Incompetent, rich people are more likely to get ahead than smart people with no money

[bilby]

And we are talking about billionaires, not millionaires.

I do not think the OP limited itself to the extremely wealthy. Why do you always limit it to such outlier cases?

Because ordinary people with ordinary income and/or wealth aren't the topic of discussion. What would be the point of discussing how people achieved slightly higher incomes in the non-outlier area of the distribution?

A million dollars isn't extraordinary. A millionaire maybe has access to one order of magnitude more spending power than the median.

A billionaire has four.

One of these things is not like the others.

But even there your thesis that it's ONLY luck is wrong. Yes, somebody like Bill Gates had a lot of luck, but he also made decisions that shifted the probabilities more in his favor.

But he didn't make any decisions that were a thousand times better than those of other people with his level of intelligence or with his background. That's the point - for every million smart and motivated people with access to moderate startup funds, one or two become billionaires. And their decisions are only particularly good ones in hindsight.

The winner of the lottery can say he made the smart decision to buy that particular ticket, or to choose those particular numbers. But he didn't do anything that the losers didn't also do.

Huge numbers of people start businesses. Most fail. Those who don't fail completely very rarely become billionaires.

The data simply doesn't support any hypothesis other than pure luck. There have been attempts made to replicate the path to success by millions of people, on tens of millions of occasions, yet only a handful of these attempts, often by very smart, very motivated, and very diligent people, are ever even remotely successful.

People desperately WANT there to be a secret formula. They like to think that the hyper wealthy are deserving of their wealth and power, and they like to think that the opportunity exists for them to emulate that success. But the data simply do not support this.

When most attempts fail, and when a study of the successful finds only platitudes to distinguish them from the failures - the successful are not more intelligent, or harder working, or really, anything else; You couldn't pick them out of a lineup, or work out who they are by testing or interviewing them in any kind of blind trial - the only legitimate conclusion is that the difference is pure chance.

And I am distinctly unconvinced that giving a handful of people the wealth and power usually reserved to entire nation states based purely on luck is a sensible way to organise a society or an economy.

No billionaire would suffer unduly if he had only a few tens of millions of dollars. He could still have a mansion, a yacht and a private jet - but he couldn't have the same level of influence over public policy as millions of ordinary voters. And nor should he.

Conflating billionaire status with that of mere millionaires is a huge strawman. It's literally more reasonable to suggest that a person on the median income is roughly equally as poor as a bum sleeping on a park bench, than it is to suggest that a millionaire is roughly equally as rich as a billionaire.

 

[Loren Pechtel]

There is no such thing as "self-made"

And we are talking about billionaires, not millionaires.

This conversation comes up frequently, and every single time the supporters of the idea that anyone can get rich conflate getting wealthy enough to live comfortably with getting wealthy enough to massively distort the economy, and refuse to contemplate the possibility that they are different things. And then they declare that their equivocation fallacy constitutes a refutation of your position.

Few people are opposed to the idea that a poor person can become comfortably well off. But the idea that hard work and/or talent is a major contributor to becoming as well off as a small country is utter nonsense. Nobody deserves billions of dollars; But if you point that out - even if you explicitly say that you are talking only about incomes of in excess of $1million a year, the loonies pop up and claim that you are suggesting that nobody should be allowed to earn $1million.

Anyone who can earn $1million a year should be allowed to do so. But nobody needs, earns, or deserves billions.

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

 

[ZiprHead]

There is no such thing as "self-made"

And we are talking about billionaires, not millionaires.

This conversation comes up frequently, and every single time the supporters of the idea that anyone can get rich conflate getting wealthy enough to live comfortably with getting wealthy enough to massively distort the economy, and refuse to contemplate the possibility that they are different things. And then they declare that their equivocation fallacy constitutes a refutation of your position.

Few people are opposed to the idea that a poor person can become comfortably well off. But the idea that hard work and/or talent is a major contributor to becoming as well off as a small country is utter nonsense. Nobody deserves billions of dollars; But if you point that out - even if you explicitly say that you are talking only about incomes of in excess of $1million a year, the loonies pop up and claim that you are suggesting that nobody should be allowed to earn $1million.

Anyone who can earn $1million a year should be allowed to do so. But nobody needs, earns, or deserves billions.

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

Yeah, one person did everything to make the billions.

 

[Loren Pechtel]

We have been here before.

