6 ms·

It's not part of the model because, if you're studying how wealth gets distributed rather than how it is produced, it doesn't matter. I'm guessing that your di

It's not part of the model because, if you're studying how wealth gets distributed rather than how it is produced, it doesn't matter. I'm guessing that your disquiet at this notion comes from the possibility that everyone is creating their own wealth, and to some extent that is no doubt true. But if you start with the simplifying assumption that everyone's wealth creation ability is equal, and you just look at distribution, and you find that your model pretty accurately reproduces the real-world distribution of wealth, it's at least some evidence that wealth-creation ability is not that different from person to person, and what's driving inequality is the distribution mechanism. Since virtually all human traits follow a Gaussian distribution, it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution. But wealth follows more of a power law distribution. You never encounter anyone 1000 times taller than average, but there are many people 1000 times wealthier than average. This casts some doubt that wealth accumulation is down to individual human ability. Couple that with the micro-economic observation that someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical, and it seems pretty unlikely that wealth creation has much to do with the distribution we see.

piokoch 7y ago
I am not sure we can ignore wealth creators, surely they want to have an impact on wealth distribution, I can't imagine sane model that would just ignore this factor.
- tremon 7y ago
  But then, what is a "wealth creator"? Is a teacher a wealth creator? Were the parents of Bill Gates wealth creators? Were Elon Musk in need of a heart transplant, would the surgeon performing it be a wealth creator? Would the heart donor be? Would the director of said hospital be one?
username90 7y ago
> someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical I'm not sure this is correct, at least not on average. Take two average persons, give one of them a million dollar, then watch what their net income is the next 10 years. I'd bet that the one you gave a million dollars will have used up a large part of it thus having a huge net loss while the one you didn't give anything will still be roughly at zero. Edit: This study shows that people significantly reduce their income after winning the lottery, suggesting that there is a negative correlation between wealth and earnings given that everything else is the same. https://www.nber.org/papers/w21762.pdf https://www.nber.org/papers/w21762.pdf
- sokoloff 7y ago
  That suggests to me only a negative correlation between wealth and income among people who achieve wealth via the lottery. I don’t see any reason to think this same linkage holds for those with a propensity to make money from entrepreneurial or investing activity.
- bumby 7y ago
  The book "The Meritocracy Trap" points out that inter-generationally this isn't true. More money helps fund better training which leads to elite networking/training (elite colleges, for example) which leads to well-paying, high status jobs and the cycle continues. Granted, it's not just money alone, but the major theme of the book is that high income from labor (rather than inherited wealth) is a positive feedback loop passed along generational lines and concentrated among the upper quintile of incomes
  - username90 7y ago
    I'm from Sweden were the things you are talking about doesn't apply, getting into our best colleges isn't particularly hard and private schools you have to pay for are almost non-existent. Yet there are still a significant gap in how much people earn, and kids from rich families still do much better in school and college than kids from poor families.
    - bumby 7y ago
      Fair enough. At least here in the States, Scandinavian countries are often portrayed as more equitable on relative terms. Do you know how Sweden's inequality compares to the U.S. quantitatively? The training for schooling outlined in the book is often independent of the school structure (e.g., tutoring, test prep etc.). The upper echelons didn't think it was uncommon to spend $100k per student on this extra training. The authors point was that training works and that the rich have more advantages to educating and training their kids
      - xyzzyz 7y ago
username90 7y ago
> Since virtually all human traits follow a Gaussian distribution, it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution. But wealth follows more of a power law distribution. You never encounter anyone 1000 times taller than average, but there are many people 1000 times wealthier than average. This is nonsense. Lets take an easy example, books, people don't want to waste their time reading bad books so only the most palatable books gets a good amount of sales. This means that a small difference in skill leads to a large difference in sales, which would recreate the power-law of wealth creation. Similar arguments can be made about engineering skills, management skills etc.
- pytester 7y ago
  If you look at the actual richest people in the world though, they largely make their wealth off the hard work of others (walmart family), through some kind of gamble (finance), some kind of parasitism (unearned income like interest) or by monopolizing that "magically existing wealth the OP doesn't believe in" (e.g. saudi arabian oil). For every JK Rowling or Steve Jobs there's maybe 100 who either fully or mostly extracted their wealth while going to great efforts to pretend that they're really just another JK Rowling or Steve Jobs.
