4 ms·

This article seems transparently fallacious to me, since the income generated for the 1% is due to investment capital. Investment capital, among a million other

by gfodor 10y ago

This article seems transparently fallacious to me, since the income generated for the 1% is due to investment capital. Investment capital, among a million other attributes that differentiate it vs a state backed UBI program, is exposed to risk. There isn't just some pile of "income" sitting there we can harvest every year, the income the article talks about exists due to the exchange of capital. At the end of the year, some of those investments fail (for example, bonds default) and the income streams vanish. The analogy to UBI completely fails. Honestly this is probably one of the most transparently dumb UBI articles I've seen posted on HN. (Disclaimer: I support the idea of UBI pending research outcomes.)

Daishiman 10y ago
When investment capital's returns turns out to be distributed in a disproportionate manner that's not actually benefitting the majority of society, we have a problem. The tables have been turned in favor of rent-seeking behavior, which is what the article complains about. This is merely a way of correcting that problem.
huac 10y ago
Risk is always relative. If you have enough capital, you can afford to focus solely on the long run, and plan positions accordingly. In general portfolio theory managers aim to optimize an objective - for short term hedge funds that's typically Sharpe ratio or just net return, but for long term focus (e.g. a rich family), you focus on minimizing the probability of shortfall. That is, your family is going to spend some x% of your wealth every year. Then you only need to return x% on the fund (approximately) on a yearly basis. There is very little real risk associated with this strategy, if you're rich and needing to earn a small percent of your total assets, say 3%. Now, if your family isn't rich, you're probably going to need to spend much more than 3% in income, and your probability of shortfall increases dramatically. This is similar to how college endowments work - do you think Harvard's endowment has a high chance of going dry anytime soon? Tangentially, their tax-free status is tied to spending 5% of the assets each year, which actually makes their job a lot harder, and is why they need to still raise money.
- h4nkoslo 10y ago
  "There is very little real risk associated with this strategy" Once you get to inter-generational wealth there is catastrophic risk that is almost uninsurable; managing that risk is extremely difficult. It is not as simple as "buy bonds", you have to deal with things like confiscatory tax rates, hyperinflation, default, being targeted by the government as a juicy source of funds, fall of a government you had previously been associated with, a dumb heir coming into control of the fortune and getting swindled... If being rich was easy everyone would do it.
  - huac 10y ago
    There is diversifiable risk and there is non-diversifiable risk. Everyone is subject to non-diversifiable risk, and there's plenty of risk associated with being poor, such as not having enough food to eat.
vtlynch 10y ago
Can you please provide widespread proof of "income streams vanish[ing]"? Because for the ultra-rich, I dont believe there is any evidence of this. Do they lose money some of the time? Sure But nearly any prudent investor could manage a portfolio that would be able to keep them wealthy in perpetuity.
- rsync 10y ago
  "Can you please provide widespread proof of "income streams vanish[ing]"?" Were you in a coma from 2007-2010 ? Ok, let's stipulate that you were. You were in a coma. Fine. How about twentieth century world history from high school ? Great family dynasties all over the western world were ruined in the aftermath of WWI. How exactly would you hedge against the leninists arresting you and killing your entire extended family ? Remember, WWI is going on in the background so you can't just jet off to St. Barts... Moving on to WW2, how would a "prudent investor" manage their portfolio of businesses and contacts and resources in their family base of Dresden ? Or Hiroshima ? Your scope of thought on this issue is ... limited.
  - vtlynch 10y ago
    Your criticism is that there isn't a foul-proof way for the rich to stay rich forever? Of course there are going to be major hurdles during total war and extreme regime change. That would be obvious to anyone who wasn't being disingenuous or thick-headed, or both. Those circumstances have nothing to do with this discussion as its not a realistic threat for billionaires of today, especially in America. The 2007-2010 crisis did not impact the billionaires. They are still billionaires.
    - bungle 10y ago
      Crisis are good for billionaires. That's when they get to buy the assets cheap.
    - rsync 10y ago
      "Your criticism is that there isn't a foul-proof way for the rich to stay rich forever?" The parent claimed that "the rich" have foolproof recipes to stay rich forever - they just need smart portfolio management. So yes, my criticism is that that is false.
jayd16 10y ago
With enough capital there are enough ways to mitigate risk to the point that wealth increase is assured.
- rsync 10y ago
  No wealth increase is assured.
dmurray 10y ago
The "1%“ rhetoric is also quite misleading, since the passive income is concentrated much more tightly than that. If he had said "the average person in the top 10% receives a UBI equal to 75% of the average income in the country" or "the average American receives a UBI equal to 10% of the median income in the country" it would be equally true, yet make quite a different impression.
notacoward 10y ago
How much risk, and how much reward? I don't have a problem with people who take risks being able to reap proportionate rewards, but when a Mars or Walton (or Trump) inheritor can pull in many millions per year with practically zero risk (or thought or effort) they are drawing capital out of the competitive free market into a world of pure rent. That makes them no different than the manor lords of old, and that's not the kind of economy or social structure I think we should have.

