Inequality Talk Is About Grabbing

Those two explanations are usually tightly coupled. We explain why people do particular things today by referring to an evolved habit of doing such things to achieve ancient ends.

Right. My point is that your theory doesn’t explain why the redistribution to the ugly/wealthy does sound ridiculous. Why shouldn’t people try to redistribute based more abstract inequalities? It can’t be simply that it isn’t possible to redistribute ugliness because what we’re talking about is redistributing wealth (to compensate for ugliness). It isn’t that the poor/not ugly don’t have anything worth taking; not infrequently taking increases material inequality, but the point is that such takings aren’t coordinated through inequality talk.

The anti-inequality norm must itself have some very constrained nature because it’s invoked only when the inequality applies to a single attribute. I don’t think you explain that or can explain it

If you disagree with my prediction, care to offer betting odds (and amount)?

Say we present survey respondents with two scenarios:

1) Jim is a talented businessman. Over his life he has earned $50B by building companies and working as an executive. He conducts little philanthropy and spends most his money on luxury goods for himself. While his wealth affords him considerable power, he is ultimately subject to a democratically elected government, which can tax him as it chooses.

2) Bill is a superhero. Over his life he has earned $50B by creating and selling valuable materials that he created using his superhuman talents. He conducts little philanthropy and spends most his money on luxury goods for himself. While he lives in a democratic country, his powers are so strong that the government cannot effectively force him to do anything, including pay taxes.

Q1) Should the government raise Jim/Bill’s tax rate?

Q2) Is Jim/Bill behaving immorally?

Robin, it seems your prediction is that respondents will be more likely to answer “No” to both questions for Bill than for Jim.

Your point about social status is well taken, but what’s that you say about the poor today?

Just skimming random sources:

“From 1967 to 2009, the real mean household income of the top quintile increased by 71 percent, meaning the rich became much richer. Over the same period. The real mean household income in the bottom quintile increased by 25 percent.”

http://www.learnliberty.org/videos/is-there-income-mobility-in-america

25 percent is middle class?

And Figure 3.5 doesn’t inspire confidence either:

http://www.theatlantic.com/business/archive/2011/10/why-workers-are-losing-the-war-against-machines/247278/

Your claim is unfalsifiable.

Is this a new policy? Anyway, sorry for the barrage of posts, I will now pay attention to the frequency.

Yeah, that’s why Bernie Madoff never got his scheme to rip off rich people off the ground. Got hindsight bias much?

I am channeling Taleb’s Fooled by Randomness argument. I have an unfair advantage in a lottery if I can purchase a quantity of tickets that matches or exceeds the odds of winning. What these undeserving richians have is the ability to make far more stupid guesses.

Why do you think that rich individuals can manage their wealth better than professional investment organizations such as banks?

A bilionarie that loses 50% of their wealth in a bad investment, is still extremely rich. Due to sub-linear utility of money, they would hardly percieve the difference.

A professional investor that loses 50% of their customers’ funds, ends up out of business and possibly in jail.

In general, middle class/moderately wealthy people who invest collectively (through banks, pension funds, etc.) are much more risk averse than very wealthy people w.r.t. the same amount of invested money.

I think that if wealth was more equally distributed, the increased risk aversion would make the world financial system much more stable.

I’ve heard that this isn’t true from Michael Vassar after he visited.

Scandinavia has a less progressive taxation system than does the US.

Scandinavian nations have either zero or extremely low inheritance taxes, as well as extraordinarily high consumption taxes.

Are you arguing that progressive taxation causes MORE wealth inequality?

As you obviously have zero knowledge of what you speak, perhaps some education is in order.

This is a subject on which I have read extensively, and the following are all facts:

Overall, the taxation system of Sweden is dramatically less progressive than that of the US. There is no technicality here. I am speaking holistically.

Overall, the distribution of income in Sweden is not much different from that of the US: http://en.wikipedia.org/wiki/List_of_countries_by_income_equality#Gini_coefficient.2C_before_taxes_and_transfers

The OECD uses a set of adjustments to their GINI measurements which distorts their post T&T numbers dramatically “in favor” of high consumption tax jurisdictions (Europe & Canada) and dramatically “not in favor” of others (the US, basically).

The simple fact of the matter is that the US doesn’t have particularly high income inequality relative to Scandinavia, nor to the EU in general – in fact it’s likely quite a bit less than many EU nations once one accounts for the stricter tax compliance of the US (and thus more accurate numbers in US stats vs Italy for instance).

Scandinavians are a small group of people and they are a lot homogeneous.

