What if incomes grew like GDP? • Hacker News Board

Re: What if incomes grew like GDP?

#41

Post by dternyak » Wed, Dec 23, 2020, 5:18 AM UTC

thatfrenchguy wrote: post #18

hliyan wrote: post #4

I always like to say that we live in an exponential meritocracy , where your accumulated merit enhances your ability to accumulate more merit, eventually resulting in a small minority rapidly pulling ahead of the pack. Goes with the old adage: turning $100 into $120 is work; turning $100 million into $120 million is inevitable. Perhaps we need a linear meritocratic function.

"The rate of return you get on your capital increase as your capital increases" is the most interesting thing I've gotten from Piketty's book, and it's definitely been true for me.

I think this is true, but only to a point. It's certainly true when the comparison is 10K to invest vs 10M, as liquidity of markets is not yet a concern and the investor with 10M is suddenly "accredited", can afford to pay a financial advisor, etc.

However, at 10M vs 10B, the 10M investor is much better off. Liquidity becomes a real concern - there's just not that many assets or stocks that can support that kind of allocation.

Small, nimble investors can usually outperform large funds simply by being able to fully enter into positions where larger funds couldn't.

Re: What if incomes grew like GDP?

#42

Post by boh » Wed, Dec 23, 2020, 5:21 AM UTC

alexpetralia wrote: post #24

boh wrote: post #22

Macro-analyses like this aren't particularly representative of any relevant point. For one thing GDP is a poor measure of the general increases of wealth. The US's pivot to services isn't represented in GDP since it only accurately measures physical production (Microsoft/Google/Facebook etc. aren't accurately represented). The actual increases that wind up going into salaries (particularly at the top half) are heavil…

Can you elaborate on how services aren't factored into GDP? That was not my understanding.

Digital services have always been either improperly factored or not factored at all. Software was only included after 1999, tech growth from Google and Facebook are still not included since they offer "free" services.

Re: What if incomes grew like GDP?

#43

Post by bsanr » Wed, Dec 23, 2020, 5:26 AM UTC

coderintherye wrote: post #26

gruez wrote: post #5

Earlier quoted context omitted.

>Perhaps we need a linear meritocratic function. So basically, some way to prevent wealth from being passed across generations?

There's a better perspective to apply. How can we better incentivize those with wealth into investing it productively. Or perhaps, how can we incentivize the wealthy into investing in increasing the rate of growth of the real standard of living for everyone.

Frankly, no.

The issue is a falling share of productive growth going to the not-richest. That is the problem, not the "size of the pie," as it were. In this sense, "incentivizing wealthy into investing it productively" is nothing more than "attempting to con the wealthy into giving up a portion of their share." The alternatives are that nothing changes, or that the wealthy receive an even greater share of growth going forward. But those are prima facie counter to the goal, if you take the findings of the OP to be concerning. In any case, the wealthy are not going to fall for it. They want to maintain or expand their holdings and influence. If you're okay with that - essentially, if you subscribe to trickle-down economics, however misguided that may be - then I supposed that's fine. But either way, we have to be clear what the goal is, and who is going to be helped and and who is going to be hurt by achieving it.

Re: What if incomes grew like GDP?

#44

Post by boh » Wed, Dec 23, 2020, 5:29 AM UTC

JMTQp8lwXL wrote: post #35

boh wrote: post #22

Macro-analyses like this aren't particularly representative of any relevant point. For one thing GDP is a poor measure of the general increases of wealth. The US's pivot to services isn't represented in GDP since it only accurately measures physical production (Microsoft/Google/Facebook etc. aren't accurately represented). The actual increases that wind up going into salaries (particularly at the top half) are heavil…

It would seem services like cloud services, ad services, etc (Google, FB, MSFT) would be included in GDP. > GDP is perhaps the most closely-watched and important economic indicator for both economists and investors alike because it is a representation of the total dollar value of all goods and services produced by an economy over a specific time period. https://www.investopedia.com/ask/answers/what-is-gdp-why-its...

Not exactly:

https://www.forbes.com/sites/timworstall/2016/10/25/were-doi...

And as far as Microsoft: software was only added after 1999 and its relevance is only measured in sales not actual productivity. GDP assumes the production of more of something is growth--software doesn't work like that so its inclusion still fails as an accurate measure.

Re: What if incomes grew like GDP?

#45

Post by User23 » Wed, Dec 23, 2020, 5:31 AM UTC

boh wrote: post #23

User23 wrote: post #3

You’d have economic prosperity like in the USA between 1945 and 1970.

Highly unlikely. Productivity growth engendered higher incomes, not the other way around. The 70's is when that growth came to an end.

Up until about 1970 workers wages and productivity grew equally, but then while productivity continued growing at the same rate it had been, inflation adjusted real wages plateaued and haven’t much risen since.[1]

[1] https://www.epi.org/publication/charting-wage-stagnation/ (see figure 2)

Re: What if incomes grew like GDP?

#46

Post by bsanr » Wed, Dec 23, 2020, 5:41 AM UTC

boh wrote: post #12

ntsplnkv2 wrote: post #7

Earlier quoted context omitted.

It doesn't need to be that complicated. Just increase taxes on the ultra wealthy to restore some semblance of equality. it doesn't need to be communist russia. Just a little more money going around.

The ultra rich don't pay the current tax rate, why would raising a tax they don't pay have any effect? Until there's an aggressive international agreement on closing tax loopholes, raising the taxes only impacts the barely-rich (doctors, lawyers, etc).

