How the Rich Got Rich • Hacker News Board

Re: How the Rich Got Rich

#31

Post by [deleted] » Sat, Jul 07, 2012, 3:26 PM UTC

bluekeybox wrote: post #24

dmix wrote: post #7

The Rockefeller quote is interesting "If your only goal is to become rich, you'll never achieve it." But I've always felt Citizen Kane's was more accurate: "It's easy to make a lot of money, if that's all you want to do is make a lot of money."

Not so sure. I've met enough people whose only wish was to make a lot of money, yet who failed to achieve it. In a competitive environment, you almost certainly have to be ridiculously good at something else (anything from programming, I suppose, to brain surgery to dealmaking to leadership) to make a lot of money. Also, Rockefeller's quote applies in the sense that, once you make a lot of money, your definition of w…

[deleted]

Re: How the Rich Got Rich

#32

Post by jaxn » Sat, Jul 07, 2012, 3:27 PM UTC

KevinEldon wrote: post #21

rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

All the capital gains statistic tells us is that of the top 400 tax payers in 2009 capital gains represented 45.8% of their earnings. These 400 are the winners in the capital market. They're earnings aren't likely to reflect the risk associated with all capital investments. The overall markets shows us that there are a lot of losers and capital losses are common.

Exactly. It also tells us most of those winners didn't win last year and won't will next year.

The 16% capital gain figure isn't saying that rich people consistently earn that much from capital gains every year, but rather the 400 highest earners had capital gains windfalls this year. Next year different people will have windfalls and different people will be on the list.

Re: How the Rich Got Rich

#33

Post by rdl » Sat, Jul 07, 2012, 3:27 PM UTC

cynicalkane wrote: post #17

rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

Two things: 1) Buying capital is much, much riskier than earning wages. If we suppose people who are good at being capitalists are also approximately as good at earning money, the economic equilibrium will tend toward capital being then much more profitable. Us being "awash" in capital is a red herring; in your garden variety market equilibrium model it's the incentives that matter. The returns are exponential, which…

I'd even be fine with a flat consumption tax, with a personal exemption of $50k or so. Generally the investments made by the rich have more social benefit than their consumption, so it's ok that a billionaire only spends 30% of his annual income, while a well-paid engineer might spend 80%.

Maybe combine it with a wealth tax, particularly on non-productive assets. Raising the cost of certain kinds of goods should actually make them MORE coveted by the rich (Veblen goods) -- a tax on owning or acquiring conspicuous luxury items could then benefit everyone.

Re: How the Rich Got Rich

#34

Post by mempko » Sat, Jul 07, 2012, 3:27 PM UTC

rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

yes, but that's called socialism. Obviously the most efficient equilibrium is where all workers own capital. Which is precisely what socialism is. Democratization of the economy. The secret that capitalists don't want people to know is that they despise markets deeply. While under socialism markets would probably be of the cooperative type.

Re: How the Rich Got Rich

#35

Post by larrys » Sat, Jul 07, 2012, 3:28 PM UTC

DanielBMarkham wrote: post #4

FrancescoRizzi wrote: post #3

when we see these reports/analysis it seems the answer is always the same: Capital Gain. However, I think this whole line of inquiry is mis-titled: these reports always tell us how the rich people are making now their income. Which, I feel, is not a good hint as to how you can become rich. For the greater public, the question of "how the rich people went from 0 to $1B" might more interesting than "how the rich people…

I had the same exact reaction, but looking at the article again, it clearly says A total of over 3,800 taxpayers have made the top 400 since 1992, but only 27% appear more than once, and only 2% appear 10 or more times. That means these are not people who are necessarily rich and are raking in the money. These are most likely people who have a company, have stock options, and are cashing out. Most of them never come…

"the list"

The title to the article is "How the Rich got Rich". But "the list" doesn't deal with "the rich". It deals with "400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes".

It is entirely possible for someone to own an asset (which they could, for example, borrow against) that was passed down to them (or that they themselves bought in 1992) that makes them "rich" by generally accepted "de facto" standards of our society.

The Forbes list tries to come across as a list of the richest americans but it is obvious that there are quite a few people with considerable wealth who for one reason or another don't make that list until they have some kind of liquidity event. (Added: As you mentioned).

"Whereas working an hourly wage is likely never going to do much more than make you upper-middle-class."

While that would seem to be true I don't think it is to the degree you are implying in your statement. (By "hourly wage" I'm assuming you don't mean "hourly wage" you are including "salary" workers as well.) Someone in a nice corporate job making a stable salary that invests in the right assets at the right time can become wealthy. (An example might be a physician making $250,000 per year or an attorney, both in a stable situation (no fear of loss of job) that decides to invest in real estate or be a partner with someone else who manages a project. Or decides to be an angel investor (as if, ok..). The key here is that they make a stable income from a job and that they dedicate a portion of their income to investments. (I've personally seen this happen several times with attorneys and real estate they become the partner with the real estate person providing the legal work needed for projects as well as physicians who do a similar thing).

Here's the key though: stable job. My wife has a very stable job with a predictable income that will rise every year (healthcare). So she can afford to take a portion of her income that exceeds what she needs and invest it in something that could make her rich. Will she make "the list". No she won't. But she could become "rich" by the standards that most people care about.

