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Comment by Snargorf | Hacker News Reader

The analysis is broken by the focus on the top 1%. They should be looking at the top 0.1%, or smaller.

It's absurd to put together hedge fund managers making $30 million a year with the established doctor who works two blocks from your house making $250k. These are entirely different phenomena.

You can see it by the section where they realize, shockingly, that the most common workplace among the 1% is the doctor's office. Well, duh. That's what makes it so clear that the 1% is much too broad of a target.

When people (innumerately) rage against the 1%, they're not thinking of real estate agents and local doctors and lawyers and dentists and university or hospital administrators. But that's who the 1% is.

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1% is obviously a simplified, talking-point metaphor; not a literal 1 out of every 100. The sliding cliff, gray-area seems to be an issue regarding the problematic portion is around the top .01% or perhaps smaller still.

Another issue is that said narrow group is incredibly skilled in exploiting whichever rules are enforced, buying elected officials from all three branches of US government under the current campaign finance rubric and generally making sure their interests are first.

Folks whom have tax accountants, tax attorneys and investment managers are able to hyperoptimize purposefully-byzantine tax code while grandpa does TurboTax (in the US, take a look at the 1040 (full, non-EZ form) for all the odd, special interest tax deductions which clutter up forms and have the own extra forms (Schedule _)). Complexity is a game to catch the unweary, confuse most people and create an official "elite qualifying miles" gambit to reduce taxes in "certain" situations.

It comes down to whom has the most influence over collection, allocation and redistribution of taxation.

If we focus on the .01%, I am not sure what we are observing says much about inequality in our society. More to do with the fact that 50 years ago, a successful US entrepeneur would sell its products to a few millions americans, if he was lucky enough to be a national success. And if it was international (even more rare, and taking many years) a few more millions western europeans. The rest of the world was basically not a potential customer.

Today a successful entrepeneur can go directly international, and with a client base that includes not only the US and Western Europe but also a huge (and quickly growing) middle class all over the world. This is several orders of magnitude the potential reach than 50 years ago. Successful entrepeneurs make billions not millions anymore.

So it's not absurd that we end up with more extreme wealth in the top .01%, and I think it is kind of structural to a modern, global society.

If we focus on the 1%, or rather the delta between the 1% and the 99%, I think we are rather observing skill supply/demand mismatch. In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour). So they will do worse than the more sought after skilled labour. It can partially be mitigated with better education. But part of it is also structural. Not everyone can be a good programmer or engineer. Unless we find a way to change IQ distributions, we may have a long term problem here that we may not be able to solve.

> In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour).

You're right, but the reality is that even skilled workers rarely make it to the top 1%. In fact, they might not even find a job in their field.

Even if you're super-high-skilled and work in Silicon Valley as a programmer, your net income probably doesn't come close to the entry bar of the top 5%.

But the examples cited in the article all relate to an undersupply of physicians or lawyers, or professions that have not learned to scale.

Part of the problem is the US education system seems to not be turning out enough people with quality educations, even when there isn't a shortage of of credentialed people. For instance, there are plenty of lawyers. Most of them don't make much money and leave the industry quickly. Yet it is difficult to find a highly qualified lawyer to handle difficult issues.

With medical professionals, there is simply a huge shortage. Same with researchers, engineers, etc.

My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates. Reasonable being new graduate hires start out at CPI adjusted rates to near top end in silicon valley.

"not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates."

Um... that is the definition of cheaper. In your own justification sentence. H1B must (should) be paid at your prevalent rate -- and this may not be what you consider a "reasonable" rate.

"My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates."

Sounds like "H1B visa holders are cheaper" to me. High quality engineers should be commanding on the order of $250k. In the absence of H1B visa holders lowering wages, that's what high quality engineers would command as an average salary; same as a good doctor or lawyer.

The main reason doctors and lawyers cost that much: you can't H1B them. Lawyer skills are too specific to a locality and subsection of the trade; for whatever reason, law school doesn't actually help with this -experience, networking (particularly for criminal law) and apprenticeship is how it ends up working. LLD is just a hoop that needs to be jumped through to get such apprenticeships. The AMA is the most effective labor union in America, keeping out highly skilled doctors from abroad by denying their skills validity.

Layer's pretty much world wide, have some form of 'local certification' in the form of 'Passing the bar', or equivalent local requirement. Its not that the skills are specific to a locality, its that in order be allowed to practice law in a jurisdiction you must complete the local requirement.

Learned to scale? It is quite intentional. The medical boards are controlled by the doctors themselves. They decide how many residents to train for their specialty each year. The usual figure is about under ~300students/yr for the most sought-after (and "undersupplied") specialties. That keeps wages up. This is not like programming where you get a gamut of skillsets and 120,000 extra immigrants hopping into the pipeline each year. There is no supply/demand equation here other than what is allowed by specialty medical boards themselves.

But they still have the concept of one very highly skilled and expensive doctor in front of every patient. It is a form of craft industry. It hasn't moved on to the industrial area, where you only need very skilled workers to create and prototype, but that scale well by not putting these expensive workers in front of every customer. Even banks have done that.

I am not saying it is easy, and perhaps the technology doesn't allow it yet, but undoubtfully this is a next step in the medical profession.

Haha... Try being a programmer outside Silicon Valley... Or outside the USA... Disparity comes in many forms.

That's exactly my point.

The bar for top 5% is like 90k/year.

$90k household income is too 29%.

Top 5% household income is $220k.

As of the 2014 census.

I believe it's significantly higher than that, though probably still well within the norm for a market-paid, highly skilled, SV SWE.

http://www.kiplinger.com/article/taxes/T054-C000-S001-your-r... suggest that it was ~$180K in 2013 (this is presumably on a per-return basis, which is neither individual nor household income, but likely much closer to the latter).