There is a reason they had eugenic sterilization going until the ’70 and they impose a lot of conformism on their people.

So when the government elite decided that it was “enlightened” to import a lot of M.O, africans and others, they did it in droves. But they never assimilated them, for the same reasons. A lot of them ended (self)segregated, unemployed (because they are unemployable (for various reasons) and on the government dole.

The rich tend to invest their money wisely. Those who end up with their tax dollars may not invest so wisely.

I suppose the world financial collapse of 2007-2008 was caused by the foolishness of blue collar workers, wasn’t it?

Actually I think Steve Jobs is a bad example (he didn’t really design or engineer anything and he surely wasn’t solely responsible for Apple’s PR success in tapping into illogical mental biases), then agains every billionaire is a bad example because there simply is not a single human being alive who really “earns” billions of dollars.

Yes, it is survivorship bias and even if it wasn’t (if Jobs really was a superman) we wouldn’t be able to establish that fact because we have only 4 events in our sample, you can’t do statistics with only 4 events (heck, there are so many CEOs in the world that even a 10-event winning streak through pure chance is plausible).

Now here’s the $1 million question: why does Hanson (who writes about biases on this blog which is called overcomingbias.com) ignore survivorship bias? Is he really on the Koch pay roll like another commenter claimed?

“The halo effect is a powerful bias. Is Robin subject to a marked halo effect when he evaluates very high status personae, such as billionaires?”

Obviously so, which is strange for someone who has writing about mental biases as a hobby (someone like that should know how mental biases allow snakeoil salesmen to become very rich), but then again it’s not really surprising for someone who’s dream of the future involves slave races and regular genocides under an ultra-capitalist system.

This is a great example of bias. Because most people won’t be significantly helped by $133, you’re forgetting that even a tiny minority of 300 million is a lot of people. Spread over the country, this is a ton of people able to make rent or a car payment or pay an electic bill who otherwise couldn’t. It’s a visit to the pediatrician. And because effects snowball, it’s sickness prevented and evictions prevented and repossessions prevented and many people right on the razors edge who tip toward better lives.

Besides which, fifty billion is arbitrary. Would you say the same if the 400+ billionaires cited in the post lost $400 billion to the rest of the country? That’s $5,000 dollars for every family of four, which is a used car or time at community college for mom or the mortgage payment when dad’s between jobs for a couple months.

Money really does improve QoL for people, and small amounts go farther the poorer you are.

Redistributing the 1%’s wealth is a different program from redistributing billionaires’ wealth and is likely to have a different psychological basis (which is what Hanson’s discussing, although many don’t seem to realize that). Programs to soak only the very rich have a demagogic character, which Hanson’s analysis accentuates. (CF Huey Long and tax the millionaires.)

(Personally, I think the top 5% needs radical redistribution and the top 20% some.)

Grabbing, alas, is in the eye of the beholder.

Its pretty clear in economics that money has diminishing marginal utility. Wealth inequality is no less a deformity than dead weight losses are.

The claim that people are entitled to all that our markets give them is much more subjective.

His response to Paul Gowder suggests otherwise

That’s a very clear rendition. If I may restate one of my points in relation to it: this is refuted by the fact that we don’t use the abstract inequalities that would be justifying if we could invoke them.

Very well. Now what if “stealing” (that is, taking stuff in your possession by coercitive means) only occours predictably and publicly, by a single organization (the government), which is under democratic control.

In your system, the biggest, baddest, strongest, take it all and the others suck it up.

Coercion can be used only if you are the strongest, baddest, meaner, smarter thug. The weakest can not use coercion against the strongest.

Wellcome in a tyranny.

the reality is you would like to use the majority (via democracy) to do the stealing for you. In reality is a minority that will control the majority and will steal from all others. So the chances you are in the minority stealing are pretty low.

Yes and not.
All government officials are not thugs, just a few too much. The others are abetting them because they need a check to maintain their families or just believe they are doing the right thing.
I’m sure the large part of Nazis were not evil, they just did what they believe the right thing to do.

But when police go in the news because it is discovered they have quotas of fines to deal out because the politician need money to pay for the city balance or other pork (and this is the same everywhere, in the US, Europe, Africa) then you know they are thugs. Maybe not evil thugs, but they do not see you as a human being, for them you are first an ATM and after a human being.

In many ways it would be a great improvement.
Where I live, if taxes disappeared we would have double our income in a night.
And if regulations disappeared our productivity would skyrocket.
Actually, in Italy, entrepreneurs pay around 80% of their income in taxes. Not their profits, their income. Whenever they turn a profit or not. So, many are leaving for saner places like Switzerland, Austria, Moldova, Romania.

