1. 20% of 1200 is more than 20% of 800. Duh! But the practical insight is simply that people with more wealth can afford bigger bets and expect bigger payouts.
2. Many systems are sensitive to initial conditions. In this model, the first coin flip matter vastly more than all others and determines almost the entire outcome.
As others have pointed out this is really not a good description of the economy as a whole due to its zero-sum assumption.
However I think it’s a relatively useful analogy for the stock market and how other passive investment markets work.
Passive investment is a larger percentage of the economy than ever before and is increasingly how the “rich get richer.”
A very simple distribution solution therefore is to stop privileging capital gains and tax all income equally. But of course this has been considered and hasn’t gained traction.
Another solution is to disrupt passive investment markets. The one that comes to mind is rental housing. If we made it much much easier to build housing then then rental housing market would be like the used car market: viable but not an easy place to sit back and make passive income.
A reason why it hasn't gained traction though is that wealth doesn't just give you buying power but also political influence. So especially those who already have excessive wealth would be in a position to block such a measure.
You're overthinking it. Sweden made renting out apartments unattractive without all this sophistication, they just regulate the prices and keep them low.
Price controls leading to shortages and rationing is basically the microeconomics version of the First Law of Thermodynamics. It has had the same result literally everywhere it has been tried.
The solution lies in the supply. Always. If you want more people to have more of something at an affordable price, you have to make more of that thing.
[0]: https://www.bbc.com/worklife/article/20160517-this-is-one-ci...
They also can’t seem to get a sufficient supply of washing machines and instead have a laundry bureaucracy.
Frankly blaming actual entrepreneurs and business owners for the gains in the stock market is such a misguided target it’s insane. The only reason Musk, bezos and others have gotten so insanely rich recently is because the fed had increased its balance sheet by about $8trn. That money went somewhere.
But it’s not because of “rich people”.
It’s because a bunch of bankers destroyed the financial system in 2008, got bailed out, and never got criminally charged. It’s absolutely insane and it’s fuelling this completely misplaced neo Marxism.
An even more simpler solution would be to take away the all wealth of rich people and divide it among all people. The calculations would be a lot easier. Taxes are complicated.
Look it up, pretty interesting story. They did have to build a strong border protection force to prevent people from trying to escape the country, but the country still lasted 69 years.
Bezos is wealthy because Amazon investors want to give him money; they don’t want to give you money, so if you had the Amazon shares they simply wouldn’t be worth anything.
Indeed. It's also quite nonlinear. Being able to afford those gambles whole also reserving a cushion that protects your house and apply to eat is very expensive. Not many people can make signify passive income without leveraging anything. But once you can, it becomes a compounding upward curve. Most people die before they get to the second half of the chess board.
There's one substantive and one political issue that are important; the substantive issues is that in an annual progressive income tax system, there are real fairness issues with taxing the outcome of multiyear processes as current-year income at full (whether nominal or, using inflation indexed basis value, real gains). [0]
The political one is that the vrry rich havr predominantly capital gains, and progressive tax with reduced capital gains tax rates is how the capitalist class maintains “the rich pay higher income taxes” as a propaganda point while actually paying lower taxes.
[0] there are fairly straightforward solutions for this, which make irregular income from sources already subject to normal income tax more fair, but they add a little more complication to the overall solution.
In a normal distribution, the shape of the distribution comes from a "random walk" left and right from a large number of steps of varying size.
In a lognormal distribution, on the other hand, the random steps are not additive but multiplicative: e.g you multiply the previous figure by a (Gaussian) random variable many times.
This seems to reflect economic reality that people make decisions proportional to the scale of their current wealth. If I make 10k, it would take 2k extra to entice me to a different job. If I make (or lose) 10% on an investment, etc. It's all multiplicative.
The lognormal distribution also has a fatter "right tail" than a Gaussian, which is what we see IRL.
> What can the yard sale model tell us?
Literally nothing. It fails to model any part of the actual system. It’s not just lacking complexity, it’s a facetious model lacking in any real aspects of anything involved. There is no choice, no intelligence, no reason. Just random chance.
92% of the US including 86% of people without homes in this country have Internet access. We can all make incredibly informed decisions these days. Better informed decisions than ever possible by all the wealthiest royalty in human history, in literally seconds.
The author could have easily Googled the price for the exorbitant watch before they bought it. That’s entirely on them.
But hey, internet for you lazy proles, pull yourselves up by your shoelaces etc.
