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Are super-rich people just better at making money?

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Re: Are super-rich people just better at making money?

#531

Post by chii »

_def wrote: post #228
Gareth321 wrote: post #108

I am a devout capitalist with an accounting degree and an MBA. I believe the theory and data indicates that wealth is a mix of (in order): luck, family wealth, social ability, attractiveness, height, intelligence, natural abilities which align well with making money (conscientiousness, ability to delay gratification, affinity for work in scalable professions like IT, etc), culture, place of residence, likelihood of s…

> I believe the theory and data indicates that wealth is a mix of (in order): luck, family wealth, social ability, attractiveness, height, intelligence, natural abilities which align well with making money (conscientiousness, ability to delay gratification, affinity for work in scalable professions like IT, etc), culture, place of residence, likelihood of sociopathy, and many more. One could argue that most (if not a…

it's too reductionist to attribute luck to all of those factors imho.

Re: Are super-rich people just better at making money?

#532

Post by chii »

serverholic wrote: post #326
Gareth321 wrote: post #108

I am a devout capitalist with an accounting degree and an MBA. I believe the theory and data indicates that wealth is a mix of (in order): luck, family wealth, social ability, attractiveness, height, intelligence, natural abilities which align well with making money (conscientiousness, ability to delay gratification, affinity for work in scalable professions like IT, etc), culture, place of residence, likelihood of s…

Do billionaires really create enough value to warrant obscene wealth? Sure they deserve some wealth, but do they really deserve a billion dollars? Are you forgetting the thousands of employees that are enabling them to become obscenely wealthy? And I don’t buy the “deterrent effect” argument. IMO discouraging billionaires from acquiring more is a good thing and opens the door for other people to step up.

> do they really deserve a billion dollars?

yes, as long as they did not undertake an illegal action to obtain that wealth.

The employees that enabled the wealth creation is surely paid, and not coerced into the deal.

Re: Are super-rich people just better at making money?

#533

Post by chii »

theshrike79 wrote: post #272

Money follows money. If I have 10€ and I make 1% profit, I've made a whopping 1€. Now I can buy a few potatoes. Someone with 1M€ makes the same amount of profit, now they have 10 000€. That's a good few months of living expenses for the regular person. And this is not even taking into account the access to different people and resources you get just with having enough money to get into the right circles.

comparing percentage profit is meaningless.

At low monetary amounts (like 10 euros), it's easy to make 1% profit. At high monetary amounts like 1 million, it's quite hard to get 1% profit - much harder than at 10 euros.

Therefore, to quantify the risks, the absolute amount invested must be compared, not just the return %. At $1 million, they took 100,000 times more risk than the $10 investment.

Re: Are super-rich people just better at making money?

#534

Post by imgabe »

chii wrote: post #526
imgabe wrote: post #198

Earlier quoted context omitted.

Yes? The vast majority of people are able to buy Internet service and it is not a significant percentage of income, even for people with a low income. Do you know of people taking out second mortgages on their house or drowning in debt to afford Internet service? The flip side of the equation is that if a business is to exist, it has to set a price that people are capable of paying. Yes, sometimes with supply constra…

> The vast majority of people are able to buy Internet service and it is not a significant percentage of income how did you know that the cost of such a service is not way overpriced compared to the cost of production? Are there really many ~sandwich providers~ISP that you can compare it to? Or are the prices just taken because there's no alternative, and that ~sandwiches~internet access is needed for living?

The cost of production is irrelevant. The sale price is determined by the supply and demand on both sides (supply of the product, and supply of money available to pay for it).

A market like ISPs is subject to natural monopoly because of the physical nature of running wires to houses. A true free market would see any competitor free to run their own wires and offer a service, but we don't allow that. We kind of did in the early days of electricity when people just strung up wires wherever they liked. It led to a lot of people getting electrocuted.

If there is really a large margin available for a competitor to undercut, someone will find a way to do it. And, as predicted, people are with options like Starlink and 5G hotspots becoming viable.

Re: Are super-rich people just better at making money?

#535

Post by deterministic »

bmitc wrote: post #3

To solve all this, it's pretty simple, and the U.S. actually used to do it: heavily tax the super rich. Heavy taxation and then appropriate use of those funds for education, R&D funding, infrastructure, etc. is actual trickle-down economics. And mega corporations should be heavily taxed instead of holding the country economically hostage. They jumpstart their companies off of government funding and R&D and then act a…

The solution is simple: Tax land not income.

Re: Are super-rich people just better at making money?

#536

Post by astrange »

kelseyfrog wrote: post #519
astrange wrote: post #503

Earlier quoted context omitted.

Most of those are bad; at least if a landlord is only interested in money they’ll take your money. In the “decommodified” forms, you can’t live there unless the manager personally likes you. With government public housing you can lose it if you break the law (hope you never smoke weed) or if the populace elects a racist government and you’re a minority. Commodifying housing helped black people in the South because th…

Sorry, but I'm not sure where you got government housing from. I specifically omitted it to avoid that dialog option.

That’s the one people usually want. Co-ops of course are much more racist than that.

Re: Are super-rich people just better at making money?

#537

Post by janalsncm »

WalterBright wrote: post #454
janalsncm wrote: post #126

Earlier quoted context omitted.

There is no law of nature that says only income can be taxed. Loans could be taxed.

How about taxing your mortgage, then?

That could be a law. It would be a bad law for most people since they don’t own any houses.

Taxing loans to billionaires is a good law because it closes the “just take out a loan” loophole.

Re: Are super-rich people just better at making money?