Just today I talked to a friend in Sicily: the Public Health System there gave an ear aid to his grandmother. She waited two years and spent 1.200 €. It turn out the item prize, from the producer, is 50€ plus 20€ for delivery to the client.

From what I read, the US is not a lot behind us and in many ways is a lot ahead of us in this run tot he cliff.

Oh, a racist just showed his true face:

If you know the language you could learn something instead of live of prejudices.
http://www.youtube.com/watch?v=YQRZh4fJxKk

Yes, even many right wing economists believe the Laffer Curve probably doesn’t go down again until 50-70% of GDP. Also, remember that it matters what the taxes are spend on: 100% taxation does not lead tot economic collapse if the money is simply given back by the government, and even a planned economy has greater than zero GDP, so the Laffer Curve is a gross oversimplification of reality that assumes all taxes go towards non-productive things while in reality for example taxing for welfare merely shifts wealth away from the private jet industry to the cheap supermarket industry, instead of the wealth getting hurled into the Sun.

Yup, my bad, having different tax rates for different kinds and levels of income matters (though usually the top marginal rate for earned income is close to taxation as a percentage of GDP because this is the source of most government funding, with tax benefits and sales tax almost canceling each other out out).

In the real world, thugs like G&S are simbiontes with the government. They are one and the same, the doors are revolving.
Without the government keeping out competitions and saving them, G&S would be broke tomorrow. It is governments that make them TBTF and TBTJ.

So, when you talk against G&S you are talking against governments like the US’s and many other in the West.

When the markets are not rigged completely in their favor, G&S avoid to play any role.

I think you misrepresent Rand Paul types.

There’s a difference between “x should have a legal duty not to sell poison food (or any good not fit for purpose)” and “there should be an expensive government regulatory system to prevent x selling poison food”.

There is no such thing as the creation of wealth ex-nihilo, so people do not have a moral claim to 100% of their notional wealth.
Employers rely on the state to educate them and their workforce, to provide infrastructure and security, and so on. Without those services, they could not make money. Payment is not stealing.

But you agree that 3 and 4 are solid examples of concerns about non-financial inequality?

I do see your point. Changing the rules has a cost (both moral and practical).

History seems to imply that though its important to maintain continuity in a lot of areas (the fundaments of contract law for instance), the most successful societies have had a continual change and refinement of rules.

One other consideration is that since rules have been changed a lot in the past, people should expect rules to change in future (in practice, they probably don’t, which is a problem).

First: The game and it’s rules are enforced by the government and the people. Ain’t going to be done for free.

Second: citation needed on the last assertion.

Indeed, and there’s a more fundamental point: why would someone who is not a billionaire himself care if a world of unrestricted capitalism is more productive? Why would it be a goal in itself to increase the total productivity of society without looking at the distribution of wealth? People like Rafal Smigrodzki just assume that is a goal, as if it is part of some religion. It’s just absurd, of course a society with a $15 trillion GDP where no one dies of hunger or curable illness is a better one than a society with a $30 trillion GDP where 90% of the people are on the edge of starvation and cholera and TBC kill millions each year, because society includes that 90% of people!

Perhaps it’s related to nationalism: some primal urge these people have that gives them a hard on when they see their own abstract organization grow larger? In the 19th century these kind of people got a hard on from watching their country’s military grow bigger, even if orphans had to starve for it and now they get a hard on from watching their country’s GDP grow bigger, even if orphans have to starve for it.

Of course there’s also a group that really believes (instead of just espousing it because they’re paid to do so) that the rich are supermen who, no matter how much stuff you give them, always produce even more stuff and also more than consumer spending by non-rich people would have produced.

“A person truly concerned about the disabled might see their existence as an argument for charitable giving, or building better insurance systems, not for fleecing the rich. You argue in favor of taxation in general but you did not provide an argument in favor of steeply progressive taxation, which is the focus of Robin’s post.”

If taxation wasn’t progressive there either wouldn’t be enough revenue to support the disabled or the poor would be crushed under taxation.

“More importantly, continued economic growth through unrestrained capitalism brought hundreds of millions of Chinese peasants out of dire poverty, while the demands to destroy Mr Gates helped nobody.”

Caring about the living standards of Chinese peasants means you care about the distribution of wealth, not just GDP growth, you’re arguing with yourself.

A person truly concerned about the disabled might see their existence as an argument for charitable giving, or building better insurance systems, not for fleecing the rich. You argue in favor of taxation in general but you did not provide an argument in favor of steeply progressive taxation, which is the focus of Robin’s post.

