As a matter of fact, society has not a single valid reason to allow concentration of excessive wealth on some kind of restricted group or "elite" (as, by the way, also promoted erroneously by the idea of the "American Dream"). Here are a few facts to explain that this concept is not sane at all:
- Excessive wealth is usually hoarded (in bank accounts), not used: But if you want the economy to work the most (creating jobs, etc.), you need to make money circulate as much as possible (which is not what rich people usually do).
- Excessive wealth ends up being used for corruption (famous example: the Koch brothers), simply because it can. You can not get rid of corruption without getting rid of excessive wealth concentration.
- Excessive wealth could "morally"/"ethically" only be justified by the existence of "really free will" (a concept which we can never reasonably take as a basis, given the fact that this concept is of religious nature, not rational thinking): Free will -> free decision -> merit of the better decision -> excessive wealth. As noted, this is how society excuses the existence of excessively rich people, and it's completely flawed and wrong.
- Excessive wealth will always has the tendency to become even more excessive: it gives its holder an "unfair" advantage.
- A part of excessive wealth will always be used to protect the "unfair advantage", thus eliminating equality even more.
> - Excessive wealth is usually hoarded (in bank accounts), not used: But if you want the economy to work the most (creating jobs, etc.), you need to make money circulate as much as possible (which is not what rich people usually do).
Another economical fallacy. When you put money in the bank, it's not standing there doing nothing. Savings are invested, loaned, used to create additional value. That's why banks want your money. If not, it would be a simple cost for them with no value to have it there, and they would charge you to keep your money instead of rewarding you for it.
> Excessive wealth will always has the tendency to become even more excessive: it gives its holder an "unfair" advantage.
Nature is unfair. We don't have the same genes. We don't share the same risks for illness or reproduction. We are not all top athletes. Stop the egalitarian bullshit. The only thing society should do is ensure everyone has the same rights in regard to the Law no matter how rich, how poor, how different you may be. Anything beyond is just a call for arms-race to make everyone the same in every aspect (and incidentally, to render everyone poor by default).
A naturalistic fallacy[1] if I ever saw one. Nature is grossly unfair. It is also extremely cruel. Of course, it's neither of those things because these are anthropic traits – nature just is. Modeling your behavior on "nature" is senseless. Maybe we should all behave like electrons, absorb or emit energy occasionally, and move about more or less randomly[2].
> Stop the egalitarian bullshit.
Whether you subscribe to humanistic politics or not, calling it "bullshit" is ridiculous. We are not trying to change or defy nature, or even romanticize it (like I said, nature is). The question everyone is trying to propose answers to is how should human beings behave – as individuals and as a society. The answers have no intrinsic truth to them. They are a result of each one's peculiar sentiment.
[2]: Actually, there is a hypothesis that all electrons are exactly the same - in fact, they are the same electron - so, according to that we actually share our electrons with everyone and everything else; maybe nature is egalitarian after all.
> Nature is unfair. [...] The only thing society should do is ensure everyone has the same rights in regard to the Law no matter how rich, how poor, how different you may be.
Since you are so readily dismissing egalitarianism on the basis of being unnatural, I'm sure you have a great natural explanation for things like property rights and law.
For all I care, you can have libertarian or egalitarian ideals, but make no mistake in thinking that either of them are natural. If the point of a government or rule of law was to keep the natural order of things, we wouldn't need it at all. Not that I think that being unnatural is inherently bad, but don't try to put yourself on some sort of high ground by saying that your economical philosophy adheres to some sort of natural fact if it doesn't.
I'm not just dismissive of Egalitarinism only because it's unnatural, but also because it goes against the individual's freedom in the end. There will be always be a point if you follow that line of thought where the power in place will crush your individual interests just for the sake of making your condition the same as everyone else (even on the basis of good intentions...). That, in itself, is against Human nature, where humans strive to build advantage for ourselves to improve our conditions and our odds to survival and to lead a better life. And don't tell me Humans don't do that, everyone wants their kids to be in good school and to get a better job than themselves. It's universal no matter from which culture you come from.
