Who Are the Top 1 Percent in America? | Hacker News Reader

Who Are the Top 1 Percent in America?

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69 pointsrandomname288 comments

This looks like it's talking about 1% in terms of income, or perhaps more specifically, earned income ("wages"). It's not talking about the 1% with respect to accumulated wealth. I would suspect there's some overlap, but the two aren't the same. Much of the "1% wrt accumulated wealth" group wouldn't have "wages" (if I'm understanding this correctly).

Yes, and that's because they're challenging Piketty's hypothesis that capital gains are outperforming wages, so they don't care about accumulated wealth (that could have been accumulated through either method).

That's a really good call out especially since the 1% in income one year might not be the same as next year, especially since the article mentions owners of small/mid sized companies that might have a really good year and hit the 1%.

The fact that capital gains include both corporate wealth and land value is insane. One is a productive asset that for the most part improves society, and can grow in quantity and value indefinitely. The other (land) is a measure of scarcity for an essential commodity.

It's fine that people make lots of money doing hard or rare work. Also great that people are loaning their saved money so companies can expand. It doesn't make sense for people to get wealthier for owning land.

Does it really matter? I challenge the notion that the 1% in terms of "income" is earned through working more or harder.

Rather that "earned income" is either extracted from the work of employees who have no choice but to work for less given the supply of labor vs demand, or it is extracted from one's unearned advantages (genes, better childhood, one's skillset happening to be in short supply, etc).

While the free market may be a good mechanism for allocation of resources and labor for production, I challenge the notion that it is a good mechanism for determining what individuals deserve to keep for themselves.

> one's unearned advantages (genes, better childhood, one's skillset happening to be in short supply, etc).

So what would you consider to be "earned advantages", given that things like "work ethic" and "moral behaviour" are direct consequences of the above?

Do there have to be any? That may be an American myth.

Well, if you don't have any then it becomes somewhat awkward to define any reasonable meaning for "fair".

bingo.

Two things:

> "They find that a significant chunk of the income accruing to the top 1 percent of earners in the United States today goes to the owners of mid-market firms in a broad range of non-financial industries around the country. In other words, it’s not Wall Street..."

It depends. How are these mid-market firms financed? How are their customers finance? Who/what ultimately drives the decisions and actions of these firms?

- While inequality is one measurement, the other is poverty, lack of opportunity, etc. The issue I see time and again (read: pattern) is once the discussion is tied to the 1% (via inequality) the push back is "there's nothing wrong with being rich (and greedy)" and immediately the war (for change) is lost.

On the other hand, if we focus on the marginalized, their day to day plight, etc. then we are less likely to get distracted. The point being, sure go ahead hoard all the money you want...but in the 21st century do so many _have to be left out_? How advanced are we when such history, a preventable pattern of history keeps repeating?

I appreciate this suggestion. When reading this I thought "Why do I care if the 1% are working or rentiers?" The outcome, being a growing class of marginalized people who lack equality of income, opportunity, and meaning is the same whether these people are rentiers or not.

I'm reminded of this excerpt from a recent article on Dollar General stores that was posted to HN.

"Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America. It’s based on the concept that the jobs went away, and the jobs are never coming back, and that things aren’t going to get better in any of these places."

https://www.bloomberg.com/news/features/2017-10-11/dollar-ge...

I care because landlords are a type of business that can be passed on whole to children and allows for the creation of hereditary wealth and hereditary wealth maintenance without risk.

If the profitability of a business is mostly because of a single person working there who takes most of the profit, when that person dies their children will not be able to easily maintain that income and so are more likely not to be hereditary members of an upper class.

What data do you have to support your concern about creation of hereditary wealth? Why do you believe that property management is somehow special as compared with other businesses whose profitability is tied to a single person?

>What data do you have to support your concern about creation of hereditary wealth?

The history of Ireland, France, and the UK to start.

>Why do you believe that property management is somehow special as compared with other businesses whose profitability is tied to a single person?

It's quite simple. If you own land and other people manage it, you just collect a paycheck from the land without any impact on its profitability. You can die and pass it to your kids and the profit stays the same and goes to the same place.

If you own a company that is completely dependent on you for profit, when you die the company stops being profitable. If you pass it to your kids and they are incompetent, they eventually lose the business.

