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.
April 17, 2028.
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.
That means rich people can accumulate generational wealth without ever even paying capital gains taxes. And during one's lifetime, one can get liquidity out of assets by borrowing against them without selling them.
The rule also seems strange from an outside perspective. Either the book value of assets should be kept the same when inheriting (I believe Germany does this), or the book value should be changed to current market value but the difference be taxed as gains (I believe Canada does this).
Step 1. The country creates a law forbidding any financial interactions with "offshore" countries (list is populated manually by lawmakers) and also with companies working with such offshore companies (shell intermediaries) in "good" countries.
Step 2. Country forbids its citizens from owning any assets or be incorporated in the same "offshore" countries.
Step 3. Blanket ban of cryptotokens.
Step 4. Huge inheritance taxes.
Step 5. Incremental tax hikes for second and more houses/apartments owned. Restrictions for corporations owning a lot of residential properties and huge taxation.
Step 6. Ban or restrictions of airbnb-like activities to discourage parking money in the housing market.
Basically look where rich hide money go for that. When they switch tactics you follow.
Step 0. Big independent financial auditor structure, independent from law and judicial branched both (or almost independent). From experience - you can dismantle a lot billionaires even with existing laws, if only someone looked close enough and punished them. This is a huge problem in eastern europe for example.
Switzerland does it and it seems to work pretty well.
It's hard for me to give an argument like "this is difficult" credence when we already have a capital gains tax that's lower than most income taxes. I will buy this is difficult when you raise that number to 50% and we still have the same issues.
It would be trivially easy as well to track and tax the wealth of people hold public equities.
Those two things there are an enormous bulk (majority?) of wealth.
It only gets a bit more complicated with privately held equities this I will grant.
If you start to get into the nitty gritty of assessing assets like ming vases and such it gets complex as well and likely diminishing returns, but at this point, with this stuff, you might as well not even bother because few are going to hold their wealth in ming vases.
At some point, you need to sell and get your local currency in exchange. That can be considered income, and taxed at that value. It doesn't matter whether you had 1M which melted to 1000 or if you bought it for peanuts and got lucky.
There are downsides to inflation of course, lower economic growth is a big one. But we are entering a higher inflation, higher interest rate environment whether we like it or not, and that will result in lower wealth inequality. Money will have less direct purchasing power, and assets like housing or company equity will decline in value due to higher borrowing costs.
There are many people who will retort that 'inflation hurts the poor'. Yes, it hurts everyone, but it disproportionately hurts the rich. It is no coincidence that wealth inequality increased dramatically during the low inflation, low interest rate period we have experienced over the last two decades.
On to the core question: how much is the stock in the non-public company you work at really worth? I don't know, sell it and we'll find out. A SWE with illiquid stock probably actually has a much shorter timeframe of when they want a liquidity event than the US government has.
The truth is that the reason it's difficult to tax rich people is because the first thing anyone does in this conversation is talk about how hard it would be, without thinking for a second if it actually would be hard. Let's lay aside any talk of real wealth taxes, and just stick to our current tax system, Elon Musk borrowing against his Tesla stock is not a taxable event. Let's change that today. It's specific, easy, would immediately drive revenue, and doesn't require any innovation around true wealth taxes. But... we won't, because it's not difficult, the government just doesn't want to do it. What does that mean? The burden of tax is primarily put on income not wealth, meaning your SWE with non-public stock is already getting absolutely pounded with taxes on their income instead.
At least in the world of stocks, dark pools help solve exactly this sort of problem.
Once you have enough assets there are many tricks available that are simply inaccessible and unusable by regular salaried employees.
Many of the tricks employed by the wealthiest forcefully remove transparency by a combination of legal and practical methods (e.g., Canada and Delaware share a lot in common).
Disallow opaqueness first, then the solutions will emerge.
Short term stock holdings - pay on the net gain of the sale.
Long term stock holdings - pay on the net value at that point in time. Non public companies are charged based on the last valuation round. Companies without funding aren't charged because the intrinsic value is zero.
Dividends - pay on the dividend amount received
All payments above are in cash, at 2.5% for all.
Yes they're not the super rich.
But still among the top X %.
China has seen how Capitalists have overrun government and have moved to quickly re-educate anyone that steps out of line.
I'm not advocating this, I'm just saying...
Corporations and the wealthy play games and have more resources than our tax departments, and so have found strategies to win that are not available to people who earn an income and work for a living.
Is it worth it, just to live in a shockingly civilized society under a highly functional government?
LOL, no thanks!
