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The example that is used in this blog post is completely and absolutely wrong. He portrays wealth accumulation as a zero-sum game with people coin-flipping agai

The example that is used in this blog post is completely and absolutely wrong. He portrays wealth accumulation as a zero-sum game with people coin-flipping against each other. In reality, someone does not have to lose for wealth to be created.

HPsquared 4y ago
Indeed- the more money a person has, the more adventurous they can get in producing value. It's not rocket science! (most of the time)
- quickthrower2 4y ago
  Producing value? Sometimes. Sometimes extracting rent. Sometimes speculating. If private equity buys a pharma company and cuts research, jacks up prices to extract money from insurance, that might be "clever" but it is not really benefitting anyone, quite the opposite. Obviously a lot of capital is used to create more value, but it does so by using labour, so it is the creativity of the people working for that capital that is adding the value mostly, while the capital sits back and enjoys it's growth. This is the concept behind public traded companies.
  - SyzygistSix 4y ago
    >while the capital sits back and enjoys it's growth So people should risk their capital for nothing? I'm all for better pay and working conditions but the value from some ventures does not always come from the creativity of the workers. Sometimes it does, sometimes it doesn't so much.
    - quickthrower2 4y ago
      Er no. Just saying we shouldn’t be in awe of people because they have money and can make more of it, like this is a societal service they are performing. Sometimes it is, sometimes it isn’t, sometimes it is the opposite.
- SyzygistSix 4y ago
  >the more money a person has, the more adventurous they can get in producing value. I think it is more a case of the more access to capital they have. People who have demonstrated that they can create a lot of value usually get access to lots of capital, even if that capital is not theirs. It's pretty standard to not fund business ventures by one's self. An indication of a good business plan is buy-in from others.
gjulianm 4y ago
No, but it's a decent approximation. Even in the case of "creating wealth", the person with more money usually gets a bigger share of the money simply because they had more money. This being Hacker News, I think we all are too close to the tech startup model, which is certainly far more equitable than others; but a lot of companies do not share fairly the value created between workers and owners.
- abigail95 4y ago
  If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Unless the people with money are the ones that made it themselves, they will keep buying bad watches like everyone else. The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds.
  - gjulianm 4y ago
    > If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Not outcompete, but intergenerational wealth does play a huge part in class mobility [1]. > The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds. The amount of money you have is a very important factor in your options. The more money you have, the more options you have to invest with more expected value. For example, what options does a family that manages to save $500 a year to invest that money in something that brings them a lot of expected value? 1: https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/economic_mobility/PursuingAmericanDreampdf.pdf https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpe... Page 6, figure 3
    - abigail95 4y ago
      I disagree with the conclusions you draw and how you apply them to this context. Richer people don't have access to higher EV else their kids wouldn't have very similar relative mobility, they should be richer than their parents. And it seems that the risk of becoming downwardly mobile (absolute and relative) increases along with income. Which makes sense as some sort of mean reversion. Along with the bottom quintile having higher positive mobility than richer quintiles, EV increasing with income doesn't make sense to me. The family with $500 should keep it as liquid as possible unless they have enough credit to cover drawdowns in income. Other than that - they get the same EV as everyone else. $500/yr at 7% over 40 years will get you $100k. How many people with $500 actually invest it? Historical lookback on 40 years of the S&P 500 gets you real return of 8.77%.
rizz0 4y ago
I believe his point is about coin flipping being a fundamental force in the market. That at the basis of a market, there’s a game of coin flips going on. True, there may be technological innovations in factories, farms, and labs that grow the size of the pie as a whole. But probably those with most market power will have most of the access to those innovations. And even if the value of technology would be fairly distributed, it does feel to me that the underlying game of coin flips rigs the whole system in favor of the eventual oligarch.

HPsquared 4y ago

Indeed- the more money a person has, the more adventurous they can get in producing value. It's not rocket science! (most of the time)

quickthrower2 4y ago
Producing value? Sometimes. Sometimes extracting rent. Sometimes speculating. If private equity buys a pharma company and cuts research, jacks up prices to extract money from insurance, that might be "clever" but it is not really benefitting anyone, quite the opposite. Obviously a lot of capital is used to create more value, but it does so by using labour, so it is the creativity of the people working for that capital that is adding the value mostly, while the capital sits back and enjoys it's growth. This is the concept behind public traded companies.
- SyzygistSix 4y ago
  >while the capital sits back and enjoys it's growth So people should risk their capital for nothing? I'm all for better pay and working conditions but the value from some ventures does not always come from the creativity of the workers. Sometimes it does, sometimes it doesn't so much.
  - quickthrower2 4y ago
    Er no. Just saying we shouldn’t be in awe of people because they have money and can make more of it, like this is a societal service they are performing. Sometimes it is, sometimes it isn’t, sometimes it is the opposite.
SyzygistSix 4y ago
>the more money a person has, the more adventurous they can get in producing value. I think it is more a case of the more access to capital they have. People who have demonstrated that they can create a lot of value usually get access to lots of capital, even if that capital is not theirs. It's pretty standard to not fund business ventures by one's self. An indication of a good business plan is buy-in from others.

gjulianm 4y ago

No, but it's a decent approximation. Even in the case of "creating wealth", the person with more money usually gets a bigger share of the money simply because they had more money. This being Hacker News, I think we all are too close to the tech startup model, which is certainly far more equitable than others; but a lot of companies do not share fairly the value created between workers and owners.

abigail95 4y ago
If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Unless the people with money are the ones that made it themselves, they will keep buying bad watches like everyone else. The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds.
- gjulianm 4y ago
  > If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Not outcompete, but intergenerational wealth does play a huge part in class mobility [1]. > The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds. The amount of money you have is a very important factor in your options. The more money you have, the more options you have to invest with more expected value. For example, what options does a family that manages to save $500 a year to invest that money in something that brings them a lot of expected value? 1: https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/economic_mobility/PursuingAmericanDreampdf.pdf https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpe... Page 6, figure 3
  - abigail95 4y ago
    I disagree with the conclusions you draw and how you apply them to this context. Richer people don't have access to higher EV else their kids wouldn't have very similar relative mobility, they should be richer than their parents. And it seems that the risk of becoming downwardly mobile (absolute and relative) increases along with income. Which makes sense as some sort of mean reversion. Along with the bottom quintile having higher positive mobility than richer quintiles, EV increasing with income doesn't make sense to me. The family with $500 should keep it as liquid as possible unless they have enough credit to cover drawdowns in income. Other than that - they get the same EV as everyone else. $500/yr at 7% over 40 years will get you $100k. How many people with $500 actually invest it? Historical lookback on 40 years of the S&P 500 gets you real return of 8.77%.

rizz0 4y ago

I believe his point is about coin flipping being a fundamental force in the market. That at the basis of a market, there’s a game of coin flips going on. True, there may be technological innovations in factories, farms, and labs that grow the size of the pie as a whole. But probably those with most market power will have most of the access to those innovations. And even if the value of technology would be fairly distributed, it does feel to me that the underlying game of coin flips rigs the whole system in favor of the eventual oligarch.