> It's quite simple. If you own land and other people manage it, you just collect a paycheck from the land without any impact on its profitability.

In many places in the US, due to property taxes and other things, land is a burden that you will spend your paycheck on, not collect it from (until you sell). Granted if you are using the land for something profitable you might collect on it, but rarely is that use passive (often only if you have mineral rights, even e.g. landlords in the multifamily industry have to work to maintain livability conditions). Using others to manage the land rarely maintains an inherent value to keep you wealthy, at least in the US.

> Using others to manage the land rarely maintains an inherent value to keep you wealthy, at least in the US.

Property maintenance contracts aren't nearly as expensive as you might think they are.

Even with a mortgage, property taxes, maintenance cost and equipment upgrades, one can still come out on top with a profit margin.

*This experience is based off of single-family units, though I may have misunderstood your "land".

> one can still come out on top with a profit margin

Agreed, but that's rarely extreme wealth. The GP seems to point towards a more feudal situation which, at least on this side of the pond, doesn't seem to exist. And while land may be a primary inheritance mechanism, most significant gains are realized only after sale.

That's not accurate in my experience. I know about a dozen families that have multi-generational wealth maintained in large part through physical property holding and rent/leasing. They are all in cities, though; Cincinnati, Miami, NYC and LA - perhaps that's the difference?

>Inheritance Matters. An estimated 35 to 45 percent of wealth is inherited rather than self-made, according to Kopczuk’s review of the literature.

Not addressing the property management point, but this (from 2015) addresses hereditary wealth

https://www.brookings.edu/blog/social-mobility-memos/2015/01...

Thanks for asking this gbacon. It's a question that came to mind for me as well and one that ameister's big picture response below satisfies.

Hi ameister,

I've read this comment and your sub-comments. I agree with your assertions. I am ruminating on ideas your comments have sparked and questions they have raised, but as I go to type them I can't clearly communicate them yet.

I will say, I hope my question that you responded to did not prevent you from taking in the rest of my comment. The question was not meant to dismiss rentiers, but to remind myself that the inequality I am aware of is a problem that goes far beyond how the 1% accumulate their wealth. <----this brings up one question of timescales

> "Why do I care if the 1% are working or rentiers?"

Because fairness matters. We are social beings and our well-being is connected to the nature of our relationships and the fairness of our society. Once basic needs are met, most people would choose a poorer but fairer and more loving community than a society richer through cold utilitarianism. Many if not most people who choose the opposite aren't really happy.

And there are a host of other problems with such inequality. For example, democracy is undermined (money is power), and the idea of a meritocracy is likewise belied: https://news.ycombinator.com/item?id=15865876 (see my 9-point sub-answer).

Hello eevilspock.

Fairness seems to be the driving point behind your comment here and your linked 9-point sub-answer about the idea of a meritocracy.

I read your comment here two ways: 1. Being a rentier is more unfair than not. and/or 2. Accumulated wealth beyond that needed to meet basic needs is unfair (whether acquired via rent or not).

^This is me parsing your comment to hopefully reply to the point(s) you wanted to make. If I misinterpreted, please correct me.

On the merits of, I think there is a great deal of agreement and overlap between what you wrote and this line that I wrote about there being inequality of income/opportunity/meaning between the 1% (whether rentiers or not) and the 99%.

Yes, I believe we are likely in agreement :)

Though what I'd say about "accumulated wealth" isn't exactly as you put it. If there are two people of equal means, and one chooses to work all summer growing and storing tasty food for the winter, and the other chooses to play all summer and survive off of tubers all winter, this is fair. This is freedom of choice. But this sort of fair difference accounts for only a small fraction of the difference in income and wealth in our world today.

The authors of the OP also have similar concerns, once you read past the first few paragraphs.

"...Once basic needs are met, most people would choose a poorer but fairer and more loving community than a society richer through cold utilitarianism. Many if not most people who choose the opposite aren't really happy..."

Original commenter here - But I don't see how this is at all true when current reality, if not history, tells us the exact opposite.

For for democracy being undermined. Well, this is a language problem we keep making. That is, if it has been undermined to that extent then it is no longer a democracy. I'd add that it might not have been one in the first place. That is, something inappropriate must have allowed the undermining.

