Income inequality is not intrinsically bad, but we have too much of it in the US. Let's get the ratio of income between the top decile and bottom decile somewhere below 10:1.
At a certain point the ratio is so high that it cannot be explained by differing abilities, and can only be explained by the structure of the market.
Let's say a brain surgeon makes $2m/year. That makes sense, they are uncommonly talented.
Does it make sense that someone can amass as wealth 50,000 years of brain surgeon economic output ($100bn)? If the distribution of human endowments is Gaussian, as it likely is, this level of wealth accumulation cannot be explained by superior productivity alone.
You're assuming that the returns to talent are linear, when they are not.
Let's say you're hiring a new CEO for Apple; how much is a 0.1% more talented CEO worth? My math says that 0.1% is worth 260 million per year.
Even though the 'best' CEO might only be a tiny bit better than the runner-up, the 'best' runs a much larger company, and makes far more money.
From this, you can see that the returns to the most talented CEOs and executives are more proportional to the scale of the largest enterprises than to the individual's talent.
People thought Apple was going to crater after Jobs, and it was fine. It wasn't fine because it has a hyper-capable supreme leader, it was fine because it employs an army of extremely talented hard working people with a reasonably competent leader.
I assure you that Apple has several Tim Cook quality employees earning orders of magnitude less.
It's just so weird to me that we have one group of people priced at replacement cost, and another priced at who knows what? I think you would say they are priced as a multiple on surplus, but I would disagree.
The problem is loss-aversion. Are you willing to risk losing some small percentage of revenue equivalent to many billions of dollars on the bet that Cook's replacement is as good or better? Tim Cook's salary is almost irrelevant; the important question is whether he is the absolute best person for the job.
As an example: how much value did Steve Jobs add during his second tenure at Apple? Did his compensation package make a significant dent in that?
The market for CEOs is a winner-takes-most deal. Similar to what happens with music artists, the top few albums of the year sell more volume than all the rest.
Increased risk aversion explains both the explosive growth of CEO compensation since 1960 and America's unwillingness to do bold and risky but nevertheless profitable things.
> Does it make sense that someone can amass as wealth 50,000 years of brain surgeon economic output ($100bn)? If the distribution of human endowments is Gaussian, as it likely is, this level of wealth accumulation cannot be explained by superior productivity alone.
Well, yeah, if someone figured out how to operate an 10000 brains at once, then all of a sudden one would think that he ought to make 50000 years worth of brain surgeon economic output in five years.
I like your hypothetical, but I'm going to change it a little.
Let's say Amazon records its warehouse workers and captures data which it can use to train industrial robots at some future date.
Those industrial robots have $X of economic value. Who created that value? Did the workers whose data enabled it? Did the DARPA/NSF funded university system who pushed the techniques to the point of being production-ready? Or was all the value created by the Amazon engineer who blended the established modelling techniques and the data?
It's an honest question about the source of value creation and whether inputs are being priced reasonably, efficiently, or fairly.
Following this line of reasoning, one must be worried about who one ought to pay when one makes a wheel out of dirt. I mean that honestly. As a society, we agree the buck ends somewhere for the most part. That which is freely available or observable knowledge typically doesn't mandate compensative.
Public DARPA knowledge is presumably available to every American citizen (or at least it ought to be, since they presumable paid for it). So is employee behavior.
In general, I'm not sure you should be paid for simply having knowledge. You must apply it. Patents represent a recapture of the process for producing knowledge (however poorly one may argue they do it), but those come with an expiration date too.
That is to say, all knowledge eventually loses its price, and some never had any to begin with.
DARPA and NSF could very easily attach some IP rights to every project that they fund, but they don't. Maybe they should?
Congress could easily pass a law giving workers an ownership interest in recordings of their work "performance". You can't tape a concert and sell the recording without the musician's permission. Why can you do that with other tasks?
As we speak, there are companies tracking the eye movements of radiologists reviewing charts. I for one think the radiologists should get some ownership stake in the resulting architecture.
Sure it can, because there's different dimensions of the gaussian distribution. Maybe it takes being in the top 1% on 4 different dimensions to amass over $10bn. Using the population of Earth, that means that on average only 90 such individuals exist who are in the 1% on all 4 dimensions. No one believes that intelligence is the only factor in outsized wealth accumulation.
It's clear to me though that outsized individual wealth is derivative of a myriad of different factors.
The top decile and bottom already are below that ratio. ~90k gets you to the top 10%. 10k puts you at the bottom 10% (not a full time worker). The problem is really the wealth of the top 10%.
See the top households:
Net Worth of the 10%, 1%, and .1% Households
Percentile Threshold 10% 2% 1% 0.10%
Net Worth $1,182,390.36 $5,816,220.17 $10,374,030.10 $43,090,281.00
The top 1% owns 35% of the wealth in this country. the next 9% own 40%. The bottom 50% own 1.67% of the wealth. That's the problem. Most people are paycheck to paycheck with little opportunity for wealth creation / stability. Most of this is inherited wealth; the wealthy today, across not just the US, but the globe, are largely descended from the wealthy of many generations past. There's a great study on the gravity of wealth from the UK:
