Most U.S. billionaires are entrepreneurs from modest backgrounds, operating in competitive new industries, suggesting the former.
I think it’s false. I think that most of today’s entrepeneurs are canny readers and manipulators of the system. They don’t pull themselves up by their bootstraps, forging fortunes out of nothing by creating new products and industries out of the own sweat and brilliance. There are no more Andrew Carnegies. Or even Tom Edisons.
Today’s billionaires have ideas and creations that produced modest wealth for themselves which they then exploited to rig the system to push down competitors and pull the ladder up behind them. Without intellectual property law and easy scruples Bill Gates would still be running a small consulting firm in Seattle.
BTW, a majority of the top 1% of wealthiest (not highest income–wealthiest) Americans had inherited wealth.
Surely you’re not implying that the Koch brothers wouldn’t be super rich if not for the Koch father?
The Bill Gates/Microsoft story is a riot. It’s hard to come up with anything important that M$ created on their own, as opposed to copying or buying the work of others. Bundling for purposes of future monopolozation doesn’t seem that innovative to me, but whatever.
So many things wrong with his piece. It is pretty clear that our system is making a few people very wealthy and that everyone else has seen little growth in wealth and income. I think that Dave is largely correct, though I do think we have a lot of successful people making real new products at the millionaire level. Is this really what we want and is it really inevitable?
Cochrane, not surprisingly, believes that smaller govt and property rights will fix everything. Meh. We had that in the past, and saw the same concentration (1920s). As long as you have a govt strong enough to protect property rights and to defend the country, you will have one strong enough to kowtow to the wishes of the ultra-wealthy. Smaller govt is clearly not the answer. Larger govt isn’t really either I don’t think. Govt size should be determined by what we want it to do, not some ideological belief that everything will be better or worse depending upon its size.
Steve
He’s writing about billionaires. Millionaires are merely well-off now.
You and I differ about the nature of our societal problem. In my view we’ve always been a plutocracy so I’m not that worried about the ultra-rich. There are always town squares and guillotines.
I’m much more worried about the very large number of very well-to-do government clients.
“You and I differ about the nature of our societal problem. In my view we’ve always been a plutocracy so I’m not that worried about the ultra-rich. There are always town squares and guillotines.
I’m much more worried about the very large number of very well-to-do government clients.”
Yes, we do differ. The ultra-wealthy now own the town squares and guillotines. They own the press. A couple of billionaires can donate as much as the entire union population. The plutocracy killed the world economy with our Great Recession and how many went to jail? Essentially none. How many even lost their jobs vs how many got bailed out and made whole? They now control both parties.
On the very well-to-do, we have also always had those. I am thinking that those who got advanced degrees and/or work a lot more hours than most people will make more money than average in any system. So maybe doctors in the US might make $150k instead of $250k, but they are still going to make 6 figures. High priced lawyers will still be high priced lawyers, but maybe they make 25% less. It just doesnt strike me that those salaries distort our economy and politics like having wealth and income so heavily concentrated at the top does. Since I know health care best, Conover has done a nice summation on doc salaries. Of note, it is the countries with the most market oriented health care systems that have the highest multiples of salary.
http://www.forbes.com/sites/theapothecary/2013/05/28/are-u-s-doctors-paid-too-much/
Steve
Surely all the new immigrants will prove to be Sergey Brins….
Obama’s Amnesty Will Add As Many Foreign Workers As New Jobs Since 2009
The article also points out that this is in addition to the 1,000,000 or so LEGAL immigrants that enter the country each year.
So we’re going to be set in nothing flat.
The Forbes article (and the data on which it is based) would be more useful if the authors understood the difference between an exogenous and an endogenous factor.
In Germany, the average wage for an engineer is about 50,000 euro. The average wage for a physician is about double that. In the U. S. the average wage for an engineer is, remarkably, just a bit over 50,000 euro ($80,000). The average wage for a physician is $250,000.
Steve.
How do you reconcile two positions? In a previous thread you lament the over-representation of those in “fly over country” at the expense of the major population centers. Then you tell us the problem is money, which is over-represented in the major population centers…….
I see no reason to choose between the ultra-wealthy, the merely wealthy, and the very large number of very well-to-do government clients (which includes those who work FOR the government, both elected and otherwise) when addressing the problems of the economy. The first and the third groups (when they’re not in both) largely seem to be allied against the rest of the country.
