
Never mind the 1 percent Let's talk about the 0.01 percent (2017) - nabla9
https://review.chicagobooth.edu/economics/2017/article/never-mind-1-percent-lets-talk-about-001-percent
======
allovernow
>Smith, Yagan, Zidar, and Zwick find that the 1 percent’s income is being
driven by owner-managers, mostly of small and medium-sized
companies—specifically S corporations, partnerships, and limited liability
companies. These are talented managers: the researchers find that profits of
companies run by these 1 percent-ers are far higher than those of businesses
owned by people in the top 5-–10 percent

>“The demand for top skill has outpaced its supply, with the returns to top
skill increasingly taking the form of business income.”

This really doesn't come off as a problem that needs solving and instead
sounds like a purely political war cry. These aren't lords abusing powerless
peasants, they're contributing members of society being disproportionately
rewarded for their disproportionate contributions. Wealth inequality needs to
be considered in the context of overall prosperity and despite the
fearmongering you see online, most Americans are doing well. Even our poor
have modern conveniences, access to emergency healthcare, generally safe food
and infrastructure - eating the evil rich and redistributing their wealth is
unlikely to solve any of the major issues in the country, as we're already
throwing tons of money at schooling and healthcare and the like.

~~~
blunte
> disproportionate contributions

Do you really argue that the people in the top 0.01% are contributing to
society at a rate hundreds or thousands of times higher than the rest of the
people?

And in the case of heirs, such as the Walton family, are they contributing so
vastly more than the guy who mows people's lawns during the day and cooks
their dinners in a restaurant at night?

Or how about the Renaissance folks. They (whether fully legally or secretly
illegally) reap huge rewards yearly, certainly using some advantages and
situations most people do not have access to. Are they likewise contributing
to society so much more than the average person?

Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute
very heavily to society, and they get paid pretty poorly. Are they really
contributing less, by factors of tens or hundreds, than Larry Ellison?

~~~
6gvONxR4sf7o
>Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute
very heavily to society, and they get paid pretty poorly. Are they really
contributing less, by factors of tens or hundreds, than Larry Ellison?

I've been thinking about this lately. A schoolteacher generates huge value for
dozens of people per year. A CEO of a big firm may generate tiny value for
millions or billions of people per year. If the schoolteacher is generating a
thousand times more value for each of their students than the CEO does for
each of their customers, then the CEO still generated a ton more value to
humanity.

My napkin math is that teachers make about $200B/year in the U.S. (3.2M
teachers * $60k/year). The top 0.01% seems to make about $100B/year (16k
families * $7M/year). So we're in a situation where yes teachers make more
value than the 0.01%, but they also earn almost twice as much. (To be fair, it
seem reasonable that teachers should earn more than 2x more, but that's a
separate conversation).

The scale factor is a weird one for fairness. If someone's value to others is
the value per person (X) times the number of people (Y), it seems like our
society or technology or something is set up so that it's much easier to
maximize X*Y by making Y huge and lowering X than it is to make X huge and
lower Y. You can make your firm serve a million times more people, but you
can't teach a million times better. Framed this way, no wonder a "value"
maximizing world is getting less personal and more corporate as people lower X
wherever they can to explode Y.

~~~
lostdog
You are giving the CEO credit for everything positive that the company does.
Shouldn't some of the credit go to the workers?

Not to mention, many companies are a net negative to society.

~~~
6gvONxR4sf7o
No I'm not giving the CEO credit for everything positive that the company
does. I said the CEO may generate tiny value for millions or billions of
people.

As a thought experiment, imagine a CEO of company making $5B/year of nebulous
undefined "value" with 250M customers (roughly Spotify-ish?). That company's
"value" per customer is about $20/year. Compared to a teacher, I think this
company's impact per "customer" rounds basically to zero. Suppose the CEO is
able to raise that "value" by 0.14%. Compared to the workers, it's still
basically zero. Being less than three cents per customer per year, it's truly
absurd compared to any teacher's impact per student per year. But it increases
the company's $5B/yr by about $7M/yr.

This is a CEO who creates (relatively speaking) practically none of the value
of the firm, which in turn creates (relatively speaking) practically no value
per customer, and yet because they just have so many customers the CEO has
created $7M/year of value in this thought experiment. That's the average 0.01%
household income.

Small value over many people just seems to have more range than large value
over few people.

