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The flip side of that argument is that the top xx% people and organizations have accumulated so much wealth that they really don't know how to allocate it sanel

The flip side of that argument is that the top xx% people and organizations have accumulated so much wealth that they really don't know how to allocate it sanely. As soon as some channel opens to receive it (government or private), money starts flooding in, eroding the integrity of that investment channel - and stupid investments inevitably get made. Meanwhile, people can't afford houses or pay for college because the price of their labor is being systematically minimized to increase shareholder value, and the world and national economy as a whole are showing a low-growth stagnation. The question is often asked, what intrinsic reason is there to worry about income inequality? One reason is that when wealth is more evenly spread, the millions of micro-allocation decisions by many people help power a very efficient engine of capitalism. However, if the wealth is unevenly spread, then we have much fewer parties making very heavyweight allocation decisions, and many much smaller allocations being made by everyone else. Under that scenario, the engine of capitalism starts to drop in efficiency because it's choking on too high a amount of misrouted investments in some areas, and not enough in others.

JonFish85 11y ago
>The flip side of that argument is that the top xx% people and organizations have accumulated so much wealth that they really don't know how to allocate it sanely. As soon as some channel opens to receive it (government or private), money starts flooding in, eroding the integrity of that investment channel - and stupid investments inevitably get made. How does this work, generally? Sure, there are people with "so much wealth they don't really know how to allocate it sanely," as you say. But ultimately what happens with it? The "super wealthy" don't have it sitting under their mattresses--it's in all kinds of investments: stocks, property, etc. I don't really get the point in your words, other than "some people have more money than others". What counts as a valid use of money, to you? Paying for other people's college? Paying other people's mortgages? What makes one use of money/property more valuable than other uses? As seen on HN recently, mutual funds are investing in startups, some of which essentially pays our salaries. Is paying $10m for a yacht a less sane use of money than a million people paying $10 for gas? For the 2nd time in as many days, I'll use Bill Gates as an example. He's apparently worth something like $80B. Apparently ~$15B is in Microsoft stocks, and the rest is in Cascade Investment LLC. That's all being invested in a variety of ways, certainly: some public companies, some bonds, some private company, etc. It's all being used in various ways, ultimately paying salaries, paying taxes on properties, investing in capital. If it were to be liquidated (assuming that you could do so without losing value), and given to everyone in the USA equally at $80B / 330 million people => $242/person in the US, why would that necessarily be allocated "better"? My naive guess would be that a significant chunk of it would end up at Walmart, Apple and Samsung--how is that more sanely allocated? Or is your point that the government could better allocate that money? If the government were given $80B to use "on behalf of the people", do you think it would be better spent?
- digikata 11y ago
  As a thought experiment, I would predict that putting $80B more in the hands of the population of people in the bottom 50% of the wealth distribution would cause more and longer lasting economic activity than the same amount injected, for example, into the stock market. Broadly how it's working is that too much money is sticking in banks and financial markets, and not enough actually circulating in the hands of people and that's causing poor economic growth in real terms. What does that mean for suggested fiscal or monetary policy? I don't know. I believe that capitalism makes sense at a lot of levels, but I also think that the over-accumulation of wealth unbalances the whole. The traditional proposed "solutions" to this are ineffective to me. e.g. increasing the minimum wage may do some social good but it's so far on the edges of the solving the fundamental problem it's laughable. Instituting a tax on wealth seems unworkable from a political level - and on top of that, it seems to be on the other far edge of trying to fix a problem long after the problem has occurred. To me the fundamental problem isn't that individuals get wealth, it's that our financial system systematically approaches wages to be optimized down as a cost, and that companies are applauded for squeezing labor cost as equally as any other cost. So instead of investing in better training, or capital equipment, or better processes, a viable way to operate is to squeeze your employees as hard as possible. This is a process that's causing broad flow towards inequality and single worst misapplication of money flow in the economy, giving rise to the problem in the parent above. This is also a process that squeezes out the benefits of capitalism to people broadly in society. I don't have a pat answer to solve that problem. Sometimes I wonder about a salary tax credit that looks something like an x% credit for the amount of money an employer pays in wages. It would have to be some fairly out-of-the-box proposal that shifts enough wages as a proportion of gross profits that would have an effect without fundamentally breaking down the way that capitalism does lead to benefits.
- zuminator 11y ago
  > How does this work, generally? Sure, there are people with "so much wealth they don't really know how to allocate it sanely," as you say. But ultimately what happens with it? The "super wealthy" don't have it sitting under their mattresses--it's in all kinds of investments: stocks, property, etc. Yes, that's the point, if you're really rich, you don't spend most of your money, you invest it. And that's all very well and good, but there's a problem. In this world there are are all kinds of investments: excellent investments, merely good ones, poor investments, catastrophic ones. And the problem is, currently there is far more money in the hands of the wealthy than there are excellent investments for them to invest in. That means they're constantly on the prowl for new areas to invest in but even so, a lot of investments turn out to be catastrophic, meaning they don't generate wealth, they destroy it. And so, under these specific conditions, that there is far more liquidity than worthwhile places to invest, then yes, I would consider it better for some of that money to be taxed and spent than on just melting away in bad land deals, risky schemes and fraud.
logfromblammo 11y ago