Teachers unions that will insist that more money be given to teachers and education every year, despite the fact that increased spending hasn’t produced results in this country in decades, pretty much the entire health care industry (including the medical insurance companies*), the entire legal industry (including the NFL front offices), professional sports teams that rely on local governments to build their facilities for them (I include big time college athletics in this, at least for the public schools), the university system (both for profit and not for profit), the entertainment industry, the banking industry and so on.
I’d point out that another source of the problem is the constant merger & acquisition activity of recent decades. They should have put an end to the conglomerate nonsense in the 1960s. for example.
* I noticed the other day that the NYTs finally started to notice that the government and the medical insurance companies got into bed with each other for the PPACA. Quelle suprise, dumbasses!
Break up big banks into smaller banks, for example. As the common refrain has been here, too big to fail is too big to be allowed to exist. (Pretty sure that was common here, once.)
End the revolving door between industry and government officials. That would be fairly easy for SEC folks, I’d think, but harder to do for former Congress vermin. Don’t allow former elected officials to lobby for ten years after they leave office. I’d extend that so that their immediate family couldn’t lobby either, both during the office holder’s term in office and for the buffer afterwards. Seriously, does anyone think Joe Biden’s lobbyist son isn’t peddling influence?
Crack down on merger activity. Who’s really gaining from all the merger work that has gone into, say, Berkshire Hathaway? It’s clear that it has served Buffett well, but does the country as a whole do better from having large insurance, auto dealership and burger joint companies all rolled into one? (Not to mention all the other stuff that they directly own or have their fingers in.) It does give each of the constituent parts more power over the legislative, judicial, executive and regulatory processes that affect them, to the potential detriment of their competitors who don’t have such access & influence. Seriously, David Maus of David Maus Automotive Group has a zoning problem due to permitting problems with one of the water districts (to make up an example), he’ll have plenty of clout down here because of the size of his business. Warren Buffett, however, will trump that in spades. Hell, Old Warren bailed out/insured the state’s Catastrophe Fund, you think the state legislators and governor wouldn’t roll over for him?
Size does matter, and there’s no reason to encourage it through current financial practices and a supine government. It just invites more and more trouble.
Teachers unions that will insist that more money be given to teachers and education every year, despite the fact that increased spending hasn’t produced results in this country in decades…
Solution to that is merit pay, and loosening up the constraints of teacher tenure, as well as the hard-to-fire public employee. There is nothing that assures flagging and uninspired performance more than knowing you will not be fired, no matter how badly or unethically you perform.
I noticed the other day that the NYTs finally started to notice that the government and the medical insurance companies got into bed with each other for the PPACA.
Duh! The health insurance industry is making a fortune, raking in subsidy money from the goverment — which, BTW, is being funded by us.
Solution to that is merit pay, and loosening up the constraints of teacher tenure, as well as the hard-to-fire public employee.
I agree with the second and third item, the first won’t work in any kind of diversified school district. Let me give an example that is based on reality:
One school is the Rich Child District High School. The other one is Single Baby Momma Kid High School.
RCDHS is going to have great teachers, and get great results. They’re going to have few discipline problems, and those they do will mostly be due to the kids they’ve got to bus in for racial balance purposes.
SBMKHS is going to be a mess. They’ll have administrators who are either ambition people looking for quick fixes so they can get to someplace like RCDHS, people that got stuck there as the demographics changed in the neighborhood, old-timers playing out the string until retirement, or people that aren’t so good at their jobs. Same for the teachers, though that group will also include bright young idealists on the way to having their dreams crushed. (See Education Realist’s blog for stories along that line.)
RCDHS does well by every metric, while SBMKHS does poorly by every metric. (It’s possible but not at all certain that SBMKHS will do better at athletics, but that is far less a certainty than most people assume.)
Clearly, the teachers & admins at RCDHS are doing great work, and those at SBMKHS aren’t. Let’s give merit pay to the group in the first school! Yeah! That’ll encourage those at SBMKHS to do better, or we’ll fire them. (Let’s assume for the sake of argument this is possible.)
Scenario 1: So you fire the people at SBMKHS and bring in new people. You see some improvement the first year and think, “Great, it’s working!” But the second year you see no improvement, and the third year the school starts backsliding. What’s happened is that the new stars at SBMKHS have replaced the retiring teachers at RCDHS, and the rest have become hardened to the reality that their students aren’t that good. Meanwhile, after small merit pay bonuses at SBMKHS in year one of the new regime, that’s all dried up by the second year, and by the third you’re ready to fire everyone.
