
Of the 1%, by the 1%, for the 1% - rosser
http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105?currentPage=all
======
pg
This is written more like a speech by a politician than as an attempt at
analysis. The type of economic inequality that successful startups yield, and
which accounts for a lot of the entries in the Forbes 400, is described merely
as a theory cherished by the rich, and dismissed with evidence it would be a
compliment to call anecdotal. And while there's a lot of talk about how the
rich own the government, he doesn't even attempt to analyze whether this is
more or less true now than it was 50 years ago, when there was less economic
inequality (on paper).

~~~
qq66
The Forbes 400 is mostly entrepreneurs but the "Forbes 40,000" is mostly
financiers, only a small fraction of whom create net positive value.

~~~
bokonist
Source?

~~~
qq66
No source since the "Forbes 40,000" doesn't exist but I can assure you that
it's much more common to make $100m on Wall Street than in entrepreneurship.
My direct manager when I interned at Lehman Brothers had probably socked away
$50m himself.

------
patio11
Top 1% in income is, hmm, $500kish? I hate to break it to you, but that isn't
a CEO of a Fortune 500 company (that would imply the had 99 employees apiece,
right?) or a hedge fund owner. That's like a couple dozen people who post to
HN, or someone with a successful medical practice, or a well-rewarded peon who
has leverage in an industry made of money. (A quant, for example.)

$500k is a lot of money, but it isn't "senators are at your beck and call, own
houses in six countries" money.

[Edit to add: guesstimate based on misremembered data. Real number closer to
400k.]

~~~
moultano
250k of _household_ income puts you at the 98.3 percentile, so any two married
valley engineers probably qualify, and they probably can't afford a house.

[http://en.wikipedia.org/wiki/Household_income_in_the_United_...](http://en.wikipedia.org/wiki/Household_income_in_the_United_States)

~~~
gaius
Same situation here in the UK - you become one of the hated "rich" at about
GBP 37k where income tax goes up to 40%. Nowhere in the Home Counties is that
enough to get a mortgage even on a 1-bedroom flat, let alone a house. A super-
tax of 50% kicks in at GBP 150k - but an ordinary family home costs around GBP
500k.

As normal in politics, the middle classes are being raped for the benefit of
those at the top and at the bottom.

~~~
tesseract
> GBP 37k

What is that percentile wise?

As an American, I am perpetually shocked at how low UK salaries sound when I
hear them, especially given that I know consumer goods are more expensive on
your side of the pond. Is it made up for by comparatively lower cost of
housing or other essential items or what? Or is there a huge transatlantic
income gap that I never really hear about (mostly it's cost of living
differences that seem to draw attention)?

~~~
ladon86
Well it's definitely not cost of housing, which is very expensive here. For
the most part you can expect to pay a lot more for a much smaller house in the
UK compared to the US.

I'm not sure where it is that we make up the difference in costs, or if indeed
we do.

~~~
Mz
As a guess: Healthcare. My understanding is that it is largely covered by the
government in the UK but consumes somewhere in the neighborhood of 20% of US
incomes (figure remembered off the top of my head -- I really want to say
about 22% but that implies more accuracy than I feel confident implying). So
that one item alone should make a quite large impact on actual outcomes.

~~~
hga
But, assuming we've been talking about before tax incomes, the mechanism by
which you pay for your health care doesn't matter for the purposes of this
discussion, does it? I.e. the U.K. has higher individual tax rates in part to
cover the NHS's expenses.

That said, the U.K. spends a lot less as a percentage of GDP on health care,
but then they have a substantially lower per capita GDP.

ADDED: off the top of my head, U.K. health care spending is 6-7% of GDP, US is
17%.