by gfodor 10y ago

Daishiman 10y ago

When investment capital's returns turns out to be distributed in a disproportionate manner that's not actually benefitting the majority of society, we have a problem. The tables have been turned in favor of rent-seeking behavior, which is what the article complains about. This is merely a way of correcting that problem.

huac 10y ago

Risk is always relative. If you have enough capital, you can afford to focus solely on the long run, and plan positions accordingly. In general portfolio theory managers aim to optimize an objective - for short term hedge funds that's typically Sharpe ratio or just net return, but for long term focus (e.g. a rich family), you focus on minimizing the probability of shortfall. That is, your family is going to spend some x% of your wealth every year. Then you only need to return x% on the fund (approximately) on a yearly basis. There is very little real risk associated with this strategy, if you're rich and needing to earn a small percent of your total assets, say 3%. Now, if your family isn't rich, you're probably going to need to spend much more than 3% in income, and your probability of shortfall increases dramatically. This is similar to how college endowments work - do you think Harvard's endowment has a high chance of going dry anytime soon? Tangentially, their tax-free status is tied to spending 5% of the assets each year, which actually makes their job a lot harder, and is why they need to still raise money.

h4nkoslo 10y ago
"There is very little real risk associated with this strategy" Once you get to inter-generational wealth there is catastrophic risk that is almost uninsurable; managing that risk is extremely difficult. It is not as simple as "buy bonds", you have to deal with things like confiscatory tax rates, hyperinflation, default, being targeted by the government as a juicy source of funds, fall of a government you had previously been associated with, a dumb heir coming into control of the fortune and getting swindled... If being rich was easy everyone would do it.
- huac 10y ago
  There is diversifiable risk and there is non-diversifiable risk. Everyone is subject to non-diversifiable risk, and there's plenty of risk associated with being poor, such as not having enough food to eat.

vtlynch 10y ago

Can you please provide widespread proof of "income streams vanish[ing]"? Because for the ultra-rich, I dont believe there is any evidence of this. Do they lose money some of the time? Sure But nearly any prudent investor could manage a portfolio that would be able to keep them wealthy in perpetuity.

rsync 10y ago
"Can you please provide widespread proof of "income streams vanish[ing]"?" Were you in a coma from 2007-2010 ? Ok, let's stipulate that you were. You were in a coma. Fine. How about twentieth century world history from high school ? Great family dynasties all over the western world were ruined in the aftermath of WWI. How exactly would you hedge against the leninists arresting you and killing your entire extended family ? Remember, WWI is going on in the background so you can't just jet off to St. Barts... Moving on to WW2, how would a "prudent investor" manage their portfolio of businesses and contacts and resources in their family base of Dresden ? Or Hiroshima ? Your scope of thought on this issue is ... limited.
- vtlynch 10y ago
  Your criticism is that there isn't a foul-proof way for the rich to stay rich forever? Of course there are going to be major hurdles during total war and extreme regime change. That would be obvious to anyone who wasn't being disingenuous or thick-headed, or both. Those circumstances have nothing to do with this discussion as its not a realistic threat for billionaires of today, especially in America. The 2007-2010 crisis did not impact the billionaires. They are still billionaires.
  - bungle 10y ago
    Crisis are good for billionaires. That's when they get to buy the assets cheap.
  - rsync 10y ago
    "Your criticism is that there isn't a foul-proof way for the rich to stay rich forever?" The parent claimed that "the rich" have foolproof recipes to stay rich forever - they just need smart portfolio management. So yes, my criticism is that that is false.

jayd16 10y ago

With enough capital there are enough ways to mitigate risk to the point that wealth increase is assured.

rsync 10y ago
No wealth increase is assured.

dmurray 10y ago

The "1%“ rhetoric is also quite misleading, since the passive income is concentrated much more tightly than that. If he had said "the average person in the top 10% receives a UBI equal to 75% of the average income in the country" or "the average American receives a UBI equal to 10% of the median income in the country" it would be equally true, yet make quite a different impression.

notacoward 10y ago

How much risk, and how much reward? I don't have a problem with people who take risks being able to reap proportionate rewards, but when a Mars or Walton (or Trump) inheritor can pull in many millions per year with practically zero risk (or thought or effort) they are drawing capital out of the competitive free market into a world of pure rent. That makes them no different than the manor lords of old, and that's not the kind of economy or social structure I think we should have.