Scenario 2: Completely replace the teachers & admins at SBMKHS with the folks from RCDHS. After all, they know what they’re doing! Plus, since they’re employees, they can be ordered to go where their bosses on the Board of Education tell them to go. RCDHS will get all new teachers & admins, hired fresh.
You’ll get exactly the same results as you did in scenario one. In fact, you’d largely get the same results if you completely switched around the faculty at both schools.
One school has parental involvement, children from stable homes & good socio-economic status (and forget about WHY they have it, they do, that’s all that matters here), the benefits of lots of attention and good feeder schools, and so on. The other school has metal detectors, barbed wire, an on-campus nursery for 14 year-olds to leave their children in while they attend classes, a strong on-campus police force, possibly even made-to-order holding cells!
If you want better schools, the best thing you can do is get better students. Merit pay for teachers won’t do a damned thing about the student bodies, and I don’t see holding that against the teachers that drew the short stick as beneficial.
…
The first high school I mentioned is based on Winter Park High School back when I was a student. Their demographics aren’t as pristine any more. The second is based on Evans High School as it is now. WPHS usually outperforms EHS in athletics these days, too. They can afford better coaches, for one thing, and put in more organizational effort, they can cherry-pick athletes from bad schools, AND they have a lot of children of famous athletes attending. Don’t telling me genes don’t matter!
…
Note too how immigration can impact this scenario. You know those kids from Guatemala with the gang tats are all going to be the next Sergey Brin, right?
Not precisely. About 15% of the federal budget is obtained just by extending credit. In other words it’s not really “funded” at all. Interest on it will be paid by future Americans unto the seventh generation. Or they’ll just extend more credit if they can.
About $27 billion of the net federal budget (federal budget less Social Security retirement benefits) is funded from payroll taxes. We and, possibly, future Americans will pay interest on that, too, but we’ll pay it to the Social Security Trust Fund.
Most of the remaining monies, the overwhelming bulk, is paid by the top 20% of income earners. There is no “us” there.
which, BTW, is being funded by us.
Schuler beat me to it.
Though I think you’re short-changing everyone else. All those payroll taxes from the bottom 80% allow for the income tax from the top 20% to get spent places other than on SS & MC.
There are other problems with merit pay as a concept. Another tedious example:
Assume I’m a fifth grade teacher, and I’ve been doing the job for 20 years. You would be somewhat justified in assuming that my year-to-year work is pretty steady at this point. Let’s say I’m average at my job. But the fourth grade teacher at our school stinks. I mean, she’s just lousy. And so she gets fired, because we’re allowing for that here.
Scenario 1: She gets replaced by some hotshot fresh out of some College of Education, and despite that this woman is GOOD. I mean, she’s really sharp. So next year, I get a group of students who are very well prepared*, and at the end of the year, after my normal average work, these students do well on the metrics and I get a merit pay check. Christmas in July, bitchez! (My wife is a middle school teacher in this scenario, and we’ve picked up awful habits from her students, habits which show themselves at home, such as calling people bitchez!)
Now, the students didn’t do as well for me as they did for Miss Hotshot (vaguely Van Halenish reference for Drew), and next year when they go through the also average sixth grade teacher’s class they’re performing exactly average, and that not-worthy doesn’t get any bonus at all, while I’m using my second merit pay check to get seriously shit-faced gambling in Tijuana.
Scenario 2: They hire someone much worse than the teacher that was fired. In fact, the first teacher was also average but got caught performing unnatural acts with the school’s mascot, but we don’t talk about those things in front of the children. (But you can see similar acts in the aforementioned Tijuana, when you’re shit-face drunk and done blowing money in the casino.)
So the new teacher in this scenario, also fresh out of a College of Education, stinks. He’s awful. And as a consequence, next year, when I get the ruination of his pupils, I spend almost half of the school-year trying to do remedial fourth grade work to get them ready for what I should have been doing much sooner. And at the end of the year, my class stinks, I get bad marks, and no merit pay. Furthermore, if it happens again next year (and I will as they’re giving the new person two years to disprove himself), I’m toast too.
There’s nothing I can do in this second scenario. Or the first, for that matter. So how are you going to judge these things?
…
The basic problem with merit pay is that at the foundation it assumes uniform inputs against which outputs can be measured uniformly across a group..
* This idea has problems too, but I’m going to ignore them for now.
I guess it depends on whether you believe the fund accounting is real or not.
