Pooling and Sharing of wealth makes everyone's wealth grow faster
ergodicityeconomics.com
ergodicityeconomics.com
It seems largely pushed by one guy - Ole Peters. It seems he created the Wikipedia page on this subject. His research is done under the umbrella of the authoritative sounding “London Mathematical Laboratory”, which he founded.
It makes giant claims, like the headline here which seems intended to be read as “mathematics proves collectivism is best” - and yet offers little empirical evidence beyond saying that an abstract mathematical model can tell us something about the real world. Spherical horses and all that.
It even pulls the classic pseudoscience manoeuvre of positioning itself against “mainstream economics”.
Crank until proven otherwise IMHO.
Edit: looks like it’s not just me: https://arxiv.org/pdf/2306.03275.pdf
Edit 2: he has a Twitter account where he rails against mainstream economics. He’s a physicist.
For one thing, it's kind of like saying "if scientists really understood the weather, we wouldn't have tornados every few years". Or even better, "if we really understood climate change, we'd stop it". There's a big difference between understanding something and being able to do something about it.
Another thing, it's missing the nuance that financial crises could be handled better or worse, and it seems to me like it's getting better (e.g. compare the great depression to the great recession).
People like to dump on things they don't have much familiarity with, and software engineers and the HN crowd in general seems to think everything besides software is all noise full of uneducated people. (Not saying you specifically are an outsider to economics or a software engineer, but that is the general trend.)
I would even go so far as to say economics also explains quite well why usually nothing substantial is done to prevent them.
More information: https://www.youtube.com/watch?v=EwB5ihGu4Jw
“If biologists were so good at their science, they’d all be extremely healthy”?
“If sociologists could predict what humans think, they’d have a job”? In fact competent sociologists do, and generally in marketing departments. Same for economists.
Here's the quote: https://www.cnbc.com/2018/05/18/warren-buffett-explains-why-...
Paul McCulley (an economist) made certain predictions while working at PIMCO (as did Paul Krugman), and then he left and Bill Gross (PIMCO founder) ignored what he said and made certain financial moves and lost a whole bunch of money:
* https://www.businessinsider.com/this-was-the-bill-gross-blun...
* https://www.nytimes.com/2014/10/03/opinion/paul-krugman-depr...
Gross is way richer than McCulley (or Krugman), and yet the rich guys got it wrong and the poor(er) guys got it right. If only Gross had listened to the economists (that worked for him).
> Kenneth Cordele Griffin is an American hedge fund manager, entrepreneur and investor. He is the founder, chief executive officer, co-chief investment officer, and 80% owner of Citadel LLC, a multinational hedge fund. He also owns Citadel Securities, one of the largest market makers in the U.S.
I don’t see economist anywhere in Ken’s Wikipedia.
Just saying it doesn't count is a bit weak because that is saying training in a certain discipline and graduating in it has no meaning or skill transfer of relevance.
But I guess your point is to make sure that economists don't have any successes, not some deeper introspection into whether the study of economics can help in being successful.
One reason is that we can now better simulate the rational actors in a market.
The rational choice for food would not lead to an obesity and diabetes epidemic in the wealthiest country. Something doesn't add up.
Let's try again. Can you give sources showing that AI effectively models the economic decisions of non-rational actors? Anyone who can predict the economy should be able to quickly become very wealthy.
There was a physicist (Feynman?) who once joked that his job would have been much harder if particles had free will.
But there are regular experiments that are run in the realm of economics and various models make different predictions. It turns out that tax cuts don't pay for themselves, as some say:
* https://en.wikipedia.org/wiki/Kansas_experiment
* https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act
Turns out QE wouldn't devalue the currency and cause hyperinflation (as some said it would):
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://manhattan.institute/article/an-open-letter-to-ben-be...
Turns out that austerity is not expansionary (i.e., cutting government demand/spending does not grow the economy; see Chart 2):
* https://www.theguardian.com/business/ng-interactive/2015/apr...
* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
There are certainly areas where things can get complicated and there's room for debate, but in other areas the mechanisms are understood.
Just because some folks choose to go with ideology over accurate models does not mean we don't have accurate models: is it the fault of medicine that some people say vaccines and masks don't work for ideological reasons?
Austerity to the point of being able to pay down government debt is painful, that’s well known. Unchecked spending and unlimited growth in debt is however unsustainable.
Also this usually works short-term because companies and people still have the infrastructure from previous government spending.
When that infrastructure inevitably crumbles because the taxes don't suffice to support it 10 years down the road, it's too late, the infrastructure needed to create new businesses will be missing, leading to a downward spiral for the economy.
It's not so much that the idea was simplified to push a political agenda: Arthur Laffer himself, when popularizing the concept (with the eponymous Laffer Curve[1]), used it as an argument against tax raise in the US.
So the big problem with economics is not so much that its results are being hijacked by politicians to push their agenda, it's that most of them (at least most of the prominent ones) are in fact pushing their ideologies through their publications.
Also, I’m assuming it’s unlikely the government has set the tax rate at the optimal rate to maximise revenue. But this assumption is probably dubious because even without explicit knowledge of the curve governments are probably pushed towards the optimal rate.
“The basic concept was not new; Laffer himself notes antecedents in the writings of the 14th-century social philosopher Ibn Khaldun and others.”
IMO, it’s says less about economics than it does democracy. You can find many “think tanks” which are paid to create papers in support various ideologies. This doesn’t guarantee what they are saying is incorrect, but it does many they gloss over any inconvenient caveats.
"Expected value (a mathematical object belonging to the very rigorous field of probability theory) is often used by economists in a non-rigorous way."
The covert implication is something along the lines of, economists do this deliberately to gain the benefit of rigor that the empirical performance of economic theory hasn't earned. You should definitely interpret that first as a political argument, motivated by a metaphysical argument, motivated by a mathematical argument.
And you're right to hear some alarm bells, because that's certainly a controversial claim.
