes forever to find the "best" price), or just starts doing some other crazy stuff? The risk seems pretty similar to me.
That's very difficult and unlikely to happen under US law. They probably have a corporate entity that will just cease to exist along with any debt. If they don't, bankruptcy or old debt will only impact their credit for afew years.
No different and probably more easily explained then an eviction. Try renting anywhere with an eviction. The risk is largely the same.
> If they don't, bankruptcy or old debt will only impact their credit for a few years.
The idea that you think someone could lose large amounts of money and not have it impact them personally or that there isn't personal fallout perplexes me. This feels like that episode of Seinfeld..
Kramer: It's a write off for them.
Jerry: How is it a write off?
Kramer: They just write it off.
Jerry: Write it off of what?
Kramer: They just write it off!
Jerry: You don't even know what a write off is, do you?
Are we talking business, or personal? Yes, it hurts; but the ability to mitigate that risk is there for any responsible landlord. The landlord has all the consideration about what type of property to invest in, how to structure their payments, how to increase rent or continue renting at old prices, etc.. The tenant has no ability once they move into a place.
All my experience is in the midwest, where there are essentially no renter protections.
Landlords hold all the risk. There's risk of devaluation, risk of renters destroying property, risk of unexpectedly high maintenance costs, risk of insurance/taxes going up more than planned. If anything bad happens to the property, the renter can just walk away, the owner is stuck with it.
I'm not a landlord, sometimes look into it but every time conclude that the risks are far too high for what minimal profit it might bring. So I stick to index funds.
In what world are owners "stuck" with property? The bought an asset, the can sell an asset. Yes, they may need to absorb some losses, but probably not more then then several thousand it will cost a renter to move if the landlord does any number of things in addition to the risks you outlined above.
Yes, landlords have risk. My original point was that renters shoulder the same and more risk.
By "stuck with it", I meant stuck with the problem. e.g. flood damage renders the place unihabitable (nearly always not covered by insurance even), renter packs up and moves, owner is stuck with the problem and the expenses.
The amount a landlord is likely to lose is more then likely less then on years rent. The renter assumes the risk of one years rent and carries that, albeit diminishing, ever year they sign the lease.
There are multiple issues that could cause the landlord to lose the house, all of which would also impact the renter.
There are multiple issues that could cause the renter to lose their lease, only some of which impact the landlord.
The renter is more likely to carry the financial fallout longer, because they have no assets backing their risk.
From your description, it seems to me that renting is cheaper than buying. So it seems renters get the better deal.
It's a pity if a flat is empty for a year, but that in itself also does not cause a shortage. After all, it was rented out after a year.
The market is supposed to deliver the flat to the person who needs it most. In that case, apparently it was you. Without the speculator, somebody would have rented it for a very low price long ago, and you would not have been able to live there at all. So maybe the market worked.
Debtors have to make even on their mortgage, at least, so an increase in prices also drags rental rates up - either because the landlord bought later and has higher costs; or because the increase in prices drives up property tax and thus increases costs on existing properties.
If the market worked, you'd see people building multi-family units everywhere until supply caught up with demand, and then you'd see a huge crater in prices as people who took a bath on real estate speculation were overrun with the resulting supply glut. This doesn't happen, for a host of various reasons. Governments want housing to be simultaneously affordable and an investment, which is impossible. Hence most cities wind up building a sort of shadow immigration system, through rent control, selective property tax moratoriums, and so on. People who have lived in a city all their life enjoy lower rents, subsidized by people who just moved in and have to buy at market rate.
A market working does not imply the creation of unlimited supply. Governments that restrict building are an external factor. Markets can only operate within those bounds. Since land for building is scarce, prices rise.
There are other factors, of course. Just speculation does not really seem to be a major one.
Key word here being "working". The market is literally hindered here by said government. The natural response to high demand for housing would be more housing and higher density housing. Zoning laws do a fantastic job of hammering that down.
Renter here. I have yet to find a person who pays a lower mortgage then I pay renting. Renting also goes up every year with little ability of the renter to arrest that increase.
In my experience the renter is usually paying the full cost of the mortgage, plus a little to the landlord. The landlord has no savings or interest in improving or fixing anything past the bare minimum.
So why don't you buy? I am in the opposite position. I would like to buy something, but I can not find anything that would be worthwhile (mortgages lower than the rent I pay at the moment, or lower than rent I could ask for renting out).
Not GP but usually the big reason for not buying is that you either need a large amount down (20% in my market, or 10% + additional monthly "Mortgage Insurance" payments until you hit 23% ownership). Average home price in the "Greater Area" around the city (meaning you might still not live close enough to be able to use public transit) is currently ~$665,000 according to Zillow, which means you need to come up with ideally ~$133,000 to put 20% down, or ~$66,000 and pay a premium on top of your mortgage. Either way, this huge down-payment is in addition to the ~7-15k in closing costs you'll be paying. Even then, you're bidding against cash buyers who are willing to waive inspection, so good luck.
$70k-150k up-front isn't easy to save up for even above-average earners (remember, these are average home prices, not luxury homes), so anyone earning average or below is forced into either renting forever, or moving to another town.
> There are only so many houses a rich person can occupy.
Do you really think that’s a factor? That the wealthy say “My family has all bedrooms they need, so I’m done investing in real estate?” PE firms buy up entire communities and repackage their mortgages into investment products. Foreign investors will buy property regardless of location and never step foot in it if it’s in a more stable country than theirs. Real estate investing is not about finding a place to live for the wealthy.
Then we should have a substantial land value tax. If they want to park their wealth in unoccupied housing, they’ll have to pay dearly for it. And they won’t get a cheaper bill by leaving it unbuilt or unoccupied.
“We find that housing speculation, anchored, in part, on extrapolation of past housing price changes, led not only to greater price increases and more housing construction during the boom in 2004 to 2006, but also to more severe economic downturns during the subsequent bust in 2007 to 2009.”
> Owning a house is becoming more and more a thing for the upper classes
Something like 60% of US people own a home. 30% even own their home completely outright, with no mortgage.
Obviously 30%, let alone 60%, of the population cannot be considered 'upper class', and 'middle class' is probably even a stretch.
The home ownership rate seems broadly stable since the 60s to me, with gentle ups and downs with the economy, so as well as saying home ownership is an upper-class or middle-class thing not being true it's also not the case that 'it wasn't always like this'.
4th paragraph of that Wikipedia article:
"The name "homeownership rate" can be misleading. As defined by the US Census Bureau, it is the percentage of homes that are occupied by the owner. It is not the percentage of adults that own their own home. This latter percentage will be significantly lower than the homeownership rate because many households that are owner-occupied contain adult relatives (often young adults, descendants of the owner) who do not own their own home, and because single building multi-bedroom rental units can contain more than one adult, all of whom do not own a home."
Which tells me that they likely bought their house over 30 years ago. Which tells me that they have been largely unaffected by the complaint you are responding to.
As someone in their mid 20’s with a tech job, it blows my mind that 60% of people own a home. I can’t imagine having enough money to own a home in a major city.
> I can’t imagine having enough money to own a home in a major city.