With Egalitarianism, you end up with policies where education is strictly controlled by one governmental body, and where Education goes to the lowest common denominator and becomes basically crap for everyone involved. You end up with public health services which are subpar, with waiting lines and mediocre equipment, because you want to treat everyone the same way while running on limited resources. And this has already happened in many countries in Europe where such policies were driven to the core of the governmental actions. In the end you create more inequalities because people who really have money have the possibility to leave the country and get better services elsewhere, while the middle-class and the poor are forever restrained to a diminished quality of life.
My point is that libertarian ideals are more respectful of individuals, because they allow for the flexibility of choosing your own course of action, maximizing your responsibility. In that sense they are closer to the natural order where one individual can create an advantage for themselves based on their action while living as part of a social group. I won't elaborate here on the principles and the philosophy behind it, it's a different subject altogether.
No one is trying to "make everyone the same as everyone else". Where did you get that? Even communism doesn't attempt do that (the communist ideal is that every individual should contribute their particular, unique talents to society, and the fruits of their labor will be shared by all).
> libertarian ideals are more respectful of individuals
Libertarianism, at least in its current incarnation in America, is the most hypocritical and abusive of all political ideologies, because it insists that "one governmental body" (as you call republican democracy) exert violence to uphold property rights. So the rich's source of power – their money – would be protected by governmental violence, while the poor cannot exert their own power – their numbers. This is hypocrisy, and is disrespectful to intelligence. What about this, though: remove all regulation and central control, but in order not to deprive the poor of their power while upholding the rich's, why not dismantle the police, too? Let the rich amass their wealth, and let the poor rob them. This is the only intellectually honest libertarianism: it's called anarchy, and personally, I like it. But barring that, if you want the government to protect your wealth, I think it's only fair to let the poor exert their power by forcing you to share some.
>Education goes to the lowest common denominator and becomes basically crap for everyone involved
>health services which are subpar, with waiting lines and mediocre equipment
>the middle-class and the poor are forever restrained to a diminished quality of life
Are you sure you aren't talking about present day America? All of these things have become widespread here as a result of income inequality--something you've said you support.
On the other hand, one might argue that egalitarianism is more respectful of individuals by systematically making sure that every individual has their basic needs provided for independent of a vast amount of possibly impairing conditions that might be totally out of their control.
You have to realize that while libertarianism might offer more choice to an already economically privileged person, it comes at an expense. When capital controls the most basic needs, your ability to choose what to eat today might come at the cost of someone else's choice of whether or not to eat at all.
> I'm not just dismissive of Egalitarinism only because it's unnatural, but also because it goes against the individual's freedom in the end.
Only if you define an individuals freedom as "freedom to deprive others of access to shared natural resources through violence" (I use the term violence since libertarians seems overly fond of referring to government interference as "violence"; except when it comes to enforcing private property). Hence Proudhon's "property is theft".
> With Egalitarianism, you end up with policies where education is strictly controlled by one governmental body
Why? Most egalitarian ideologies want to dismantle the state and introduce some form or other of direct democracy which would preclude strict government control of education or pretty much everything else.
Marx, for example, considered the only political purpose of the state to be the oppression of one class by another, and the goal of socialism to remove the class struggle by enacting policies that would remove the capitalist class, by turning them into workers. And the natural end-point, according to Marx, would be the "withering away of the state", as in a class-less society it would have no political purpose.
Anarchists argue for a more direct approach: Destroy the state outright.
> and where Education goes to the lowest common denominator and becomes basically crap for everyone involved.
Why? The original form of socialism was the idea of a meritocracy where a central goal would be to ensure people were given the opportunity to develop personally and promoted according to skill (read up on Saint Simon).