But it's not an outlandish claim. The field of psycho-economics is basically the study of the many ways that people observably, empirically don't make economic decisions on the basis of EV maximization, so what more need be said?
And there are plenty of other metaphysical arguments that you probably accept in principle. Pascal's Wager, and the converse Pascal's Mugging, clearly show that EV maximization at least has to "break down at high energy levels", to borrow a metaphor.
So, this thought experiment is one of those, but it's actually a pretty elegant one:
In a series of two coin flips you have four outcomes, so your expected value is a quarter of (0.6 x 0.6) + (0.6 x 1.5) + (1.5 x 0.6) + (1.5 x 1.5) = about 4.4 over four = about 110% of your stake. So this is a winning gamble, so EV maximization predicts you will take it.
However: more than half of that EV, (1.5 x 1.5)/4 = 56% out of that 110%, comes from the relatively rare event in which you win two coin flips in a row.
The other three outcomes have to share the remaining 54% EV between them. It should make sense by now that if you lose, and play again, you can expect to lose again, despite still having a positive EV on the toss.
So the essential question the author is asking, the thing that makes this metaphysically controversial but not mathematically so, is this:
Assuming there's no mechanism to actually share the EV, how much should those three out of four parallel-universe versions of you who individually lose, and collectively have to come up with the cash to pay out 2x winnings, care about the one out of four of you who's taking those 2x winnings home?
And the political question is: Does more than 1/4 of you still think EV is a good basis for decision making absent a mechanism to actually share the EV?
Too late to edit but I feel like I should highlight this more, because it looks like the place something would be swept under the rug:
Yes, the individual who wins two flips in a row is still ahead even if they lose the next two flips. If they win the first four, they can afford to lose three more.
And if they win the first five, they can afford to lose… still only three. Five to four no longer breaks even.
That’s the thing that, if it doesn’t seem intuitive, is a meaningful insight. “This +EV dynamics is not ergodic” means:
In the limit, a) the individual who wins every single coin flip can afford to pay the losses of everyone else and profit, and b) no other individual breaks even.
Edit: here is also the source code for the cooperative coin, if it helps the discussion https://github.com/lmlhub/ee_web_apps/blob/main/cooperating_...
The principle of a few big winners pay for many small losers is pretty well understood in other areas too: it underpins Sand Hill Road as well as the social insurance of welfare states....
The article is pretty pointedly about wealth redistribution, i.e. pooling of windfalls rather than of risk, but I don’t think that was lost on anyone... are you talking about a different model where there’s some sort of insurable situation?
But no, the payoffs don't go to zero: it's heads you double your wealth, tails you lose 40%. That's insurable risk. (if the payoffs went to zero there would be no benefit to pooling... the only winning move is not to play)
The article pretty pointedly is about social insurance, but it doesn't make a particularly good case for it since it's a completely abstract model which bears no relationship to the actual reasons wealth and income disparities exist and feeding unemployed people might be a good idea. Rich people don't need to gamble 40% of their wealth on each economic interaction (they're perfectly capable of diversifying their own portfolios) and very rarely get bailed out with a share of lots of less rich people's earnings when their investments suck.
The non-straw man version of "mainstream economics" absolutely understands how risks work and literally invented the type of game theoretic model the author is using to show what he thinks "mainstream economics" is missing
Any insurer would have to guarantee some share of the 1.05x EV per toss, call that share itself X. The insurer would keep the remainder of the EV as premium, call that Y.
X and Y are both positive so it seems at first like you should be able to underwrite this. However, the math will not work out unless you change the dynamics of the model in some way.
The fundamental problem is that this is a model for a sequence of N events, and X (and therefore Y) are exponential functions of N. After some finite N, it’s only the insurer’s most recent guarantee that matters to the total payoffs. No previous events are consequential; the brute force of exponential math says the exponent alone dominates.
So we can just think in terms of x^N. At some point the insurer must pay out x^N in losses from the previous x^(N-1) in gains.
In other words, regardless of the premium charged, or the number of individuals whose risk is pooled, this individual’s status as an insurer doesn’t give them any special exemption from exponential reality that prevents individuals in general from remaining solvent in the limit of this model.
(I haven’t totally worked through the outcome table for the author’s proposed solution— I’d encourage you to do that if you think the solution might be flawed. But this does indeed seem to be a situation where any individual who attempts to capture the EV will fail, and only unconditional sharing can succeed.)
All of which is moot to my original point which was that the OP's original argument that the mainstream economics profession is focused purely on expected value with no concept of risk is laughably wrong.
They're in fact a few steps ahead of him, because they also assess pooling of earnings in terms of moral hazard and adverse selection, instead of naively assuming that expected return and downside risks are evenly distributed across the population and invariant with respect to wealth pooling. Adverse selection is the actual reason private insurers are unlikely to take on the burden of insuring things like unemployment (people that find it easy to find employment and have lots of savings will rationally avoid participating unless its compulsory, which means more people wanting to claim on it than pay in), but of course introducing variation in likelihood of payoffs to the model leads to potentially very different outcomes...
Edit: also I don't see it very similar to insurance, since insurance is withholding wealth in order to distribute it occasionally when needed because it's zero-sum. But if distributing it all the time everywhere is a net positive gain, that's entirely different than the insurance game.
Insurance is zero-sum (negative-sum, actually) when it comes to money. It is not zero-sum overall, because reducing risk is valuable. A 50/50 shot at either 10 million dollars or nothing is significantly less valuable (to anyone who isn't already very rich) than a guaranteed 5 million.
That’s not even snark, humans preferring both of higher risk and lower payoff is a canonical psycho-economic result. And even the question of whether the concept of a rational utility maximizer is well-founded is the exact subject of this very fine article!
Sure. I very much doubt anyone seeks risk because it's risk. They do it for the thrill, or for social reasons, or because calculating risk is hard, etc.
