The only way of getting a 0.5 Gini ("absolute equality") is if everyone is earning the same, which is ridiculous. As soon as you throw any randomness in there, well, all of a sudden you get inequality.
Next, there are the (totally reasonable) winner-take-all mechanics of skilled labor. Are you a better CEO (where "better" here could just mean better at pitching/selling/hiring/picking a market)? Then you can end up capturing all of the market share vs your competitors. That ends up paying nicely.
You still could have rent-seekers and people who cheat, but from the article itself, the top driver is differentiation based on skills.
Don't like winner-take-all mechanics? Introduce income pooling. But I wouldn't expect that to be the revolutionary change people are looking for, just a way to guarantee people on the same skill ladder end up in roughly the same outcome bracket. I don't think "guarantee top ivy leaguers make >$400k/yr" is what you're looking for.
This produces not just 'inequality', but the power-law distribution. The only thing you can't know is which element will be the '0.01%' master of the universe, because nothing distinguishes it from the 'poor' elements as it's only a simulation.
The point this establishes experimentally is that through simple value exchange you get the same distribution people associate with meritocracy and market dynamics, without any elements of choice or distinctions of merit being applied.
Skill and value have nothing to do with it: the problem is purely mechanical, the system will substantially punish and reward elements in the system quite outside of any consideration of merit. Once you introduce merit, skill etc. you're only exacerbating the problem.
Wealth tax, even in very tiny amounts, is quite good at turning the power-law distribution into a more random-looking distribution as one might expect it should be. And usually people aren't talking about Gini 0.5, nor does anyone aspire to that unless it's as a form of rebellion against the extreme opposite. People will tolerate an enormous amount of inequality if their own lives aren't too acutely threatened.
1. A computer simulation where wealth is exchanged by chance has power-law behavior
2. Wealth IRL has power-law behavior
3. Therefore, wealth IRL was exchanged by chance (as opposed to skill)
Is this what you were saying? If not, mind breaking down what you are saying?
Needless to say, the above is affirming the consequent. The exchange mechanism random simulation is modelling need not be the actual mechanism in real life (though it may very well be a good model, viewing skill as randomly assigned to members of the population).
1. The computer simulation demonstrates that simple exchange produces power-law wealth in the absence of value or meaning.
2. Wealth IRL is considerably in excess of this power-law behavior, to the point where it's a real impediment, because…
3. Wealth IRL owes more to capital protecting itself and rewriting the market's or government's rules to cheat. Skill has next to nothing to do with it: wealth derives from crime, manipulation and abuse, and there isn't a fortune anywhere that doesn't have blood on it. So, far from being a simple claim that 'wealth IRL does not correlate with merit/skill', I am rather claiming that wealth IRL correlates with evil, abuse, and criminality. Admittedly worse than your 'how dare you say wealth isn't correlated with merit', but there it is. Sorries :)
The fact that random chance also helps some of these criminals get their start is just a sort of bonus for the criminals, and a handicap to any free market system that might otherwise be a mechanism serving to assert a sort of crude meritocracy. Skill means absolutely nothing. It's about the ability to act criminally and to exploit existing resources and personal relationships, and always has been, all the way on back into dim prehistory.
When it gets too extreme, the guillotines come out or there's some sort of typically very destructive revolution that serves as a great setback to civilization in general. This, too, has happened over and over. It happens not when evil grows too great in its abuse of the peasantry (because nobody ever cares about them), but when the 10 percent or the 1 percent start to get beat up too much by that 0.01 percent, just as the original article highlights. When the 'upper middle class' starts to suffer, that's when things get dicey, because those are the people who can afford to fight their rulers and who have the time, attention and resources to do so.
How's that, does that help? :)
The simulation doesn't seem to add to your point. Instead, you're making an empirical, falsifiable claim about the nature of wealth acquisition.
At this point, you're disagreeing less with me and more with the economists in the original article, Piketty and Saez, who found skill to be the top driver, not "next to nothing."
Also, “you can never change how it is!” is a nirvana fallacy; you certainly can make things better. It’s been done before.
In fact vast disparities in wealth can only be created and sustained through significant social effort.
It takes an incredible degree of social co-ordination for multi billionaires to exist. Outside of a strong rule of law you have be to a strongman or warlord to keep your hands on all that stuff.
As a society we could choose to cap wealth. For example we could say "it's illegal for an individual to own more than a billion dollars worth of assets". The excess would effectively be tax.