[0] - https://wir2022.wid.world -- The richest 1% captured 38% of all new wealth since '95, the bottom 50% captured 2%.
value is generated using both capital from the already rich, and labour from the poor.
Over time, labour isn't increasing in productivity. It's capital that's increasing productivity, such as by improving labour's efficiency.
With this in mind, why is it that the rich shouldnt be the ones to capture the new/increased productivity? After all, it is their investment that would make such productivity possible. If you had told the rich that their investments would not actually gain them profit (because labour captured the increases that produces the profit), they would not have invested in the first place.
One way to break out of this cycle is for labour to provide something more than unskilled labour and merely using capital to produce goods/services. For example, research and development, knowledge/skill from education, etc.
Good point, but...
> We can all make incredibly informed decisions these days.
You need more than internet access to make good decisions. I cannot imagine living without a house or healthcare, eating food picked out of a dumpster behind a supermarket, and then being criticized because I made "less-informed" decisions even though I nominally have internet access at a library where the patrons scowl every time they see me in their peripheral vision.
People won't be able to magically make better informed decisions even with access to the information if they are too busy working three jobs to afford food, rent, or healthcare.
And yet there were numerous stock investing experiments in which random choice delivered similar or better results than respected investment specialists.
It's almost as if, at the end of the day, we don't actually make "incredibly informed decisions".
the original argument differentiates between "can" and "do".
It is a form of "victim blaming" - they could've made good decisions, but because they didnt, the outcomes they had were "self-inflicted".
So you could extend the yard-sale model and include a rule that after each round, each $ will turn into $1.5 with some probability.
Guess what? Now the rich players can't just risk higher stakes in the coinflip games, they will also have more opportunity to introduce more money into the game through value creation.
So that would make the outcome even more extreme than the standard yard-sale model, not less.
Therefore, the fact that new options exist at the yard sale is itself a form of wealth.
I really like this angle, although the value of 'something' can vary for different people.
Right now, the middle class is getting slammed with taxes. They make almost all their money through salary and get taxed heavily, while the super rich pay either no tax or a maximum of capital gains, so almost 40% or less than upper middle class in terms of percentage.
Corporations and the super rich have bought out democracy, and what is crazy is that they are supported by the very groups they intrinsically hate and hurt through their policies.
Being within this tax bracket myself, I do not deny that I am biased, but I do hope this bullshit gets called out hard whenever someone brings up yet another underhanded measure to milk us (typical SFBay SWE) above and beyond the ~40% levels we're already facing...
And this doesn't just affect the ultra rich but people like SWE too. How much is the stock you have in the non-public company you work at really worth? SWE are probably one of the groups most likely to be "paper millionaires" and hence screwed by such a system.
Is it worth it, just to live in a shockingly civilized society under a highly functional government?
Don't get mad at average americans trying to make the world a better and more fair place, get mad at google and facebook that make several million dollars off the code that you write and kick back a pittance of a salary, and coordinate with each other to keep your compensation low. Even at $400k a year, you are literally being underpaid.
Did a 70% top-tax bracket force any of the uber-high earners to stop earning money because they didn't want to give 70% to Uncle Sam? No, the super rich will always want more money/property/dividends/etc no matter how burdensome the tax bracket they fall in might be.
"If your income is 30% above the average income for this area or the national average (whichever is lower), that >30% is taxed at this rate..."
So then you can't have rich folks disappearing to less-taxed areas. It could make rich people communities where they all stick together.
looking forward to the future where currency is time (the movie In Time), and we can tax rich people to death.
Additionally they wealth already taxed in a previous era, and is currently taxed in this era any time they spend it via sales tax.
If of course you are spending all your money on personal groceries as a billionaire, then I’m 100% fine with not taxing you.
It has also been spending much more on education over the past decades[1]. With very little to show for it.
[1] https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.a...
Teacher pay is still abysmal, especially considering the fact they are expected to act as guardians and even security these days. And you'll never get better outcomes if you can't attract smart people to actually teach, no matter how much you pay the superintendent.
US public education should be called what it is, a government sponsored day care.
Looking at historical and present data, I can be absolutely sure that the state will mismanage that money in almost every country.
I’m Portuguese, my government is collecting more ~ 25% taxes than it collected 6 years ago when the current ruling party got into power. Almost everyone (left and right) agrees that public services and administration are much worst. So, it begs the question: why giving the government even more money, will solve anything?
There are only two groups when it comes to economic status: labor and the capital-owning class. Labor is anyone who derives their income from their labor and goes all the way from the janitor to doctors and professional athletes.