> You end up with public health services which are subpar, with waiting lines and mediocre equipment
This is contrary to real world experiences, where the universal healthcare systems for the most part are cheaper and better than mostly privatized systems like the US.
> And this has already happened in many countries in Europe where such policies were driven to the core of the governmental actions.
So this is why most European healthcare systems consistently rank better than the US system?
> My point is that libertarian ideals are more respectful of individuals
No, it is respectful of property owners. Libertarianism is what you get when you take anarchism or communism but don't follow the thinking through to its logical extension, but single out private property for special treatment.
Somehow, according to the libertarian, we need government enforcement of one persons "right" to deprive others of access to certain resources, while we don't need governments for pretty much everything else. The hypocrisy of this doesn't seem to phase anyone.
I see a lot of attacks on any sort of libertarian (and for balance, many attacks at libertarian straw-men) on HN that use this same sort of inversion of force - the "stopping theft is violence" argument. Yours seems well-written enough that maybe you can answer one question I have about your viewpoint.
In your post, you refer to "shared natural resources" and then "deprive others of access to certain resources". Do you just mean "shared natural resources" as things like rivers, oceans, air, fossil fuels or does the argument really mean everything in existence because it presumably leveraged those things?
For instance, suppose I pick up a rock which everyone agrees has almost no value. I chip at it with another rock for a week until it now is in a shape of some useful tool, furniture or art. In your ideal system, who owns the value created through my labor? Do all people have equal claim to the item because it started out as a rock which was a shared resource? Do I own it? Something else?
> Do you just mean "shared natural resources" as things like rivers, oceans, air, fossil fuels or does the argument really mean everything in existence because it presumably leveraged those things?
Generally, the theory behidn the argument you refer to is that everything in existence consists of two things:
1) Shared natural resources, and
2) The application of individual labor to shared natural resources.
So, everything that is constructed as "property" has at least has a component of shared natural resources being withheld from the commons, for which some duty is owed back to the commons. Even if the shared resource has little use value in its natural state, the act of denying others the right to apply their labor to it has a cost to the commons.
> For instance, suppose I pick up a rock which everyone agrees has almost no value. I chip at it with another rock for a week until it now is in a shape of some useful tool, furniture or art. In your ideal system, who owns the value created through my labor? Do all people have equal claim to the item because it started out as a rock which was a shared resource? Do I own it? Something else?
In any system which recognizes the existence of an extraction of resources from the commons as described previously, "ownership" trends to be qualified. Most likely, you would be (presuming that your extraction of the rock was within the rules governing the use of resources from the commons) the "owner" of the tool, but you would also owe a duty in exchange for both the permanent effects on the commons of altering the rock and the temporary effects of withholding the item from the commons. There are many ways this duty might manifest, but the most common would be various taxes on value or produced income.
What I meant is: this money is not used to promote consumption (which it were in the hands of poor people).
It's consumption (of services or products) that creates jobs.
Jobs get created because there is demand for something, not because some rich elite decides they can invest (because they have money). Investment does not depend on the existence of some rich elite. "Trickle down economics" was a joke created by a couple of rich people, to justify and protect the inequality.
Investment can easily be accomplished by "the crowd", and it should.
> Jobs get created because there is demand for something
In the modern society, you are beyond the natural "needs" of the population and you don't need any of the new products that are sold to you. Obviously nobody needed a iPhone pre-2007 and now suddenly everyone has to have one. There's nothing such as "fixed demand". Demand is created by new products, designed by rich elites or companies that can manufacture them and need significant investment to make them a reality.
And the "crowd" investment system already exists, by the way. It's been around for 300 years, it's called the stocks exchange.
> The only thing society should do is ensure everyone has the same rights in regard to the Law no matter how rich, how poor, how different you may be.
No, society should seek to maximize widespread improvements in quality of life and further humanities cause through social, technological, and cultural investments. Nature may be unfair, but just because we were born from it does not mean we have to model out society after it.
