Tag Archives: wealth

WEALTH INEQUALITY AND SKIN IN THE GAME

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WEALTH INEQUALITY AND SKIN IN THE GAME
A well functioning society isn’t one in which people are equal but one in which people have equal *probability*. So measuring static inequality is severely flawed.
Take the United States. Less than 10% of the people in the 1982 list of richest 500 were there in 2012. Compare to France where 60% on the rich list today have inherited their wealth. And there are other more robust metrics: 56% of Americans will spent at least a year in the top 10% (in income not wealth). Not in Europe.
So a good society is one in which people at the top have *skin in the game* hence can lose their money. Wealth generation should not lead to protected position at the top. Social mobility isn’t in elevating people, it requires the top to open a position.
So in Europe a civil servant from the “mandarin class” is safe for life as they extract rent from the system, while a good entrepreneur will run a chance of getting poor, leaving room for others.
PS- Let me explain to those who don’t get it. SITG means the rich needs to remain exposed to losing back his money rather than shielded.
PPS- 39% of Americans will spend a year in the top 5 % of the income distribution, 56 % will find themselves in the top 10%, and 73% percent will spend a year in the top 20 %. Ref http://www.nytimes.com/…/…/from-rags-to-riches-to-rags.html…

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NONLINEARITY FROM WEALTH

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NONLINEARITY FROM WEALTH
We can certainly attribute the fragilizing effect of modern globalization to complexity, and how connectivity and cultural contagions make gyrations in economic variables much more severe —the classical switch to Extremistan. But there is another effect: wealth. Wealth means more, and because of nonlinear scaling, more is different. We are prone to make more severe errors because we are simply, wealthier. Just as projects of one hundred million dollars are more unpredictable and more likely to incur overruns than five million dollar ones, simply, just by being richer, the world is troubled with more unpredictability and fragility. This comes with growth —at a country level this Highly Dreamed Of GDP Growth. Even at an individual level, wealth means more headaches; we may need to work harder at mitigating the complications arising from wealth than at acquiring it.

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