Many housing developers get rich not from building houses, but buying land and then rezoning it to be worth more and then building houses. Effectively they leverage an areas existing infrastructure to increase the value of that land without paying for it. And often the way the do this is though direct and indirect bribery of local politicians.
From this perspective the idea of zoning is simply a way for the well connected to make money. If instead you charged people for their share of the construction costs of existing roads, schools, bridges etc when they added a new single family home you could automatically pay for any needed upgrades rather than having existing homeowners subsides their infrastructure either by having already paid for it or sharing in the cost of building new infrastructure to support new immigrants.
Edit: Of course when you start to dig into things Bill Gates also leveraged his connections to make most of his money. The reason he could sell an operating system he did not have to IBM vs them dealing with the guy that created it has everything to do with his connections and nothing to do with him actually building anything.
PS: Often people get rich by doing both. They make a the pie slightly larger yet end up with a larger piece than the size of their increase. I would argue that the best way to separate the wheat from the chaff in this case is a direct tax on wealth say 1.5% per year on anything over 2 million instead of traditional capital gains. While it does little to those who are directly making money it drains the type of passive old boy networks that most damaging to economic growth.
On 401k fees: (GAO) http://www.gao.gov/htext/d10153t.html (more readable blog post) http://moremoney.blogs.money.cnn.com/2010/01/19/finally-your... Note: 401k's should last well into retirement so over 60 years fees can really eat into that savings.
Bill gates connection to IBM: http://en.wikipedia.org/wiki/Mary_Maxwell_Gates / http://prospectingprofessor.blogs.com/prospecting_professor/... / Original DOS author Tim Paterson http://inventors.about.com/od/computersoftware/a/Putting-Mic...
As for developer bribing local politicization's, umm just read the news... http://weblogs.baltimoresun.com/news/local/politics/2011/05/... etc etc.
This is an odd thing to say, since SS is not in the business of investment. SS doesn't invest. It's a defined-contribution plan that takes the money in and loans it to the federal government. At some time later, they and Congress decide how much they'll pay you back. How can we know how much it would cost them to run investments?
>> Over the lifetime of many plans they extract 20%-50% of all gains
This isn't much of a statistic. If those expensive ones are charging lots of money for sky-high returns, then everyone is winning, right? But commonly, yes, they do take a big chunk of gains. But if you reframe your statistics to better show how hard it is to make money, it's really not so evil. If my investment manager is able to beat the Dow consistently, and takes a goodly chunk of the difference, then we're all better off.
Moreover, market theory holds that high profits are prima facia evidence that one is providing value to one's customers. Do you have reason to believe that this isn't the case here?
>> Bill gates connection to IBM
Yes, but so what? The only thing I can think to read from this is that the only people who add value are engineers; those who are able to see a need, identify a means of fulfilling the need, and bringing the two together, are irrelevant. But I think that this very story shows what a big difference such a role can make.
>> As for developer bribing local politicization's
I won't bother arguing, since again, I think you're making a point opposite of what you're trying for. Saying that government is corruptible and can be subverted to line the pockets of the unscrupulous is not a very good argument for having government step in to resolve putative differences in income inequality. Doing so would simply invite more abuses of power.
We know how much it costs them to collect money and do correspondence (aka mail stuff). While the SS administration is legally prohibited from running investments you can look at other government agency's that do so and it's significantly lower overhead than even cheap index funds. As to the actual costs of buying and selling stocks you can do that with moderately complex software buying 1000x as much stock is not a hard problem. http://en.wikipedia.org/wiki/Algorithmic_trading
If those expensive ones: There is a lot of research that shows high fee mutual funds simply have a lower returns. but for a quick summary: http://bonds.about.com/od/bondfunds/a/Why-Invest-In-The-Lowe... Buffet in support of index funds: http://articles.marketwatch.com/2007-05-07/finance/30714109_...
putative differences in income inequality Taxing wealth and not the income that wealth generates is not inherently punitive. What it does is eat's away at fortunes that stick with ultra safe investments in favor of the risk takers. Because I don't think income / wealth inequality is inherently bad, what's dangerous is type of back room deals /networks that favor 'old' money.