Middle classes shouldn't be in the top percentiles but it seems to be so.

> Even if you're super-high-skilled and work in Silicon Valley as a programmer

At Google or equivalent, programmers can hit the household 5% bar ($220,000) within 2-3 years.

You're off on that. Plenty of sfba engineers in the top 5%.

I'm actually one of the people who think that the top 0.001% are fine. People like Buffett and Gates own valuable companies. There's not much we can do to change income inequality there, largely because it's not income, it's someone's private property.

I think the truly disgusting income inequality is at the top 0.01-0.001%. The overpaid CEOs who make absurd amounts of guaranteed cash. We have a tax code that absolutely incentivizes CEOs to look out for their salaries and one time cash bonuses rather than any stock grants they get.

We used to have a tax code that favored capital gains in the extreme, but now we overly favor income. Which would your rather have? A grant of 10 million dollars in a volatile asset that has a one year lock out period and a 20% haircut, or a guaranteed 10 million dollars with no lock out and an effective haircut of ~40%. You're losing only 20% of the money as a guarantee. Most people seem to be interested in the latter option.

Whenever we have debates about raising capital gains tax Republicans rightly point out that capital gains tax doesn't actually generate that much revenue for the US government. They're right, but that's insane, given how much wealth we generate every year.

I'm all for paying people well, but make them earn it!

The problem is, if you make all your income from investing, via dividends and capital gains, you pay 15% tax on it.

The 'wedge' on the first dollar earned by a minimum wage worker is 15.3%.

And then don't get me started on the deductions, Mitt Romney's IRA etc. that mean those guys can don't even pay the 15%.

I don't think your math adds up...in NYC a huge cash bonus gets taxed at > 50% combined Fed, state and local. The CEO will always take something that's structured as future capital gain, not in 1 year, but whenever he decides to cash out.

The tax system and rent seeking in this country is a disgrace.

Minimum wage workers aren't paying any taxes after standard deduction and exemption.

Capital gains is now 20%.

fair enough, the top bracket (over $400,000) now pays 20% on long-term capital gains and dividends.

http://www.fool.com/retirement/general/2015/12/14/long-term-...

the idea that minimum wage earners aren't paying taxes is a nonsensical talking point with no basis in reality. It only works if you disregard FICA, which is economically unjustifiable and not done in other contexts (like quantifying big government's size and tax bite). The bottom line is there is a 15.3% wedge between what the minimum wage employer pays and what the employee receives, and that's what has economic impact. The EITC offsets a part of the wedge, but only a part of it.

This Planet Money podcast is worth listening to, "When CEO Pay Exploded." A good exercise in the law of unintended consequences: http://www.npr.org/sections/money/2016/02/05/465747726/-682-...

What's the difference between income and private property? Nothing relevant here. Owning stock is just a ticket to future income, a share of wealth created by employees. Same as a hired CEO payment.

It's a proxy to take a look at potential resource reallocation.

It seems grotesque when human beings in Silicon Valley are left with no viable option but to live in their cars or under a bridge, while folks tool around in their latest Lamborarri/Ferrambo. If some people can't be meaningfully trained or can't find a means of self-sufficiency, we cannot just allow them to freeze to death on the street. It's not civilized. (I asked and found out that a male on street without disabilities in Santa Clara County receives only ~$5/day in cash and ~$4/day for food.)

Certainly more people in the upper brackets may need to pay something more than now in order for all reach a minimum standard of living, but perhaps not quite as much as billionaires. A gradual tax on all income seems like the fairest, least complicated and straightforward method... say tax starting at $25k USD (adjust for inflation/cost-of-living) , then slope up to something like 35% for most people and 50% for the top end. It's a question really of what quality of infrastructure and social investment is desired, because debt isn't free.

I've also noticed the gradual labor oversupply in first-world, white-collar jobs... there's just not enough work to go around. China, India and others also have tons-tons-tons of unskilled labor as evidenced by frequent usage of more people in-lieu of mechanical equipment for small- & medium-scale jobs. This labor supply/demand imbalance seems attributable to peak global population and increasing productivity/automation.

Perhaps an underestimated crisis is the desperate need for more entrepreneurs to create new businesses which add more jobs in order to utilize more untapped, idle value, especially of groups which are traditionally marginalized from interviews, not just because of PR value, but some groups are really good at some things. (Autistic spectrum personalities seem to be quiet good at sorting/organizing/labeling, etc.)

Your understanding of what high earners are doing to reduce their taxes is mostly incorrect.

They're just earning most of their income as capital gains or qualified dividends instead of ordinary income, so it's taxed at a lower rate. It's not really all that complicated.

I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that are not intended to be repaid.

That specific loophole was closed in Norway just half a year ago. Sigh... Lucky you to still have it in the US. (or not, depending on your position)

ex: Larry Ellison taking out a 9 figure loan with Oracle stock as collateral. He prevents a capital gains tax hit, maintains control of Oracle, and gains liquidity.

Kill 3 birds with 1 stone.

And how is this a problem? You would only do this if interest rates are low, and if you believe the stock will appreciate more over the long run than it would cost you to service the interest on the loan. Also, if the value of the stock tanks, the bank will come collecting and sell the shares you pledged as collateral.

Second, this is a part of doing business - you can leverage anything (real estate, stocks, bonds, etc)

Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair.

Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1]

It is a fair point for people to ask whether these legal maneuvers should remain legal.

[1] http://www.bloomberg.com/news/articles/2013-12-17/accidental...

The problem with a lot of these things is that often you can’t make them illegal, exactly because there are so many use cases that are valid. For example, if you make the above mentioned transaction illegal, with the exception of when it’s used in a valid business transaction or for non tax avoidance motives, his lawyers will just argue that this is the most straightforward way to get liquidity without eroding control of the company.