In my experience, mid-market firms are financed by smaller local or regional banks with whom the owners have built relationships. Certain industries, such as any where the firm has government receivables, are bankable almost immediately, but others are not. The latter give us the stories — that never seem to caution the listener to mind survivor bias — of would-be entrepreneurs scratching together high-risk initial financing with credit cards, borrowing from family, or second mortgages. None of these involve going to Wall Street.

The way to winning over business owners is to make a business case. In Thomas J. Stanley’s The Millionaire Next Door, he makes the case that the typical American millionaire gets there by starting a small business and then playing good defense, that is limiting outflows by not living extravagantly as the stereotypical wealthy in popular literature. This defensive mindset also plays in operation of their firms. Business owners deal constantly with people who want more: suppliers, competitors, regulators, the tax man, employees, spouses, kids, brothers-in-law. The noise floor is high.

Rising above the noise floor means doing the hard work of showing your proposed model actually works and is not merely yet another visit from the good-idea fairy. Business owners value relationships. Building relationships takes hard work. Connect motivated people from difficult backgrounds — from which many business owners themselves come — with mentors who will see and nurture the spark. Demonstrate that you are helping to provide a hand up, not a handout.

I think this is a good perspective. I also think talking about the top 1% is unhelpful and obscures the picture in a different way. Most of the top 1% are remarkably rich compared to the average American, but they are not so rich that they're completely removed from society or so rich that they have the power to buy politicians/laws to benefit themselves to the detriment of society in general. It's not helpful or fair to group engineers, doctors, and lawyers, etc. with robber barons.

The framing of 99% vs 1% was a poor decision, and they likely picked those figures because they meme well. As you say, though, if everyone was truly taken care of, this would be a moot point.

The "1%" meme has generated a mass of nonsense simply because English has a common word/symbol for 1/100 but not 1/1000. It's the "1 permil" or "1 per decamil" that is the problem of wealth inequality.

And also the public and journalists inability ton distinguish annual income from accumulated wealth.

"The framing of 99% vs 1% was a poor decision..."

Yup. This is an understatement. It's the wrong problem. And even if we get a solution, what good is it? As it's not the right problem.

As someone who fits into the top 1% of income, I find these analyses as inherently discriminatory against individuals in market positions that generate high incomes, a la Obama's "you didn't build that" statement.

In other words, is it morally wrong for the secretary in a medical office to be paid less than what the physician owner takes home in salary/dividends? The analysis intuits this position, and pessimistically states at the end that nothing will change for the secretary, attributed earlier to a political economy working against their interests.

Individuals make decisions throughout their life, especially early on, that determine the course of their futures. Do they have teenage pregnancy? Do they study hard in high school or trade school or professional school or engineering school? Do they have business intuition to start their own business?

I think the indictment should be against the University-government complex which tricks young people into taking substantial debt to chase degrees in fields with no long term potential for high earnings.

> is it morally wrong for the secretary in a medical office to be paid less than what the physician owner takes home in salary/dividends?

To the extent that their differing roles are circumstances of birth and life, and that fairness is part of your morality, yes, it is.

> Do they have teenage pregnancy? Do they study hard in high school or trade school or professional school or engineering school? Do they have business intuition to start their own business?

Those are all circumstances of birth, be it nature or nurture.

We have a strange notion of "deserve" in our society, that someone deserves more simply because they have a skill or circumstances that are in lower supply compared to demand. So physician skills are in shorter supply than secretary skills. But if they were shipwrecked on a desert island, and the secretary knows how to fish and keep them alive, suddenly he can command a greater share of income on that island. Arbitrary no?

Supply and demand is a strange notion?

And yes, the secretary would suddenly have a valuable set of skills that would command more in terms of "wealth".

Generous social safety nets are a compromise between "everyone gets the same because all inequality is wrong" and "If you're not doing something important you should die in poverty".

>We have a strange notion of "deserve" in our society, that someone deserves more simply because they have a skill or circumstances that are in lower supply compared to demand. So physician skills are in shorter supply than secretary skills. But if they were shipwrecked on a desert island, and the secretary knows how to fish and keep them alive, suddenly he can command a greater share of income on that island. Arbitrary no?

Does being a physician require a higher level of emotional intelligence, memory, reasoning, spatial intelligence, determination, stamina, moral conscientiousness, compassion, and a lower amount of mental illness, physical illness?