The top x% have been so ingrained with the idea that their money must be invested rather than spent that there is now a sort of economic Schwarzschild radius for money, and the rich have brought all their wealth inside of it. Then it does not leave. The best investments require healthy businesses, which require supplier production and consumer spending, which are uses of money that compete with investments. If everyone who can afford a Tesla roadster would prefer to buy Tesla stock, then the investment never pays off, because Tesla can't actually sell enough roadsters. Eventually, someone has to buy something. Buying a piece of the company that makes a thing is not the sake as buying the thing it makes. One is actually beneficial economic activity, and the other is just moving money from one pocket to another in the same pair of pants. All those loans given out for education and housing are not spending. They are just new ways to launch money out on outward trajectories such that it will inevitably return. Once you are rich enough that you can't conceivably spend all your money via normal living expenses, you have a choice: accumulate even more money that can't be spent, or spend it on abnormal expenses. You can use your money to get more money, or you can use it to buy things that no one else can. You can buy paper from Fannie Mae and Sallie Mae, or you can build a better electric car. You can shuffle paper, or you can eradicate malaria. You can shuffle paper, or you can give a condom to every person on Earth that does not want to get HIV today. You can shuffle paper, or you can buy the swankiest, shiniest luxury yacht ever made. You can shuffle paper, or you can overthrow the government that murdered your grandparents. You can shuffle paper, or you can make sure that your local zoo can afford a new habitat for some threatened animal to whom you feel inexplicably connected. We get bubbles when the people with money to spare only want to invest in the things that other people are spending their money on. Those people should not be investing. They should be making things to sell, or buying them, rather than trying to make the people who are doing those things indebted to them somehow.
- digikata 11y ago
  I think we're largely in agreement. When too few people have too large a lever, then a few stupid decisions (amplified by collective crowd following in investment circles) really impedes economic growth. On top of that, in the higher levels of finance, there is an increased decoupling of investments/spending decisions from their direct outcomes - both in time, and the adverse personal impact. This hampers the quality of investment decisions. People of all economic levels make smart and stupid decisions with money. If that money is spread out among many people making many decisions, then overall most people do reasonable things and we still can end up with a pretty good economy that is more resistant to bubbles.
Frondo 11y ago
This is a really good point, your second paragraph. What you're getting at is that when wealth becomes concentrated enough, you effectively have a centrally-planned economy with all its accompanying inefficiencies. There are some pretty smart economists who've shown that here in this U.S., this is effectively already happening. Basically, when people say "inequality? Who cares? It's capitalism!", what they're missing is, after enough inequality, it's no longer capitalism. You end up with a centrally-planned economy, which is where we are today.
- clock_tower 11y ago
  Maciej Ceglowski said much the same thing, in the particular context of venture capitalism: "We had people like this back in Poland, except instead of venture capitalists we called them central planners. They too were in charge of allocating vast amounts of money that didn't belong to them." (http://idlewords.com/talks/what_happens_next_will_amaze_you.htm http://idlewords.com/talks/what_happens_next_will_amaze_you....)
  - icebraining 11y ago
    Ah, but that's a different problem, and the inequality talk actually distracts from it. The thing is that VCs are not that wealthy - even the wealthiest ones, like John Doerr, are not in the Forbes 100 list. What they actually do is invest the money of others, often from not-so-wealthy people - money held in pension funds, 401ks, etc. So you could have a less unequal society in which VCs actually controlled more money - in fact, it wouldn't be surprising, since wealthy people often invest directly, instead of buying into VC funds.
- monknomo 11y ago
  That is a really compelling way of phrasing the problem with having most money concentrated in few hands. It strikes me as a companion to a lot of "free market" talk really advocating a monopoly with no rules for the monopolist.
  - icebraining 11y ago
inthewoods 11y ago
"The question is often asked, what intrinsic reason is there to worry about income inequality?" A stable society - when income inequality goes to far, it leads to first a destabilized society and then, occasionally, a revolution. As someone once said to me in answer to the question of why we pay taxes (a similar but different question) the answer was "To keep the pitchforks off your lawn."
- icebraining 11y ago
  But does it? In the past, inequality was usually tied to pretty bad living conditions for much of the rest of society. I wonder if most people were able to have a "reasonable" standard of living (say, of the average working class person in the West in the 90s) and be reasonable secure that life would not get worse for them or for their kids, if society would actually become destabilized by huge levels of inequality.
  - inthewoods 11y ago
    That's a pretty reasonable "amount" of income inequality - the question is how it can be achieved. Income inequality has a tendency to increase because the people at the top of the system rig it to their advantage, which tends to further increase their advantages.
ancap 11y ago
> the engine of capitalism starts to drop in efficiency because it's choking on too high a amount of misrouted investments in some areas, and not enough in others. The "misrouted investments" you speak of, are only possible, on any large scale, by an ever increasing money supply provided by a central bank. To put in other words, there can be no bubbles, of any kind, without the expansion of the money supply. This expansion in the money supply is decidedly not capitalistic.
- gnaritas 11y ago
  > The "misrouted investments" you speak of, are only possible, on any large scale, by an ever increasing money supply provided by a central bank. As he pointed out, not true, it's also possible by too much centralization of wealth, i.e. inequality. Inequality happens regardless of central bank interference with the money supply.
jsprogrammer 11y ago
>have accumulated so much wealth I think the problem is here. What is the definition of wealth? Often wealth is conflated with money or capital. When you start off with a fictional concept, you get fictional results. What does it mean to accumulate wealth? Produce a pile of gold bricks? Amass fat stacks of cash? Obtain the most 1s in the most significant bits in your values in GS's databases? It seems to me that there are only really people's wants and needs and whether or not they are currently being met. How can you put a wealth quantity into that framework? >that they really don't know how to allocate it sanely In what sense does a holder of massive accumulated wealth allocate it? Do you mean handing out cash with the expectation that the recipient will perform actions on demand?