> No, society should seek to maximize widespread improvements in quality of life and further humanities cause through social, technological, and cultural investments
That's just your point of view. "Society" is not a unique body, it should be based on the sum of the individual aspirations of everyone part of it.
>>> The only thing society should do is ensure everyone has the same rights in regard to the Law no matter how rich, how poor, how different you may be. Anything beyond is just a call for arms-race to make everyone the same in every aspect (and incidentally, to render everyone poor by default).
And that's just your point of view. You're just arguing over what society should be, neither of you are privileged to The One True Definition.
> Another economical fallacy. When you put money in the bank, it's not standing there doing nothing. Savings are invested, loaned, used to create additional value. That's why banks want your money. (...)
Actually, it's the other way around. Banks loan money first. Only then do they worry about the amount of cash they have in their vault. The parent post is actually correct for the most part: excessive amounts of wealth tend to end up blowing asset bubbles rather than be put to good use in the economy.
You might find this talk by Steve Keen (of Debunking Economics fame) interesting if you've an hour or so:
This is such an asinine argument against loanable funds theory and is equivalent to saying, "Actually, it's the other way around. People drive their cars first. Only then do they worry about the amount of gas they have in their tank." You see the same kind of nonsense from MMTers who use their confused understandings of accounting identities to justify their policies. In addition, the notion that entities that have excessive amounts of wealth, ie they have accumulated capital through successful investments, would be less likely to put their money to good use is silly. It's not capital accumulation that leads to bubbles. Historically, it's been caused by an influx of money not supported by production due to currency debasement, precious metals stolen from the new world flooding into the Holland, various precious metal rushes, excessive printing of paper currency or bank money, or suppression of interest rates.
Nature may be unfair, but it is way more fair than modern wealth distribution.
The richest 300 people in the world have more money combined than the poorest 3 billion people. You don't see deviances like that in genetics.
Also, if you believe all Americans (also applies to all other nationalities) have the same rights in regard to the law, well I don't even know how to respond to that, because believing that would make you incredibly, desperately naive.
To use your metaphor, one player is given 300 free shots while everyone else only has one. And if you don't sink enough baskets, you starve. Also don't call in sick for a game, nobody cares.
I don't understand why HN is so strongly anti- corporate and govt monopoly and yet so massively pro-personal monopoly.
> Also, if you believe all Americans (also applies to all other nationalities) have the same rights in regard to the law, well I don't even know how to respond to that, because believing that would make you incredibly, desperately naive.
Where did I ever say that? I never even began to imply this. I'm just saying that that's what how the Law should be working as a central element of society.
> The richest 300 people in the world have more money combined than the poorest 3 billion people
So, what is your point, exactly ? The world would be better place if everyone was as poor as the next ?
You could say that the Universe is incredibly unfair, after all, for all we know, Earth is the only planet with advanced life in the Milky Way, and would it be better if instead there was bacterian life everywhere instead ?
Besides, whatever your point is, it's moot, because the key thing you should look at is : is the life of the 3 billions people improving ? The answer is a vibrant "YES" and the world as a whole is getting out of poverty, thanks to the dark evil of capitalism, which incidentally also works pretty well to get everyone out of the shit hole.
That vibrant "YES" rings hollow. Europe is going through a lot of shit with rise of outright fascist parties - e.g. Greece's Golden Dawn (they might have removed Golden Dawn but the resentment needed for another fascist party to form is there, waiting). If one of more powerful states goes fascist (e.g. USA, Germany, France), you could very well see massive bloodshed and wars. And please don't tell me wars are good for anyone.
If social mobility and equality are disrupted, the society is in a bad position.
and the vast majority of those three billion are in the state they are in because of politicians. Whether their own or others. Take the money from those 300 and I doubt the number served with it would matter nor have a lasting impact.
Governments exist to give everyone a basic set required services. I think even the biggest free market/ small government advocate would agree that access to clean drinking water is one of those services.