  - qnsi 7y ago
    More than half billionaires are self-made.
  - joeblow9999 7y ago
    so?
- anovikov 7y ago
  Very true. And my opinion of why distribution becomes even more skewed in both the income and wealth, is that it becomes easier to exploit this small difference in skill thanks to computer and the Internet (and books are the best example: it costs nothing to "publish" the book in millions copies online, so the feedback loop moving slightly better authors on top works a lot better than in times of printed books).
duxut_staglatz 7y ago
Many things in the economy follow a power law, see [0] for instance [0] https://www.nber.org/papers/w14299 https://www.nber.org/papers/w14299
deleted 7y ago
[deleted]
speleding 7y ago
>it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution... >You never encounter anyone 1000 times taller than average If I compare myself to Shakespeare / Einstein / Elon Musk I do feel that their abilities outstrip mine by an order of magnitude more than one would expect with a Gaussian distribution.
koro9n 7y ago
Then when you read James Madison defined the Senate as protector of the rich, a legacy fed to our Senators since childhood, you realize wealth accumulation has nothing to do with organic economic trade, and everything to do with political power brokering. That it’s somehow dictated by physics is another example of people with emotional minds filled by godheaded supervisors that social hierarchy is preordained, not the uglier truth: the elite and their sycophants get violent when it’s pointed out they aren’t gods owed political deference
nomel 7y ago
> if you're studying how wealth gets distributed rather than how it is produced, it doesn't matter. I know nothing of this, but how can distribution be understood without the forces that drive it?
- duxut_staglatz 7y ago
  It's called curve fitting (or machine learning if the techniques used are fancy enough).
- vannevar 7y ago
  We're using distribution here in two different senses. One is statistical distribution, like power law or gaussian distribution. The other is distribution in the sense of a distribution network. You can test your understanding of the distribution network without understanding how the wealth being distributed was created in the first place.
- deleted 7y ago
  [deleted]
friendlybus 7y ago
The power law you are describing happens in nature too. Size of trees in forest, mass of stars, ect. You can't go deep enough to dig up it's source, so you get carte blanch freedom to make the distribution arguments however you want. But until you dig up the cause for why the system produces a power law output for wealth distribution that has happened pretty much throughout history, under monarchies or capitalism or whatever, then you're just shuffling deck chairs on a titanic argument.
- Haga 7y ago
  Size of trees can't save them from the savannah.
dv_dt 7y ago
I think if you're studying the propagation of wealth distribution, how the wealth is produced matters, because there are threshholds below which it's more difficult for individual actors to start or expand productive economic activity. You see a hint of that in economic data where high-inequality economies show lower growth than more equal economies. I think of it as something like a phase change, with insufficient energy applied equally enough across enough atoms you can't make it from solid to liquid and have a much lower mix rate in the economy.
kamaal 7y ago
>>someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical, and it seems pretty unlikely that wealth creation has much to do with the distribution we see. Someone who scores 85 marks in an exam is more likely to score 95 with a little more effort than some one who scores 35 is likely to score 85 with a lot of effort. This is for a very simple reason that to get to 85 requires a lot of effort, which builds a whole range of human qualities along the way.
- vannevar 7y ago
  Note that the statement is that the two people are identical other than their wealth, so that in this case the difference in probability is independent of how the original million was acquired. That's the point.
  - kamaal 7y ago
    >>Note that the statement is that the two people are identical other than their wealth That kind of thing exists in my example too. The real problem is people are similar but not the same.
    - vannevar 7y ago
      Of course they're not the same. The point of the experiment was to show that the differences don't need to be taken into account to replicate in a model the inequality we see in reality. The implication is that, while differences between people clearly exist, they aren't necessary to explain inequality.
kortilla 7y ago
Why would you assume something as silly as everyone having similar wealth production capabilities? Wealth is not an oil secreted by a wealth gland. It’s a really complex process of getting the right market fit for your product (i.e. your time in the laborer case). Someone who can produce a lot of wealth in one society can completely fail in another. Or they can just fail in a different market environment. Wealth production comes from giving the market what it wants at a higher price than it costs you.