There seem to be two camps here. One side is "they deserve the millions them because anyone can die a millionaire if they work hard and save their money." And on the other side, "they lucked into it primarily by choosing the right parents." As always the truth is more complicated than either.

I see the following categories of new millionaires in the US. Obviously, there is some overlap between them and many new millionaires fit into two or more categories.

1. Inherence millionaires.
2. Those whose salaries put them over, Hollywood, sports, and the largest category, corporate executives and financial services to the already wealthy.
3. The 401K millionaires.
4. The stock market millionaires.
5. The real estate millionaires.
6. The corporate buyout of a good idea patented millionaires.
7. The IPO millionaires running their own companies.

I am not feeling especially insightful today. If you can think of other categories of new millionaires please tell me. But I bet that whatever categories I have missed that the following is true for them too.

In all of the categories above they all share one characteristic, with the exception of Hollywood and sports salaries. They owe the size of the wealth obtained to our current income inequality, and to the reason for that inequality, neoliberalism, the idea by both the conservative and moderate Democrats and the Republicans that the economy is starved for investment, that the economy is still led by supply, that we must pursue the self-regulating free market and free trade, that only the wealthy know how to handle money because they invest it. That the non-wealthy spend whatever money that they get on frivolous consumption. All that we have to do so that everyone shares in the bounty of our economy are to give all of the money to the already rich and they will invest it providing jobs and money for everyone.

The only problem is that no matter how many times we try this it never works out, leaving some of us to believe that maybe what is obvious to us is closer to the truth, that the wealthy want all of the money to satisfy their greed and that they are probably wrong about the economy being starved for investment and that it is led by demand, not investment, that we don't have to pursue the self-regulating free market or free trade because the economy that we have is capable of providing for everyone if we let it and we use the existing economy to distribute the gains from the economic surplus more evenly than we do now.

I disagree with your categories, there are three categories, not six.

Income, investment (your categories 2 through 4--same idea, different vehicle) and ideas (whether you sell out or run it doesn't change the basic concept.)

Income--somebody (or, in the case of many entertainers a lot of someones) felt that you were adding enough value to be worth that income. Inequality?

Investment is the only one I could see as inequality but to a large degree this comes down to whether you live below your income or not. Those who live modestly tend to amass substantial nest eggs.

Ideas--no equality issues here. I've seen people go from basically nothing to 8 figures.

The equality issues we have in America basically come down to those in high skill jobs vs low skill jobs. High skill people are doing well, low skill people are not. Unions used to prop up some low skill jobs but competition has for the most part gutted this. Automation has also killed off a decent number of semi-skilled but repetitive jobs. (For example, welding robots on assembly lines.)

 

[Loren Pechtel]

And we are talking about billionaires, not millionaires.

I do not think the OP limited itself to the extremely wealthy. Why do you always limit it to such outlier cases?
But even there your thesis that it's ONLY luck is wrong. Yes, somebody like Bill Gates had a lot of luck, but he also made decisions that shifted the probabilities more in his favor.

I don't even see how it could apply to the extremely wealthy. You don't get into that realm if you're incompetent.

And don't cite His Flatulence as an example:

1) I don't believe he's extremely wealthy. Why should we give his claims of wealth any more credibility than all the other things he's been shown wrong on?

2) At least in the past he was very competent at screwing people.

 

[RVonse]

1) I don't believe he's extremely wealthy. Why should we give his claims of wealth any more credibility than all the other things he's been shown wrong on?

I think it was the 757 airplane with the gold plated toilet that is the give away for me. I know enough about what it costs to own and fly even a small airplane. And you just cant go around flying in your own 757 unless you are extremely wealthy. The fuel costs alone for one small flight would easily bankrupt a normal person.

Trump is rich.

 

[RVonse]

2) At least in the past he was very competent at screwing people.

Isnt that what most Marx's would say about every capitalist?

If you do the math, the money comes from someone else. Its just a matter of whether or not your idea of perceived value was worth what the capitalist provided.

I would argue Trump screwed people much less than Exxon oil. At least the former capitalist has not screwed with the environmental commons.

 

[Keith&Co.]

1) I don't believe he's extremely wealthy. Why should we give his claims of wealth any more credibility than all the other things he's been shown wrong on?

I think it was the 757 airplane with the gold plated toilet that is the give away for me. I know enough about what it costs to own and fly even a small airplane. And you just cant go around flying in your own 757 unless you are extremely wealthy. The fuel costs alone for one small flight would easily bankrupt a normal person.

