7 ms·

Why it's hard to share the wealth

31 points by landist 18y ago

DougBTX 18y ago
Interesting take on it. Presumably even if people are rational within the bounds of their knowledge, they may well gain knowledge at random (over hear a random conversation about X, learn it is a good product then make the rational descision to buy it) such that, overall, people could be modeled as acting randomly. The question then: what differentiates those above the gas, and how do you get there?
- anigbrowl 18y ago
  ... if we conceive of a being whose faculties are so sharpened that he can follow every molecule in its course, such a being, whose attributes are as essentially finite as our own, would be able to do what is impossible to us.
tritchey 18y ago
I think I can paraphrase: "Through careful academic research, we've decided what constitutes a smart, well-adjusted individual, but society is not rewarding us, err, I mean them, with material wealth—this unequivocally exposes inequities in the system."
GavinB 18y ago
So most people in the top 3% have rational, planned investment and management strategies, and most people in the remaining 97% bounce around in a seemingly random fashion based on their talents and interests. That sounds about right. It's not surprising, if that's the case, that the distance between the top few % and everyone else is increasing so much. Most people aren't really trying to get rich.
- tlb 18y ago
  In fact, 3% may be about the number of people who put most of their effort into making a lot of money rather than, say, doing work they enjoy or having a life. The bulge around the average is because you need at least an average income to have a regular life, raise kids, etc. Many people work just hard enough to have an average standard of living.
dkokelley 18y ago
The analogy also holds because money is like energy, in that it has to be conserved. "It's like a fluid that flows in interactions, it's not created or destroyed, only redistributed," says Yakovenko. Do I misunderstand, or does this model hinge on the assumption that money (wealth, value, etc) can't be created? Assuming that wealth building is a zero sum game seems fundamentally flawed. It might look good in models as snapshots of the current situation, but as net wealth increases I'm sure it would throw things off.
- DougBTX 18y ago
  It sounds like it hinges on money changing hands randomly. The zero-sum comment does sound like a guaff, but the correction would be (in the simple case) easy to translate into a phyical gas model: just add a heating element.
- apsec112 18y ago
  Money can't be created (except for the Feds printing it, which is explicitly factored out), but wealth can; they are not the same thing. $100K today and $100K a hundred years ago are the same amount of money, but the $100K today will get you a lot more wealth.
  - dkokelley 18y ago
    I'm sure you mean $100k inflation adjusted. Otherwise $100k 1oo years ago would purchase a lot more wealth, you just wouldn't have access to modern technology. Still, the Feds do print money, and wealth is added (not necessarily related), which goes against the article's premise, regardless of how you define money.
    - anamax 18y ago
      > I'm sure you mean $100k inflation adjusted. Otherwise $100k 1oo years ago would purchase a lot more wealth, you just wouldn't have access to modern technology. Huh? In what sense is modern technology not wealth? Moreover, much of what passed for "wealth" in the past is common place today.
TomOfTTB 18y ago
They found that while the income distribution among the super-wealthy - about 3% of the population - does follow Pareto's law, incomes for the remaining 97% fitted a different curve - one that also describes the spread of energies of atoms in a gas (see graphic). For the record, it's this type of thing that makes me a religious person. I know there are a lot of atheists around here and I respect that. But when I see two completely unrelated processes that seem to follow the same underlying structure it makes me think our world is working off some kind of plan. I'm not suggesting anyone jump on a religous bandwagon and become a Christian, Jew, Muslim or whatever. I'm simply saying a higher power of some kind is worth consideration when faced with this evidence.
- kiba 18y ago
  We have a word for that and it is called spontaneous order. That's harmony in a seemly chaostic system. The free market can be seen as a perfect example of that. It allocate resources effortlessly using price signals and billion of indiviual decisions on what to buy, sell, and conserve.
  - TomOfTTB 18y ago
    The fact that there's a defined term for something isn't in any way relevant to that thing's cause. Random events, by their nature, should not follow a pattern. But we find time and time again that not only do they form a pattern but that they form the same pattern as otherwise seemingly random events. Put it this way. If you can see gas particles following the same pattern as wealth distribution among people and not at least question your views about a higher power than it's you who is being irrational (Note: I didn't say change your view I said question)
