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Wealth/Income Inequality


LongHaul
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Seems like all the news and commentary is against wealth/income inequality and how it is certainly bad.

There is certainly envy with it.  This has been an issue since at least the late 1800's and the US economy has done great. 

 

What are some of the benefits of wealth/income inequality that are not commonly discussed?

 

A few I thought of:

- It is a goal for people to be motivated and try to become wealthy (hopefully by taking the high road)

- Often the wealthy have created a business with big benefits to society

- Incentives to work for the rich if they don't have super high tax rates on their income

- Incentives for the poor to work if they don't get big redistribution payments.  Working isn't just about money though - there is often

a sense of accomplishment, meaning and learning.

- More money for charities

 

 

 

Side note:  Everyone was roughly equally as wealthy in the old communist countries. 

 

 

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The big benefit the US gets from its inequality is quality immigration. Because of the high end opportunity, many people with high end talent move to the USA, realizing that is the best place for them to monetize their talents. That generates huge spin off benefits.

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The big benefit the US gets from its inequality is quality immigration. Because of the high end opportunity, many people with high end talent move to the USA, realizing that is the best place for them to monetize their talents. That generates huge spin off benefits.

Not really...

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Have to agree with Bizarro. I have seen a lot of Canadian talent go to the US. It is because of higher wages. This ultimately stems from the "inequality".

So then why isn't Canada a hellhole with no talent?

 

Not to mention that there's been a lot of talent that leaves the US for Canada because they have a certain feeling that "they're not welcome" there or that they're actually told to leave.

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Let me help you guys out with a little thing about emigration. Cause you don't seem to understand it. You generally do it because of economic reasons and you generally do it because your life sucks. That's because emigrating sucks as well. If you're doing well somewhere you're unlikely to emigrate. The offer has to be really, really extra good. Of course there are always the exceptions to the rule and you can point out the person who moved for a 10% raise. But it generally doesn't happen.

 

Since at this point you're probably thinking I'm full of shit and we're generally dealing in anecdotes let me offer this one. Ed Clark was one of the all time great banking CEOs. He's a hall of famer up there with Jamie. At TD he at the end he was paid about 7 million a year (less before that). A shit big bank CEO in the US gets at least 20 mil. So why didn't this guy make the move? Moreover, why do any non-us companies have talented CEOs? Most of them basically work for free compared to the salaries they would get in the US.

 

Now let me tell another anecdote. There is a city in this world called Iasi. This is a city of about 200-250k people. Amazon has 4,000 employees in this place. About half of them do standard BPO work - catalog stuff etc. The other half do security for the US site. Those guys make about 4k euro per month net. Now these guys are top shelf professionals. The kind of "talent" that Silicon valley would trip over to hire. If you think any of them are thinking of moving to the US you are fucking insane. At 4k a month these guys and girls (it's pretty evenly split) make more money that they would in SV. Did I mention they only work 8 hours a day? It's illegal to make them work more.

 

In that city there are 10 office towers under construction. Amazon contracted 2 of them as they want to double their workforce in the city. It is rumored that google and facebook each have one.

 

Now you may say that you won't match the financing in the US. Well it's true that US has financial markets like no other. But countries have moved to neutralize that. For example the country this city is in has a program called start-up nation. Under that if you have  a half decent business plan you will get financing under that plan. That's 40k euro. They do about 100k investments per year. As an angel round that's not bad and you don't give up equity. It's a grant. Then if you actually have a business you can access further rounds increasing up to 5 million euro (no equity give). Then there's a pretty vibrant local VC scene.

 

With all of that in place do you think there's a lineup of talented people cramming to cross the rio grande in order to go on shark tank or slave away in a SV sweatshop?

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I went to the top program at the best magnet high school in my Canadian city. We had 30 grads my year. All stayed in Canada and are very successful on average except the valedictorian, who went to Stanford and lives in Silicon Valley now. There are more high end Canadians moving to the US than vice versa, no matter how much people complain about your politics.

 

But data is better than anecdotes, and Liberty's newsletter had a great graph on this a few weeks ago.

 

https://libertyrpf.substack.com/p/44-my-thoughts-on-investment-style

 

Basically, the US is by far the biggest net recipient of immigration by inventors, and its not even close.

