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Why the Rich Are So Much Richer

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Re: Why the Rich Are So Much Richer

#41

Post by pcurve »

jazzyk wrote: post #33
pcurve wrote: post #23

Earlier quoted context omitted.

I would basically like to see stock options eliminated. If you want shares of company, you need to buy it just like everybody else. With your taxed income. This makes decisions to buy stocks much harder, and it will really show you're putting money where your mouth.

The idea behind stock option grants was to tie CEO's pay to the company's performance.Good idea, but It is not quite working out because CEOs are primarily interested in pumping up the stock price short-term, rather than in long-term health of the company. The vesting period should be spread over 5 years or so. I would also grade company's performance relative to its peers/competitors/industry, not on just the stock…

Agreed. I would just like to see it go away for everyone, period. With options, it always feels like paper money, so those granting it do so in huge amount without proper consideration for its true costs to shareholders.

It's not just CEOs making obscene amount of money. Many ordinary executives are routinely granted high six, 7 figure worth of options on the backs of their employees and shareholders. 1/3rd of the top 1% are company executives.

Re: Why the Rich Are So Much Richer

#42

Post by viraptor »

ClintEhrlich wrote: post #15

The article omits some of the basic information needed for making sense of the data: What is the composition of the one-percent? I doubt that corporate executives make up a significant percentage of the super-wealthy, despite the attention the media pays to them. If that's true, then ipso facto changes in CEO compensation cannot account for most of the structural increase in inequality over the last half century. A m…

Only about your initial question: one-percent is a terrible name. It gives the right idea initially, but if you ask a logical question like you did, the problem is far smaller than 1%. America doesn't have 3 million CEOs and corporate executives. In your life, you met over 100 people - does everyone feel like they met an insanely high earner? Even here, just on HN, I expect a large number of people are in the top 1% salaries. Yet, I don't think that's what the people are really angry about.

Re: Why the Rich Are So Much Richer

#43

Post by hglman »

crpatino wrote: post #26
rayiner wrote: post #22

Earlier quoted context omitted.

You're mixing up assets and yearly output. You're also ignoring the fact that real assets that always existed may be shifting from other asset classes to hedge funds.

I confess I am ignorant, so I don't know what you are talking about. But, I do not see that many more hard assets (I mean physical... I am sure finance has a technical definition that has nothing to do with what the intuition of lay people like myself would think) created. It does not matter if there are trillions, quadrillions or quintillions of dollars; if they had to spend it all, they would end up owning the whol…

My guess is its that smart phones are more valuable than the raw materials, or more valuable than a tv, a land line phone, and a hand radio are individually. So not that there are more, that they are more valuable objects.

Re: Why the Rich Are So Much Richer

#44

Post by tbrownaw »

blueyes wrote: post #35

Two words: compound interest. To those that have much, much accrues. In the absence of redistributive taxes, societies become unequal because math.

Except that this has been observed to not happen. Wealth differences between families have been observed to not compound across generations. Wealth differences between nations also don't compound across generations.

So, there's clearly something that stops reality from matching that nice pretty math.

Re: Why the Rich Are So Much Richer

#45

Post by hglman »

spiralpolitik wrote: post #32

As proposed by Thomas Piketty in Capital in the 21st Century, when "r > g" (where r = return on capital and g = rate of economic growth) the rich (those with capital) get richer. Apart from between 1930 and 1975 (which Piketty suggests were unique circumstances due to WW2) r has generally been greater than g.

There was an article on the projected growth of the middle class in china. If that was to hold, it would support the point.

If everyone gets some linear growth to their income, those at the bottom get the most %. So the pie shifts down. If its about leveraging existing capital, then more capital means more for you and the pie shifts up.

Re: Why the Rich Are So Much Richer

#46

Post by harryh »

tbrownaw wrote: post #44
blueyes wrote: post #35

Two words: compound interest. To those that have much, much accrues. In the absence of redistributive taxes, societies become unequal because math.

Except that this has been observed to not happen. Wealth differences between families have been observed to not compound across generations. Wealth differences between nations also don't compound across generations. So, there's clearly something that stops reality from matching that nice pretty math.

Shirt sleeves to shirt sleeves in three generations.

Money is much easier to spend than to keep. And if you didn't have the discipline to earn it in the first place it's even easier.

