
Income Inequality and the 'Superstar Effect' - unignorant
http://www.nytimes.com/2010/12/26/business/26excerpt.html?_r=1&hp
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patio11
I think PG had an article about this: if you have any process with a) a
distribution of skill which b) scales with addition of resources, market price
at the top of the distribution should explode because talent becomes a license
to print money. Banking only got to that first because they have a very simple
model: decisions for many types of assets take equal difficulty to get right
regardless of how much money is stake (below a ceiling in the hundreds of
millions or billions). If you can reliably make the average + 2% trading
$2,000 of Coca Cola at a time (and you can't, but work with me here), then you
can reliably make the average + 2% trading $200 million of Coca Cola.
Comparing your wages to that of someone who trades hours for dollars no longer
makes sense.

Quants had a similar compensation scheme for quite a while now. I think other
classes programmers are going to hit on it, too: there are many things you can
do which demonstrably improve revenues or cut costs and which scale to the
moon.

Can I again toot the horn for A/B testing, metrics, etc etc? My homework for
tomorrow is writing a consulting proposal. They want to know how much
purchasing my services stands to make them. Consider a hypothetical company
with 9 figures of revenue a year which does no A/B testing. Pick a number for
what you think you could do for a first cut of conversion optimization. 2%?
5%? 10%? Do the multiplication.

You can create staggering amounts of wealth these days with programming and a
few other tricks, _and_ you can capture quite a bit of it.

[Edited to add: PG link: <http://www.paulgraham.com/wealth.html> My favorite
essay of his, incidentally.

The relevant bit: _To get rich you need to get yourself in a situation with
two things, measurement and leverage. You need to be in a position where your
performance can be measured, or there is no way to get paid more by doing
more. And you have to have leverage, in the sense that the decisions you make
have a big effect._ ]

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lkrubner
There is nothing wrong with the model PG puts forward, as a start, but it is a
simple model and it needs explanation. At the least, you should make some
attempt to explain why things change over time. Consider radio in the USA, up
until the mid 1950s. It was eventually replaced by TV, but in the 30s, 40s and
50s it was the main medium of mass communication. The nation lived by its
radio. The potential audience for a radio star was greater then than it is
now. So why do top stars, like Rush Limbaugh and Howard Stern earn such large
fees now, when the market is so fragmented?

Changes in the tax code are important to consider. As a thought experiment,
imagine if the top income tax rate was still 91%. (During the 30s, 40s, 50s
and early 60s, it was 91% on income over $100,000, about a $1 million in
today's money.) How many stars would ask for income in excess of $1 million if
they knew it would be taxed at 91%? They would probably instead ask for
various perks, which was the trend in the US during the mid-20th century.
Asking for perks instead of cash remains the trend in those nations with
strongly progressive tax rates, for instance, Sweden.

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patio11
_So why do top stars, like Rush Limbaugh and Howard Stern earn such large fees
now, when the market is so fragmented?_

I did a double-take here, because it sounds fairly obvious to me: monopsonies
can get away with paying you next-to-nothing because your best alternative to
"next-to-nothing" is "nothing". If there are only a few radio networks (and/or
they have a gentlemen's agreement with respect to hiring talent), then
_regardless of skill_ the commercial value of your ability is zero unless you
sign with them. Rush Limbaugh would be making $20k a year if there was only
one radio station in town. There are now 50 and the _one_ that gets to sign
him makes a substantial amount of money. (He tapped an unlikely niche market
for news and opinion: half the country.) The market now favors him rather than
favoring them.

Edited to add: By the way, it appears that Google et al have a gentleman's
agreement with respect to hiring talent.

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lkrubner
This article is a bit innocent. It does not examine how the big tax cuts of
1982 changed incentives for everyone. There is a considerable amount of
research that suggests when income tax on top rates is high, workers prefer
non-cash benefits, rather than money. Recall that in the USA, during the 40s
and 50s, the top income rate was 91% on all income over $100,000 (roughly a $1
million in todays money). Because of this, most top stars did not seeks
payment in excess of $100,000. Instead, they sought benefits in to go along
with their $100,000. The big tax cuts of 1982 lowered top rates to 36%. This
made it much more rational for top workers to ask for high amounts.

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jdp23
Excellent point. The article's based on a time that's been better for the rich
than ever before in many different ways -- and reduced the spoils available to
everybody else. You have to wonder how sustainable that is ...

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david927
The problem, as The Spirit Level by Kate Pickett and Richard Wilkinson states,
is that the larger the inequality in a society, the worse off everyone is,
even the rich.

The future is more global, which means it's more and more of Taleb's
Extremistan. I don't think we should be working to try to change such effects;
it's natural and comes with technological progress. What I would like to see
is compassion and epathy for those increasing numbers who are left behind by
it. We have to figure out this or it will be detrimental to us all.

