This has an interesting application in software and machine learning.
Traditionally it's been easy to expand into a software market if you can come up with a superior product, but when you are playing with AI and competing on having a superior dataset, size and existing advantage starts to matter a lot more.
Which is the whole reason why open-AI is so important, and likely will fail. Once Google or Facebook or Amazon start the AI ball rolling, the inequality will explode in their favor.
Its full of principles like that, and _for an economic discussion_ makes an average amount of sense -- which is one of the reasons economics isn't actually science.
It's not a natural science. If you restrict sciences to whatever you believe a natural science is, you'll kick out some useful, predictive and fruitful subsets of the natural sciences out too.
So maybe we should let that old meme "if it's not done in white lab coats, it's not a science" die.
By what relaxed definition? I didn't give a definition of "science" as that's kind of a hard problem smarter people than me tried to solve.
But hey, let's play a game: You tell me what's a necessary condition for something being a science and I'll tell you an instance where that condition as broken or a "non-science" that fulfills that condition.
"Relaxed definition" is a fairly pretentious way of describing social sciences. Is psychology also not a science, in your view?
Science as a process of study can be effectively applied to phenomena that are not as easy to rigorously measure as physics and chemistry.
I don't really understand where this view comes from. Is it a lack of exposure? There is a rich world of academic study in economics that is deeply complex, mathematical and even empirical, insofar as you can reasonably achieve in a domain that studies human behavior. There's more to it than the Pareto principle and "A Market for Lemons."
Studying the individual or aggregate behavior of human beings is inherently more difficult than inanimate objects. That doesn't mean you can't be rigorous with it.
Get over yourself; that's like saying Newton wasn't a good scientist because he was wrong about a lot of things. Economics, like sociology, is a young discipline that yields a lot of mistakes and goes down a lot of dead ends because it gropes towards an understanding of hard problems.
Criticizing economics is entirely valid. Pissing on it is not.
I think economics is in its vast infancy. It studies a highly complex system after all. It's constantly in danger of being coopted and manipulated toward ideological ends, too.
I too can make broad observations about the world, claim that the evidence I find is all pointing to my conclusion, claim that the variations in the evidence are all within the range I have set, and then use this Magical thinking to justify sternly insisting that economic exploitation is "natural."
Are you challenging the contention and the reasons cited?
There is no argument in the article that this is good or desirable. Many things in nature are terrible and destructive. But doesn't it help if we understand them? What point are you trying to make?
That there is a titanic economic incentive to produce this kind of observation in order to create justifications for the economic order, that anyone who does so with skill will be rewarded, and that drawing these conclusions serves the purposes of suppressing cultural developments rather than being unassailable, spiritual commitment to The Clear Correctness and Fairness of Our Objectivity
You are correct and I made a similar argument above for not passively accepting the existence of a natural phenomenon as a justification for The Way Things Are in society, but don't confuse specificity with rigor. Imperfect generalities often reflect partial truths, and to focus only on the inaccuracies therein is a kind of philosophic myopia.
You're misreading the article if you think he's trying to create justifications for the economic order. What he's doing is arguing that the rewards of those at the top are a byproduct of a defect in competitive processes that make them disproportionately large relative to merit for the elite minority.
I also believe your belief that society rewards those who justify elitism is very misguided. Virtue signalling through displays of altruistic self-sacrifice and support for the underdog rules the day. Playing that game is incredibly rewarding for social status.
That argument is the weakest of all sauces. Do you actually have any real criticisms of the theory itself, or are you just here to sling unjustified and misjudged mud at those discussing it?
This is not magical thinking, although I agree the author is a little overly self-satisfied. Generalizations are a good thing. You will never appreciate the structure of a cathedral if you approach it with a micrometer.
I see how this makes sense in business, real estate, and in nature but I don't get the sports analogy. Where is the accumulating advantage from one race to the next for a swimmer, for example? If the gold medal swimmer eeks out a win by just 0.01 seconds, 5 races in a row, to me those are all independent events not affecting each other so I don't see why there should be any other explanation other than the swimmer is just slightly better than everyone else?
If you'd want to argue for the effect, you could say the winner gets sponsors, better food, better trainers, better doctors, less time for fund raising, more time for training, etc.
Imagine two swimmers the exact same age. They can swim competitively from age 21--30. There are 10 meets per year. The question is this: after each year, what is the probability that swimmer A has more medals than swimmer B? The resource for swimmers is time.
