
The 1 Percent Rule: Why a Few People Get Most of the Rewards - bbcbasic
http://jamesclear.com/the-1-percent-rule
======
anigbrowl
I love Pareto distributions but I don't like the author's framing of this as
an inescapable law of nature. We have control over how society's feedback
mechanisms are structured, and while it is foolish to try to reverse an
inevitable _trend_ we are by no means required to passively accept, especially
when wildly disproportionate outcomes lead to systemic weakness.

It's worth considering that from the cellular point of view, cancer is
extremely 'successful.' But at the human level, discovering a tumor is not a
cause for celebration, but for anxiety and further investigation. Some tumors
are benign, and can be thought of as a mere excess of a good thing causing
only cosmetic or minor discomfort. Others are malignant, actively reproducing
themselves to excess and pulling all the body's resources towards themselves,
disregarding the health of the host body but without creating any sort of
value (because of the impossibility of reproducing itself independently of its
originating context). A benign cancer is tolerable; a malignant one must be
excised or it will kill the host.

(This might seem like a hand-wavey objection, but systems biology suggests
that Pareto effects show up in the development of cancers just as in many
other natural systems, eg
[http://journals.plos.org/plosone/article?id=10.1371/journal....](http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0013803)
)

We should not fall into the trap of assuming that just because a social
phenomenon instantiates some natural behavior, that it is therefore a Good
Thing, aka the naturalistic fallacy. Nature is inherently fractal, and extreme
outcomes may be instances of local maxima that are suboptimal from the
perspective of the system as a whole.

~~~
RcouF1uZ4gsC
If you look at it empirically, attempts to make wealth equal and/or resentment
that a small portion of people have "too much" wealth has led to a lot of
misery in human history. We only have to look at Stalin and the USSR, Mao and
China, Pol Pot and Cambodia, and more currently Chavez and Venezuala. This
thinking has also been responsible for a lot of the anti-Semitism throughout
history as well.

I think instead of trying to make wealth equal, we should focus on making
people's lives better.

~~~
eevilspock
Firstly, that is a straw man argument.

Secondly, can it not be possible that both communism and capitalism are bad?

Thirdly, can't we make people's lives better without awarding 40% of the
wealth to 1% of the people, and 22% to 0.1% (2012)?

Fourthly, it's not simply about money, because that could be easier to ignore,
if it were true that everyone, including those on the bottom, were better off.
But money is power. In other words, democracy is thoroughly undermined. All
one has to do is see how much money is poured into politicians' coffers and by
whom, and for what purpose. Or see that you can't become president without
getting $1 billion dollars of "donations" for your campaign. Is it one person
one vote or one dollar one vote?

~~~
specialist
_...communism and capitalism are bad?_

Word.

Richard Wolff is asking the right question: How do we distribute the
"surplus"?

[http://www.democracyatwork.info](http://www.democracyatwork.info)

I'm chewing on his notions for worker self-directed enterprises. Having used
democratic decision making processes with great results, I've been keen to
learn what others are doing.

------
rectang
The article suffers from the just-world fallacy.

    
    
        You only need to be slightly better than your 
        competition, but if you are able to maintain
        a slight edge today and tomorrow and the day
        after that, then you can repeat the process of
        winning by just a little bit over and over again.
    

A 1% advantage doesn't mean 1% "better" if it is the result of network effects
or historical accident. It's certainly plausible that accumulative advantage
leads to winner-take-all effects, but if being "better" was the only factor,
Betamax would have beaten VHS.

Succeeding means securing advantage. Those who expect to succeed only by being
"better" are doomed fools.

~~~
jasode
_> , but if being "better" was the only factor, Betamax would have beaten
VHS._

Betamax was "better" than VHS if you only compare 1 dimension such as "picture
quality". However, if one also compares other dimensions such as:

\+ recording time: VHS records 2-hours vs Betamax 1-hour

\+ licensing fee: JVC less expensive than Sony royalties

... to combine pq+capacity+price into a composite score, VHS was "better".

~~~
rectang
Monopolists win through regulatory capture. Are they "better"?

"Better" connotes a value judgment. The author of the article takes the
neutral concept of "accumulative advantage" and inappropriately ascribes moral
value to it, corrupting the insight of the Pareto principle.

~~~
1_2__3
One is forward-looking, predicting the outcome (winning) by looking at current
data (objective comparison). The article tries to twist this around to be
backwards-looking: if it won,it must be better.