Trump is rich.

Well, he certainly spends like a rich man. And maybe that's a good definition for 'rich,' in itself.

But I have known WAY too many sailors who lived above their means. Money going out as fast as it was coming in, juggling three credit cards in a desperate dance, one payroll mistake away from disaster.

So, at least some of the money Trump was spending was stolen from his charity foundation. And he has a long history of not paying off his debts. And he owes thousands upon thousands for various campaign events.

I, at least, have to wonder if he's rich enough to have anything left after all his actual debts are actually paid with his actual money.

Has that gold toilet been paid off?

 

[RVonse]

1. Inherence millionaires.
2. Those whose salaries put them over, Hollywood, sports, and the largest category, corporate executives and financial services to the already wealthy.
3. The 401K millionaires.
4. The stock market millionaires.
5. The real estate millionaires.
6. The corporate buyout of a good idea patented millionaires.
7. The IPO millionaires running their own companies.

I am not feeling especially insightful today. If you can think of other categories of new millionaires please tell me.

You forgot about: 8.The Congress millionaires. Making millions (Hillary Clinton style), by government bureaucratic prostitution and corruption.

 

[Loren Pechtel]

1) I don't believe he's extremely wealthy. Why should we give his claims of wealth any more credibility than all the other things he's been shown wrong on?

I think it was the 757 airplane with the gold plated toilet that is the give away for me. I know enough about what it costs to own and fly even a small airplane. And you just cant go around flying in your own 757 unless you are extremely wealthy. The fuel costs alone for one small flight would easily bankrupt a normal person.

Trump is rich.

He's got cash. The issue is what he has in debts. If he has $100 million in assets and $200 million in debts he's not wealthy.

 

[Worldtraveller]

There is no such thing as "self-made"

And we are talking about billionaires, not millionaires.

This conversation comes up frequently, and every single time the supporters of the idea that anyone can get rich conflate getting wealthy enough to live comfortably with getting wealthy enough to massively distort the economy, and refuse to contemplate the possibility that they are different things. And then they declare that their equivocation fallacy constitutes a refutation of your position.

Few people are opposed to the idea that a poor person can become comfortably well off. But the idea that hard work and/or talent is a major contributor to becoming as well off as a small country is utter nonsense. Nobody deserves billions of dollars; But if you point that out - even if you explicitly say that you are talking only about incomes of in excess of $1million a year, the loonies pop up and claim that you are suggesting that nobody should be allowed to earn $1million.

Anyone who can earn $1million a year should be allowed to do so. But nobody needs, earns, or deserves billions.

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

Show me 3 that aren't hollywood types.

The only caveat is that their billions would have to be significantly more than what they would have if they had simply started with what they were born with, and compare it to the market/inflation.

 

[bilby]

Millions are not like billions.

A million seconds is 11.6 days.

A billion seconds is 31.8 years

Millionaires are a touch better off than the average. Billionaires are VASTLY more wealthy than millionaires.

 

[Loren Pechtel]

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

Show me 3 that aren't hollywood types.

The only caveat is that their billions would have to be significantly more than what they would have if they had simply started with what they were born with, and compare it to the market/inflation.

Forbes list #1. Turned $300k into something like (300k)^2.

Forbes list #2. I see an investment of $50k but no indication of whether it was his own money, increased over a millionfold.

Forbes list #3. I can't find any indication of outside money, thus the ratio is infinite.

Obviously, these people got good educations from their family. They weren't handed riches, though.

 

[ZiprHead]

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

Show me 3 that aren't hollywood types.

The only caveat is that their billions would have to be significantly more than what they would have if they had simply started with what they were born with, and compare it to the market/inflation.

Forbes list #1. Turned $300k into something like (300k)^2.

Forbes list #2. I see an investment of $50k but no indication of whether it was his own money, increased over a millionfold.

Forbes list #3. I can't find any indication of outside money, thus the ratio is infinite.

Obviously, these people got good educations from their family. They weren't handed riches, though.

$300K isn't handed riches? That's more than three times most US families entire net worth.

 

[bilby]

Most billionaires had a good start in life but not great riches. Most of them got there by creating or greatly growing a business. They're still mostly self-made.

Show me 3 that aren't hollywood types.

The only caveat is that their billions would have to be significantly more than what they would have if they had simply started with what they were born with, and compare it to the market/inflation.