It can be argued that the barely-rich are also a huge part of "the problem." Collectively, they wield a great deal of influence through their wealth, networks, and savvy, and instead of using it to solve "the problem," they are largely involved in an intra-class competition to secure the next open actually-rich spot (or to simply maintain their standard of living, and particularly that of their children, regardless of merit). Fortunes that could go to feeding dozens of children, educating dozens of youths, housing dozens of homeless men and women, instead go to ensuring that a handful of people can keep up with their neighbors in vying for a spot at Yale for their boy or girl. Sure, in the process many salaries are paid, but you could also use that same amount of money and have the recipients of that aid number in the dozens or hundreds rather than be a handful or so.

In the end, that spot at Yale will still be filled. The needle on the chances of it being Dr. and Mr. Irgendwas' child probably doesn't move that much, either.

Re: What if incomes grew like GDP?

#47

Post by anchpop » Wed, Dec 23, 2020, 5:44 AM UTC

hliyan wrote: post #17

ntsplnkv2 wrote: post #7

Earlier quoted context omitted.

It doesn't need to be that complicated. Just increase taxes on the ultra wealthy to restore some semblance of equality. it doesn't need to be communist russia. Just a little more money going around.

Question: what do you think about a tax rate determined by wealth, rather than the first derivative of wealth (i.e. income)? When a person whose net worth is $10,000 earns $5,000, should they be taxed the same way a person whose net worth is $1000,000,000 earns $5,000 is taxed?

The reason your tax rate should be determined by your income, rather than the first integration of your income (i.e. wealth), is because just having wealth isn't hurting anyone. If I spend every evening in my garage fixing up an old car, and increase its value from $1000 to $2000, I've increased my wealth but I haven't negatively (or positively) affected anyone else. It might be useful as a means of generating government revenue but it isn't something that needs to be taxed on its own.

Spending money, however, does affect other people - it reorganizes their incentives to produce more of the thing you spent money on. This can lead to weird situations where a homeless person has 0 effect on market incentives even though all they want is a blanket, but a rich person can motivate tens of thousands of people to assemble her another yacht to leave at her vacation home. So you can make your car aa valueble as you like in the privacy of your own home, but as soon as you want to use that to start affecting market incentives (by selling it then spending the money), prepare to get taxed.

Technically a consumption tax would be better than an income tax, but most people spend most of their income so it isn't that different and it's easier to make an income tax progressive

Re: What if incomes grew like GDP?

#48

Post by chii » Wed, Dec 23, 2020, 5:48 AM UTC

dternyak wrote: post #41

thatfrenchguy wrote: post #18

Earlier quoted context omitted.

"The rate of return you get on your capital increase as your capital increases" is the most interesting thing I've gotten from Piketty's book, and it's definitely been true for me.

I think this is true, but only to a point. It's certainly true when the comparison is 10K to invest vs 10M, as liquidity of markets is not yet a concern and the investor with 10M is suddenly "accredited", can afford to pay a financial advisor, etc. However, at 10M vs 10B, the 10M investor is much better off. Liquidity becomes a real concern - there's just not that many assets or stocks that can support that kind of a…

That's just another way of expressing the concept that opportunities are limited.

Large investors (like those with $10B) can certainly take advantage of small opportunities, but just not with their full amount. But because they are large, there may be multiple small opportunities which they participate in, and diversify on, rather than a small investor who must commit to a single small opportunity (which forces them to take on individual/concentrated risk).

So it's not true that the $10M investor is better off.

Re: What if incomes grew like GDP?

#49

Post by boh » Wed, Dec 23, 2020, 5:55 AM UTC

bsanr wrote: post #46

boh wrote: post #12

Earlier quoted context omitted.

The ultra rich don't pay the current tax rate, why would raising a tax they don't pay have any effect? Until there's an aggressive international agreement on closing tax loopholes, raising the taxes only impacts the barely-rich (doctors, lawyers, etc).

It can be argued that the barely-rich are also a huge part of "the problem." Collectively, they wield a great deal of influence through their wealth, networks, and savvy, and instead of using it to solve "the problem," they are largely involved in an intra-class competition to secure the next open actually-rich spot (or to simply maintain their standard of living, and particularly that of their children, regardless o…

Hate to burst your bubble but if you're one of the 25% of Americans who has an undergraduate degree or above you're likely part of that barely-rich who are part of "the problem" (from a global perspective making over $50k a year counts as barely rich). No one wants to admit to being a part of some "elite" minority because there's always someone else to blame who's higher up on the ladder.

Ultimately policy makes change not some expectation for individual morality.

Re: What if incomes grew like GDP?

#50

Post by nine_k » Wed, Dec 23, 2020, 5:56 AM UTC

nsajko wrote: post #20

nine_k wrote: post #13

Earlier quoted context omitted.

Neither Gates, nor Jobs, nor Zuckerberg, nor Bezos, nor Musk inherited their billions. At best they inherited access to the social circles of their parents, and maybe paid-for education (too lazy to check). Knowing the right people is not something you can, or want, to limit or forbid. Should anyone suggest to prevent passing as much as, say, $100k to your child (an approximate price of a university tuition), said an…

Your point is truthful but not completely relevant: Bezos, at least, did receive a considerable amount of money as funding for Amazon from his family. My point is that the money received from parents most often is, in fact, an advantage. Now that I wrote it down explicitly, I wonder why is it that I have to argue this, seems quite obvious. (Note: I'm not saying the funding from parents was sufficient, or even necessa…

I see! It's a transfer between generations, though not an inheritance (which some people suggest to tax heavily).

Again, Bezos got about $300k from his family (both his parents were doctors), which, I think, is far below the level of "unjust inherited fortune" or what is usually people suggest to tax into oblivion.

Yes, when your parents help you, it's helpful — it's nearly tautologically true. This is why I as a parent do help my grown-up son sometimes. Limiting this behavior is not quite realistic, and would be met with a huge backlash (justly, to my mind).