> having any other computable utility function on any other measurable that we’d have to accept as equally valid if we want to convince any non-economist that we aren’t just using utility as a weasely word for money
Almost anything else will do just as well. If you can buy it (or the means to acquire it) on the market, then there's always some point at which twice as much money buys less than twice as much. Maybe 10 million is not enough to hit that point, or 5 million is too much, but the curve flattens out somewhere. And if you can't, then the money makes no direct difference, but can still buy you food and shelter and free time with which to pursue your other projects.
I suppose in principle you could actively want to not have money (and not want to give it away either), in which case getting rid of 10 million is probably not twice as hard as getting rid of 5, but that hardly seems realistic.
Most first world governments "fine" you quite a lot of money if you work on risky things. For example, if you earn $100,000 for ten years, vs $1,000,000 on one of those random years, after taxes you would have $720,000 vs $520,000 if you lived in San Francisco.
I think you're right if you're thinking about lottery winnings or other kinds of non-capital-gain windfalls like a gift from a benefactor, but those aren't the result of valuable "work on risky things".
True. And I agree it seems like bullshit. Now consider the entirety of economics.
Have you studied economics?
Judging by the outcomes of the field and the absurd world we live in today with insane boom/bust cycles every few years, sky-high levels of wealth accumulation, inflation out of control world-wide, one cannot wonder how nobody seems to understand it.
From the outside, it looks like either they are producing incorrect/incomplete theories that simply don't work in the real world, or it's all so theoretical that it never really translates into people's lives.
Or, alternatively, the system is working exactly as intended and the goal was always to maximize for a few individuals and not society in the first place.
Empiricism is vulnerable to the changing awareness of the participants: if you discover a reliable principle it will be manipulated until it is learned. Once it is learned it is no longer reliable.
Rational agents are typically poor proxies for human behavior, and the more of them you have the worse the narrative to make it even seem that they could plausible be the way humans behave.
I'll try to answer your question through the lens of that book: the models that economists develop work under the models assumptions, and therefore they quite rarely fit well extremely complex phenomena like inflation; in general, economists treat the problems they face on a case per case basis by comparing different models outcomes', looking at the historical data, discussing the merits of the respective arguments for one or the other policy, and obviously depending on the specific goals you find more desirable (equality vs growth for example). The way the economy is ran is not necessarily representative of the economists consensus, or even that of the economists that are employed by the biggest policymakers, as the policies chosen might be the ones deemed more politically feasible, or more desirable for the particular politician's interests, and not the ones that are economically most sound and well-founded.
By the way, a topic I've been always fascinated by but never inquired further is that of social choice, wherein the economists analyse the incentives of classes such as that of policymakers.
Their assumptions don't hold. Assume people make perfect decisions, assume they all act within their own self-interest, assume perfect information, assume effects to the environment don't matter, neither do human lives. Assume acquiring money is the only goal anybody has.
I love how much these horrible assumptions shape the economic policy of the world.
Well, a lone author publishing a 4 page essay on arXiv isn't particularly compelling to say the least. I could take two hours of my afternoon and write “«‘Ergodicity Economics’ is Pseudoscience» is Pseudoscience” and publish it there.
In fact, the author of the said PDF[1] explicitly write down that he doesn't really attempted to understand the point of the guy he's criticizing:
From the second paragraph:
> it is not easy to define what EE is because I am not an expert on this field
> It is not clear what kind of economic questions the author is trying to address
> I interpret that EE prescribes
Dude this isn't how science works, you don't just publish papers to shit on someone else's research without even having attempted to understand what it is about. WTF
Edit: oh I was missing that little gem: “Until EE provides testable implications, we should stay away from it as pseudoscience.” Coming from an economist, this is peek irony (or peek hypocrisy, you decide)
Well, it's not like mainstream econ cares about empirical evidences either… Also the track record of Welfare state vs “supply side economics ” is a good one here.
Mainstream economics is tested against the real world, both through policies that assume certain models and against historical data.
But it doesn't and now the theories that have been empirically wrong for two decades are still in used to explain the current inflation rate…
That's the biggest issue with how mainstream economics works: it mostly stands on two legs (classical and Keynesian, roughly) which are both proven wrong by the real world on a regular basis but come back in flavor when the other one fails (and the Neoclassical synthesis is the wrong approach to this problem, and is in fact wrong twice as often).
And i was really interested in finding some value independent from labour.
Let me try again: Accumulation of capital?
Nobody wanted willingly to give up their fields and farms, so fathers we re forced to sign contracts at gunpoint. Stories like these are not that rare, I knoe personally few whose granddads lost it all to aparatchiks.
Anyway, it was an utter failure, as communism is. Central planning doesnt work, farmers with intimate knowledge of their fields and crops were much more effective and motivated than then some random workers who tought mainly about themselves and stealing common property rather some common good.
Corruption, selfishness, laziness are things that collapse any similar pipe dream society, or make it at least very ineffective.
The problem comes when power resides in hands which are incompetent (frequent communism issue, people get power for rectal speology and not proven hard skills).
Or even worse they are competent, but incentives are completely misaligned - ceos having tens of millions as yearly base salary, golden parachutes regardless of fubar they create, then they look for additional means of their own profit, regardless of harm to company.
Those highly functioning sociopaths would grok say government-mandated jail terms for really bad stuff (TM) very quickly if it would be on the table, but its not and everybody up there knows it.
This is funny because it's the reason so many people are questioning the status quo or what they call 'capitalism' these days. The FOMC is at the center of the US (and to a large extent global) economy. It is a central planning body, arguably responsible for the stagnation in wages. Copied from a comment I wrote some days ago:
It's a little convoluted, but google 'dcf model', 'benchmark rates', and 'open market operations'. It's more than a single post to explain the mechanics, but you can grok it in a few afternoons. I'll attempt anyway: In order to figure out what activities we ought to allocate resources to, we compare their present values as a sum of future cash flows, each period 'discounted' by a rate. The rate is calculated based on the activities risks + a 'benchmark' or 'risk free' rate. Basically "this activity is risky, how much more should it pay than something totally without risk?"