I always laugh at dying European societies that consider themselves "civilized" vis-a-vis the rest of the world and can't help but lecture everyone else about how to structure their society. It reminds of Borrell's "Europe is a garden, the rest of the world is a jungle" remarks, which went live before his recent bribery scandal.
Tbh even the super-rich feel poor. If you own 10 million, you might have a social network in which there is a guy who owns 100. If you own 100 million, you might know a billionaire. And the billionaire might have met someone like Bezos or Musk. Usually the richer you get, the higher is the wealth differential you are exposed to. You might be proud of your 3 supercar collection, but a guy you know has a hangar full with 200 supercars.
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.
Basically, I'm fine with paying more taxes, but only if those wealthier than me pay more still.
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.
Please look up "rent", "dividend" and "capital gains".
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.
Similar story for medical staff.
Rather, people know a different set of skills and accumulate a different body of knowledge. It is only if we define "education" as the degree of knowledge in the body of subjects we teach today that one can say people in the past had less of it. But that's only because we have discarded the many bodies of knowledge an educated person needed to have in the past.
For example, one can laugh and say that to earn a doctorate in mathematics during the renaissance you'd need to know algebra only to the level of solving a cubic equation. However you are missing all the archaic geometric ruler and compass constructions, evaluation of various infinite series, and deep knowledge of Latin, Greek, French, German texts, mastery of rhetoric, music theory, and other topics that few learn today. So it is not true that a mathematician of the present could waltz in and get a Doctorate in Philosophy in medieval Paris. He would probably get quickly thrown out for failing to master the many various scholastic topics that were required of a PhD in that time period, and which no one learns today.
As another example, a new worker in 1800 might be expected to know how to deliver a calf, fix a fence, shod a horse, make homemade preserves, skin a rabbit, set a broken bone, paint a barn, as well as know Greek, geography, history, recite the speeches of Cicero, translate the Odes of Horace, navigate the seas by an astrolabe, stain a bookcase, identify the key flood valleys of Europe and know which animals could be hunted in which part of the year in various European forests, or know the biographies of German princes, etc. But you are correct, they wouldn't have MS Office skills or know how to create a webapp.
Once you move past "hunter-gatherer", you very quickly run into complex societies with their own historically developed bodies of knowledge that require lifetime learning, whether that means learning the seasons and details about planting crops and irrigating fields, dealing with pests, where to dig a well, how to tan leather, etc - or whether that means something else, it is still a vast body of knowledge that takes decades to master. The point is, wherever a society is technologically, it will choose different areas to train its workers, and omit other areas that are no longer needed. But how many resources does a society need to train its workers? If that number keeps growing, then there is something wrong with the society.
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%.
If in cash, they have to get the cash from somewhere, right? Supposedly selling the stocks. That can be taxed then and there.
If they transfer the stocks to the lender, that means the stocks in question are valued at $x, since that's the value of the loan. So tax that value.
Imo we are well bellow the Laffer curve.
To which the common retort is "but nobody actually paid that because prior to the tax code simplifications of the 70s you could trivially reduce your burden in all sorts of ways"
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.
We already see wealthier people fleeing California for Texas and Florida, the same for New York.
It's not the government that produces the wealth in the economy, it's business. Confiscatory taxes will wind up with everyone poorer, including you.
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].
Try this dataset instead:
https://en.wikipedia.org/wiki/List_of_countries_by_number_of...
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.
I think the US has pretty good revenue structure in that regard. In my country 62% of federal budget comes from sales taxes (e.g. 23% VAT), which disproportionately affects poor people.
[1] https://www.stlouisfed.org/on-the-economy/2017/january/feder...
This already happens. Many people either don't pay tax, or pay less tax than they cost.
> The government doesn't need to handle capitol allocation.
Then who will spend the tax money?
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".
By the best, local information I mean that in the market, the people with the need for the good or service, and the people who bear the cost of providing it, are the people with the best information and also the ones making the decision to purchase and produce and at what price. The market automatically aggregates this information and produces a price level, which creates the incentive to produce and purchase the appropriate amount of something.
By broken incentives I mean the entire body of work that is public choice theory. Don’t think about government agents as benevolent actors. They are on the whole not good or bad, just about as self-interested as anyone else. They don’t make decisions based on what produces the best outcomes for the public. They make decisions based on what advances their own immediate and long term interests as individuals and social groups. Democracy tries to align those but it doesn’t do a very good job since most decisions do not rise to public political issues, the public can only have a limited understanding of, and elections are too blunt an instrument for adjudicating, the propriety of thousands or millions of public sector decisions.