~~~
cstross
Note that UK healthcare costs are lower than US healthcare expenditure in part
_because there's no parasitic insurance industry_. (Or rather, there is, but
it's tiny: private healthcare accounts for &lt;10% of UK healthcare
expenditure). Instead, there's a single payer that funds everything and
doesn't bother with assessing individual eligibility for treatment except in
edge cases (foreign visitors, or rare and horrendously expensive cancer cases,
mostly).

~~~
hga
Are you asserting that the US system spends more effort "assessing individual
eligibility for treatment" than the U.K.'s?

Well, I suppose so, the UK's NICE
([http://en.wikipedia.org/wiki/National_Institute_for_Health_a...](http://en.wikipedia.org/wiki/National_Institute_for_Health_and_Clinical_Excellence)),
much like our CMS
([http://en.wikipedia.org/wiki/Centers_for_Medicare_and_Medica...](http://en.wikipedia.org/wiki/Centers_for_Medicare_and_Medicaid_Services)),
establishes the impersonal guidelines, but in the US only those over 64 or on
Medicaid are impersonally bound by them. In practice when our "parasitic
insurance industry" addresses this it's about providing coverage beyond the
CMS guidelines, since the latter are a floor which our legal system won't let
the "parasitic insurance industry" go below.

That legal system and most especially its lack of the English "loser pays"
Rule is probably a greater influence on costs, especially since the NHS has
_got_ to have some level of sovereign immunity.

~~~
cstross
_the NHS has got to have some level of sovereign immunity._

Does it? (I don't know of anyone suing NICE, but they've certainly brought
lawsuits against GP practices and hospital trusts, and won substantial damages
for malpractice and/or judgements requiring the provision of treatment that
was at first denied on various grounds.)

Meanwhile, the NHS bodies that deliver healthcare -- be they PCTs or
fundholding GP practices -- don't have a profit incentive for excluding people
with pre-existing medical conditions from receiving treatment. (They may have
a _cost control_ incentive to for denying anomalously expensive treatments,
but that kicks in at the opposite end of the supply-and-demand chain: and it's
defended by reference to metrics like quality-adjusted life-years per unit
expenditure rather than the requirement to show a profit.)

Finally, the "loser pays" rule has been greatly undermined by the widespread
adoption of conditional-fee lawsuits for civil damages in the UK over the past
decade.

------
thecabinet
It's really difficult to take this sort of article seriously. Whether it's the
talk of the top 1% "taking" (which is strange, because everything else in the
article is trying to demonstrate ther undeservingness) or this:

> While many of the old centers of inequality in Latin America, such as
> Brazil, have been striving in recent years, rather successfully, to improve
> the plight of the poor and reduce gaps in income, America has allowed
> inequality to grow.

Wait, is the problem poverty or inequality? If "the plight of the poor" is
simply that they're not as comfortable as those in the top 1%, but they still
have cars, and TVs, ad microwaves, I'm never going to be impressed by this
sort of article.

------
gentschev
We all agree the article's dumb and pretty poorly written. Many lower income
people pay no income taxes at all. I think that's rightly so, but it seems
silly to write about a lack of redistribution in the US. In fact, the top 50%
of households in income paid 97% of income taxes in 2008.

What is troubling, and what the author ignores, is the changing distribution
of returns in our economy. There's no point in trying to legislate it away,
but more and more work is becoming automated. We're in the middle of a second
industrial revolution, and many kinds of work that people rely on for income
and identity will go away over time. Will we end up in a society where 90% of
us, who don't have the skills to be productive, are subsidized by the
remaining 10%? That seems like an awful outcome from a social perspective, but
I'm not sure how we should respond to it.

From a policy perspective, I would like to see a higher short-term capital
gains rate to limit the attractiveness of financial instrument trading, and I
think carry income (on VC and private equity) should be taxed as income, not
at the lower rate for capital gains. But apart from those areas, we need to
address the long-term trend of growing income inequality as a society, not
with legislation.

~~~
yaks_hairbrush
You get a pretty skewed version of the facts when you talk about income tax
shares. Payroll taxes hurt quite a bit at lower income levels.

------
moultano
_The more divided a society becomes in terms of wealth, the more reluctant the
wealthy become to spend money on common needs. The rich don’t need to rely on
government for parks or education or medical care or personal security—they
can buy all these things for themselves. In the process, they become more
distant from ordinary people, losing whatever empathy they may once have had.
They also worry about strong government—one that could use its powers to
adjust the balance, take some of their wealth, and invest it for the common
good. The top 1 percent may complain about the kind of government we have in
America, but in truth they like it just fine: too gridlocked to re-distribute,
too divided to do anything but lower taxes._

Not only is this paragraph entirely unsubstantiated in the essay, but I doubt
that it's even true. Perhaps the author could have interviewed people in this
top 1% or cited polling data or _something_. Instead they went with
caricature.

