Sunday, October 11, 2009

Cause for Anti-Nepotism Legislation

Despite being an ardent capitalist, I do not believe the majority of rich people earn their wealth. I believe it is more or less earned by a "founder" such as Joe Kennedy and then passed down to trustfund babies such as Ted Kennedy. Additionally you throw in how unqualified relatives and cronies are awarded jobs well before much better-qualified candidates and you can see how when I become king I will implement anti-nepotism legislation.

Regardless, found this chart interesting. Not that it is a call for socialism, but the gini-coefficient is starting to test my patience;


Hot Sam said...

That's one of the arguments in favor of the death tax. But it does take away property rights if bequest and I see no reason why government should get that money. They earned it less than the trust fund baby. In fact, they already taxed that same money multiple times already.

If TFBs do poorly with their wealth, it's their own punishment. If they do well, they deserve it.

Anonymous said...

Ok, I had to look up what a gini coefficient is.

It is a measure of the inequity of income or wealth where a gini of 0 indicates perfect equity and 1 indicates perfect inequality. A high gini indicates that wealth or income is unevenly distributed and low gini indicates a relatively even distribution.

I'll spare the description of the Lorenz curve.

Seriously though, some of these obscure economic things should perhaps be explained by the good Captain rather than someone who has never had a econ class.

A question for the Captain - isn't the the way to implement anti-nepotism legislation is to have a 100% inheritance tax? How else could it be done? Even then, the super-rich would find ways around it - like the Kennedys.

PeppermintPanda said...

My main problem with the gini-coefficient (and measuring equity in general) is that most people would rather earn 10% of $1 Million than 25% of $250,000 but the gini-coefficient would argue that the latter was a better outcome.

Ryan said...

I suggest you read this.

dtrum said...

Nick Rowe said

"If TFBs do poorly with their wealth, it's their own punishment. If they do well, they deserve it."

The only problem is that those TFBs tend to destroy many jobs/lifes while they burn through their luck and wealth. I'm not calling for socialism either, but I see the problems associated with TFBs. However, I can't come up with a solution yet. But taxing is certainly not the best solution.

MTGirl said...

In the farming community (or maybe it's a general saying) there is a saying that goes something like "The first generation makes it, the second generation builds it up, and the third generation tears it down."

Even though my experience is pretty limited, it does seem to be pretty common for people who inherit their fortune without ever having seen it being built up to squander it pretty thoroughly. Which in turn gives some up and coming young guy the land he needs to really start building his operation.

Either way, it seems to me that the problem is self limiting to an extent. And besides, any attempt to tax or legislate an end to inheritance will just give the lawyers a bigger chunk of the money. Might as well let it go to the breeders of miniature dogs and yacht companies rather than the lawyers. At least the yacht companies are only lobbying for less propeller restrictions and junk.

Hot Sam said...

The only problem is that those TFBs tend to destroy many jobs/lifes while they burn through their luck and wealth.

Actually, I think there are entire industries employed to cater to the impulsive needs, wants, desires, foibles, and calamities of TFBs.

One could say their spending is quite stimulative to the economy. Their savings rate is much lower than those who built the trust funds.

BTW, anonymous, the Gini Coefficient in communist China is even higher than the US Gini coefficient. So much for socialist equity.

johnsal said...

Whoa, pardner. Normally you're pretty good a separating the wheat from the chaff, analytically speaking. Here, however, you may have tied your analytical shoelaces together. (Excuse the mixed metaphors.) There have been many studies made profiling the characteristics of the wealthy.

One characteristic is that the high net worth individual has more formal education (although grades don't matter) than the general population. As technology gets more sophisticated, its productive utilization requires more sophisticated knowledge and skills. The gap between less educated and more educated income percentiles thus widens. In a free market system, those who act in ways to enhance productivity and live frugal lifestyles will benefit and those who do not will suffer the consequences. You are on board this whole free market capitalist thing, aren't you?

Also, frankly, the rich are, quite logically, nearing retirement. After all, it takes time to accumulate net worth. The large population bulge (our much beloved Baby Boomers) is into and nearing the end of their highest income earning period. Obviously, there will be a bias in the gini coefficient. The chart from 1980 can be explained by improved productivity and the aging Baby Boomer's growing incomes. Perhaps the rest of the chart can be explained by demographics also but without Saez and Piketty's data (can it even be trusted?), I won't venture a guess. Also notice the study period stops before our current asset value collapse.

No, it seems unlikely that their will be any significant correlation between inherited wealth and relative net worth ranking. In fact it seems more logical to me that that is a much more likely explanation for the continuance of the landed aristocracy in ostensibly socialized Europe than any relative ranking of wealth in the U.S. I suspect you will be pleased, however, because in the future, simply on the basis of demographics, the curve will turn over and decline.