Forbes list #1. Turned $300k into something like (300k)^2.

Forbes list #2. I see an investment of $50k but no indication of whether it was his own money, increased over a millionfold.

Forbes list #3. I can't find any indication of outside money, thus the ratio is infinite.

Obviously, these people got good educations from their family. They weren't handed riches, though.

You're still thinking orthogonal to the question.

To determine whether the achievement of wealth is due to some strategy or skill that could be emulated or learned; or whether it is just pure good luck, it is insufficient to investigate the successes.

Almost all wealthy people put their wealth down to their actions. But if ninety-nine out of every hundred people who started with similar conditions: Similar starting capital, similar intelligence, similar opportunities, etc., do NOT become wealthy as a result, then we must conclude that their strategies, risk-tolerances, and smarts were at best necessary, but not sufficient for sucess.

To take an obvious example, look at lottery winners. We know that people who never buy a lottery tocket never ever win. We also know that all lottery winners bought at least one ticket, and ended up rich. From this we can either conclude that buying a lottery ticket is an intelligent strategy, and that if only people would emulate the intelligently managed risk tolerance of lottey winners, they could all win the lottery; Or we can conclude that whether or not you win is a matter of pure luck.

To say "It's not pure luck, because all the winners had the risk-tolerance necessary to buy a ticket in the first place" is to completely miss the point.

There are two competing hypotheses here:

The 'strategic hypothesis' says that people become wealthy because they take some set of strategic decisions, using their skills, talents, and/or effort, to engineer wealth from a small starting capital. This hypothesis predicts that anyone who has the necessary intelligence and opportunity can learn to become wealthy, by emulating those who already have. If true, we would expect to see self-help books on the subject rapidly converge on the successful strategies, and a clear correlation between the relevant skills (whether those are intelligence, risk-tolerance, hard work, or something else) and success.

The 'luck hypothesis' says that people who attempt to emulate the success of others have a very small chance of succeeding, and a much larger probability of failing, despite similar starting conditions.

The strategic hypothesis fails to correctly predict what we observe - small numbers of highly successful people, despite very large numbers of people with no clear deficiency in starting capital, intellectual ability, risk-tolerance, or any other common trait amongst the winners. If people got rich because they did something to deserve those riches, with luck playing a small part in it, we would expect the people who fail to exhibit a common set of poor strategies that are clearly different from the common set of good strategies employed by those who succeed.

This hypothesis can therefore only be tested by examining BOTH successful people, AND those who make a very close attempt to emulate them, but fail. Looking only at the winners cannot tell us which of these two hypotheses is false. No matter how many successful people you examine, nor how impressive their success, it's logically impossible to separate the two strategies without examining the degree of commonality they share with those who fail.

The top ten biggest lottery wins in history are NOT evidence that buying lottery tickets is a sound strategy; Nor are they evidence that their winnings are a well deserved reward for their hard work and cleverness in diligently buying just the right lottery tickets at just the right moments in time.

The large number of lottery losers are the evidence that tells is whether or not buying lottery tickets is a strategy worthy of reward.

For every Gates and Wozniak, there are thousands of guys who started a small business out of their garage, with a brilliant idea that they believed might be a huge success, and who took risks and put in vast numbers of hours of toil - and who ended up with nothing to show for it except debt and bankruptcy.

This observation is consistent with the 'luck hypothesis', and is inconsistent with the 'strategic hypothesis'.

And no amount of study of the winners can logically help to build a body of evidence that might overturn that conclusion. Only a diligent study of the losers can do that - you would need to demonstrate that the most closely similar of the losers share a clear difference in approach that the winners do not share (or vice-versa).

 

[Cheerful Charlie]

"There are smarter people than you or me working the late shift"
- H. Ross Perot

 

[RVonse]

To take an obvious example, look at lottery winners. We know that people who never buy a lottery tocket never ever win. We also know that all lottery winners bought at least one ticket, and ended up rich. From this we can either conclude that buying a lottery ticket is an intelligent strategy, and that if only people would emulate the intelligently managed risk tolerance of lottey winners, they could all win the lottery; Or we can conclude that whether or not you win is a matter of pure luck.

IMO, it is not very intelligent at all to buy a lottery ticket. And like you just said above, I have never won a lottery and I never will win a lottery either.

So you have come to the perfect example of an activity that favors dumb people willing to take risk who may end up getting rich! Contrasting to the so called smarter more intelligent people not willing to take any risk who will always remain relatively poor.