The closest thing we have to that is US debt. US bonds have a set face value and interest rate, but if you buy above/below the face value, the interest will be a higher or lower return on what you paid, 'yield'. US debt is the most active market in the world, so taking the 'yield' shows what rate the global market[0] is accepting 'risk free' investment.
If the market is nervous, more bonds get bought because everyone wants 'safety'. But this drives up the bond price and lowers yield. Lower yields create an incentive to consider 'hey maybe we do something a little risky after all, it pays better.' Vice versa: if the market is buying risky stuff instead of safe bonds, yields go up and people think 'why do something risky if I can get that return with no risk'?
BUT the Fed interferes in this market. They have unlimited power to buy/sell bonds and therefore establish price ceilings and floors[1]. For most of the past 20 years they created a high price floor, which means low yields. This forces society to allocate resources to risky activity with higher returns.
In particular, when rates go down, cash flows in the future relatively contribute more to present value. With higher rates you look harder at the next 20 years. With lower rates, you look more at years 20+[2].
In practice it made any business that can 'promise the future' an attractive investment. Think Big Tech, VC startups, Tesla, Wework, Theranos. Meanwhile, businesses that are less risky and make goods and services now have to compete with those guys for ROI. If you have little hope of growth, and your business is established you have to raise prices or reduce costs somewhere. You can't control what you pay for raw materials/inputs, but you can control what you pay workers.
To further illustrate: Google burns hundreds of billions on projects that never see daylight or get axed after a couple years. How did market forces decide that was a better use of resources than building (relatively) more hospitals and bridges? Fed yield interference.
I'm not saying high rates are good, or low rates are bad. I'm saying rates that don't match market conditions are bad.
[0] Explainer on the bond market for the uninitiated: Big companies can't safely keep a lot of cash as currency because FDIC insurance is meant for individuals and only covers 250k. Instead you buy something 'safe' and very easily tradeable or 'liquid'. In the past, this might have been gold. Now it's US debt, which works better than gold for this purpose (diff maturities, easier settlement, etc.)
[1] These are decided by a committee of 12 individuals, the FOMC.
[2]To see this for yourself, model out a dcf and then add a row where you divide each discounted cash flow by the present value, "contribution to PV". Then, set up a bar chart for this row and play with your discount rate to see how the "time-shape" of PV contributions changes.
For one, no country on earth has ever been Capitalist. The word itself is a Marxist word describing a system that worships capital, it's actually meant to be derogatory and sarcastic. Every western country today is a liberal democracy and follows Liberalism, where any one in particular lies on a spectrum from Capitalist to Communist is variable but only within a fairly small range.
Finally, only a wilful idiot could call the current US a "failure". Is it flawed, far from perfect, miserable for a large part of its population? Yes. But does it also deliver them from starvation, war and natural disaster? Yeah, mostly. Better than nearly all other systems. It could do better, maybe a lot better, but it's so far from "failure" it's quite laughable.
But besides from that, European-style social democracies (note, also liberalist) can only exist because the US exists to guarantee that you can be that way safely. And because advanced, rich nations are more profitable for the US to trade with.
It's not Marxist to hate capitalism, it's Marxist to see capitalism as an incredible advance over what came before, which can still be improved on thanks to capitalism laying the foundation for further advances.
"Pooling and sharing of computer source code makes everyone's products better"
Is there enough empirical evidence to support that analogy? Why shouldn't the same apply to wealth in a broader sense?
A closer (but not perfect) analogy is more like "pooling and sharing the computational time of the university's lone supercomputer makes everyone's projects better".
Everyone pays their fair share based on income from working, but not from their wealth, assets, dividends, interest, etc in many places.
If your "income" comes from those sources, you aren't paying your fair share compared to people who must work to eat.
Ironically, US has way tougher inheritance taxes than most of EU.
* No incentive for revenge law suits.
* Damages are well regulated so you can't sue for €1 million just because someone's bicycle ran over your toe.
* Can't sue for exorbitant medical expenses because in most cases there are no personal medical expenses i.e. covered anyway by govt health insurance.
I'm unsure if personal liability insurance is popular elsewhere in Europe.
Counter-example: a website uses Google Fonts and the owner gets a letter from someone's German lawyer demanding they pay "damages" for the GDPR "violation"
[0] https://www.bitdefender.com/blog/hotforsecurity/german-websi... [1] https://www.spiegel.de/netzwelt/web/razzia-wegen-betrugs-run...
We have a bunch of universities in the global top 100 and I have been to one of them which didn't cost me (or my parents) more than a few k euro.
Sure, you could always go to the emergency room at the hospital and wait hours to be seen, but I don’t think that counts.
When I lived in the Bay Area, everyone wanted to go to USCF, which is understandable being a world-class medical system. So it wasn't that easy getting an appointment.
But for routine medical check-ups? I just went to another system and could get a same day appointment no problem. Hell, I even had 5-6 different slots I could pick from the same week.
Depends on how good your insurance is. PPOs, sure - though most of the country does not have as many doctors per capita as SF. Typically an HMO will only let you have one primary care provider.
My non-emergency care in London is still excellent. It was better ten years ago.
Yes I'd like to get an appointment within a few days but even with my excellent private insurance outside of the UK it's a few weeks wait. GPs aren't sitting around waiting for customers anywhere in the world.
Here in Mexico you can schedule a private GP for the next 3 pr 4 days if you want to pay.
If it's a very minor thing, you can go to most pharmacies and a most likely recent medical graduate will be giving free consultations same day, with at most 15 min wait. (The last time I went the doctor was a Venezuelan medic with great credentials).
Or if you REALLY want to spoil, go to doctoralia.com and schedule a specialist for maybe $60 usd , with reviews and available schedule (usually within a week).