    - smanek 18y ago
      Of course a large number of random events do tend to form known patterns/distributions. Go read any introductory statistics books - and pay particular attention to the chapters on random walks and outcome distributions.
physcab 18y ago
Does anyone know when they say "the rich are getting richer" does that mean between generations of wealthy families, or within the same generation?
- jerf 18y ago
  Generally people mean "the top 1% of society at the moment in time we are discussing". IIRC, there is actually quite a bit of circulation in that set, but I can't seem to google up the studies on that I saw (I can't come up with non-generic search terms). This mollifies some people and others consider it irrelevant.
kiba 18y ago
To be honest, to compare wealth of a person to another is immaterial ethically wise. It is better to compare how people got their money and decide on that. For example, a percentage of the poor make their living by stealing, we can conclude that the little wealth they earned is illegimitative. However, if a rich man make his living by providing excellent services to the poor, we cannot conclude that he is exploiting the poor. If wealth are forcefully taken away in the name of aiding the poor, it is also illegimiative because you took wealth from somebody who did not consent. There are many unfair circumstances for which the poor are forced to deal with. However, keep in mind that the poor and rich is relative to time and places. Indeed, the poor working classses are indeed richer than kings in some respect. The middle class for example, have access to the world's largest media library via cheap broadband connections. It is also very probable that even the poor have TVs. Part of the reason why they are poor may be lack of education, but it may also be attributed to lack of saving plan. If the poor don't save, than it is not possible to accumlate wealth over generations. If they have money to buy a TV, than it is possible for them to save. In short, equality in circumstances cannot be considered the basic of an ethical society. We can only hope for equality in the right of men. So how can we improve our society? Part of our lives are indeed shaped by memes, ideas, as well concept of what is legimitative. These forces are the limitations which determine how well we struggle against mother nature and our unlimited wants and needs. While unjust insitutions like the government and laws like copyright persists, they only have the power to exists by the masses. If the masses simply do not believe in them, than no forces of corecision and violence that was previously entrusted to these institution can force them to do otherwise. By no mean that beliefs shape reality itself but if we do not understand reality itself, than we cannot take the full advantage of our power or use them correctly.
anamax 18y ago
In what sense are the poor poor? (Louis XIV didn't have a single TV. Poor people in the US typically have two.) Income seems to be a fairly bad way to measure poverty. Note that income is an especially bad measure if they didn't account for non-taxable sources of stuff, as is typically the case in such studies. Since those sources provide a huge fraction of the "support" for poor people, failing to account for it makes the results highly suspect. Moreover, since it is well known that non-taxable sources are significant, failing to account for them ....
- AlisdairO 18y ago
  I'd imagine that the poor are poor relative to the rich. Individual's happiness with their economic position tends to be based to a significant extent on what they are earning relative to other people.
  - anamax 18y ago
    Some people feel ugly compared to others. Should we do something about that too?
    - AlisdairO 18y ago
      The disparity between rich and poor is something that society actively decides upon, and society would be well advised to take into account the ramifications of its decision. Part of that information being that the absolute value of an individual's wealth is far from the only important factor - relative values are important to. Humans judge their wealth relative to other people. To look at it in a nice, emotive context, which society do you suppose is happier: the one where the cure for all cancers exists, but is so labour intensive that only the rich can afford it, or the society where the cure does not exist at all, and all are in the same boat? I'd caution you not to underestimate the pain of knowing that your loved one could be saved, if only you had a bit more money. Whether someone is ugly or not is not really something that society makes an active choice about at the moment - I'm not sure it's relevant. NB: No, I am not a commie, and I am in full favour of some income disparity as a motivator towards useful output. I just find the assertion that it doesn't matter if the rich have an ever-increasing share of the pie as long as the pie keeps growing a touch disingenuous. edit: formatting