In the end I don't think there is much you can do to prevent insider deals, but you can put a damper on what it means for your great, great, grand father to have built a modest fortune that was managed reasonably well after that.
PS: I have plenty of rich relatives, heck my grandmother went to Harvard and one of my closet friends growing up came from 'old' money with multi million dollar trust funds so I may be a little to close to be objective on this one. But, on net I don't have a lot of good things to say about what happens when your parents inherit wealth and you can look forward to more of the same.
Most people aren't begging the SSA to manage their money on the cheap, so there must be some kind of benefit with those more expensive options.
However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
AFAIK this isn't actually possible. I looked into it at some point, and the amount you contribute is completely fixed as a percentage of your (earned) income. There are years where I didn't make a lot of income, or earned income only in non-payroll-taxed categories like grad-student fellowship, and wanted to top up my SS contribution for the year, but there's no mechanism for voluntary extra contributions.
(A few European countries do actually allow that; when I took a job in Denmark I had some options about what level of contribution per year I wanted to make into the state pension system.)
A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual. You could have all the talent in the world but if the infrastructure is falling apart, the educational system is struggling, and there aren't people who earn enough to purchase your goods, what good will it do you?
Money begets more money, certainly.
> when taken too far, has a negative effect on the society in which it occurs?
This isn't possible. A person can either spend money or store money.
When they spend money, they are telling others to perform work. That money then gets transferred to other people.
When they store money, that money gets placed in a bank or in an investment. In a bank, that money is immediately loaned out to someone else, creating a business or some venture, creating jobs and wealth for other people. In an investment, again, jobs are created and wealth for others is formed.
Now, can all of this run in a closed loop among the privileged? Only in a society with heavy government intervention where the market is warped. In a healthy free economy, talented people are quickly recognized and quickly brought into the loop. In an unhealthy controlled economy, you must know the right people to be allowed into the loop and the people allowed into the loop are rarely talented.
> A broader based of wealth occurs when a society is balanced not solely because of the supreme talents of an individual.
From each according to his ability, to each according to his need? History has already condemned your way of thinking.
This isn't quite accurate. You note later how markets work, but you're not seeing how much that's in tension with wealth concentration. At its furthest end, you simply have a private person in charge of a command economy. Look at countries considered "kleptocratic": most aren't klepto- anything, they literally possess most of the wealth and thereby direct development towards their families in a sort of feudal way. Most could probably forgo formal taxation altogether and my impression of compliance is that they essentially do.
The human tendency toward cronyism is universal. One could just as persuasively argue that FTC regulations and 'market-warping' affirmative action have made the economy healthier and freer for all.
It is. However, it seems to be at the greatest magnitude in large structures. Whether those large structures are governments or corporations is irrelevant. Keeping things small is the best recipe for equity, not grand schemes of redistribution.
We're a consumer economy. If the bottom 90% are having trouble paying their bills and don't buy as much stuff, the top 10% are going to feel the slowdown eventually. Think of it as your rational self-interest.
As a matter of fact, you know that graph in the linked article, how it shoes that inequality was way lower from 1941-1979? Guess which period of the 20th century had the highest GDP growth.
BTW, Bill Gates was in favor of a higher income tax in WA last time it came up, and as we all know is in the process of giving all his money away.
He's strongly and unambiguously in favor of the estate tax: http://www.trustsestateslaw.com/2009/05/warren-buffett-and-b...
Yeah, you're working for rich people, but somewhere along the line those people are making money by selling to people who work from a living. Personally, my software buys advertising on exchanges to sell to agencies who are acting for large companies who have subsidiaries who sell things to people who work for a living. It's just a question of how many degrees.
He is not denying economic realities, he is not denying the right for people to be rich, or to become rich, or to aspire to become rich.
He's just saying that a small amount of people helped themselves to a (too) large piece of the pie, and he tries to understand how we got there and whether or not this is a bad thing.
Think of it not as one pie, but as trillions of pies. You get one by buying one or trading others for their pies. Under this model, what right do you have to your neighbors pie.
Your last sentence is just a Randian fantasy strawman. No one is talking about going into your bank account and taking money out. But certainly people are talking about tax policy, which changes every few years anyway.
Are you interested in having a mature discussion about tax policy?