If I added in all Social Security revenues to the income side, I’d need to add all Social Security payments to the expense side.
Hmm, had another comment on merit pay that isn’t posting for some reason. Keeps telling me it has already posted when it hasn’t.
There it is. Thank you Schuler, or internet gnomes, or whomever.
Drew- Not sure I see the conflict. It is not as if there is no money available to be spent in flyover country. It looks to me as though money moves pretty freely to whatever campaign or cause is deemed important by those with the money.
“In Germany, the average wage for an engineer is about 50,000 euro. The average wage for a physician is about double that. In the U. S. the average wage for an engineer is, remarkably, just a bit over 50,000 euro ($80,000). The average wage for a physician is $250,000.”
Almost exactly what I said though I chose $150k instead of $160k. I don’t see how that would make a large difference in our politics or our economy. As I have said many times, I think physician salaries need to be on the table when it comes to cutting health care costs. In particular specialist pay needs to be addressed. How we do that is very important.
What it would do is make it harder to attract docs from foreign countries to come work here. You need a fairly large gradient to convince people to leave their own country. It would tighten supply quite a bit. Better not be looking to make market based reforms.
Steve
“Solution to that is merit pay, and loosening up the constraints of teacher tenure, as well as the hard-to-fire public employee.”
I have looked and can find no evidence that teachers working at public schools w/o unions perform better, or maybe rather that their students perform better. Do any of you have data to the contrary that I have just missed?
Steve
steve, who said breaking up the teachers unions is strictly about the students? Or even primarily? The unions are powerful, though not quite as powerful as the police and fire unions, and can negotiate sweet deals for themselves that you don’t see others getting. Long term that has consequences.
How’re those pension & related funds doing with funding in Chicago, Schuler?
Not to mention, making it easier to fire a few bad eggs might not have a tremendous impact on the system as a whole, but could make a world of difference for the few students effected, and not just with grades. If my fifth and sixth grade teachers had been fired before I got to them, it would have saved me a world of hurt. The hell of it was discovering that those teachers had been doing the same things in their classes for years (short: psychological abuse of students), had even sent a few people into nervous breakdowns and still no one did anything because they couldn’t. Ten, eleven and twelve year-olds with nervous breakdowns! The boy across the street got one of them after me … {{Shudder}}
Not to mention a case that was before my time by about twelve years, when one of my sister’s boyfriends started getting pressured from one of the gym coaches for sexual favors. That was high school, back in the early 1970s. The boyfriend came to my mother and father instead of going to his own parents for good reason: everyone was of the opinion that the father would have gone to the school and shot the coach dead.
Anyway, Dad had one of his bright shining moments and got things sorted out via the school administration and the school board and managed to keep everything hush-hush. Or so they thought. A couple of years later they found out that the school board had just transferred the coach to another school on the other end of the county, and that this had been a somewhat regular occurrence. Yeah, the Catholic Church is hardly the only institution that’s covered up that sort of thing.
Sorry Dad, but at least you kept ****’s dad out of the chair.
… Believe it or not, our local Catholic school also had abusive teachers. Just recently, our local Christian (evangelical) school fired a teacher for abusing kids. Do you have data suggesting this is more common in public schools with union teachers?
Couple of other things. As a percentage of GDP per capita, we pay our teachers about average or maybe even a bit less than other OECD countries. Are you proposing we pay them less than average? Will that bring better teachers? You probably already know that about half of teachers leave the profession in the first 5 years. That suggests to me that we already have a pretty robust winnowing process. While I am all for making it easier to eliminate bad teachers, it sounds to me like a lot of the problem is management. After all, other countries that perform well on international tests have highly unionized teachers.
At any rate, find some real evidence showing that teachers unions are bad for education and I will join you in condemning them.
Steve
We don’t really have many publicized studies which honestly and wholeheartedly examine reforming public schools, absent the influence of public unions and their stayed teaching practices. When efforts are made in states (like LA) to independently alter a school experience, by simply offering school choice, the unions fight it. They simply don’t want competition. They don’t like diversity of ideas that don’t originate from them.
However, I’ve seen a smattering of small schools, over the years, offering low income students the chance of a more disciplined, higher grade education, having non-unionized teachers dealing with a more in depth curriculum that’s interesting, engaging, interactive and consequently rewarding for the students who are lucky enough to get into these schools — often operating under a lottery system. However, they are not prevalent, and they don’t enjoy widespread acclaim from many in the MSM.