Who do you think owns the homes all around you, and in all the suburban streets around the city? Normal people like you. There aren't hundreds of elites living on every US street, clearly. They're just normal people who saved up over a few years or got a little helper money from their parents.
Sure, maybe right now when the real estate market is really hot, but imagine people in the market around 2009-2012 getting a really good deal on real estate.
Once you're in the market, it's easier to STAY in the market. If house prices go up, you'll have to pay more to move to a new house but this is an easier pill to swallow because your current house has increased in value.
Yes, sorry, I was referring to the USA specifically. The real estate speculation problem is a lot worse in other Anglosphere countries (UK, Canada, Australia). Outside California, US prices are still somewhat reasonable compared to incomes.
> Obviously 30%, let alone 60%, of the population cannot be considered 'upper class', or even 'middle class'.
Huh? Why can't 30% (or 60%, for that matter) of the population be middle class?
Wikipedia [1]:
> The American middle class is a social class in the United States.[1][2] While the concept is typically ambiguous in popular opinion and common language use,[3] contemporary social scientists have put forward several ostensibly congruent theories on the American middle class. Depending on the class model used, the middle class constitutes anywhere from 25% to 66% of households.
One in three of people do not have middle class professions. Only about 35% of people go to college at all!
But anyway even if you don't agree with that, the original claim was that they were 'upper class'! Which is obviously ludicrous. You do not need to be an elite to own a house - drive down almost any suburban street in American you'll see people who own houses.
>the original claim was that they were 'upper class'! Which is obviously ludicrous
This goes back to the above post regarding the ambiguity around defining class. The traditional definition that I’m aware of uses quintiles, so “upper middle class” is defined as being within the top 20% (minus the top 1%-5% reserved for upper class). With this definition, the upper middle class will always be 15-19% of the population, on a sliding scale of income. This threshold comes out to about $87k/yr. at the individual level currently, I think.
But then people redefine that meaning. There was an article recently on HN saying the middle class is shrinking because more people are moving into upper middle class. They defined it based on absolute (as opposed to relative) income. But if you dig deeper into the research methodologies they normalized income so that a person making $58k/yr is equivalent to $100k if they are single. Magically, the threshold for upper middle class on an individual basis is reduced by 33%. (To be fair, they had reasons for this like the way poverty is defined by the government to factor in the number of people in a household).
I have a couple problems with this. 1) research indicates people are single, longer without kids because they feel less financially secure. It’s hard to square being single as a reason to be vaulted into upper middle class in that context 2) out of curiosity I took the average expenses for a mortgage, utilities, taxes etc. and tried to balance that against the $58k definition of upper middle class. In that case, if you have the average student loan debt you can’t afford the “average” American lifestyle even on an upper middle class income.
The point of all this being, we need to be careful about how we define economic class.
“If you torture numbers enough, they’ll confess to anything. “
My parents own a home. They bought it in the 70's for a fraction of what the land is worth now (inflation adjusted). My dad was a blue collar worker for Ma Bell, my mom a part time teacher.
The basic need for a house is something different than owning a house, though.
If owning a place to live is too expensive, it follows by logic that renting is cheaper than buying. Otherwise for the price of the rent, people could get a loan to buy.
So it really doesn't seem obvious that this is an issue of rich vs poor.
In the UK there was a trend for Baby Boomers to buy up one or two (or more) properties and rent them out as a "nice little side income" etc in addition to their pensions at a time when savings interest rates were low, so there was no point saving (since returns were awful) and property loans were cheap. You even got a tax break on the loan interest!
These people are not mega-rich - just middle-class anybodies. I don't blame them - why leave large sums of money from your pension in the bank where you'll earn 0.05-0.5% interest a year, when you can spend it to buy a property that you can rent out for 5% yeild and benefit from property value increases if/when you need to sell.
The laws have changed a bit now to make it less attractive (no more tax breaks on loan interest, and more tax on "additional" properties you buy beyond your own personal home), and there is anecdotal evidence that "amateur" landlords are exiting the market in droves. Even so it has stoked the market considerably over a good decade or more, and so prices for even very modest "starter" properties (think 1 bed flats, small houses etc) are relatively unobtainable for the average person on the street or first-time buyer.
While this is fair, you forget that real-estate is an investment opportunity. Between flipping houses becoming cool and rental properties being a good investment, if you have an extra couple hundred thousand you can make a strong investment right now. So yes, if this is an investment strategy and you have enough capital, they can just buy up all the houses.
Established wealth leverages their outsize influence and power to ensure that new housing for the poors isn't built, so that they can maintain their lush and leafy, exclusive rich person neighbourhoods.
There's literal mansion districts in my major city, where not only is building an apartment illegal, but even building a small detached house is illegal. How on earth did that happen??
> The aristocrats and oligarchs of the olden days might have been corrupt, debauched and half-useless, but at least they knew it.
Corruption is an incredible poverty multiplier, combined with debauched and half-useless is just insane. Living in a society led by such people isn't fair by any means.
Arrogant new wealth is 100x better then old corrupt wealth that only seeks to entrench itself and friends.
New wealth in proper democracies at least has a proven track record of competency and general societal good, it can also do a lot of good when spent (see Bill Gates)
If you are all worried about wealth, just put 99% estate tax, will cover both old and new wealth.
Bill Gates 501c3 puts back less than 1 percent off their benovelent humanitarian money back to the United States. The country that coddled him, an his connected mother.
Personally, I think these good ole nonprofit boys; Billy, Zuck, Warren, etc. are tax dodgers.
Obama wanted to reform nonprofit regulations, but chickened out.
Yeah Bill Gates - terrible guy. Spending money trying to eradicate diseases that kill poor people. What's worse, here's him in 2015 (https://www.youtube.com/watch?v=6Af6b_wyiwI) wasting money and faffing on about some pandemic. As if that's going to happen, and even if it does the pandemic won't affect rich countries in any way.
Sure I’ll give credit for his recent philanthropy, but the man crushed a generation of innovative software companies under his heel. Fortunately he didn’t see the web coming and failed to stop Linux, but make no mistake was not a good person for most of his career, and we are still feeling the effects of the damage he did to the software world.
Microsoft also gave countless thousands of people the opportunity to get into the field. I know it's easy to shit on them now, because we can look back and say that just about everybody then was an idiot by today's standards, but if you compare what your options were, Microsoft was by and away the best option for a lot of people getting started. I have an interest in what computers were like around 2000 (I didn't live it at the time, so I don't have any warm, fuzzy feelings towards any of these systems in particular), and as far as I've seen, you had three options:
1.) Proprietary UNIX vendors. Cheap workstations? Fuck you. OS without a support contract? Fuck you. First party compiler? Fuck you. These started to improve after 2000 with ports of open source tools, but most people would realistically be in way over their head price-wise unless they were accessing these systems through a university or workplace.
2.) Open source UNIX and UNIX-like systems. Linux was still pretty rough around the edges, and BSD derivatives were still pretty widespread. All said and done, you had to know these existed, know how to be involved in the community, and deal with the reality that the money just wasn't there yet. These options were not without compromise -- it would be years before Linux began making inroads in the "serious" deployment market.