People like talking about fair and unfair, and the “spirit of the law”, but that all means something completely different to whomever is reading the law. What might seem fair to someone, won’t seem fair to others. I would assume a ton of “normal” people (i.e non entrepreneurs, income tax paying people) consider the loan thing to be unfair, but wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result.

Second, if governments want to limit tax avoidance, they should learn to make proper laws (i.e. no half way, rushing something out of the door). A lot of laws are made in a half assed way. Stuff like this comes to mind: http://www.bloomberg.com/news/articles/2014-11-03/malone-gai.... ("He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.")

> wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result.

Spot on! For the less finance lingo savvy, that simply means take a second mortgage/home equity loan or home equity line of credit (HELOC) for a vacation, to invest in another property, pay for college or other large expense, etc.

I completely agree.

Though for better or for worse, we seem to be headed towards an age of populism, which may actually start to affect the consensus manner in which the laws are read.

You can make them illegal by making only one legal way to get money from person A to persons B. Anything over a certain amount per year, basically cost of living, gets taxed. It doesn't matter what path it took to get there.

And thanks for the article. :)

So, if you make $100k per year (and you pay tax on that), and you then go borrow $500k to buy a house, you'd be happy paying tax on that $500k as well? And of course, you would need to repay that debt with after tax income, so you're paying tax twice. Because that's essentially what you're proposing. :)

Debt != income

Mandatory H. L. Mencken quote.

Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.

Nah, Im pulling from high assurance safety and security fields. Only approaches that worked for long periods basically create a design that enforces specific, good properties in every state. Other commenters are talking failed route of open ended design that tries to guess every form of malice. It's whitelisting vs AV signatures.

Let's not make strawman. It's more like you made $500k in income, put that into an asset, borrowed it back, and spent it. That is income. Just not taxable like the rest of us.

> It is a fair point for people to ask whether these legal maneuvers should remain legal.

We can ask all we want, so long as wealthy people buy politicians nothings drastic will happen.

But along with those taxes breaks comes increased risks. If a doctor takes their payment as dividends from being a partner at their medical firm, they are one bad local news story from losing a large investment in that firm.

Changing how we tax dividends will cause a massive change in how the highly productive structure their income, and if it reduces risk, it seems to follow it reduce productivity.

For instance, our doctors who invest in their local firm might instead take a salary position at the local big box medical conglomerate and put in their 32 hours a week with Friday for golfing. Instead of 70 hours a week they were putting in at their local firm not counting early morning rounds at the hospital to check on patients.

the one fact many leave out is that the money used to fund those gains was originally taxed. so you/they/me put taxed money into the investment world having already been taxed on it. the lower rate reflects the reality of that fact.

raise capital gains taxes will hit everyone's retirement accounts including those least able to withstand it. the fun of indirect taxation is that when attempting to punish one group there is a lot of collateral damage

Since it's impossible to fully track the wealth of the worlds wealthiest people, I'm just going to go ahead and speculate.

0.0001% of 6 billion = 6000 people.

I would say that 6000 people easily control anywhere between 20% and 50% of the worlds wealth. Especially considering that if you research "How many billionaires are there?" You come up with something like this:

"A total of 1,645 people made the 2014 billionaire list, representing combined wealth of $6.4 trillion."

So taking the top 1000 billionaires, or perhaps even the top 100 or so, and then you have the families who really have enough money to control things. These would be the people that are impossible to get much information on, but who definitely hold a lot of sway over the planet.

I think these families are the ones we should be concerned with. Either them or once again a small proportion of them, numbering anywhere between 5 families and 100 families.

> I would say that 6000 people easily control anywhere between 20% and 50% of the worlds wealth.

The 62 richest people in the world own as much as the poorest 3.6billion. In 2010 it was 388.

The 1% owns more than the rest of the world.

https://www.oxfam.org/en/pressroom/pressreleases/2016-01-18/...

Completely hypothetical but what would happen if those 62 people were "taken out" so to speak, would debt forgiveness happen or would there be more equality in the world or how do you see it play out?

Look closer at that data. Both the 62 richest people in the world and the 3.6bn poorest own a tiny tiny fraction of the world's wealth.

All you're really doing here is observing that the 3.6bn poorest people are really poor.

This does not support your statement that "the 1%" owns more than the rest of the world.

However, that statement happens to be true. If you look at the Credit Suisse wealth report that those oxfam figures are cherry picked from, you'll find that the 1% (globally) comprises about half the population of the US.

It's you, in other words.

I made two distinct statements. I did not try to support the second with the first one, I just recited the claims from the Oxfam report.

I agree, however, that "62 richest people own as much as poorest 50%" is really not that interesting. It might give a more astounding number to get the point across in the media coverage, but i. e. "x richest people own 50% of total wealth" would be much more interesting.

What is interesting though is that the number changed from 388 to 62 in just a few years. And the trend that the super rich become much richer even compared to very rich people. Take a look at this graph for example:

https://en.wikipedia.org/wiki/File:US_Census_income_discrepa...

(income discrepancies within the top 1.5% of households)

The problem is that since a few decades only a handful of people raked in all productivity gains.

It's not your local doctor making $250k that is in the 1%, it's the doctor who set up a diagnostic company and ordered lots of unnecessary tests and is demanding kickbacks from other healthcare suppliers, whose rent-seeking is pulling in several million a year:

http://www.newyorker.com/magazine/2009/06/01/the-cost-conund...

If your point was that nurse practitioners won't help that siutation a lot, then I agree (although I think nurse practitioners are still a great idea for other reasons). But I believe it's wrong to suggest this is not a real problem.