This seems to be intuitvely false. Do you have any reference?

Bur’s point is to query why your principles of equality seems dependent upon arbitrary political groupings. Why is your moral obligation to x dependent on whether x is within your polity?

And what on earth has PPP got to do with it? If anything, the same amount of money will do more good in Africa! Of course, excusing the obligation by refering to “immaterial forms of wealth” (and unmeasurable too, I’ll wager…) of Africans you can fall back on handwaving and mysticism, which is not unexpected at this juncture…At this point you look like an example of Robin’s hypothesis.

1, OK…you distrust the effectiveness of such aid…I can accept that.

2. I don’t think the numbers support your claim at all. Median PPP-adjusted incomes are still much lower in Africa, South America etc.

Its not $14lk vs $13k in your Chinese example. It is $46k vs $9k, PPP adjusted.

I’m very familiar with the whole marginal utility thing. But the raw numbers completely contradict your argument here. The PPP differences are not enough to overcome the absolute income differences.

Damn, I was hoping for a handout. 🙂

Erm….am I following you correctly here? The PPP deflators are wrong (not harsh enough on the rich world) ? That’s a bold claim. Not without some appeal, but you can’t seriously expect it to close the yawning chasm much.

Now Czech vs Belgian is almost persuasive at a 2:3 ratio (but ah – which way is the migration going?). But you’re smart enough to know I’m talking about the gross imbalances at the 10:1 ratio and higher. C’mon, please, no strawmen.

Anyway, yes, China and American have sub-populations with overlapping PPP adjusted income. So what? We’re not taxing the poor in either country, right? We’re talking about taxing the rich in America (and some rich in China presumably?). And giving it to poor mostly in China Where it will do most utilitarian good, right?

I call on you to honour your proposed moral rule (and a very kind hearted rule it is too, I can’t fault your charity). You can’t tell me that 25th %ile Chinese (~$2k) won’t do more with $100 than 75th %ile American (~$50k) will! The PPP even works in favour of the transfer; they can buy more with it than you can and have a lower starting point; their marginal utility must be much higher!

(Let us skate over leisure time! You really can’t expect 10% differences in working hours to save your numbers here…can you? In fact I’ll bet you straight up that normalising for this will make it worse! Now pardon me whilst I take a siesta and dream of how to spend the money of your rich).

Incidentally, if you are American, I think I live in one of your well-ordered, non-corrupt, trustworthy, and slavishly friendly western allies. Alas, we do not quite have your GDP/Capita (PPP adj), and our median income trails yours. But I am sure we could spend any aid money you care to send to relieve our relative poverty, with all the net utility gains you identify.

Equally, I am sure we could agree sufficient safeguards with you that the money would be well spent. After all, you already trust us on many other highly sensitive matters; it beggars belief you think it will be misappropriated by our elites. In any event, you are welcome to come here and disburse the money directly with your own oversight.

Think of the good you could do by equalising our real incomes! 🙂

Paywalled. There’s what looks like a copy of the same paper at http://elsa.berkeley.edu/~saez/alvaredo-atkinson-piketty-saezJEP13top1percent.pdf and I haven’t been able to find anything in it that says anything about whether people usually become billionaires by being born to billionaires. (It’s mostly about “the top 1 percent”. It says hardly anything about billionaires. It also says rather little about inherited wealth.)

What am I missing?

In a crude attempt to determine roughly what fraction of billonaires got that way by being born to billionaires, I took a look at the Forbes list of the 400 richest people in the USA. One wouldn’t expect the *very* richest people to be rich mostly from inherited wealth — it seems likely that generally the children of someone very rich are less rich than their rich parent — so I looked at the bottom 10 places on the list in the hope that they’d be more typical of US billionaires. From the bottom (numbered 392 not 400, because of ties) upwards:

Denise York: inherited from Edward DeBartolo Sr. Dan Snyder: self-made (advertising). Paul Singer: self-made (hedge funds). Arturo Moreno: self-made (advertising). William Macaulay: self-made (private equity and fossil fuels). Peter Lewis: self-made (insurance — he basically inherited the company but it wasn’t big at the time). George Joseph: self-made (insurance). Mario Gabelli: self-made (money management). Jack Dorsey: self-made (tech startups). Neal Patterson: self-made (medical software).

So: indeed it does not appear that most billionaires are the offspring of billionaires.

I didn’t see that much obvious sign of superpowers either, though. It looks to me as if people usually become billionaires by going into a generally lucrative industry, being smart, working hard, and getting lucky. Maybe they really are all superhumanly intelligent or wise or industrious or something — it’s hard to see how we could know for sure — but if Robin has evidence for his claim that that’s how people usually become billionaires, it would be interesting to see it.