Once you win a gold medal - you're more likely to attract better trainers / facilities / sponsorship. That can be used to build an unassailable advantage.
Aside from the benefits others have mentioned, winning contests increases testosterone and lowers cortisol, creating feedback effects for winners and losers.
If you don't think that gets into the head of the swimmer's competitors then you are mistaken. Further, success attracts success; a swimmer with a slight advantage wins more prize money, attracts the attention of better coaches, gains more fans and so on, all of which may combine to improve performance by just enough to maintain a competitive advantage. All these might seem like extrinsic factors to you but interdependence and interaction are a reality; pure independence is a useful analytical tool, but we dwell in the world of matter, not of forms.
You only need to be slightly better than your
competition, but if you are able to maintain
a slight edge today and tomorrow and the day
after that, then you can repeat the process of
winning by just a little bit over and over again.
A 1% advantage doesn't mean 1% "better" if it is the result of network effects or historical accident. It's certainly plausible that accumulative advantage leads to winner-take-all effects, but if being "better" was the only factor, Betamax would have beaten VHS.
Succeeding means securing advantage. Those who expect to succeed only by being "better" are doomed fools.
"Better" is circularly self-defining, because it really just means "More successful in a given niche."
You don't really know what's going to be more successful in a given niche until it becomes obvious.
As you say, there's no reason it has to mean "Worked harder", "Was technically superior", "Practiced more", or any of the other things it would mean in a less arbitrary world.
You can often increase your odds of success with all of the above, but a 1% change - whatever that means in practice, and however you're supposed to measure it - is always going to be swamped by effects outside your control.
That's just circular reasoning, your King because your father was the King who'd was King because his father was the King... But, the reality is someone is King because of their ancestors actions and accidents of birth etc.
Further fitness is defined by inheritable traits. You can have a billion descendants with blue eyes you can't have a billion descendants who are all kings of England at the same time.
PS: A useful rule of thumb is a justification sounds like a value judgement something else is going on.
Monopolists win through regulatory capture. Are they "better"?
"Better" connotes a value judgment. The author of the article takes the neutral concept of "accumulative advantage" and inappropriately ascribes moral value to it, corrupting the insight of the Pareto principle.
I didn't read that from the author's article. I never heard any moral value being ascribed to the principle. If anything, the author seemed to be speaking about it in a fairly detached way, and describes it more as an emergent, amoral property of nature.
Where did you infer moral value in the author's words?
He implies over and over that it's all very innocent: the 1% are "better", but unfortunately the rewards for being "better" are in a feedback loop that makes them ultra outsized.
This way, it basically removes culpability and replaces malfeasance with a technical bug.
The neutral position is that people who are better at something even by relatively small amounts will receive outsized rewards for it. Are you trying to claim that people are not legitimately better than others at a variety of activities? There's nothing moralistic in observing that - it's really just a fact. Some people are, for example, "better" swimmers than others. Some sports franchises are better than others, etc.
That is the sense the author used the word "better" in - to describe the initial cause that results in a power law distribution. He never praises people for accumulating wins and outsized rewards, he merely observes that it is the case. "Better" in this sense is not being used to describe classes of people, it's being used to describe small advantages.
If anything, the author is probably doing the opposite of your claim here, in that he would probably agree a lot of the reward is due to initial luck. If I observe that people who inherit wealth are more likely to accumulate more wealth, am I implicitly defending that phenomenon?
EDIT: For whoever is doing so - I don't mind if you downvote me, really. But several of my comments have just been downvoted once or so without any actual reply. If you disagree, you should consider engaging in a proper response. Letting my comments stand may as well be conceding the point, and if you actually have a persuasive counter it's certainly not going to help the discussion (or your stance) by keeping it to yourself.
"The neutral position is that people who are better at something even by relatively small amounts will receive outsized rewards for it. Are you trying to claim that people are not legitimately better than others at a variety of activities?"
One consequence of the system is that people born to wealthy family with a trust fund get money they did nothing to earn. They were simply born to a family with money. The people managing their fund will work to ensure the money keeps coming in or grows. The beneficiary can use that money to all kinds of advantages.
Receiving more and more of the pie isn't happening because the beneficiary is better. It's happening because the system is structured to move that money toward the beneficiary. We could also move it somewhere else (eg taxes), make beneficiary work for it (eg incentivize helpful investments), or some other tradeoff.
One is forward-looking, predicting the outcome (winning) by looking at current data (objective comparison). The article tries to twist this around to be backwards-looking: if it won,it must be better.