My place of employment deposit my salary directly into my bank account, sans taxes. Are you saying that there is a material difference between taking the money before they end up in my bank account (i.e I never see them) or after (e.g. I have to write a check to the government each month)?
I disagree with your last statement, and in general think the opposite is true; extremely large concentrations of wealth, of the kind seen in aristocratic or oligarchical societies, tend to shrink the size of the pie. A main question would be where the transition point is; I think the U.S. is probably still on the reasonably-good side of the line, though less comfortably so than it was in the 1950s-80s. There's very little (no?) evidence that modest levels of wealth distribution harm economic growth, either. A Soviet command economy, yes, but a social safety net in a market economy doesn't equal communism, and there's some modest evidence that it can actually improve entrepreneurship (because people end up less scared of leaving cushy corporate jobs).
Wealth doesn't originate in some pre-defined aggregation; it's generated by particular people in particular contexts. This concept of different people having different 'shares' of wealth relies on starting with some universal aggregation, and this always seems to be measured by calculating everyone's separate individual income and adding each of these values to into a single sum. But this implicitly acknowledges that wealth doesn't originate in an aggregation, so what's the justification for construing any aggregation at all?
I honestly suspect that shrinking the pie but making it more evenly distributed would be best for all for the increased social harmony and stability.
Here's a good place to start: Income Inequality and Social Dysfunction by Wilkerson and Pickett.
Here's another good resource, this time from Stanford - http://www.stanford.edu/group/scspi/
enjoy!
Now, onto the larger point. We care because unequal societies have a whole host of social ills: higher crime, lower social mobility, poorer health outcomes. There is, in fact, a wide and deep body of scientific literature about this. You are, of course, free to disagree with the science on income inequality, but that places the burden on you to say, "the science is wrong!", or to say, "high crime and poor health doesn't matter!"
Good luck with that.
Or downvoted for pointing out that the observable evidence suggests that we, as a society, would be better off in a number of measurable ways (e.g. reduced crime rates, greater social mobility, better overall health), in a society with greater money equality?
It may be a challenging idea if all one's ever heard is, "don't take my slice, just grow the pie," but there is, unfortunately, no evidence--historical or contemporary--that "just grow the pie" actually works in the real world.
What is your point in making rich people pay more for these services other than they worked hard for their money and you want to take a free ride?
They pay more because, if we taxed everyone at the same rate, we wouldn't have anywhere near enough money we needed to maintain even the somewhat shoddy state of civilization in the country.
You may not like the idea that the government has to pay for all of the things it does, and that's a fair response, but it doesn't really address the bigger picture: what kind of quality of life do we want in this country?
Just to play into the "low taxes for all" thought experiment, say we slash taxes across the board and have to cut a ton of stuff from our budget. Well, I can think of what I'd cut, and I'm sure you can do the same, and I'd bet there's some overlap, and some contention. But how would these cuts make life harder for your average American (who, mind you, is poor and sick and works their ass off week after week for very little wages)? If we don't care about them--if we throw them to the wolves of fate--is this the kind of country we want to live in, one we will take pride in? How would history view us, at the dawn of the 21st century?
And, to be wise students of history, and reflect on how we got here, rather than assume our forebears were idiots who didn't know what they were doing, why do we have the regulations on business that we do? Why do we have food safety? Why do we have regulations on overtime pay? (And whose bright idea was it to exempt IT workers from that?) Why do we have regulations on medicine, or laws that dictate how and where we drive our cars?
I'm not trying to ask a bunch of leading questions. I don't have the answers here. I just think it's useful to think more broadly than "a flat tax is a fair tax is a just tax is the right thing to do", both historically and ethically.
enjoy,
Roads certainly, for commercial transportation. Public education and food safety, probably not. The military, definitely, to protect and procure economic assets abroad. And elements of law enforcement (I doubt that you or I could dial up the FBI to raid someone cheating us, but the MPAA and Luis Vitton can).
So you want free pie? which your neighbor baked?
Do I personally want free pie, which my neighbor baked? No, I don't think so, and I think that very few people engaged in our ongoing policy debates want that--just like I'd guess that very few people engaged in policy debates are actually advocating a zero-tax policy.