3.) Microsoft. They did shitty things, but it was possible to get affordable development tools on affordable (and actually quite performant, all things considered) hardware, instead of needing tens of thousands of dollars for option 1 or being in the right place and time for option 2. Windows, VB, etc. causes lots of moaning and groaning today, but it had to have been magical at the time.
Give them all a try on period accurate hardware, one after another. You will become acutely aware why people put up with Microsoft.
Eh, bullshit. By year 2000-2002 you could install Mandrake and SuSE with ease.
And Windows and VC++ were expensive as fuck.
In comparison, Mandrake was 30 EUR (~$35), which was a bargain.
Also, later you could get the 4DVD Debian release for 20 EUR.
As of 2021, the year of the linux desktop still ain't here. PC users still choose windows over linux now, and this is after god know how many enhancements.
In the 2000s, getting linux to work with wifi was a mess of command line commands and other PITAs that no normal users would put up with.
I agree that most UNIX vendors short-sightedly priced themselves entirely out of the PC market, but Microsoft’s threats are the reason OEMs didn’t dare to sell PCs with OS/2 or BeOS preinstalled.
Microsoft tried to spread FUD about Linux patents and by trying to scare the industry into buying patent licenses from Novell (which had acquired SuSE).
Being competitive and successful does not make someone a bad person. Being on the other side of open source does not either. You can't judge a person's character by these things.
If you want to focus on just his business, initially, Gates was a tech hero, upsetting the incumbents as much as any modern disruptor. His company came to be known as a villian, was itself upset, and is going through a reinvention period during which I think they are doing really good things. But none of that should be about his character. He played the game and won, then got out and focused on more important things.
> Being anti-competitive and successful makes someone a bad person. You can judge a person's character by these things.
Corrected that for you.
In all seriousness: I think Bill Gates is probably sincere in his philanthropy, but that the reason is emotional maturity and reflection... that and he's sitting on a fuck ton of money that one man can only squander if not put to better use.
I'm fine if we disagree on this. I go back and forth myself. Ultimately, I believe we're applying too much hindsight to Gates middle years. The anti trust suits were well founded. Someday we'll demonize the Google guys and Zuck and everyone else in adtech. That's good. They played the game, won, we didn't like the outcome, so we change the game. That doesn't make them evil either, it makes them products of a system we asked for and supported and along the way they brought immense value. What became evil in all these cases was not the people, necessarily.
What gets me is people who so vehemently hate that they talk about killing the person, not the business.
People are already, rightfully, being very critical of Google, Zuckerberg and others. Just like we were back in the day of Microsoft.
Are we going to applaud Zuckerberg in 20 years when he's going to use his money for good? He could already be doing good right now, instead of being a net-negative to the world, but he chooses to make billions instead.
I know we’re in a form of technology people but to put it bluntly — nobody cares. Microsoft is a massive massive successes story for the US in which a US company has a dominant position in the world market for software.
You forget that outside of tech everything that MS did that we rail on about will be remembered as good business. Nobody except people on the inside have these idealistic views about software and freedom and all that.
You're falling for his scheme hook line and sinker.
He spends a minor portion of his extreme wealth on good causes and charitywashes his bad reputation into being a "good guy."
We then don't talk about the fact that we could go remarkably further on the same course if we took a much larger bulk of his wealth and put it toward similar objectives of reducing poverty, disease etc.
This is of course nothing new. Robber barons did the same thing, which is why there's a Carnegie Library in my town etc.
We then don't talk about the fact that we could go remarkably further on the same course if we took a much larger bulk of his wealth and put it toward similar objectives of reducing poverty, disease etc.
Who could? You and I could? The government could? Honestly asking, I don't really know what you're saying. If that money went to the government a very small percentage of it would be used to reduce poverty and disease. A much higher percentage of it would be used to fund the military.
> He spends a minor portion of his extreme wealth on good causes and charitywashes his bad reputation into being a "good guy."
Bill and Melinda Gates have pledged 95% of their wealth to charity. So far, they have given away about $45B, and have a remaining wealth of about $110B -- even if they didn't give away any more than that, that's still over 30%, which I don't know if I'd consider a "minor portion".
How do you envision going significantly farther towards the objective of reducing poverty, disease etc than the Gates Foundation?
The relevant thing is that if the public sufficiently taxed gates' wealth, how it would be spent to reduce poverty and disease, would be democratically driven, instead of being driven by the interests and opinions of one man.
Here's an alternative perspective: https://newrepublic.com/article/162000/bill-gates-impeded-gl.... Bill Gates may want to eradicate disease, but he's not willing to give up on IP protection maximalism while doing so. Whether his approach is net-positive or net-negative remains to be seen.
Does he want to eradicate disease? Or does he want to influence the Health Markets heavily on which he probably has a lot of money invested, and make sure they move in directions that are beneficial to him, or that at least don't reduce his power.
Maybe he doesn't even tell himself that, but works like that subconsciously.
Imagine if Microsoft were Chinese or Japanese or based in the EU. Would that have been better?
Also, Bill Gates revolutionized the computer industry and brought a lot of wealth and power to the US and control of a good industry.
The fact that he right now goes for diseases world wide is great, I would not want to die from Polio or Malaria, those disease can always make a comeback and spread like Covid... it would be better to have them eradicated entirely.
Well that's because he's trying to stomp out Malaria, a problem the US doesn't have but is still a terrible thing that kills a lot of people (and especially children) every year. It's one of the biggest life-saving impacts he can make with the money on the planet.
Not really disagreeing with you for anyone else, though.
You make a good point that I never thought about. People who donate their money get tax breaks because it’s sorting offsetting government spending.
But if they donate to a charity that spends the money outside of the US, should they get the full benefit of that tax break? It’s an interesting question that I never thought about.
Or maybe one person/immediate family shouldn't be allowed to hoard such vast resources? Perhaps he should've been taxed more so that it can be disbursed by the usual means.
What does a close-to-100% top marginal tax rate have to do with workers owning the means of production?
Yes, I’ve met a lot of people from former Soviet states that say the same things. But I also know even more people who lived in the USA when we had very high top marginal tax rates... you know, back when “America was great”.
I disagree with you that socialism will become popular but we will see. I know dozens of people who have lived through socialism and they hate it so much they voted for trump, even though they hate trump. I’m not talking rednecks from the south. I’m talking about Vietnamese, Chinese, Russians, Cubans, etc. I don’t think it’s going to take a foothold in the US but we will see. That’s what voting is for.
There's socialism and then there's communism, the difference is night and day.
Only way communism was socialist was that everybody was starving except party elite. Everybody was equal under the watchful eye of big brother... praised dear leader or camps... or both...
>Bill Gates 501c3 puts back less than 1 percent off their benovelent humanitarian money back to the United States. The country that coddled him, an his connected mother.
This is just a thinly veiled way of saying "america first".
That's how it should be. The point is Gates got rich off Americans, cashed in massive tax write-offs in the form of charity donations (taking away tax revenue from Americans), then those donations are used outside America. Now he wants Americans to listen to him because he thinks he knows best. Screw that guy.
