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rerdavies

Huh. So I wrote the code, and ran the simulation. Now I get it.

Investors: 100,000 Iterations: 100

Average worth after 100 iterations: $83.923

Average net worth increases. However the distribution of wealth is skewed dramatically.

Winners: 13,704 (net worth of more than $1 at the end) Investors worth < $0.01: 53,935

What That Guy was worth (the investor who made the most money):

$1,171,830.00

He flipped 71 heads and 29 tails.

Median wealth of all investors: $0.00515378

What could have been made more clear in the presentation. Average wealth increases; but average log(wealth) decreases. Investors on the long improbable upper tail make huge amounts of money; investors on the lower tail just don't make much difference to the average, when they lose 40% of $0.01. What causes the wild income distribution: the fact that log(wealth) decreases on average. This doesn't decrease the total money supply, but it does increase the skewed distribution of wealth.

It has nothing whatsoever to do with anything related to flipping consecutive heads and tails. And a great deal to do with the fact that the log(gain) is 0.405465 and the log loss is -0.510826. So the average investors log(wealth) decreases over time even though the average total wealth increases.

Most figures are wildly variable from trial to trial. Most especially, what That Guy makes is highly variable. If he rolls 72 heads and 28 tails instead of 71 heads and 29 tails, then he's worth $2,565,000 more, and single-handedly adds $25.65 to the average net worth! The number of people who lose money is surprisingly, depressingly consistent.

The obvious conclusion: increasing wealth concentration is an unavoidable consequence of capitalism that probably has very little to do with merit.

The only solution: eat the rich.

View on HN

Imagine if — on top of that - we let the undeserving rich invest their wealth in things such as:

- owning media - lobbying the government - owning the means of production

It could take that dire situation and make it drastically worse. I mean, in theory.

> owning media

Who should own media? Private people, or the state?

> lobbying the government

If lobbying the government is effective, it's either because the lobbying was correcting a wrong, or the government is allowing itself to be corrupted.

> owning the means of production

The "means of production" was barely relevant when Marx found out what a factory was from his factory-owning mate. A plumber owns "the means of production" when he owns his own tools. It's far too low resolution a phrase to be useful, except for anyone who finds it useful to teach people to hate another group of people.

> Who should own media? Private people, or the state?

I mean of course — who should own media.. we have precisely two choices, and no possibility to imagine anything else! What you’ve put forward is known as a false dichotomy. That is a situation where you present two options as if they are the only options.

Oh wow — in your response Re government you have literally stated a dichotomy. Alright. I feel bad now. I have to let you know that there are more than two options (your preferred and a horrible alternative) in just about every situation in life. Please my friend - go out into the world and seek out the alternatives - they are infinite. This false dichotomy business is harmful to everyone around you.

I agree that we should move beyond Marxist thought .. but I think we should be post Marxist not pre.

Unless you're paid by the word, it'd be better to skip all that and state your third option.

Media could be owned by the staff. That's what the Hell Gate website does.

https://hellgatenyc.com/about-us

We could also restrict ownership by audience size. So any one person or non-media organization cannot own or control multiple media organizations if their total audience size is above X people. Audience size would be prorated for partial ownership or control (i.e., owning 1% of a newspaper that serves 100K people would count 1K people towards one's total). This is an off-the-cuff alternative, so assume the regulations would be written by actual lawyers who consider edge cases.

Everything you’ve proposed is the media being owned by the government with a single extra step.

> Media could be owned by the staff

Agree. That would be private people owning it, though.

Well, the state is also people, so state-owned is also private people owning it then. Either that, or you could acknowledge the dramatic material differences between workers owning their own output and a rich individual not-worker owning their output.

Er no, people don't own the state. People do own businesses.

> so state-owned is also private people owning it

This is wrong by definition. There is an actual "true" dichotomy between public ownership and non-public ownership. Two criteria:

- "jointly exhaustive": the two subsets contain all possible scenarios

- "mutually exclusive": the two subsets do not share any possible scenarios

These criteria are met with the subsets of "the state" (meaning "public") and "private people" (meaning "non-public").

I point out your false dichotomy and you say what is the third option? I have been very clear there are more two more than three but many many options.

To be clear - the two options you’ve presented are not actual options that anyone is arguing for. So presenting a single alternative would be to fall into an obvious trap. I ought not to have replied to disingenuous debate in the first place I get that.

But perhaps someone else can - in future - spot a false dichotomy and say “oh - avoid this nonsense.”

If there's a third it doesn't mean there isn't a fourth. It just means you have an actual argument instead of just calling something a false dichotomy.

You’ve presented two options and there are many more than two. I don’t have to list them to point at that at face value it is obvious that the two options you listed are not the only options. Can you genuinely imagine no other options? Really?

I am giving a true dichotomy here, either:

1. You believe there are precisely two options

2. You do not believe there are precisely two options.

Which is it?

You don't have to list them to say that it's a not dichotomy, but you do if you want to demonstrate it's not a dichotomy. I don't know why you're spending 100s of words on the theory of dichotomy, instead of just providing a third option to show how it's not one.

E.g. this could have gone:

LeonB: what about businesses owned by many people?

robertlagrant: ah, yes - what I was saying would put them in the "private ownership" bucket.

Or whatever it is that you're actually thinking of, but are reluctant to say.

Is that 1 or 2?

I don't know about options, but I was describing two main buckets you could classify things in, so...1ish?

The irony of you determinedly pinning me down, when I'm happy to converse, while you will do anything but answer what I was asking, is hopefully not lost on you.

Apparently I will do anything but answer what you were asking.