Not everyone can become a physician. Those who lack in any particular dimension have to compensate in other ways to succeed in medicine. It's why medical school admission is so competitive and multifactorial, to weed out those who can't make it, and shouldn't make it in the case of lack of compassion.

What do physicians deserve for an income? What do basketball and football players deserve? What do CEOs deserve? It's all from the same mindset: someone else has something I do not have.

One the reasons "not everyone can become a physician" is because physicians have one of the strongest protectionist unions in America, limiting access to the field and driving customers to fake doctors (chiropractic, naturopath, homeopath), hurting health outcomes.

Do you have some research/information you can share about this? It's a fascinating concept to me.

I don't disagree with you, but I'd encourage you to try to be a little more empathetic in thinking about how "individuals make decisions...that determine the courses of their futures."

Sometimes their decision set is unfavorable. Other times things happen that are beyond their control. Yet more people just make bad decisions.

People are the product of their environments.

Ben Carson, despite growing up in the slums to a single mother, became a world renowned neurosurgeon.

Statistically, Ben Carson's success is a rarity, but there were factors in his success that were not related to his upbringing, otherwise he would have failed as others in his position would have failed.

Should hard work, natural intelligence and giftings be punished in the grand scheme of things because others might not have that same inherent benefit? Should family wealth, connections, social status be punished because others lack?

Should Ben Carson be more deserved of his income because he came from worse background compared to his neurosurgeon colleagues?

I spent 15 years of my life studying my craft (medicine), while my contemporaries drank alcohol, smoked marijuana, traveled extensively, spent rather than saved, and otherwise wasted their gifts. Should they be rewarded and me punished?

And we can cut right to the meat of it: punishment versus reward, because this is exactly the direction that modern politics takes these studies and attitudes. It was part of Obama's class warfare tactics when pushing for tax increases on individuals making over $400k. I don't know how much you earn, but if you're in the 1% like me, you would feel the constant antipathy simply because you have a certain income (but a fraction of the wealth because of delayed gratification, student loans, opportunity costs, etc).

> Should hard work, natural intelligence and giftings be punished in the grand scheme of things because others might not have that same inherent benefit? Should family wealth, connections, social status be punished because others lack?

Rather than thinking of earning slightly less as "punishment," you should consider it as the price paid for civilization and the foundations upon which your very ability to earn a high wage are built.

>Rather than thinking of earning slightly less

What is your frame of reference for "slightly less"? Physician salaries are already substantially less than what they were 20-30 years ago in real dollars.

"I think computer scientists are paid too much, so they should be paid less. I think they're worth only 75% of what they get paid currently."

"I think kindergarten teachers are paid too much, so they should be paid less. I think they're worth only 75% of what they get paid currently."

"I think basketball players are paid too much, so they should be paid less. I think they're worth only 75% of what they get paid currently."

Most workers' wages are substantially less than they were 20-30 years ago.

So, should everyone's pay be cut proportionally to compensate the people who do not work? Should teachers be paid 25% less?

It's not about people who do not work. It's about people who do work, sometimes two jobs, and still don't have, say, any kind of medical safety net.

>contemporaries drank alcohol, smoked marijuana, traveled extensively, spent rather than saved, and otherwise wasted their gifts

The point most people are bringing up in this thread is that the children of the upperclass do that all the time and still inherit enough wealth and property to earn more than you.

>The point most people are bringing up in this thread is that the children of the upperclass do that all the time and still inherit enough wealth and property to earn more than you.

The point is that the top 1% defined by the article is based on wages, not wealth. Why isn't the discussion focused on taking wealth away from the super wealthy and redistributing it?

For instance, if you have a net worth of $50 million, then 10% has to be liquidated and given to the government. Would this be fair?

Not just given "to the government", but spent on public works, social safet nets, and other forms of productive redistribution.

And yes, I think 10% off of $50 million is plenty fair. Yes, you earned that money, and I bet you would use it productively instead of blowing it on a yacht. But there are homeless people freezing to death on the streets of New York today. Don't you think you can spare a little?

Fundamentally, like I said, I agree that the top 1% by wealth is different than the top 1% by income. Perhaps we should tax income using tax brackets that scale with net worth.