Similarly, salaries for top college and hospital administrators are routinely equally and exceeding that of your $30M hedge fund manager. Perhaps even worse, they justify this based on the size of the organisations they manage, which are easily inflated by hiring lots of non-teaching, non-clinical administration staff (not to mention mergers, which also give hospitals especially more market power to extract rents). It's all financed by easy money from student loans and from insurance/Medicare that doesn't have a choice.

So I totally disagree that looking at the 1% is unhelpful, because all of the things above are real problems that need to be solved even if you think inequality doesn't matter. Anyone born after about 1980 and anyone who has medical insurance or pays taxes is getting fleeced, and they're not getting better services for their money. Fixing that will make a much bigger difference in most people's lives than confiscating a bit from the hedge fund manager (though of course there's no shortage of screwed up incentives in finance to fix either).

You should go look at current statistics. $250k does not put in in the 1% you need to make closer to $380k to breach that mark.

Doctors work in an industry where compensation is strongly influenced by government policy. The government is the largest single payer for healthcare services due to Medicare and Medicaid which makeup roughly 40% of heath care costs in the US. The AMA lobbies the government heavily to ensure favorable rates on procedures paid for by those programs and thus ensures a high income for their members. So in the sense that a lot of their economic prosperity is derived from their political influence they aren't all that different from any other wealthy person who lobbies the government for tax breaks and other economic advantages.

That's $380k household income. A large fraction of the folks making $250k have spouses making at least $130k, so I don't think the grandparent is particularly wrong.

When you talk about tax policy that generally applies to households not incomes from individual jobs.

Right, and per capita income doesn't make sense to use as a metric... Unless you think infants are oppressed due to having high unemployment or whatever. (Since per capita income includes infants, retirees, etc.)

Yup. While a case can be made against some in the financial industry for extracting rents, the problem of the "1%" isn't about the top 1% of labour, but the oversized returns on capital that concentrates wealth in the hands of the top 0.1-0.01%.

Creating wealth is not the same thing as concentrating wealth.

True, but it's the concentration of wealth that's the problem. If the CEO and investors gave a fair portion of the wealth they created to their workers (see Walmart) or reinvested it into the company or other companies, then there wouldn't be a problem. The problem is ALL of that created wealth has gone to the people who control the capital. The workers (whose productivity has gone up nearly 300% since the last time real wages went up) deserve some portion of that return in, for example, fair wages. The labor market is not be a free market (for a number of reasons it likely never will be), and so we must regulate at least part of this equation.

And one way to do that is to put taxes on taking exorbitant capital returns as personal income; build something you want in the world with it instead (and in the process put it back into the economy). Another way, and one I'm partial to, is to institute a basic income, that way people will never work for exploitative wages, will always have a base of capital to pull from, and will bring the labor market to something much closer to a free market (where price discovery will actually work).

Whose productivity has increased threefold? How?

"Creating wealth" is such a loaded term. Do people like the Walton family and the Koch brothers personally create billions in wealth every year? No. They depend on millions of people who work for them. They merely reap a ridiculously outsized share of the benefits for being the owners of all the capital.

You can hire these millions of people and they will work for you. Just provide better terms than Koch, so you will be wealthy and we will have better salary.

But you can't, because you require a starting capital and you'll have to compete with them in an unfairly titled market.

If the market was actually fair, it would be a lot easier to do a startup or a small company and start competing.

The capital markets exist to provide capital in large quantities to new companies that have a compelling business plan for making money. Consider all the investors looking under every rock for "the next big thing".

The Koch won't fund a direct competitor, so there goes your access to capital markets.

I had no idea that Koch controlled all investors worldwide :-)

Your typical investor isn't going to invest in "What Koch provides but less profit margin". Rather, they'd just invest in what Koch provides.

I didn't know that every business on or off the stock exchange was managed by Koch. I'm a bit surprised that Koch owns my business, too.

Eh, using the capital markets to start your company will make sure that yours will be just as investor-oriented and bad as every competitor.

I was thinking more along the lines of ALDI, which never took a loan or credit, and was started by the two brothers taking over a tiny store from their father, and later expanding into a global chain.

Not necessarily. Soon they will replace all those workers with machines, and they won't depend on workers anymore.

In the past they did create wealth, by actually founding those successful businesses. Of course that might have been luck and markets aren't perfectly fair, so maybe they don't deserve 100% of the profits. But still they did create something of value, at one point in time. A thing which continues to produce value today. It's not like Walmart just materialized out of the aether and Sam Walton just happened to find it first.

Of course deontological arguments are silly and it's impossible to know who "deserves" what. I think a consequentialist argument is much stronger, that taxing rich people and redistributing the money to everyone, creates more benefit to society than it harms.

Consider the case where worker Fred creates $100/hr in value yet earns only $10/hr. Me, as a greedy capitalist, wants a piece of that action. I offer Fred $20 to create $100/hr for me. Bob, that capitalist swine, outbids me and offers Fred $30. Ted, the running dog capitalist pig, offers him $40.

You see where this is going. If Fred really was underpaid relative to the value he produces, why isn't he getting a better offer elsewhere? You could postulate there are lots of Freds bidding for his job, keeping wages low. But then were are the new companies being created for the simple purpose of hiring boatloads of Freds and making 10x their pay?

Being underpaid seems like an unstable state in a free market.

In reality markets are not as competitive or as simple as the model. If you want to set up another Walmart say, it is not that easy to get it funded or make it a success, not as simple as just hiring a bunch of people and putting them to work to make money, as any entrepreneur knows.

Then is it really the workers creating that value, or the people, capital, and infrastructure creating that value?

For example, suppose I have a machine that, when a lever is pulled, it manufactures a gold nugget. A worker is needed to pull that lever - but is the bulk of the value being created by the worker or the machine?

It gets down to how one does the accounting for productivity. Get it too far wrong and one is likely to go out of business.