JonFish85 11y ago

>The flip side of that argument is that the top xx% people and organizations have accumulated so much wealth that they really don't know how to allocate it sanely. As soon as some channel opens to receive it (government or private), money starts flooding in, eroding the integrity of that investment channel - and stupid investments inevitably get made. How does this work, generally? Sure, there are people with "so much wealth they don't really know how to allocate it sanely," as you say. But ultimately what happens with it? The "super wealthy" don't have it sitting under their mattresses--it's in all kinds of investments: stocks, property, etc. I don't really get the point in your words, other than "some people have more money than others". What counts as a valid use of money, to you? Paying for other people's college? Paying other people's mortgages? What makes one use of money/property more valuable than other uses? As seen on HN recently, mutual funds are investing in startups, some of which essentially pays our salaries. Is paying $10m for a yacht a less sane use of money than a million people paying $10 for gas? For the 2nd time in as many days, I'll use Bill Gates as an example. He's apparently worth something like $80B. Apparently ~$15B is in Microsoft stocks, and the rest is in Cascade Investment LLC. That's all being invested in a variety of ways, certainly: some public companies, some bonds, some private company, etc. It's all being used in various ways, ultimately paying salaries, paying taxes on properties, investing in capital. If it were to be liquidated (assuming that you could do so without losing value), and given to everyone in the USA equally at $80B / 330 million people => $242/person in the US, why would that necessarily be allocated "better"? My naive guess would be that a significant chunk of it would end up at Walmart, Apple and Samsung--how is that more sanely allocated? Or is your point that the government could better allocate that money? If the government were given $80B to use "on behalf of the people", do you think it would be better spent?