I think the author is trying to explain naturally-occurring feedback loops, not necessarily trying to justify them as a positive thing. Understanding that these are natural phenomena that occur due to hard physical or natural factors is crucial to being able to formulate a plan that accounts for them.
A spoon is "better" for drinking soup than a fork. That's a morally neutral statement but it is a value judgement based on the functional properties. No need to overreach by corrupting the author's insights. We'll get farther with a more charitable interpretation.
> Betamax was "better" than VHS if you only compare 1 dimension such as "picture quality".
It's a myth that Betamax had better picture quality than VHS. They were virtually identical on that metric. It seems that people confuse Betamax with Betacam, a professional format using the same size tape that was superior to VHS in picture quality.
Betamax was better in visual quality in practice because it's a function of tape speed, and Betamax wouldn't let tape run as slow as VHS would, which is also why VHS had longer runtimes.
Not true. As recently as 2013 I was using VHS, Betacam, Betamax, and others (DV Cam, DV Mini, occasionally even 16mm film, blah blah) in a commercial role.
VHS was a last resort, because the image was absolutely awful. Even fresh VHS recordings were lower quality than many of our older Betamax recordings. (Side note: We eventually had little choice but to digitally capture the whole stock, so if you were to go to my previous employer, which unfortunately you can't, you would be able to do a side-by-side comparison.)
> but if being "better" was the only factor, Betamax would have beaten VHS
This is stupid: Betamax was significantly more expense at virtually every level than VHS, not to mention its production was (overly?) restricted by Sony.
It gets worse: Betamax did win, just not in the consumer space. Professionals used (and continue to use to this day) Sony's "Beta" format because they could afford to, and it was technically superior (if more expensive).
For most things in life, there is no way to define "better", because life (and products) are multi-dimensional, "better" in same areas and "worse" in others. Thus, it's impossible to say that the "best" product won (or didn't win), Betamax/VHS included.
"n the few activities that are responsible for the majority of your success."
It also suggest normalizing. I.e. If you can identify the 80% of the time where you're under utilized at work by one thing then use that time for something else.
Also, I think this gives insight into knowing when to cut a loss or decide whether something works or not.
Taking a principle and lauding it makes not an insight.
There is no rationale given for the 1% rule e.g. why not 10% or 0.1%? There is not statistics behind the 1% rule. Yes there are "the winner takes all" situations but the article neglects diversity and other negative feedback loops e.g. in fashion the winner may succeed only to be swept away by a counter-revolution trend.
About the author:
> I'm an author, photographer, and weightlifter. Most people know me because of my writing about habits and human potential. I've created this weird “job” for myself where I try to be an advocate for the world's best ideas.
To expand on this comment, since it's just a (albeit helpful) link: the author's point is that competitive advantage follows a power law.
When phenomena appear to obey a power law, the specific percentage increase does not need to particularly rigorous to illustrate the growth pattern. You could plot the two axes without numbers and it still basically makes sense. You're going to see a disproportionately weighted side and a long tail next to it.
That doesn't mean the author is necessarily correct in the overall observation here, or that you shouldn't add further rigor to the analysis; it just means that for the purposes of an article without peer review, "1%" is probably fine. Power laws are very often fuzzy when they're applied (or perhaps rather, "observed") in practice.
In multiple places, especially towards the end, the author touches on negative feedback loops as much as positive ones. That said - in a zero sum game for resources, a positive feedback loop is in itself a negative feedback loop for others.
It's a rule of thumb, not a law. As the article points out repeatedly the ratios differ from one example to another as you can see from the examples given. The 'rules' are ballpark averages or easy to remember round numbers across many different situations. What's important is to understand the effects that lead to these distortions in distribution.
Yes, I find that it's really remarkable, but every time I take a handful of 4-6 jelly beans, there is a dominant color. Sometimes it's blue, sometimes it's red, but there is always a dominant color. It can be 20%-40% sometimes. Remarkable.
I think that I might write an article about this to justify current economic trends and hardships...
You really think that each person in society has a random share of wealth? That each season a random team wins the Super Bowl? If that's not what you mean, I'm afraid you're not making your position very clear to me.