Wealth of the parents and grandparents still correlates strongly with the wealth of the children. There are sadly plenty of “studies” which intentionally distort the figures (by saying someone who inherited $40 million and now has $100 million made most of his money himself, which is technically true but entirely missing the point, not counting the wealth of the grandparents and not counting the huge advantage stemming from semi-rich parents who can afford, the self-fulfilling prophecy of success that is an Ivy League education, for their child that was technically not born into vast wealth but still in the top quintile).

Evolutionary psychology or homo hypocritus isn’t necessary; the slightest tendency towards hypocrisy or even practicality would be enough to get that same result.

That’s a dogmatic assertion, not based on how morality actually works. There are many impractical things we strongly feel are wrong; the point is they aren’t about abstract equality. For example, when Nazi Germany overran the small countries of Europe, the citizens were strongly aggrieved, even though there was really nothing they could do about it. But that wasn’t based on abstract equality, although partly based on abstract community.

What does make the discussion difficult is that it’s hard to discuss “moral” instincts without some preliminary catalog. (In my view, the best one is from Alan Page Fiske, which I reference at http://tinyurl.com/blhdluc .)

On connotations, I too found them somewhat obnoxious, but I don’t think they’re out of bounds. The connotations were relevant to the point: in principle, rather like Marx’s use of “exploitation.”

Very analogous to the actual state of things in the US, where the rich have captured the government and are so very adept at avoiding taxation. Or IOW, the supervillains have won.

I think the rule could do with redesigning (though I dare say it’s a tolerable heuristic). Consider, for instance, the following perfectly plausible situation: There are two posts being actively discussed. Someone (call them A), whose usual pattern of OB participation is to come along once a day or thereabouts and see what’s new, posts one comment on each. Each of those comments attracts two harshly critical or very interesting replies; call them B1, B2, B3, B4.

Now A, the next time s/he visits OB and sees those replies, has the following options: (1) Reply to B1..B4 at that time. At currently typical commenting rates, this is almost certainly “violating the OB comment frequency rule”, to an extent described as “never acceptable” on the About page. (2) Reply to them but combine the replies into one on each post, so as to avoid violating the rule. This is clearly worse than #1: it makes for less-clear discussion structure, and probably means *more* comment content from A because of the need to say explicitly what’s replying to whom. (3) Reply to a couple now and a couple more the next time A is reading OB, which might be the next day. This is probably also worse than #1: it’s particularly unsatisfactory for (say) B3 and B4 who don’t get their responses for a day or two. Also, as long as A’s participation is “bursty” in this manner, delaying replies doesn’t help if each new post produces new discussions. (4) Devote (say) twice as much time to OB as he presently does, so as to find a window for replying to B3 and B4 after he’s no longer got two other comments among the most recent 10. If #1 has the problem that A is commenting too much, this is not actually likely to lead to an improvement.

Of course the “solutions” (2,3,4) are solutions to a non-problem. (For OB; perhaps it’s a real problem for A if s/he wants to avoid annoying you and maybe getting banned.) Someone who posts (say) four comments a day is not, in fact, crowding out good discussion from other people, and if their doing so makes them fall foul of the commenting policy, so much the worse for the commenting policy.

Another situation to consider, though I don’t know whether it arises in practice: A is an intelligent, articulate, polite representative of some viewpoint otherwise unrepresented among the OB commentariat. Accordingly, whenever A says something it’s liable to be met with quite a lot of criticism and questioning — from lots of different people, so no violation of the rules yet. But if A then tries to address those comments, boom.

(Note for the avoidance of doubt: I have, so far as I know, never been in violation of the OB commenting policy. Maybe once or twice back in the pre-Less-Wrong days when I was more active here, though I don’t recall any such incidents. In particular, I am in no way associated with any of the people you’ve called out recently for violations of the rules.)

“How do you know that billionaires own more than their abilities justify?”

Plenty of research has been done into that, read “fooled by randomness” by Nassim Taleb for an easily readable introduction, it explains things like “survivorship bias” (mistaking lucky people for being champions, even when the sample group is so large survivors are to be expected through nothing more than pure chance), “lack of alternative history thinking” (mistakingly believing that what happened in the past was the most probable outcome all along) and many other biases. But really it’s not difficult to reach the same conclusion as the economists, statisticians and psychologists who’ve done the research: it’s never a carpenter who becomes a billionaire by building furniture a thousand times faster than other carpenters, no, it’s always people in white collar fields where it’s easy to just get lucky.