Th idea of the middle class was invented to sow division with the “lower classes”. I mean look at your comment. You assert the “middle class” is getting slammed with taxes. Some (not necessarily you) imply the lower classes are somehow getting a free ride or are lazy. This is the propaganda.
We live in the wealthiest nation on earth. People without housing or food security is completely unnecessary. Charging people $1000/month for insulin, without which they would die, is only that way for corporate profits. Think about that.
There's different ways to categorize things - lower-class, middle-class and upper-class is a sort of intuitive way which throughout history has made some sense, somewhat, with different names. However, I get that maybe it's not the most useful currently, because there's such a ridiculous divide between upper-class (rich) and the other two, that we, belonging to the bottom 2, should band together to bring change favorable to us.
Like the phrase "tax the rich" makes people think of their neighbor George who as a nice house or even themselves if they make six figures. Nah man, tax the person who can literally buy the NBA and still be a billionaire.
California has the highest income tax at 13.3%, the highest federal tax rate is 37%.
That makes the top income tax rate 50%.
While interesting data points, I'm not seeing an argument that they are paying enough, which seems to be your implication. Maybe it should be 90%. Maybe it should be even more.
It's funny how they always exist, even in countries like the UK and France which in reality have taxed them out of existence, and payscales are absurdly compressed compared to the US.
Careful what you wish for, you are someone else's "super rich".
You're making it sound like billionaires are an endangered species there. :) Last time I checked there's more than enough billionaires living in the UK and France[1].
FWIW, I think multinational corporations that engage in all manner of legal tax avoidance are probably more of a problem than individual billionaires.
The “tax the rich more” line is a little naive. The world is a different place after the Rothschilds figured out how to shield their wealth from monarchies. It’s easier than ever to offshore wealth, remember the Panama papers that promptly disappeared from the news?
The “solution” of global governments is a cure that’s likely far worse than the disease.
It’s a complicated situation. A progressive VAT tax that is consistent across jurisdictions would be a good start. The tax code (at least in the US) needs to be thrown out and replaced. Monetary policy and taxation via inflation is also primitive and in dire need of reform.
Whine there’s certainly room to address fair taxation rates we should seriously consider how we spend tax revenues today. A 1.5 trillion omnibus is being rushed through Congress that’s full of pork and special interests. We just sent however many billions to a country to fight a war that has nothing to do with us.
So we spend all this money and of course it’s not enough. People say “more! Tax the rich!” Without considering the reality.
The "rich pay the majority of taxes" is an excuse.
Now in the US I probably don’t have to tell you where most of the money goes - hint military - so more rich folks money into the governments coffers - what industry do you think benefits the most from a policy like this?
There is more than a little nuance here:
- governments are notorious for being called out on supposed inefficiencies.
Too often, it turns out that there were very good reasons for those inefficiencies, but the criticasters forgot the lesson.
- "rich folks are good..."
I wouldn't know. Superrich folks are good at manipulating the system and extracting wealth from others, that I can believe. We see that happen often enough - the superrich lose money if they were to pick up a 100 dollar bill (they make more money in that time if they work), while their employees have to pee in water bottles or are exploited in other ways.
I strongly doubt that the superrich are better than governments at creating capital for anyone else but themselves in an ethical, human-respecting manner.
The government doesn't need to handle capitol allocation. We can simply shift the tax burden upwards. Poorer people get reduced tax, rich people get more.
It's not a presupposition. That's a separate discussion and should also be improved. We shouldn't say, "oh, we're bad at redistribution, so let's not".
The military is NOT where most spending goes - most spending goes to the entitlement programs: social security and Medicare.
The ultra wealthy property developer only builds what is profitable, and so slices off to serve only the most profitable part of the market to serve, and accordingly only builds luxury condos.
Meanwhile the government is obliged to serve everyone, the disabled, the poor, etc, and so with its housing whatever profits are gained by its market priced rents to the middle class are leveraged toward sustaining the unprofitable housing it is obliged to create, and the whole enterprise isn't profitable and needs outside subsidy to continue. We disparage this as "inefficient" government yada yada.
These two different groups aren't working on the same problems.
If you ask me, and you accept overt governmental control of everything, the best thing to do would be a system of openess about ownership, so that ownership of everything can be seen by everyone - with no murky legal instruments.
If you have the information about who owns what - and everything is owned by people, individuals, even if they hide behind legal and corporate instruments - you can then consider addressing what would be an equitable may to proceed.