smanek 18y ago
"It is well known that wealth is shared out unfairly" We know no such thing. We know that wealth is distributed unequally (see, for example, the Gini coefficient). Whether or not an unequal distribution of wealth is unfair is a decidedly normative question - and beyond the purview of economists. One of the many problems that I see is they assume that various attributes are independently normally distributed - which many studies have shown not to be the case. An individual's performance in a wide variety of seemingly unrelated disciplines tends to be highly correlated (http://en.wikipedia.org/wiki/General_intelligence_factor http://en.wikipedia.org/wiki/General_intelligence_factor). Simply put, a person who is a great at one thing is also more likely to be good at other things. Furthermore, there is no reason to expect the output elasticity of intellect to be anywhere near 1. Someone who is just the tiniest bit smarter than me may see a shortcut that they I don't that saves them a tremendous quantity of resources. Study after study has shown that 'overpaid' people (sports stars, actors, etc) get paid a wage that is almost exactly equal to the marginal revenue they bring in - that is they are paid perfectly appropriately.
- gamerates 18y ago
  Well of course "fair" is a normative question, but it is one that there are usually some common themes about. For example the "equal opportunity" American ideal doesn't match up if the greatest predictor of your economic success is not your intellect, hard work, creativity, etc. but rather the income of the family you were rather arbitrarily born into. For example: http://www.portfolio.com/views/blogs/market-movers/2009/04/21/nature-nurture-trust-funds?tid=true http://www.portfolio.com/views/blogs/market-movers/2009/04/2... "The truly amazing thing to me is that parental income isn't just crucial in getting to college, and getting through college -- its effects linger on, basically, in perpetuity. One of the most remarkable findings from the Pew Charitable Trusts' Economic Mobility Project is that a child from a family in the top income quintile who does not get a college degree is more likely to wind up in the top income quintile himself than a child from a family in the bottom income quintile who does get a college degree" A large part of this is due to public policy and there are clear examples of many European countries where changing public policy produces less arbitrary income inequalities. As the developed world transforms into a more knowledge based economy which requires large long-term investments in yourself to really compete, income inequality will only grow between those that can make the investments and those that can't. I'd also be careful to consider how the market pays people as necessarily being "fair" until you look at after-tax income and the institutions that help determine that price. There are many different ways to setup a distribution of resources in a society and there are many different ways to setup markets (property rights, laws, public services, regulation, taxes etc.). As such we should consider the fairness of our human created rules and institutions; the particular results they create are just indicators. Of course whatever people are paid is "appropriate" as long as it follows the system of rules we have setup. The "appropriate" results would be very different if we changed how the system was setup.
dan_the_welder 18y ago
How about switching the word "wealth" with the word "power" and looking at how power guarantees access to wealth.
- gambling8nt 18y ago
  How do you propose we measure "power"?
  - dan_the_welder 18y ago
    Tough metric to measure, but talking about the top 3% of wealth without looking at their power and/or influence is meaningless.
ambition 18y ago
Fallacy in the first paragraph. "Rich are getting richer while the poor remain poor" is not supported by the stated evidence of the growing income gap _ratio_. The ratio can increase even if the poor are becoming richer, so long as the rich are becoming richer faster.
- swift 18y ago
  I understood that statement to be talking about class mobility. Obviously 'poor' and 'rich' are relative terms, not necessarily pegged to a specific amount of income or wealth.
  - anamax 18y ago
    > I understood that statement to be talking about class mobility. Why? None of the data addressed class mobility.
dasil003 18y ago
They studied 18 years of US data and then make statments like: _It suggests that any kind of policy will be very inefficient," says Yakovenko. It would be very difficult to impose a policy to redistribute wealth "short of getting Stalin", says Yakovenko, who will talk in Kolkata next week._ As if the research wasn't abstract enough, this level of generalization and political inference makes him sounds like a crackpot.