Your question was:

>Who should own media? Private people, or the state?

The reason why no one ought to answer a question like that is because it is presented in a format identical to a “bad faith” question.

You may have meant it genuinely but it looks like the old “Have you stopped beating your wife?” lawyer trap.

I chose not to answer the question because it was recognisable as a “false dichotomy”. Then I explained my reasoning and so on.

I wasn’t “doing anything but answer”ing what you were ostensibly asking. Avoiding it was easy. Trying to inform you and anyone else reading of why such a question is never worth answering, is what took a lot of effort. That’s just par for the course if one chooses to respond to a question that has the format of a bad faith argument. I don’t mind.

So (to carry on your schtick) apparently you feel that if “the undeserving rich” are, as I suggested, in any way restricted from owning media, the only other bucket is state controlled media. Well I’m sorry you feel that way. Perhaps a democracy could have some laws or something, without turning into a fascist state. Seriously - the general category of “functional democracy” provides millions of shades “between” oligarchy and totalitarianism - but even saying “between” is giving too much credence to a bad faith preposition.

I’ll go through it for you again if you wish.

Over here at a specific extreme we have a totalitarian regime controlling all the media. Over here at a different extreme we have a small number of rich people owning everything including control of media.

Now we can construct a 1 dimensional line and say that these are two extremes on a single axis. And we can go even further and say, as you have, that all possibilities fall into these two buckets.

Consider though that this world we live in and the world of political possibilities is not a one dimensional world. Nor is it two dimensional or three dimensional. It is “n” dimensional for some inconceivably large “n”. There are many different ways that power can be distributed, channeled and many more ways in which benefits and taxation can be organised - and or other mechanisms and feedback systems other than these. A functional democracy can avoid being either of those two specific buckets. That one dimensional line and those two specific buckets are not in any way inevitable.

> Apparently I will do anything but answer what you were asking.

> Your question was:

> >Who should own media? Private people, or the state?

Well, no. My question was: can you give a third option?

> Then I explained my reasoning and so on.

You didn't explain your reasoning. You reiterated that it was too obvious to need to explain your reasoning, and left it as a claim.

> Unless you're paid by the word

Ad hominem.

It's snarky, but it's not ad hominem.

It’s not the main attack but you can have many fallacies in a single argument. Attacking the length of an argument rather than the thrust of the argument is an Ad hominem fallacy.

It’s also snarky.

There was no argument. Only a claim. And ad hominem is attacking the person, not the argument (e.g. "They might say that, but they're a Democrat.")

Claims are arguments, just poorly supported ones.

Ad hominem includes many types attacks on a person that aren’t about the person but how they presented the argument. Ie mocking how slow someone spoke, or in this case how many words they used: https://en.wikipedia.org/wiki/Ad_hominem

This is the crux of it, and lines up with what I was saying:

> Nowadays, except within specialized philosophical usages, the usage of the term ad hominem signifies a straight attack at the character and ethos of a person, in an attempt to refute their argument.

That doesn’t make the correct usage in this context wrong, or more importantly prevent what you said from both being a logical fallacy and simply rude.

I personally would have apologized a while ago, but you do you.

> That doesn’t make the correct usage in this context wrong

Well, it does if I'm being a bit snarky, and not using that snark as a way of dismissing a claim. I'm saying there is no justification for the claim, and that it's taken far more words to claim the thing than it would be to supply a simple disproving example.

> or more importantly prevent what you said from both being a logical fallacy

No, something being not ad hominem doesn't prevent it from being a logical fallacy, but that's not how reason works. You disprove. You don't say, "Well this criticism failed but that doesn't prove it's valid!"

> I personally would have apologized a while ago, but you do you.

But... this is also rude. More so than a little bit of snark.

Start again. What are you trying to achieve here?

> Well, it does if I'm being a bit snarky…

No, being snarky in no way changes what’s going on.

> a simple disproving example

Which I provided an hour ago and you haven’t responded, thus disproving your argument here with an example.

> is also rude.

If you acknowledge you’ve been rude then apology is appropriate. Simply ignoring rudeness is poor manors as otherwise people can’t improve. Instead proper manors is to bring up the mistake and offer a minor correction. In person subtle body language is useful, but in text the only option is to be more explicit though still indirect. Thus what I said was quite literally the opposite of being rude.

I'm not ignoring what you said; I just didn't see it. This is an internet forum, not a live conversation. If you assume that proves something...I don't know. Not much point interacting with someone whose imagination exceeds their grasp on reality.

Thanks for trying, @retric.

You were very patient.

You were claiming that I was being paid per word.

That’s an “ad hominem” attack because it is against me.

Please refrain from doing that to people, whether me or others.

> You were claiming that I was being paid per word.

Please quote where I claimed that.

I thoroughly disliked every moment spent interacting with you. You’ve admitted above that you were being snarky. That’s what you put into the world. I want you to understand that when you use your time to be snarky to people it is hurtful and wrong. Please do better.

You saying sarcastically how I could be so silly as to claim only two options, rather than simply saying "hang on, what about option X" and us having a conversation is where this went wrong. A tiny bit of snark is much less rude than that, and particularly when it's in response to the initial unpleasant sarcasm.

> Attacking the length of an argument rather than the thrust of the argument is an Ad hominem fallacy.

Its a fallacy but its not ad hominem. (Its non sequitur, but than most fallacies are specialized forms of non sequitur, so that doesn’t really narrow it down much beyond saying it is fallacious.) There's not, AFAIK, a common catchy name specifically for “argument to the peripheral stylistic features of the opponent’s argument”, though there maybe should be, because in practice its a common fallacy.

