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> Since virtually all human traits follow a Gaussian distribution, it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution. But wealth follows more of a power law distribution. You never encounter anyone 1000 times taller than average, but there are many people 1000 times wealthier than average.

This is nonsense. Lets take an easy example, books, people don't want to waste their time reading bad books so only the most palatable books gets a good amount of sales. This means that a small difference in skill leads to a large difference in sales, which would recreate the power-law of wealth creation. Similar arguments can be made about engineering skills, management skills etc.

Very true. And my opinion of why distribution becomes even more skewed in both the income and wealth, is that it becomes easier to exploit this small difference in skill thanks to computer and the Internet (and books are the best example: it costs nothing to "publish" the book in millions copies online, so the feedback loop moving slightly better authors on top works a lot better than in times of printed books).

If you look at the actual richest people in the world though, they largely make their wealth off the hard work of others (walmart family), through some kind of gamble (finance), some kind of parasitism (unearned income like interest) or by monopolizing that "magically existing wealth the OP doesn't believe in" (e.g. saudi arabian oil).

For every JK Rowling or Steve Jobs there's maybe 100 who either fully or mostly extracted their wealth while going to great efforts to pretend that they're really just another JK Rowling or Steve Jobs.

More than half billionaires are self-made.

so?

And yet the reality does not reflect your model at all: Most wealth in the US is inherited. https://www.washingtonpost.com/us-policy/2019/02/06/people-l...

This means that a small difference in skill leads to a large difference in sales

That does not follow at all from your initial observation. You could just as easily state that a small difference in exposure leads to a large difference in sales, thereby taking skill out of the equation again, and thus supporting the GP's initial argument.

But exposure in the form of publishers costs money. Therefore publishers try to find authors whose work will sell, meaning that skill also makes exposure easier. And once your books sell your skills are validated, so you will have even more opportunities. But if the books doesn't sell enough then you are thrown away, and the publisher lost money. If you used your own money then you lost money betting on yourself, money didn't help you earn money here it just gave you more leverage to lose/earn more.

This is why people say "The first million was the hardest", because after you have used their skills to make a million others will trust your skills and thus give you more exposure and opportunities. So winning a million on the lottery wouldn't help much, it gives you capital but it doesn't validate your skills which was the most important part.

Of course I am not saying that luck doesn't play a part, just that earning power doesn't follow a Gaussian distribution.

This is why people say "The first million was the hardest", because after you have used their skills to make a million others will trust your skills and thus give you more exposure and opportunities.

It is precisely advantages like this that drive the "trickle up" effect. To use your original example, let's say one author legitimately wrote a book that was 10% 'better' than the next best effort. As a result, many more people bought her book (let's leave aside for now the notion of winner-take-all markets, which is another factor in the skewed distribution), and now she (and her publisher) are enriched. On her next book, they can afford a lot more promotion, and with her name recognition, her next book is a huge success, even though it is 10% worse than her nearest competitor. Now they've both written two books, and they're both 1-1 in terms of quality. But the one with the first good book has two best-sellers, and the second is a failure who will probably drop out.

No one is saying that the first author is morally wrong, they're simply saying that if we, as a society, want to reward people according to their skill and effort, the current system fails in numerous cases because it is heavily biased in favor of existing wealth over talent.

This is itself nonsense. It presumes several obviously false things:

- That people who are bad at writing books are either equally bad at everything, or derive most of their income from writing books. "Don't quit your day job" is a meme for a reason.

- That writing quality (by some metric), as opposed to marketing, is the primary driver of book sales. Sales of Twilight demonstrate otherwise. It's even more clear in music: see any one-hit wonder from a past decade. In many cases, people who liked it then now wonder why.

- That the economic model of book sales is representative of the economy as a whole. Books are almost pure intellectual property. Intellectual property is typically characterized by high development costs recouped through high margins. Services and commodity physical goods are typically characterized by low development costs and low margins, with non-commodity physical goods lying somewhere in between. The latter categories make up most of the global economy, so most of the economy doesn't meaningfully compare to books.

The first two of your three points only mean GP needs to replace "authors" with "marketers". Also worth noting that it's not the authors (or musicians) that get rich, but primarily the people facilitating the marketing and distribution.

I feel marketing itself could be enough to recreate power law - ceteris paribus, even a little edge in marketing lets you get more money quicker, which you can then reinvest in marketing; rinse, repeat.

And marketing is not the only way you can reinvest money to make more money. All those ways turn making money into a form of: dmoney/dt ~ money, to which solution is an exponent.

> The first two of your three points only mean GP needs to replace "authors" with "marketers".

Granted, but if you do that, it's no longer making the point that GGP seems to be trying to make.

> someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical

I'm not sure this is correct, at least not on average. Take two average persons, give one of them a million dollar, then watch what their net income is the next 10 years. I'd bet that the one you gave a million dollars will have used up a large part of it thus having a huge net loss while the one you didn't give anything will still be roughly at zero.

Edit: This study shows that people significantly reduce their income after winning the lottery, suggesting that there is a negative correlation between wealth and earnings given that everything else is the same.

https://www.nber.org/papers/w21762.pdf

That suggests to me only a negative correlation between wealth and income among people who achieve wealth via the lottery.

I don’t see any reason to think this same linkage holds for those with a propensity to make money from entrepreneurial or investing activity.

The book "The Meritocracy Trap" points out that inter-generationally this isn't true.