31 points by landist 18y ago

Interesting take on it. Presumably even if people are rational within the bounds of their knowledge, they may well gain knowledge at random (over hear a random conversation about X, learn it is a good product then make the rational descision to buy it) such that, overall, people could be modeled as acting randomly. The question then: what differentiates those above the gas, and how do you get there?

anigbrowl 18y ago
... if we conceive of a being whose faculties are so sharpened that he can follow every molecule in its course, such a being, whose attributes are as essentially finite as our own, would be able to do what is impossible to us.

tritchey 18y ago

I think I can paraphrase: "Through careful academic research, we've decided what constitutes a smart, well-adjusted individual, but society is not rewarding us, err, I mean them, with material wealth—this unequivocally exposes inequities in the system."

GavinB 18y ago

So most people in the top 3% have rational, planned investment and management strategies, and most people in the remaining 97% bounce around in a seemingly random fashion based on their talents and interests. That sounds about right. It's not surprising, if that's the case, that the distance between the top few % and everyone else is increasing so much. Most people aren't really trying to get rich.

tlb 18y ago
In fact, 3% may be about the number of people who put most of their effort into making a lot of money rather than, say, doing work they enjoy or having a life. The bulge around the average is because you need at least an average income to have a regular life, raise kids, etc. Many people work just hard enough to have an average standard of living.

dkokelley 18y ago

The analogy also holds because money is like energy, in that it has to be conserved. "It's like a fluid that flows in interactions, it's not created or destroyed, only redistributed," says Yakovenko. Do I misunderstand, or does this model hinge on the assumption that money (wealth, value, etc) can't be created? Assuming that wealth building is a zero sum game seems fundamentally flawed. It might look good in models as snapshots of the current situation, but as net wealth increases I'm sure it would throw things off.

DougBTX 18y ago
It sounds like it hinges on money changing hands randomly. The zero-sum comment does sound like a guaff, but the correction would be (in the simple case) easy to translate into a phyical gas model: just add a heating element.
apsec112 18y ago
Money can't be created (except for the Feds printing it, which is explicitly factored out), but wealth can; they are not the same thing. $100K today and $100K a hundred years ago are the same amount of money, but the $100K today will get you a lot more wealth.
- dkokelley 18y ago
  I'm sure you mean $100k inflation adjusted. Otherwise $100k 1oo years ago would purchase a lot more wealth, you just wouldn't have access to modern technology. Still, the Feds do print money, and wealth is added (not necessarily related), which goes against the article's premise, regardless of how you define money.
  - anamax 18y ago
    > I'm sure you mean $100k inflation adjusted. Otherwise $100k 1oo years ago would purchase a lot more wealth, you just wouldn't have access to modern technology. Huh? In what sense is modern technology not wealth? Moreover, much of what passed for "wealth" in the past is common place today.

TomOfTTB 18y ago

They found that while the income distribution among the super-wealthy - about 3% of the population - does follow Pareto's law, incomes for the remaining 97% fitted a different curve - one that also describes the spread of energies of atoms in a gas (see graphic). For the record, it's this type of thing that makes me a religious person. I know there are a lot of atheists around here and I respect that. But when I see two completely unrelated processes that seem to follow the same underlying structure it makes me think our world is working off some kind of plan. I'm not suggesting anyone jump on a religous bandwagon and become a Christian, Jew, Muslim or whatever. I'm simply saying a higher power of some kind is worth consideration when faced with this evidence.