> though maybe maybe should be, because in practice its a common fallacy

That’s why it was. Ad hominem is based on what is being attacked not how.

Attacking the person not the argument is deeper than simply dismissing something because of their political party, race, or educational history. When you attack stylistic elements of an argument you’re attacking the person as someone who made an argument in that form.

> When you attack stylistic elements of an argument you’re attacking the person as someone who made an argument in that form

No, you aren’t.

“This argument is false because ofn the way it is presented” is fallacious, but it does not rely on the reader rearranging it into “This argument is wrong because anyone who would present an argument this way is a bad person whose arguments should be dismissed”.

Its definitely a non sequitur, but calling it ad hominem is interpolating things that aren't there.

Not that kind of person or attack. What in your mind separates mocking someone’s speech impediment with mocking a website’s font?

A website isn’t literally a person, but what’s being attacked is the thing making the argument. It kind of break down because this isn’t directly equivalent to two people debating before the Roman senate, but western philosophy really didn’t care much about such superficial differences.

I can’t think of the phrase but there is the platonic ideal of an argument and individual who voiced it. Something about after an argument has been spoken it, as in the argument, needs to be addressed directly not the person who said it.

PS: Similar idea in a different context don’t judge a book by its cover. Not directly relevant, but I find it fascinating how often the idea of superficial as unimportant is used while people focus on it so much. Sort of a humanity has changed less than you might think in the last several thousand years kind of thing.

There is far more than just 3 options and suggesting any specific option is again falsely limiting the discussion.

(1) Government ownership, (2) ownership by a single rich person, (3) ownership by a nonprofit, (4) ownership by the employees, (5) ownership by the readers…

However, suggesting just one additional options focuses excessive attention to that specific option. Mentioning how much Twitter has changed going from a public company to a private one owned by a single wealthy person is only barely related to the underlying argument here. Namely, that you need to consider many options and their individual tradeoffs not just 2 bad options.

(1) is state ownership; all the others are private. Those are the same two options I listed; you just mentioned some subcategories of private.

You didn’t set the categories, the original post was: “Imagine if — on top of that - we let the undeserving rich invest their wealth in things such as: - owning media”

You can have private ownership without the owners automatically being rich. Further the owners could be rich without qualifying as undeserving rich by whatever metric the post’s author had in mind.

That said, thanks for providing my point ;-)

> You didn’t set the categories

This whole conversation has been about my "false dichotomy" of state and private ownership.

E.g. from LeonB:

> I mean of course — who should own media.. we have precisely two choices, and no possibility to imagine anything else! What you’ve put forward is known as a false dichotomy. That is a situation where you present two options as if they are the only options.

No, you used the words “Private people” in direct response to someone complaining about ownership of the media by the wealthy.

That’s not equivalent to all forms of non governmental ownership in that context. Charities are not owned by private people quite literally as they can’t liquidate assets etc. You can be convinced of Theft if you take assets from a charity you set up.

If you want to now redefine your point as all forms of non government ownership then that’s simply a strawman arguemnt in terms of the person you where replying to.

You are focusing on the wrong thing.

The danger in media control is not the public/private axis, but the monopoly/ plurality axis and the truth/falsehood axis.

> Oh wow — in your response Re government you have literally stated a dichotomy. Alright. I feel bad now. I have to let you know that there are more than two options (your preferred and a horrible alternative) in just about every situation in life. Please my friend - go out into the world and seek out the alternatives - they are infinite. This false dichotomy business is harmful to everyone around you.

> If lobbying the government is effective, it's either because the lobbying was correcting a wrong, or the government is allowing itself to be corrupted.

This seems like "correcting a wrong" or "not correcting a wrong and therefore the government is allowing itself to be corrupted". The second part has an argument that effective lobbying which does not correct a wrong is necessarily government corruption. There seems to be a regular old dichotomy here (https://en.wikipedia.org/wiki/Dichotomy). Not all dichotomies are false.

But I also want to highlight a part of the comment:

> Please my friend - go out into the world and seek out the alternatives - they are infinite.

If these alternatives are so infinite, it should be easy to name one. That is something that is yet to be provided in this thread, seemingly despite your confidence that this dichotomy is false.

Marx was specifically talking about industrial production and made that pretty clear in his work. “It’s far too low resolution a phrase” when purposefully taken out of context. If “the means of production” applies to the factory owner and the plumber equally, I’d counter its not at all a useful phrase for “teaching people to hate another group of people” because those aren’t at all the same type of people.

Agreed. I have friends that are plumbers and friends that own factories.

Both plumbers and factory owners do indeed have opportunities to exploit people. But my plumber friend can only exploit one customer at a time, where as a factory owner multiplies that ability. Multiplication is a powerful operator.

How does the plumber exploit people with his/her tool ownership?

The key word is that a plumber "can" exploit one customer at a time.

A plumber can exploit a customer by charging an exorbitantly high rate for work. They can choose to exploit their position of power as a supplier of services where a customer has an urgent need.

Exploitation is not charging a high rate for work. It is charging a higher rate when a customer is not in a position to shop around.

How does the plumber owning tools create that situation?

They have the opportunity to exploit people through asymmetric knowledge. Any other questions?

Yes: how does the plumber owning tools create that situation?

By that definition of exploitation the factory worker can exploit the factory owner by working slowly or calling in sick or or or or

Of course there’s more ways to cheat people than skimming wages via capitalism. Marx point was that capitalism should be understood as a way to cheat people at scale.