If you dismiss some things the government provides as being unnatural, you are drawing a very crooked line of "naturality" if you somehow manage to include clean drinking water.
Access to health care gets conflated with some universal or Obamacare-type system, though.
Case in point: my grandparents are on medicare. They pay basically nothing for it. One of them just had bypass surgery and the other a knee replacement. Cost to them: $0.
We pretty much have universal access healthcare in the US before the Obamacare stuff if you go through the system.
Well, that depends on the government. All the way from the very basic necessities to keep citizens alive to a guaranteed minimum income and full health, education and other services.
I don't think that there is any right level for all countries.
As to the relationship between savings and investment, and the role of banks in there, ask yourself the following question:
Suppose that Alice decides that, from this month on, she will start putting aside 10% of her monthly income into a long-term savings account. Will this decision cause the bank to make more loans?
By default, the answer seems to be no. After all, banks lend out money when creditworthy borrowers show up at their door. How could Alice's decision possibly encourage anybody to borrow? If anything, her decision has reduced some businesses' incomes, and those businesses are now less likely to ask for a loan because they have less reason to expand their business.
If you want to argue that the answer is yes, you'll have to point out a clear transmission mechanism to justify your answer.
As to the point of why banks continue to offer savings accounts, the answer is mostly one of interest rate differentials. Banks don't have to offer savings accounts. They could refinance themselves via other means. It's just that those other means typically come with a higher interest rate.
If a bank gains extra money in the vault, won't it lower the interest rate it's offering on loans to try to attract a credit worthy borrower so the money isn't just sitting there?
Perhaps. There are two problems that significantly weaken that kind of transmission mechanism:
1. It is not clear how sensitive to interest rates business are anyway. If you have an X increase of savings, which reduces business revenue by X but also decreases the interest rate by Y, which of those effects is stronger? It seems to depend a lot on circumstances.
2. To a first approximation, there is no incentive for banks to decrease their interest rates in the first place, because they won't have extra money in the vault!
This may seem counter-intuitive, but it follows from how the banking system works: If you transfer money to bank A and leave it there, the bank is initially going to have more money in its account at the central bank (aka "reserves" aka high-powered money). This earns zero or negligible interest, and so the bank does have an incentive to get rid of it.
However, when you did your transfer, that central bank money (aka "reserves") arriving at bank A did not come out of nowhere. It came from the bank you made the transfer from, say bank B. B now likely has a short-fall of reserves (because while bank B has "lost" X amount of reserves, and the sum of customer accounts has been reduced by X, its reserve requirements have only decreased by rX, where r is the reserve ratio).
So, bank B will be happy to borrow (X - rX) reserves back from bank A, probably at current market rates, while bank A must hold on to the remaining rX due to its own increased reserve requirements. Everything is back in balance without any change of interest rates.
Things are slightly different if you put your money into a different type of account or bank bond in such a way that the sum of all reserve requirements in the banking system decreases. In that case, banks have surplus reserve requirements and will therefore bid down interest rates in the interbank market.
Under normal circumstances, the central bank - which has a fixed interest rate target - will step up and sell assets in exchange for reserves so that the surplus reserves disappear. Hence, banks still do not have any incentive to reduce the interest rate that they offer to the public!
This really only changes when the central bank decides to change its interest rate target.
What about interest rates offered to customers? It seems that those really tend to be calculated as cost-plus based on the central bank's rate target (with some long-term expectation thrown in). Plus, they probably move with some delay because that market isn't so fast. Since the target rate has been at zero for a very long time now, savings behavior really shouldn't make a difference.
Mostly though, I think it's the first point that matters: Business decisions aren't that interest rate-sensitive in the first place, at least compared to other considerations.
As far as I know there are still powerful people ending up in prison (at least in the US) once in a while, which seems to go against your last point. If Money equalled power then Madoff would never have landed in prison with a 150 years sentence.