It's an empirical rule, with a fair amount of evidence to back it up. You may be interested in this recent paper, which argues, in contrast to prevailing economic models, that Pareto-optimal outcomes may be rooted in production functions: https://www.econ.ucla.edu/fgeerolf/geerolf-pareto.pdf
As that is an economics paper the author is naturally at pains to relate such outcomes back to real-world causes, so as not to get lost in a maze of abstraction. My personal take on this, as an amateur number theorist and geometer, is that real-world Pareto distributions are degenerate cases of ideal power laws whose specificity and distinctiveness are illusory. I am a neoplatonist so you might want to think of this as a suggestion to take a step back rather than to peer closer.
Not true. A positive feedback loop would result in a monopoly, i.e. one person having all the wealth, or only one type of tree in the rainforest. We don't see that, instead there is a equilibrium distribution.
After reading such an article it is easy to see this pattern everywhere. And, sadly, it is also easy to see all the areas where I am in the group of people who come in close second. With the article in mind it would seem rational to quit endeavors of those kind cold turkey. In reality, it's not so easy. Maybe you don't want to give up b/c of all the time you've invested or b/c you're really passionate about what you're doing or maybe some fellow people still keep encouraging you and don't want you to stop...
This makes me wonder whether there is a good general exit strategy for those situations. That is, a method to reorientate as quickly, painlessly and promising as possible. I worry that's a too abstract way to think about it, though.
The other way to look at it is that, in many situations in life, by improving your competitiveness by only a few percent you can often reap much bigger rewards. In the Olympics that's really tough, but in most people's lives the bar you're trying to beat is just that set by the environment you happen to be in. Being a bit better prepared, paying a bit more attention, working a bit harder can over time have outsized cumulative effects. We don't live in a perfect world, but how prepared we are to do well in it is up to us.
Something I do more and more often in the last one year is to have a more ruthless and cold approach -- if something doesn't work well enough in a deadline I set myself, I just abandon it.
There's always a risk of never going far enough to actually become the best there is in something. That's an undeniable fact.
But it gives you (1) a priceless experience, and (2) teaches you to prioritize.
I am definitely not the wisest man -- quite the contrary, I am pretty flawed -- but I learned that holding on too much is much worse than letting go and maybe trying again one day.
The past is a very poor decider of whether you should persist. There are a lot more factors which are much more important.
There is an interesting consequence of this. Everybody realized inequality is a bad thing. And thus equalization is the answer. So let tax progressively. What is missing there, and will be missed in foreseeable future is that government equalize mid-manager with retail shelf stoker. Real ones who own and reap benefits are excluded from the process. You can see prove of that everywhere - gentrification haters, bay area protests against programmers. Still elites are never even considered as a main problem. Basically gov policies equalize lower 99%, top 1% is untouched.
> Imagine two plants growing side by side. Each day they will compete for sunlight and soil. If one plant can grow just a little bit faster than the other, then it can stretch taller, catch more sunlight, and soak up more rain. The next day, this additional energy allows the plant to grow even more. This pattern continues until the stronger plant crowds the other out and takes the lion’s share of sunlight, soil, and nutrients.
The article downplays the word "consistency". Being slightly better is indeed an advantage, but unless you keep being "slightly better" all the time, the others can outdo you, since you're not the only one trying to move up.
"Use habit to keep being slightly better!" -- but sometimes "slightly" is not easy to get by simply making it a habit. "Grow userbase 5% week over week", for example. It's easy to get 5 extra users when you have 100. But once you reach 1000, getting 50 probably not easy.
The author mentions the importance of accumulative advantage a number of times,not just consistent advantage. The former being a positive feedback loop (that is also a negative feedback loop for competitors).
The comments here seem to point to the fact that the author is simply using a bunch of loosely connected observations to try and make a point more important than it is.
I've found that the article was very useful framework to think about optimizing things. Especially as the author describes how small tiny advantages appear to accumulate over time and amount to giant advantages that is meaningful. Ie. habits, no matter how small but are alightly better, snowballs into a large advantage over many iterations
I love how the "80/20" rule gets stretched so often that in this article it talks about hyperdominate trees that take up 50% of the Amazon. So 80/20 can go anywhere form 99/1 to 50/50. What an interesting "pattern"
You're reading the numbers wrong, there is no stretching. The 80/20 rule means that 80% of resources is controlled by 20% of participants. Applying the same ratio to subgroups, you also get that 1% of participants control about 50% of the resources, as for trees in Amazon. The 80/20 number is just nice and commonly used because it adds up to 100.
I love Pareto distributions but I don't like the author's framing of this as an inescapable law of nature. We have control over how society's feedback mechanisms are structured, and while it is foolish to try to reverse an inevitable trend we are by no means required to passively accept, especially when wildly disproportionate outcomes lead to systemic weakness.