~~~
danssig
To be fair, I think the US itself is a pretty good citation.

------
marknadal
This article makes one logical fallacy after another, offhandedly referring to
"economists" as an appeal to authority without providing any reference,
proclaiming numbers and statistics without any evidence, making bias slurs and
assumptions without giving any warrant or citation. It spews Keynesian
Economics and a Communistic regard everywhere while blaming Capitalism for the
consequences of Progressivism in the last century. That somehow the Recession
is the fault of a rich CEO and not hyperinflation and credit expansion. And
provides no accountable cross reference to other time periods or governments.
It is a great relief to see that this was not upvoted by HN for its content
but rather to demystify its preposterous pontification. Worst of all, the
author tagged himself in the keywords, now talk about vanity.

------
dctoedt
The key section of the article is the last one, about _"the erosion of our
sense of_ [national] _identity, in which fair play, equality of opportunity,
and a sense of community are so important."_

The author, Joseph Stiglitz [1], doesn't explain how inequality of wealth
alone _causes_ such erosion. On its own, inequality very well might not.

But other factors might be at work as well. Consider the effects of envy, or
more precisely, "relative deprivation" [2]. There's been research indicating
that no matter how well off humans are on an absolute scale, we tend to become
dissatisfied when we perceive that we're worse off than our neighbors; we tend
to believe we're somehow entitled to do at least as well, or even better, than
they. (See also "keeping up with the Joneses.")

Envy is probably a product of natural selection; it can be a useful motivator,
at least when properly channeled.

On the other hand, envy might be less adaptive in an era of global mass
communications. It's certainly easier today for millions of people to become
aware of, and then (perhaps subconsciously) resentful of, others who seem
better off than they.

So it could be that we have a combination of causes at work: Increasing public
awareness of wealth inequality leads to increased envy, which might indeed
start to erode the social fabric.

If this turns out to be the case, what could we do about it?

Some might say humanity should be less envious, that people should just accept
inequalities of wealth as natural consequences of their own limitations.
History suggests that they -- or should I say, we -- probably won't.

[1] Joseph Stiglitz, professor at Columbia, former chief economist of the
World Bank, Nobel Memorial Prize in Economics 2001
<http://en.wikipedia.org/wiki/Joseph_Stiglitz>

[2] <http://en.wikipedia.org/wiki/Relative_deprivation>

------
SamReidHughes
The worst kind of article is the kind that makes you want to flag it for being
inappropriate and rant about it at the same time.

~~~
nice1
The last tsar of Russia and his lot also practiced denial. The ensuing tragedy
not only wiped them out, but also caused misery to countless people for almost
a 100 years. Lets hope history won't repeat itself.

~~~
pjscott
Unless I'm misunderstanding what you're saying, you can apply that argument to
just about anything.

------
yewweitan
This is a good time to reflect again upon PG's essay 'Mind the Gap' -
<http://paulgraham.com/gap.html>

------
rudiger
The top 1 percent of American income-earners account for ~25% of the nation’s
total income every year. The top 1 percent of American wealth-holders account
for ~40% of the total wealth. I hear statistics like this all the time but I
never understand... What is the "correct" amount? The _top_ 1 percent of
anything by definition are going to hold some larger share. There are
compelling theoretical reasons for wealth and income distribution to follow a
power law (ie. Pareto distribution). Why should these numbers be as they were
25 years ago, or as they are in other countries now?

~~~
_delirium
A recent survey found rather surprising consensus between people on different
part of the political spectrum if you asked them what an ideal wealth
distribution would be. Overall, people thought the top 20% should ideally own
about 32% of the wealth; liberals preferred 30%, while conservatives preferred
35%. People making over $100k/year were slightly more pro-inequality, but
still only gave 40% as their ideal target. No demographic group gave anything
close to the current proportion, which is around 83%, as their ideal target.

So it seems like "top 20% should own 35% of the wealth" is roughly the
consensus of the vast majority of Americans, give or take 5%, across many
demographic and political groups. Where they differ is what, if anything, we
should do to make that happen.

Source:
[http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...](http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf)