digikata 11y ago
As a thought experiment, I would predict that putting $80B more in the hands of the population of people in the bottom 50% of the wealth distribution would cause more and longer lasting economic activity than the same amount injected, for example, into the stock market. Broadly how it's working is that too much money is sticking in banks and financial markets, and not enough actually circulating in the hands of people and that's causing poor economic growth in real terms. What does that mean for suggested fiscal or monetary policy? I don't know. I believe that capitalism makes sense at a lot of levels, but I also think that the over-accumulation of wealth unbalances the whole. The traditional proposed "solutions" to this are ineffective to me. e.g. increasing the minimum wage may do some social good but it's so far on the edges of the solving the fundamental problem it's laughable. Instituting a tax on wealth seems unworkable from a political level - and on top of that, it seems to be on the other far edge of trying to fix a problem long after the problem has occurred. To me the fundamental problem isn't that individuals get wealth, it's that our financial system systematically approaches wages to be optimized down as a cost, and that companies are applauded for squeezing labor cost as equally as any other cost. So instead of investing in better training, or capital equipment, or better processes, a viable way to operate is to squeeze your employees as hard as possible. This is a process that's causing broad flow towards inequality and single worst misapplication of money flow in the economy, giving rise to the problem in the parent above. This is also a process that squeezes out the benefits of capitalism to people broadly in society. I don't have a pat answer to solve that problem. Sometimes I wonder about a salary tax credit that looks something like an x% credit for the amount of money an employer pays in wages. It would have to be some fairly out-of-the-box proposal that shifts enough wages as a proportion of gross profits that would have an effect without fundamentally breaking down the way that capitalism does lead to benefits.
zuminator 11y ago
> How does this work, generally? Sure, there are people with "so much wealth they don't really know how to allocate it sanely," as you say. But ultimately what happens with it? The "super wealthy" don't have it sitting under their mattresses--it's in all kinds of investments: stocks, property, etc. Yes, that's the point, if you're really rich, you don't spend most of your money, you invest it. And that's all very well and good, but there's a problem. In this world there are are all kinds of investments: excellent investments, merely good ones, poor investments, catastrophic ones. And the problem is, currently there is far more money in the hands of the wealthy than there are excellent investments for them to invest in. That means they're constantly on the prowl for new areas to invest in but even so, a lot of investments turn out to be catastrophic, meaning they don't generate wealth, they destroy it. And so, under these specific conditions, that there is far more liquidity than worthwhile places to invest, then yes, I would consider it better for some of that money to be taxed and spent than on just melting away in bad land deals, risky schemes and fraud.

logfromblammo 11y ago

The top x% have been so ingrained with the idea that their money must be invested rather than spent that there is now a sort of economic Schwarzschild radius for money, and the rich have brought all their wealth inside of it. Then it does not leave. The best investments require healthy businesses, which require supplier production and consumer spending, which are uses of money that compete with investments. If everyone who can afford a Tesla roadster would prefer to buy Tesla stock, then the investment never pays off, because Tesla can't actually sell enough roadsters. Eventually, someone has to buy something. Buying a piece of the company that makes a thing is not the sake as buying the thing it makes. One is actually beneficial economic activity, and the other is just moving money from one pocket to another in the same pair of pants. All those loans given out for education and housing are not spending. They are just new ways to launch money out on outward trajectories such that it will inevitably return. Once you are rich enough that you can't conceivably spend all your money via normal living expenses, you have a choice: accumulate even more money that can't be spent, or spend it on abnormal expenses. You can use your money to get more money, or you can use it to buy things that no one else can. You can buy paper from Fannie Mae and Sallie Mae, or you can build a better electric car. You can shuffle paper, or you can eradicate malaria. You can shuffle paper, or you can give a condom to every person on Earth that does not want to get HIV today. You can shuffle paper, or you can buy the swankiest, shiniest luxury yacht ever made. You can shuffle paper, or you can overthrow the government that murdered your grandparents. You can shuffle paper, or you can make sure that your local zoo can afford a new habitat for some threatened animal to whom you feel inexplicably connected. We get bubbles when the people with money to spare only want to invest in the things that other people are spending their money on. Those people should not be investing. They should be making things to sell, or buying them, rather than trying to make the people who are doing those things indebted to them somehow.

digikata 11y ago
I think we're largely in agreement. When too few people have too large a lever, then a few stupid decisions (amplified by collective crowd following in investment circles) really impedes economic growth. On top of that, in the higher levels of finance, there is an increased decoupling of investments/spending decisions from their direct outcomes - both in time, and the adverse personal impact. This hampers the quality of investment decisions. People of all economic levels make smart and stupid decisions with money. If that money is spread out among many people making many decisions, then overall most people do reasonable things and we still can end up with a pretty good economy that is more resistant to bubbles.