My guess would be that something ludicrously minor like a 10% wealth tax on the top 0.01% of wealth owners, would cover us indefinitely.
I feel if it was simple it would be fixed?
It might be helpful if we could construct metrics for social function that more clearly showed when we approach extremes that interfere with business or social functions.
They are two different problems.
Y'all worry about these millionaires and their money, yet here you are, hoping to learn the secrets of success from Y-Combi companies... and become wealthy yourselves.
There are three places that capital can come from:
* the state, but we have voted year in and year out for tax cuts and spending rises, so the state is bankrupt. Not only is it not a source of capital, it is a major customer for it
* normal individuals saving and those small amounts being aggregated by banks etc. But rampant (and government supported) consumerism means most people are also consumers of capital not sources of it. Incidentally an example of the opposite of this is Germany where ordinary people save a lot more and don't have OTT mortgages and credit card debt. Mysteriously they have very few billionares...
* Billionaires. Which given the US (and UK where I live need their capital AND cannot get it elsewhere are able to charge a premium for it and cannot really be taxed etc without pain spreading all over the rest of the economy.
But if you try and tell people to spend less, save more, pay their taxes and accept less services in order to have a better, fairer, more equal, ultimately richer life they bulk...
>Look, I think it would be better if you had an economic system in which we didn’t have billionaires—but the productivity that billionaires have generated was still there, and that money was more equitably distributed. But, really, there hasn’t been a system that has had equity in its distribution and the productivity that capitalism has had. I don’t see that happening anytime soon.
http://archive.today/2021.04.25-160837/https://www.newyorker...
Serious critics aren't suggesting we do away with capitalism, they're suggesting that it has negative externalities that can be corrected by better taxation. The focus on billionaires is exactly right, because as the model in the article shows, taxation can suppress the extreme inequality that results.
(i) it solves the capital accumulation problem (ii) you can accommodate the hoarding by guaranteeing people a job at the living wage, which then injects the right amount of new money, both temporally and spatially, to offset the hoarding.
Tax has nothing to do with raising money. Tax is about reducing the capacity of the private sector to hire people so the public sector can hire them instead. If there is unemployment then the public sector hasn't hired enough people or taxes are too high/ineffective.
It's never about money. It's always about stuff.
Here's how it works[1]
[1]: https://new-wayland.com/blog/how-the-job-guarantee-fixes-mai...
There is (more or less) a fixed amount of power.
Taxes doesn't raise money, but they do redistribute and decentralise power, making it harder for the very rich to dominate economic and social strategy for their own ends.
Jumping to the conclusion that "taxing the rich" could solve anything is completely wrong. You would just make things more expensive and add extra incentives to take jobs abroad. It doesn't matter that the model is too simplistic, the problem is that this model is too far from reality.
A country whose inhabitants have no say in its internal politics is called a tyranny. It's more than time to see the current workplace the same way.
Oh yes, the "they don't know what's good for them" argument.
You are treating the government as if it had even the tiniest bit of fiscal discipline, as if it says, ok, we only have $x coming in, therefore we can only spend $x this year (or alternatively, we plan to spend x, therefore we're obliged to collect x in revenue, but no more than that.)
US government hasn't worked like this in decades. Our debt is out of control and growing exponentially. The government has the green light to spend spend spend without any caution whatsoever. Joe Biden has a 4000-page, $1.7 trillion spending bill working it's way through Congress right now that nobody has read. Do you think any politician actually cares how it's going to be paid for? Do you think there are enough ultra rich people in this country, that even if taxed at 99.9%, will dig us out from a 30+ trillion hole?
That never happened. https://mises.org/library/good-ol-days-when-tax-rates-were-9...
For example:
> According to investment bank Credit Suisse, the fraction of global household wealth held by the richest 1 percent of the world's population increased from 42.5 to 47.2 percent between the financial crisis of 2008 and 2018. To put it another way, as of 2010, 388 individuals possessed as much household wealth as the lower half of the world's population combined—about 3.5 billion people; today Oxfam estimates that number as 26.
https://www.scientificamerican.com/article/is-inequality-ine...
If the entire monetary system is fake, why do they need 40+% of my paycheck?
Funnily enough Britain just demoed that for everyone. the prior pm tried to reduce taxes a ton and everything nearly went to hell in a hand basket.
So at least we can be confident the taxes are actually doing things.
This is known since at least Marx, and still it doesn't change. This makes me very sad.
OP has made a fundamental mistake in their logic. Poverty and earnings aren't based on "coin flips".