“Also, show me the proof of economic inequality having strong negative effects in America today. We’ve never had it better – all classes have never had it better.”

There’s the highest incarceration rate in the world, there’s the erosion of democracy (the larger income inequality is, the more a small group of rich donors runs the country), there is more poverty, more homelessness, more crime and less social mobility than in other developed countries, millions of American children get education that doesn’t deserve the name. Purchasing power per hour worked has actually dropped for most Americans over the last decade and infrastructure is appalling compared to other developed countries. Also more and more Americans are relying on charity, which erodes their personal freedoms (charities come with forced ideologies such as hospitals that don’t carry out abortions and schools that do not teach real science).

“How did he make that much money? By helping hundred of millions of people and enriching their lives.”

This is what I call “Cheops bias” (the large pyramid is called “Cheop’s pyramid” instead of “50.000 workers, artisans and architects Pyramid”: you run an organization and you get all the credit for what that organization accomplishes, this is possible because of biases in the human mind, but it’s completely irrational. I can think of an organization where, for safety purposes, each morning 10 people turn on serial a power node for the organization, each one of them can claim that if they do not switch their node the organization produces nothing (because there would be no electricity). The problem comes when all 10 of them each claim they should get 100% of the company’s profits because they made those profits possible. The moral of the story: just because you happen to be in an influential position doesn’t mean you have a rightful claim to all production that is under your control. Production of the organization with you at it minus production without you is not equal to your contribution! And that’s just in cases where people hold real influence, where it’s not just random survivorship (it usually is just random survivorship that gets people to high places because the number of relevant events to measure ability from is too low to be statistically significant and even without that flaw the rewards for single winners are usually too great to reflect differences in ability).

“Ermmm…..Because white collar jobs can be massively more productive than blue collar can ever be?”

Are they? Isn’t that in itself a form of bias? Are the power node switchers from my thought experiment white collar workers? Like I said: Production of the organization with you at it minus production without you is not equal to your contribution! The power node switchers who press a single button a day are not more valuable than the workers inside the organization, they have more control but that’s it, the same is in a sense, often true of management. It’s also no coincidence that the more volatile (read: casino-like) the business is and the harder it is to measure individual contributions the higher the rewards are in that business. Too often we’re paying bricks on dead man’s switches for their marvelous accomplishment of keeping the trains going.

“Incidentally, would you count professional sports as “white collar” jobs?”

No, then again there are no athletes who became billionaires through their sport (advertisement deals are separate, white collar, jobs). Still one relevant aspect of white collar jobs is present in sports: the winner takes all principle: I may run 0.1% faster than you but get a 500% larger reward for it.

“RE: Power node switchers. This is a basic essentialist fallacy of value. I don’t think you understand shapley values.”

You’re missing the point: of course it is a fallacy of value, that’s what I was trying to show, and my point was that similar logic is still used to defend high incomes of the rich (“the CEO just signed a deal that will make us $300 million, so he added $300 million of value to the company”, and other such BS). We’re talking about the morality of real world income inequality here, not about what some economist devised as an alternative method that’s not used in practice and that holds no moral justification (Shapley values are amoral distributions that keep the peace).

“I have considerable sympathy for your CEO survivor error theory”

Then it’s important to know most of the money of the rich comes from inheritance, snow-ball effects caused by inheritance (it’s a lot easier to make $1 billion if you start out with $400 million, even though technically you would have inherited only a minority of your wealth) and survivors (executives, finance traders, investors). Then in entertainment people become stars through unpredictable viral dynamics (read: luck, because there are undoubtedly millions of people who have the same talents as that popular singer, they just weren’t at the right place in the right time).

My solution? Tax 100% above a certain amount of income (say $1 million per year, which is more than the POTUS, the president of Harvard and most Japanese CEOs make), it’s not exact but it’s simple and less worse for society as a whole than what we have now.

“I find it hard to believe CEO’s have no effect on future value. Note that even an r^2 of 0.2 would “justify” some of the salaries.”

Some of it yes, I’m not saying the CEO should not be allowed to make more than the cleaning lady, but executive pay has completely gone overboard. Do note that my power node switchers example was ment to illustrate that someone can add a lot of value to the company without being deserving of a high wage (if the position does not require much skill to fulfill or get into and doesn’t bring much risk).

“but I don’t think you have (much) more evidence for your claims than the competing “CEOs cause all value” claim. We need the proportion of value added explained by CEO, with controls for market movement etc, and to my knowledge there simply isn’t a good study out there?”