Entrenched money stabilizes the world. Imagine putting 10% of the billionaires of the world on a boat, those who pull the strings of their empires to keep their nations into status-quo, and imagine the boat sinks. A year later, all those entrenched interests dematerialize, fewer powers hold people together, diplomacy isn’t as balanced as it has been when billionaires weighed in, and war starts.
I mean, that's a gross oversimplification and while a neat story, it's really the same as saying rising CEO wages resulted in a lowering of measles cases across the US because they started going up as measles went down.
You clearly haven't studied WWI or its causes or you'd realize that the entrenched interests were responsible for the spread of the war in the first place. It's the opposite of what you're saying happened.
First, the Titanic sunk in 1912.
Second, these are two events that happened around the same time. That does not mean they are at all related. Titanic primarily carried American and British passengers. The start of World War I primarily involved Austria, Serbia, Germany, and Russia. It's hard to see how British or American Millionaires would have influenced those events to stop the war.
Banking, at the level of being the financier of nations, was a global industry then as it is now. Many of those people at the time were British or American and a number of them died on that boat.
How does having extra bankers stop someone from assassinating an archduke, Austria from sending an ultimatum, or Russia from supporting Serbia? I don't see it.
No, we're talking about 2 out of hundreds. George H. Burr & Co, the Morgans, Henry Goldman, Samuel Sachs and their families, the list goes on and that's just NY - the banking families were numerous.
It stabilizes the world into a corrupt distopia where those people rule only to entrench themselves and their friends (incompetent and malign as they are)
What you are describing is the old feudalism approach where aristocracy controlled everything. How well did that turn out for the serfs?, then how did it work out historically for everyone?, how many are still around?
But entrenching themselves is a benign end. I don’t really care that very very wealthy people exist and seek to carve out exceptions for themselves to maintain that wealth. The harm that’s done is vague and more the realm of economics. But very very wealthy people who want to “change the world” are individuals with the monetary weight of tens of thousands of people and can do things that for others would require and naturally be tempered by cooperation.
> Imagine putting 10% of the billionaires of the world on a boat, those who pull the strings of their empires to keep their nations into status-quo, and imagine the boat sinks.
> And my answer to that question would be, arguably yes. Why? Because at least old money understands the concept of noblesse oblige. The real sinister psychological thing going on behind the Graham argument is that it's not at all about meritocracy, it's that this mentality of earned wealth completely rids the owner of any sort of responsibility.
Michael Young wrote this two decades ago now:
The business meritocracy is in vogue. If meritocrats believe, as more and more of them are encouraged to, that their advancement comes from their own merits, they can feel they deserve whatever they can get.
They can be insufferably smug, much more so than the people who knew they had achieved advancement not on their own merit but because they were, as somebody's son or daughter, the beneficiaries of nepotism. The newcomers can actually believe they have morality on their side.
I suspect that in 100 years time getting rich through Silicon Valley style tech companies will be a lot less common. Tech will have been throughly commoditized, it'll be cheap to build things, and most of the knowledge will have been disseminated around the world. Anyone in a small city will be able to hire enough developer talent to compete.
We're still near the beginning of the internet revolution. We're in the era where the inventors of things can get rich through their own talents. In every other industry that has undergone a technological leap forwards the same thing has happened until other people have bought up their talent and ideas and the inventors no longer make the big money. Just look at agriculture, manufacturing, publishing, news, automotive, aerospace, computing... They all saw the same cycle. The internet won't be different.
Protestant zealotry? Seriously? When you bring religion into it, at least get the religion right:
The Google founders, Sergey Brin and Larry Page, had Jewish backgrounds but consider themselves non-religious. Facebook founder Zuckerberg had Jewish background and considered himself atheist at some point. Microsoft founder Bill Gates is Catholic. Paul Allen had Jewish parents. Amazon founder Jeff Bezos was raised Catholic. Apple founder Steve Job's closest religious interest seems to have been Buddhism. Steve Wozniak describes himself as atheist.
So we don't find a single Protestant, certainly not a Protestant fundamentalist, among any of the founders of the 5 largest tech companies.
American history and culture is heavily influenced by the Protestants that made up the early US. The Protestant work ethic is a commonly referenced aspect of American culture, and most Americans regardless of religion are not free of its influence.
When was the last time anyone overtly referenced the protestant work ethic except for the purposes of tearing down a straw man.
Many cultures, in the far east as well as Europe have similar "always be doing something productive" undertones.
I agree that the moralizing zealots that set the tone for early American culture were insufferable (and being so insufferable likely helped accelerate the settlement of the east coast states) but "muh protestant work ethic" isn't really unique to the US.
Yes, but when literally none of the founders of the largest IT-companies - the very richest of the "Nouveau riche" that we are talking about - are Protestant, whereas much of the old money is, the comment is quite off.
He's comparing the zealotry they're displaying which is similar to Protestantism. It's not saying they are Protestants. I think you missed the metaphor. There's most certainly a cult-like religious element that's being displayed in silicon valley right now. That innate human behavior isn't relegated to old Abrahamic religions. People will get drawn into "worshiping" different things and there's a very specific "God" being worshipped by these companies.
"Silicon Valley money wants to remake people in their images, they have a Protestant zealotry associated with their money that makes any oligarch look straight up sympathetic in comparison"
The comment literally suggests that Silicon Valley billionaires (which it juxtaposes with old money) have a Protestant fanaticism associated with their money.
No, it doesn't literally suggest those founders are Protestant, it suggests those founders are following certain cultural norms that originated in highly-Protestant parts of the Northeast US, sometimes called the 'Protestant work ethic'. It does not say you need to be Protestant to follow those norms.
I found insightful, and completely agree with, the original "Protestant zealotry" assessment - it's not a religious argument, it's a philosophical one.
It has everything to do with a moral perspective - that righteousness and wealth go hand in hand, and it does indeed come from the culture of the European Reform. It's not a matter of Christianity, it's mostly absent from Catholicism, and I suppose other strains.
Think of the meaning, the moral implications, of the phrase "the deserving poor". Try translating it into other languages, and see what happens.
WADR you've read the comment wrong. It literally does say Protestant, but it doesn't mean they are Protestants. Someone can have a fanaticism associated with Protestants without actually being one, and that's what he means.
I also think it's actually not that confusing, assuming you're experienced in reading English. It might be more subtle if you spend most of your time in other languages.
> Because at least old money understands the concept of noblesse oblige.
Source please.
> it's that this mentality of earned wealth completely rids the owner of any sort of responsibility.
Allow me to offer a different view. If you're one of the lucky few who went from nothing to millions (or even billions) you'd be pissed if society came and started talking about responsibility and equality _now_. Where was society _before_?
And that, I think, is the crux of the issue - society feels responsible for your successes but not for your failures. If you went from nothing to riches - society feels like you owe it some. But if you went from squarely middle class to being a drug addict on the streets then the fault is yours alone. Society will of course try to help you, but it will never consider the idea that maybe, just maybe, it is responsible for what happened to you.
Reading the other comments here, I think the argument is that when most people say they came from nothing, they are ignoring roads, electrical grids, sewer systems, fire departments, police to enfore property rights etc. "Society" provided those - before the person was rich.