As a general statement of fact, American companies do not pay their workers enough. We know this because aggregate corporate profits are their highest share of GDP ever, and wages from labor are at or near the lowest. There are whole sectors of business that exist by paying poverty level wages to their employees.

This is not about it being "morally wrong for the secretary in a medical office to be paid less" than the physician owner. It's about the secretary not getting appropriate wages in the first place.

As for "decisions throughout life," you might want to take a closer look at what poverty is actually like in America.

>This is not about it being "morally wrong for the secretary in a medical office to be paid less" than the physician owner. It's about the secretary not getting appropriate wages in the first place.

Are you suggesting instituting wage price controls? Are you suggesting physicians, nationwide, are paying below market rates? Isn't it a contradiction to say it's below market rate when the market determined that the wage being paid is fair?

What sectors of business pay below poverty rates?

Has the standard of living been adjusted upwards over the last 20-30 years, with the development of technology, and widely available affordable energy?

>you might want to take a closer look at what poverty is actually like in America.

Teen/single mother pregnancy is the best predictor of poverty. What better example of a bad decision than to have sexual intercourse out of wedlock resulting in pregnancy? It was voluntary, yet it was a decision that can change the rest of her life for the worse. Is single mother pregnancy caused by people with bad morals?

> Isn't it a contradiction to say it's below market rate when the market determined that the wage being paid is fair?

Circular logic / begging the question. The crux of the debate is whether the free-market is a good arbiter of fairness.

> Teen/single mother pregnancy is the best predictor of poverty.

Poverty is the best predictor of teen/single mother pregnancy.

Circumstances of birth are the best predictor of poverty.

The free market is better at figuring out fairness than a central government. Supply and demand, by its nature, determines what is fair to be paid. If it wasn't fair, people wouldn't work the job. If it was more than fair, then more people would enter the job pool, which will cause an equilibrium market rate to be obtained.

Unfortunately, the central government gets itself into market regulation constantly and distorts the free market.

Poverty doesn't force people into single motherhood.

"If it wasn't fair, people wouldn't work the job."

This is demonstrably not true. People will work jobs that pay less than their cost of living hoping somehow to get by. Your argument seems to assume sufficient demand for an individual's skill/labor such that they have power in the marketplace to do as they please.

It’s inherently unfair from the beginning.

If you’re poor you go to a public school. Even if you are get a perfect GPA, it probably isn’t good enough to get into good universities. Anecdotally. my high school had several students that were AP scholars, national merit scholars, great SATs, etc... and all of them went to Ohio State after getting rejected from better schools. I don’t think anyone that went to my high school had been accepted to a prestigious university in several years.

Your teachers are also trying to teach 30 other kids so that will hurt compared to better public schools/private schools. Hell, you might even have to skip doing extra curricular activity’s entirely in favor of work, which will hurt your chances of going to a good college. Additionally, your parents don’t have “legacy” status at good universities which will probably hurt you. If you’re poor your family probably doesn’t have connections that will hurt you after your formal education has ended. If your family is poor then taking business risks are also less likely to happen and more financially risky.

The list can go on and on. I don’t know how to fix that and it wont be solved solely by wealth redistribution.

Any time I see an article focusing on income inequality instead of wealth inequality, I know I'm about to get my dose of invisible hand worship for the day. NYT statistic was that wealthiest 1% holds more than the bottom 90% combined.

Top 1% wealth (roughly $10M and up) https://dqydj.com/net-worth-brackets-wealth-brackets-one-per...

Top 1% income (roughly $400K and up) https://dqydj.com/united-states-household-income-brackets-pe...

Per Wikipedia, top 0.12% for household income is around $1.6M. Nothing to sneeze at, but we all know many people make much more.

The distribution in the tail is so extreme that singling out top 1% to top 0.1% of incomes seems like cherry-picking to focus on groups that provide services and exclude groups that make money with money.

If I’m reading this properly I’ve seen this dynamic countless times in middle market firms - founder/owner/CEO’s paying themselves $150k/year salary at companys doing $5m-$30m EBITDA. I.e. they pay themselves way below market because six vs half a dozen and optically having a lower salary is better.

Not to mention that "salary" is taxed higher than "capital gains." Paying oneself a "reasonable salary" (according to the IRS; and such that one is paying full tax on that salary) and taking other distributions at lower capital gains tax rates legally reduces the tax bill and lets one keep more money in one's own pocket.