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billswift
I have seen quite a few discussions of that recently, but I have seen no
evidence that "income inequality" itself has any negative impacts. Now as a
symptom of other possible problems, yes, it can be worrisome, think of the
historical divisions, lords/rajahs/mandarins versus
serfs/untouchables/peasants for a _real_ example. Today's divisions in the
Western world are neither that extreme nor have I seen evidence that they are
the result of some underlying pathology like in those examples.

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maigret
The basic problem with inequality is that it kills the middle class, which is
one of the prime engine of growth. Riches only consume a small part of their
money, and invest the rest, which produces easily investment bubbles, but not
much growth in terms of industry and wealth production. That's (also) why the
banking sector is getting so big. At the contrary, a strong middle class also
maintains well democracy, and produces continuing growth over decades.

Also, take it upside down - why isn't the US currently clearly richer that
Europe? Germany, Sweden provide good examples that a bit higher taxing isn't
killing the economy, much more the opposite. Also India and China have such a
growth because they also produce a middle class, and not only super riches.

But well, it's the old discussion libertarians vs utilitarians... ;)

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kylelibra
Tim Ferriss also has a good post on this if anyone is interested:

[http://www.fourhourworkweek.com/blog/2010/07/27/the-
supersta...](http://www.fourhourworkweek.com/blog/2010/07/27/the-superstar-
effect/)

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lionhearted
Sooner or later, I'm going to get around to writing a piece and titling it, "I
reject equality" where I lay out the argument that the goal of equality is
fundamentally hostile to excellence.

In fact, I think one of the biggest flaws in English right now is how we use
the same word - equal - for concepts as diverse as law and economics.
"Unbiased courts" and "taking things by force from people performing better"
really, really, really shouldn't use the same word. They do currently -
equality before the law, and income equality. Facts-based-unbiased-law is
obviously a good thing. Take-by-force-from-best-performers, on the other
hand...

Anyways, I haven't written the "I reject equality" piece because of how touchy
it'll be, and how I'll have to ultra-carefully craft the arguments to say
exactly what I intend to say, and no more or less than that. But I do think a
goal of total equality is fundamentally hostile to excellence - excellence, by
definition, is better than the rest. At some point, you have to start pushing
down on the best if you want everyone to be the same. I understand some people
will disagree with me on this, but I personally think that's a really bad
thing.

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rue
> _Sooner or later, I'm going to get around to writing a piece and titling it,
> "I reject equality" where I lay out the argument that the goal of equality
> is fundamentally hostile to excellence._

I will offer a pre-counterpoint: equality is not (should not be) about
everyone being the same or at the same level, but more "from each according to
their ability" — but at the same time considering the 100% effort from
everyone to be (nearly) as valuable. This leads to the second question of what
you consider essential in achieving exellence: I hope you can offer more of an
explanation than "more money as reward".

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lionhearted
> I will offer a pre-counterpoint: equality is not (should not be) about
> everyone being the same or at the same level, but more "from each according
> to their ability" — but at the same time considering the 100% effort from
> everyone to be (nearly) as valuable.

Honestly, I'm not sure how to reply to that, because I don't think any single
human in history has ever given anything near 100% effort or achieved 100% of
their potential.

Maybe a rare few individuals - da Vinci? Jefferson? Tokugawa? Socrates?

But I'm not so sure of that, even. No matter how good you get, you can always
make another incremental improvement.

Couple that with the fact that the vast majority of major breakthroughs come
from individuals or small teams, and I think anything that stifles excellence
to potentially help get more out of everyone is misguided. Again, though, I
realize that I hold the minority position on this idea.

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rue
Substitute 100% with a percentage you feel comfortable with. Whatever puny
humans consider "full effort" without ever aspiring for more…

I think it is probably correct to say that the _tips_ of major breakthroughs
come from small groups, but to claim entirety of the credit would be
discounting all of the work, research, support and infrastructure currently
and in the past. I do not think it is feasible to go to an "every man for
himself"-system at this point — plus I'd like to see some historic examples of
such successes if that is your gist. Notably fostering an overall empowering
society is not the same as putting Joe Sixpack in the Manhattan project 'cause
he's been trying so hard, bless his little cotton socks. You need not respond
here, but I hope your article-in-potentia can sufficiently flesh out and
support your idea instead of only trying to deconstruct the current (?)
stifling environ.

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enko
>> the 2010 FIFA World Cup in South Africa, in which Ronaldo played for
Portugal, was broadcast in more than 200 countries, to an aggregate audience
of over 25 billion

Something's wrong with that final number, unless the world population recently
quadrupled without my noticing ..

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tednaleid
There is more than one game during the world cup, 25B is the total number of
non-unique people who watched all the games. It says that 700M people watched
the final. If that many people watched every game there would have been ~35
games total (potentially watched by the same 700M people). I have no idea how
many games in total are actually part of the world cup.

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joe_the_user
While logically explained, the process seems rather unstable.

Where will it end up?