Which is a sickening and illegitimate argument.

~~~
cookiecaper
I think the author is trying to explain naturally-occurring feedback loops,
not necessarily trying to justify them as a positive thing. Understanding that
these are natural phenomena that occur due to hard physical or natural factors
is crucial to being able to formulate a plan that accounts for them.

------
heisenbit
Taking a principle and lauding it makes not an insight.

There is no rationale given for the 1% rule e.g. why not 10% or 0.1%? There is
not statistics behind the 1% rule. Yes there are "the winner takes all"
situations but the article neglects diversity and other negative feedback
loops e.g. in fashion the winner may succeed only to be swept away by a
counter-revolution trend.

About the author:

> I'm an author, photographer, and weightlifter. Most people know me because
> of my writing about habits and human potential. I've created this weird
> “job” for myself where I try to be an advocate for the world's best ideas.

~~~
simonh
It's a rule of thumb, not a law. As the article points out repeatedly the
ratios differ from one example to another as you can see from the examples
given. The 'rules' are ballpark averages or easy to remember round numbers
across many different situations. What's important is to understand the
effects that lead to these distortions in distribution.

~~~
nathanvanfleet
Yes, I find that it's really remarkable, but every time I take a handful of
4-6 jelly beans, there is a dominant color. Sometimes it's blue, sometimes
it's red, but there is always a dominant color. It can be 20%-40% sometimes.
Remarkable.

I think that I might write an article about this to justify current economic
trends and hardships...

~~~
simonh
You really think that each person in society has a random share of wealth?
That each season a random team wins the Super Bowl? If that's not what you
mean, I'm afraid you're not making your position very clear to me.

------
kingkawn
I too can make broad observations about the world, claim that the evidence I
find is all pointing to my conclusion, claim that the variations in the
evidence are all within the range I have set, and then use this Magical
thinking to justify sternly insisting that economic exploitation is "natural."

~~~
simonh
Are you challenging the contention and the reasons cited?

There is no argument in the article that this is good or desirable. Many
things in nature are terrible and destructive. But doesn't it help if we
understand them? What point are you trying to make?

~~~
kingkawn
That there is a titanic economic incentive to produce this kind of observation
in order to create justifications for the economic order, that anyone who does
so with skill will be rewarded, and that drawing these conclusions serves the
purposes of suppressing cultural developments rather than being unassailable,
spiritual commitment to The Clear Correctness and Fairness of Our Objectivity

~~~
Jabanga
You're misreading the article if you think he's trying to create
justifications for the economic order. What he's doing is arguing that the
rewards of those at the top are a byproduct of a defect in competitive
processes that make them disproportionately large relative to merit for the
elite minority.

I also believe your belief that society rewards those who justify elitism is
very misguided. Virtue signalling through displays of altruistic self-
sacrifice and support for the underdog rules the day. Playing that game is
incredibly rewarding for social status.

------
lettersdigits
My favorite quote from the article:

> Imagine two plants growing side by side. Each day they will compete for
> sunlight and soil. If one plant can grow just a little bit faster than the
> other, then it can stretch taller, catch more sunlight, and soak up more
> rain. The next day, this additional energy allows the plant to grow even
> more. This pattern continues until the stronger plant crowds the other out
> and takes the lion’s share of sunlight, soil, and nutrients.

------
wiradikusuma
The article downplays the word "consistency". Being slightly better is indeed
an advantage, but unless you keep being "slightly better" all the time, the
others can outdo you, since you're not the only one trying to move up.

"Use habit to keep being slightly better!" \-- but sometimes "slightly" is not
easy to get by simply making it a habit. "Grow userbase 5% week over week",
for example. It's easy to get 5 extra users when you have 100. But once you
reach 1000, getting 50 probably not easy.

~~~
rdlecler1
The author mentions the importance of accumulative advantage a number of
times,not just consistent advantage. The former being a positive feedback loop
(that is also a negative feedback loop for competitors).

------
drchiu
The comments here seem to point to the fact that the author is simply using a
bunch of loosely connected observations to try and make a point more important
than it is.

I've found that the article was very useful framework to think about
optimizing things. Especially as the author describes how small tiny
advantages appear to accumulate over time and amount to giant advantages that
is meaningful. Ie. habits, no matter how small but are alightly better,
snowballs into a large advantage over many iterations

------
jliptzin
I see how this makes sense in business, real estate, and in nature but I don't
get the sports analogy. Where is the accumulating advantage from one race to
the next for a swimmer, for example? If the gold medal swimmer eeks out a win
by just 0.01 seconds, 5 races in a row, to me those are all independent events
not affecting each other so I don't see why there should be any other
explanation other than the swimmer is just slightly better than everyone else?

~~~
anigbrowl
If you don't think that gets into the head of the swimmer's competitors then
you are mistaken. Further, success attracts success; a swimmer with a slight
advantage wins more prize money, attracts the attention of better coaches,
gains more fans and so on, all of which may combine to improve performance by
just enough to maintain a competitive advantage. All these might seem like
extrinsic factors to you but interdependence and interaction are a reality;
_pure_ independence is a useful analytical tool, but we dwell in the world of
matter, not of forms.

------
elitemindset
We observed this rule recently and called it the _Pareto Cubed_ principle[1],
or the 50/1 rule.

It's even more counterintuitive than the 80/20 rule until you really
understand the nature of power laws and unequal distributions.

[1]: [https://www.elitemindset.com/the-pareto-cubed-
principle/](https://www.elitemindset.com/the-pareto-cubed-principle/)

~~~
ianai
"n the few activities that are responsible for the majority of your success."