Suppose the workers unionized and negotiated for higher wages. Did unionization increase their wealth creation?

If workers negotiate for higher wages, then business is forced to put them on more productive tasks. Less productive tasks tend to simply not get done, or get replaced by automation.

Unions have sometimes priced themselves out of the market, meaning the business closed. Didn't that happen with Hostess?

And that's exactly the point. Entrepreneurs actually bring value to the table.

You're assuming there's a shortage of labor. Avoiding the situation you describe is why owners of capital are almost always pro-immigration.

There is always a shortage of labor that produces 10x in value. Investors will be lining up to create and fund companies to hire those people.

> You see where this is going.

Bob, Ted and you convene secretly and agree you won't poach each others employees or pay them more than $15/hr? And since you're the only game in town and can afford to undercut any competition until they're run off, everyone's forced to deal with it.

It's hard to see how the secret wouldn't get out that there are employees producing 10x what they're paid, and I don't see how you could get every investor in the country to collude voluntarily.

It's not that every one has to collude it's that enough collude to make things worse.

Yeah, pretty much everyone has to collude. Otherwise, why would anyone work for $10 when someone else offers $20?

Because there is imperfect information available. Because people take poor deals out of necessity. Because the guy paying $20 isn't hiring right now, but the guy paying $10 is. It's really not hard to think of some potentially realistic and viable reasons here.

And then Mark comes along, realizes you have some great employees, refuses to collude, and hires them for $50/hr.

Which ends the practice after years of wealth extraction. Economics is efficient only in the limit to infinity, not immediately.

Recently a large national retail chain in Australia (Dick Smith's) went into receivership and left its owners (shareholders) out of pocket. They were no doubt paying Fred $200/hr even though he was only creating $100/hr in value. I think workers in industries with a liquid labor market like retail probably are being paid about what they're worth, as evidenced by the fact that sometimes their owners lose out. It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!

The problem is, unless you know what Fred does, it's really hard to gauge whether you have the $200 Fred or the $10 Fred. Worst still, Fred the dev usually doesn't know either, he just likes playing with technology and rewriting the same wheel with new shiney abstractions.

It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!

Often when the greedy capitalist loses, everybody who works for him also lose. People talk about the risks capitalists take and try to compare them to workers using sheer dollar values. That valuation completely sidesteps the diminishing marginal utility of cash.

If a capitalist goes out of business and his $10 million factory ends up getting sold off for a net of $3 million after paying his debts, we can say he lost at least $7 million. His workers, on the other hand, don't lose anything but their jobs. However, those workers might have been living from paycheck to paycheck, leaving them far worse off than the capitalist who still has $3 million in his pocket.

But did the founding owners or managers take massive $1000/hr wages while this was happening? Likely so.

You're suggesting the owners wrote themselves checks out of the business to the point that the business went bankrupt, thus destroying their source of income.

Why would an owner do that?

That's a steep and short ladder for Fred, the lucky guy. In my experience, it's usually a lot more horizontal and lengthier. I want to say it doesn't detract from your point, but there's good reason why you want a long climb "to the top" if you're at the top and trying to keep more of it for yourself. Fred shouldn't have really been paid $10/hr in the first place.

Not everyone has good information about this market. I don't get to see how much someone paid for Fred's labor. That means someone is likely to underbid for my labor if I'm in the same business, to which I must take time to convince them otherwise. I can also try to get them to overbid for my labor, to which they must convince me otherwise. And off we go to the negotiation. Why is it good that we have different people producing similar levels of output and are paid differently?

I don't know if it's good per-se, but it's preferable to the most obvious alternative, which is centrally planned and arbitrated compensation. (I'm not trying to erect a strawman, but how else would one ensure perfectly equal pay for equal output other than via some centralized mechanism?)

As a Fred, assuming you want to continue to be an employee, you should sell your labor to the employer who gives you the best overall deal for you. As an employer of Freds, you should seek to get the best mix of Freds you can for the lowest sustainable rate. Bringing in other actors to arbitrate and equalize pay doesn't add anything that the actors in the system can't already do, IMO.

(Maybe Fred1 values that his employer allows dogs, or has bike parking, or is a short walk from his house. Maybe Fred2 likes his employer's stance on social issues, or benefits package, or likes working 4-10s instead of 5-8s. How will the central pay authority value those things better than independent actors making their own choices?)

There's really no such thing as two equal employees. People are different. For example, back when I worked at Boeing, there were two cashiers in the cafeteria. One young, one old. The line for the young one was twice as long, because she rang up people twice as fast, and everyone knew that. Union rules, which presumed that time on the job determines productivity, required that the older worker got paid more, and when layoffs came, the young one got laid off.

This is exactly what the article addresses. It is about the imbalance in the US economy, in which large companies are not seeing the competition that they should, and the record profits are being sequestered by investors instead of making their way to the employees. It continues on to argue that the barriers to competition in the US are defending large companies.

Except this doesn't happen. In fact there are wide swaths of people all capable of doing this one job (in fact any job, even CEO) roughly equally well, and they are all desperate for jobs so THEY are the ones competing, racing to the bottom for any job the elite capitalists who control all of the wealth are kind enough to create for them.

Someone taking $10/hr for $100/hr creation in value in order to get the job over the guy who offered $11 is what is actually happening.

The workers and capital are just part of the equation. The more fundamental part is the consumers. The current trends will eventually kill that too. It is a loose loose situation.

I'd be interested to see the degrees of privilege that take place among the upper echelons of the 0.1% - what types of opportunities are only available to them? Are there tactics we are simply unaware of, that skew our understanding of the fight for economic prosperity?

I imagine a much greater emphasis is put on the value of time as time really becomes the only finite resource in most circumstances.