The plumber generally exploits one or two employees. But otherwise your point stands.

I said “my plumber friend” so a generalisation about other plumbers is irrelevant to whether or not my point stands.

> The plumber generally exploits one or two employees. But otherwise your point stands.

It's hard to know where to start with things like this. How does the plumber exploit employees? Why are you assuming anyone exploits anyone by default?

Labour generates value. An employee generates value and the employer pays the employee only a fraction of the value generated, after paying off all expenses. That is called profit. Marx defines exploitation in the amoral sense, like exploiting natural resources.

Customers don’t get exploited in this way. They generally are also employees of some company that does exploit them, but that is a separate relationship.

> The "means of production" was barely relevant when Marx found out what a factory was from his factory-owning mate. A plumber owns "the means of production" when he owns his own tools. It's far too low resolution a phrase to be useful, except for anyone who finds it useful to teach people to hate another group of people.

A plumber owns a fraction of the means of production so small it’s not worth mentioning. How much of the means of production is owned by megacorps? A sizeable amount.

How much of the means of production is owned by singular entities in the context of local economies? Sometimes over 90%.

At the end of the day if some guy owns a fabulous machine and will pay you a non living wage to press a button on it while he reaps the rewards you will grow resentful. Especially if the shittier prior machine required more skilled interactions and higher wages.

> The only solution: eat the rich.

The only? Maybe not bet 100% of your wealth every time? That's what Kelly criterion is about.

You have to have enough in the first place that trying to support yourself isn't betting 100% of your wealth.

If you have nothing in your checking account, it does not mean your wealth is zero. In real life you can earn more money, in the given example you can't.

In real life you can also have negative money. In real life you can live paycheck to paycheck. In real life you can have costs higher than your earnings.

If you have no money to bet, the example is not applicable.

Uh do you mean "bet 0% of your wealth every time"? Or does betting some number greater than 0% lead to net positive expected gains for an individual?

Kelly criterion defines the optimum ratio.

The Kelly Criterion, in this case, suggests that the optimum bet size is ~25% of your wealth.

Making 4 separate bets in each round with 25% of your wealth produces the following results:

Investors: 100,000 Iterations: 100 Portfolio size: 4

Avg wealth: $130.041 Median wealth: $11.6259

Winners: 85,902 Investestors worth < $0.01: 119

Max wealth: $86,177.5 heads: 241 tails: 159

> The only solution: eat the rich.

Don't look at history when people did this, though. Just do it based on this simulation.

Nom nom nom

You eat the rich and you're hungry again in an hour. And now there's no food.

Man Elon Musk is personally farming soooo much corn every day! Wow!

He may not be personally running a farm. But if much of his wealth is invested as is usually the case for the richest people (no way it's just sitting around as cash), then he's indirectly supporting many productive endeavors. Even if it was all just cash deposited in a bank, it's not doing nothing. Farmers and others need loans, banks need deposits (well ... before QE)

Hahahahaha

deep breath

Hahahahaha

Almost all of his wealth is in stock. Start taking that and it becomes valueless, because things that are legal to steal at any moment are not worth buying.

Right, so his true wealth isn't that liquid ordinarily, and he'd get a lot poorer if people started selling those stocks. His enormous wealth could be just that he's a beneficiary of the 'Stonks go up' stimulus/QE driven world we live in, and Elon Musk might just be one giant malinvestment, to be revealed if the market was actually 'allowed' to fail by the Fed, with an end to artificially cheap credit and cheap margin debt. Or he's truly onto something and he really is that valuable... I know which one I'd pick.

Yes we rich-eaters have been surviving on a mono-culture of rich folk and will surely starve without the rich who sacrifice themselves selflessly for our sustenance.

Most people are rich because they own stock that's valuable, because they made or did something that's valuable.

Collapse that chain and you replace value creation as a form of mild power with political ability as a way to access direct and high levels of power and things start going wrong fast[0][1][2].

[0] https://www.britannica.com/topic/Stalinism [1] https://en.wikipedia.org/wiki/Great_Leap_Forward#Consequence... [2] https://en.wikipedia.org/wiki/Venezuela#Suspension_of_consti...

> Most people are rich ... because they made or did something that's valuable.

This assumption is doing a LOT of heavy lifting here.

> > Most people are rich ... because they made or did something that's valuable.

> This assumption is doing a LOT of heavy lifting here.

Value is determined by the people. I personally find Pokemon & MTG cards to be worthless, but other people do, and they're where that value is derived.

This is a meaningless comparison. That's not how wealth works. Wealth can be acquired via tons of indirect means including fraud, monopoly, luck, etc.

The power that flows from value creation is “mild”, whereas the power that flows from political acumen is “direct and high”? Man cmon. Power is power. Have you not noticed the entire lobbying industry and who pays for the majority of it?

> The power that flows from value creation is “mild”, whereas the power that flows from political acumen is “direct and high”? Man cmon. Power is power. Have you not noticed the entire lobbying industry and who pays for the majority of it?

The difference between the two is the number of sources of said power.

The power that flows from value creation is “mild”, because there are many avenues/paths for creating value. Value creation is inherently derived from what at least one person sees as valuable in of itself, as thus less concentrated. The changes brought by said value creation is limited to the people that see its value & congregate around it, and when a better/more valuable creation turns up, their decision to leave or stay with the existing creation is ultimately theirs.

The power that flows from political acumen is “direct and high”, is because that power has the ability to control everyone's lives, and that there is only one place where said power is allowed to accumulate: The State. Power inherently concentrates when only one apparatus is allowed to accumulate power. This makes manipulations & corruption of that power much easier to perform, since it inherently concentrates into few hands/figures.