There are actually studies about it and they do tend to agree with my viewpoints, there are also ex-traders and bankers who agree with me. The other side seems to consist mainly of journalists and right-wing think tank writers, both of whom usually lack the mathematical knowledge and the (financial) industry experience to really know what they’re talking about and that shows in their writing. Then of course there are simpler arguments to be made like a variety of animals that beat the stock markets for years at a time and the suggestion that perhaps it’s a bit absurd to assume billionaires (even the birthers among them) have insane IQs that make Stephen Hawking look retarded in comparison when there are much more down to earth statistical and psychological explanations for economic inequality. In any case it’s a fact wealth has diminishing utility and that the rich are a small minority so even if it was a 50/50 discussion it would be better to side with people like me (if I’m right you saved countless of lives, if I’m wrong you took a rich man’s 4th home).

“100% Tax, eh? Erm…are you sure that would work.”

In a world with only electronic payment it could, provided tax havens are properly dealt with. 99.9+ percent of people would not fall in that highest bracket anyway and most of the ones that do fall in it only slightly.

“If you have study references I will read them :-)”

– Fooled by Randomness (Nassim Taleb)

– Survivor bias and mutual fund performance (E.J. Elton, M.J. Gruber, C.R. Blake)

– Are CEOs Rewarded for Luck? The Ones Without Principals Are (M. Bertrand, S. Mullainnathan)

– Managers’ Selection: Survivors Always Look Better, Whether They Are Skilled or Not (D. Clermont)

– Are Random Trading Strategies More Successful than Technical Ones? (A.E. Biondo, A. Pluchino)

There are also some humourous accounts of a variety of animals that beat the stock market for years at a time.

“We’re just arguing over what the CEO r^2 with added value actually is.”

Yes, I do not count “accidental” value as something that should be relevant to reward: if you get into a position that exerts a lot of influence but you got there mostly by luck and the job isn’t particularly difficult or risky (to yourself) I’d say the value YOU add isn’t that great, even if your position adds a lot of value, to me it’s no different than a lottery winner claiming he added $1 million of value to the economy, or someone who finds oil on their land claiming he’s self-made and making a lot of money. Pop stars are a good example: they get where they are mostly through chaotic viral dynamics that they do not control and their jobs aren’t that much harder or riskier than that of the average person, still they rake in millions.

“I’m happy to believe some CEO, some industries, it is zero.”

Zero is a bit extreme, I’m sure most CEOs add some value just by doing necessary paperwork and negotiations.

“Berkshire Hathaway is simply not explicable by chance.”

Are you sure? There are a lot of similar funds in the world. Btw, I’m not saying everything is 100% down to luck, it’s more like poker: card counting skills and solid bluffing do give you an edge, but there’s still a large random element and the reward for the winner is disproportionately large.

“There is an additional argument needed to tax it. I’m not really a utilitarian, so can’t proceed simply from “John’s income is mere good luck” to “we should tax John’s income – look how much good we could do with it!”.”

There is the utilitarian argument, which is a strong argument, but there are more arguments to be made, such as increasing social mobility (by removing a financial aristocracy) and strengthening democracy (money = power, literally and in many ways). There’s also the simple fact that if you get more than you contribute that means someone else is getting less than they contribute.

“Incidentally, would you support a 100% tax of lottery winners? Or inheiritance tax?”

Yes, and yes.

“The co-ordination problem you face in getting there is unsurmountable as individual countries are incentivised to “defect” from your 100% tax regimen and attract the rich to their shores.”

That’s true. We will have to wait for a single global government, or superstates with a high degree of self-sustainability (at least when trade with other like-minded states is included) and the capability to strong-arm tax havens.

“Taleb himself after all, does make money with his contrarian strategy. So there is at least 1 skilled trader, or so he would have us believe ;-)”

But he does admit he makes a lot less than most other traders, he even expects that to remain true and that’s fine with him, he accept it as the price for insurance against catastrophic losses. Also it may very well be that the stock market itself is a parasitic entity that enables not-so-great minds to gather more than their fair share of wealth relatively easy.

“If we’re just haggling over a few points of r^2, rather than zero r^2, then we’re not that far apart.”

Depends on your definition of “a few”, but yes, we are haggling over the size of the added value (and how much of that should be reflected in the reward), nowhere do I say that no value at all is added.

“Yes, I think I’m fairly confident. There’s more than one Berkshire Hathaway class fund. Aggregate fund performance statistics still seem over-distributed relative to what we would get from a pure chance/no skill distribution.”