It's worth considering that from the cellular point of view, cancer is extremely 'successful.' But at the human level, discovering a tumor is not a cause for celebration, but for anxiety and further investigation. Some tumors are benign, and can be thought of as a mere excess of a good thing causing only cosmetic or minor discomfort. Others are malignant, actively reproducing themselves to excess and pulling all the body's resources towards themselves, disregarding the health of the host body but without creating any sort of value (because of the impossibility of reproducing itself independently of its originating context). A benign cancer is tolerable; a malignant one must be excised or it will kill the host.
We should not fall into the trap of assuming that just because a social phenomenon instantiates some natural behavior, that it is therefore a Good Thing, aka the naturalistic fallacy. Nature is inherently fractal, and extreme outcomes may be instances of local maxima that are suboptimal from the perspective of the system as a whole.
They didn't say another distribution is more fair? They said that we shouldn't passively accept any distribution if it is a cause of societal weakness, instability, or fragility.
What is the evidence that Pareto-distributed wealth causes more social instability? And why social stability is a good thing? Social structures are constantly evolving; some instability is required for that.
I define "social stability" as a state in which people within a specific society don't kill each other in large numbers over questions of resource distribution. At least based on that view, it's obvious why this is a good thing. Except if you own a spaceship or an island far away so you can leave if things get too hot - then maybe you find the goal of maintaining social stability unnecessary.
Wasn't one of the key causes of the disintegration of the USSR the simple fact that people were using position and influence to have more than others? The further up the chain one was, they had better access to food, a better car, better medical care.
The Soviet system may have paid lip service to communist and socialist ideals, but it seems as if there was a strong capitalist element in there: people who felt they worked hard believed they were entitled to more than others, and (ab)used their positions to make this happen.
The French Revolution does not belong in the same sentence as the crashes of 1929 or 2008. Economic crashes under modern industrialist-capitalism have been much less negative than crashes under other systems.
It is true that class warfare in any direction leads to social instability and discontentment. Everyone should feel that the basic resources they need to survive are attainable. I think that most successful societies, have, for the most part, had that covered.
The 2008 crash was pathetic compared to 1929, it wasn't even called a depression. There was higher unemployment and people pushed out of home ownership, but it's not like anything significant changed as a result and the economy is doing well again.
1929 is likewise pathetic compared to the french revolution. There was no large government structure or leadership change as a result.
I'll be glad to explain, but could you first step onto this patch of soft rhetorical ground so I can attack your argument for its lack of rigor? Thanks!
Sure. You speak of "naturalistic fallacy" — that "natural" order of things is not necessarily good. I agree. With this in mind, I would like to know what is your definition of "good" is. Utilitarianism?
Moral idealism, in the sense of Kant's Categorical Imperative. Utilitarianism is a very attractive philosophy; of course I would love to do the greatest good for the greatest number. But I am not omniscient: not only is my understanding of future consequences limited, perhaps inherently, but so is my insight into what is good for other people.
I can't give you a general definition of what is good. In matters of interpersonal relations or politics I'm in favor equitable rather than equal outcomes; one could invert the standard utilitarian definition to being the least harm for the smallest number, which (imho) has considerably different implications for decision-making. Most people would classify this as a form of socialism and I'd be OK with that, but I mean it in the sense of a moral socialism than an operational or economic socialism with the connotations of central planning and so forth, which I reject.
Personally, I'm mystic and artistic, and adhere to an eccentric esotericism. I apologize for the frustrations that must result.
It's unfortunate that these questions are being dodged. Do we actually have control over the feedback mechanisms, or will they find ways to assert themselves despite our attempts to control them? Which distribution is more "fair" than a Pareto distribution, and why? These are good questions, and it's disappointing we aren't facing them head-on.
We have control over how society's feedback mechanisms are structured
We do. However, that doesn't mean that tweaking knobs won't simply result in a pareto distribution with different winners and losers. At the end of the day, every individual has fitness along a variety of different vectors. You might achieve equality along one or two vectors by tweaking one knob, but then see side effects that result in pareto distributions along different vectors.
My view is that income equality is the wrong thing to optimize for. Instead, we should optimize for progress and productivity that increases the overall welfare of society fastest, even if some individuals do far better than others. Those individuals capable of contributing the most to meeting the needs and desires of the most individuals deserve the most resources to enable them. Those who have the least to contribute will benefit via surpluses created as a result of productivity gains.