------
georgeburdell
As the article notes, an increasingly common path to the 1% is through skilled
labor. I think this type of earner would have more in common with a 50%er than
a 0.1%er.

My family has been in the 1% for a few years and we’re just bottom-rung
individual contributors at FAANGs. 50% of our net worth is in our house. We
don’t run or have stakes in any private businesses. No investment properties.
The only thing that sets us apart is while an upper middle class family might
do a European vacation one year, buy a car the next, and redo their bathroom
the next, we do in the same year. Otherwise, I imagine our lives and
aspirations are similar.

~~~
hailwren
I was skeptical, then I checked [1] and apparently even if you separate by
state you only need a household income of $512k to be in the top 1%. High, but
certainly not unfathomably so to HN readers.

1 - [https://www.cnbc.com/2018/07/27/how-much-you-have-to-earn-
to...](https://www.cnbc.com/2018/07/27/how-much-you-have-to-earn-to-be-in-the-
top-1percent-in-every-us-state.html)

~~~
bretpiatt
Many people end up in the 1% for a single year via sale of business, stock,
etc.

There's a huge difference between that type of 1% for a year and age 30-40
dual (or very high single) annual income earners.

The former may retire with a $1-5M net worth, the latter is either spending
heavily or retiring with a $10M+ (and likely $20M+ with reasonableiinvestment
returns) nest egg.

~~~
Gibbon1
There is also a difference between a $150k/y family with two wage earners and
one with a single wage earner. The former is likely paying for day care, etc
and have higher family expenses. And a lower quality of life in general.

Gets worse as you go down in income. Try two wage earners at $60k/year.

------
bradleyjg
The purpose of these exercises is always to push the perceived issue on to
some other. So if you are union tradesman in NYC pulling down $90k/year you
don't want to hear about the top quintile, you'd rather talk about the top 5%.
If you are software engineer making $250k you don't want to talk about the top
5% but instead point to the 1%. If you are a specialist physician making
$600k/year (or the subsidized journalist child of specialist physician) then
it's not really about the 1% but instead about the .1%.

And so forth and so on. This is far more about resentments and insecurities
than policy.

The fact of the matter is if you want to re-adjust the economic landscape
towards the poor in a meaningful way it is going to realistically require
harming the economic interest of all the current winners -- from the $90k/year
tradesman all the way up to Jeff Bezos. In all likelihood it will probably
also mean higher prices for goods and services as well as higher unemployment.
Maybe those trade-offs are totally worth it, but we should be adults about
these things and not pretend there's some magic policy that's going to make
everything great for everyone except some tiny cabal of not-us that's probably
evil anyway.

------
dijit
Wasn’t that always the case. Nobody cares about the guy earning 250k/y.

It’s the handful of people who control 90% of all wealth. “1%” was a catchy
soundbite but it was always the 0.0001%

~~~
algaeontoast
Yeah, I really don’t understand why the bracket of “extreme wealth” is $250k?
I’d be all for adding some bracket for earners over $1MM or over a certain
amount of capital gains tax. However, a lot of people rely on capital gains
for their retirement, so a tax on that money would negatively affect anyone
who puts money in the stock market for retirement...

Taxing the super rich is a great idea, but at the end of the day the govt just
needs to spend less money on programs that don’t work or aren’t needed.

~~~
salawat
>Taxing the super rich is a great idea, but at the end of the day the govt
just needs to spend less money on programs that don’t work or aren’t needed.

Translation:

>You could recover some of the wealth that is systemically siphoned (by
inflation)/withheld (via wage suppression) from everyone, but you really
should look at that whole wealth redistribution mechanism working against
centralization of capital in private hands. That's the problem.

Not really buying it. The fact you're pushing these systems off as not working
leads me to conclude you've not met the level of understanding to safely do
away with Chesterton's fence. There is tons of room for improvement in the
execution of these safety nets; but the Market doesn't want people feeling
safe. Risk aversion from guaranteed stability makes exploitative
employment/compensation schemes more difficult to sustain.

------
the_gastropod
Is anyone else getting bored with this kind of “analysis”? Yes—people in the
99.9th percentile are significantly more <anything> than people in the 99th
percentile.

“Never mind the 0.01 percent. Let’s talk about the 0.0001%!” would be even
more crazy, considering the exponential distribution of wealth.

~~~
VeninVidiaVicii
"...considering the exponential distribution of wealth."