You, too, can benefit from this scheme. Set up your S-Corp, stop being someone else's employee, and play along in the tax reduction shell game!

Sorry, it does not work like that (through 2017 anyway). If you own a pass through (s-Corp/LLC etc) distributions are untaxed, however all earnings of the firm are taxed at your personal tax rate. It’s not to say that wage and firm earnings are exactly the same, but pretty close.

There are a LOT of ways to game taxes if you're either an S-Corp or a C-Corp (without going into stuff like overseas, disguising personal expenses as business expenses, and other classics), and the original papeer has a very telling graph showing it (ok, so it's less than a 5% reduction, but it's still a tax break).

See the original PDF, page 72 "The marginal tax rate falls at the top because active S-corporation income is a larger share of total labor income at the top but is not subject to the 2.9% Medicare tax and 0.9% ACA Additional Medicare Tax. See Section 7 for additional details."

http://faculty.chicagobooth.edu/owen.zidar/research/papers/c...

Not to mention they're going to get WAY bigger under Trump:

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-pass-t...

Edit: as meritt posted, it's going to be like 20% (!!!), not taking into account the other tricks.

Yup - I was merely pointing out that there is not some massive tax arbitrage (pre-2017 and in the context of the data).

For example: Let's say a firm has $5m in net income before paying CEO salary, and let's say that the market rate for such a position is $1m/year, and the firm is 100% owned by the CEO. Let's say the company is in a high tax state (NYC? SF?). Now let's take two scenarios, one where the owner operator pays herself $150k in salary and the other where she pays herself $1m in salary. If the non salary income is taxed at ~45% and the salary income ~50% then her effective tax rate is 45.2% vs 46.0% for a ~$43k tax savings ($2.257m vs $2.300m in tax liability). This tax benefit is definitely going to lead people to want to characterize less income as salary, but in the grand scheme of things is not some wholesale tax doge as was previously implied...

Prior to 2018 at the federal level, this strategy only saves on payroll taxes, which is effectively just the medicare portion: ~2.9% - 3.8% of tax savings.

In 2018 however pass-through income gets to take a very significant 20% deduction off the top. Whatever findings they uncovered in that study are going to accelerate very rapidly under the new tax plan.

Not true. The new tax law excludes businesses that are labor-based (eg law firms, doctors, tax advisors). Precisely the folks described in the paper as the working 1%.

It’s really only a benefit to people who earn income from passive real estate investments — like Trump and Sen. Corker in a coincidence that will shock precisely no one.

>Secondly—and relatedly—S-corp owners are getting rich because so much of the revenue being generated by their enterprises is going into their own, rather than their staffs’, pockets. This may be occurring even in the absence of any nefarious Dickensian scraping of value out of exploited workers

If owners are pocketing more revenue, in lieu of distributing it as profit sharing or employee salary increases, that would seem to indicate the salary bargaining position of current and new employees is not strong.

Buyers compete against buyers, but sellers also compete against sellers. Employees are sellers of labor.

Employers can manipulate the market politically much more easily than employees can. The result looks like this:

http://econintersect.com/images/2013/10/67888593productivity...

I've found a pretty hard salary cap. 15 years exp, Bs degree earned somewhere in the middle, increasing experience, good references... and then I get to SF and have experienced intense bullying when I ask for anything beyond the norm of a new-grad transplant who works through the holidays.

Employment in programming jobs here isn't worth it for experienced people. Now if we restructured engineering orgs a little bit, we could pay the more experienced people proportional to the hidden value they create... but that would require "right brained"/non-Analytical thinking which is basically illegal. So we'll Lemming on until the engineering orgs with data driven decision making are replaced by the new Google of the heart.

This is why we need estate tax. It should also apply to trusts and the like.

If you're in the 1%, most likely you did nothing to earn it.

This is one of the reasons people left for America from the UK. You couldn't own land.

The article states that a large portion of the 1% (at least in America) is comprised of the working rich.

Whether an estate tax is needed or not is irrelevant to the material of the article.

1% of income earners, not 1% of wealthy individuals. That's a very important distinction

A large number of people here on HN are in the 1% as you only need a household income of $465k. That's easily met by two mid-level engineers at Google, Apple, Facebook, Netflix, AirBNB, et al.

