Occupy Wall Street, the 1%, and the Lucky Coin.

   Income equality has been getting a lot of attention these last few months - so much so that's it's certainly going to play a big role in 2012 Presidential election.  Most people you run across have an instinctively emotional reaction to the issue ( "Wall Street Pigs!" / "Dirty Hippies!" ) which is often shaped in large part by their political leanings and personal history.  However, I don't think you can really get to the bottom of this issue, or decide what actions ( if any ) need to be taken unless you consider the roll luck plays in all of this.

Personally, I don't have a problem with income inequality per se.  I like living a relatively free society ( "relatively" is an important qualifier here, because I'm certainly not an anarchist or a Ron Paul-esque uber-Libertarian ), and in any free society you are going to have winners are losers.  Left completely to their own devices, some people will succeed and some people will fail, and ultimately that leads to "haves" and "have nots".

However, while I certainly recognize that life is inherently unfair ( and never can be made completely fair ), I do believe in fairness.  While I know that the playing field of life will never be completely level, I feel like society should take steps to make the playing field more level, which in turn would lower the degree of income inequality. #


( #: I could probably write an entire book about the steps I think society should take to make the playing field more level, but because I don't want to distract from the main point of this post, I'll just list two examples below:


1) The estate tax ( Or as conservatives like to call it, "The Death Tax" ) needs to stay, and if anything, needs to be at a higher rate.  While I do believe well-off parents should have the right to give their kids the benefit of their wealth, I feel this needs to be tempered a bit for the sake of fairness.  If a person becomes wealthy simply because of accident of birth rather than his/her own efforts, I don't think it's too much for society to ask that person to give at least half of his/her inheritance back to society so the money can be used to help the less fortunate.  Bill Gates kids are always going to have an unfair advantage over kids who grow up in poor families.  We certainly shouldn't be changing the tax code to give the Gates kids an even larger advantage ( and for whatever it's worth, Bill Gates agrees ( See the 2:30 mark of this video ) ).


2) Public school funding should be made more equitable.  In the USA, public school funding comes largely from local property taxes.  This means that kids who are already lucky enough to grow up in wealthy suburbs with high property taxes, also get the benefit of very well-funded public schools.  It's just not right that kids with well-off parents get to go to public schools with the best teachers ( If you were a talented and in-demand teacher, and suburban schools were paying $20,000 more a year than schools in poor inner-city areas, where would you choose to teach? ) and the latest high-tech equipment, while kids in poor areas go to schools with 40 year-old textbooks.  I know that it's unlikely that public school funding will ever change in my lifetime, but I really believe that funding for public education should come entirely from federal taxes and the money should be distributed such that every child in an American public school gets roughly the same quality of teachers, textbooks, and equipment.  I should also note that I'm saying this as a parent of two school-aged kids who lives in an area with extremely high property taxes.  I know a more equitable public school funding system would result in less public school funding going to my own kids, but I really think the USA needs more fairness in public education.  My kids don't need a fancy video board in their classrooms if that means poor kids need to use obsolete textbooks.  Heck, I don't even think half of these fancy new educational tools are needed for a better education.  We just had a basic blackboard and #2 pencils in our classrooms when I was a kid, and I turned out fine. )


Of course, conservatives will argue that any attempt to "redistribute wealth" via more equitable taxes or public funding reeks of "Socialism" ( See "Plumber, Joe" ).  Conservatives will make passionate arguments based on fairness ( but they'll make a very different kind of fairness argument than the one I'm making ).  They'll argue that any system that distributes money from people who work hard to people who don't work hard is inherently unfair.

Of course, therein lies the crux of the issue.  Therein lies the argument that often begins ... "Why should I give my hard-earned money to ...".

The truth is, a lot of conservative folks believe that there is a nearly linear relationship between hard work and success.  They feel that the rich have earned every cent they've made, and that it is unfair to distribute money from the hard-working rich to the lazy poor.

OK, to be fair, most conservative don't hold views quite that extreme, but there is certainly an undercurrent of that feeling behind all conservative ideas about tax policy.  There is certainly a belief that rich people have earned their wealth and deserve to keep their wealth.  I'm certainly not going to try and refute that the vast majority of rich people have worked extremely hard to accumulate their wealth.  Most rich people do work really hard.  However, I think a lot of conservatives make the following incorrect logical inference:

Most people who are wealthy have worked very hard.
Therefore ...
Most people who are not wealthy, did not work hard.

The conclusion above simply isn't true, because it fails to take basic probability ( what some might call "luck" ) into account.