A common claim but never accompanied by actual evidence.
You think this because the super rich want you to think this. Actually, it's not hard and there are some good ideas floating around (e.g. more inheritance tax, don't let them get loans without taxes againt their illiquid wealth). Does it require a change of laws? Yes, but that's the whole point of democracy.
Right now, the rich are extremely incentivized to remain "poor on paper", so we should remove those incentives.
Some rich person says “teehee, I actually have no money! It’s all in (some country)!” and the US gov says “oops! Guess you really are poor!”
They take a letter of the law instead of a spirit of the law approach with taxes. If they start seizing mansions because clearly they have no money and the only way they could afford it is through ill-gotten means, people will start paying. Police already take cash from the wallets of random people because they assume it’s illegal—meanwhile the IRS knows full well where your money comes from but they pretend to believe the tricks of the mega rich.
Plus the IRS literally have access to banks around the world. You’re required to give them proof of foreign bank accounts or face imprisonment and other countries comply with IRS requests. They can literally seize wealth and know it’s yours. They choose not to.
Whenever you try making rich people responsible, they move abroad. In Norway, the super rich are becoming Swiss citizens after a recent change in taxation. Unless Switzerland takes social responsibility, they're getting away with it. But if Switzerland does the right thing, the rich will find another safe haven.
However, this is a short term issue. The long term changes require a historical change in culture and policy. Otherwise we're still very much catering to the will of old money and power structures that resembles autocracy.
(I'm just an armchair socialist and no expert by any measure, ymmv.)
And even more importantly, they all live on low interest ELOCs.
There's also no reasonable way of fixing this.
Some thoughts
- consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
- something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
> - consensual trades are win win (you want a sandwich, I want $5 let’s trade! And we both win)
Not all trades are exactly "consensual". The sandwich seller can probably live without selling a sandwich, I can't live without food, so the seller has far more power to set the price. Existing power imbalances make trades less fair, specially with essential goods (and that includes jobs, which is why a lot of poor people end up massively underpaid).
> - something about the model is overly simplistic, like it produces a statistical distribution that looks like extreme inequality from randomness, but lots of different sorts of distributions can emerge from aggregating random (for eg a normal distribution several dice and looking at their totals).
HPSquared said this in another comment [1] and I agree: what matters on this model is that every step is not additive but multiplicative, which is what leads to the inequality.
- people enthusiastically lining up to get the latest sneaker / iPhone.
- mildly enthusiastic grocery shopping.
- overpriced medical drugs due to a monopoly.
- taxation.
- outright theft at gunpoint
2. Insightful, thanks. I think one variable the model doesn’t account for is time (which is not multiplicative and scarce).
Money and power can be multiplicative so maybe most of us are playing the non-multiplicative game of spending our time to make money, while the rich are leveraged time to play multiplicative games where they spend money to make more money and happened to win a bunch of times.
Even homeless people on the street will sometimes refuse free food, so the idea that sandwich-sellers can set any arbitrary price they want or people will starve is just not something that happens in practice.
Indeed, sandwiches are abundant and affordable.
It's the classic case of using statistics as a method to divert blame onto something else. You learn nothing but a sense of despair from these kinds of analysis.
Betting is a bad deal for everyone in this model (even the rich person) since each coin flip is variance for no expected gain. Kelly betting implies you should bet nothing in this game.
Human minds tend to be biased towards causal explanations. So if we see huge wealth disparities, we're biased towards thinking that these disparities must exist for some deeper reason (often argued to be meritocracy). The model counters that thinking, by showing that, even in a very simple model with rules that seem fair to everyone, huge disparities can appear entirely at random.
It doesn't prove that the disparities we see in the real world are fully random. It invites us to question the assumption that they aren't.
If economic activity is valuable, but leads to inequality, then you need some framework to trade off the value created vs. the social benefits of greater equality.
If you make a model like this, for different parameters of speculation vs. value creation you can then test what the most socially beneficial rates of tax are.
More tax will lead to smaller but more equal economies and laissez-faire shouldn’t be optimal.
I would just want the model to acknowledge the non-speculation part, because many of the things I buy are from spectacularly rich companies, but that are genuinely useful to me.
Luck is part of it, but there are so many other factors here. When they converge, we often end up with people extremely good at making money. Under capitalism and in principle, this isn't a bad thing. It means they're generating outsized benefit for society. However problems quickly emerge: with economic power comes market inefficiencies. The wealthy can use their power to buy out competition, under-price them (below profit), out-market them, and leverage their efficiencies of scale and bargaining power to maintain a permanent moat. We are seeing all of this occur to an extreme degree in the modern software space. Frustratingly, anti-competitive laws have been on the books for a century, and are sufficiently broad to use. It's just that U.S. politicians lack the will.