This topic comes up on AskReddit frequently. There was a post on it yesterday [0], and I found this [1] comment rather interesting as it highlights the fact that material possessions are only one small aspect of being truly wealthy. The real value comes from the connections that can be made while moving in these social circles.

0: https://www.reddit.com/r/AskReddit/comments/4bpjxo/what_item... 1: https://www.reddit.com/r/AskReddit/comments/4bpjxo/what_item...

Here's a long post from a while ago that goes into even more detail:

https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...

If you mean in term of quality of life, I actually think that in absolute terms it is probably marginal. They might enjoy a more comfortable life, going to places where the normal middle class doesn't go, tasting food which is slightly better. But they don't eat more calories than the average american, if they get sick they will be treated with the same molecules than the average american, the shinny tesla car they will drive will not transport them much better than the cheap Ford of the average american, they will not sleep much better in their big house than the average american, etc.

If you think in term of investment opportunities, clearly there are many investments that are only accessible to wealthy people, because of the amount of risk they involve, or because owning a tiny fractional share of a company is a sort of anomaly. Most investments (building, company, project) have few and require few investors, not the least to ensure proper governance.

But at one point the marginal benefit of the accumulation of wealth becomes zero. I don't think someone who own 1 billions lives much better than someone who owns 50 millions.

> If you mean in term of quality of life, I actually think that in absolute terms it is probably marginal

You are severely underestimating the importance of peace of mind. When you are poor, you are always worried about making rent. When you are middle class, you might be a few paychecks (or a hospital bill) away from insolvency. The wealthy don't have to worry about those things.

John Scalzi has an awesome post about the cost of being poor[1] on his blog.

http://whatever.scalzi.com/2005/09/03/being-poor/

Edit: d'oh, my reply is off-topic because I misread GP's post - missed that the distinction is between 1%ers and 0.1%ers. Considering that; I suspect the difference is in influence (my guess is the 0.1% are likely to be more 'politically involved' or better connected)

I don't think there is a single item on the list of this blog that applies to the american middle class or even lower end of middle class. Poverty is a different issue but what this article is referring to is the gap between the "1%" and the rest of the population, and I think a typical middle class american is the right comparison to assess whether this is such a gap in quality of life.

I think @sangnoir was too quick to retract the point. A typical middle class American is one job loss or disability away from despair. Funding a child's postsecondary education is also expensive. The middle class are certainly better off than the poor but the 1 percent have much additional peace of mind.

This is nonsense. There's a direct link between wealth and life expectancy, likelihood of surviving surgery, likelihood you'll be killed by the police, sentenced to prison etc.

Like the comment from sangnoir, I think you have in mind the poorest fraction of the population. I don't think the middle class has a different life expectancy or likelyhood to end up in prison than the top 1% / .01%.

I do think the middle class and the top 0.01% have a different life expectancy and likelihood of ending up in prison.

See https://en.m.wikipedia.org/wiki/Alice_Walton#Automobile_inci...

As others have said, even most of the top 1% isn't immune. They have to work to make money. Many people who are not billionaires probably spend more than they earn making them vulnerable to losing almost everything if they have to spend a year or two in prison.

Why is someone not surviving surgery? Do they have a poor diet, which contributes to riskier health situations?

Why will they be killed by the police? Are they threatening someone or do they look like they will?

All of the things you listed come down to attitude and personal choice.

Yeah, really the takeaway message from much of the news coming out of the US over the last year or so is pretty much that everyone is treated both equally and fairly. I don't understand anyone who complains about racism, the ever widening gulf between rich and poor etc.

Yup, everything bad that has ever happened or will ever happen to you is your fault.

In many places in the U.S. "look like they will" is synonymous with "having dark skin". What a horrible attitude and personal choices these people must have.

Your post has no basis in reality. Stop believing the media. It just makes you look foolish.

The knowledge that failure will never make them poor. Investing to maybe reach an even more dynastic level of wealth is an entirely different game than investing to hopefully be able to pay your bills when you are too old to work.

And this very same difference applies not only to financial investment but also to how young people approach the topic of careers: with a golden spoon fat enough to feed them and their future children for the rest of their life, people can focus 100% on aiming high. In fact they even have to, because it's their only chance of ever getting any sense of personal achievement. The lower ranks however have to split their attention between big dreams and ensuring basic hirability for when the big dreams fail. This distraction alone should be enough to keep the dynastic wheel rolling.

And maybe another thought, I don't really want it to be part of my argument, because I think it is too speculative, but I think it is an interesting idea to consider: there might be a little Dunning-Kruger at work here as well. What if the most intelligent 99ers would focus the strongest on hirability/food on the table, due to being least delusional about actually making it into 1% territory? Then the only people who are both intelligent and aiming high would be golden-spooners who got lucky with both brain and parents, while their less intelligent peers would duke it out with equally not-so-intelligent risers. Certainly no rule as in "refuted by a single counterexample" (as I'm sure there are many), but maybe one of the forces at work nonetheless.

Edit: see "Edit" in https://news.ycombinator.com/item?id=11364978 , totally missed the part about 1% vs 0.1%. This all applies much less there, but still somewhat, because the "rich dentist" from the original article would surely be closer to middle class than to dynastic wealth in most aspects. Offspring will enter the workforce knowing that they will eventually need to put their own food on the table and personal investment strategies will still revolve around sustaining a given lifestyle until the end, not around concentrating power.

> The knowledge that failure will never make them poor.

Very insightful. This may get me pilloried in this thread, but that's the exact amount and structure of wealth that I'd like to give my kids (it will never be 0.01% level, but with the right structure, I think it's possible to provide a private "basic income" to them). I don't want them to have a golden/silver spoon, but in my own life and estate planning, an important goal for me is that I want to provide them with support, love, education, and a basic financial nut to underpin their life-nowhere near enough to do "nothing", but enough that they can take some risks and pursue what it is that they want to do, not what they must do to put food on the table and keep the lights on.