Of course, there are some people who got rich without any of those things, but probably a lot fewer.
If one’s taxes only went to pay for this small subset of items, I think your argument would be stronger. A 40% marginal tax rate is not earmarked for these essential services, as evidenced by our decaying infrastructure despite the US government bringing in $3.5 trillion in tax receipts in 2019.
The political left has been pretty clear that the aim isn’t solely a focus on essential (and shared) resources, but on increasing the social safety net (either through UBI, single payer, or other mechanisms).
Separate conversation if those are good policies or not, but the argument isn’t that the rich don’t want to pay for police. That’s an incredible straw man.
In Silicon Valley, the long-term capital gains tax rate is >37% (Federal + State + NIIT). That rate starts at well under a million dollars. And in the US, you aren't allowed to deduct inflation losses and have a limited ability to deduct capital losses, unlike some other developed countries. These losses don't affect labor.
Silicon Valley has one of the highest tax rates on long-term capital gains in the world, even more than almost all "social democracies". When Europe starts to look like a tax haven, the taxes on capital are not too low.
Do we suddenly care about the labor incomes of wealthy people in SV? Because the comparison was with the middle class labor taxes, which are considerably less. And as was previously noted, capital has risks and costs that labor does not.
Noblesse Oblige came less from the old wealthy being kind and more from them being physically close to poor people. They were under constant threat of physical violence by sheer proximity, so they had to care - because they likely realized how tenuous their positions were.
The ultra-rich nowadays physically isolate themselves from the working class and generally have security forces and bodyguards to further ensure their separation.
This doesn't really track with my knowledge of history. Aristocrats wouldn't socialize with or marry anyone from the low classes, it would be shameful and scandalous. Aristocratic leaders like royalty were sequestered to enormous palaces. It was difficult to blend in either, your class & wealth was very obvious in the clothes that you wore and how you spoke.
Perhaps inferring nefarious intent is unwarranted. However if you follow PG's Twitter stream a reasonably clear pattern does emerge.
- Denounce critics of happiness industry.
- Play-down the idea of minimum support framework. In general, play down community and governmental support infrastructure in favour of individual's agency.
- The current crop of rich people, by and large, earned it and their way of earning wealth is objectively better than earlier ones. So they not only deserve that wealth but also deserve the way it's been accumulated.
- In today's world anyone can be rich and so if you aren't rich then it's your problem.
- Tech will eat the world. Journalists who couldn't foresee Amazon and its ilk's rise are idiots who don't understand exponential curve.
I have dramatised the theme but it's not far off.
I won't judge if any of these are right or not because at the end of the day they are all opinions and he's entitled to have them based on his world view. Someone with a different world view and experience (such as me, for instance) will not agree with them and that's OK.
That said, based on the pattern above it's easy to see how can one assign intent to PG's posts.
> Because at least old money understands the concept of noblesse oblige
Interesting observation. I recently learned from a Fresh Air interview with Heather McGhee about Hinton Rowan Helper, a white racist Southerner abolitionist. He wrote a book analyzing the way chattel slavery harmed working-class whites and white society, the essential dynamic being:
the wealth of the plantation class did not depend on the labor of the white working class, nor their ability to buy product from the plantation class (cotton and tobacco were shipped north and globally); as a result the plantation (ruling) class had no incentive to invest in society; Helper quantified this by looking at number of libraries, schools, etc. in the North vs the deep South.
Obviously I don't want to claim the horrors of slavery are comparable to the effects of tech companies on the economy... but I wonder if the same _essential dynamic_ is there:
- wealth equating to political power
- an industry driven to remove any reliance on an educated populous or satisfied workforce (through automation, and the secondary effects of automation as in the way Uber etc. offloads risk onto drivers/society)
- an industry for whom the populous are not customers but "the product"
noblesse oblige is, best I can tell, a cultural myth. There’s been quite a bit of writing on this subject[1]. I’m not convinced self-made wealth of today is any better or worse than the concentration of family money in the past - so I think your point is half correct.
In the Gulag Archipelago, there's a story about Tsar Nicholas asking to be placed in solitary confinement so as to understand the conditions. The author notes that even this gesture was an indication of at least moral aspiration. Which I believe may fall under the umbrella of noblesse oblige
This is in stark contrast to the Organs operating the prisons during the Soviet era who would never submit themselves to torture to understand the plight of the prisoners they sentenced.
Anyway, just a fun anecdote, clearly noblesse oblige wasn't enough to stop the people from revolting in several cases.
I think they understand noblesse oblige. But it's a 2-way street. Don't expect them to feel a sense of obligation if you're going to assume the worst about them just because they are rich.
You've got cause and effect reversed. Bill Gates started giving his money away after he was attacked for his anti competitive behavior and attempts to kill open source, etc.
The rich donate because they are protecting their reputation and for the sake of their own self image (everybody needs to be the hero of their own story).
The only ones who can manage that and not be charitable are the utterly self deluded (e.g. Trump).
Don't expect them to donate a damn thing if they are lauded as heroes. Bill Gates likely wouldn't be giving his money away at all if it he didn't feel the need to repair his image in the 2000s.
Same reason all of the robber Barrons were philanthropists - do you think they would have been more charitable if they had been cheered on instead of villainized? Like hell they would.
Bill is way too invested in this stuff for it to be a cynical PR effort. And he himself states it was his mother who inspired him to give: https://www.businessinsider.com/bill-gates-mother-inspired-p... If Bill's giving was a cynical PR play, why would he be pushing other HNWs to give through the giving pledge? Wouldn't it be better to discourage them from giving so he looks better by comparison?
Note also that a few years ago when Zuck pledged to donate 99% of his money, the internet erupted in incoherent anger. Similarly whenever the news covers tech philanthropy, the angle is always "well really this is something that the government should be doing, the fact that it is being handled by private philanthropy is kinda problematic". The giver's generosity is inevitably taken for granted. For the supposed PR benefits of philanthropy there is a shocking lack of good PR. Far more scorn is heaped upon wealthy philanthropists than rich people who just quietly buy yachts and stuff. Your reaction of "giving is just a cynical ploy" seems to be way more common they "hey, they are giving, that's pretty cool" in all the online discussions I have seen of billionaire giving.
BTW, did demonization of wall street in the wake of the 2008 crash trigger a wave of philanthropic giving from them?
I didn't state that it was completely a cynical PR effort nor do I think it was, but it's a reaction to a guilty conscience nonetheless. I think it's partly his way of resolving his cognitive dissonance over him not being a good person in pursuit of wealth and power.
For what it's worth, though, saying "my mother inspired me to do this" is precisely what a PR flack would advise him over "I was guilt tripped into this by my critics".
He does routinely use PR firms for image management.
Positivity sells and human interest sells and giving his critics more airtime would not be advantageous to him.
Mark Zuckerberg did the same thing here - note the title:
>Note also that a few years ago when Zuck pledged to donate 99% of his money, the internet erupted in incoherent anger.
The comments above read more like coherent suspicion rather than incoherent anger.
>For the supposed PR benefits of philanthropy there is a shocking lack of good PR.