piokoch 7y ago

I am not sure we can ignore wealth creators, surely they want to have an impact on wealth distribution, I can't imagine sane model that would just ignore this factor.

tremon 7y ago
But then, what is a "wealth creator"? Is a teacher a wealth creator? Were the parents of Bill Gates wealth creators? Were Elon Musk in need of a heart transplant, would the surgeon performing it be a wealth creator? Would the heart donor be? Would the director of said hospital be one?

username90 7y ago

> someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical I'm not sure this is correct, at least not on average. Take two average persons, give one of them a million dollar, then watch what their net income is the next 10 years. I'd bet that the one you gave a million dollars will have used up a large part of it thus having a huge net loss while the one you didn't give anything will still be roughly at zero. Edit: This study shows that people significantly reduce their income after winning the lottery, suggesting that there is a negative correlation between wealth and earnings given that everything else is the same. https://www.nber.org/papers/w21762.pdf https://www.nber.org/papers/w21762.pdf

sokoloff 7y ago
That suggests to me only a negative correlation between wealth and income among people who achieve wealth via the lottery. I don’t see any reason to think this same linkage holds for those with a propensity to make money from entrepreneurial or investing activity.
bumby 7y ago
The book "The Meritocracy Trap" points out that inter-generationally this isn't true. More money helps fund better training which leads to elite networking/training (elite colleges, for example) which leads to well-paying, high status jobs and the cycle continues. Granted, it's not just money alone, but the major theme of the book is that high income from labor (rather than inherited wealth) is a positive feedback loop passed along generational lines and concentrated among the upper quintile of incomes
- username90 7y ago
  I'm from Sweden were the things you are talking about doesn't apply, getting into our best colleges isn't particularly hard and private schools you have to pay for are almost non-existent. Yet there are still a significant gap in how much people earn, and kids from rich families still do much better in school and college than kids from poor families.
  - bumby 7y ago
    Fair enough. At least here in the States, Scandinavian countries are often portrayed as more equitable on relative terms. Do you know how Sweden's inequality compares to the U.S. quantitatively? The training for schooling outlined in the book is often independent of the school structure (e.g., tutoring, test prep etc.). The upper echelons didn't think it was uncommon to spend $100k per student on this extra training. The authors point was that training works and that the rich have more advantages to educating and training their kids
    - xyzzyz 7y ago

username90 7y ago

> Since virtually all human traits follow a Gaussian distribution, it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution. But wealth follows more of a power law distribution. You never encounter anyone 1000 times taller than average, but there are many people 1000 times wealthier than average. This is nonsense. Lets take an easy example, books, people don't want to waste their time reading bad books so only the most palatable books gets a good amount of sales. This means that a small difference in skill leads to a large difference in sales, which would recreate the power-law of wealth creation. Similar arguments can be made about engineering skills, management skills etc.

pytester 7y ago
If you look at the actual richest people in the world though, they largely make their wealth off the hard work of others (walmart family), through some kind of gamble (finance), some kind of parasitism (unearned income like interest) or by monopolizing that "magically existing wealth the OP doesn't believe in" (e.g. saudi arabian oil). For every JK Rowling or Steve Jobs there's maybe 100 who either fully or mostly extracted their wealth while going to great efforts to pretend that they're really just another JK Rowling or Steve Jobs.
- qnsi 7y ago
  More than half billionaires are self-made.
- joeblow9999 7y ago
  so?
anovikov 7y ago
Very true. And my opinion of why distribution becomes even more skewed in both the income and wealth, is that it becomes easier to exploit this small difference in skill thanks to computer and the Internet (and books are the best example: it costs nothing to "publish" the book in millions copies online, so the feedback loop moving slightly better authors on top works a lot better than in times of printed books).