kiba 18y ago
We have a word for that and it is called spontaneous order. That's harmony in a seemly chaostic system. The free market can be seen as a perfect example of that. It allocate resources effortlessly using price signals and billion of indiviual decisions on what to buy, sell, and conserve.
- TomOfTTB 18y ago
  The fact that there's a defined term for something isn't in any way relevant to that thing's cause. Random events, by their nature, should not follow a pattern. But we find time and time again that not only do they form a pattern but that they form the same pattern as otherwise seemingly random events. Put it this way. If you can see gas particles following the same pattern as wealth distribution among people and not at least question your views about a higher power than it's you who is being irrational (Note: I didn't say change your view I said question)
  - smanek 18y ago
    Of course a large number of random events do tend to form known patterns/distributions. Go read any introductory statistics books - and pay particular attention to the chapters on random walks and outcome distributions.

physcab 18y ago

Does anyone know when they say "the rich are getting richer" does that mean between generations of wealthy families, or within the same generation?

jerf 18y ago
Generally people mean "the top 1% of society at the moment in time we are discussing". IIRC, there is actually quite a bit of circulation in that set, but I can't seem to google up the studies on that I saw (I can't come up with non-generic search terms). This mollifies some people and others consider it irrelevant.

kiba 18y ago

To be honest, to compare wealth of a person to another is immaterial ethically wise. It is better to compare how people got their money and decide on that. For example, a percentage of the poor make their living by stealing, we can conclude that the little wealth they earned is illegimitative. However, if a rich man make his living by providing excellent services to the poor, we cannot conclude that he is exploiting the poor. If wealth are forcefully taken away in the name of aiding the poor, it is also illegimiative because you took wealth from somebody who did not consent. There are many unfair circumstances for which the poor are forced to deal with. However, keep in mind that the poor and rich is relative to time and places. Indeed, the poor working classses are indeed richer than kings in some respect. The middle class for example, have access to the world's largest media library via cheap broadband connections. It is also very probable that even the poor have TVs. Part of the reason why they are poor may be lack of education, but it may also be attributed to lack of saving plan. If the poor don't save, than it is not possible to accumlate wealth over generations. If they have money to buy a TV, than it is possible for them to save. In short, equality in circumstances cannot be considered the basic of an ethical society. We can only hope for equality in the right of men. So how can we improve our society? Part of our lives are indeed shaped by memes, ideas, as well concept of what is legimitative. These forces are the limitations which determine how well we struggle against mother nature and our unlimited wants and needs. While unjust insitutions like the government and laws like copyright persists, they only have the power to exists by the masses. If the masses simply do not believe in them, than no forces of corecision and violence that was previously entrusted to these institution can force them to do otherwise. By no mean that beliefs shape reality itself but if we do not understand reality itself, than we cannot take the full advantage of our power or use them correctly.

anamax 18y ago

In what sense are the poor poor? (Louis XIV didn't have a single TV. Poor people in the US typically have two.) Income seems to be a fairly bad way to measure poverty. Note that income is an especially bad measure if they didn't account for non-taxable sources of stuff, as is typically the case in such studies. Since those sources provide a huge fraction of the "support" for poor people, failing to account for it makes the results highly suspect. Moreover, since it is well known that non-taxable sources are significant, failing to account for them ....

AlisdairO 18y ago
I'd imagine that the poor are poor relative to the rich. Individual's happiness with their economic position tends to be based to a significant extent on what they are earning relative to other people.
- anamax 18y ago
  Some people feel ugly compared to others. Should we do something about that too?
  - AlisdairO 18y ago
    The disparity between rich and poor is something that society actively decides upon, and society would be well advised to take into account the ramifications of its decision. Part of that information being that the absolute value of an individual's wealth is far from the only important factor - relative values are important to. Humans judge their wealth relative to other people. To look at it in a nice, emotive context, which society do you suppose is happier: the one where the cure for all cancers exists, but is so labour intensive that only the rich can afford it, or the society where the cure does not exist at all, and all are in the same boat? I'd caution you not to underestimate the pain of knowing that your loved one could be saved, if only you had a bit more money. Whether someone is ugly or not is not really something that society makes an active choice about at the moment - I'm not sure it's relevant. NB: No, I am not a commie, and I am in full favour of some income disparity as a motivator towards useful output. I just find the assertion that it doesn't matter if the rich have an ever-increasing share of the pie as long as the pie keeps growing a touch disingenuous. edit: formatting