How much time will the gentlemen convicted of OVER A TRILLION DOLLARS OF LIBOR MANIPULATION get? Nothing - the only people really suffering there were mortgagees and small to mid size banks.
The banks involved will pay maybe a billion dollars in fines, borne of course by both shareholders (including your 401K) and customers. Meanwhile, the banks profited far more than that, and the individuals involved simply got moved to another office.
I met one of the VPs for Lehman Bros, responsible in all but law for what happened in 2008. He has a very nice job working for a major Asia Pacific bank, and earns a hell of a lot more than you or I ever will.
The problem with this line of thought is that it's never ending if you try to "fix things" for everyone. Because there's limited resources and there are choices you have to take anyway and the solutions you will implement will never end up being fair for everyone, while it will prove to be a burden for society as a whole.
but it's not a quest for perfect fairness - rather an attempt to maximise benefits. $300B in a vault, whilst millions starve is pretty obviously unfair, and actually detrimental to society overall. generally, when inequality grows, so does societal instability and discord.
At some point, we as a society have to argue with the American Ideology of "free markets for ever, for everyone, for everything."
It simply does not bode well for our species in terms of morality, survival or many other metrics to have people dying of thirst while another man washes his collection of Maybachs.
Some inequality is inevitable. Too much inequality is a disaster.
> Another economical fallacy. When you put money in the bank, it's not standing there doing nothing. Savings are invested, loaned, used to create additional value. That's why banks want your money. If not, it would be a simple cost for them with no value to have it there, and they would charge you to keep your money instead of rewarding you for it.
This really isn't true especially at the moment. There is plenty of money at the moment looking for investment opportunities at the moment. Interest rates are near zero (suggesting that is the return expected by banks). Even when this is not the case unless there are 100% reserve requirements on banks the banking system is not limited to lend only the the savings that they receive but can create their own money and it literally costs them nothing to lend money. The just create an asset and a matching liability and you have your loan.
Okay, so I agree that money in the bank doesn't do nothing. However, ultimately one of the main reasons why we want a thriving economy is to raise the quality of life for the people. If you look at the trends over time, in real terms, the rich have been getting richer and the poor have been getting poorer. If you look at other countries around the world, this seems to be a thing that happens as income disparity increases. Basically, even if having a concentration of wealth doesn't make the economy bad (that point is debatable) the benefits of the economy are not fairly shared by the people.
Which brings us to the next point, which is a bit of a mess, so I'm going to have to pick it apart in detail. Firstly, you are essentially saying that all people are not equal, and so it is not "fair" for wealth to be shared equally. This is true, but irrelevant. No-one has asked for wealth to be shared equally, we are asking for less of a concentration of wealth. We are saying "the system is not fair" you are replying "total egalitarianism is not fair" - irrelevant! Secondly you say that the only thing a society needs to do in order to be fair is make sure that everyone has the same rights in regard to the law. This is either obviously false or impossibly hard, depending on how you define the application of law. If you just think that the rules should be applied equally, then this is obviously not enough to ensure a fair society. For example, you could make it cost $100,000 to run for office. This is a rule that may be fairly applied to everyone, no matter their wealth. It just so happens that only rich people will be able to afford it. For another example, you could have entrenched media companies that act as gatekeepers into the political process (as we currently do). Now, nothing stops an individual with no connections to these entrenched interests from starting their own media empire - but even if they had a chance of succeeding, it still forms a massive barrier to entry that could hardly be called fair. If you expand your idea of what the law covers to include such things, then you're essentially saying is that the only thing society should do is have fair laws that are applied fairly, where a person of merit has an equal chance of success regardless of the circumstances of their birth. Which is great, but impossibly hard and definitely not what is happening right now. The third thing you say is that anything beyond the fair application of law is a race to make everyone the same. This is clearly not true. I don't want to live in a world where everyone is the same. I just don't think our current system is fair. Personally I think that everyone deserves to be fed, clothed, sheltered, educated and given access to healthcare just as a participation prize for being a human being. I think we can easily afford it (for proof, just look at countries with low income disparity). The set of standards I am describing is what people call human decency. It is not total egalitarianism. The last thing you say, almost in passing, is that making everyone the same in every aspect renders everyone poor by default. This is a strangely pessimistic view of matters. If you rendered everyone the same, then you'd render everyone average income by default, not poor. Unless you were talking about poverty in an objective rather than relative sense, which is either untrue or else you have very high standards. Even if we did descend into some kind of egalitarian nightmare where everyone was provided for equally (oh lord! the horror!) the quality of life would be fine. There's plenty of resources to go round, especially in the West where we have a lot of wealth. The real problem would be providing incentives for people to work, but I doubt that was the point you were making. (Incidentally we could, for example, create a currency that affords social status and narcotics rather than general material goods - which is, I suppose, just a streamlined version our current incentive system.)