Despite that we also pay far less towards private healthcare than Americans pay, even though private insurance is far cheaper here (because they rent spare capacity from the NHS and offer their services as "topups" plugging holes where people want more.
Also in London, and never call my GP, it's all in an app, and most appointments are video calls. I've had waits sometimes, but I've also been seen within 10 minutes.
To the point that I use the private healthcare quite often.
Don't get me wrong, I'm thankful for the public service, Hospitals are superb and it will allways be there in case of an emergency, but this is mostly a site of US readers and I think we're misleading here. Our public systems are not a walk in the park either.
I won't get bankrupt, that's for sure. But I have to pay pocket/insurance if I want to get something done quickly and I'm not like, dying or something.
This is not precisely a good approach for prevention care.
I think we need a much better understanding of why costs are rising so much (not just as a result of the pandemic, even before that) and what can be done to mitigate that.
Where?
Also GP appointments within a few hours - twice in the last fortnight
At least here in Norway, if I have to wait for something and I'm sick, I get paid time off work. I'll never go bankrupt from medical bills. Taxes plus health insurance premiums was more expensive in the states than payroll taxes here.
There is an actual safety net. I'm unlikely to starve or be homeless for any length of time.
The VAT isn't nearly as bad since it is generally an upfront cost, included in price. Some exceptions apply with online shopping. ¨
Oh, and I'll mention that I can always get an appointment with my GP if I'm sick: They keep some time slots open for urgent things. I might wait a few weeks when it isn't urgent. And I won't lose my job for having appointments.
Norway has an enormous amount of wealth from oil and therefore it is not a good example to show any benefits from pooling wealth. Norway won the lottery, that is all.
https://www.reuters.com/markets/europe/norways-wealth-fund-p...
The US has oil they could pool wealth from. They have resources they could pool wealth from. Things they could invest in. But. They. Don't. They aren't even adequately taxing the folks that can withstand the tax the most: The wealthy. They used to, but it isn't like that now.
There are little things the US simply doesn't do either - just in healthcare. For example, the Norwegian system will send a home health nurse to you up to 6 times a day for short visits. This is because it is cheaper to do this than to house you in a nursing home, overall. Even if you are living on an island. The US expects you to have family take care of you: Poor people won't get home health visits, in no small part because when you don't pool your money together, things like home health care aren't affordable.
(sidenote: The home health visits aren't always adequate, but better than nothing).
Pooling money to increase everyone's wellbeing doesn't take winning a lottery.
Also, Norways oil money, as you write yourself, go into their sovereign fund and does not directly fund wellfare.
There are many theories why the Scandinavian model works on Scandinavia but does not seem to work other places, but to my best knowledge, natural resources are not any of these explanations.
That's orthogonal. Having a massive sovereign fund as your rainy day fund goes a long way in your strategic long term thinking and budget planning compared to countries without that rainy day fund.
>There are many theories why the Scandinavian model works on Scandinavia but does not seem to work other places, but to my best knowledge, natural resources are not any of these explanations.
Because lack of corruption, government transparency and regulations plus a high trust society are also needed, not just pooling all our tax money for welfare.
And those qualities don't exist in many other countries. Scandinavian countries are the global exception, not the norm.
The norm everywhere else is "everyone for himself, fuck you I got mine, you go get yours, if you're poor it's your fault for being lazy", despite implementing various welfare programs similar to Scandinavian ones.
There are many countries with welfare regimes similar in size to those of Scandinavia. They are qualitatively quite different. A rough categorization:
- Liberal regimes (means tested but with relatively equal benefits between participants, market oriented) are typical of the Anglosphere. Food stamps in the United States are an archetypical liberal program.
- Corporatist (aka conservative, Christian-democratic) regimes (many recipients with highly unequal benefits, often tied to family status or employment) are typical of continental Europe, especially. Unemployment insurance is an archetypical corporatist program.
- Social-democratic regimes (extensive universal benefits, direct provision of public services, full employment as an explicit policy goal) are typical of Scandinavia. The Finnish national pension system is an archetypical social-democratic program.
Of course no currently existing states are purely one of these ideal types, but they do cluster. Social-democratic welfare states (Sweden, Norway, Finland, Denmark, and to some extent the Netherlands) significantly outperform conservative ones with comparable or higher levels of public spending (e.g. France, Austria, Germany).
So don’t think calling Norway a bad example is justified at all.
So I guess at least for my country the statement above is somewhat true.
Those are marginal rates, not your effective rate which is what matter overall.
Austria has one of the higher tax rates of OECD countries, reaching 38.3% effective rate for a single person earning 167% of the average wage (source: OECD Taxing Wages)
Again the 20% when counted towards your income is marginal in that you only pay 20% on the price of covered products and services you buy. For starters you only spend of your net income, and only then after mortgages or rent and exempt products. When I last added that up for myself, VAT added up to around 4% of my gross salary.
So I stand by what I said. Most people in Europe pay nothing like 50%.
With respect to healthcare spending, Austrians do spend a lot, but your total healthcare spend, including private payments is far below what Americans pay in tax towards healthcare (source: OECD Health). PPP adjusted you spend an average of around $7.3k vs. around $12.5k in the US. About 2/3's of your $7.3k is taxes.
While I agree that some taxes are a bit too high and opportunities of building wealth without tax evasion are inexistent in Austria, but your tax percentages don't scan for me.
If I use the online calculator of the chamber of labor, on a 70k/year gross salary, you take home 45k/year NET, so you pay 25k/year in total combined taxes, meaning approx. 36% of your gross income is the tax load on 70k salary. That's not that terrible, seems in line with most developed EU countries more ore less.
The only thing missing is the taxes paid by the employer which also add up and increase the tax load, but are not listed on your payslip, which IMHO is a fault with the system due to this lack of transparency.
However, contrary to the title of this topic, it doesn't make "everyone's wealth go faster" it just supports the lower classes from falling into poverty and crime.