Give them a steel spoon in their mouth, and a work ethic

The 1% is a question of wealth, not income.

If you make most of your financial returns from capital gains, rather than income, you are in the 1%

The problem with observing wealth is that the numbers are polluted by things like real estate bubbles.

In theory, if you own and live in a £1m home in London you are very wealthy, you could sell it and live off the proceeds in a cheaper place. But in practice you are not really wealthier than someone who owns a £200k home in a village. That home is likely much smaller and the population of London is not going to migrate away from London. Real estate bubbles have made parts of the population much wealthier on paper but they still live in the same houses than before the bubble.

Actually income has a similar bias. You can earn twice the median salary in the UK and still not afford to live on your own in central london. Most junior bankers live in flatshare, but are on paper earning much more than an average family in a cheaper village.

These bias are what I think make comparisons of nominal wealth or income between countries a pointless exercise, and in a country as vast and heterogenous as the US a difficult exercise.

well you are wealthier. you have the option of selling your home and move to a village. the villager does not.

The additional option available to you is brought to you by your wealth

But again, no one really does that. And unless people do it en masse, that population is not really wealthier.

Why would selling houses en masse be necessary condition to call the owners wealthy? The mere ownership makes them wealthy, not their selling activities.

We care about wealth because we care about power. An liquidity asset is like an empty threat.

It is very true while real-estate in the abstract is liquid enough, nobody likes to move so owner-occupiers are hard to compare to landlords, traders of real estate, etc.

How much is en masse? There are enough people relocating to my town buying homes with cash, from the sale of their much more expensive homes, that it makes buying a home for the current residents very difficult.

I'd say they were more wealthy for their property value and converted that value into liquid wealth by moving locations.

This is just ad-hoc changing the definition of wealth to suit your particular need at this particular time.

Someone with £1m in London is definitely more wealthy, because they have the option to move to a village and buy property to rent out with whatever is left over after they move into their cottage.

Or they could buy a huge rental house in a student town and make around £60k to £90k a year in rent.

If they rent cheaply themselves and put all the profit into more property, they can easily double the £1m in less than a decade without having a day job at all.

Repeat for another couple of decades, and they have a sizeable property empire. With some medium risk/return investing they can be well into the high net worth bracket well before retirement age.

This is the point of being in the 1%. Beyond a certain level you don't need to contribute anything useful in the way of imagination, creativity, or talent. You just need to own stuff and have cash to spare. As long as you take some fairly simple steps the money grows itself with very little effort or skill on your part. It's a classic feedback loop, and it will work for you as long as you let it.

Compare this with someone in poverty, where it's likely that whatever they do they will remain in debt once they get into debt. Unless they start dealing drugs, or winning the lottery, or building an unusually successful app or business (in their spare time while working three jobs at once), the feedback loop pushes them down and keeps them down.

> If they rent cheaply themselves and put all the profit into more property, they can easily double the £1m in less than a decade without having a day job at all. Repeat for another couple of decades, and they have a sizeable property empire.

Real estate investing may not fit a tight definition of "day job", but the part of it that you describe above is absolutely hard work, IMO.

> But in practice you are not really wealthier than someone who owns a £200k home in a village.

Yes, you absolutely 100% are. You could sell your London home, move to that village, and live off the proceeds.

Saying you aren't wealthy because you happen to live in your biggest asset is delusional (and part of a dominant political narrative promoted by the homeowner class).

Consider what would happen if a major financial bill struck each family (like, $500k). The London family might be forced to sell their flat and move into an apartment (or move out of London). The village family would lose everything they own and still be in debt.

Where would 1,000,000 londoners go? This is purely theoretical, which is exactly my point. On paper they are rich, in practice not to much.

There are tens of thousands of cities around the world they could go to. They could even just stay in London, renting instead of buying.

I would much rather own a $1m house than a $200k house. Pretending otherwise is just ridiculous.

Hedge fund managers make that much money because they earn much more money for their clients. And less than 1-2% of them can beat the market consistently, and only these 1-2% are accordingly compensated.

And it's not like there are high barriers of entry. Everybody can call local Bloomberg office and arrange for trial terminal subscription (I did it once). Or pay around $75/month for realtime market data feed and test strategies on it. Compare it to, say, becoming a dentist.

>It's absurd to put together hedge fund managers making $30 million a year with the established doctor who works two blocks from your house making $250k.

There will always be problems when trying to draw these lines.

Of course putting someone who makes $30MM vs $250k is absurd. What about $1MM vs $250k? $300k vs $250k?

There's an inordinate amount of conversation about this subject on HackerNews, which has some irony, since I'm sure the demographics here skew "wealthy". Everyone wants to believe they're in the "99%", but the fact is the vast majority of the population in America, and more so the world, would consider people here the 1%. $250k is more than most people need, in terms of sharing the wealth, even in a household. If there's a populist shift, your doctor may find some empathy for that kind of salary; the guy who coded the latest photo app won't.

If I were part of a 1% or .1%, I'd probably be making the same argument.

"The 1%" is just a simplification for the benefactors of gross income and wealth inequality.

And on top of that, a doctor is only in the 1% for a fraction of their actual career.

Four years of school, many of residency, maybe specialty, those salaries are to a large degree paying off accumulated debt and opportunity cost.

It would be cruel to try to take even more of that highly delayed income in taxes.

I agree with you regarding taxes, although I don't anyone can honestly say that having more doctors and other highly educated professionals is bad for society. Requiring 12+ years of education to do some of the menial tasks doctors do, that could be done cheaper by someone with less schooling, would also be beneficial to everyone. The same goes for requiring a 4 year college degree that costs +$50,000 for many non-professional jobs.