_That_ is the point

~~~
Enginerrrd
What is the point exactly? No policy is going to change the fact that the
natural equilibrium for such systems is a Pareto distribution, AKA it follows
a power law. We can definitely hope to change the constants of the
distribution, but to fundamentally change such a distribution would really be
a fool's errand.

~~~
richardwhiuk
Is there any theoretical reasoning for expecting a Pareto distribution to
result? Would a distribution closer to normal not be equally valid?

~~~
rklaehn
Write a simulation where you have n entities with an equal amount of
resources. Now choose two entities at random and let them "trade", where the
outcome is random but fair. You will get a "wealth distribution" that is not a
gaussian normal around the average but more like a poisson distribution. And
this is even with no difference in competence of the market participants.

You can add various corrective terms to make get "equality of outcome", but to
get to a gaussian distribution around the average you need really
drastic/totalitarian measures.

The best system from a pure math POV would be a flat tax combined with
universal basic income. But unfortunately it is naive to assume that this is
politically viable.

Politics largely is selling a particular group an advantage over the general
population in exchange for votes. And a flat tax / basic income system is just
too simple for that.

------
ghouse
The tax code enables and reinforces outlier wealth using tired arguments like
"encouraging investment" and "double taxation." United States centric
observations:

For example, charging lower tax rates on capital gains than ordinary income
promotes a concentration of wealth to people with wealth. Suggesting this is
purposeful policy for society to encourage investment is comical -- what else
would wealthy people do with the wealth? Store it under the mattress? Or spend
it (in which case that would accelerate the velocity of money, also good for
society). Capital gains taxes are only on the gains -- income that had not yet
been taxed. Actual double taxation is a wealth tax.

Similar tax policy that results in concentration of wealth are: 1) 1031
transfers (where income on sale of real property isn't taxed so long as the
proceeds are used to purchase real property), 2) Qualified Small Business
Stock (where federal tax isn't paid on gains of sale of small business stock)
3) Economic Opportunity Zones (where tax is deferred on gains so long as the
gains are invested in an Opportunity Zone, and all additional gains aren't
taxed).

~~~
jogjayr
> charging lower tax rates on capital gains than ordinary income

I don't have a problem with the idea. It recognizes that income derived from
investments is riskier than income from a paycheck, and applies a discount.

The problem is with the execution. Why is the top rate for cap gains only 20%
- even if you earn $10b, but 37% for a mere $510k in ordinary income? Surely
there should be some amount of cap gains that can be taxed at 37%. Maybe it's
$5m instead of $510k (to recognize the riskiness of the income stream) but it
shouldn't cap out at 20%. Simply put, why aren't there more tax brackets for
cap gains and other investment income?

~~~
ghouse
> It recognizes that income derived from investments is riskier and applies a
> discount.

It's unclear why as a matter of tax policy we want to discount taxes because
risk is taken. If an investment results in a loss, that loss is permitted to
offset gains elsewhere.

~~~
jogjayr
Because the policy doesn't just cover a diversified investment portfolio where
a loss on one transaction offsets other gains. Small business owners put a
significant chunk of savings and all their time into their business. What
gains are they going to write down if their business goes under?

~~~
danaris
Is there a reason we can't classify a wholly-owned business differently from
shares of stock, for tax purposes?

------
3fe9a03ccd14ca5
My issue with all of these discussions is that they invariably present ideas
that are just too complicated, and our tax code is just too complicated as it
is.

Create a system that can be applied evenly, and fairly, from the top to the
bottom and then I think you’ve got a great and novel idea.

~~~
swebs
The Fair Tax plan was a neat idea. Tax everyone at X percent, while giving
everyone back Y dollars per month as a form of UBI. The values of X and Y are
chosen so those below the poverty line gain more money than they are taxed.

[https://en.wikipedia.org/wiki/FairTax](https://en.wikipedia.org/wiki/FairTax)

~~~
rklaehn
I was a huge fan of this concept. It has been invented independently by people
on the right (Milton Friedman) and the left. But unfortunately that is not how
politics works. Politics is selling a particular group an advantage over the
majority in exchange for votes. That is true both for the left and the right,
the only difference is which groups they target.

And a fair tax is just too _simple_. Politicians wouldn't have anything to
sell anymore...