Misleading. Likely intentionally so. Top 1% mostly comes from artificially scarce markets and pyramid schemes: lawyers (with intentional bottlenecks on supply at the associate level and a pyramid scheme to make partner), doctors (with intentional barriers in both requiring unrelated undergrad study and the hazing style apprentice model), elite university professors (pyramid scheme with grad students and post docs; salaries are now typically above $200k, reaching a million), executives (pyramid scheme based on connections and kickbacks), finance, etc.

The only domain requiring unique productive skills is doctors... The rest is all market manipulation.

Where did you find your stats on distribution (“mostly”)?

The article mentions other professions without the supply limiting that physicians and attorneys enjoy.

“Typical firms owned by the top 1-0.1 percent are single-establishment firms in professional services (e.g., consultants, lawyers, specialty tradespeople) or health services (e.g., physicians, dentists),” Smith et al. write. “A typical firm owned by the top 0.1 percent might be a regional business with $30M in sales and 150 employees, such as an auto dealer, beverage distributor, or a large law firm.”

Engineering-services firms also fit this description. Specialty tradespeople include plumbers, electricians, and lawn care and to belong to this cohort, they are running more substantial operations than solo self-employed: at least $3-10M top line and twenty or more employees.

Don't forget the franchise systems.

Excellent point. Some franchise terms require significant net worth and have six-figure fees, but that is not the case across the board. I have heard that Chick-fil-A’s franchise fee is only $5,000 but also that they are very selective. Subway’s initial fee is in the $10-15k range[0] with the cost to open between $100-300k, and the company will provide and help with financing.

[0]: http://www.subway.com/en-us/ownafranchise/franchisingfaqs

I find my stats in studies with much more robust methodology.

Here is a reference chain:

https://www.nytimes.com/2017/11/17/upshot/income-inequality-...

Tldr: "Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition.

The groups that have contributed the most people to the 1 percent since 1980 are: physicians; executives, managers, sales supervisors, and analysts working in the financial sectors; and professional and legal service industry executives, managers, lawyers, consultants and sales representatives."

> The only domain requiring unique productive skills is doctors... The rest is all market manipulation.

The difference between you and I is that I trust experts to be experts.

I'm also aware, because I studied law, that "oh it's a supply-side cartel" is basically a myth. Anyone who can rub two braincells together to singe their fingers can find a lawschool that will take them in (after all, that's what I did). There are more grads than openings, year after year.

Lawyers are expensive because the stakes for fucking up are potentially very high and the good ones are in high demand. Same with medicine.

Yep, the thing big clients are buying from big law firms is their liability insurance, not their super-unique law expertise.

I think it's a lot of things. Any lawyer is insured to the level that makes sense for their work, so at some level that's really not a differentiating factor.

A lot of it comes down to things as varied as depth of bench, using their famous letterhead as a club, familiarity and traditional relationship, old boy's network and so on and so forth.

But it's still silly to give a one-conspiracy-fits-all account of the legal world.

I should've been more explicit, I meant against bringing it in-house. My partner is an experienced commercial real estate lawyer so, really, I'm just reflecting her view - she's worked on both sides, in-house and private practice. The only reason, in her experience, that companies don't bring that sort of work in-house is insurance and the hassle of liability being worn by the law firm rather than the company. Also, it allows the client (i.e. manager at the client) to have someone to blame when it all goes tits up.

This is really excessively cynical. Any law firm can buy liability insurance, not all law firms have the kind of legal expertise of Cravath, Swaine and Moore or Slaughter and May. They don’t have unique expertise but they have extremely rare, expensive and reliable expertise available in quantity and on demand. When the stakes if a contract goes to court are in the billions you do not skimp on mere millions in legal fees.

Lawyers out of law schools are not qualified to practice the law. That takes an apprenticeship as an associate which is where the bottleneck is. It is a cartel, but not at the law school level.

There is a huge demand for cheap lawyers -- basically people who know rules of procedure and basic law. They don't exist, in part because law schools don't teach enough practical skills to be able to practice without malpractice.

The tasks of physicians don't require unique skills, in the sense that there is no other route to obtaining those skills. What they do requires skill, but often they are skills that could be and are acquired by different means, but are prevented from use by the arbitrary educational structure required by regulation. Physicians too benefit from the artificial benefits of rent seeking.