Nassim Taleb believes a lot of Warren Buffett’s success is still attributable to chance. I don’t know enough details to be entirely sure but I suspect the trick lies in two things: 1) to do proper statistics Berkshire Hathaway has to be included in a pool with ALL traders on the stock market, not just other large funds, 2) temporary success can become a self-fulfilling prophecy through investors’ belief in that success (similar to a bubble but less catastrophic since Berkshire Hathaway really can increase its own intrinsic value using hyped investments). And ultimately the reward is disproportionate, even if the success is 100% attributable to Warren Buffett’s special skills.

“PS. Ranking entity performance in messy systems is one of my jobs (not financial services). I’m very aware of how random fluctuation can be mistaken for skill.”

So you rank school test scores or businesses?

“Yes, I’m sure Buffet is lucky too. The outliers in these kind of system are both Skilled and Lucky.”

Precisely like my poker analogy where the best players still have a better chance of winning but the difference in skill across the sample is not particularly large meaning the majority of winners are average or below average (though the best players are overrepresented among winners) and a majority of the best players does not win. Now add to this an excessive reward for the winner, say 1000 times fo what everyone else gets, while even the best player in the world obviously isn’t 1000 times better than the average or median player, then make it mandatory for everyone to play poker games using real money and allow winners to use their prize money in their (or their kid’s) next round of the game so they can outlast better players simply by starting with more chips. And before I forget, the arbiters are paid by the winners and handsome people start with 20% more chips.

There you have an approximation of the real economy and to me it becomes pretty much impossible to not see a maximum wage and wealth redistribution as moral imperatives.

If any country were in a position to implement your program—regulated capitalism with ultrasteep redistribution at the top—it would be the People’s Republic of China. Perhaps the question is debatable, but I don’t think the Chinese Communist Party likes having billionaires. The fact that it finds it must tolerate them goes to show that inequality is essential to the efficient operation of a capitalist market, even a highly regulated one (which the Chinese market is).

(For an approach to socialism using a faux market, and an argument that a faux market is better than an actual market, see “Belief–opinion confusion and the contradictions of capitalist investment markets: Fictional-market socialism.” — http://tinyurl.com /ke2oj98 .)

The majority of China’s billionaires are high ranking communist party members (they elevate the term “champagne socialist” to a whole new level). Many other high ranking members are multimillionairs and the party leadership has been communist (or even socialist) in name only for a long time now.

I think that’s a popular misconception. In fact, government bureaucrats remain dominant in the party. The number of rich have been curtailed.

See, for example, http://tinyurl.com/8mndn39 :

“The CCP, more than a decade after former President Jiang Zemin tried to open it up to private businesspeople, remains dominated by Party and government bureaucrats, military officers and executives of state-owned corporations.”

“The data from Hurun, publisher of a luxury-goods magazine that tracks China’s affluent, show the number of billionaire delegates at the Party Congress will rise by at most one since 2007, when it last convened.”

State-run enterprises remain economically dominant in China. The country is Communist–but in a kind of ultra-Bukharinist way.

No, you don’t understand Chinese politics. The parliament is NOT part of the party; the party rules. The article I cited spoke of the party Congress, which is important; the “parliament” is unimportant. The very rich have greatly increased their numbers in the parliament while proportionately greatly declining in the party’s leading bodies. Only the second trend has political significance. The “parliament” definitely is not constituted of high ranking party members. (It seems the “input” of the rich can be obtained through their participation in parliament without giving them real power.)

The article you cite comes from a far-right wing think tank. He cites some survey of Chinese where the people complain that wealth comes from politics in China to “prove” that it does.

Note that even an r^2 of 0.2 would “justify” some of the salaries.

I don’t think that this criterion makes much sense. What matters in deciding the CEOs’ salaries is opportunity costs:

In a world where CEOs made, say, million dollars rather than billions, and nobody made billions, would your average CEO choose a different profession? Would they be any significantly less incentivized to be as productive as they would be if they made billions?

if by “Markets aren’t designed, they are emergent” you mean “The rich and elite change the market design so that they disproportionately benefit at the expense of the majority” you are correct and repeating what I said.
Look at the last two nobel prize winner Tirole and Roth, both won for a lifetime on research in market design and looking into how large corporations manipulate and abuse markets that are poorly designed. Markets are “emergent” anymore than software code is emergent. Someone set the market up and consequences follow from those rules. There is no naturally existing market. Pretending that markets exist and naturally provide efficiency and that they are born as egalitarian systems just like the wildebeest and lion on the Serengeti one of those fantasies that doesn’t hold up to even a modest acknowledgement of reality. Is the US bank/insurance/drug/big oil not a consequence of market design. The state