~~~
3fe9a03ccd14ca5
> _And a fair tax is just too simple. Politicians wouldn 't have anything to
> sell anymore._

You’re right! Without the ability to carve out exceptions, why would a
powerful lobby need to come with a proverbial suitcase a cash?

~~~
rklaehn
The sad thing that just the two parameters basic income and flat tax rate are
flexible enough for a wide variety of policies.

Want scandinavian style socialism: set the basic income very high and have a
high flat tax rate of maybe 50%. Want a more individualist approach: set basic
income to the bare necessities and set the flat tax rate to 25%.

Want to borrow to fight against a recession, keynesian style: increase basic
income without raising flat tax rate. Want to save for bad times: increase
flat tax rate without raising basic income...

I guess this kind of system can only emerge due to some drastic change or
historical accident. E.g. the eastern european countries have a flat tax
system because after the collapse of the soviet union there was no complex
incumbent system in place.

I would love to know if there is a way to get to such a system using the
normal democratic process. But if it exists, I don't see it.

------
sandoooo
1\. somehow the hate against the 0.01% always turns into policies that tax the
upper 20%, or 10%, or 5%. why is that? Is there a way to formulate the
arguments / policies so that it doesn't do this?

2\. the wealth of the 0.01% are numbers stored in computers. They are claims
on future production, yes, but the whole system only works because 99.99% of
these claims never gets cashed out, because there are physical limits to what
a handful of billionaires can consume, no matter how opulent their lifestyles.
If you try to distribute this virtual wealth, people will try to turn it into
physical consumables, only to find there really isn't enough for everybody,
and the whole system will go to shit.

3\. at some point, a guy I know made the observation that revolutions don't
really redistribute much, mostly they just take the wealth from the wealthy
and burn it. Well maybe how it works is the most important and expensive
physical good - land - gets redistributed, most other physical goods are
destroyed, and the virtual wealth is zeroed in a very expensive accounting
exercise.

~~~
chongli
_Is there a way to formulate the arguments / policies so that it doesn't do
this?_

No. The upper .01 percent have tax lawyers and accountants and many other
staff members (not to mention lobbyists) working full-time to reduce their
taxes. In theory, anyone could do the same. In practice, the tax code is so
enormously complex that only people who can afford to hire multiple college
grads full time can pull it off.

------
jquery
I’m not convinced that markets don’t work when high pay is involved. If this
was true, there is a fortune to be made by creating a mutual fund that invests
in companies that avoid superstar pay tiers. Does anyone know of such a fund?
How is its performance?

I think we evolved the emotion of envy in a time when being rich meant
hoarding. Markets break that evolutionary intuition.

------
Razengan
Having a guaranteed basic income, free money, or whatever you want to call it,
would assuage a lot of the resentment surrounding the perceptions of effort,
luck, opportunity, merit, worth, earnings, taxes, parentage, connections
etcetera that inevitably come up in these discussions, as they have on this
post.

~~~
patja
I also find this idea appealing. Reading the end of Gehttoside was an eye
opener where the author describes how getting on SSDI (argued as being a
limited form of basic income) for being unemployable (disabled) due to their
history gang banging gave some former gangsters enough financial breathing
room that they could break the cycle of relying on crime to get by. Sounds a
little Polyanna-ish but it does have the ring of truth.

What are your thoughts on the counter-arguments that basic income will lead to
a dystopian future where an underclass just sullenly gets by as dependents of
the state. Plenty of scifi speculative descriptions of this future are a bit
scary, but are they just scare-mongering?

------
m0zg
An old and fitting Soviet joke about this:

An old man is relaxing on the couch in his apartment in 1917 Saint Petersburg.
His grandson runs excitedly into the room and proclaims: "Grandfather, the
revolution has begun, we're killing the rich, and nobody will be rich
anymore." To which the old man wearily replies: "My generation fought so that
nobody would be poor."

Simple arithmetic shows that if you were to completely strip the 0.01% of
their wealth (which just isn't going to happen, since they own the Congress)
and "give it all to the poor", the poor would still be pretty poor: 6T between
350M people is $17K per person, or about 3 years worth of Obamacare. And
that's pre-tax.

The way you prop up the poor is by creating opportunity and competition for
lower skilled labor and trades, by rejecting some parts of globalism, which
forces "the rich" to pay more for their labor supply. That propping up seems
to be happening as we speak: unemployment is at a 50 year low
([https://www.wsj.com/articles/u-s-september-nonfarm-
payrolls-...](https://www.wsj.com/articles/u-s-september-nonfarm-payrolls-
grew-steadily-11570192288))

Historical reference:
[https://en.wikipedia.org/wiki/Decembrist_revolt](https://en.wikipedia.org/wiki/Decembrist_revolt)

------
nine_zeros
I'm not sure wtf they were expecting when they did QE, and kept it running for
so long. It's literally cause and effect.

------
refurb
I’d love to see an analysis of who the top 0.01% are, in terms of income.

My guess is the people who make the list this year, drop off the next and
never end up on it again.

The top people (again income) are the folks that sell their company or equity
stake. It’s a huge windfall, but they never make that much again.