Permitting physicians to practice without certification has historically been a mess. That's why the rules are there. To filter quacks and con men.

Agreed, but it definitely could be argued that the pendulum has swung way to the other side, and that many diagnoses and procedures that could be performed by someone with 1 or 2 years of education are performed at a substantially higher cost and inconvenience by doctors.

Maybe an equivalent to the lawyer's "bar exam" without the degree requirement?

http://www.slate.com/blogs/business_insider/2014/08/02/state...

It could be argued, but that argument would be incorrect, because leaving diagnosis to untrained individuals unrealistically favours "obvious" - but wrong - shallow diagnoses over less obvious deeper diagnoses.

You could argue that doctors aren't great at deep diagnoses either, and unfortunately that seems to be true. But they're still likely to better than someone who lacks the experience or knowledge to understand why a shallow diagnosis may be misleading or limited.

Law is a different problem. Lawyers are paid to be persuasive, using some knowledge of law as a foundation for rhetoric. Specialist lawyers are likely to have access to useful domain-specific professional networks. But a lot of law is relatively menial (but expensive) form-filling. The very specific and self-contained skills used to handle routine property transfers, wills and probate, and so on, can easily be handled by paralegals.

Medicine doesn't have those nice clean silos. If someone has abdominal pain, the range of possible causes is huge, and often very dependent on an extended medical history.

I'm not saying to exclude doctors :) , I'm saying that primary care and triage could be done by individuals with less extensive studies.

Having more medical services does drive the cost down and I live in a country with firsthand experience.

Here in Uruguay, we have several tiers of care, the first one being an equivalent to a walk-in clinic plus doctor-to-home services. If your child has a fever, or you're feeling unwell for some reason, or you have a rash, you go to those and get immediate service. Here they're manned by actual doctors because we have a lot of them (4 per 1000 inhabitants, highest in the world).

These doctors usually only did the standard training (which is 6 years) and not the specializations (which are 4 more years).

These services are not free but they're available with a ridiculously cheap subscription (about 35 dollars/month) which includes free ambulance services in case of heart attack or similar.

These are the ones I'd man with nurses or equivalents in the U.S. They know better than to treat complicated cases - if they triage and understand your diagnosis might be more serious (let's say they suspect the abdominal pain is an appendicitis), they immediately transfer you to your primary care center.

As mentioned, if your injury or symptoms are more serious, then you can go to your primary health provider. These are under a "mutualism system", which is basically equivalent to being a state-provided healthcare system. Those are paid from your paycheck (4.5% to 6% of gross salary) and free for those under some sort of state subsidy or pension or equivalent.

Here you have access to all specialists, if you're on a standard service, you'll have to be referred by a general practitioner or have a wait time of a few months. There are also private insurance companies that provide a service on top of this, which for an extra monthly premium (200 dollars in my case) you can get same-day appointments to any specialist.

Many doctors here are among the 1%, but a lot of them (those in the primary care centers I mentioned) don't make much above a standard wage.

I'm having trouble finding a source for this (I'm pretty sure I initially read it ~12 years ago, which puts it pretty close to the current linkrot horizon), but it's been claimed that many bar exams are somehow rigged to control the supply of lawyers as well. The evidence was something like the derivative of the pass rate being inversely correlated to the derivative of the number of practicing lawyers in the jurisdiction.

> The only domain requiring unique productive skills is doctors

Most doctors I know are simply information routers. Unless you're talking about surgeons I don't see what makes medicine more uniquely productive than, say, legal work.

Medicine contributes to economic output. Most legal work takes away from it.

Doctors and Executives are not 'pyramid schemes' in any sense of the word, and profs at elite universities represent a very small economy.

'Management' is a skill, not a 'market manipulation' and a very difficult skill at that.

Most of these 1% work huge numbers of hours, typically had to work pretty hard through school, and are smart and talented people - even if there is shifty stuff here and there, and a lot of 'born in the right family luck'.

I don't know any successful people who are fools who just lucked out through life. They're all pretty amazing.

Management is a skill. Moving up the totem pole to executive at increasingly senior levels is political games. It's a skill, but not one that contributes to economic output.

Founders excluded, of course.

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