

Why the super-rich get richer - techdog
http://asserttrue.blogspot.com/2015/04/why-super-rich-get-richer.html

======
hammock
> _It 's not hard to understand what happened, although economists, as a
> group, seem to be incredibly dense on this point. Computer technology
> allowed radical increases in productivity._

Not sure it's that cut and dry, nor that the rise of computers could be the
cause of such a sharp inflection point. Bretton Woods ended around
1971-73...In fact the real wage of nonsupervisory workers peaked in 1973[1]

[1][http://www.nytimes.com/2006/09/01/opinion/01krugman.html](http://www.nytimes.com/2006/09/01/opinion/01krugman.html)

~~~
jjoonathan
How is ending the "gold exchange standard" connected to the decline in labor
bargaining power?

I buy your argument that the rollout of computers doesn't quite line up as it
ought to if it were the primary factor behind wage-productivity decoupling,
but I'm much less familiar with Bretton Woods so I'd appreciate any dot-
connecting you can offer.

~~~
danuker
Workers' savings become worthless through inflation.

Voila! Wage slavery.

~~~
jjoonathan
But savings != income. I can see the argument that eroding peoples' savings
would eventually reduce their bargaining power, but on the graph the effect
seems almost instantaneous.

~~~
LanceH
Savings implies income if inflation doesn't eat it up (and then some).

------
ChrisLomont
If someone can provide a definition of rich and can show the majority of
people meeting that definition of rich stay in that class for very long, I'd
be interested in seeing the data supporting it. I have looked for years and
always found the opposite whenever a dataset allowed answering the question.

For any reasonable definition of rich ( * ) (by total wealth or by total
income, for example), and for any dataset from which I can check the claim
"the rich get richer," I have found that the majority of those in that
definition of rich do not stay in that class. So it seems far more accurate to
claim the rich get poorer.

It's hard to find such datasets, but some that you can find that demonstrate
this are (I don't care to chase them down, and my notes on it are not where I
am sitting):

1) the majority born into the top quintile don't end up there (although the
most likely quintile to end up in is the top). I think St. Louis Fed has
studies on this.

2) the richest Americans, as measured by Forbes 400, demonstrate that the
majority are first generation in that class. This you can check yourself quite
easily.

3) Various tax studies show that people don't stay at the top for income.

Sure, a wealthy person rarely falls to zero, but once you fix a definition of
rich and see how long people in that class stay at that definition, the
majority simply do not last.

(*) if you define rich as the top 90% of people by wealth, which is not a very
common way to define it, then the majority stay in it over time.

~~~
curun1r
I think this is missing the point. It's not really important whether it's the
same 1% that's getting richer. The fact that the income distribution between
the top 1% of earners and the remaining 99% is as high as it is is still a
huge problem. It's just not an efficient way for society to allocate
resources.

~~~
ChrisLomont
I agree that is a problem.

However, many people assume the rich are some monolithic group, hence the
maxim "the rich get richer," which most people take to mean a rich person gets
richer, not most rich people fall from that class and different people enter
that class with even more wealth.

Thus I commented on the fact (it seems) that rich people usually do not stay
rich, for any reasonable definition of rich. Other people become rich.

------
lmg643
Federal Reserve policies to ease interest rates and purchasing securities (via
QE) have the effect of inflating asset prices.

Wealthy people are often paid with assets (executive stock/option grants),
work in asset-managing businesses (hedge funds/PE), and/or hold more assets
than the poor (business owners).

In my view, the Federal Reserve is mainly responsible for exploding income,
not that technology doesn't play some role as well - but, if it wasn't for
exploding asset values, VCs would not be as desperate to invest in crazy
money-losing ideas to automate XYZ (causing unemployment elsewhere) that they
can sell to a bigger fish.

(Interested to know if the Fed is a disputed explanation.)

It seems strange to me that we have such a simple root cause but complicated
ideas for how to stop it, other than curtailing the Federal Reserve.

------
leaveyou
I agree that productivity & cheap energy played a major role in the
devaluation of the traditional worker but I find it highly suspicious that the
blogger does not consider at all another remarkable phenomena that started in
1971: "free floating fiat currency" and the tremendous increase in the money
supply. This amazing currency is "free" but chooses to float only one
direction: devaluation. Maybe the increase in productivity was the perfect
cover for the massive increase in the money supply and the masses had no
feeling of high inflation while still paying the hidden tax.

~~~
howeyc
Floating currency only matters when you buy stuff from someone else who deals
in a different currency. Although you sort of right in that "globalization"
could be a cause. That is, "why hire more workers at high salary when I can
hire dirt cheap and ship the product here?"

[https://en.wikipedia.org/wiki/Containerization#Toward_standa...](https://en.wikipedia.org/wiki/Containerization#Toward_standards)

This leads me to wonder, when wages stagnated around 1970 in USA, did they
start lifting in developing world?