The whole experiment takes as a premise that merit doesn't matter (coin toss)... and arrives to the obvious conclusion that merit doesn't matter.

Especially since, as someone indicates in another top level comment, the percentages are not even chosen properly, gambling on absolute money is a dumb choice, one should only gamble on log-money. So, a bunch of people making a dumb gamble with no merit involved produce a distribution.

I don't understand why anybody at all cares about this - it's just garbage in, garbage out. The only real-world connection one could make is... don't play lottery, I guess? Oh wait I do understand why people care - that's because this "supports" a social conclusion they already pre-supposed.

Or you could redistribute wealth to even out the winner-takes-all part while still encouraging merit of some sort by having winner-takes-some

Like a large(r) tax on upper incomes and capital gains??

I think the key thing you're missing here is that they were talking about behavior as the number of flips goes to infinity. That long improbable upper end becomes more and more improbable over time. As time goes to infinity, the probability of being in it goes to 0. With a finite population, everyone is ruined.

I ran the same simulation as you. After 100 iterations, the richest one had $71. After another 1,000 iterations, the richest one had $78 (of a total $133). After another 10,000 iterations, the richest one had 10^-165 dollars. They were still an extreme outlier with 95% of the total wealth, but he had almost nothing.

> With a finite population, everyone is ruined.

With high probability.

With probability 1 as time goes to infinity.

Right, the probability approaches one as time goes to infinity. I didn’t mean to imply otherwise.

Okay, so aside from the cool terms (ergodicity, which... well whatever), what I think is really going on here is that the results of the iterative system, which intuitively appear to be a normally distributed value distribution for "not large" iterations, actually is NOT.

Since it is actually a very not-normal distribution, the typical concepts of "mean", "median", and "std deviation" (which AFAIK isn't even really mentioned and would be meaningful) are warped to the point of meaninglessness.

Of course economics being essentially a social science with some math and therefore defaults to thinking in typical normal distribution assumptions, won't naturally deal with that sort of pattern.

And while I agree game theory (and this is a game) is relevant to economic study, the fact is that real world "games" like wealth distribution has a vast chasm of chaos/randomness/nonlinearity that blocks things like this or the "pirate distribution" game and others.

Distrubingly, the games are parroted in some either overt or subvert manner to justify the distribution of wealth in the current 30 year era.

"It's the natural way of economics and mathematics, how dare you chop off my head in the guillotine!"

And yet "Some men want to watch the world burn". The elite also love the "great man" theory of history, because they are, of course, great men. But bring up the revolutionaries, and suddenly they don't like those pet ideas.

> Average wealth increases; but average log(wealth) decreases

What’s the mathematical rationale (or intuition) for looking at the log values?

I don’t quite understand what they represent.

It's reducing the impact of the outliers.

e.g.

x = 60, 10, 10, 10, 10

avg. x = 20

avg log(x) = 1.1556 (which is 10^1.1556 = 14.3)

Log is useful for repeated trials, since it’s a way of looking at exponential growth. If you write out the formula for a repeated trial, you’ll get an exponential function. Log tells you the value of the exponent a in e^at.

Multiplication becomes addition after you take logs. That makes many things easier to understand and manipulate.

Exponential trends become linear.

The geometric random walk where you multiply by X or divide by Y with equal probability becomes an additive random walk where you add log(X) or substract log(Y) and you can represent that as a standard random walk (where the up and down steps have the same magnitude and probability) plus a trend.

The other people gave good intuition on why the logarithm is good but not on why the logarithm is the best choice. For example, max(sqrt(EV)) would also reduce outliers.

There is a more mathematical way akin to the original derivation of the Kelly criterion [1]. Let's compare two strategies, max(EV) and max(log(EV)). Our game is coin-toss with heads=+50%/tails=-40% payouts and infinite repetitions; max(EV) would always go all-in, while max(log(EV)) would only bet a fraction of its current wealth at each turn.

- After the first turn, there are two cases; if heads, max(EV) has a higher payout, if tails, max(log(EV)) has a higher payout. On average, max(EV) has a higher payout because it went all-in, and there's a positive EV per toss.

- After two turns, there are four cases; in one of them (heads-heads), max(EV) has a higher payout, and in the other three, max(log(EV)) does. The latter is hence the "safer" choice. However, in the 25% chance that max(EV) wins, it has significantly more money than max(log(EV)), so the average (not median) payout is higher for max(EV).

- This repeats, and after more and more repetitions, the chance that max(log(EV)) has a higher payout converges towards 1. Note that the payout for max(EV) in the (very!) rare case that it gets lucky skyrockets at an even faster speed, so on average, max(EV) still has a higher payout.

- Turns out this is not just true for max(EV) and max(log(EV)), but in fact max(log(EV)) always maximizes the chance of higher payouts, given enough repetitions.

So, in other words, max(EV) maximizes the average payout, while max(log(EV)) maximizes the chance of having a higher payout than any other strategy. The original Kelly paper has more precise maths, but I hope this helps to guide you.

[1] https://en.wikipedia.org/wiki/Kelly_criterion

If you lose half your wealth, you have to double your wealth to get back to where you were.

The log change intuitively shows this.... log (0.5) = -0.3 & log (2) = 0.3

If you lose three quarters of your wealth, you have to quadruple your wealth to get back to where you where.

Again, log intuitively shows this.... log (0.25) = -0.6 & log (4) =0.6

I think my explanation is more intuitive than every other comment so far.