But.. that's not really what taxation is (taking your neighbor's pie for free, outside the confines of the larger social contract, for no purpose but your own greed and with no recompense). What I would propose for the pie-taking exercise, and what has generally been considered ethical, and within the confines of social contracts that do uphold human rights and dignity, takes on, I'd say, a different character:
I have a pie. My neighbor has a pie. There's about five or six more houses all around us, all with a pie. We need a road in front of our houses, so we can go visit the internet cafe, but none of us has the road-making expertise. So let's all take a slice of our pies and give them to the guy with the paving machine.
We also need to make sure the roads stay in good shape, so we've got to give him another slice of pie every year.
We also (and this, I think, is where it gets uncomfortable for some people) need a way to make sure we all always give up a slice of our pie, so we all give another small slice to the guy who's going to go around and make sure we all give some pie.
We saw what happened that one year when it was entirely voluntary, how everyone figured the others would chip in, and no one did, and the road fell into disrepair.
So we not only need to pay for things collectively that none of us could realistically pay for on our own (one big part of the social contract), we also need to account for human nature and hire an enforcer (another big part of the social contract, and the one that makes people uncomfortable) to keep everyone accountable to that same social contract.
Do I want your pie? No. Do I want us all to chip in and pay with our pies for necessary services? Yes.
Very few people, I think, would argue with the need to pay for necessary services collectively. What constitutes a necessary service changes over time, though, and that's why we have an ongoing political dialogue. If these problems were so simple to solve that the answers could fit on bumper stickers, we'd have solved them long ago. But they're not, and that's why we'll never stop having these discussions, and rolling these ideas around in our heads.
best,
But all that new wealth out there bidding against you also represents new wealth out there available for purchase, driving costs down.
Under a stable currency, increasing wealth and productivity leads to steadily falling prices for most goods. This means that other people getting richer can actually benefit you even if you don't. But this process is swamped by monetary inflation.
Lots of people look only at nominal price levels and conclude that inflation hasn't been bad. But when you consider the major productivity gains of the past decades, we should have been seeing falling prices. The real inflation is the difference between these, and it's big, and it makes it harder and harder for the poor to stay above water.
It doesn't have to be a zero sum game for income disparity to be a problem. GDP typically grows at less than 5% a year, yet average income for the top 1% has grown at 10% annually over the last 20 years (http://economix.blogs.nytimes.com/2011/09/02/what-does-econo...).
It's not a sickness itself, but it's a symptom of the sickness. And pointing out that inequality has radically increased in the past decades is just pointing out we have a fever of 105F going on, here.
Dumping someone in the snow won't fix it, but you also don't just ignore it and say that administering medicine would be violating a free market.
If you were a partner in a business growing at 5% a year, and your income grew only 1% while your partner's grew 10%, would you let him get away with pointing out that you're better off than last year?
There is a maximum amount of US dollars in the world at any one time we measure it. We shall call this A. The wealthy 1% own .1A . That leaves, by simple averages that 99% can only have .9A .
US Dollars are being made at X per hour. This 'wealth generation' devalues the preexisting currency forcing money to follow this formula
A => A+X
The value that A was before is now what A+X has to be. Anybody who owned A before wealth 'generation' now owns less.Yes, I would call our system zero-sum for increasingly small amounts of capital. It is only when you can bypass the marginilization of X is it not zero sum.
The problem is that the positive sum creators (e.g. Warren Buffet) aren't as many as the negative sum players (e.g. George Soros).
edit: Political power might be considered another - at least up until the point when you cause people to riot.
Land can be created, especially if you define land as physical space suitable for human habitation and productivity: technological improvements that render formerly uninhabitable terrain useful can be construed as 'creating' land. Seasteading and space colonization will eventually begin 'creating' land in this fashion.
Technological improvements that allow progressively smaller amounts of physical space to maintain a constant amount of productivity also have a similar effect.
Even in the most literal sense, physical terrain can be created; the Dutch are pretty good at turning sea into land, and in the very distant future, we may be able even to construct entire planets out of dust and debris.
Maybe the supply of matter and energy with which to do these things is a zero-sum game, but not likely one we'll have to worry about any time soon.