Bill Gates has successfully repaired his image since the early 2ks. The fact that Mark Zuckerberg didn't repairs his overnight after acting the way he did previously is hardly proof that it doesn't work.
Doesn't matter, you shouldn't trust billionaires period. Every single one has exploited people left and right to get where they did. They don't care one iota for you, why do you care so damn much about them?
As I said above: "Don't expect them to feel a sense of obligation if you're going to assume the worst about them just because they are rich."
You say that "Every single one has exploited people left and right", what evidentiary basis could you possibly have for making that statement? There are thousands of billionaires worldwide, could you name even 100 of them off the top of your head, much less explain how each and every one "exploited people left and right"?
If your goal is to get billionaires to donate, hating them indiscriminately is not a good way to do that, since that means there's no incentive to give.
> BTW, did demonization of wall street in the wake of the 2008 crash trigger a wave of philanthropic giving from them?
You steal a loaf of bread - you go to jail. You commit fraud on a scale that destabilizes the global economy - you get to say that people pointing out your misdeeds are "demonizing" you.
If your giving is a cynical PR effort, you don't donate to unsexy causes like better toilets or nuclear plants. I'm willing to believe that MacKenzie Scott's giving is a cynical PR effort because she's donating to all the trendy social justice causes. That's what I would do if all I cared about was my public image and didn't care whether my money actually did good. Most coverage I've see of MacKenzie Scott's giving has been positive.
Seriously. Every time I read a post like the parent you are replying to, my eyes roll back a little farther in my skull. It's like they teleported from the slashdot comment sections from 2 decades ago and decided to carry on without missing a beat.
Putting your money into ONGs that you control is not giving away anything. It's playing the meta-capitalist game, influencing markets at another level, markets in which you invest money while you pave the path for your investments by using your ONGs to work together with governments.
> they have a Protestant zealotry associated with their money
To be clear, you are comparing the mindset of new money to the pious protestants who held overwhelming sway over US society for almost two centuries? Just who do you think the old money is?
If you believe that your wealth is entirely, or almost entirely, through sheer force of your own will, skills, and abilities, you have no responsibility to anyone with regard to that wealth. You earned it all without anyone's help. It's all yours. They can pound sand.
If you believe that your wealth is in part due to factors outside of your control - having connected family, having family money, attending good schools, lucky breaks early in your career, etc. - you're much more likely to feel a sense of responsibility toward the next generation. To give other people lucky breaks, maybe even ones less deserving than you were. To set up scholarship funds so other kids can attend good schools they otherwise wouldn't be able to.
Edit to add: People in group 2 don't feel they "deserve" it any less. They still earned it. It's still theirs. They just understand the difference between being born on third base and hitting a triple. The run still counts at the end of the day.
> The aristocrats and oligarchs of the olden days might have been corrupt, debauched and half-useless, but at least they knew it.
You out of your mind? What could possibly make you say "they knew it"? The amount of people rich-by-inheritance who are selling their bootstraps stories is stupidly high, and a lot of them believe it. One famous example got banned from twitter a couple months ago.
>Because at least old money understands the concept of noblesse oblige.
You can just count in your city how many buildings, libraries, concert halls and similar have been built by the rich of old, and how many by the rich of new.
Maybe the new rich give to ONGs instead, but ONGs can be seen as just another institution to exert power, influence markets, and buy people by giving them a position in ONGs where you invest heavily. On the other side infrastructure is infrastructure, yes, it makes you look good, but you have to build something real and solid that is easy to evaluate.
It's been a very important myth for a very long time as it helps (to some degree) reduce the impetus to decapitate the aristocracy. Hundreds of years old in the west, thousands in China.
There's a certain irony in you posting that Lewis quote. "Omnipotent moral busybodies" is a good description of a significant part of the left-wing these days.
> This new, self-made entrepreneur class does not only think they have earned their money themselves, which as a sidenote is also kind of a fiction
It's not a fiction that entrepreneurs earned their money themselves. It's more complicated than that but it's not fiction. Most entrepreneurs fail, the ones who get rich usually do something innovative.
It is a fiction that entrepreneurs are "intellectually superior, morally superior and virtuous" but, again, who really thinks of themselves that way, Paul Graham-style entrepreneurs or the lefties who insist that they are motivated purely by "justice" but are clearly at least partly motivated by resentment?
There are good arguments for left-wing policies. But the left today is culturally ascendant and many of its most popular arguments are petty vindictiveness (like, for example, that rich people didn't innovate in order to get rich -- most of them did!).
Interesting CS Lewis quote considering it’s frequent usage against government regulation from busy bodies who “know best” on how the economy should work.
This is an amazing quote, thank you.
Though, the more I read into it the less I see it applicable to the PGs quote, mostly because I disagree with this statement:
>Silicon Valley money wants to remake people in their images, they have a Protestant zealotry associated with their money that makes any oligarch look straight up sympathetic in comparison
Tech became a global catalyst for many people to get out of poverty. A lot of people in countries like India, Nigeria or Ukraine would never had a chance to get out of poverty otherwise. I do not observe any increase in the sentiment in them remaking people in their own images. Half a century ago Ayn Rand was getting enough followers well before tech was even a thing.
The quote that you have provided reminds me of the zealotry of communist regime that my country went through. As well as the arguments of the woke marxists that are sadly getting more frequent today.
Anyway, thank you for an interesting take on the problem.
"Silicon Valley money" also got you the Monterey Bay Aquarium, the Computer History Museum and lots of other nice things. You see a Hewlett, a Packard, or another legendary Silicon Valley name on almost every Nice Thing in the Bay Area.
My point was not whether vast fortunes per se are good or not, but whether "Silicon Valley money" is a completely different creature from "old money", and, in fact, there is quite a bit of "Silicon Valley money" that is being deployed in fairly conventional "old money" ways.
Huh, how do you know what the rich people of old were thinking? Your argument seems to be based on complete fantasy - both your assumptions about the mindset of rich people of the past and of people who got rich in SV are completely fabricated.
But never mind, it is hating on rich people, so it is always OK, right?
It's so weird that you seem to be kinda agreeing with the article while at the same time quoting some Ayn-Randian, hyper-libertarian, "I'm from the Government and I'm here to help" scare-tactic nonsense. Can we kill this idea that the spooky government helping a poor person is some sort of tyrannical insult to them? The government helps rich people all day long -- even the most bootstrapped businessman still uses government roads to ship his goods and government-backed police to prevent his offices from being raided by bandits. Yet it's an "intolerable insult" that government should ever try to help a starving, homeless drug addict.
Okay, I'm attacking the C.S. Lewis quote and not your main point, which is interesting, although I'm not exactly sure who is trying to remake me in their image and what that would even mean.
Not to mention that "curing the ills of society" in the worst way imaginable (eugenics) was pretty in-vogue with early 20th century "old money".
Such a privilege to have no idea how the Government can execute millions of its citizens having no doubt that they are paving the way to a Better Tomorrow.
You're right: our only two options are (A) extreme libertarianism where the Government exists only to protect the interests of the rich, and (B) the government literally exterminating its own citizens. We better be careful not to increase taxes on the rich or we risk immediately turning into (B)!