Existentially, I believe that power corrupts. Billionaires are billionaires because they created a lot of value for society. Great. But once they're billionaires, they can control the destiny of countries, and this undermines democracy and greater social outcomes. I believe therefore that a balance must exist between deterrent effect which occurs with aggressive redistribution (and the effect is undeniable), and preventing the emergence of ultra powerful individuals.
Are you forgetting the thousands of employees that are enabling them to become obscenely wealthy?
And I don’t buy the “deterrent effect” argument. IMO discouraging billionaires from acquiring more is a good thing and opens the door for other people to step up.
yes, as long as they did not undertake an illegal action to obtain that wealth.
The employees that enabled the wealth creation is surely paid, and not coerced into the deal.
One could argue that most (if not all) of these factors still come down to being lucky
It really reminds me of Eve Online. It's been a many years, but once upon a time when I did play it, we were looking at different sensor jammers. And the ones that looked like the worst were actually the best, because they couldn't be countered. Most worked like a +1/-1, but one applied as a fraction. So if the jammer cut a value by 50%, the counter to it added 50%. But adding 50% doesn't get you back to where you started, the opposite increase is 100%. 20 - 50% = 10. 10 + 50% = 15, not 20.
Another one is for the property I live in, we're pushing back on the government about losing a subsidy of ~33%. The property management company, managers, accountants kept sending letters saying this will cause prices to go up 33%. And I keep having to explain that the notices are wrong, removal of a 33% subsidy increases prices by 50%, not 33%.
Of course "real world" games, which don't nerf winner-takes-all, wouldn't be much fun to play for the non-winners.
You can become rich by following the rules of expected value and compound interest.
Backtest this against the population and tell me that people today wouldn't be richer if they made sound financial decisions based on the information at the time. I know I would be richer. The kicker is, wealth inequality would rise along with median wealth, because compound interest. This is so unpalatable for some people that they argue against sound decision making and reduce wealth creation to coin flips.
Hard work is worthless, just ask people in the third-world work 18 hours for a pittance to survive.
Of course luck may require certain knowledge, wherewithal and timing. You don't win a lotto without waking up at the right time, driving to the right shop and buying the right ticket.
I'm laying in my sofa all day waiting to get lucky. Still, after all this time, still no luck. Maybe next year.
Without super hard work, you won't get rich.
> However, talent was definitely not sufficient because the most talented individuals were rarely the most successful. In general, mediocre-but-lucky people were much more successful than more-talented-but-unlucky individuals. The most successful agents tended to be those who were only slightly above average in talent but with a lot of luck in their lives.
https://blogs.scientificamerican.com/beautiful-minds/the-rol...
The latter is the elephant in the room, IMO: once you hit 1 million dollars net worth, even a very conservative investment aka government bonds at 1% yields 10.000$ a year, at 5 million dollars it's 50.000$ a year, and at 10 million dollars, it's 100.000$ a year. Basically, once you have reached ~5 million dollars of wealth, you can afford to do whatever the fuck you want (and a bit earlier, if you are willing to risk a bit more and go for stocks). You can choose to not work a day in your life any more and chill out in Costa Rica sipping pina coladas every day, you can go and work for some charity without payment, or you can start up a company and not care how much money you make - as long as you're not actually losing money or spending over the yield of your investments, you literally cannot fail any more. You and your children won't ever experience being poor or homeless.
Super-rich people have it even easier. When you have 100 million dollars or manage to reach billionaire status - why not throw a million or two into some startups each year? Best case, you end up striking a goldmine and making ten times that, worst case you're out of a million dollars but your other conservative investments will make that back in a year.
Returning to the simulation, the coin experiment can be explained using different model: Imagine position X on a line: |A A A A X B B B B B B B B B B B|, X can move either left or right by the amount specified by the rules of the game. But since one person is poorer the boundary | is closer to X. X is doing a random walk, so it will move with exactly the same probability e.g. 5 positions left or 5 positions right. But for the poor player 5 positions to the left means he is left with no money to play again, and for the rich player it means he lost some of his advantage. If the difference is huge like x100 the poor player has basically no change at winning at all. So this game is only fair if A and B have similar amount of money.