~~~
Ma8ee
My guess is the opposite. The top people are the owners of very large, very
often inherited, fortunes. Few people leave that group and few people enter
it.

~~~
wyldfire
> very large, very often inherited, fortunes

The article addresses inherited wealth:

> On the 2016 rich list, two-thirds were self-made and one-third had inherited
> at least part of their fortune. More than 10 percent were immigrants to the
> US.

~~~
cmdshiftf4
>More than 10 percent were immigrants to the US.

I wonder what portion of that 10% fits into the inherited wealth bracket also.
Anecdotally I've met a lot of rich Indian and Chinese immigrants in tech,
however they came over with family money, with strong family power networks,
attended top schools and then parlayed their wealth + connections into
something even greater.

It feels as though we throw "immigrants" out there to be synonymous with
"broke" and "powerless".

------
parrellel
And this is exactly why the 99% campaign was stupid and destructive. The world
isn't being screwed over by the professional class. It's being screwed over by
the population of a midsized town with more money then sense.

------
eevilspock
Never mind the 1 percent, let's talk about the 10 percent.

The richest 10% own 70-80% of the wealth in the U.S.

My point is that the entire wealth distribution curve should be looked at, and
any serious discussion needs to go back to first principles and determine what
the curve would look like in a fair society.

Of course there are wide philosophical-moral chasms between different notions
of fairness, with HN readers, by nature of the hand that feeds them, skewed
heavily toward the belief that market forces are the best arbiters of worth
and fairness.

------
fnord77
being ultra-wealthy gives a person tremendous amounts of political power.

the ultra-wealthy are literally an unelected shadow ruling class.

~~~
lucaspm98
There is definitely some truth in this. However, what would you proposed to
either prevent people from becoming ultra-wealthy or prevent them from having
political power?

------
jvanderbot
I'm getting mildly amused at the spate of articles that zoom in on
exponentially-distributed phenomena and find some kind of scale invariance.

------
xwdv
Every time you talk about the top 1% or even the top 0.01%, you eliminate an
opportunity to talk about how you can really help the bottom 50%.

By constantly painting things as hopeless and unfair, all you do is stimulate
rage.

~~~
hannasanarion
That rage needs to be there so that we can change the system that produces and
perpetuates the unfairness. Rage is a tool for electoral mobilization.

~~~
algaeontoast
No, it’s not. Rage removes the ability to discuss anything and fuels the “us
vs them” mentality which has been proven time and time again to be unhealthy
and NOT productive.

~~~
hannasanarion
Proven when? Proven how?

You think that the ultra-rich don't have an "us-vs-them" mentality? You think
that they aren't lobbying and fighting and advertising and campaigning to keep
their unearned wealth and power for themselves?

~~~
algaeontoast
I’m not super rich but I wouldn’t call their wealth “unearned”. Why are you
privy to their money?

The rich have an us vs them mentality because the media demonizes them for
working hard. I dislike rich people as much as anyone but the productive
response isn’t rage. Rage gives the rich even more power and reason to look
for more reasons to hide their wealth and exploit.

If you’re so convinced the rich have “harmed” you why not try to move
somewhere where you believe your ideals are more aligned?

~~~
hannasanarion
Bill Gates hasn't worked in 15 years, but his wealth has more than doubled.

He has literally sat around doing nothing, occasionally traveling to Africa to
boost his PR, and got more money than the median American could make in a
million years. How did he "earn" that?

~~~
lucaspm98
Well didn't he have his money invested in Microsoft, providing them the
capital to grow significantly in those 15 years? That's providing a lot of
value in my opinion.

~~~
hannasanarion
Please explain to me how having money means that you should be entitled to
other people's money.

~~~
xwdv
Right after you explain why it’s fair for an investor to take on all the risk
and get no reward.

~~~
hannasanarion
What "risk" did bill gates take when he retired with a 40 billion dollar
fortune?