~~~
msandford
> Floating currency only matters when you buy stuff from someone else who
> deals in a different currency

The idea that the currency floats can also mean that the buying power
consistently decreases. As the purchasing power decreases if you're in cash
you lose wealth, even though on paper you're maybe even growing the number a
bit.

If you own productive assets this is OK because you can increase the price of
your outputs faster than your inputs. Meaning you can give people raises (but
more slowly than the currency depreciation) and you'll still make money.

If you're an employee instead of an employer, though, you're paying the higher
prices before you get the raise to be able to afford them.

In this way it's possible for the central bank to perform an effective (though
non-obvious) redistribution of wealth.

------
sosuke
The article title and the contents don't match up. If you're interested in how
technology is and will be replacing most jobs we have now see "Humans Need Not
Apply"
[https://www.youtube.com/watch?v=7Pq-S557XQU](https://www.youtube.com/watch?v=7Pq-S557XQU)

I believe that we will need to make some structure that allows for people to
work who want to earn more, and still support a considerable number of people
who just aren't employable in the future. There don't have to be just winners
and losers like this article posits, it isn't us versus them, and technology
shouldn't be vilified.

~~~
ackalker
>I believe that we will need to make some structure that allows for people to
work who want to earn more, and still support a considerable number of people
who just aren't employable in the future. There don't have to be just winners
and losers like this article posits, it isn't us versus them, and technology
shouldn't be vilified.

I believe what you're hinting at is the idea of "(unconditional) basic
income".
[http://en.wikipedia.org/wiki/Basic_income](http://en.wikipedia.org/wiki/Basic_income)

Interest in this is rising, there are some scientific studies, and several
pilot projects have been run around the world, with generally positive
outcomes.

------
cowsandmilk
His second figure[1] shows his argument is nonsense.

The slope of increases in productivity remains constant on most of the graph,
it just is that a certain point, wages stop going up. That is, the computer
revolution did not change that slope, at least not until 1995-2005 (possibly
from the internet).

Until the 70's, increases in worker productivity from technology were given to
the worker as pay. After the 70's, it appears they were given to management
and shareholders.

[1]
[http://2.bp.blogspot.com/-NEITJXBoBbY/VTY54JJX8gI/AAAAAAAADi...](http://2.bp.blogspot.com/-NEITJXBoBbY/VTY54JJX8gI/AAAAAAAADiI/m_DQ4HrrylU/s1600/productivity.jpg)

~~~
msandford
Probably because decoupling the dollar from gold meant that it was possible
for nominal wages to continue to rise, but more slowly than prices. Until then
if you wanted to pay people less money you had to somehow literally cut their
pay. You had to make them accept a smaller number on their paycheck.

After that, through the miracle of inflation, the numbers on their paychecks
could continue to go up, up up! Just as long as those numbers are going up
more slowly than inflation, you as a business owner are giving people a pay
cut and they're not noticing it. Life is good!

Me personally, I think that's the cause of a lot of the inequality.

~~~
pjc50
[http://en.wikipedia.org/wiki/File:US-Inflation-by-
year.png](http://en.wikipedia.org/wiki/File:US-Inflation-by-year.png)

Inflation existed before the decoupling, and has been low in the US since the
early 80s. Nominal wage rigidity is important but the gold standard does not
guarantee price levels or wage levels.

~~~
msandford
You'll notice that up through the 40s it was possible for inflation to go
negative and for there to be deflation. That means that while prices would
rise for a time, they would then fall for a time.

That made borrowing less attractive since there wasn't an implicit guarantee
that you'll pay back the loan with money worth less than what was loaned to
you. In other words, get $X buying power now, pay back $0.8X buying power over
time. It's a slam dunk.

After the 40s (and the war) there was a brief flirtation with deflation and
then by the 60s inflation was in full force. Eventually people realized this
was happening and a few years later Nixon nixed (HA!) the gold standard here
in the US.

Once that happened it became incredibly obvious that inflation, borrowing and
not really paying for it was the new standard move if you had half a brain.
Businesses got it very quickly. Most of the population in the US has yet to
realize it, otherwise it would have been changed by now.

EDIT: Given the regular changes to the way CPI is calculated I'm not sure I
entirely agree with the reported numbers. I suspect that they're actually a
few percent higher, so inflation has probably averaged not 4% for the last 30
years, but more like 6-7%

1.04 ^ 30 = 3.24

1.07 ^ 30 = 7.61

If that were the case it would explain a lot of the inequality. If inflation
is 6-7% and returns have been averaging 8% (this is what most pensions assume
they can get and shoot for) then your real rate of return is a pittance,
almost not worth mentioning. Might that also cause some hard to detect but
definitely real inequality as well?