An intuition is that log(wealth) represents utility. An intuition for why log(wealth) represents utility is that wealth has decreasing marginal returns. The logarithm is a function that fits this. If you play around with it a bit you might see that it conforms to your intuitions: increasing your net worth from $100k to $200k increases your utility significantly, maybe about as much as increasing your net worth from $1m to $2m, and much more than increasing your net worth from $1m to $1.1m.

Why make it about the rich. Your statistic doesn't magically change if you change the starting $1 to something else.

And to put the phenomena in much simpler words: flipping a coin once is good, having $100 bucks you either lose $40 or get $60, on average you get $10, and you win half of the time. The problem is if you have to flip a coin at least twice, because then the accumulated multiplier of your value, rather than .6 / 1.5 becomes:

.6 / .9 / .9 / 2.25

So while on average you gain 16.25% of value, you are a winner only ¼ of the time, and it gets better/worse depending on average gain / chance to gain.

…And apparently, what I learned just now, since your chance to gain approaches 0, for a finite population and infinite time, the chance approaches 0, therefore rendering the average gain to also be 0.

My somewhat controversial opinion is even if success were based on merit, this is still random chance since merit depends on one being born with ability in a supporting environment. Meritocracy can be social Darwinism.

> The obvious conclusion: increasing wealth concentration is an unavoidable consequence of capitalism that probably has very little to do with merit.

Not really. P implies Q is not the same as Q implies P.

The fact that you can get a large gap between rich an poor with pure coin toss does not mean that when you have such a gap the gap resulted from pure randomness. It could have resulted from any combination of merit, hard work, inheritance, cheating, and luck. Your conclusion simply does not follow.

If you change the equation slightly and place a fixed resource consumption requirement (take 1-10% of the initial amount to pay to flip a coin) on each person’s continuation, and then unevenly distribute the initial balance, it will become apparent that your ability to become “that guy” is dominantly determined by your initial balance.

In this version people do not end up at some small fraction of the initial balance but instead they go negative, i.e. exit the simulation to homelessness.

The ability to keep flipping the coin without starving is absolutely the primary determinant.

With the wrong analogy you can prove anything.

In this analogy the coin flip results in 150% your net worth or 60%. In real life, we make thousands of decision per day, but very few people make a single decision like that in their entire life. And this analogy goes for 1000 such decisions.

In the real world, most of our decisions are not like a coin toss actually: if I do this homework, I might become a bit smarter and boost my lifelong learnings by 0.001%, and if I don't I will enjoy an extra half an hou of TikTok. The outcome is anything but a coin toss, still most kids go for the second choice. The kids who go consistently for the first will end up in the top 1%, but unfortunately, they'll hear from their TikTok-loving friends that their success is just due to pure coin flips.

Your first sentence is correct.

The idea that the choice of homework vs TikTok is the choice of wealth vs destitution is a valid concept for relatively low values of income, generally within the realm of working for other people. This is because performance on homework is not necessary and not sufficient for actual wealth, only for a relatively safe employment outcome.

What we are talking about is making major bets on all the wealth you have accrued to date. To the point where a single major bet moves the global average wealth.

If your homework told you how to build the next Amazon/Tesla/Facebook after having enough money to start it, then it is relevant to this wealth discussion. Otherwise it is just a myth that got you to a relatively healthy, stable income.

He mentions some solutions in the linked articles - and basically it involves pooling risk.

In concrete terms I guess that means such things as re-distributive taxes ( either on death or through life ) - pooled pension funds, insurance, family and friends etc etc.

>The obvious conclusion: increasing wealth concentration is an unavoidable consequence of capitalism that probably has very little to do with merit. The only solution: eat the rich.

This is exactly why we need progressive asset taxes. Income tax should be almost abolished, it can be something like 10% on all types of income and then nobody needs to bother with tax evasions on that.

5-15% VAT or sales tax to generate revenue for the places where people congregate and do their business, the rest of society should be funded by asset taxes.

Vat is irredeemably regressive. I suspect you know that.

Income tax fails in its progressive goals not because it is inherently bad (like VAT) but because the tax laws are written by the richest players. (Ask a poor person how much influence they’ve had on tax law, and then ask a top 5 accountancy firm. This isn’t a controversial statement.)

I know VAT is regressive but if it is low enough it doesn't really matter. We do need revenue streams for municipalities and local governments and VAT can be a nice part of that.

I would support a low flat income tax for two reasons. It is simple, if all income is taxed at 10% you just pay that and there are no opportunities (or frankly the need) for some fancy loopholes to avoid it. The second reason is that I do like the idea that everyone pays tax, it is part of being a citizen with all the rights and responsibilites that comes with it.

I believe you, but it’s just incredibly naive.

If “all things were equal” and there were no assumptions and we were all starting at an equal position there “may” be some merit in this position. But that’s just… nothing, absolutely nothing, like where we are. And if it seems like it’s fairly similar to where we are: your education has been very blinkered. I say that with compassion, btw. The scale of current inequality is so astronomical it’s beyond comprehension.

What is naive? I don't quite follow you. Since you're so worldly and educated ;) What would you suggest be done about inequality if not taxation of wealth and stronger representation of the "normal people"?

The vast majority of wealth is concentrated in a very small number of people - and not directly attributable to those people - due to local and international tax avoidance.

If I’m so smart what is my simple and obvious solution to this global catastrophe? It’s pretty damn hard to put it all on me to solve in one hacker news comment. Sheesh.

>The vast majority of wealth is concentrated in a very small number of people - and not directly attributable to those people - due to local and international tax avoidance.

Yes, this is known. I just asked you to clarify what it was I said that is so naieve?