The military is NOT where most spending goes - most spending goes to the entitlement programs: social security and Medicare.
In reality some poor people are savvy investors and become rich and some rich people are foolish investors and become poor.
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.
Yes, let the enlightened bureaucrats and their Ivy League-educated advisors make the decisions for the great unwashed masses who clearly cannot think for themselves.
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.
Ezra Klein: "If progressivism can’t work there, why should the country believe it can work anywhere else?" https://www.nytimes.com/2021/02/11/opinion/california-san-fr...
"Meltdowns Have Brought Progressive Advocacy Groups to a Standstill at a Critical Moment in World History"
https://theintercept.com/2022/06/13/progressive-organizing-i...
https://en.wikipedia.org/wiki/The_Tyranny_of_Structurelessne...
https://nationalcenter.org/ncppr/2021/05/27/basecamp-climbs-...
(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.
Otherwise you don't actually have power.
That concept is another fallacy of composition.
Taxes are there to reduce the capacity of the private sector to hire by reducing monetary flow. Without that you will get inflation.
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...
> 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.
This is also completely meaningless, because that figure is largely imaginery and super illiquid. Rest assured, Jeff Bezos can't cash out of Amazon and expect to be paid the current market rate for all of his shares.
It's also completely meaningless because the world's bottom 3.5 billion people control virtually no wealth whatsoever. Makes for a good headline though
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.
The government prints whatever money it needs to pay its bills, and does so already with impunity. It also pays interest on money loaned to it (bonds) with printed fiat.
Also, you completely missed the point. Of course taxes “do things”, and ending them would also “do something”. That wasn’t the question.
The question is simple, why pay taxes at all when the government has the ability to print an endless supply of money?
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.
won't fix anything
> don't let them get loans without taxes againt their illiquid wealth
You don't want to fix this. It would kill repurchasing agreements as a collateral damage, making access to credit more difficult and expensive for everyone. Not to mention HELOCs. You might say, "ok, exempt HELOCs", but that's just an arbitrary goalpost.
The economy is organic, you can just use a wrench and have a go at a couple of cogs and expect there to be no knock-on effect.
Right now, the rich are extremely incentivized to remain "poor on paper", so we should remove those incentives.
Other than 40% federal estate tax and 20% Washington state tax, which is right next to zero.
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.
Do you think it's a bad thing that the letter of the law is enforced over the spirit of the law, whatever the latter means?
Please try this somewhere I don't live and let me know how it works out.
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.)
They still need to interact with developed countries economic systems, so still punish them there.
If the billionaires are net negative and worse than the value they provide, ie billionaires are harmful to society, it seems the easiest way to reduce inequality is just to have them leave.
That's win/win for everyone, they keep their money, you get a society without billionires.
And even more importantly, they all live on low interest ELOCs.
There's also no reasonable way of fixing this.
Assuming that's true, and given that the current situation is also unreasonable, I guess we'll just have to go with an unreasonable way of fixing it.
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.
Similarly, (from comment [1]) paraphrasing an idea from Victor Wooten's video. If you grow up around people that do interesting things with money then you'll learn to do interesting things with money too. (He said people who grow up around people who speak music naturally learn to speak music quickly and easily too.)
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.
Housing: Most voters are homeowners, with the shared incentive to increase the price of housing in their town through restrictive policies. This ignores the interesting conversation about whether NIMBY actually increases property values, but most people believe they do. They don't even have to be explicit about it, nor get 100% cooperation, but the emergent property is clear and shockingly consistent across US
Healthcare: There are many systems at play here, as an example: The AMA restricts the number of doctors who can enter the profession: https://skeptics.stackexchange.com/questions/4561/does-the-a...
Education: Prestige de-facto limits the number of 'desirable' schools in the marketplace, and the high-prestige schools haven't grown nearly as much as overall enrollment.
There's no single top hat wearing, cigar chomping fat cat. Or even a smoke filled back room. But a variety of cultural and regulatory norms keep the dynamics entrenched. Which isn't to say that they can't be changed! But it won't be just the subtle nudge of Adam Smith's invisible hand.
But that competition isn't perfect. Right now, for example, there are very clear indications of price gouging with the excuse of inflation.
And it isn't even just with food. See the renting market for an example. People who had enough money to buy a house to rent it earn more money, and people who didn't spend more money because they need a house to live (and moving is a very high barrier for a lot of people).
But I think the most important example is jobs, mainly jobs with a low barrier of entry, which are mostly taken by poor people. People that don't have enough savings/time to get better education or to find for better jobs have to get whatever they can, so their employers have a lot of power to set low salaries: the employer can deal with an employee leaving or taking more time to fill a position, the employee probably needs a job quickly to pay the bills.