#538

Post by dragonwriter »

WalterBright wrote: post #104
underdeserver wrote: post #89

Earlier quoted context omitted.

Top 1% of salary earners. The CEOs, highly paid doctors, engineers. The real capitalists - those who hold the assets and pay for their yachts with stock-backed loans - they don't pay 40% of the federal tax revenue. Their salary is $1/year.

Loans are not income.

Alternatively, loans are income today coupled with an expense over some future period.

Including loan proceeds in taxed income (and deducting repayment) is certainly a potential policy choice.

OTOH, treating pledging an asset as security for a loan as a realization event at FMV, making it both taxable if a gain and a basis value update, while taxing capital gains as normal income would also be a way to shutdown the “use secured loans to fund your lifestyle to avoid realizing gains and being taxed” hack.

Re: Are super-rich people just better at making money?

#539

Post by matthewdgreen »

imgabe wrote: post #517
matthewdgreen wrote: post #516

Earlier quoted context omitted.

TFA talks about all of this. The point of the article is that in a system with a finite amount of wealth, even a society that starts equal will eventually become highly unequal: as long as there is continued betting/competition where all parties have an equal risk tolerance corresponding to their income. The concentrating effects of these bets is the important lesson. TFA describes some ways to avoid this outcome.

But TFA article is completely unrelated to the real world. There is not a finite amount of wealth. People create new wealth through innovation. People do not mindlessly continue the same investing strategy when incentives change. If you reduce the expected return from an investment, they stop investing in it. So any strategies that might be useful for the contrived game described in the article are not relevant to th…

Nearly every economic action you take can be viewed as an investment or bet. Getting up in the morning and going to work represents a bet that your compensation will be worth the time spent. Sending your kids to school/college is an even more obvious example. For self-employed people all of this gets much more literal: every job involves a tradeoff of time and resources that could be spent on different projects. Even open-source hobby projects are can be a time-investment in building your resume. These "bets" have counterparties as well: for example, your employer can afford to negotiate much harder than you can on salary, because you need a job and health insurance more than they need you.

I also agree that this is a simplified model. But its simplicity is what makes it elegant: you can see the effect in a model that lacks all of the complexity of real-world economic activity. In the real world the "bets" are more complicated and the odds more variable, but you can't just claim "this effect must go away" without articulating a clear reason that it would.

The reasonable point you do make is that in our current economy the "pie" isn't fixed: new wealth is being created all the time, and this is one reason we don't collapse into permanent inequality the way this model does. This doesn't negate the model, however, it just means there is something counteracting it. Unfortunately the fear is that in the future (or perhaps even the present) new wealth creation will no longer keep up with this underlying concentrating effect, and we'd better think hard about what to do then.

Re: Are super-rich people just better at making money?

#540

Post by imgabe »

matthewdgreen wrote: post #539
imgabe wrote: post #517

Earlier quoted context omitted.

But TFA article is completely unrelated to the real world. There is not a finite amount of wealth. People create new wealth through innovation. People do not mindlessly continue the same investing strategy when incentives change. If you reduce the expected return from an investment, they stop investing in it. So any strategies that might be useful for the contrived game described in the article are not relevant to th…

Nearly every economic action you take can be viewed as an investment or bet. Getting up in the morning and going to work represents a bet that your compensation will be worth the time spent. Sending your kids to school/college is an even more obvious example. For self-employed people all of this gets much more literal: every job involves a tradeoff of time and resources that could be spent on different projects. Even…

> but you can't just claim "this effect must go away" without articulating a clear reason that it would.

If the effect is that, all else being equal, people with a lot of money can make more money in an absolute sense than people without a lot of money, then of course it doesn't go away. It's not that that isn't real (it's simply how percentages work) it's that it's not actually a problem because the model is so far removed from reality as to be irrelevant.

The real world is not a 1v1 adversarial game where people are betting against each other. More often they are collaboratively betting together and both benefit if they succeed.

Young, poor* entrepreneur brings an idea, maybe specialized domain knowledge, and time and energy

old, rich investor brings capital, maybe business experience and network, and gives it to entrepreneur to execute.

If all goes well old, rich investor and young, poor entrepreneur both make a lot of money. Young, poor entrepreneur becomes old, rich investor for the next generation.

If the venture fails, old, rich investor loses money (which went to pay some number of employees and vendors, who get to benefit from it), but old, rich investor expects this to happen for some or most investments. Young, poor entrepreneur loses time but gains experience and connections.

Nobody tricked anybody or stole anything from anyone or "lost a bet" like they are playing a rigged game in Vegas.

If you tell old, rich investor they aren't allowed to make any money by investing in young, poor entrepreneur any more, they don't just keep on doing it and allow you to redistribute their profits. They buy T-Bills instead. Young, poor entrepreneur goes to work for some other company (that old, rich investor probably funded in the past and owns) and gets a mediocre salary instead of getting rich and the world is deprived of whatever innovation they might have had.

This is pretty much fine for the old, rich investors, they're already rich. But it screws over the possibility of getting rich for anyone who isn't already. Which, if you were trying to reduce inequality, is the opposite of what you'd want.

* - or more realistically, middle or upper-middle class

Another unrealistic part about the model is that people keep betting a fixed percentage of their net worth. If you have a million dollars, maybe you can invest $100,000 into the seed round of a startup. If you have a billion dollars, it's unlikely you can invest $100 million into one investment. You spread it across multiple investments, maybe hundreds, and the average return is less than what you would get from succeeding on one big investment, because there simply isn't an opportunity that can make use of that much capital at once.

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