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Comment by swframe2 | Hacker News Reader

To paraphrase Keyser Söze

"The greatest trick the Super-Elite ever pulled was convincing the world that inequality is a desired outcome of a properly functioning economy".

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Inequality of outcomes is a requirement for incentives to improve. Correlated variance in income in return for variance in production is just. Generally, prices provide information about where more production is required, though at the cost of obscuring how that production was obtained.

What we quibble about is (a) the distribution of the income function relative to the individual's production, and (b) how much income gets distributed on the basis of mere ownership, rather than production.

The super-elite benefit much more from (b) than from (a). Mobility of capital means (b) is generally under-taxed.

Agreed that we need variance on the overall distribution of incomes to produce incentives to more efficiently produce goods, but not necessarily the bimodal distribution that's forming now. Not really disagreeing with you: I agree that we do not tax ownership-based income enough.

>Inequality of outcomes is a requirement for incentives to improve.

What proof do you use?

I claim this is self-evident. What counterproof do you propose?

Are you unironically claiming that having an inequality of economic outcomes is the only way to motivate/incentivise human behaviour?

No, "inequality of outcomes" . If you are motivated by status, then inequality of status outcomes. If you are motivated by helping your siblings, then inequality of your siblings' well being. If you are motivated by glitter, then just how much glitter you get. Money is but one dimension... I am saying it is self-evident that there must be some non-trivial gradient in at least one direction.

To be fair, it's not completely self evident in the sense that monetary inequality is the only incentive to improve. There are other kinds of inequality. Social status, for instance, rewards improvement, although it's very different.

If it were self-evident, it would not need to be stated.

Imagine the game monopoly. Then, imagine a house rule that says all players receive $300 at the start of each turn.

That's not the only source of income in Monopoly though.

Yes, but the incentives improved equally.

"Inequality of outcomes" is essentially what we don't have. These days, as capital has become even more important, your likely outcome is relatively easy to calculate. In many major cities today it is almost better to be wealthy and unemployed, than successful and wealthless. This state of things is somewhat expected of Europe, but lesser so of the US, or at least not of Americans.

The tricky part is, of course, that legitimate economic efficiency arguments can be made for allowing the highly productive to bequest their incomes to beneficiaries who are mere owners (to encourage the originators of the wealth to continue to be productive). But in practice, that leads to concentration of resources in the hands of people who are not necessarily as productive as their predecessors

The other confounding factor is that "production" itself in dollar terms is not some immutable variable, but the price-system reflecting the aggregate desires of all those people holding resources. As ownership of resources becomes more concentrated, the measure of income from production becomes less an ability to meet the needs of wider society through effort and skill and more the ability to secure the patronage of a member of a diminishing number of superrich.

The relationship between the basic economic concepts of productive efficiency (viz. creating as much value as possible) and allocative efficiency (viz. ensuring resources are exchanged to permit everyone to obtain as much value as possible without someone else having to subsidise it) therefore exists in tension.

Or we could give up the illusion that individual production is easily measurable, especially where it comes to highly collaborative / creative industries. (See: any number of debates on "10x" engineers, C-suite compensation, how much managers vs. their reports ought to get paid, etc. - and that leaves out discussions of more "team-oriented" cultures where success is thought of as a collective endeavor.)

You can have inequality of outcome with a much higher floor than what we have today. Social benefits are not an attempt to smooth things out, it’s scraping the excess from the very top to raise the bottom up to a dignified existence.

Good one! Let me try another angle: the greatest trick is to cover up the simple fact that the redistribution of wealth is arbitrary. We could agree that the owners of German Shepherd dogs do not pay VAT on Thursdays if they have a green hat on. Royals and the like were convincing people for who knows how many millennia that their status and power is from god. In a way we have the same with current tax laws, we all think they come from "somewhere", whether it's a necessity or logic, experience or a textbook. The search space is much larger than what we make use of.

That's what I am telling people all the time. The "economy" is not a natural law but it's completely man made and can be adjusted to whatever goals a society wants to achieve. Obviously there are some constraints but there are a lot of parameters that can be tweaked. The owner class has convinced us that shareholders and property rights are the most important players but there is no reason why this can't be balanced with other things like workers rights, health care or retirement systems for all.

Also, it's not just the "redistribution" of wealth that has some "clear former owner", but also how people divide "new" value that is created on-the-fly.

Consider a company that mines for gold -- how much of that new value is split between the people who own the land, the people who dig the ore, the people who process the ore, the people who lent some money long ago, etc.