This is how medicine works today. Most US health-care is provided by nurses and Physicians Assistants which have roughly the education that doctors had 70 years ago.

You have to be worth something like $8 million to be in the top 1% in the U.S. by net worth. I don't think that includes most dentists.

This report is about top 1% of income, not wealth.

To be in the top 1% nationally, you had to have earned $383,000 in 2015.

In some cities that number is as low as $175K, very doable for a doctor or dentist.

Yep and I don't think that is a good measurement.

Of course, some of that is cost of living, but a lot of it is the lack of diversity in the ratings.

I'm sure Elko, Nevada has some doctors, but probably not many investment bankers. With less representation from other well-remunerated occupations, a doctor in Elko is likely to be in the top 1%; however, a similar doctor in Manhattan probably isn't.

That $383K is very likely a household income (or tax return AGI, which is a close proxy for household) figure, not an individual income figure.

Yes, it's household income, not individual.

I think your numbers might be off because the most I've seen for the 1% cutoff is 500-600k

I got the 8 million from here http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...

Feel free to cite a better source.

Interesting, like 'rashkov' that's much higher than I would have guessed. It does look authoritative, although part of the disparity may be that the "administrative" estimates of wealth are much less than other presumably more accurate measures.

This paper gives a more up to date chart on P. 62 in Table C.3: http://www.federalreserve.gov/econresdata/feds/2015/files/20...

  Table C.3. Net Worth Fractile Thresholds (Thousands $)
  SCF Bulletin Wealth, HHDs 
                      1989   1992   1995   1998   2001   2004    2007   2010   2013
  90th Percentile      364    357    381    494    740    834     910    953    942
  99th Percentile    2,251  2,318  2,460  3,793  5,787  6,356   8,360  6,815  8,155
  99.9th Percentile  9,703  9,207 13,898 15,346 20,338 25,109  30,826 27,488 30,894

I chose the top line for each percentile, which gives the highest figures, but it's possible that one of the "adjusted" numbers is more appropriate. It's interesting to me that over the time period from 1989 to 2013, the 90th, 99th, and 99.9th percentiles have all basically tripled.

The summary, in case the chart is hard to read, is that for 2013, the 90th percentile threshold for household wealth is about 1 million dollars, the 99th is about 8 million, and the 99.9th is about 30 million. The adjusted estimates (see the paper) are generally 10-30% lower.

A quick Google suggest that Dentist make 120k+ per year. Over a lifetime of a career that works out to roughly 5 million dollars of earning potential (Assuming you retire at 65 and never receive a raise.) Assuming you have a spouse that works as well you could pretty handily be in the top 1% as a dentist.

doesn't the dentist need to eat and a place to live? taxes?

No one gets to save 100% of their income from their entire life.

You're assuming dentists don't invest. In the independent film business one of the secrets to finding funding was to find a bunch of dentists.

I always understood it to be top 1% of income.

Asset wealth may make more sense.

Dentists can most definitely make far more than that in a career. I have 2 brothers that are dentists. One of them had a practice in Hattiesburg, MS (about 47,000 people) and in the city of Bay Springs, MS (about 2,000 people) and he was making anywhere from $600,000/year on the low end, to $1m on the best years.

Before he got divorced and moved to Florida, anyways, and the glut of dentists there has him making around $250,000/year max so far (lived there about 4-5 years now.)

He's planning to retire when he is 50 and he's 44 now. He got his pilots license in the last few years and now flies between his practices in Florida and owns his own plane (just a small little Beechcraft Bonanza.)

But either way, he's made great money in his lifetime through dentistry. Unfortunately my other brother that is a dentist I don't talk to that much so I have no idea of his earnings, but I know he also does very well.

Most dentists aren't making $600k per year.

I just think OP was being a little bit generous with who is in the 1%, particularly if you look at net worth which is a better metric.

Yes that's true, the 0.1% percent is phenomenally richer by definition a bigger contributor to inequality, and for the most part enriches itself entirely differently. That said, just as inequality is deemed unfair (I understand that's not the reason to oppose it), protectionism of these "guilded" industries can be deemed unfair in its own right. More practically, the inflation of doctor's compensation could inflate healthcare costs to the the point of contributing to inequality more as a leech on the poor than boon to the rich.

tl;dr, the things this article points out are definitely bad, if only for the immediate justifications given rather than the article's thesis.

"When people (innumerately) rage against the 1%, they're not thinking of real estate agents and local doctors and lawyers and dentists and university or hospital administrators. But that's who the 1% is. "

Actually that's not true at all. Even if those people are just under/barely millionaires, they're still getting most of the advantages over poor people.

They're probably also not paying rents, in debt as much, and probably had higher educations.

But that's okay. I don't think anybody that is rallying against the 1% is mad that there are people who aren't poor. They're mad that there are families sitting on tens of billions of dollars. They are mad that hedge fund managers are making tens of billions of dollars a year, and banks are able to gamble their mortgages and assets into oblivion, only to be saved by their tax dollars.

Nobody is mad at the concept of being able to improve your situation with hard work.

>The analysis is broken by the focus on the top 1%. They should be looking at the top 0.1%, or smaller.

I think sometimes a picture really does say 1,000 words. This short info-graphic video makes is pretty clear how dramatically top heavy wealth distribution in the U.S. is:

https://youtu.be/QPKKQnijnsM

It also does a nice job of comparing the "ideal", to the "perception" to the actual.

The "1%" is actually an interesting choice of number. Most NYC media types are friends with very wealthy people. They needed to pick a number large enough that it didn't seem like they were attacking people they know.

That's ridiculous. They say "1%" because it is easy to write and pronounce. It is a figurative number.

When people complain about billionaires, they don't think that $1.1Billionaires are monsters and $0.9Billionaires are middle class.

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