So yes, the winning of the lottery is a matter of pure luck. But the willingness to participate in the activity is solely a matter of risk tolerance. And it is those people in that risk bearing population who I say are dumb people. But dumb people nonetheless who have the opportunity to succeed over far more intelligent individuals.

I would say real life capitalism is not at all different to this at all. Its just the odds are just a little more favorable to the participant.

 

[PyramidHead]

To take an obvious example, look at lottery winners. We know that people who never buy a lottery tocket never ever win. We also know that all lottery winners bought at least one ticket, and ended up rich. From this we can either conclude that buying a lottery ticket is an intelligent strategy, and that if only people would emulate the intelligently managed risk tolerance of lottey winners, they could all win the lottery; Or we can conclude that whether or not you win is a matter of pure luck.

IMO, it is not very intelligent at all to buy a lottery ticket. And like you just said above, I have never won a lottery and I never will win a lottery either.

So you have come to the perfect example of an activity that favors dumb people willing to take risk who may end up getting rich! Contrasting to the so called smarter more intelligent people not willing to take any risk who will always remain relatively poor.

So yes, the winning of the lottery is a matter of pure luck. But the willingness to participate in the activity is solely a matter of risk tolerance. And it is those people in that risk bearing population who I say are dumb people. But dumb people nonetheless who have the opportunity to succeed over far more intelligent individuals.

I would say real life capitalism is not at all different to this at all. Its just the odds are just a little more favorable to the participant.

Capitalism: a little more favorable to participants than your odds of winning the lottery

 

[Loren Pechtel]

Forbes list #1. Turned $300k into something like (300k)^2.

Forbes list #2. I see an investment of $50k but no indication of whether it was his own money, increased over a millionfold.

Forbes list #3. I can't find any indication of outside money, thus the ratio is infinite.

Obviously, these people got good educations from their family. They weren't handed riches, though.

You're still thinking orthogonal to the question.

To determine whether the achievement of wealth is due to some strategy or skill that could be emulated or learned; or whether it is just pure good luck, it is insufficient to investigate the successes.

Almost all wealthy people put their wealth down to their actions. But if ninety-nine out of every hundred people who started with similar conditions: Similar starting capital, similar intelligence, similar opportunities, etc., do NOT become wealthy as a result, then we must conclude that their strategies, risk-tolerances, and smarts were at best necessary, but not sufficient for sucess.

You're assuming you can measure everything relevant. You can't.

The 'strategic hypothesis' says that people become wealthy because they take some set of strategic decisions, using their skills, talents, and/or effort, to engineer wealth from a small starting capital. This hypothesis predicts that anyone who has the necessary intelligence and opportunity can learn to become wealthy, by emulating those who already have. If true, we would expect to see self-help books on the subject rapidly converge on the successful strategies, and a clear correlation between the relevant skills (whether those are intelligence, risk-tolerance, hard work, or something else) and success.

You're assuming:

1) That large numbers of people have the requisite ability.

2) That the authors of such books actually know the solution and can communicate it effectively in the context of a book. Since the authors of such books aren't wealthy this condition is almost certainly not true.

For every Gates and Wozniak, there are thousands of guys who started a small business out of their garage, with a brilliant idea that they believed might be a huge success, and who took risks and put in vast numbers of hours of toil - and who ended up with nothing to show for it except debt and bankruptcy.

Look again at my list. #1 and #2 started business--but note that they were game-changer businesses, not merely additional players in the market.

This observation is consistent with the 'luck hypothesis', and is inconsistent with the 'strategic hypothesis'.

And no amount of study of the winners can logically help to build a body of evidence that might overturn that conclusion. Only a diligent study of the losers can do that - you would need to demonstrate that the most closely similar of the losers share a clear difference in approach that the winners do not share (or vice-versa).

Disagree. The number of spectacular successes is obviously very limited, but that doesn't mean it's luck. Rather, it's a matter of identifying the way to change the game and then doing the best job of actually doing so.

 

[Loren Pechtel]

IMO, it is not very intelligent at all to buy a lottery ticket. And like you just said above, I have never won a lottery and I never will win a lottery either.

Unless you're a mathematician that finds a flaw in the system and exploits it. There have been a few examples of this happening. In such cases buying a lottery ticket is an intelligent choice. (They are not cheating because they are not using any knowledge that isn't available to everyone. They are just seeing what others missed.)