~~~
Tycho
So what would that actually mean? If you put everyone on the X axis in order
of their income, with the Y axis representing income, what would the curve
look like in order for the top 20% to own 30% of the wealth? And if you left
this running, what would the total wealth graph look like after say 50 years?

~~~
corysama
According to <http://en.wikipedia.org/wiki/Wealth_in_the_United_States> the
total household wealth in the US is $55 trillion.
[https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/geos/us.html) says the US population is 313 million. $55t/313m =
$175k per person on average.

The most conservative proposal from the survey splits the wealth at roughly
40:20:20:10:10. That means if we had an average representative of each of the
5 groups, they would each be worth 5* $175* (that group's percentage) = $350k
: $175k : $175k : $87.5k : $87.5k

Meanwhile, the most liberal proposal was roughly 30:20:20:15:15 giving $262K :
$175k : $175k : $131k : $131k

~~~
Tycho
Heh, the fringe Scottish Socialist Party had a much maligned proposal to
instate a wage cap of £250k (approximately $350k), which according to this
study actually aligns with the conservative ideal. Just shows how firm a grasp
of the statistics people have when it comes to this sort of thing.

------
stretchwithme
Some people work very hard and are very creative. Those who produce more
should get more. That isn't the entire picture of how people get wealthy in
America, but it is the gist of it.

Of course, America has an increasingly corrupt government and a great many
people acquiring wealth by using government to scam the rest of us. And we
should be railing against that.

But the fact that wealth is distributed unevenly is inevitable. Not only are
the productive wildly different in their abilities to produce, the ability of
the corrupt to steal varies greatly as well.

~~~
cheez
Your second paragraph is very interesting and reminded me of this talk here:
<http://www.youtube.com/watch?v=dmzZ8lCLhlk>

------
rradu
NYT piece from a few days ago shows trends of top income earners over the last
90 years - [http://economix.blogs.nytimes.com/2011/03/30/inequality-
is-m...](http://economix.blogs.nytimes.com/2011/03/30/inequality-is-most-
extreme-in-wealth-not-income/)

------
Tycho
What's the point of taking arbitrary cutoffs like 1%, 20%, whatever%? Just
show us the overall plot/curve.

------
charlieconroy
This article is fodder for those 1000 Thoreau is talking about -- "There are a
thousand hacking at the branches of evil to one who is striking at the root."

Not once did the author submit forth anything of value. I kept thinking I wish
I wrote this article and instead of complaining about the troubles focus on
WHY? WHY is this happening? I've always come to the same answer: give kids the
opportunity to find what they love (or who they are) through education.

I dislike the PIE analogy! Anytime they mention pie and those greedy few it
gives the wrong idea about wealth generation.

I think a growing trend of more educated peoples will fix this inequality over
time -- wealth distribution will be more sparse.

------
hootmon
Just consider this. Most tax money goes toward providing defense, Which is
just a nice word for protecting the property of the wealthy. The more property
you have, then the more value you receive, thus the more, not less, you should
pay. Its called welfare for the rich. Our taxes go towards securing their
position and goods. Say hello to that boot rushing down on you.

~~~
cagey
> Most tax money goes toward providing defense

It seems like (FY2010) 20% of Federal expenditures go toward defense, and 58%
go to entitlement programs (which (I speculate) the 1% wealthiest do NOT
receive disproportionate benefit from).

Source: [http://globaleconomicanalysis.blogspot.com/2011/03/usa-
incor...](http://globaleconomicanalysis.blogspot.com/2011/03/usa-incorporated-
grim-look-at-financial.html) second graph

~~~
gersh
From that chart, it appears the problem is the healthcare industry is getting
too much money. Medicare is expensive along with the tax deduction for health
insurance. If we could get down healthcare costs, it would solve the problem.

