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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 t

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%.
    - gjulianm 4y ago
      Not many people with 500 dollars invest it because they probably need it for essential things. Not to mention that the money you can get at 40 years doesn’t really matter too much when right now you can’t buy a house, even can’t pay your bills…
WalterBright 4y ago
> simply because they had more money It's because they took on more risk. The bigger the risk, the bigger the payout. The safer the investment, the lower the payout. > do not share fairly the value created between workers and owners. They do if one considers risk.
- gjulianm 4y ago
  There are several things here. One is that you're only considering direct monetary risk. For example, imagine a person that starts a business with X dollars, which will usually be a percentage of their wealth. This person hires an employee at a salary that's barely above their living expenses, but with the idea to ascend as the company grows. If the company goes bust, who loses more? The owner still has money, the person living paycheck to paycheck might not have enough funds to live until they find a new job and they have probably lost money because they didn't go for a higher paying job (with less upside but more safety). Two, the risk/benefit ratio is not fairly distributed either. If I have a hundred dollars in the bank I cannot really access any investment opportunity, like creating a business, that could multiply that money with the same risk. Three, thinking only in relative terms is a mistake, even if risk/benefit ratios were evenly distributed, because not all people have the same relative expenses. For example, assume both person A and B get into a stock that after a year gives them a 50% profit. Person A invests their emergency fund, which is $1000 bucks. Person B is far more wealthy and invests $100k, and they still have a lot of money leftover. Here, A is actually taking on more risk because losing that thousand dollars means they might not have enough money to fix their car or pay for health treatment. Person B, if they lose that money, it will hurt but it won't really change their living situation. And when the profits come, A has $500 more, which is not that much and probably goes into the emergency fund again; but B has earned $50k and probably has enough to go on a super nice vacation and still have a lot leftover. In other words, even if the risk/benefit ratio is the same, the actual consequences are not equal. Having more money makes the same ratios far more beneficial in practice.
  - WalterBright 4y ago
    Losing your job is not nearly the same as losing millions of dollars. You can just get another job. Those millions will be very hard to replace. Even if you get a 6 figure job, how are you going to get those millions back? > If I have a hundred dollars in the bank I cannot really access any investment opportunity robinhood.com says hello! > not all people have the same relative expenses Right. But that's their problem, not the company's problem. If I sell Bob and Ted each a coffee for $10, and Bob is right and Ted is poor, they still each get charged $10. I don't do a background check and pour over their financial statements in order to determine how much to charge them.

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%.
  - gjulianm 4y ago
    Not many people with 500 dollars invest it because they probably need it for essential things. Not to mention that the money you can get at 40 years doesn’t really matter too much when right now you can’t buy a house, even can’t pay your bills…

WalterBright 4y ago

> simply because they had more money It's because they took on more risk. The bigger the risk, the bigger the payout. The safer the investment, the lower the payout. > do not share fairly the value created between workers and owners. They do if one considers risk.

gjulianm 4y ago
There are several things here. One is that you're only considering direct monetary risk. For example, imagine a person that starts a business with X dollars, which will usually be a percentage of their wealth. This person hires an employee at a salary that's barely above their living expenses, but with the idea to ascend as the company grows. If the company goes bust, who loses more? The owner still has money, the person living paycheck to paycheck might not have enough funds to live until they find a new job and they have probably lost money because they didn't go for a higher paying job (with less upside but more safety). Two, the risk/benefit ratio is not fairly distributed either. If I have a hundred dollars in the bank I cannot really access any investment opportunity, like creating a business, that could multiply that money with the same risk. Three, thinking only in relative terms is a mistake, even if risk/benefit ratios were evenly distributed, because not all people have the same relative expenses. For example, assume both person A and B get into a stock that after a year gives them a 50% profit. Person A invests their emergency fund, which is $1000 bucks. Person B is far more wealthy and invests $100k, and they still have a lot of money leftover. Here, A is actually taking on more risk because losing that thousand dollars means they might not have enough money to fix their car or pay for health treatment. Person B, if they lose that money, it will hurt but it won't really change their living situation. And when the profits come, A has $500 more, which is not that much and probably goes into the emergency fund again; but B has earned $50k and probably has enough to go on a super nice vacation and still have a lot leftover. In other words, even if the risk/benefit ratio is the same, the actual consequences are not equal. Having more money makes the same ratios far more beneficial in practice.
- WalterBright 4y ago
  Losing your job is not nearly the same as losing millions of dollars. You can just get another job. Those millions will be very hard to replace. Even if you get a 6 figure job, how are you going to get those millions back? > If I have a hundred dollars in the bank I cannot really access any investment opportunity robinhood.com says hello! > not all people have the same relative expenses Right. But that's their problem, not the company's problem. If I sell Bob and Ted each a coffee for $10, and Bob is right and Ted is poor, they still each get charged $10. I don't do a background check and pour over their financial statements in order to determine how much to charge them.