> If you look at the trends over time, in real terms, the rich have been getting richer and the poor have been getting poorer
No, this is totally false. You can say that the gap between very rich people and poor people has been expanding, but both groups have been getting richer, and as a whole the world is clearly getting out of poverty. The poors are getting less poor from generation to generation. And it's fundamentally "normal" that the rich get richer faster than the poor because if you have 10% of asset increase every year for both groups (just a random number) anyway the larger assets will grow faster (in relative terms) and the gap will increase. This being said, the poor do get richer over time, there's numerous presentations on that subject on TEDtalks from different researchers. Don't deny the facts.
pg once pointed out there may be far fewer startups in a society that does not allow concentration of excessive wealth. That's at least one single valid reason.
"People start startups in the hope of becoming much richer than they were before. And if your society tries to prevent anyone from being much richer than anyone else, it will also prevent one person from being much richer at t2 than t1."
Some people start startups in the hope of becoming much richer than what they were before. Most of the people for whome that is a major motivator are gambling, as your risk of failure is massive, and chance of that big payoff is ludicrously small.
If you want to become much richer than before, the more rational approach for most people is likely to be to work harder, live frugally, and invest everything they possibly can set aside.
I'm not so sure we'd be worse off without those few people whose only motivation for a startup is that they care so much about the potential payoff that they'd not start a company if they couldn't strike it big.
His logic is a bit off. In a truly efficient market (big if), if taxes were raised so significantly as to have a major impact on the rewards, then you would get a corresponding reduction in risk. I.E. Instead of having a 1 in 10 chance of a startup making it (as he claims in the post) you would probably end up with a 1 in 8 chance (or something similar) as the smaller rewards would, in theory, reduce the number of competitors. You would still end up with the same number of winners however.
In reality, there are a number of intangible benefits to starting a business that will overpower any reduction in startups due to higher taxes. Autonomy, excitement, and having a large impact all contribute in the decision to take the risk. Additionally, starting a business is still one of the only ways to strike it rich (unless you get lucky in the athlete/musician/actor department). So for most people with sizable ambitions, a reduction in rewards due to higher taxes will not have any meaningful impact on their decision.
> pg once pointed out there may be far fewer startups in a society that does not allow concentration of excessive wealth.
There will be far more individual entrepreneurial efforts in a society which does a better job of insuring that:
1) People have the basic needs reliably met independent of wage-labor arrangements, reducing the incentive to choose wage labor of entrepreneurship, and,
2) Marginal taxes are kept low for those who have not yet acheived above average wealth, increasing the ability to acheive moderate concentrations of wealth and for people other than the excessively wealthy to self-fund entrepreneurial efforts.
These may tend to be more "lifestyle businesses" than "startups", but I don't see any reason to see the latter as having greater social value than the former.
Is that really why people start startups? I'd hypothesize that most interesting startups were started for more fundamental reasons than just to get much wealthier than other people. Many startup founders are passionate enough about what they're doing that they'd do it even their returns were less than what they would otherwise make (e.g. compared to a Google or Facebook salary).