More money helps fund better training which leads to elite networking/training (elite colleges, for example) which leads to well-paying, high status jobs and the cycle continues. Granted, it's not just money alone, but the major theme of the book is that high income from labor (rather than inherited wealth) is a positive feedback loop passed along generational lines and concentrated among the upper quintile of incomes

I'm from Sweden were the things you are talking about doesn't apply, getting into our best colleges isn't particularly hard and private schools you have to pay for are almost non-existent. Yet there are still a significant gap in how much people earn, and kids from rich families still do much better in school and college than kids from poor families.

Fair enough. At least here in the States, Scandinavian countries are often portrayed as more equitable on relative terms. Do you know how Sweden's inequality compares to the U.S. quantitatively?

The training for schooling outlined in the book is often independent of the school structure (e.g., tutoring, test prep etc.). The upper echelons didn't think it was uncommon to spend $100k per student on this extra training. The authors point was that training works and that the rich have more advantages to educating and training their kids

> Do you know how Sweden's inequality compares to the U.S. quantitatively?

By the Gini coefficient, the inequality is much lower, but the social mobility rate is about the same.

http://faculty.econ.ucdavis.edu/faculty/gclark/The%20Son%20A...

I think you might be missing the point a bit. This is not about two people being otherwise equal, and one being given a million dollars.

The point is that someone who has a million dollars is in a position where it will be easier for him to make another million dollars, or at least it's more likely for him to be in that kind of position than for someone who does not have a million dollars.

I'm not sure this is correct, at least not on average.

I assure you it is true. It is not true only if there is a negative value to capital (ie, capital essentially destroys itself). That's what you seem to be saying with your link, but that link looks at only a narrow segment of people (lottery winners) and even then, appears to merely be observing that winners subsequently have less labor income, not less overall income. Which intuitively seems reasonable---winners would be more likely to take early retirement. The idea that, all else being equal, having money means your income will go down is absurd on its face.

Why would you assume something as silly as everyone having similar wealth production capabilities? Wealth is not an oil secreted by a wealth gland.

It’s a really complex process of getting the right market fit for your product (i.e. your time in the laborer case). Someone who can produce a lot of wealth in one society can completely fail in another. Or they can just fail in a different market environment. Wealth production comes from giving the market what it wants at a higher price than it costs you.

> if you're studying how wealth gets distributed rather than how it is produced, it doesn't matter.

I know nothing of this, but how can distribution be understood without the forces that drive it?

It's called curve fitting (or machine learning if the techniques used are fancy enough).

We're using distribution here in two different senses. One is statistical distribution, like power law or gaussian distribution. The other is distribution in the sense of a distribution network. You can test your understanding of the distribution network without understanding how the wealth being distributed was created in the first place.

Many things in the economy follow a power law, see [0] for instance

[0] https://www.nber.org/papers/w14299

Then when you read James Madison defined the Senate as protector of the rich, a legacy fed to our Senators since childhood, you realize wealth accumulation has nothing to do with organic economic trade, and everything to do with political power brokering.

That it’s somehow dictated by physics is another example of people with emotional minds filled by godheaded supervisors that social hierarchy is preordained, not the uglier truth: the elite and their sycophants get violent when it’s pointed out they aren’t gods owed political deference

I think if you're studying the propagation of wealth distribution, how the wealth is produced matters, because there are threshholds below which it's more difficult for individual actors to start or expand productive economic activity. You see a hint of that in economic data where high-inequality economies show lower growth than more equal economies.

I think of it as something like a phase change, with insufficient energy applied equally enough across enough atoms you can't make it from solid to liquid and have a much lower mix rate in the economy.

I am not sure we can ignore wealth creators, surely they want to have an impact on wealth distribution, I can't imagine sane model that would just ignore this factor.

But then, what is a "wealth creator"? Is a teacher a wealth creator? Were the parents of Bill Gates wealth creators? Were Elon Musk in need of a heart transplant, would the surgeon performing it be a wealth creator? Would the heart donor be? Would the director of said hospital be one?

>it seems like whatever the wealth-building factor is, it would also follow a Gaussian distribution... >You never encounter anyone 1000 times taller than average

If I compare myself to Shakespeare / Einstein / Elon Musk I do feel that their abilities outstrip mine by an order of magnitude more than one would expect with a Gaussian distribution.

>>someone with 1 million dollars is astronomically more likely to make another million dollars than someone with 100 dollars, even if the two people are otherwise identical, and it seems pretty unlikely that wealth creation has much to do with the distribution we see.

Someone who scores 85 marks in an exam is more likely to score 95 with a little more effort than some one who scores 35 is likely to score 85 with a lot of effort. This is for a very simple reason that to get to 85 requires a lot of effort, which builds a whole range of human qualities along the way.

Note that the statement is that the two people are identical other than their wealth, so that in this case the difference in probability is independent of how the original million was acquired. That's the point.

>>Note that the statement is that the two people are identical other than their wealth

That kind of thing exists in my example too. The real problem is people are similar but not the same.

Of course they're not the same. The point of the experiment was to show that the differences don't need to be taken into account to replicate in a model the inequality we see in reality. The implication is that, while differences between people clearly exist, they aren't necessary to explain inequality.

The power law you are describing happens in nature too. Size of trees in forest, mass of stars, ect. You can't go deep enough to dig up it's source, so you get carte blanch freedom to make the distribution arguments however you want. But until you dig up the cause for why the system produces a power law output for wealth distribution that has happened pretty much throughout history, under monarchies or capitalism or whatever, then you're just shuffling deck chairs on a titanic argument.