------
vinceguidry
I've finally come to understand why I care so little about income inequality.
Income is not the only measure of wealth, I don't even consider it the most
important.

I was hanging out at the bar the other day with this software developer from
India. He had brought a puppy with him to the bar. While I was playing with
the puppy and we were chatting, a girl comes up to us and wants to play with
the puppy too.

His intentions became nakedly known when he kept saying over and over that "me
and the puppy are a package deal." As I was leaving to head to the restroom,
he starts going on about how he's "recruiting" for a boat trip in the
Caribbean. When I got back she was gone, obviously unimpressed.

It got me thinking about the dating market. No woman I know has wealth
anywhere on their priority list for men they want to date. That guy could have
been telling the complete truth about yachting in the Caribbean and she'd have
had the same reaction. Who wants to spend time with a boor even on a luxury
yacht?

If he'd been legit Mr. Darcy, sure, I'm sure she'd have been eating out of his
hand.

\--------------------------------

If I wanted to, I could fairly easily jack up my yearly salary by anywhere
from $25-50K by finding another job. The reason I haven't done that yet is
simply that the switching costs vastly dwarf the (slight) standard of living
increase that the bump would afford me. When I look to move the needle, salary
just doesn't look attractive. Just having one is the big win.

I hold that money is cheap right now precisely because capital is worth much
less, relative to other kinds of wealth. Who is killing it right now? Apple.
Samsung. Global commercial institutions. Finance has accomplished its goal of
making everything fungible, now the only things left that are worth anything
relative to anything else are precisely the things that finance can't
replicate, like an amazing company started by an amazing genius.

So, no, capital accumulation is not worrying to me, because it's obvious to me
that we live in a much richer world now than we ever have. Doesn't look that
way on paper, but that's because we don't have a way of representing, in the
numbers, the idea that money itself isn't worth what it used to be. Capital
accumulation is exactly what would happen if everyone started subconsciously
realizing that cash is no longer king. They'd place their investments
elsewhere, leaving some poor sap holding the big bag of worthless paper.

~~~
crimsonalucard
You don't care in terms of looking at your own situation, sure.

But as a social problem for people less fortunate then you the problem is
compelling.

Note that the problem is actually growing. If the gap keeps growing faster
then your wage grows, it will be a problem for you too.

As for your anecdotal experience about women I have to say you're wrong. No
women will ever call herself a gold digger that's why they don't tell you
wealth is on their priority list. The truth is, it matters a lot. See below.
The content of the link kind of doesn't fit with HN, but the the evidence fits
as an anecdotal counterargument to your anecdotal experience with the puppy:

[https://www.youtube.com/watch?v=XbYNAZxcWh4](https://www.youtube.com/watch?v=XbYNAZxcWh4)

~~~
vinceguidry
So is it inequality we're debating over or just the fact that most of the
world is poor? Poor people will remain poor no matter what level of inequality
we have.

The real thing we should be tracking is social mobility. But we can't track
that because it involves more than numbers. So we track inequality instead.
And don't try to say one correlates with the other.

We need to understand inequality, not just measure it. One country's
inequality is not the same as another country's. Which is another reason why I
dislike the metric, it's all smoke, no fire.

> No women will ever call herself a gold digger that's why they don't tell you
> wealth is on their priority list.

I don't ask women what their priorities are. I infer from the choices they
make concerning dating.

~~~
crimsonalucard
>I don't ask women what their priorities are. I infer from the choices they
make concerning dating.

I ask my friends straight up. I would say half of them lie, and the other half
are honest. A lot of it depends how close I am to them.

------
FLUX-YOU
>Actually, think surgery. Many procedures (try 400,000 a year) are robotic
now.

This doesn't put anyone out of a job currently and has absolutely zero in
common with the ECGs, CTs, and and ultrasounds mentioned before. As far as I
know, robotic cases require the same amount of personnel to perform. Typically
the people you need for robotic cases have more specialized knowledge and
additional training (sold by da Vinci I imagine), not to mention the technical
people da Vinci needs to hire for maintenance which wasn't going to be
supplied by the hospital anyway.

Cab and Uber drivers should be scared of driverless vehicles because there's a
proof of concept that exists, but unless something has happened in the past
2-3 years, I really don't think a proof of concept exists for automated
surgeries or automated support personnel for surgeries.

------
johnmoore
When you have no money you work for money, when you have money it works for
you. As time goes on the more it will make for you. So if you have 10,000 in a
fund with 10 percent return it makes you 1,000 each year. So Over 47 years you
will be a millionaire. This is then past to the second generation which then
does the same then passes this to the third generation. Only once this cycle
is broken will the poor and rich gap narrow.

------
dghf
> According to Uber, the median wage for an UberX driver working at least 40
> hours a week in New York City is $90,766 a year. In San Francisco, the
> median wage for an UberX driver working at least 40 hours a week is $74,191.
> Does that sound like a plan for reducing income inequality? Or increasing
> it?

I don't know. What are the median wages of the cab drivers that these UberX
drivers are apparently putting out of work? The article doesn't say.