I do appreciate an interactive example that doesn't have a canned result :-)
I am not sure I believe the reasoning in the title but the effect they show is interesting. Money is power, even in a heads or tails game
If I have 10€ and I make 1% profit, I've made a whopping 1€. Now I can buy a few potatoes.
Someone with 1M€ makes the same amount of profit, now they have 10 000€. That's a good few months of living expenses for the regular person.
And this is not even taking into account the access to different people and resources you get just with having enough money to get into the right circles.
At low monetary amounts (like 10 euros), it's easy to make 1% profit. At high monetary amounts like 1 million, it's quite hard to get 1% profit - much harder than at 10 euros.
Therefore, to quantify the risks, the absolute amount invested must be compared, not just the return %. At $1 million, they took 100,000 times more risk than the $10 investment.
Who would make better allocation decisions than some arbitrary elite that happens to be rich? Without those riches, where is the surplus money that can be invested into innovations? Right now, the masses could pool some small amounts of money like $10 and have millions and billions to start new companies.
There was 'Ask HN: How might HN build a social network together?'[1]. I am not aware that something has been started, despite all the skills most likely being available. Without somebody fronting the money to make even more money, how can people be motivated to create progress?
Law enforcement in the US is insanely well funded. The NYPD, for example, has 5 billion dollars of budget for 50k employees and serves about 8.8 million citizens. In contrast, in the German state of Bavaria, a budget of 3.8 billion euros [1] supports 45.000 employees and 13 million people.
And yet, Bavaria has extremely low crime rates (the lowest in Germany with ~3700/100k people [2]), and the police stats could be even better if cops weren't forced to waste time on marijuana bullshit... while in New York, headlines referring to a lack of safety are more or less the norm [3].
The most interesting thing to me is: in absolute numbers, Bavaria had 508.000 crime reports filed in 2021 (cleaned up for cases of being in Germany unlawfully). New York reports 95.000 crimes in 2021... a sixth of the Bavarian absolute case count. What is the cause of this difference, and why is public perception of safety so immensely different?
[1] https://www.stmfh.bayern.de/haushalt/staatshaushalt_2019/hau... (page 5, table E, line "Polizei")
[2] https://www.tvmainfranken.de/auch-dank-wuerzburg-und-aschaff...
[3] https://www.bloomberg.com/graphics/2022-is-nyc-safe-crime-st...
[4] https://www.newsweek.com/new-york-city-most-dangerous-year-c...
True, there may be technological innovations in factories, farms, and labs that grow the size of the pie as a whole. But probably those with most market power will have most of the access to those innovations.
And even if the value of technology would be fairly distributed, it does feel to me that the underlying game of coin flips rigs the whole system in favor of the eventual oligarch.
If you invest in some stock, and if that stock is moving in your favor, you should increase your bet or leverage more. If your bet is moving against you, cut down your bet size. That's what experienced traders do--just reduce your position by 50 percent; inexperienced/retail traders tend to increase their position, when things go against them.
But the poor vs rich game ended up with the poor person going up to $1000 and the rich person going down below $100.
I recognize it's just chance... but it's funny that the results directly conflicted the author's point.
>Look, I think it would be better if you had an economic system in which we didn’t have billionaires—but the productivity that billionaires have generated was still there, and that money was more equitably distributed. But, really, there hasn’t been a system that has had equity in its distribution and the productivity that capitalism has had. I don’t see that happening anytime soon.
http://archive.today/2021.04.25-160837/https://www.newyorker...
Basically create a society with some high income spread, say 100x. So a low salary would be like 40k as a floor, and 4milliom as a ceiling. Wealth can be capped via a similar scheme.
That way, people are highly incentived via capitolism just as they are now, but wealth is constrained.
Imo it's not that the mechanics are wrong, it's that the parameters are ill-tuned
The issue with applying the yard sale model is when testing against real world markets, almost no market follows the predicted distribution curve, which imo implies that something about the model is incorrect, ergo cant possibly be the reason for continually losing deal on vinyage watches.
Many markets follow pro basketball player distribution, and unless you believe that steph curry is getting lucky on every shot, implies different model.
Coin flip is pure luck, so there’s no accountability in losing the game. Hence, redistributing the wealth sounds like a fair idea.
The catch is that some people actually believe in luck, so they believe accountability doesn’t count.
Plus, taxing the rich will (and rightfully so) make them leave. And then, who will pay the taxes? Who will create jobs? How many people will lose their jobs?