 

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I think a couple other advantages of inequality are:

 

a) You can occasionally get the super-rich building second businesses that no reasonable, non-super-rich person would be able to do, but end up benefit society as a whole. e.g. I don't think one would be able to purchase a mass-market electric car today if Elon Musk didn't exist. There are certain valuable things to society that can't be created by committees (i.e. governments) or rational profit-seeking corporations, but rather have to be attempted by risk-seeking super-rich maniacs looking to mess around.

 

b) Better, innovative management of big companies. I think almost all the super-rich are super-rich because they grew a company successfully. If you take away their wealth, you're effectively taking away ownership and control of that company, and innovative management of some companies can benefit society a lot. (e.g. compare Apple with and without Steve Jobs, and the benefits society has received when he has been in charge vs. not in charge.)

 

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Have to agree with Bizarro. I have seen a lot of Canadian talent go to the US. It is because of higher wages. This ultimately stems from the "inequality".

So then why isn't Canada a hellhole with no talent?

 

Not to mention that there's been a lot of talent that leaves the US for Canada because they have a certain feeling that "they're not welcome" there or that they're actually told to leave.

 

We have had the liberals, not the NDP, at the federal level so they haven't completely killed the entrepreneurial spirit.  No seriously, taxes are still supportive of private businesses, so we do okay.  However we just don't have these mega corps being developed in Canada.  It's a real problem.  I think we float by a lot on  high natural resources relative to population, it just adds a little air. Without that I just think we would be kind of screwed.  Too many people looking for public jobs.

 

Anyways the above is all subjective, note that the GDP per capita in Canada is ~75% of the US.

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You're not really getting at the problems with wealth inequality, you are referencing the benefits of having opportunity.  Some argue that having opportunity is way more important than the resulting inequality.  Some argue the negative impact of inequality (eg people with $ billions getting richer and richer while others struggle to make ends meet) needs to be balanced with the greater needs of society as a whole.

 

There's no right or wrong answer and it will lead to arguments.  Anecdotally, I have friends here who came over from Sweden (one of the early founders in Pinterest) who felt he had to leave Sweden because there is a belief that it is wrong to put your head up from the crowd (be you smart, ambitious, lucky etc) or it will get chopped off (taxes, regulations, limits etc).  He loves it here.  His wife wants desperately to go back because she likes it that everyone is pretty equal back in Sweden and there's no continuously trying to outdo your neighbors.

 

Your view will often depends upon your level of ambition and anyone on this board probably has more than average.

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You're not really getting at the problems with wealth inequality, you are referencing the benefits of having opportunity.  Some argue that having opportunity is way more important than the resulting inequality.  Some argue the negative impact of inequality (eg people with $ billions getting richer and richer while others struggle to make ends meet) needs to be balanced with the greater needs of society as a whole.

 

There's no right or wrong answer and it will lead to arguments.  Anecdotally, I have friends here who came over from Sweden (one of the early founders in Pinterest) who felt he had to leave Sweden because there is a belief that it is wrong to put your head up from the crowd (be you smart, ambitious, lucky etc) or it will get chopped off (taxes, regulations, limits etc).  He loves it here.  His wife wants desperately to go back because she likes it that everyone is pretty equal back in Sweden and there's no continuously trying to outdo your neighbors.

 

Your view will often depends upon your level of ambition and anyone on this board probably has more than average.

 

There is a restaurant in Denmark called Noma by Rene Redzepi who David Chang has interviewed a few time.  It is super interesting in the culinary world to try to be a Michelin quality restaurant in a country where people emphasize equality and not trying to outdo each other.  I read an article a while back that talks about the French education system where they believe in equality of outcomes so much that the gifted and talented children wind up having a ton of behavioral issues. Imagine if you have an IQ of 150 and you are forced to do algebra in 10th grade!  These kids exhibits suicidal and anti-social behaviors because there is nothing to intellectually stimulate their mind.  Now, intellectually douchery is a real thing and I despise it.  But to not give people the resources to pursue learning at an accelerated pace is just absolutely ridiculous.   

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Seriously who in this world believes in equality?

 

And I think it is really important to broaden the term, as some have done in this thread, since money is only a resulting factor of seeking "inequality".

 

Look at parents, they are all amazed and brag about their kids learning progress such as learning to walk and speak while vast majority of kids are undeniably following the average: normal curve.