In any case, startups are more constrained by opportunity than desire. Many people have both the ability and desire to bootstrap a startup, but have to work a regular job because they have to provide for their kids, and can't afford the risk. In more equal societies, these people have an easier time quitting their jobs and starting a company.
"This argument applies proportionately. It's not just that if you eliminate economic inequality, you get no startups. To the extent you reduce economic inequality, you decrease the number of startups."
But that is not the argument he makes leading up to the quote. It may seem like semantics, but mixing absolute and relative inequality makes an increase in equality seem unfavorable.
> Excessive wealth is usually hoarded (in bank accounts), not used: But if you want the economy to work the most (creating jobs, etc.), you need to make money circulate as much as possible (which is not what rich people usually do).
The savings identity is usually misinterpreted by laypeople, though.
Here's a small story to illustrate why S=I can be very misleading: Company C has always produced some type gadgets, for many years. Demand for the gadget has been stable, they just keep producing to what the demand is, end of story. Sounds boring, but this is what 99% of the economy is.
Now, for whatever reason (a recession, a policy change, it doesn't really matter), consumers want to save more. In doing so, they decide to reduce their purchase of C's gadget.
What happens now? Well, saving S goes up. At the same time, company C involuntarily builds up an inventory of gadgets that they had already started producing but which they can no longer sell. This build-up of inventory is counted as investment in the national accounts! So I goes up, and the identity S=I is maintained.
But S=I is maintained in a way that is in total conflict to the typical layperson's interpretation of the equation.
So, yes, an exogenous increase in saving will tend to push up "investment" (in quotation marks because it is involuntary investment). When all is said and done, we may all well be poorer for it in real terms, because the level of economic activity may have been reduced.
On the other hand, when there is an increase in voluntary investment, then I goes up. Then people's income increases, and that tends to lead to an increase in savings. So S=I is also maintained, but we tend to be richer for it in real terms due to a higher level of economic activity.
The real problem is not excessive wealth but generational transfer of such. Let someone reap the benefits. BUT then take away the majority of the wealth away upon death so he could not transfer it. Let his decendands be able to inherit total value of 100 each (whatever the poverty line is that year) and take away the rest.
This way we make the emerging of elites harder and falling out of them easier.
Not only wealth is transferred from generation to generation. Jewellery, old family houses, paintings and lots of other possibly expensive stuff. For many people, it's not about money. It's memories and other non-financial stuff. That 200 years old watch from your grand-grand-grand-father? Whoopsie, it's expensive these days! If you try to take away that, people won't be happy.
If you try to loopholes to allow that kind of transfer, people will use that to transfer wealth to their children. Even if you don't add them, there're many ways to work around that. For example, parents may sell stuff to their children for many times less than market value. You can't deny people rights to sell stuff for whatever they want, do you?
There's no law that can't be worked around. Some people want laws to hide real world from themselves. Other people accept reality.
- Excessive wealth is usually hoarded (in bank accounts), not used: But if you want the economy to work the most (creating jobs, etc.), you need to make money circulate as much as possible (which is not what rich people usually do).
- Excessive wealth ends up being used for corruption (famous example: the Koch brothers), simply because it can. You can not get rid of corruption without getting rid of excessive wealth concentration.
- Excessive wealth could "morally"/"ethically" only be justified by the existence of "really free will" (a concept which we can never reasonably take as a basis, given the fact that this concept is of religious nature, not rational thinking): Free will -> free decision -> merit of the better decision -> excessive wealth. As noted, this is how society excuses the existence of excessively rich people, and it's completely flawed and wrong.
- Excessive wealth will always has the tendency to become even more excessive: it gives its holder an "unfair" advantage.
- A part of excessive wealth will always be used to protect the "unfair advantage", thus eliminating equality even more.