Re: How the Rich Got Rich

#36

Post by ef4 » Sat, Jul 07, 2012, 3:32 PM UTC

DanielBMarkham wrote: post #13

leot wrote: post #12

Earlier quoted context omitted.

There are ~400 Americans with > $1 billion in wealth, and 200 with >$2 billion. $77 million in return on $1 billion is 7.7%. On $2 billion it's a mere 3.85%. Combined with the fact that only 27% appear more than once in the IRS's list, and the fact that people tend to stay billionaires for a long time, this suggests that once people get to this level of wealth they turn down the aggressiveness of their investing and…

You're mixing wealth and income.

But when we're talking about capital gains income, we would expect the two to be correlated.

Re: How the Rich Got Rich

#37

Post by jaxn » Sat, Jul 07, 2012, 3:35 PM UTC

DanielBMarkham wrote: post #13

leot wrote: post #12

Earlier quoted context omitted.

There are ~400 Americans with > $1 billion in wealth, and 200 with >$2 billion. $77 million in return on $1 billion is 7.7%. On $2 billion it's a mere 3.85%. Combined with the fact that only 27% appear more than once in the IRS's list, and the fact that people tend to stay billionaires for a long time, this suggests that once people get to this level of wealth they turn down the aggressiveness of their investing and…

You're mixing wealth and income.

No, he is saying that $1B in wealth (about 400 people) generates $77m (threshold to make list of highest earners) in income assuming a 7.7% rate of return (which seems unrealistically high to me).

Re: How the Rich Got Rich

#38

Post by DanielBMarkham » Sat, Jul 07, 2012, 3:35 PM UTC

michaelochurch wrote: post #25

rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

I've come to the conclusion that there are two essential commodities in any society. One is Property-- land, financial capital, social connections, reputation. The other is Energy-- talent, ambition, willingness to work hard, vision. Most social and class tensions are centered on the exchange rate between these two, which has historically favored Property except in times of crisis. The reason societies have typically…

Your analysis prompts a bunch of knee-jerk reactions from me which I'm going to attempt to squelch. :)

First, property as a result of superstition? Really? This is the first I've ever heard of this. In fact, most primitive societies have no concept of property -- this is why they are primitive. "Culture Cult" does a great job expanding on this argument.

Second, a dichotomy between energy and property? Really? So you can't be somebody who has a lot of energy and wants to smash doors down and also somebody who likes to own stuff? Sounds like a conclusion you'd draw from various discussions on MPAA and BitTorrent, but not one that would work for much besides that.

Let's say it's fifty thousand years ago and I live in the forest with my clan. I take a flint and make a wood carving. At this point I own nothing -- so if it's nice, the alpha male or one of his females takes it from me. So I stop making carvings.

Somewhere down the line, at least in Western Civilization, I make the same carving and get to keep it. This is the beginning of civilization, the basis for all progress: both the naming of property as the product of somebody's energy and the common belief that they get to keep it. Property is stored energy (in your terms). Once it's stored we can trade it or pass it around without having to expend energy again. So progress begins to accumulate. Energy can either create property or not.

Of course I can't keep everything I make; the clan needs extra arrowheads or whatever in order to fight off another clan. So I share -- or I'm taxed. However you put it, I give up some of my property, some of my "stored energy" in order to benefit the greater good.

There is a tension here, and it's a good tension. Where you come down on most political issues boils down to whether you're a "sharer" or a "creator/trader" You can be both, of course, but your answer to this tension defines your sensibilities. Not some kind of energy/property thing.

I love ad-hoc analysis. Your comment strikes me as an informed comment of somebody who has kind of floated along in the various property discussions we tech heads have without taking much time at all to dive deeper (apologies if that sounds condescending.) Might want to up your game a bit. Using your terms, energy without persistent property is a fool's game. Yes, you can trade MP3 tunes all day on the net and it doesn't hurt the economy much. You can participate in the FOSS movement, providing somebody else a bigger piece of property down the road for less effort -- a great cause indeed. But the reason you can act in such an idealized manner is that you're resting on other more fundamental principles of property. They don't come and take your house or computer any more, and the things you create you get to either choose to share or not. Because we rest so solidly on the foundations of property, we begin to forget they are there.

Seriously, this property rights equals don't-change-things and religious superstition is way whacked.

Re: How the Rich Got Rich

#39

Post by ef4 » Sat, Jul 07, 2012, 3:38 PM UTC

rayiner wrote: post #11

The huge amount that comes from capital gains got me thinking... why is the return on capital, versus say the return on labor, so high? Our society is awash with capital. We apparently have more of it than we know what to do with (see, e.g., the real estate bubble, the tech bubble). If the capital markets were efficient, shouldn't supply and demand equilibrate things to drive down the price of capital? I think the st…

"to drive down the price of capital?"

But that's exactly what we do see. Interest rates are absurdly low. Interest rates are the price of capital.

The fact that you can select a sample of outliers who won big on risky investments doesn't change the overall statistical situation. Most capital is still getting low returns.

Re: How the Rich Got Rich

#40

Post by roguecoder » Sat, Jul 07, 2012, 3:39 PM UTC

Given that the tax structure massively prefers capital gains to other forms of income, it is unreliable to look at the reported tax percentages as a measure of where the money is actually coming from. For example, many of the uber-rich structure payments for their labor such that they are taxed as capital gains.