They quoted marginal rates, not effective rates, which is usually the case when people start talking about these high numbers.
I'm confused. What's the difference?
Let's say a country has only a single 20% tax band that kicks in at 20k.
If you earn 40k, your marginal tax is 20%, but only 20k of your earning is above 20k, so you pay 20% * 30k = 4k in tax for an effective rate of 10% (4k of 40k).
Most countries will multiple tax bands plus deductions which complicates this, and most places very few people have enough of their income taxed at their marginal rate for their effective rate to approach their marginal rate.
So if you have a marginal rate of 50% but it only kicks in when you earn over a certain amount, you will be paying less than 50% overall (your effective rate).
If you made $100k, paid $25K in income taxes, and were in a 33% bracket, your effective rate was 25% and your marginal rate was 33%.
What do you mean? I gave you the exact percentages. You can see them on the homepage of the Austrian finance ministry as well:
https://www.bmf.gv.at/themen/steuern/arbeitnehmerinnenveranl...
[1] https://worldtaxpayers.org/2019/10/austria-tax-freedom-day-w...
To be fair, 17% of the payroll and income tax are pension contributions (up to earning around thr $56k, after that it's just a tax).
Sweden reaches 50.3% for a single person earning 167% of average salary in total tax wedge (including employer payroll taxes) with no substantial deducations. An average earner has a total tax wedge of 42.4%. Sweden is one of the highest in Europe.
The average earner pays 24.3% in income tax and employee social service contributions.
The VAT adds up to less than you'd think, because for starters you won't buy anything VAT rates with the money you've already paid to tax, nor what you pay on housing, or food. Last time I added up what I actually paid in tax it was around 4%, both in Norway with similar tax levels to Sweden, and in the UK.
I cannot confirm this (I live in Vienna, Austria) but I've never had a serious health issue. I go to different doctors every year for checkups. What kind of doctors are you talking about?
Wife used to live in Vienna, Austria, and always had private doctor insurance. Her fears came true as she had a serious medical situation and was asked to wait for weeks (with pain managed by painkillers) until the surgery she needed could be done. Her private insurance stepped in, and like magic she was treated in 3 days.
Now, I believe that healthcare should never be considered optional/treated like a business, and must be equally available to all without pre-conditions on their financial well wing, but inefficiencies in the system are not to be wish washed away.
I think because Vienna is not as underfunded as other states. In Styria I had to go private for quite a few things If I didn't want to wait 3 months to see a public specialist.
For example, in Malmö, Sweden the top tax rate is 52% and starts at 45k, but even at 70k your actual tax load is something like 36%
Not counting VAT of course.
At 90k GBP you are paying 45%. I guess it depends on what “nowhere near half” means. 45% is close imo. Especially with VAT added in on purchases. Yes the average London wage is more like 50k GBP, but from that perspective it’s also only double the average wage before you hit 45%+ tax take.
The top UK tax rate (including employers NI etc) is ~59%.
1. https://listentotaxman.com/?year=2022&taxregion=uk&age=0&tim...
This is so misleading.
At £90K you get a £12,579 tax free allowance leaving £77,421 taxable. You will pay £7,540 from the 20% band, £15,888.40 from the 40% band and nothing from the 45% band for a total of £23,428.40. National Insurance will be £5,318.60 making the total deduction £28,747.
So approx 32%.
Edit: which yes takes it to 43% not the 45% I originally wrote.
Now enjoy paying another 20% VAT on any goods and services
Only the part of that that would actually be passed through to you as salary in the absence of the tax could reasonably be considered part of your tax burden. Hard to say how much that is without any information about your field or employer, but I guarantee it's less than 100%.
The average UK salary is <35k GBP. At that level total deductions are 20%, and your employer pays 10% employer NI.
> for more than small minorities of the population.
covers that situation. Simply put, only a small minority of people in the UK pay that much tax.
Not to mention the classic error you’ve made
> hit 45%+ tax take.
that tax take only applies to persons income that’s above 120k. The actual total tax burden across their income is substantially lower, given everything below £120k is taxed at a much lower rate.
Actually I didn’t error. This is the total tax paid expressed as a percentage. It is not the marginal tax rate. See the link I provided as evidence (add total deductions + employers NI together).
Why would anyone do this? Employers NI is a business tax, why would consider that a tax paid by individuals?
If you’re gonna start attributing employer taxes to individuals, then why not start including business rates and other random taxes, then you can gin up any level tax burden you want.
The fact that it was taxed above some line rather than below it doesn’t matter. (Of course that means it needs to be added to both the numerator and denominator when calculating the total tax burden, something that is often skipped.)
It further only tend to be included when complaining about high tax countries, and conveniently forgotten when people compare w/e.g. US taxation.
Nevertheless, even with them included, only a few European countries have total tax wedges above 50% for more than small portions of the population.
If you make money by your labor hours directly being billed and the buyer of those hours pays VAT on that labor, then I agree.
So long as there’s a direct and 100% link between your labor and the taxed amount, it’s value you created and was taxed away, without regard to who stroked the check to the tax authorities.
It's irrelevant to me, because it's not a tax on your contracted income.
You can make an argument that it is tax.on the value you created, sure, but not on your income because for most employees there is no direct link between value created and income.
I’m looking at it as a tax on direct labor. Which is also a consistent lens to use.
However, my initial claim that only a small portion of people in Europe approaches 50% holds for total tax wedge as well.
I’m talking about taxes that have a direct relationship to your income. If your income changes and the taxes paid change in proportion to your income change then that should be counted as taxed against your income.
Doesn’t matter if you call it labor, wage, salary.
Likewise if you have options/shares as part of remuneration it is often specified that the employee pays the employers NI for it.
Honestly it’s just a cheeky way for the govt to hide income taxes.
Why not include business rates? Because it’s not linked to the employees salary. It doesn’t change based on the employees salary.