There was this one American Thinker article, though, describing an earlier international study dealing with merit pay, indicating, definitively that it has merit and works.
IMO, merit pay is a positive incentive for any workplace employment. For instance, even in our small 2-employee business, we frequently give spontaneous cash bonuses when our men do especially creative, enterprising work. It’s a way to praise an above-and-beyond-the-norm job, which I believe everyone appreciates from an employer. It also implies a teamwork effort that is acknowledged by something more than just a “good job” verbal approval or pat on the back. My father-in-law did the same thing, by instituting a profit-sharing program with his employees — giving wage increases and profit sharing opportunities for their diligence in making the business more profitable. It was a huge success, garnering a better working relationship, too, between employer and employee.
“Students in countries with performance-pegged pay for teachers significantly outscored the students in systems that didn’t allow for merit pay.”
Or the teachers rigged the tests, which we have seen here quite a bit. So, less than 50% of teachers now belong to a union. (See link) There are lots of public schools and lots of public school systems without unions. The lack of data showing that these are superior is because they are not. Those schools have had plenty of time to innovate. To find better ways to teach. To handle problem teachers. The aren’t doing any better. That suggests the problem is not the unions.
http://reason.com/blog/2014/03/11/teacher-membership-in-unions-drops-below
Steve
At any rate, find some real evidence showing that teachers unions are bad for education and I will join you in condemning them.
Sure you would, steve, just like you really think the PPACA is going to take money out of your pocket, instead of having even more money funneled into the medical system.
And again, I’m against teachers unions because I’m against government unions, period. Public employees of any sort shouldn’t get that kind of power to dictate TO THE PUBLIC.
A quarter of a standard deviation is equivalent to about one year of learning, which means that students will gain about a year in math and reading learning, and about a half-year in science learning, from being in a merit-based system.
So, not all that much of a gain, actually.
And I’ll note that it doesn’t appear that Woessmann looked at ethnicity factors, or homogeneity of student populations. It’d be a lot easier to teach, say, a bunch of Finns in a Finnish high school equivalent, to my old high school, which contains American blacks, Haitians, Puerto Ricans, Jamaicans and American whites in numbers, as well as a smattering of other groups.
There are other problems. Jan, you reward your two employees when you see them do something particularly good. That’s great. The Los Angeles Unified School District has 45,473 teachers and 38,494 other employees, according to Wikipedia (and we know they’re never wrong). You don’t get to have the primary stake holders decide to just give someone a bonus when you see them doing well, you need a system in which managers will make decisions to pay out someone else’s money. There are lots of confounding variables to merit pay systems, and I haven’t seen any system that reasonably accounts for them in large American schools.
I just don’t think that what works in small Scandinavian countries is going to work in NYC, or Chicago, or Iowa, or Dallas, or Houston, or Orlando or Miami, because we’re not Scandinavians.
Oh, one other thing I noted in Woessmann’s piece:
Standard economic theory predicts that workers will exert more effort when monetary rewards are tied to the amount of the product they produce. Not only does performance pay stimulate individual effort on the job, it is theorized, but jobs where rewards are tied to effort attract energetic, risk-taking employees who are likely to be more productive.
Again with the amount of product they produce. It’s not that cut and dried. Nor do I necessarily think that risk taking is something that we would want to reward in this circumstance.
Conglomerates
At the risk of sounding too academic… The original theory of conglomerates was to lessen aggregate earnings volatility (diversify) of the conglomerate. The notion is less risk (volatility) means better risk adjusted return. The academics got to work analyzing securities prices and declared this bullshit.
Berkshire is a different concept. It’s just a holding company structure that houses a bunch of different businesses. It’s not driven by a diversification concept.
Incentive Compensation
Our experience has been that lower level employees prefer security and a sure thing. Higher level employees prefer more performance based comp, with equity driven comp really driving the senior people. Not a rigid observation but pretty widespread. As a second observation, lower level employees tend to bitch a lot when the senior people get there large equity gains, but become strangely silent when offered the opportunity to similarly put their money down on the table and take the shot.
Talk is cheap.
@Icepick
Over the last six years, I have seen numerous people state, “I used to think like that, and then, I became unemployed.” Some people refuse to give up their cherished beliefs. Until you have a neighbor with a bumper eating dog, most people cannot imagine what it is like to live in that type of area.
The New Orleans school is 100% (or almost) charter schools, but you never hear about it. They fired all the public school teachers, and the charter schools hire teachers individually. There was a suit over the firing, but I am not sure where it is.