What you do want to ask is what the proper incentives need to be to have a functional society. Fundamentally, we're just trying to define some social utility function and maximizing it.. but even ignoring political problems, it's hard to understand how wealth transfers (or any equity improving policy) alter incentives, potentially leaving society worse off if done wrong.
Take for example US colleges: I'm pretty sure that tuition inflation doesn't quite lead to a large windfall for the best at teaching and researching, but surely for apex administrators. And considering the serpentine nature of career paths leading to the top of education administrations, low level administrators couldn't ever reach those positions through skill or hard work. The career path is basically feign academic ambition until there's window for defecting to administration. Similar compromise-paved ways to economic success exist in corporate cultures and even an entrepreneur will often be faced with a decision between money and other goals and qualities.
American culture likes to glorify greed as ambition, but there are more ambitions be had than money and power.
Good numbers are hard to come by since:
1) Much of the wealth inequality in Europe does a nice job of hiding wealth. Old money doesn't talk about wealth. But there are families in Europe with fortunes dating back a half-millennium. A half-millennium of interest, even at the relatively low rates over most of history, is a lot of money.
2) The figures are biased by people with negative wealth (e.g. debt) in ways which are somewhat different from what one would hope to understand.
A model to follow is based on a modernized version of Islam -- a wealth tax.
You have it completely backwards. Software Developer salaries would likely be higher, _yes higher_, in the US. The US has had very large GDP growth over the past 45+ years. But that's how much money has gone to capital vs labor since the 70s.
The clearest way to think of software engineer salaries is: median software engineer salary as a multiple of median country salary. US is 1.38, France is 1.21, Germany 1.33. [1] Overall our software salaries are proportionally no more or no less than expected based on median labor rate / salary in major European countries.
However, because all of the gains in wealth have gone to capital, overall salaries are actually suppressed. Salaries across the board in the US would be higher, if gains of the past ~45 years hadn't been siphoned off. Essentially if we had the same income distribution as we exited the 60s with, everyone today with a salary of < 200,000 would be making more money. So that covers the vast majority of software engineers. Even more so if you remove the 20% Cost of Living bump due to being in Bay Area. So even most FANG employees would be making more if the US still had a normal income distribution. [2]
I think that's the largest thing people don't understand. Devaluing labor, devalues labor for everyone. Software engineering salaries are vastly underpaid, vs the revenue they bring in - it's incredibly skewed and goes to ownership / capital. It's half the mantra behind all of push for doing your own startups: working as labor in software you're being vastly undervalued. Might as well do the same thing and have a chance at ownership / capital. It's all the same issue.
1. http://swexperts.com/news/software-engineer-salaries-by-coun...
2. https://www.rand.org/blog/2020/10/a-25-trillion-question-wha...
millions of jobs were created globally that did indeed have a role in erasing poverty in many countries. the wealth re-distribution was global. at the same time, noone became poorer in the united states and corporates flourished. to me, it is all win-win.
we forget that bay area was responsible for global change. it isnt just about california or america. silicon valley made the whole world a better place on average in the past two recent decades. this cannot be disputed.
This is false.
> . In 2016, the top 1 percent in Western Europe had about a 12-percent share of income, compared to 20 percent in the United States
If a CEO causes 1000 employees to be 1% more efficient, that creates the same value as 1000 employees each being 1% more efficient. Ergo, if I'm an investor, if I believe a CEO will be slightly better than another CEO, it makes sense to pay a lot more.
If I have a market of 7 billion people in the world, and my software saves everyone a dollar, I've created $7E9 of value in the world, and probably monetized $7E7-$7E8 of value for myself. 40 years ago, my market was the US -- roughly 300 million people. With globalization, it's 7 billion.
If I'm making a search engine or webmail client, it's winner-takes-all. If I can hire two engineers, and I believe (statistically, per my lousy interview process) that one is 1% better than the other, I'll drop a shit-ton of money to hire them. See Mythical Man Month for why hiring an extra person with the "saved" money doesn't have the same effect.
And so on...
Economies of scale, winner-takes-all-markets, and zero marginal cost goods like IP fundamentally push salaries at the top up, even with small differences in performance, measured with noisy tools. I've worked with many CEOs. Someone who makes $10M isn't necessarily brighter than someone who makes $100k, but the demand-side economics still work out that way. The $10M salary often comes down to signalling; they've managed a big organization before, they have a nice elite university brand stamp, or they felt better the day of the interview. It STILL makes sense. My expected returns are STILL higher.
Where things break down a little bit is corruption and misaligned incentives -- lots of places, if you pay more, you get less -- but I think that's under-acknowledged. Things also break down is Simpson's Paradox. Globalization means income inequality WITHIN countries is getting worse, but worldwide, is getting better.
You're falling into the same trap. You think someone is better when in all probability they got luckier. And you think that picking someone you think is better will statistically get you a better person when that's not true if credentials are highly luck based. It's like buying lotto tickets from a gas station that's produced more winners in the past.