 

Same in sport: which kid play football/soccer to match the opposite team? Who is not proud to score a goal?

 

Dating: where is the smart and good looking girl ending up with?

 

These are worldwide phenomenon. That is how our DNA is made up.

 

It is also why the U.S. has been so successful because it has allowed and encouraged this on steroids.

 

Ask RB why he was debating to buy to his mom a Lexus vs another luxury brand a few years back? I mean why not a Toyota Corolla?

 

You cannot and should not preach things that you do not believe in yourself.

 

Cardboard

 

 

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There is nothing wrong with wealth/income inequality, the problem is the often sh1ty social behaviour of the wealthy. There is a reason for the division between 'old' and 'new' money - 'old' money has hung onto it; in large part 'cause they've learned how to behave.

 

Wealth inequality is the NORM, not the exception. India's 'caste' system, Europe's various 'class' systems, similar things in most of Asia, South America, and Africa. Birds in gilded cages as an inspiration to all, but they ALL have to live/eat/shit somewhere, and when they 'forget' who they are ..... 

 

Mansions right next to slums is commonplace, the walls are just gated and guarded. We also call these places compounds, or ghettos.

Routinely hire from the community ('cause you DO need the labour), and you make it extended family - everybody lives peacefully. Choose to be dysfunctional, and risk losing your privilege.

 

'Friends' advise that in many places K&R is the traditional cure to rich arsehole behaviour. If the family pays - the arsehole is returned; if not - well ....  'the tribe' has spoken. I understand that returns are often a 're-education' event, occasionally underlined with the odd missing body part. Essentially the private sector version of the state 're-education' camps (China, Russia).

 

The message? Behave, and you will enjoy a nice life.

 

SD

 

 

 

 

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Wealth inequality: South Korea

Wealth equality: North Korea

 

Choose carefully.

 

Those that think communist countries have wealth equality have never been (or studied) a communist country. People there are about as equal than the animals in Orwell’s Animal farm.

 

Everyone knows this...but a key message when the transition to communism is made is "the rich are evil, we need equality"

 

 

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Equality of outcome is a fools errand. To paraphrase Thomas Sowell....Parent's can't guarantee equality of outcome for their own children living under the same roof, with the same resources. Yet, the government thinks it can legislate to produce equality of outcome for millions of people?

 

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Have to agree with Bizarro. I have seen a lot of Canadian talent go to the US. It is because of higher wages. This ultimately stems from the "inequality".

So then why isn't Canada a hellhole with no talent?

 

Not to mention that there's been a lot of talent that leaves the US for Canada because they have a certain feeling that "they're not welcome" there or that they're actually told to leave.

 

Right rb, because things are black and white.  Either the US does not benefit at all from talent coming from Canada or every talented Canadian runs to the US leaving Canada a complete hellhole with no talent. 

 

EDIT: Interestingly I was just reading a post on this board yesterday (I forgot which topic else I'd have linked to it) that all the Canadian tech ETFs hold the same 10-15 companies and there is a huge demand for more mid-large cap tech companies to invest in.  The US tech ETFs don't have that problem.

 

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I don't think wealth/income inequality is a bad thing as it incentivizes people to work harder. The problem is this inequality is becoming more pronounced. I would not say there is more incentive to work hard than in 1950, 1970, or 1990 than there is today, but the stratification between the top 1% and bottom 50% has grown tremendously since these dates.

 

http://i2.cdn.turner.com/money/dam/assets/161221173430-inequality-piketty-1-780x439.png

 

Share-of-total-us-income-1913-2015-1-768x424.png

 

The economic boom of the past 40 years and 250% expansion in the economy has overly benefited the incomes of the to 20% which is further stratified toward the top within that quintile. We can state the poor have cars, iPhones, and flat screen TVs all day. Luxury items have gotten more affordable, but this doesn't change the fact 250% gdp growth has been captured by the top 20%, with only a fraction of those dollars have going the bottom 80%. The bottom 80% are include working professionals. Many engineering fields and accountants are making the same real income today as they did in 1980.

 

82bfc15008dd38488a7ec33b3ccd266b.png

 

The speed of stratification has accelerated over the past 40-50 years. Movements like occupy wall street and the rise of mainstream far left political candidates indicates a course correction is imminent.

 

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