------
known
Appropriate Inheritance tax can cure it;

~~~
Applejinx
Surprisingly tiny Wealth Tax is even more effective at curing it. The part
that's interesting is not where it's transferred from one entity to another,
it's the extremity of the phenomenon in the first place.

The distributions we currently see have no excuse or purpose. It's fine
talking about the value of exceptional individuals, but if a Jeff Bezos is
even ten thousand times better than your average schmoe, never mind 'millions
of times better', then he would be able to have his influence without the
aggregated power given him through accumulation of capital.

Never mind whether his dumb kid deserves to have the accumulated power of
entire countries abstracted into the form of capital: HE himself has no
business possessing that kind of power on top of his functional
exceptionalness. He can damned well fend for himself, and will likely still be
a big winner and have all he could wish. He has no right to the accumulated
power our system awards him, on top of what he can do with his own
intelligence and efforts. It's a magnifying effect, fully exploited by just
the sort of person Bezos is.

Concerns of inheritance only highlight the problem. The parent is not that
much superior to the dumb kid, and humans do not merit so much importance (as
'exceptional individuals') as our system claims they do. The BEST you can hope
for is a crazy person like Elon Musk, aiming for some quixotic goal while they
blunder around causing damage… and that's a best case scenario.

------
hacker_9
If you provide a service people want/need, you are going to end up with more
money.. It's not rocket science. This is how the capitalist cogs turn.

~~~
hannasanarion
What "Service" does Bill Gates provide? He hasn't worked in 15 years, but his
net worth has more than doubled.

~~~
lucaspm98
Is that a serious question? Bill Gates provided a very valuable service that
runs most personal computers to this day along with productivity tools that
have improved almost every business in the world. He also built one of the
largest companies in the world that now employs over 100 thousand people. If
there is anyone who should be disproportionately rewarded it would be Bill
Gates. He now has a large fortune, which after paying the highest tax rates
possible he can invest in other companies further adding to the economy or
give away to improve the world altruistically.

~~~
hannasanarion
Yeah, and he stopped doing all that in 2004. Why does he deserve the profits
from the hard work done by thousands of engineers to make Vista, 7, 8, and 10,
which he had absolutely nothing to do with?

~~~
AnimalMuppet
What is your alternative? That when a founder retires, should they be stripped
of all ownership of the company they founded, because they are no longer
working? Or should the owners of a company receive zero of the profits of the
company? Either of those will have rather large consequences, at least some of
them rather negative.

So... what's your plan?

~~~
hannasanarion
How about we start with: the people who actually work in the company get the
profits. Corporations are supposed to exist to fill a public need and employ
people, not to make their owners richer than kings.

~~~
AnimalMuppet
That has consequences, namely, that nobody invests in the company. Because why
would they, if they aren't going to make money by doing so? But that means
that the company can't get outside money to buy tools that will improve
productivity.

That is, your approach, writ large, harms the economy as a whole. Don't think
of that just as money. Think of it as stuff being produced. If there's less
stuff produced, that's not good for the workers either.

~~~
hannasanarion
It harms the individuals who currently control the economy. It does not harm
the economy as a whole. In fact, it greatly benefits most people, since, as
workers, they get a fairer share of their work product and control over their
own workplaces, and as consumers, the corporations that they rely on are no
longer incentivized to fuck them over to make a quick buck. I think that's
worth the cost to the bankers and barons.

~~~
AnimalMuppet
How does "produce less stuff" not harm the economy as a whole? What is the
economy as a whole, if not the sum of the stuff that's produced?

You seem to have completely ignored the point of the comment you replied to,
which is: If the investor doesn't get part of the profits of the company, then
nobody will invest in a company. Any company that needs outside investment to
buy tools to increase efficiency therefore will not be able to do so. That
loss of efficiency impacts the economy as a whole, not just the "bankers and
barons".

Is there any step of that logic which you can actually refute?

~~~
hannasanarion
Why do companies need outside investment? You present this as if it is self-
evident.

