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Is Inequality Inevitable?

scientificamerican.com

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Re: Is Inequality Inevitable?

#31

Post by lordnacho »

This is a lot more satisfying than just r > g, which although seeming to be well supported in a rather large book somehow is dissatisfying. Specifically, I was looking for some kind of agent model like what this author is presenting here.

I've often thought about the "it's expensive to be poor" adage. What's interesting is he takes in this risk preference idea, in which you naturally expect the poor to have to be cede certain opportunities in order to secure further existence. I've played a lot of poker where you see this dynamic where the big stack guy can take chances and still win, and the cards (and skill) don't matter that much.

Re: Is Inequality Inevitable?

#32

Post by AnthonyMouse »

danhak wrote: post #9
noja wrote: post #3

Wrong question. Better question: why is the scale of inequality acceptable?

Because capitalism and free enterprise are predicated on fair competition and equal access. In theory, the best and most innovative ideas thrive and lead to economic growth. Extreme inequality undermines this by allowing those who already have significant wealth to put their finger on the scales (lobbying, anticompetitive practices, etc.)

The thing that always irks me about this is that we keep talking about the individuals even though that's not the real issue.

Sure, Jeff Bezos has a lot of wealth, but really what he has is a lot of shares of Amazon. It's Amazon that really has the money. Even if Bezos is the CEO, he has a duty to the other shareholders to act in their interests. He can't just donate all the company's assets to charity even if he wanted to.

The real problem is that corporations are too big. The fact that this makes their founders very rich is more of a side note. Increasing the capital gains rate isn't going to make Apple or Microsoft smaller or give them more competition. It isn't even going to collect more money from the largest shareholders until they sell their shares, which many of them never actually do.

This is a competition problem, not a wealth problem. If there were ten times as many companies then there would be ten times as many founders who each had a tenth as much money -- or less, if the added competition directed more of the money to the customers and workers.

Re: Is Inequality Inevitable?

#33

Post by smashthepants »

billions wrote: post #13
danhak wrote: post #5

Of course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level of existing wealth.

If course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level OF EFFORT. Even a wealthy person can lose their money if they don't make an effort investing it properly. How do people build wealth from the ground up? They work hard each and every day and that effort COMPOUNDS. They get smarter, more opportunities present themselves…

You're assuming a world without inheritance, nepotism, politics, lobbying, etc. So many factors go into how much a person's effort can compound....

Re: Is Inequality Inevitable?

#34

Post by inerte »

FabHK wrote: post #11
danhak wrote: post #5

Of course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level of existing wealth.

It scales linearly. If you have 3 (or 10) times as much as I have, and we both invest all our money in the same interest bearing account, then after N years you will still have 3 (or 10) times as much as I have. So, according to your model, the initial wealth distribution should not change. (Of course, you can argue that those with more wealth consume a smaller part of it, and that gives rise to inequality, but that'…

I don't think danhak compared 2 people.

Anyway, if I started with 100k dollars and you started with 1M dollars (a 900k difference) and we both grew 50%, now I have 150k and you have 1.5M - a 1.35M difference. Still 9x, but way more $.

Re: Is Inequality Inevitable?

#35

Post by westoque »

zacharytelschow wrote: post #6

Absolutely - and that's a good thing. Those who produce more should earn more as well.

I don't think it's necessarily about producing more. It's about risk. The people who risk more, are compensated by the reward. Now, you can definitely alleviate the inequality by giving more money out, so if Bezos is making $215M/day. Wouldn't it make sense for him to distribute the wealth to make some people happier?

I believe there comes a point where a person has enough wealth and needs to re-distribute it somewhere else to produce/innovate more.

Re: Is Inequality Inevitable?

#36

Post by zeroxfe »

FabHK wrote: post #11
danhak wrote: post #5

Of course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level of existing wealth.

It scales linearly. If you have 3 (or 10) times as much as I have, and we both invest all our money in the same interest bearing account, then after N years you will still have 3 (or 10) times as much as I have. So, according to your model, the initial wealth distribution should not change. (Of course, you can argue that those with more wealth consume a smaller part of it, and that gives rise to inequality, but that'…

> It scales linearly. > If you have 3 (or 10) times as much as I have, and we both invest all our money in the same interest bearing account, then after N years you will still have 3 (or 10) times as much as I have.

Right, it's linear relative to other interest bearing accounts, but GP's point was that existing wealth of an individual grows exponentially.

Re: Is Inequality Inevitable?

#37

Post by Enginerrrd »

jlongr wrote: post #23
tunesmith wrote: post #10

Have there been any efforts to quantify what level of inequality is reasonable? For instance, the GINI coefficient ranges between 0 and 1, where 0 means everyone has the same amount, and 1 means one person at the top has everything. Depending on how it's measured, the US is somewhere between 0.4 and 0.5. You don't want to be at either extreme, so some level of inequality is desirable. Is there an appropriate amount o…

Why shouldn't the coefficient be zero? I'm curious what your reasoning is.

The biggest thing is that's not a very natural distribution for a parameter like wealth. You'd have a VERY hard time trying to maintain that given innate differences between individuals in terms of expense of effort and the like. There will always be ways to try to gain additional "wealth" that doesn't meet whatever definition you try to use to equate everything.

Re: Is Inequality Inevitable?

#38

Post by billions »

smashthepants wrote: post #33
billions wrote: post #13

Earlier quoted context omitted.

If course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level OF EFFORT. Even a wealthy person can lose their money if they don't make an effort investing it properly. How do people build wealth from the ground up? They work hard each and every day and that effort COMPOUNDS. They get smarter, more opportunities present themselves…

You're assuming a world without inheritance, nepotism, politics, lobbying, etc. So many factors go into how much a person's effort can compound....

Imagine missing an arm! There's always barriers, however, focusing on what you don't have won't result in progress.

Re: Is Inequality Inevitable?

#39

Post by mikepurvis »

petemill wrote: post #20
billions wrote: post #13

Earlier quoted context omitted.

If course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level OF EFFORT. Even a wealthy person can lose their money if they don't make an effort investing it properly. How do people build wealth from the ground up? They work hard each and every day and that effort COMPOUNDS. They get smarter, more opportunities present themselves…

Classic. Poor people just aren't working hard enough!

Yup, easy rebuttal to that one is just looking at how insanely hard some poor people work, while still struggling to succeed: https://www.nytimes.com/2019/01/31/books/review/stephanie-la...

The more insidious version of this is arguing over whose labours have more "market value". And there's something to that, but I can't get away from the feeling that it's deeply unfair how a software professional can coast for weeks on the occasional flash of insight or burst of productivity, while a housecleaner works two full time jobs and still is one unexpected car repair from insolvency.

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