I would think that the more straightforward paraphrase is even better:

"The greatest trick the Super-Elite ever pulled was convincing the world that they didn't exist."

I doubt you'd find many people who actually agree that inequality is a desired outcome of a properly functioning economy (even if it's true). However, the Super-Elite have been remarkably successful at disappearing into the background and making the world forget about them. Look at the headlines today: they're about ICE & undocumented immigrants, or Nazis in Charlottesville, or Russian interference, or antifa protesters. You see very few news stories about private jet vacations or the real-estate holdings of the super-wealthy.

I agree. The super wealthy prefer seclusion but it is hard to hide a 10 bedroom mansion and a superyacht. It is better to provide a strong "foxnews education" so there is no need to hide.

Honestly, I wonder if a symbolic model would work better for our society. Ask the rich to set aside 20% of their wealth to provide low interest rate (~1% to 2%) loans to the poor to be used specifically on self-improvement (housing, infrastructure, education, policing, healthcare, childcare, etc). The loans start small and increase with good payment history.

>Ask the rich to set aside 20% of their wealth to provide low interest rate (~1% to 2%) loans to the poor to be used specifically on self-improvement (housing, infrastructure, education, policing, healthcare, childcare, etc). The loans start small and increase with good payment history.

What you're suggesting would create more wealth for the elite. It's a loan, so they retain the same amount of money (since it's a loan, the assumption is that it's paid back), while gaining more money in interest.

I am lower end of the spectrum when it comes to my wealth, and I probably can't even claim any sort of middle class "label" in the USA. I avoid debt (because I can't afford to pay it back) and wouldn't even consider something like this.

If the interest rate in the loan was pegged to track inflation, it should be roughly zero-practical-gain.

But it's still clunky.

There's no reason we can't say "people earning more than a few million dollars a year can afford to pay a 97% tax rate."

We just need to have it wired together into a comprehensive plan. Hold passports if you have outstanding tax debt. Orchestrate "regime change" in Carribean tax shelters and Luxembourg instead of the Middle East for a change.

> There's no reason we can't say "people earning more than a few million dollars a year can afford to pay a 97% tax rate."

Sure there is. They won't bother creating any value if their marginal take is effectively zero. How hard would you work if someone said you couldn't take home more than $10K?

Ideally there would be tax brackets so people making $150,000/year aren't taking home poverty wages, but people making $1,000,000,000/year are taking home maybe a couple tens of millions, which is still perfectly comfortable to live on for an entire lifetime.

I think you're missing his point. Say your hypothetical person is making $10,000,000/year already. He has the opportunity to work 40% harder to 10x his income up to $100M/year. However, at this point, his marginal tax rate under your scheme is already 97%, which means that on that extra $90M in theoretical income, he will only take home an extra $2.7M. Now, it's not worth it for him to make that extra effort, to only increase his realized income by 27%.

The next question is: Why should you, someone presumably not making $10m/year, care? We care because when someone increases their earnings from $10M to $100M, in theory, they are doing so by creating value for society. In fact the people at the highest ends of the income distribution should be the ones creating the most value. So we really do want them to be incentivized to earn more. To ensure that they are, we need a top marginal rate that strikes a balance between unnecessary super wealth, and incentivizing the value creation that drives the tremendous prosperity of the modern economy. This is a delicate balancing act, to be sure. But it is extremely important to understand that it is a balancing act.

You don't 10x by working harder. You do other things but likely not work.

That's pretty empirically false.

Empirical with what data? The rich people I know get there not through working harder, but through making better decisions than ordinary people, in particular in figuring out what to work on. You certainly can't just work 10x harder to go from making $1M - $10M - you have to do qualitatively different stuff. Similarly in going from $10M - $100M.

Of course. Subsumed in working harder is making an effort to work smarter, taking larger risks, etc.

The standard answer would be that if someone already making $10m/year considers increasing their work ethic by 40%, they are almost certainly doing so for reasons other than need more spendable cash...

First of all, that's pretty clearly not actually true, if you bother to think about it. And secondly, even if it were true, I don't see how it's relevant.

If you're already earning far more than you are ever likely to consume and considering putting in 40% extra workload, as the person in your example is doing, you are almost certainly doing so because you deeply believe in a mission or hypothesis, because you want to beat someone to something or because you like the status of being the person to transform the fortunes of $company or found $newcompany, not because you have the instrumental objective of receiving a set percentage of the target $100m pa profit in your personal bank account. If the money's more for keeping score, gross earnings do the trick. You might even struggle to see how the tax rate on your personal income stream is relevant.