~~~
falsestprophet
Uber is lying of course. Those figures are revenue. Subtract operating
expenses of around 50 cents per mile and then you have real earnings or
"wages."

~~~
varjag
And "at least 40 hours a week" is another subtle caveat. This obviously
includes all the drivers putting whatever time they can into it.

------
crimsonalucard
Lots of stuff happened in the 1970s. It's requires a huge leap of logic to say
that computers are the cause... after all correlation does not imply
causation. You need significantly more evidence to prove that computers are
the cause of the growing wage gap.

There was a really famous book that was published recently called "Capital in
the 21st century" by Thomas Piketty that summarizes the real reason:

[http://www.economist.com/blogs/economist-
explains/2014/05/ec...](http://www.economist.com/blogs/economist-
explains/2014/05/economist-explains)

The book is dense, but the logic and evidence is compelling. Basically it says
that you need to look at more data, because there was ALWAYS a trend towards
inequality that was temporarily reversed from 1930-1975, read below:

""Capital" is built on more than a decade of research by Mr Piketty and a
handful of other economists, detailing historical changes in the concentration
of income and wealth. This pile of data allows Mr Piketty to sketch out the
evolution of inequality since the beginning of the industrial revolution. In
the 18th and 19th centuries western European society was highly unequal.
Private wealth dwarfed national income and was concentrated in the hands of
the rich families who sat atop a relatively rigid class structure. This system
persisted even as industrialisation slowly contributed to rising wages for
workers. Only the chaos of the first and second world wars and the Depression
disrupted this pattern. High taxes, inflation, bankruptcies, and the growth of
sprawling welfare states caused wealth to shrink dramatically, and ushered in
a period in which both income and wealth were distributed in relatively
egalitarian fashion. But the shocks of the early 20th century have faded and
wealth is now reasserting itself. On many measures, Mr Piketty reckons, the
importance of wealth in modern economies is approaching levels last seen
before the first world war."

The real reason for economic inequality is not technology, it is actually a
feature of capitalism. In simple terms what is happening is that invested
wealth grows faster for rich people then it does for poor people and this
causes the gap to grow. See the quote below:

"From this history, Mr Piketty derives a grand theory of capital and
inequality. As a general rule wealth grows faster than economic output, he
explains, a concept he captures in the expression r > g (where r is the rate
of return to wealth and g is the economic growth rate). Other things being
equal, faster economic growth will diminish the importance of wealth in a
society, whereas slower growth will increase it (and demographic change that
slows global growth will make capital more dominant). But there are no natural
forces pushing against the steady concentration of wealth. Only a burst of
rapid growth (from technological progress or rising population) or government
intervention can be counted on to keep economies from returning to the
“patrimonial capitalism” that worried Karl Marx. Mr Piketty closes the book by
recommending that governments step in now, by adopting a global tax on wealth,
to prevent soaring inequality contributing to economic or political
instability down the road."

I'm no economist but according to my knowledge this is the prevailing theory
in academia today.

~~~
thsealienbstrds
I recently saw the documentary We're Not Broke about how most (if not every)
multinational do tax evasion in America. It's being claimed that actually most
politicians there know what's going on and know how to solve it (tax reform)
but they simply can't (or don't) do it because "business doesn't want that".
So, back to 'patrimonial capitalism' it is for the U.S.

------
cm2187
What this article suggests is possible in a world with no competition. I don't
think we can say this of most of the markets. And not only there is
competition but there is international competition.

------
known
Globalization is Zero sum;

------
xname
Misleading as I pointed out in a previous comment (
[https://news.ycombinator.com/item?id=9418512](https://news.ycombinator.com/item?id=9418512)
)

"the super-rich" is different groups of people from year to year.

------
dschiptsov
Diversification.

------
nsxwolf
Compounding interest? Not a very compelling headline.

~~~
crimsonalucard
dude he says computers and efficiency in labor are the cause of wealth
inequality. Not the real reason: compounding interest.