Exactly. It's easy to make (a) some rich and some poor (capitalism) or (b) everyone poor (communism).
(c) making everyone rich is beyond the possibility curve. Equality hampers any progress that requires risk. E.g. Steve Jobs. He took crazy insane risks. But only because there were maybe crazy insane rewards on the other side.
> Those individuals capable of contributing the most to meeting the needs and desires of the most individuals deserve the most resources to enable them.
Deserve? Deserve? Seriously?
Do the top 25 hedge fund managers deserve more than all kindergarten teachers combine?
Does Bill Gates deserve $90 billion? But Albert Einstein deserves only $900K? Zuckerberg, inventor of Facebook, deserves $45 billion, but the Tim-Berners Lee, the inventor of the web, deserves some tiny faction of that?
The 80 richest billionaires deserves as much as the bottom 50% of the Earth's population?
A scrawny computer programmer makes ten times the farmhand. But suddenly the two are stranded on an island, where muscle and hunting skills are more important than computer skills. Does the farmhand suddenly become a more deserving person, deserving ten times the food?
> Do the top 25 hedge fund managers deserve more than all kindergarten teachers combine?
Survivor bias.
For the sake of proper comparison it should be all hedge fund managers combined vs all kindergarten teachers combined - a good portion of hedge fund managers never see any money (or, better yet, are main contributors to their fund and then promptly go into negative). Not saying that averages work out better for teachers, but a random teacher likely has a larger paycheck than a random fund manager.
Next up - does the guy who bought a $1 PowerBall ticket deserve 100% of the jackpot when there are honest hard-working people who bought five times as many tickets?
No. Don't change the question or introduce a red herring. Simply answer it: Do the top 25 hedge fund managers deserve more than all kindergarten teachers combine?
And to your "next up": No. Luck != deserve. That is essentially my point, and the implicit point of the OP. A primitive society leaves all to luck. An advanced, mature, fair society does its best to eliminate chance (e.g. insurance, the root meaning of which is precisely that). The lottery is a patently backward thing (the opposite of insurance) and I'm appalled that our state governments perpetrate and profit from such harmful and exploitative things.
prostoalex's point is that hedge fund management varies greatly in its pay, while kingergarten teaching does not. If you want to "play the lottery", do the former. If not, do the latter. It's a free society.
> Do the top 25 hedge fund managers deserve more than all kindergarten teachers combine?
These are hard questions to answer. Lot of people can become a kindergarten teacher but not a lot of people can become a successful hedge fund manager. So in the end the free market decides who deserves more.
If you are a school and want to hire kindergarten teacher, you will put an ad and get lot of response, you may or may not want the best because you know that average teacher will be ok too. So you hire the average teacher with average salary.
If you are looking to invest your money with a hedge fund manager you want to go with the guy who has a great historical record but the hedge fund manager knows that too so he will charge a premium but you are ready to pay that premium because of his good historical record.
So the free market decides that average teachers are good enough and they will do the job with average salary. But in the world of hedge funds, average managers are not good enough, you want the best and you are ready to pay a premium to get the best manager.
> If you are a school and want to hire kindergarten teacher, you will put an ad and get lot of response
Given that there is a massive teacher shortage[1][2][3], and there is no shortage of aspiring hedge fund managers, can you come up with a model that reflects more accurately reality?
First of all the shortage is only some specific sectors like STEM or schools in poor areas.[1]
So the question you should ask is why is there a shortage in some areas, it's because teaches are not being paid well so the supply is dwindling. This is exactly how the free market works.
The next question you should ask is why did salaries for teachers kept going down.
There might not be a shortage aspiring hedge fund managers but there is shortage of fund managers which good historical track records so the good ones get lot of investment money.
"...the free market decides that average teachers..."
What is free about the job market for educators? The political process which determines their compensation? The bureaucratic machine which continues to raise the bar (credentials)? The procurement process which diverts tax dollars into crony coffers? The mandatory unpaid overtime?
What, in your opinion, could teachers, or any individual teacher, do to earn a higher salary?
But in this example you're comparing high risk -> high reward vs low risk -> low reward and introducing survivor bias to boot. At some point the representatives of high risk -> high reward (a) decided that they want to pursue such careers and (b) managed to convince a bunch of moneyed individuals and institutions to entrust the money to them. The representatives of the low risk -> low reward group decided against such path.