You asked two questions. Sorry if I answered the wrong one.

I think when the person above suggested eating the rich you literally believed them and you’ve been on a misguided tear ever since. There’s little I can do to help you, but by god I’m glad I tried. Best wishes.

This isn’t an adverserial exchange my friend.

I’m sorry if I got on your nerve with the “worldly and educated” jab, but you were (and have continued to be) quite condescending in your responses.

Have a nice day :)

Um ok.

Backing up a little and answering your next question.

The naivety is that you say “I know vat is regressive but if it’s a low amount…”

Ok.

First thought I had here was:

What a middle class person considers a low amount of tax on a necessity is not the same as what a poor person considers a low amount of tax on a necessity.

At that point - just pondering that, which is only a preliminary consideration, I think - this person, I like them and I care for them but they are a bit naive. I’m not “adversarial” I’m just a bit sorry, thinking, this dude can’t see past their privilege. Fair enough. I make the same mistake multiple times per day. Genuinely.

But then I consider just how extraordinary the gap is, not between low and middle class people but between low+middle class people and “wealthy” people. Low and middle have very different opinions on the impact of 10c on a loaf of bread. But those opinions are utterly insignificant compared to the value a wealthy person places on that same 10c. Logarithmic difference.

There’s so much more to it -/ but yes just saying “vat is regressive but…” is to me a betrayal of a kind of (on the one hand) admirable level of optimism (I genuinely appreciate that) but also a naive/blinkered/privileged eye rolling “here we go again” level of ignorance that is Just. So. Exhausting.

Again - if all things were equal, if people were all starting from the same starting point - then we could “genuinely” engage in simplistic first principles discussions that treat all market participant as frictionless spheres in a vacuum etc — but we’re very far past that point… 10,000 plus years of civilisation beyond that.

Thank you for reading this far. Best wishes.

Ok thanks for that perspective.

To answer your point, the thing about prices and taxes is that the price will be basically whatever the market will pay. It is not determined by the cost of service except at the lower end. So a low VAT (compared to no VAT) will come mostly out of the profits and not so much from a price increase.

This is especially true when the current situation is in most places that there is a rather high VAT, so there the lower VAT will actually reduce prices a little bit, but again not by the whole difference because the price of necessities isn’t determined by the cost but by demand.

In any situation however I remain of the opinion that until we get a progressive wealth tax we’ll continue on the same path of increasing inequality that ultimately destroys democracy.

> the price will be basically whatever the market will pay

I too am optimistic that markets can work and there are situations where the price will be what the market will pay.

But what I observe is - from the consumer side: a rapid rise of monopolies

From the producer side: an even more rapid rise of monopsonies (this is the sneakier consequence of monopolies that most of us don’t see, but which affects us most)

Those two items damage the premise of free markets

But add this:

From the government pov - these companies are beyond taxation: they can shift profits off shore and or manipulate tax policy such that the playing field is no where near level.

I think an ideal system has a marginal tax rate that decreases with income, with an effective tax rate that increases over time.

A simplified version of this:

- two tax brackets, 60% tax over all income below 40 000, 40% tax over all income above 40 000. - A deduction from taxable-income for everyone of about 25 000 - Negative income after deductions means you 'pay negative tax', i.e. you get money from the state - All other subsidies to people come in the form of more deductions from taxable income.

This is effectively a universal basic income of 15 000. It remains a progressive system, and ensures that taxable income deductions are actually valuable to people short on cash.

The numbers obivously need tweaking.

Except, in your simulation you only consider accumulation of dollar amounts. Pure gambling, wealth in a vacuum. Calling these dollar amounts 'wealth' is not helpful because they need to have purchasing power, there need to be goods and services to buy, otherwise they're just meaningless entries in a ledger, bits of paper (see Zimbabwe). It's wrong to dismiss capitalism on the basis of this simulation.

In the real world there are usually side effects to these 'bets'. For example, a person, who is already rich, uses their wealth to purchase a factory and produce goods at a dollar price in the hope to earn more wealth. Those goods might be rejected by the market, but if accepted, they receive dollars and the rest of the world receives goods. The factory owner can only receive the dollars if others can afford to buy them. This means there is another road to ruin - fail to produce anything people want at a price they can afford and you'll soon go bust.

The buyers who receive goods in exchange for money, particularly durable labor saving goods like dishwashers/fridges/cars/computers, are surely more wealthy in some sense? In addition, the factory owner might make tools/machinery that enables other entrepreneurs to make stuff too.

Also consider ongoing costs, that capital has to be replaced (things break!), unexpected bumps in the road, finite lifespan, waste, and so on.

Which leads me to our current system: the rich have got richer through financialization, government lobbying, zero-interest financing et.c, that has allowed them to acquire assets that appreciate without a substantial increase in production.

The solution is to make rich people take much bigger, potentially ruinous, risks with their wealth on production instead of financial chicanery. More abundant goods and technology are the payoff while failure leads to liquidation of their assets, making assets more accessible to everyone else who might need them.

Deflation, and crashes are a feature, not a bug. Inflationism, stimulus, cheap money et.c helps protect workers in the short term during a downturn, but prolonged stimulus makes assets unaffordable. Worse it causes huge misallocations of capital into unproductive endeavors at no risk to the investor.

My belief is you don't 'prop-up' the big fish using the government/central bank. Then yes, you may still have inequality, but it won't be nearly as static, but more dynamic. i.e there may always be an extreme power law wealth distribution, but what's more important is there's regular turnover at the top and nobody spends too long in the top or the tail.