There is hazard game dice where you have 50% chance to win
But people who run those "casinos" figured many years ago that they will use e.g 90 95% payouts
So this way the longer you plsy, the more you lose cuz even if you bet the same amount twice and win once and losr once then youre behind
Money is better at making money. The system is designed to do this.
If you're making money with your labor, you are at a gigantic disadvantage compared to those who are making their money by investing capital.
There are also a lot of bad actors at the upper end that are facilitating a global ponzi scheme at our expense, and they will be bailed out over and over again because they've made it impossible for competing banks to enter the market through lobbied regulation that came as a response to their bad behavior.
Read up about the creation of the fed, what they've done, how many bailouts they've done, how many people were held accountable, you'll find it always ends in their favor. Behaviors that would send individuals to jail for decades are avoided by paying a small piece of the proceeds they get from those frauds disguised as penalties. Its been baked into the system.
Worse, many people immediately jump to something along the lines of "well that's people being greedy and its a downside of capitalism and we have to do something about that".
The problem with those people is, they don't know what they are talking about because its not capitalism, you often get monopolies in socialism, and while capitalistic societies are driven by a division of labor, socialistic economic systems are driven by corruption, and what are our the major issues right now? Corruption.
I used to kinda think along the lines of this post. However, when examining the performance of top investors for example (eg Buffet, Templeton, Marks etc) it is clear it isn’t mainly luck.
That's really all there is to it.
I like that the coin flip game illustrates the concept of compounding interest, but it doesn't model wealth creation at all.
Most new ventures aren't I-win-you-lose, they're we-win-or-I-lose. Wealthy people really can take bigger bets more frequently like the article suggests, but it's not necessarily at the expense of everyone else.
A more accurate illustration would be a game where each round you have a choice: bet 25% of your money or recieve $0.30. After each round, you must pay $0.25 to play again. Some people start the game with no money, some people start with $1.00.
If you think this game through, you'll still end up with super wealthy outliers and bankruptcies, but the players in the game actually have some agency.
This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html.
Besides the economy can very well have zero sum game elements to it
You basically admitted that the zero sum property has little bearing on the outcomes we're scrutinizing here, and so the argument is ultimately the same. I'm not sure how the piece is dishonest simply because it dispenses with an apparently irrelevant premise.
When you have concentration of power due to concentration of wealth, the society will become unstable and undemocratic.
So even though wealth isn’t zero sum, wealth inequality is a problem that needs to be addressed for long term stability.
So even in this stupid simulation, it just doesn’t work, as people get wealthier they actually risk less.
This whole article is Marxist academic bullshit, eaten up by Marxist upper class tech 20 year olds in this thread.
Intuitively, it seems like everyone is making a fair bet because you're equally likely to win or lose. If you have an initial net worth of $1000 and flip a coin you're equally like to gain or lose $200 and your expected net worth after the flip is still $1000 (50% chance of $1200 or $800) so it's a wash, right? However their simulation kept having me end up poor which confused me, so I ran the same simulation in a Python script. What I found was as the number of flips increases your net worth approaches zero! I found this surprising because if the expected net worth after a single flip is unchanged, I would expect this to stay true for multiple flips. But based on simulations, against my intuition, it seems like this is actually a bad bet in the long term and you'll always lose money. This is still true even if you start to skew the odds and give them a 51% chance to win the coin flip.
So after some googling I found something called the Kelly Criterion which calculates whether a bet is good or bad based on the gains and losses and chance of each and decided to plug in these numbers: https://en.wikipedia.org/wiki/Kelly_criterion#Proof
For the game in the article, the rules are that the poorer person bets 20% of their net worth on a coin flip, so these are the variables:
f=20%
p=50%
q=50%
a=20%
b=20%
r = (1 + f*b) ^ p * (1 – f*a) ^ q
= (1 + 0.2 * 0.2) ^ 0.5 * (1 – 0.2 * 0.2) ^ 0.5
= 0.99919967974
If you forced a rich person to play this same game of repeatedly betting 20% of their money on a coin flip they would also end up losing all their money! When you frame it like this it's obvious that having a poor person play an unfavored gambling game and deposit their losses to a rich person is going to favor the rich people. This doesn't seem like a critique on capitalism or inequality, it's more analogous gambling at a casino.
----
However I am still confused how you can have a game where the expected gain after a single match is 0%, but when playing multiple rounds your expected gain is negative (this is what plugging numbers into the expected value formula in the Kelly Criterion wiki seems to prove). I find this counterintuitive and hoping someone can explain this.
People don't like this but not only does it work well it's often more efficient in general.