Basically, to turn the question around, if things are so rainbows and sunshine in the hedge fund land, why don't more individuals make a career move from kindergarten teacher to a hedge fund manager? From your example seems like no-brainer decision, so you'd expect rational individuals to be jumping the ship en masse.
> An advanced, mature, fair society does its best to eliminate chance
Does it? So every restaurant, home-based artisan and photo sharing app entrepreneur has an implicit guarantee of success and nobody ever competes with or disrupts anybody else's business?
Those individuals capable of contributing the most to meeting the needs and desires of the most individuals deserve the most resources to enable them.
As measured by who, and how? This is standard economic orthodoxy but the fact that many important metrics like life expectancy are running counter to what you'd expect from looking at GDP etc. suggests that we have hit a local maximum and need to revise our models and methods.
This is not the best of all possible worlds, and reiterating the first principles that you believe in will not make it so, any more than praying for justice while carrying on in exactly the same way in all other respects.
A few years ago I wrote a very simple economic simulator. It had a fixed number of actors with a fixed amount of money. Each tick, I would pick a "buyer" and a "seller"---the buyer would give the seller some amount of money (if the buyer had insufficient funds, no money would be exchanged; there was no credit or debt). I would run this for thousands of times. The thought behind the "buyer/seller" concept was that we all act as both (we're a "seller" when working or a buyer when relaxing (food, entertainment, etc)).
It did not matter how much the amount was---fixed or random, the outcome was always the same---a small number of actors would end up with the majority of money.
It might appear that way, but I didn't want to get into a full economic simulation [1]. That's when I decided to simplify the problem to just the money exchange (which is why I started with a random amount of money to be used). The seller is offering "something" the buyer wants and thus, the exchange of money.
But hey, the outline of what I did is there---try your own hand at simulating this.
[1] I thought of maybe food, materials and energy (ala M.U.L.E.) but I had no way to determine realistic price levels (or want levels for that matter).
So this should make some sense. If you are randomly picking "people" to buy and sell stuff certain actors are going to buy more and certain ones are going to sell more. I'd expect in the beginning (assuming everyone starts with the same money) there would be a lot of fluctuation. Then you get the "1 percenters", if you will.
But that doesn't mean we can't teak the dials to create better distributions. Being human means we can overcome certain natural processes. We can fly. We can live in inhospitable places. Why can't we do the same for natural economic processes?
I actually did not expect that outcome. Some variation yes, but not an actual power law distribution (each actor has the same chance of being a buyer as a seller). But as I stated, every one started out with the same amount of money, and there were runs where the amount paid was identical in every case. Still got a power law outcome.
If you look at it empirically, attempts to make wealth equal and/or resentment that a small portion of people have "too much" wealth has led to a lot of misery in human history. We only have to look at Stalin and the USSR, Mao and China, Pol Pot and Cambodia, and more currently Chavez and Venezuala. This thinking has also been responsible for a lot of the anti-Semitism throughout history as well.
I think instead of trying to make wealth equal, we should focus on making people's lives better.
Secondly, can it not be possible that both communism and capitalism are bad?
Thirdly, can't we make people's lives better without awarding 40% of the wealth to 1% of the people, and 22% to 0.1% (2012)?
Fourthly, it's not simply about money, because that could be easier to ignore, if it were true that everyone, including those on the bottom, were better off. But money is power. In other words, democracy is thoroughly undermined. All one has to do is see how much money is poured into politicians' coffers and by whom, and for what purpose. Or see that you can't become president without getting $1 billion dollars of "donations" for your campaign. Is it one person one vote or one dollar one vote?
I'm chewing on his notions for worker self-directed enterprises. Having used democratic decision making processes with great results, I've been keen to learn what others are doing.
As a criticism of communism, that's not even close to an empirical look. It relies heavily on misattribution fallacy and offers no control sample for reference. e.g. if we agreed that Stalin killed 100 million people and that it was because of communism, what's a reference number of people killed by capitalist agents because of capitalism?
If money was distributed in the USA for something that is actually competitive, like athletics, then people of African descent would rule the country, as they seem to dominate this arena, even in venues like golf.
If you look at the wealthiest people in the US, they are people like the Koch brothers, who inherited their wealth, or the Walton heirs, who inherited their wealth, or the Mars children, who inherited their wealth, and so on.