Frondo 11y ago

This is a really good point, your second paragraph. What you're getting at is that when wealth becomes concentrated enough, you effectively have a centrally-planned economy with all its accompanying inefficiencies. There are some pretty smart economists who've shown that here in this U.S., this is effectively already happening. Basically, when people say "inequality? Who cares? It's capitalism!", what they're missing is, after enough inequality, it's no longer capitalism. You end up with a centrally-planned economy, which is where we are today.

clock_tower 11y ago
Maciej Ceglowski said much the same thing, in the particular context of venture capitalism: "We had people like this back in Poland, except instead of venture capitalists we called them central planners. They too were in charge of allocating vast amounts of money that didn't belong to them." (http://idlewords.com/talks/what_happens_next_will_amaze_you.htm http://idlewords.com/talks/what_happens_next_will_amaze_you....)
- icebraining 11y ago
  Ah, but that's a different problem, and the inequality talk actually distracts from it. The thing is that VCs are not that wealthy - even the wealthiest ones, like John Doerr, are not in the Forbes 100 list. What they actually do is invest the money of others, often from not-so-wealthy people - money held in pension funds, 401ks, etc. So you could have a less unequal society in which VCs actually controlled more money - in fact, it wouldn't be surprising, since wealthy people often invest directly, instead of buying into VC funds.
monknomo 11y ago
That is a really compelling way of phrasing the problem with having most money concentrated in few hands. It strikes me as a companion to a lot of "free market" talk really advocating a monopoly with no rules for the monopolist.
- icebraining 11y ago

inthewoods 11y ago

"The question is often asked, what intrinsic reason is there to worry about income inequality?" A stable society - when income inequality goes to far, it leads to first a destabilized society and then, occasionally, a revolution. As someone once said to me in answer to the question of why we pay taxes (a similar but different question) the answer was "To keep the pitchforks off your lawn."

icebraining 11y ago
But does it? In the past, inequality was usually tied to pretty bad living conditions for much of the rest of society. I wonder if most people were able to have a "reasonable" standard of living (say, of the average working class person in the West in the 90s) and be reasonable secure that life would not get worse for them or for their kids, if society would actually become destabilized by huge levels of inequality.
- inthewoods 11y ago
  That's a pretty reasonable "amount" of income inequality - the question is how it can be achieved. Income inequality has a tendency to increase because the people at the top of the system rig it to their advantage, which tends to further increase their advantages.

ancap 11y ago

> the engine of capitalism starts to drop in efficiency because it's choking on too high a amount of misrouted investments in some areas, and not enough in others. The "misrouted investments" you speak of, are only possible, on any large scale, by an ever increasing money supply provided by a central bank. To put in other words, there can be no bubbles, of any kind, without the expansion of the money supply. This expansion in the money supply is decidedly not capitalistic.

gnaritas 11y ago
> The "misrouted investments" you speak of, are only possible, on any large scale, by an ever increasing money supply provided by a central bank. As he pointed out, not true, it's also possible by too much centralization of wealth, i.e. inequality. Inequality happens regardless of central bank interference with the money supply.

jsprogrammer 11y ago

>have accumulated so much wealth I think the problem is here. What is the definition of wealth? Often wealth is conflated with money or capital. When you start off with a fictional concept, you get fictional results. What does it mean to accumulate wealth? Produce a pile of gold bricks? Amass fat stacks of cash? Obtain the most 1s in the most significant bits in your values in GS's databases? It seems to me that there are only really people's wants and needs and whether or not they are currently being met. How can you put a wealth quantity into that framework? >that they really don't know how to allocate it sanely In what sense does a holder of massive accumulated wealth allocate it? Do you mean handing out cash with the expectation that the recipient will perform actions on demand?