Let's say you had 1024 coins, and decided to play the following game with them:

1) You start by flipping all 1024 coins and discarding all coins that do not land on heads.
2) In each subsequent round of the game, you flip all of the coins that are left, and discard all coins that do not land on heads.
3) You play until just one coin is left ( if all coins are eliminated in a round,  you should play the round over ), and the coin that is left is declared the winner.

On average, you'll be left with one coin after playing 10 rounds of this game.  I think most people would recognize that there was nothing special about the winning coin that made it come up heads 10 times in a row.  I think most people would recognize that if you played the same game again, the "lucky" coin that won the last game would have a 50% chance of being eliminated in the first round of the next game.  The lucky coin didn't win the game because it had some special ability to come up heads.  The lucky coin didn't win because it somehow deserved to win.  The lucky coin won because in a probabilistic sense, one of those 1024 coins had to win.

However, as much as people are willing to accept the influence of random chance when it comes to coins, we tend not to consider the influence of randomness in the lives of people.  I'm sure we've all watched those CNBC biographies of successful people from time, and the narrative is almost always the same.  The subject of these biographies is always ambitious, persistent, and hard-working, and we are presented with a series of events in the person's life which lead to the person's success.  Along the way, the subjects of these biographies need to make some critical decisions, and the subject becomes successful because he or she almost always makes the right decision.  After watching these biographies, you left are with the impression that successful people are successful because they are smart enough to make the right choices in their lives.  However, from a pure probability standpoint, it is more accurate to say that successful people made they right choices because they are the people that ultimately became successful.

In other words, exceptionally successful people are not successful because they have some extraordinary ability to always make the right decision.  In any group of exceptionally successful people, you'll find that all the people in that group made the right choices necessary to become successful, because if they had not made the right choices, they wouldn't be in that group of successful people.  The exceptionally successful people in the world are essentially lucky coins.

Now, don't get me wrong - I'm not trying to say that hard work and talent don't matter at all.  I actually think they matter a lot.  Not everybody can become a self-made billionaire, and the people who achieve that level of successful are almost all extremely hard-working and talented.  I firmly believe that there is a positive correlation between hard work and success, as well as a positive correlation between talent and success.  I'm quite sure that the average person who makes $200,000 a year is more hard-working and talented than the average person who makes $50,000.  I'm sure that the average billionaire who makes $200,000,000 a year is more hard-working and talented than the average person who makes $200,000 a year.  However, the person who makes $200,000 a year isn't 4 times as hard-working and talented as the person who makes $50,000.  The billionaire who makes $200,000,000 a year certainly isn't 1000 times as hard-working and talented as the person making $200,000 a year.  Even the most extraordinarily talented people need some degree of luck to achieve extraordinary success.  Somebody like Steve Jobs was almost certainly a one in million talent and visionary, and he probably would have been a success even if he had been relatively unlucky in business.

However ...

What if Steve Jobs had been raised by his biological parents rather than the adoptive parents who helped mold him into the person he would become?

What if he had not been adopted by parents who lived in area full of high-tech companies ( Including
Hewlett-Packard, where Steve attended after school lectures and took a summer job. )?

What if Steve adoptive father hadn't work on electronics with him in the family garage?

What is Steve's adoptive family didn't have a garage?

What if Steve Jobs had never met Steve Wozniak?

What if Xerox had realized how valuable their mouse/GUI system was before sharing it with Jobs?

What if Ross Perot had not decided to invest in NeXT when the company was running out of money?

What if Apple hadn't decided to invite Jobs back to the company in 1997?

There may have been 100 people out there with the talent and vision equal to Steve Jobs, and I would bet that almost all of them achieved a large measure of success in their lives.  However, a few them were probably ruined by a few unlucky breaks early in life, and most of the 100 probably "only" become millionaires rather than billionaires.

I firmly believe that I live in the greatest country in the world, and I love that my country affords each person the opportunity to be a great success.  However, that opportunity clearly isn't distributed equally, and random chance can certainly play a role in who fails and who succeeds.  I believe in the American Dream, and I certainly don't want to take that dream away from those who have achieved it.
However, it makes me angry when people suggest that the wealthy pay too much in taxes already.  The wealthy are generally very talented and hard working, but they are also generally quite fortunate, and I certainly don't think it's unfair to ask them to share more of that wealth with those who are less fortunate ( Oh, and don't get me stared on all that Laffer Curve nonsense, or we'll be here all day! ).  The bottom line is that the wealthy have attained wealth that is far out of proportion with their level of hard work and talent.  It's time that those "lucky coins" share a few coins of their own.

Rich