I'm saying your measurements aren't going to be any better than whatever percent of "skill" is randomness. CEO candidate 2 went to a better school but you don't know that it was his grandpa's alma matter who pulled some strings. Candidate 3 might be a multimillionaire but it's because he got a settlement from a malfunctioning ski lift when he was 10.
A lot of the "signals" companies use to determine if somebody would be a good leader or employee are 100% luck based. You could statistically pick a worse candidate every time that looks betters if you're looking at the wrong signals.
If you have a candidate from Harvard, it's a mixture of ALDCs and really smart people with some bias for policies like affirmative action. You might not know what you're getting, but there are odds of scoring that genius. Ditto with most other low-quality signals.
And statistically, you do get someone better than a random schmuck off the street. I mean, the processes are noisy, and perhaps 10% of your workforce might make a better CEO, but you have no way of finding those 10%.
(And the noisy signals problem in hiring isn't specific to CEOs).
The issues are that fundamentally capital naturally accrues capital - it's is not a stable equilibrium. Capital is sticky and pulls in other capital. The second is that when a country grows in productivity and wealth those gains go to some split of capital and to labor, and in the US for the past 55 years they have gone exclusively to capital.
To explain this, imaging there are two rooms, and everyone enters a room. The one on the left or the one on the right. You enter with the money you own. Then when inside each room, once a day you pick a number from 1-100 and get paid (or debited) based on the number chosen. The issue is the distributions in each room are different. In the room on the left, 70% of numbers pay a positive return based on what you brought in (the rest take money from you). In the room on the right, only 20% of numbers pay a positive return and it's a flat amount from the distribution.
People in the room on the left spend all this time discussing how they have the greatest picking strategy, and how much better they are at picking, when fundamentally the difference is that they're in the room on the left and that's the distribution where all the gains are.
And all of the above ignores the fact that you can split your wealth and use it to pick multiple numbers in the room on the left and so reducing your risk of losing overall, while the room on the right you have to pick one and bet it all on it.
The fundamental issue is that all income gains are going to capital, and not to labor. The end state of this is that most of the room on the right all goes bankrupt.
So why doesn't everyone everyone go in the room on the left? There is a daily fee to be alive and unless you have the wealth to start, even if you hit the best distribution in the left, you still won't have enough to cover the flat fee.
That gets you to the second issue. Investing in capital markets it's some genius plan that only wealthy people can think of. Fundamentally it's not all that different from sports betting or any of another different fields. Why doesn't everyone do it? Because only some people can afford to do so and get returns that are worth it. And people really underappreciate how little of a meritocracy it is.
Imaging you come up with a genius investing plan and manage to average 20% returns every year for 20 years. This is brilliant and almost impossible. But your initial investment is all you have: a single dollar. At the end of that period, you've got <$40.
Someone else who does the exact same work, has the exact same insight, just as exceptional comes up with the same plan, but start with $1MM, and they end up with $40MM. Capital naturally accumulates. And money paid on capital is not due to additional effort, or harder work, or producing more value. Additional money is paid because in the beginning they had additional capital. It's that simple.
The idea that there is a meritocracy in capital investing is completely false. In the split between capital and labor, it is heavily weighed towards capital for 45 years and we're seeing the result of that. And within capital markets it's heavily weighted towards those with capital.
The overall most prosperous time in the US society was the period where there was the least income inequality. And that was intentionally instituted.
There are two "natural" states of wealth distribution. No private ownership / property - which means we're essentially back to hunter / gatherer states. Or aristocracy / 1% and almost everyone else poor. That's essentially been the state of the world for a couple thousand years. If you want any other wealth distribution in society (and I think most people do, and like the concept of social mobility), you need to include methods of enforcing it against the natural state of ultra wealth concentration.
Democracy is not the natural state of the world. We chose to enforce democracy against the natural state. Income distributions are also not a natural state, if we want there to be anything more than aristocracy and serfdom we need to ensure that as well.
I wish they saw it primarily as an unregulated online casino and less of a serious replacement for M1 money supply, which it certainly isn't.
A lot of wealth is luck. But wealthy people (like HN audience) don't like to hear that. I can't find a link but there's controlled studies that show the richer someone precieves they are, the more they attribute it to skill. Even in studies where outcomes are completely randomized.
Usually it's something like this: grow up as a citizen of one of the richest countries in the world. Have fairly stable family situation where you did well in school. Family wealthy enough that you went to a good primary school too. Family wealthy enough to fix overbite, scoliosis, speech impediment, and most other things that would handicap you professionally. Money/connections/grades to get into a good college. Skin color, gender, and culture to not be dicriminated against. Enough intelligence to pick a well paying career (maybe top ~25%). "Gifts" from parents early in life where wealth has decades to accumulate. Things like gifted cars, college education, wedding costs, first house. Ability to take arbitrary career risks because you always have family and their gifts to fall back on.
That probably describes more than half of people in well paying professions. And it's all 100% luck. The path to millions when you've already got so much going for you isn't so hard. You've already passed the barriers that stop 99% of people.
Merit isn't wealth. Wealth is mostly luck and we shouldn't worship wealthy people like Gods, hanging on their every word.
There's logical ways to measure class mobility and the US does badly compared to practically every wealthy country besides the UK