smanek 18y ago

"It is well known that wealth is shared out unfairly" We know no such thing. We know that wealth is distributed unequally (see, for example, the Gini coefficient). Whether or not an unequal distribution of wealth is unfair is a decidedly normative question - and beyond the purview of economists. One of the many problems that I see is they assume that various attributes are independently normally distributed - which many studies have shown not to be the case. An individual's performance in a wide variety of seemingly unrelated disciplines tends to be highly correlated (http://en.wikipedia.org/wiki/General_intelligence_factor http://en.wikipedia.org/wiki/General_intelligence_factor). Simply put, a person who is a great at one thing is also more likely to be good at other things. Furthermore, there is no reason to expect the output elasticity of intellect to be anywhere near 1. Someone who is just the tiniest bit smarter than me may see a shortcut that they I don't that saves them a tremendous quantity of resources. Study after study has shown that 'overpaid' people (sports stars, actors, etc) get paid a wage that is almost exactly equal to the marginal revenue they bring in - that is they are paid perfectly appropriately.

gamerates 18y ago
Well of course "fair" is a normative question, but it is one that there are usually some common themes about. For example the "equal opportunity" American ideal doesn't match up if the greatest predictor of your economic success is not your intellect, hard work, creativity, etc. but rather the income of the family you were rather arbitrarily born into. For example: http://www.portfolio.com/views/blogs/market-movers/2009/04/21/nature-nurture-trust-funds?tid=true http://www.portfolio.com/views/blogs/market-movers/2009/04/2... "The truly amazing thing to me is that parental income isn't just crucial in getting to college, and getting through college -- its effects linger on, basically, in perpetuity. One of the most remarkable findings from the Pew Charitable Trusts' Economic Mobility Project is that a child from a family in the top income quintile who does not get a college degree is more likely to wind up in the top income quintile himself than a child from a family in the bottom income quintile who does get a college degree" A large part of this is due to public policy and there are clear examples of many European countries where changing public policy produces less arbitrary income inequalities. As the developed world transforms into a more knowledge based economy which requires large long-term investments in yourself to really compete, income inequality will only grow between those that can make the investments and those that can't. I'd also be careful to consider how the market pays people as necessarily being "fair" until you look at after-tax income and the institutions that help determine that price. There are many different ways to setup a distribution of resources in a society and there are many different ways to setup markets (property rights, laws, public services, regulation, taxes etc.). As such we should consider the fairness of our human created rules and institutions; the particular results they create are just indicators. Of course whatever people are paid is "appropriate" as long as it follows the system of rules we have setup. The "appropriate" results would be very different if we changed how the system was setup.

dan_the_welder 18y ago

How about switching the word "wealth" with the word "power" and looking at how power guarantees access to wealth.

gambling8nt 18y ago
How do you propose we measure "power"?
- dan_the_welder 18y ago
  Tough metric to measure, but talking about the top 3% of wealth without looking at their power and/or influence is meaningless.

ambition 18y ago

Fallacy in the first paragraph. "Rich are getting richer while the poor remain poor" is not supported by the stated evidence of the growing income gap _ratio_. The ratio can increase even if the poor are becoming richer, so long as the rich are becoming richer faster.

swift 18y ago
I understood that statement to be talking about class mobility. Obviously 'poor' and 'rich' are relative terms, not necessarily pegged to a specific amount of income or wealth.
- anamax 18y ago
  > I understood that statement to be talking about class mobility. Why? None of the data addressed class mobility.

dasil003 18y ago

They studied 18 years of US data and then make statments like: _It suggests that any kind of policy will be very inefficient," says Yakovenko. It would be very difficult to impose a policy to redistribute wealth "short of getting Stalin", says Yakovenko, who will talk in Kolkata next week._ As if the research wasn't abstract enough, this level of generalization and political inference makes him sounds like a crackpot.