Re: Why the Rich Are So Much Richer

#47

Post by prostoalex »

badsock wrote: post #16
wstrange wrote: post #12

Some good points in the article, but I am not sure I agree with all of its conclusions. CEO pay is going through the roof because of a ratcheting-up effect that has been going for years. The board brings a consultant to evaluate the CEOs pay. Said consultant is in tight with board, and is looking for their next consulting gig. Not a chance they are going to recommend a significant cut, or a performance plan that is a…

I'd be happy with just a minimum vesting term for options, like 5 or 10 years. That way they're in the same boat as the rest of us schmucks who can't go golden-parachute job-hopping every few quarters. Something that would motivate them to make decisions in the interest of the company's overall future, not just the next earnings report.

How many shareholders are pursuing 5 to 10-year horizons? It seems like most shareholders today are just shareflippers, and if all the shareholders care about is next quarter's earnings report, they will inevitably hire staff that mirrors their interests.

Perhaps moving long-term capital gains tax benefit from 12 months to something like 60, and taxing the rest at regular income rates would change the game.

Re: Why the Rich Are So Much Richer

#48

Post by crpatino »

hglman wrote: post #43
crpatino wrote: post #26

Earlier quoted context omitted.

I confess I am ignorant, so I don't know what you are talking about. But, I do not see that many more hard assets (I mean physical... I am sure finance has a technical definition that has nothing to do with what the intuition of lay people like myself would think) created. It does not matter if there are trillions, quadrillions or quintillions of dollars; if they had to spend it all, they would end up owning the whol…

My guess is its that smart phones are more valuable than the raw materials, or more valuable than a tv, a land line phone, and a hand radio are individually. So not that there are more, that they are more valuable objects.

To some degree, yes.

Still, there were cell phones in the 90s. Are the current smartphones that much more valuable than those early mobiles? Remember we are talking about 2 orders of magnitude here.

There were also PCs, and with Word Perfect and Lotus 123 you could do almost everything you do today with the latest office suite. At least almost everything of what the average user knows how to do.

Re: Why the Rich Are So Much Richer

#49

Post by ClintEhrlich »

pcurve wrote: post #27
ClintEhrlich wrote: post #15

The article omits some of the basic information needed for making sense of the data: What is the composition of the one-percent? I doubt that corporate executives make up a significant percentage of the super-wealthy, despite the attention the media pays to them. If that's true, then ipso facto changes in CEO compensation cannot account for most of the structural increase in inequality over the last half century. A m…

"I doubt that corporate executives make up a significant percentage of the super-wealthy, despite the attention the media pays to them. " I'm afraid you're wrong on this point. http://www.motherjones.com/mojo/2011/10/one-percent-income-i... Corporate executives account for almost 3rd of the top 1%, even if you exclude bankers. Throwing in bankers, and it's almost half. I agree with you on that technology and automati…

That is interesting, but I'm persuaded that the top one percent was way too broad of a sample. (My lapse. Sorry.)

The wealth is concentrated within a narrow subsection of that group. And I don't think that many of them became rich as corporate executives, unless you are including entrepreneurs like Bill Gates, whose wealth was derived from his ownership of a business, not as compensation for his work as an executive. Actually, maybe it is reasonable to include them. But I didn't do so when I made my earlier estimations.

Ownership of the means of production is the main intergenerational conduit of capital, which naturally creates large accumulations of inherited wealth. The fact that so many self-made people are now among the world's hyper-rich is a testament to the strength of the technological forces powering startups. And in a sense, Silicon Valley has created the most merit-based process ever devised for crowning an oligarchy.

What's really interesting is to think in terms of power laws, which predict a trillionaire within our lifetime. What would that level of divergence result in? Will someone eventually create something so valuable that the equity takes over a significant percentage of the global economy? (e.g. nano or AI breakthrough)

Re: Why the Rich Are So Much Richer

#50

Post by x5n1 »

vikingux81 wrote: post #36

"So an unequal economy is less robust, productive, and stable than it otherwise would be." Given this is true and Stiglitz is correct, the inverse may also be true: An economy that is less robust, less productive and less stable becomes more unequal. This would create a positive feedback loop, which may seem dismal. However if thats the case then strategies and actions that break the loop by improving robustness, pro…

America was set up by the elite for the elite, that's what liberal democracy more or less means protection of the minority from the majority so that they may prosper and create jobs for the masses who can then get a piece. It was a bunch of rich people who no longer wanted to pay taxes. So as they say, "good luck with that". What should be more often than not never is because the power structures keep things going a certain way and are hard to challenge unless the system is designed from its inception for that.

As the system is running, the next thing is automation which is a junction where you can challenge power but it's already seeming like that's also going to go to the wealthy. They own the capital, they make the entire machine run. They are in a word, "untouchable".

At best it seems like we'll get a compromise where we will be given a minimum income to live our menial lives with a very low level of income. But then again you don't need things to be happy. You just need time and enough resources for an relatively easy life.

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