> increasing wealth concentration is an unavoidable consequence of capitalism

My bad I thought you made a coin flip simulation, not a capitalism simulation.

At what point do we stop wagging the finger at the ghost of capitalism and just say it's mathematics? You don't hear people crying for the upheaval of mathematics

People do say that. Usually the critique of (perfect) capitalism is that it (structurally and mathematically) skews towards increasing wealth for winners at the expense of the rest of the population and that this is inevitable.

Then the response of advocates against this situation is to either commit to more structures to prevent that outcome towards diluted (non-perfect) capitalism or other social forms (socialism, etc...)

I'd rather take my chances with the coin flips than with the politburo.

Why?

> skews towards increasing wealth for winners at the expense of the rest of the population

The usual response against that is: what is wrong with being a winner? I did something right, let me have my well-deserved money.

The problem with someone getting well-deserved money is that the money starts working against everybody else, so essentially this money gives everybody else negative money.

Many times your money is not well deserved. Many times it’s due to luck, inheritance (see: luck), or dirty tactics.

Regardless, the problem is very rarely that you “earned” money. Almost everyone is fine with you getting wages or perhaps entrepreneurial income.

The problem is that wealth allows people to become more wealthy without really doing anything. Wealth compounds so that the rich get richer. And often the risk of financial loss is so low in a diversified portfolio that it’s basically a guaranteed win. See economic rent.

IMO what people want is neither an income tax, nor a wealth tax, but an income tax rated on wealth. Wealth does get created over time, but despite this, the wealthy also take a continually larger share of the total pie. Society should be the one to get the bulk of passive wealth accumulation gains. Not individuals who happened to be wealthy.

If you have a billion dollars, your income tax rate should be like 99%.

In a "normal" environment, it doesn't make sense to me that wealth begets more wealth passively without doing anything:

A) If your wealth is in cash in the bank, you are providing the bank with deposits. The bank can now make cheaper loans which helps others. But if these loans default, your bank fails and you get bailed-in. Assuming no government intervention comes to save you.

B) If your wealth is in stocks or corporate bonds, you're helping to finance companies that are making stuff / providing services that people might need. But markets can go down, companies fail, and as long as there's no bail-outs, you should be able to lose it all.

C) If your wealth is in government bonds, you're obviously financing the government. But if there's no buyer-of-last-resort (central bank) for your bonds, then one dodgy policy decision by the government, a large bout of deficit spending, or a failed bond auction will wreck the value of your bonds.

D) If your wealth is only in stuff, land etc. then your wealth shouldn't grow - in fact it should fall as these deteriorate in quality, and you're taking a big hit in the form of opportunity cost by not doing anything productive with the land/stuff. If you're having to maintain this 'stuff' then you're losing money, think cost of ownership, replacing capital etc.

E) If your wealth comes from rent, then you're taking a risk, and expect costly demands from tenants and to have to keep up with a competitive market. This I accept is something of a grey area because uncompetitive markets / monopolies can exist.

F) If you're wealth is in patents, copyrights fees, royalties etc... then there may be an argument here. This is up to the government to change, similar to E but without as much risk.

The trouble with the above A-E is the inherently inflationary system we have now where markets are never allowed to go down and deflation, bank failures, and default is prevented with stimulus. It props up stocks, bonds, means assets and stuff gets more expensive nominally without doing anything, it keeps banks afloat and means bail-ins of depositors are unlikely. Rich people who acquire assets are on to a guaranteed win like you say.

The solution is not to take away the incentive to produce more wealth by a punitive income tax, but to take away the asset inflation that makes asset holders rich by doing nothing, which also makes cash holders poorer and punished for being prudent with their meagre savings.

While it is problematic that bail outs happen to such a scale, the risk of things going south isn’t really a strong counter effect. You “can” lose. But you generally will not. Especially in the long run. And even if you do in particular, lose your investments, most wealth will beget more wealth. It’ll be a wealth transfer in dollars or real assets from you to a different wealthy party rather than society at large.

The economy improves and so assets do become more valuable, inevitably. We should be taxing that inevitable passive growth of society’s progress to benefit society.

To quote Keynes, ironically, "in the long run, we are all dead", and even wealth that gets passed on to children is frequently frittered away. There is no guarantee of unending passive growth if society at large does not make productive investments. Plenty of countries have learned that the hard way. I think this is a bias of modern westernized countries for the last century.

"The economy improves and so assets do become more valuable, inevitably." More pricey, no guarantees about more valuable though. Some assets may be entirely Ponzi-like and have little value, but a high price.

And anyway, if the economy is improving, homeownership / rent would be more affordable, families would only need one parent to work, the number of hours worked to buy S&P500 would be more reasonable, things like healthcare and education would be getting relatively cheaper. But artificially cheap margin debt, speculation, and financial chicanery backstopped by the central bank have lead to a lack of productive investment. Unusually high immigration and population growth without a corresponding increase in productivity causes higher prices too. Everything is getting harder from the point of view of Mr & Ms NoAssets 20-somethings who earn a wage.

The fixation of the tax-happy is on making the rich poorer in a dollar-net-worth sense. But there is no focus on making the poor richer in a purchasing power sense (what you can buy).

This requires a gradual deflation, higher reserve requirements, saving and careful investment. All currently very unpopular with the asset-rich, banker class, and thoroughly captured mainstream economics profession, who want you drowning in debt buying ever more expensive stuff, and not deferring consumption to the future.

There is no guarantee of unending passive growth, but it nearly always happens. There is no guarantee of gradual wealth accumulation but it nearly always happens.

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