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WillowOne's Positions

Wealth and Luck

My Positions

  1. Money protects you from the negative consequences of bad luck and bad choices.
  2. Money makes the acquisition and retention of money easier. The more you have, the less each additional unit means to you, and the easier it is to get. This is not ideal.
  3. A society should therefore be judged in part by how much it allows luck to compound. A system in which early advantage reliably converts into permanent advantage is one in which equality of opportunity has been lost, whatever the law says.

Notes

  1. Money as insurance. A wealthy person who loses a job, falls ill, is sued, or makes a bad investment absorbs the shock and continues. A poor person who suffers the same event may lose their home, their health, or their liberty. The same bad luck, or the same bad choice, has radically different consequences depending on the resources available to meet it. Money is, in effect, a buffer against variance.
  2. Money as a multiplier. Capital earns returns; labour does not compound. A person with assets can borrow cheaply, wait for good prices, take risks that may pay off, and recover from those that do not. A person without assets borrows expensively, must sell at bad prices, cannot afford risk, and cannot recover from failure. The rich do not merely have more; they operate in a different and easier game. Thomas Piketty's observation (Capital in the Twenty-First Century, 2013) that the return on capital has historically exceeded the rate of economic growth is the formal statement of this.
  3. Diminishing marginal utility. The thousandth pound means more to someone who has one thousand than to someone who has one million. This is uncontroversial in economics and is the basis for progressive taxation: taking a pound from the rich reduces welfare less than taking a pound from the poor. It also means that beyond a certain point, wealth stops buying well-being (see Happiness) and starts buying only more wealth, or power.
  4. Luck is underrated. Where one is born, to whom, with what health and temperament, and in which decade are the largest determinants of outcome, and none of them is chosen. Those who have succeeded tend to attribute it to effort and those who have failed to attribute it to luck; both are partly right and both are subject to Survivorship Bias. See The Veil of Ignorance for the thought experiment that makes this vivid.
  5. What follows. Not equality of outcome, which I reject. What follows is that a decent society should limit how far bad luck can take a person down (a floor: healthcare, education, a safety net) and how far compounding advantage can carry a person beyond the reach of consequences (progressive taxation, inheritance tax, the enforcement of law regardless of wealth). The aim is not to make outcomes equal but to keep the game playable.

Also see