It also suggest normalizing. I.e. If you can identify the 80% of the time
where you're under utilized at work by one thing then use that time for
something else.

Also, I think this gives insight into knowing when to cut a loss or decide
whether something works or not.

------
75dvtwin
Very well written essay. Had definitely prompted me thinking, and gave me a
'formulaic' way to describe what I would call a 'gut feel'.

my take away from the article, with some elaboration is the following:

a) through out our lives we have 'binary choices' and 'graduated choices.
Where 'binary choices' basically a yes/no kind of things. While 'graduated
choices' allow shades.

b) the more binary choices present in a given subject of application (eg
economics of individual income), the more 80/20 or (50/1) rule hold

c) consistency in making 'right' binary choices, has huge benefits

------
betaby
There is an interesting consequence of this. Everybody realized inequality is
a bad thing. And thus equalization is the answer. So let tax progressively.
What is missing there, and will be missed in foreseeable future is that
government equalize mid-manager with retail shelf stoker. Real ones who own
and reap benefits are excluded from the process. You can see prove of that
everywhere - gentrification haters, bay area protests against programmers.
Still elites are never even considered as a main problem. Basically gov
policies equalize lower 99%, top 1% is untouched.

~~~
bbcbasic
Elites have enough power to evade equalisation. They can:

1\. Lobby and influence policy. 2\. Shop for a tax effective jurisdiction. 3\.
Get the best tax and legal advice money can buy.

------
CriticalSection
If money was distributed in the USA for something that is actually
competitive, like athletics, then people of African descent would rule the
country, as they seem to dominate this arena, even in venues like golf.

If you look at the wealthiest people in the US, they are people like the Koch
brothers, who inherited their wealth, or the Walton heirs, who inherited their
wealth, or the Mars children, who inherited their wealth, and so on.

You could also look at others. Bill Gates was born with a million dollar trust
fund - his great-grandfather ran National City Bank, his mother was on United
Way’s executive committee with the CEO of IBM, his father ran a law firm, he
went to Lakeside high school (current annual fee: $33,000) which had teletypes
and access to a GE mainframe in the late 1960s. Warren Buffett is also "self-
made". His grandfather owned a chain of grocery stores, his father was a
congressman, he went to UPenn and Columbia. Mark Zuckerberg's parents are
professionals, he went to high school at Phillips Exeter (current tuition
$36,000, more if boarding there).

The first group did absolutely nothing. They're not really being "rewarded" as
the article says. They can just jet from Aspen to Monte Carlo their whole
lives, expropriating surplus labor time from those of us who work and create
wealth. You can watch the documentary "Born Rich" which was made by one of
these people (it's sometimes on Youtube) and is about these people. The second
group - 1%ers who made it into the 0.1%, I suppose transitioned from one class
to another, and had a hand in codifying how a large number of people worked.
Even doing some of the initial stuff themselves - porting BASIC to yet another
platform, selling a CPM ripoff to mom's friend on United Way's board, starting
yet another social network (and being sued for stealing it), beating the S&P
500 year after year.

This is all helped by a massive mechanism of basically all of society tilted
to let this class of what I consider parasites to expropriate the surplus
labor time of those of us who work. It's a social relationship - workers work
and create wealth, and heirs expropriate our surplus labor time and the wealth
we create during it. And use it as a cudgel against us not just in the world
of business, and not just in the governments they created and maintained, and
the schools those governments run, or the media they created and maintain and
to a large extent monopolize, but also other social organizations as well like
churches. Through the corporate owned news I learn Trump, an heir and
businessman now running the government, this week signed a document which
would allow churches to be more involved in selecting who is and is not in
government. All goes into each other - you organize the wretched of the earth
at the bottom of society to believe in some superstitious fantasies in order
to select certain leaders who will be even more vehemently against their
economic interests. One part of society flows into another, but it all flows
back to the center, which is what we all wake up and do most days - work and
production, and the relationship between the worker and those who are
parasites on worker's labors and who have the upper hand at the moment.

Of course, several centuries ago it was the royal families who had the upper
hand on the poor and the workers and the merchants, so these things seem to
shift around as history marches on.

------
cJ0th
After reading such an article it is easy to see this pattern everywhere. And,
sadly, it is also easy to see all the areas where I am in the group of people
who come in close second. With the article in mind it would seem rational to
quit endeavors of those kind cold turkey. In reality, it's not so easy. Maybe
you don't want to give up b/c of all the time you've invested or b/c you're
really passionate about what you're doing or maybe some fellow people still
keep encouraging you and don't want you to stop...

This makes me wonder whether there is a good general exit strategy for those
situations. That is, a method to reorientate as quickly, painlessly and
promising as possible. I worry that's a too abstract way to think about it,
though.