Also, didn't I just say that eugenics was a horrible thing that was in-vogue in the early 20th century? Isn't that exactly what you're saying?
Are you referring to your GP comment about how I must be ignorant about governments killing their own citizens because I dared suggest that governments can help the poor? If so, I agree: a straw man and lots of other fallacies to boot.
Tech doesn't cause the wealth inequality gap. If anything it closes it by making the aggregate cost of goods, like raw commodities, basics,etc, cheaper (e.g. hpc for modeling shale oil drilling strategies).
It's policy, like lowering interest rates, promoting financialization, driving people to invest their savings in the stock market, squeezing out basic saving strategies and causing people to seek higher and higher risk investments (while socializing the risk of the upper class) that's driving a wedge.
100% of this is public policy (often in the guise of helping out main street "saving jobs" e.g.). Capitalism is just responding, but as always with unintended but predictable consequences.
It seems that the Graham's point (a trap in which the OP's critique falls) is that obscene riches are OK if they are not inherited. Following this logic, Hitler is better than the Queen of England because he earned his power instead of inheriting it!
In fact, the Industrial Revolution that he claims to be the last "time of entrepreneurship" created the the Dickensian's work conditions and such a strong class divide that lead to the worker's revolutions of the 19th and early 20th century, to the corresponding fascist counter-revolutions, and to two world wars. It is precisely in the following "boring time" of Keynesianism and the cold-war that the west and "the second world" experienced the highest sustainable growth period ever and that the masses had access, for the firs time, to minimally decent working conditions to create that thing we call "the middle class".
So in fact, Graham is right in that we see now again, like in the Industrial Revolution, a simultaneity of great technological disruption combined with a hegemonic neo-liberal ideology. This is leading lead a new rise of world-wide hyper-concentrated capital, job instability, more and more limited access to basic goods like housing, climate catastrophe, and a new class of capitalists that believe that they are above any sense of morality.
There is nothing to celebrate here but more of the opposite: good reason to be really scared of the future to come.
> In fact, the Industrial Revolution that he claims to be the last "time of entrepreneurship" lead to the Dickensian's work conditions and such a strong class divide that lead to all the workers revolutions, the fascist counter-revolutions,
...and popular reaction againat capitalism everywhere else in the developed world, too, leading to the general abandonment of pure capitalism in the developed world and its replacement with the modern mixed economy, a comparatively vastly more socialistic system. The rejection of the system for which the term “capitalism” was coined was pretty universal,
I don't agree with the rebuttal - it seems like the author is picking a fight that's more of a woke-style personal attack than addressing problems that follow from wealth inequality in the US today. Knowing Paul Graham from years of reading his essays and tweets, he's very much aware that there's many people suffering in the current system. But that isn't the focus of the essay, and in today's climate you can't get away with writing about the "priviliged" without spending three paragraphs on disclaimers first. PG didn't put in the disclaimers, so he gets pummelled.
Acknowledging that the USA has horrible problems with poverty, where wealth inequality superficially appears to be part of the problem, I have the following suggestions:
-Universal healthcare
-Social safety net in terms of indefinite unemployment support and disability pay, so health issues and unlucky upbringing or genetics doesn't lead to destitution and permanently being in the world's shittiest negotiating position. Maybe basic income.
-Finance the above by taxing everyone, including the rich, at a similar percentage as the middle class, designing a tax system that avoids the big loopholes. A wealth tax may be a part of that.
This ensures that lack of wealth doesn't translate into de facto slavery and lack of power over one's autonomy and personal life. It sets a minimum.
I live in Norway, where total taxation is >50% of income on average, we have a 0.85% annual tax on the total value of all assets, capital gains tax is 32%, universal healthcare, de facto basic income system where everyone uncapable of otherwise either get a public-sector administrative job or disability pay.
We have imported the same debate that the author is fronting. This is ludicrous. We don't have a problem with poverty. We have implemented the dream of the American left. Wealth inequality is only a problem if you find it morally problematic in itself. And yet people are still complaining about it.
At that point, it's only about envy and not trying to make the world better.
Isn’t it agreed upon that the Gini coefficient is misleading though? According to it, the worst inequality can be found in the Netherlands and the Scandinavian countries, just because borrowing money for a house is cheap and safe.
There's a big divide between those who can get a mortgage, and those who can't.
When you buy, pay the maintenance expenses, and for a limited time (well, not Sweden, what they do is essentially renting from a bank) you pay back the loan to the bank and interest for it.
When you rent (because you don't have enough income to get a loan big enough, or have otherwise messed up your finances), you pay the maintenance expenses, and the owner's loan and interest (and after the loan is paid, profit for the owner's investment forever after), and their taxes.
Also, it's only cheap right now with the record low interests for the last 10 years, and it's only safe in specific locations where (and when) the demand for housing is stable or increasing and prices increase over the rate of inflation.
Sure, I'm not saying the housing market is in an especially healthy position, just that the Gini index measures the wrong thing. Its increase alarms people, but it just puts you higher on a list with relatively very equal social democracies at the top. They go into some more detail here: https://www.youtube.com/watch?v=Ot4qdCs54ZE
Note that I'm also not arguing that a large Gini index is good, it just measures something very specific that doesn't really say a lot about inequality.
I can speak for Hong Kong, the return on investment on a rental property is around 2.5% (in the case of the apartment I rent it's 2.6%). The reason why rent is so cheap is I believe due to a lot of speculation by people buying in the hope that the price will increase. But this creates a lot of landlords who want to rent and unfortunately for those renters the people renting can only pay so much a month.
Landlords still expect to make a profit with the rising prices though so think that the rent being this low is not an issue but between the NSL and the changes by mainland China, it's unlikely their bet will pay off
I've seen a similar situation in Malaysia where there's a massive amount of speculative investments in luxury condos leading to 38% of the luxury condos being empty. The landlords are just buying it for speculation they don't expect to make money with rentals and that drives the prices of rentals down
1. Price speculation. Owners are willing to take a loss each month assuming they will make it up on appreciation. This is very true for condos in Toronto for example. Rent is about $500-1000/month less than carrying costs of ownership.
2. Long-term ownership. Landlord bought the property for half the current market rate so carrying costs are way lower than if you’d bought today.
The essay is just a collection of incorrect notions pushed all over the place by the intellectuals and media. The author failed to even try to look himself on the real data and went with templates that were proven wrong again and again.
Few points:
1. "The rich are getting richer and the poor are getting poorer." - author does not understand the difference between statistical categories and real flesh and blood people. If he did, he would have known that real people move between statistical categories over time, which makes absolute sense: you start career with no experience and debt to pay if you have a college degree, then over years you gain skills that allow you to get better pay. There is no "rich" and "poor" when judging statistical categories, because in this sense there always be newly graduated people starting their careers at lower payed jobs. That's how the world works, you can't get Staff Software Engineer position in Google without proving that you're at least have skill for Junior.
2. "Most people don't have the safety net or mental bandwidth to even consider entrepreneurship." - Entrepreneurship is tough and definitely not for all. But, not having money at first was never a problem. Reading some history of big companies you may see that they often started on campus or in garage. Therefore main prerequisite is mental toughness, and building of something people want.