When people outside more socialist countries say they pay far less tax, they never include any of this, so I don’t either.
That's not to say you can't. Some certainly do. And some countries are much higher. Belgium in the very significant outlier, with Germany not far behind.
Those "employer payroll taxes" are still part of your salary. It's just an accounting trick to fool you.
That it is part of the calculation for the employer is irrelevant - so is office costs, admin overheads, software licenses, equipment, yet we don't consider those costs deductions from an employees salary and bump the "real" salary up accordingly.
Then add on top VAT rates of >20%.
It wouldn't surprise me it hits 50% of income for an awful lot of Europeans.
Effective rate is far lower, and you can't spend money you've paid in tax on VAT, nor money you've spent on housing, or the multitude of zero rated goods which usually includes food, so the proportion of your money you pay VAT on is usually small.
Last time I actually did the math, I paid about 4% of my gross pay in VAT, and despite being in the top 1-2% or so in the UK my effective rate including VAT is still only just approaching the 50% mark.
The point is, if your effective income tax rate is 35%, you also need to add up all the taxes that aren't income tax, like the 20% VAT, gasoline taxes, alcohol taxes, property taxes, stamp duties, etc, etc.
Add all that up and I wouldn't be surprised if many people had an effective tax rate >50%
I've done the calculations in the past - the effective rate of VAT as a proportion of gross income added up to around 4% for me, because most of my money does not go towards VAT rated products.
Nor does it for anyone.
Because before you spend on VAT-rated products (or alcohol, gasoline etc.), you first pay income taxes, then you pay for housing, and food which most places is zero rated or at a discounted VAT rate, and debts. The higher you earn, the lower proportion of your income tends to go towards spending, partially because you tend to put aside a larger proportion for pensions, partly because you pay a higher rate of tax, so VAT contributes less to your overall tax burden - it's a deeply regressive tax.
Most people don't have enough money to spend on highly taxed items for it to be possible for them to get to an effective tax rate of 50%+, and most of those of us who might be able to spends our money otherwise - bigger house, bigger pensions, more investments.
I earn many times the UK national average, and so pay income tax and national insurance far closer to the 50% mark than the vast majority of the UK population. Despite that I still don't cross it when other taxes are added on. Including VAT, property taxes/council tax and similar. I'm in the top 1-2% income earners in the UK - people earning less than me are certainly getting nowhere near 50%.
Even when I lived in Norway, which has wealth taxes, some of the highest gasoline and alcohol taxes in the world, and higher income tax, and high VAT (25%), did I reach 50%.
In some of the highest tax countries in Europe, like Belgium (an extreme outlier) and Germany, higher proportions will cross the 50% line, but overall for Europe this applies to a vanishingly small proportion of people. UK is "low tax" for Europe, but closer to the average than e.g. Belgium and Germany.
Which is why the "half goes to taxes" crowd almost always ends up forced to start bringing up the total tax wedge instead of other taxes. Even then most people will never hit 50%, though more do.
Also, it doesn’t seem like Europeans are much more uneducated or unhealthy than people in the US.
I'm telling you I pay over half my salary in taxes and get little in return. Whatever happens in the US is not my problem.
Because the comment that you replied to was comparing the EU to the US: "And everyone benefits from this kind of collective solidarity - our societies are far less combative (both in the literal and the proverbial sense) than the US are."
Because in Canada, which has universal health insurance, medical bankruptcies are 25% of all bankruptcies for those over 55.
Why? Because if you're sick enough, you can't work. You can go on unemployment, but it's capped and doesn't replace 100% of your income. So if you're living paycheck to paycheck, it's not that hard to go bankrupt if you don't have the income to pay your mortgage, car loan, etc.
(Though I don't think many people need it, because most can just get a part-time job and finish in double the time, debt-free.)
edit: just to add to this: I don't think pooling / sharing is bad, there are many cases where this makes sense (investments, insurance), especially when it's voluntary, but it's easy to overdo it in a forced model. European living abroad btw, familiar with many different ways people live.
You're talking about the US, right?
I and people I know in different states have often had to wait months to get an appointment with a doctor.
The quality of education you get in the US varies drastically depending on your location, and typically the wealth of your parents.
E.g. the UK NHS costs less per capita than Medicare + Medicaid costs per capita (not per user), despite the former providing universal service. Partly explained by artificial restrictions on Medicare limiting their ability to negotiate price - the "free" market is intentionally prevented from functioning. It's pretty much corporate welfare paid for by regular tax payers. I never understand why Americans tolerate this.
The proportion who pays twice in the UK is around 10% who opt for private insurance on top. The proportion who pays twice in the US is every tax payer.
Total healthcare spend per capita (public + private) tells a pretty clear picture, where costs of healthcare in the US is totally out of control.
The US system is designed to be profitable for those running it, not offer good value for those using it.
There appear to be a growing number of voters who disagree.
https://www.theguardian.com/world/2023/jun/30/far-right-on-t...
That free market and right libertarian parties have gained some traction again is a relatively "new" (few decades) phenomenon, after many of them were squeezed hard by the rapid growth of socialist parties to their left a century ago.
EDIT: Worth adding that classically liberal parties in Europe have largely leaned socially liberally, e.g. "low overhead welfare" rather than no welfare. A lot of the universal basic income talk comes from classical liberals as a counter to social democratic "big government welfare" not by removing the welfare but by trying to minimise government involvement in the equation.
A PhD student in many places in Europe can afford to have their own apartment and have kids. Where is that possible in usa?
In terms of cities it would be all except maybe London and Paris.
Also in most European countries renting is just as good as buying because of favourable tenant laws
If anything one would intuitively think the opposite should be true. That with a better safety net, entrepreneurship should be more common in Europe, while Americans should be more risk-averse. But I think in this case there is a HUGE cultural (and maybe even partly epigenetic) component that is always ignored.
I'm not saying it's good, but maybe it's just less pressure -> less force -> less progress.