Work incentives look very different at the extreme ends of the income spectrum (as does the relationship between work ethic and earnings). Someone considering putting in 40% extra workload because their lifestyle is insufficient on $10m a year[1], would be fairly unusual, even for a multimillionaire.

It's much lower down the income scale where people work to fulfil their [future] consumption needs rather than despite having already met them that the work disincentive effects of higher taxes kick in.

There are other arguments against high super taxes like how easily they're circumvented and how they deter millionaires from parking their money in a particular country in an era of high capital mobility, and in some cases how they dilute efficient owner control, but the idea that the likes of Buffet, Gates and Bezos or even mere movie stars would have lost interest in working hard if their resulting disposable income stream were to be reduced by a [punitively] high tax rate is a little difficult to credit.

[1]there's even less you can't buy on $10m a year when overpriced luxuries for conspicuous consumers are depressed by high income tax on the superrich...

> If you're already earning far more than you are ever likely to consume and considering putting in 40% extra workload, as the person in your example is doing, you are almost certainly doing so because you deeply believe in a mission or hypothesis, because you want to beat someone to something or because you like the status of being the person to transform the fortunes of $company or found $newcompany, not because you have the instrumental objective of receiving 100% of the target $100m pa profit in your personal bank account.

That's a nice story, but is it true? If you believe that, then you'd have to believe that all of those people would work for free. If they really valued their missions above their own marginal incomes, then they'd simply plow 100% of what they would have been paid back into achieving that mission.

No doubt, there are people like this. I know some of them. But they are definitely the exception, rather than the rule. Most people are motivated by a mixture of things, but money is an essential ingredient in that mixture.

The idea that people who 'create value' are motivated by money does not stand scrutiny. The bulk of major discoveries have been by people motivated by curiosity, some so obsessed not even caring about their own lives, so its unlikely money was the motivating factor.

The open source movement has probably created hundreds of billions of dollars of value, yet it is not motivated by money.

And value is not created by individuals, you need an entire society with infrastructure, education, teachers, technology, stability, science, funding, wealth, markets to create value.

>There's no reason we can't say "people earning more than a few million dollars a year can afford to pay a 97% tax rate."

We have people "fox news" deluded into thinking the elite deserve all of it -- hundreds of lifetimes worth of money -- because all of their hard work went into making it (their workers made it), while their own wealth and security declines at the same time. In 1944 we had a tax rate of 94% on people earning over what in today's money would be $2.8 million [1], and it was the beginning of some of the lowest income inequality in USA's history [2].

Jeff Bezos would still be left with $9,000,000,000 on a 94% tax rate (I realize most of his net worth is stock, I have a hard time finding what it is without his stock, this is just an example).

I would love to see it too, but people continuously vote against their own interests.

[1] https://www.tax-brackets.org/federaltaxtable/1944

[2] https://www.epi.org/news/union-membership-declines-inequalit... (unions + income tax)

I suspect it wouldn't be as simple as that. The elites have many ways to make their earnings appear as zero on paper, or in fact don't have any earnings.

It would not. That interest rate doesn't even cover inflation, let alone the significant occurrence of default that you would see when using 'low income', with its high correlation to 'credit risk', as your criteria for lending.

> Ask the rich to set aside 20% of their wealth to provide low interest rate (~1% to 2%) loans...

Instead of or in addition to taxes?

> I doubt you'd find many people who actually agree that inequality is a desired outcome of a properly functioning economy (even if it's true).

I don't agree (with your statement). I mean, I don't think most people actively begrudge people having a better situation than them - just like they don't sit around getting angry that Rachmaninoff is a better composer than them, or that Michael Jordan is a better basketball player. I think people do sometimes instinctively feel that one person having more wealth is somehow depriving them - but that's not universal, and only comes up in certain situations.

> "The greatest trick the Super-Elite ever pulled was convincing the world that they didn't exist."

> You see very few news stories about private jet vacations or the real-estate holdings of the super-wealthy.

Like, I don't think you're actually claiming that there's any conspiracy here of the super-elite, despite the wording. But I don't get your point. You think it takes active work to make it so that there are no news stories about the super elite? I mean, I don't expect the newspapers in poorer countries to be filled with stories about how much better everyone in America has it. I don't think it's because Americans did anything special - it just doesn't really interest people.

And again, I don't think everyone in Africa feels that the fact that most Americans are better off than them is necessarily so terrible. I think this sentiment tends to come up in certain situations (especially when explicitly talking about economic inequality), but not in general.

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