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...
$100K per year per employee in NYC sounds about right: around half are probably salaries plus payroll tax on them, resulting in just-over-poverty wage for low level employees and barely-middle-class for the higher ups; and the other half for supplies, building maintenance, etc.
Unless the people with money are the ones that made it themselves, they will keep buying bad watches like everyone else.
The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds.
It's because they took on more risk. The bigger the risk, the bigger the payout. The safer the investment, the lower the payout.
> do not share fairly the value created between workers and owners.
They do if one considers risk.
If private equity buys a pharma company and cuts research, jacks up prices to extract money from insurance, that might be "clever" but it is not really benefitting anyone, quite the opposite.
Obviously a lot of capital is used to create more value, but it does so by using labour, so it is the creativity of the people working for that capital that is adding the value mostly, while the capital sits back and enjoys it's growth. This is the concept behind public traded companies.
I think it is more a case of the more access to capital they have. People who have demonstrated that they can create a lot of value usually get access to lots of capital, even if that capital is not theirs. It's pretty standard to not fund business ventures by one's self. An indication of a good business plan is buy-in from others.
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
I’m suggesting that villainizing the rich is silly. Even in a perfectly meritocratic system according to OP, there’s going to be massive inequality.
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.
I disagree that it's irrelevant. If the game is zero sum, the winners must succeed at the expense of everyone else. The game mechanics themselves produce unfair outcomes since nobody has any agency in their own outcome. Therefore, as this piece argues, the rules should be changed.
On the other hand, my example provides an alternative explanation for wealth inequality in which risk taking and inequality are inextricably linked. In my game, nobody loses because someone else won.
Far fewer people would find these game mechanics unfair, even though the final distribution of wealth is the same. It is not obvious that the rules should be changed.
I could adjust my game mechanics to make them look even more like the real world (as I see it): Every time someone takes a risk and wins, the non-bet reward should go up by a penny (e.g. from $0.30 to $0.31). In that situation, one would expect all the players to encourage risk taking because they know it benefits everyone whether they're taking risks or not. They might even conclude that the risk takers should have a chance at being wealthier than them because of these effects.
Using the zero-sum game leads the reader to a conclusion based on a false premise and I feel that was intellectually dishonest.
Note: one can still argue that the rules should be changed because wealth inequality itself is a problem, but that's not what this article is doing. It's arguing it based on the fictional rules.
It may happen from time to time because people are curious and benevolent. But, in general, if catalyzing that change has a cost, then the society depends on some people sacrificing their own good for everyone else's. In other words, the benefactor will have paid to catalyze it, but they'll only get an "equal" share of the gains to the people who sacrificed nothing.
I think you probably don't mean "equally" though. You probably mean "fairly". And it's probably true that "sacrificing" 20% of a billion dollars is a lot different than 20% of ten thousand dollars. But rates of return do tend to decrease at scale, maybe not enough?
Personally, I think taking from the catalyzers isn't optimal. It's also petty to worry that they benefitted "too much" from their actions. If we must tax, tax land and consumption. I haven't thought it through, but maybe a 100% estate tax, minus some reasonably capped life insurance for spouses and dependents, would reduce some of the feelings of unfairness that people experience.
If we each start with one red and one blue pen, but I prefer red pens and you prefer blue, we (voluntarily) trade the pens and each have two of our favourite colour. Net gain!
Edit: if you run it, I'd love to see and play with it!
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.
Religious extremism isn’t coming mainly from the wealthy. It’s dominantly a lower-strata southern thing, with notable metastases all around the country, yet it plays strongly in the US system.
That some wealthy co-opt the extremists doesn’t change the above.
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.
Rightly, I think. The marginal utility of the next dollar is higher when you have fewer dollars. (I think of it as roughly a 1/x curve, but I have no solid data for this.) This means that, if I bet 50% of my available money on a 50/50 chance, I will lose more utility with a loss than I will gain with a win.
But the more I have, the flatter the curve out where I am. So the richer I am, the more I can make that 50/50 bet, not just because I can take the loss better, but also because in terms of my personal utility, the rewards and losses are more evenly balanced.
Also note that if you have a 20% loss, it takes a 25% gain (on what you have left) to bring you back to even.
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.
haha that's my first thought when I hear about "charities" by the billionaires in the Anglosphere world... sounds like some tax dodging loophole with huge marketing budget and a website. Why don't they just pay their taxes?