Also people who are in top of their fields almost never stay in Europe (especially if they are young) as potential tax burden for top brackets (which aren't that high its mostly middle class in US wealth scale) are enormous and total taxation can be as high as 60-65% (with VAT and local laws [homes, car, fuel]) for 1.5-3x less money then in US or even in some Asian based corporations which directly makes EU stagnant in most of the R&D fields (even in IT i can make like triple the money in US or 1.5x in China corporations).
EU system is good if you are making money not from work but from wealth (rent, stocks etc.) which is only for folks who already make a lot of investments in younger days or just inherit a lot of cash/properties/stocks.
I know US folks love to be angry about their country, but they are in best position for making decent living in the whole world, except possibly some small asian/european states like Switzerland/Singapore etc.
> I know US folks love to be angry about their country, but they are in best position for making decent living
These are two different things. The disparity of wealth between the top and the bottom, indeed between the top and everyone else, is greater than in the other wealthy countries.
For decades, income in the US has been stagnant except at the top. And when the salaries of the masses finally start to rise due to demand for labor, the Federal Reserve decides that is the Worst Thing Ever and intentionally provokes a recession.
> EU system is good if you are making money not from work but from wealth
Every system is good if you are making money not from work but from wealth.
But not every system is taxing you 65% from work and 0-20% from wealth. Indeed US wealth disparity is enormous but this is also a country with highest number of billionaire, gigant corporations and biggest stock exchange. And all of that didn't change the fact that US middle class is wealthiest middle class in the world (except some small countries that cant be compared Norway/Qatar etc.)
This is not true.
https://www.investopedia.com/ask/answers/040615/what-country...
https://www.nytimes.com/2014/04/23/upshot/the-american-middl...
If you earn enough for this to be even a possible scenario, you either live somewhere where it's easy to move across a border to change it (Belgium and Germany are massive outliers; especially Belgium) while staying in Europe, and/or earn enough that you can easily plan your way out of paying that much. (3rd alternative: you confuse marginal and effective tax rates, which is scarily common)
It's a problem for the top ~1%-2%.
Sure if I am unemployed I would be better of with the version we have in Denmark, but I won't be unemployed for long. And if I get a disability, I have private insurance for that too, because the public one isn't good enough.
The unemployment insurance portion I pay will pay out something like 1/2 my salary, but because everyone pays the same in I am subsidising those who are much more likely to be unemployed (bricklayers in winter, to make a simple example). Oh and many of those are going to get most of their salary paid out because they are not over the cap.
So to sum up: by having a single system everone pays into you are going to be put together with people who have an entirely different risk profile and you will be better of in a system were you could choose your own insurances.
Then of course I am also subsidicing all the drug users and alcoholics, but thats also an issue in the US, because society has decided that we must.
The reasons offered are demographics, valuing free time, the pandemic and the Ukraine war.
This hardly suggests that the problem is the pooling of wealth or that it is not sustainable long term.
You’ve implicitly supposed that quality of life can’t be maintained without economic growth, but have provided no evidence or rationale for such a claim. Quality of life measures seem to indicate things are getting better not worse in Europe, and is leagues ahead of the U.S.
Do you have any evidence to back up this assertion, or is it just instinct?
Progress may not always be good, at least in today’s times it basically means “more efficient extraction of wealth from the middle class”.
thats since 2008, when ECB and most of european governments have decided to go full Aysterity and cut all kinds of investments. Prior to this idiocy EU economy was actually larger than US economy.
These ecents are notbrelevant to the taxation model, which predates them by decades
Try to click on MAX and spot when governments went "full austerity".
If economy collapses, state recenues drop, ofcourse debt will grow
Define "Long term", it's been working pretty well for over a century.
https://en.wikipedia.org/wiki/1973_Chilean_coup_d%27%C3%A9ta...
So what's the difference again?
The argument goes like this: the wealthy members of society have a higher quality of life when income inequality is not extreme. Not because of diminished social ostracism, but because the luxury products they want to consume would not exist without the markets and broad consumer base to fund them.
In other words, the average wealthy person today has access to technology, exotic food, plumbing, fast cars, etc. that even kings didn’t have a few centuries ago. These things only exist because wealth was sufficiently distributed to incentivize their development. Many or most of them would not exist in a world of extreme inequality, if only from lack of interest (e.g., a wealthy 17th century aristocrat isn’t going to start a plumbing business, but the son of a tradesman will.) All the money in the world won’t help the King of France build a private jet in 1770.
The conclusion of this is that from a purely selfish point of view, the wealthy have a vested interest in not centralizing all wealth.
Edit: it's so bizarre when people don't reply and just downvote a comment that is purely speculating.
It ends up extremely expensive and slow to develop. After the development is finished, it might be that many of the commercial solutions could be better.
In a field where the mainstream is making rapid progress, it often doesn't make sense to create your own bespoke solution.
> The cooperating gamblers
This article mistakes "altruism" with "cooperation". With cooperation there are no free gifts, everything comes with strings attached. And defection and breaking rules is punished!
Therefore, just like so many old economic puzzles rely on ergodicity, this one relies either on full cooperation: either through honesty or through cheap verification (either through transparency or something else).
With that assumption visible, we can see why such an obviously positive result still doesn’t result in that action among informed participants when that precondition is not met.
Most wealthy people these days received their wealth for free if you think about it... They got it through talking BS. It's all about manipulating people to choose them, to keep them on as a supplier, to give them extra big contracts with friendly terms, to direct traffics to their websites... Anyone earned serious money through hard intelligent work?
Also, I suspect an even better outcome for an individual would be achieved by essentially using the Kelly criterion, which means that you wager a certain fraction of year wealth on every coin-toss. The optimal fraction that should be wagered on each toss can be calculated with pretty basic math.
For the lefties: this doesn't mean that cooperation is bad, of course. It just means that the argument in the article can not be used in support of your ideology.