~~~
simonh
The other way to look at it is that, in many situations in life, by improving
your competitiveness by only a few percent you can often reap much bigger
rewards. In the Olympics that's really tough, but in most people's lives the
bar you're trying to beat is just that set by the environment you happen to be
in. Being a bit better prepared, paying a bit more attention, working a bit
harder can over time have outsized cumulative effects. We don't live in a
perfect world, but how prepared we are to do well in it is up to us.

------
nathanvanfleet
I love how the "80/20" rule gets stretched so often that in this article it
talks about hyperdominate trees that take up 50% of the Amazon. So 80/20 can
go anywhere form 99/1 to 50/50\. What an interesting "pattern"

~~~
Noughmad
You're reading the numbers wrong, there is no stretching. The 80/20 rule means
that 80% of resources is controlled by 20% of participants. Applying the same
ratio to subgroups, you also get that 1% of participants control about 50% of
the resources, as for trees in Amazon. The 80/20 number is just nice and
commonly used because it adds up to 100.

------
Houshalter
I'm not convinced his explanation is correct. Power laws appear in many places
besides economics and biology. Even in places where there is no concept of
competition. For instance, the distribution of word use in the English
language follows a power law. Words don't exactly "compete" for use and there
is no reason to expect a power law there.

It seems like they appear almost everywhere. I have yet to find a satisfactory
explanation of why!

------
thomasmarriott
[https://en.wikipedia.org/wiki/The_Gospel_of_Wealth](https://en.wikipedia.org/wiki/The_Gospel_of_Wealth)

------
peteretep

        > one of his lasting legacies
        > was turning economics into a
        > science rooted in hard numbers
        > and facts
    

Objection

------
mhneu
One mechanism explained by Piketty.

Rate of return on capital is higher than wage growth.

So the wealthy get richer at a faster rate than the average worker. This
amplifies inequality.

[http://www.newyorker.com/news/john-cassidy/pikettys-
inequali...](http://www.newyorker.com/news/john-cassidy/pikettys-inequality-
story-in-six-charts)

------
Nomentatus
I'm guessing a power law applies to what percentage of the elite are killed
during any given revolution throughout history. Nonetheless, I'd still like to
prevent revolutions; and I don't think revolutions being associated with a
power law makes them inevitable or immutable.

------
sararschreiber
The "winner takes all" reminded me of this article I thoroughly enjoyed
[http://nautil.us/issue/44/luck/dont-tell-your-friends-
theyre...](http://nautil.us/issue/44/luck/dont-tell-your-friends-theyre-lucky)

------
JimmyAustin
This has an interesting application in software and machine learning.

Traditionally it's been easy to expand into a software market if you can come
up with a superior product, but when you are playing with AI and competing on
having a superior dataset, size and existing advantage starts to matter a lot
more.

~~~
adangert
Which is the whole reason why open-AI is so important, and likely will fail.
Once Google or Facebook or Amazon start the AI ball rolling, the inequality
will explode in their favor.

------
hammock
Pareto distribution does not imply "winner take most", the #1 spot is usually
far less than 50%. The 1-2-3 podiums cartoon is similarly inaccurate.

------
ianai
Econ is full of principles like this. This was well written.

~~~
ilaksh
Its full of principles like that, and _for an economic discussion_ makes an
average amount of sense -- which is one of the reasons economics isn't
actually science.

~~~
Brotkrumen
It's not a natural science. If you restrict sciences to whatever you believe a
natural science is, you'll kick out some useful, predictive and fruitful
subsets of the natural sciences out too.

So maybe we should let that old meme "if it's not done in white lab coats,
it's not a science" die.

~~~
1_2__3
Sure that's fine. Economics still isn't science, even by the relaxed
definition.

~~~
anigbrowl
Get over yourself; that's like saying Newton wasn't a good scientist because
he was wrong about a lot of things. Economics, like sociology, is a young
discipline that yields a lot of mistakes and goes down a lot of dead ends
because it gropes towards an understanding of _hard problems_.

Criticizing economics is entirely valid. Pissing on it is not.

~~~
ianai
I think economics is in its vast infancy. It studies a highly complex system
after all. It's constantly in danger of being coopted and manipulated toward
ideological ends, too.

------
Unkechaug
All he is doing is explaining positive feedback loops...

~~~
Noughmad
Not true. A positive feedback loop would result in a monopoly, i.e. one person
having all the wealth, or only one type of tree in the rainforest. We don't
see that, instead there is a equilibrium distribution.