I can immediately think of a huge number of problems with this (oh no, all the multi billionaires leave!, offshoring, transfers between family members, "schemes" in general) but it's obviously possible to pass this kind of law, were there the social will to do it.
It is not possible to amass huge assets without deep support from society at large. Police, judges, guards and the goodwill of the public are ensuring the safety of the billionaire's property.
The wealth inequality in America is higher than it has ever been. This did not come about naturally.
This does not mean it’s good. The source even presents some methods of avoiding it.
But the key point is that it doesn’t need some sort of conspiracy of the rich to happen. It will happen inevitably without being anyones fault if steps are not taken to address it.
Generational wealth has always struck me as fundamentally unjust, for the basic reason that you don't get to pick your parents. I see the argument that a man is entitled to the sweat of his brow; we can debate just how to define what is his sweat vs. infrastructural sweat, but the underlying point seems fair enough. I do not see the argument that a man is entitled to the sweat of his father's brow.
The principle that you are entitled to what your parents or grandparents earned is behind all sorts of injustice in the world, from hereditary monarchies and wars of succession to wealth gaps between majority and minority ethnic groups long after formal discrimination has been outlawed. Even when the inheritance doesn't happen, you still have evils like abusive rich parents having leverage over their closeted college-age children because the financial aid system (in the US, at least) assumes that children have access to their parents' money.
There's a lot of possible ways to implement the system, but it is not inevitable that wealth, once concentrated, does not dissolve, and even leaving wealth inequality aside, there are good reasons to get rid of it.
I hadn't even read the abstract of the article you posted when I clicked "reply," but in fact, that article advocates for the same thing:
> We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels.
I expect most people would agree.
However, views change drastically when you turn it around.
A great many people feel entitled to use the sweat of their own brow to provide for their own children. This includes providing an inheritance, especially a house.
Few people are happy to provide from their own work equally for everyone's children without any special benefit to their own.
That said, if you just care about wealth inequality, it's totally fine to buy your child a modest house, or even buy them an expensive house at a large marginal tax rate. As the paper points out, you don't need to stop all intergenerational wealth transfers, you only need to stop a portion of the wealth transfers of the richest people at the far end of the RNG.
The trick about "a house," in particular, is it means two things - a place to live and an investment vehicle. I agree that many people will be sympathetic to the argument that you should be able to provide your kids with a place to live. (I am myself somewhat sympathetic to it.) But as long as there are people on the streets with not even a bed, it's immoral to twist this sympathy into a right to transfer millions of dollars in wealth to your kids in the form of an expensive house on expensive land. So, put a cap on the inheritable amount that makes it quite sufficient for reasonable living quarters, and heavily tax transfers beyond that.
The current financial system didn't happen by accident. It was intentionally built in the 1980s by the Reagan administration, at the behest of rich Republican donors. It was not inevitable, it was engineered.
One has to rather specifically design a progressive taxation system to avoid a power law.
Read the paper. The conditions for power law are very simple.
I live in Finland. A place one hardly can say is friendly to the rich. Yet we too have a power law, just with different constants than what US has.
Often taxation gets to its highest point at the basically high average household level though. In Germany for example top income tax is ~41% and already starts at about 4500EUR / month.
But actually rich people pay a maximum of 25% on interest/shares etc because they don't actually have a salary.
Basically politicians and common people are being played. The 'richer' middle level incomes are played against the lowest income levels while the really top levels in Enterprises and the Ultra-rich are never mentioned. On the contrary, companies especially play the 'jobs' card to get to pay even less taxes.
You can add various corrective terms to make get "equality of outcome", but to get to a gaussian distribution around the average you need really drastic/totalitarian measures.
The best system from a pure math POV would be a flat tax combined with universal basic income. But unfortunately it is naive to assume that this is politically viable.
Politics largely is selling a particular group an advantage over the general population in exchange for votes. And a flat tax / basic income system is just too simple for that.
Power law is reasonably easy to get. Even with identical starting wealth just having chance + compound interest is enough to produce it. No need for anything more complex than that.
But I suppose, adding no additional logic you could have one half of a normal distribution, normalized by multiplying everything by 2 to account for that.
However, that doesn't strike me as a very natural distribution for a self-organized system with some randomness, and exponential growth. Power and wealth always seems to find its way to some type of power law distribution. You could only enforce such a distribution by concentrating power to the most extreme limit of a power distribution to exert control over the rest. And it's likely that for any definition of wealth you could come up with, people would just find a proxy for wealth that isn't counted by which they could start to exert more control.