You could also look at others. Bill Gates was born with a million dollar trust fund - his great-grandfather ran National City Bank, his mother was on United Way’s executive committee with the CEO of IBM, his father ran a law firm, he went to Lakeside high school (current annual fee: $33,000) which had teletypes and access to a GE mainframe in the late 1960s. Warren Buffett is also "self-made". His grandfather owned a chain of grocery stores, his father was a congressman, he went to UPenn and Columbia. Mark Zuckerberg's parents are professionals, he went to high school at Phillips Exeter (current tuition $36,000, more if boarding there).
The first group did absolutely nothing. They're not really being "rewarded" as the article says. They can just jet from Aspen to Monte Carlo their whole lives, expropriating surplus labor time from those of us who work and create wealth. You can watch the documentary "Born Rich" which was made by one of these people (it's sometimes on Youtube) and is about these people. The second group - 1%ers who made it into the 0.1%, I suppose transitioned from one class to another, and had a hand in codifying how a large number of people worked. Even doing some of the initial stuff themselves - porting BASIC to yet another platform, selling a CPM ripoff to mom's friend on United Way's board, starting yet another social network (and being sued for stealing it), beating the S&P 500 year after year.
This is all helped by a massive mechanism of basically all of society tilted to let this class of what I consider parasites to expropriate the surplus labor time of those of us who work. It's a social relationship - workers work and create wealth, and heirs expropriate our surplus labor time and the wealth we create during it. And use it as a cudgel against us not just in the world of business, and not just in the governments they created and maintained, and the schools those governments run, or the media they created and maintain and to a large extent monopolize, but also other social organizations as well like churches. Through the corporate owned news I learn Trump, an heir and businessman now running the government, this week signed a document which would allow churches to be more involved in selecting who is and is not in government. All goes into each other - you organize the wretched of the earth at the bottom of society to believe in some superstitious fantasies in order to select certain leaders who will be even more vehemently against their economic interests. One part of society flows into another, but it all flows back to the center, which is what we all wake up and do most days - work and production, and the relationship between the worker and those who are parasites on worker's labors and who have the upper hand at the moment.
Of course, several centuries ago it was the royal families who had the upper hand on the poor and the workers and the merchants, so these things seem to shift around as history marches on.
I'm guessing a power law applies to what percentage of the elite are killed during any given revolution throughout history. Nonetheless, I'd still like to prevent revolutions; and I don't think revolutions being associated with a power law makes them inevitable or immutable.
Very well written essay. Had definitely prompted me thinking, and gave me a 'formulaic' way to describe what I would call a 'gut feel'.
my take away from the article, with some elaboration is the following:
a) through out our lives we have 'binary choices' and 'graduated choices.
Where 'binary choices' basically a yes/no kind of things.
While 'graduated choices' allow shades.
b) the more binary choices present in a given subject of application (eg economics of individual income), the more 80/20 or (50/1) rule hold
c) consistency in making 'right' binary choices, has huge benefits
I'm not convinced his explanation is correct. Power laws appear in many places besides economics and biology. Even in places where there is no concept of competition. For instance, the distribution of word use in the English language follows a power law. Words don't exactly "compete" for use and there is no reason to expect a power law there.
It seems like they appear almost everywhere. I have yet to find a satisfactory explanation of why!
anyone presenting human social grouping decisions as a law of nature is usually full of it.
the only 'natural ' aspects of the larger social organization of society come from man's evolutionary social upbringing in small groups.
civlization is based on man's 'natural' use of his reasoning and social communication to transcend his 'natural ' 'primitive state'.
there is nothing un-natural at all about trying to change ourselves. it is perfectly a function of man's natural capacities to use reason .
the 'un-natural' lie is that there is anything more 'natural' and therefor valid about how our society is supposed to be based on human biology operating at the higher civilization social level.
biology does play a role in demographics. for example society cannot transcend age demographics except by social level decisions to invent medicine and life extending technology or, the opposite, to intentionally CULL human beings by starvation and other methods ( killing is historically efficient for this purpose but very costly in blowback and resources)
if it is natural for a king and his henchmen to do as he pleases, then what is unnatural about altering human demographics by inventing medicine or by genocide?
do queen termites violate natural law by subjugating the hive only to decide when to split or breakup.
the problem with describing things as natural and 'un-natural' is that it more likely reflects the bias and subjectivity of the person attempting to propogate their views as 'good and bad' more than any meaningful discussion of what qualifies as more primarily and deeply embedded aspects of human behavior versus those that are emergent only at the social and civlizational level.
Traditionally it's been easy to expand into a software market if you can come up with a superior product, but when you are playing with AI and competing on having a superior dataset, size and existing advantage starts to matter a lot more.
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