The reason companies need investors today is that all of the wealth is hoarded
by a select few that need to be entreated like feudal lords to get any land,
machinery, IP, tools, etc. If the wealth were fairly distributed, a group of
regular people would be enough to pool the necessary resources.

~~~
AnimalMuppet
> Why do companies need outside investment?

They don't always need it. Microsoft, for instance, didn't need much in the
way of investment to start and grow.

But some companies take more investment. Say it's the 1800s, and you want to
build a railroad. You have to acquire a bunch of land, buy and lay rails, and
buy engines and railroad cars - all before your first dollar of revenue. Where
are you going to get that kind of money? You sell stock, so that anybody who
has a few dollars can buy a small piece of the railroad. And why should they
do so? _Because they 're going to get paid back_, out of the profits the
railroad earns (if it actually makes money).

If those people don't have the chance of getting paid back from the profits,
most of them won't buy stock. If they don't buy stock, then we wind up not
having any railroads. That wouldn't have been good for the economy in the
1800s.

Now, you could argue that investors could get paid back some of the profits
for a limited amount, and then no further, and they would still invest. That's
true, and it's the bond market rather than the stock market. But big new
capital-intensive businesses typically financed themselves by stocks rather
than bonds. There may be cultural reasons for that, but I think there are also
solid financial reasons. Many new businesses fail. If I'm going to invest
money, and there's a realistic chance that I'm going to lose all of my
investment, then I need a reward that's enough to motivate me to take the
risk. Bonds typically don't yield enough to compensate for that kind of risk -
not even junk bonds.

------
blunte
This essay presents interesting comparisons and data, but then it goes on to
try to explain that the top 0.01% are getting richer faster because they have
special skills and technologies (such as being able to scale a business up
using foreign workers, or manage 20bn assets because of computers).

What is not mentioned but certainly plays a key role in one's ability to
perform so well financially is the special opportunities the top 0.01% have
and circumstances they operate within compared to the lessers. If we were to
review each person in the top 0.01%, I expect most of them would be making
their huge gains not by exercise of special skills but rather by exercise of
special circumstances.

RISK - As we have seen with the 2007/8 financial crisis, there is a small
group of very wealthy, very powerful finance people who can take enormous
risks with other people's money, profiting whether they win or lose. The 07/08
crisis cost the general public (in bailout using public funds (debt)) hundreds
of billions of dollars. But the stratospheric executive bonuses paid to fund
managers and bank executives during the lead up years was not retracted. So
the people that took unreasonable risks profited greatly, and the public paid
for their profit and then some. Even during the following years, the
executives and fund managers received significant bonuses. And thanks to
golden parachutes, the exit/firing of some of them resulted in even bigger
profits for that group.

OPPORTUNITY - The wealthier one is, the easier it is for them to get credit.
Even in cases such as Trump where he has a long history of running businesses
into the ground and leaving debtors unpaid, he was famously able to secure
very large loans to take even bigger actions (which similarly often resulted
in underperforming businesses which would later seek forgiveness or reductions
of debts). The point is, once you're rich enough, you need never risk your own
money. You can borrow huge sums to seize opportunities. When you win, you win
big. When you lose, you can probably get away with no personal loss.

LAWS - With wealth and power comes influence. You can afford to lobby
(sometimes a polite term for bribe) to get special laws or loopholes that have
direct financial benefits for you. Perhaps it relates to a defense contract,
and you hold a lot of Boeing stock. Or perhaps it relates to an FAA regulation
and you hold a lot of Boeing stock. Or it's a special rule that lets you write
off the purchase of a piece of luxury property as a business expense.

TAXES - This is a huge space for gaining an advantage over the normal people.
Not only do you have the means to play the offshore/shell-company game
(reducing your tax burden, perhaps to zero), but you also can do strange
things like deferring your taxes indefinitely if you're a hedge manager.

I could go on with plenty more examples of special advantages that the top
0.01% have compared to everyone else. These advantages, even if modest,
represent an exponential benefit in terms of financial growth over time.

------
nnnmnten
Here in Denmark the highest tax bracket applies to almost 10% of the Danish
population. The Top 1%, Top 0.01% and billionaires are not taxed more than the
Top 10%.

I belong to the Top 10% and I'm fine with that.

Why do Americans focus so much on the "ultra-rich" and the billionaires when
you can build a successful welfare state by just taxing the Top 10% a little
more?

~~~
ghouse
> Here in Denmark the highest tax bracket applies to almost 10% of the Danish
> population. The Top 1%, Top 0.01% and billionaires are not taxed more than
> the Top 10%.

Because in America, the top 0.01% makes their wealth through investment
income, which is taxed at a lower rate. So, the top 0.1% pay a considerably
lower rate than the balance of the top 1%.