duxut_staglatz 7y ago

Many things in the economy follow a power law, see [0] for instance [0] https://www.nber.org/papers/w14299 https://www.nber.org/papers/w14299

deleted 7y ago

[deleted]

speleding 7y ago

>it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution... >You never encounter anyone 1000 times taller than average If I compare myself to Shakespeare / Einstein / Elon Musk I do feel that their abilities outstrip mine by an order of magnitude more than one would expect with a Gaussian distribution.

koro9n 7y ago

Then when you read James Madison defined the Senate as protector of the rich, a legacy fed to our Senators since childhood, you realize wealth accumulation has nothing to do with organic economic trade, and everything to do with political power brokering. That it’s somehow dictated by physics is another example of people with emotional minds filled by godheaded supervisors that social hierarchy is preordained, not the uglier truth: the elite and their sycophants get violent when it’s pointed out they aren’t gods owed political deference

nomel 7y ago

> if you're studying how wealth gets distributed rather than how it is produced, it doesn't matter. I know nothing of this, but how can distribution be understood without the forces that drive it?

duxut_staglatz 7y ago
It's called curve fitting (or machine learning if the techniques used are fancy enough).
vannevar 7y ago
We're using distribution here in two different senses. One is statistical distribution, like power law or gaussian distribution. The other is distribution in the sense of a distribution network. You can test your understanding of the distribution network without understanding how the wealth being distributed was created in the first place.
deleted 7y ago
[deleted]

friendlybus 7y ago

The power law you are describing happens in nature too. Size of trees in forest, mass of stars, ect. You can't go deep enough to dig up it's source, so you get carte blanch freedom to make the distribution arguments however you want. But until you dig up the cause for why the system produces a power law output for wealth distribution that has happened pretty much throughout history, under monarchies or capitalism or whatever, then you're just shuffling deck chairs on a titanic argument.

Haga 7y ago
Size of trees can't save them from the savannah.

dv_dt 7y ago

I think if you're studying the propagation of wealth distribution, how the wealth is produced matters, because there are threshholds below which it's more difficult for individual actors to start or expand productive economic activity. You see a hint of that in economic data where high-inequality economies show lower growth than more equal economies. I think of it as something like a phase change, with insufficient energy applied equally enough across enough atoms you can't make it from solid to liquid and have a much lower mix rate in the economy.

kamaal 7y ago

>>someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical, and it seems pretty unlikely that wealth creation has much to do with the distribution we see. Someone who scores 85 marks in an exam is more likely to score 95 with a little more effort than some one who scores 35 is likely to score 85 with a lot of effort. This is for a very simple reason that to get to 85 requires a lot of effort, which builds a whole range of human qualities along the way.

vannevar 7y ago
Note that the statement is that the two people are identical other than their wealth, so that in this case the difference in probability is independent of how the original million was acquired. That's the point.
- kamaal 7y ago
  >>Note that the statement is that the two people are identical other than their wealth That kind of thing exists in my example too. The real problem is people are similar but not the same.
  - vannevar 7y ago
    Of course they're not the same. The point of the experiment was to show that the differences don't need to be taken into account to replicate in a model the inequality we see in reality. The implication is that, while differences between people clearly exist, they aren't necessary to explain inequality.

kortilla 7y ago

Why would you assume something as silly as everyone having similar wealth production capabilities? Wealth is not an oil secreted by a wealth gland. It’s a really complex process of getting the right market fit for your product (i.e. your time in the laborer case). Someone who can produce a lot of wealth in one society can completely fail in another. Or they can just fail in a different market environment. Wealth production comes from giving the market what it wants at a higher price than it costs you.