3. "It's less a tutorial or analysis and more a thinly veiled attempt to ease concerns about wealth inequality." - PG correctly pointed out that individuals become wealthy by creating giant amount of new wealth and then capturing some small part of it. For example Amazon, you use it everyday, it has the best pricing, so get immense value from it. Bezos captures some part of the value that Amazon created for all consumers.
4. "basic needs" - It's often a tactic of demagogues to hide behind undefined terms to push their vision. Having a fridge or microwave is a basic need? Is having a car or 2 cars also a basic need? Both of these would have been considered luxuries 50 years ago, and still people were living without them. The point is that setting arbitrary standards imposed by third-parties is not basic needs. In this case, you could define anything as basic need and always have 15-20% of people that don't meet your arbitrary standard.
5. "a small minority of people" - And again, PG provided an approach that will work for every individual. If you create something immensely valuable, and capture some small fraction of it, you get rich. If you do not create, then you don't become rich. But, that is not the problem of society that you yourself did not create anything.
As is usual with such types of articles, the author positions himself on some moral high ground. He claims that his aim is to help the poor, but since the author did not create big amount of wealth and he could not donate large sums to philantropy (which wealth individuals do a lot), then the only approach is to steal money from people who created it with hard work, and give to people who did not work, did not create wealth and likely will never do.
> Most people don't have the safety net or mental bandwidth to even consider entrepreneurship. It is not a panacea for the masses.
Even if they did have the resources to go into entrepreneurship, if most people did so, they would run out of employees and markets. Not everyone can be a CEO, at some point you need workers as well, and there's room for only so many Ubers and Facebooks before starting a new one is unprofitable.
Why exactly is the wealth gap a problem? Shouldn't it be more relevant how well of people are in general?
There are so many nice number games to play, like the stagnant wages. Those usually fail to mention that the workforce has increased significantly, so the sum of wages paid has risen significantly. Buying power also tends to be not factored in. People couldn't buy iPhones 50 years ago.
Also if anybody is unhappy about some tech company, they are free to not do business with them.
In a hypothetical society which leveled the playing field and started over again from scratch, I’d expect the two most important factors in wealth accumulation to be 1) an aesthetically pleasing facial bone structure and 2) g-factor intelligence. Lacking just one of these is enough to take you out of the game, and lacking both is all but a death sentence for your prospects of becoming a contributing member of society.
Both factors are almost entirely determined by a person’s genetics.
> Paul paints a rosy picture but doesn't mention that incomes for lower and middle-class families have fallen since the 80s.
As per the chart literally included in this piece, middle-income median wealth rose over 10% since 1983 (inflation adjusted).
High-income wealth rose much, much more. But the argument PG et. al. seem to make is that the economic order that drives inequality also drives economic growth overall and for the median person. Granted, China might be a more convincing example of this. Median quality of life in the US has declined in some key areas.
"Paul paints a rosy picture but doesn't mention that incomes for lower and middle-class families have fallen since the 80s."
Income in the US has increased for all brackets since 1967[0][1] (at least). The argument is really about who is entitled to more of the increase. But it's framed by the charts as a zero sum: Rich gaining and poor losing. It's not true. All brackets are gaining.
The actual risk is that super-wealthy use their wealth to affect political outcomes. They can influence politics, but were not elected by anyone to do so.
The author is almost certainly referring to real median household income, not personal income, and definitely not average (which is massively impacted by wealth gains at the top). See [1]. It depends which time periods you're comparing, but entire decades saw declines rather than gains. And that's still skewed by the top quartiles. Look at the tables in H2 here [2] to see what's really going on.
Median is the right metric. Household vs. personal, I'm not sure if it matters.
Economic cycles run in decades, hence you need to look at terms longer than decades to see if there is sustained improvement or not. From 1986 to 2019, there was gain at the median. [2; Table H-6] shows that since 1975, the median household income has increased by an annualized 0.7%. Each of the dips in [1] correlates to macro-economic events such as the '89 recession, dot-com/Y2K thing, sub-prime mortgage crisis. When the 2020 number come out, we'll likely see another dip due to COVID.
None of those events were precipitated by wealthy persons somehow screwing the poor. The sub-prime crisis comes the closest, but many wealthy persons were also affected badly by that policy error. The entire workforce of Lehman Brothers, for example.
These are not so much "outrageous flaws" but conscious and reasonable choices. For example, not counting things like SNAP as income makes sense because a government policy targeted at reducing inequality is not the same as that inequality not existing.
It is far more desirable for those programs to be minimized by eliminating the inequality in the first place.
Also, keep in mind that Gini is most useful as relative index.
Making the changes you suggest would obviously result in a better number in the US, but when recalculated for all thee other countries it would not change the situation much.
In fact, since both taxes and the social safety net are low in the US, it would probably drop the rankings.
That doesn’t make a lot of sense. The EITC is a direct cash transfer to low income individuals that offsets inequality and is there money to do with as they wish.
> Few dispute that wealth shares at the top have risen in America, nor that the increase is driven by fortunes at the very top, among people who really can be considered an elite. The question, instead, is by just how much.
The Economist article concludes that the rich are indeed, getting richer and the poor are getting poorer. That's the heart of OP's article.
I may heave misread the article, and the first graph, but it appears that the article confirms that inequality is growing.
It just suggests that inequality is growing at a slower rate than the raw numbers suggest. The most generously adjusted estimates show a doubling of adjusted income for the 1% over the past few decades rather than the higher multiples that we are used to hearing about.
Is it really good news that no matter how you try to tweak the numbers, the income gap is growing?
There are a lot of people in the comments here pointing to environmental or exogenous factors, things that "aren't your fault": where you're born, family obligations, stress levels and their effects on cognition, the behavioral economics of risk and scarcity, shocks for the poor vs. the wealthy, and a host of other things.
These things are real. However, I want to point out that there are other very real things going on too. Particularly, there are real, and strong, effects from natural selection. The people who tend to succeed really are smarter, harder working, healthier, stronger, etc. The natural selection at work is obvious to any scientist thinking about it, but it's difficult or impossible to talk publicly about it these days. Hating on such an obviously true thing in order to show off to your friends is unfortunately very trendy :-( This is a problem because it means we look for invisible boogeymen rather than having a correct understanding of the situation and going from there.
Inequality is only bad if you're in a zero-sum game. The rich do have the power to extract rents and "rig the system" to cement their wealth and power. Those are things Graham is clearly against. But an entrepreneur who gets rich by reducing waste and improving productivity by harnessing technology deserves our praise. They're not causing the "poor to get poorer".
And comparing the wealth distribution of today to that of 1980 is pretty silly. We're in a global economy now, so if you want to be fair, you need to look at it from a global perspective. Almost all Americans are going to fall in the top 10% of earners globally. And global poverty has collapsed since 1980. Yes, you no longer get a comfy middle class life just by virtue of being born in the US (regardless of skills) anymore. I personally don't believe that an unskilled worker in the US deserves to be paid 10X what an equivalent worker in Bangladesh makes just because they were lucky enough to be born here.