Paid to Be Rich

The Real Secret of the Super Rich (Part 1)

csm.blogs@gmail.com (Carl M.) — Fri, 11 Sep 2009 16:37:00 +0000

The super rich are different from the rest of us – way different. According to the numbers, they are of a different kind, a different species even. Back in the old days this was common “knowledge.” The upper classes declared themselves a different lot, and mere commoners bowed before them, addressing them as “lord” “lady” and similar distinguishing honorifics. In this more enlightened age, we know better. We have examples of men working their way from rags to riches, or (think Bill Gates) from upper middle class to owning more than many sovereign nations. Then again, maybe Bill Gates is a mutant; he rather looks like one…

Perhaps the super rich are not mutant superbeings. Maybe the super rich simply exploit a secret. At meetings of Skull and Bones, the Council on Foreign Relations, and the Bilderbergers, the Insiders chant special words of Power, invoking dark forces which allow them dominate mere mortals, and dwell on this earth in imperial luxury at the cost of their immortal souls – and their ability to correctly read CIA reports.

Maybe not. The real secret of the super rich is a bit more mundane, but it is important. While we cannot all fully use of this secret – someone needs to take out the garbage – we can all learn much from it. We can use it to better use our own abilities and become better off. This country can and should have a much larger upper class – more rich people, but a much smaller gap between rich and super rich. Some of you reading this blog may well join this broader upper class by applying the secret I am going to reveal.

While I started off silly, I was quite serious about the super rich being different. The super rich are not merely the upper end of the bell curve in money making ability. The numbers say otherwise.

Back in 1994 Charles Murray and Richard Herrnstein created a firestorm with their book The Bell Curve[1]. They had the temerity to suggest that intelligence accounts heavily for class differences, and that intelligence is hereditary to a significant degree. The politically correct were aghast; how dare anyone suggest that class differences were natural? How dare they suggest that genetics affects class!

The politically correct were wrong to vilify the authors, especially Charles Murray. Murray is no right wing extremist. He advocates for a rather large citizen’s dividend, an unconditional welfare check for all. (See In Our Hands: A Plan to Replace the Welfare State.[2]) Charles Murray is more progressive than the late Ted Kennedy. The idea of a bell curve is progressive. Wealth and income following a bell curve (a normal distribution) would be a socialist utopia compared to what we have today!

The super rich are outside the bell curve. That’s why my intro riffed on mutants and dark forces. To see this, let’s plot a crude bell curve to fit the rest of us. I don’t need to be precise to make my argument clear. To start with, let’s review what a bell curve is, and why statisticians look for it. I’m going to hand wave through a bit of math. For those not mathematically inclined, you can skip to the charts. For those who don’t like hand-waving, you can go to Wikipedia for more, or better yet, get a statistics book. (Maybe I’ll write a future post with an intuitive derivation.) The central limit theorem theorem states that when some variable (such as household income) is the sum of many independent random variables, said variable approximately follows a Gaussian distribution:

where

and

Now, all we need are a few data points to set the average and standard deviation, and we will have a probability distribution for any income range – assuming that income does follow a normal distribution. Wikipedia has a nice page on household income in the United States. I’m going to yank some numbers off this page and fit a curve. Once again, the numbers do not have to be exact to make my point. According to this page, median household income is about $50,000, with 116 million households in the U.S. Let’s use $50,000 for our average income. (This is incorrect in reality, but would be true if income followed a normal distribution.) Scrolling down, I see that the bottom quintile (the bottom 20%) makes less than $18,500.

Pulling out my handy dandy CRC Standard Mathematical Tables, I see that the integral of the tail end of the bell curve is .2 (i.e., 20%) when x is .84 standard deviations below the norm. So we can now solve for the standard deviation.

We can view this below graphically. The red area represents those in the bottom quintile.

Now let’s look at the quite well off, those making $150,000 or more. These families make $100,000 more than the median, or 2.66 standard deviations. I colored them blue in the graph below. According to the CRC tables, we should expect .36% of the population 418,000 families at this level or higher.

Now, let’s look at those making serious money, ONE MILLION DOLLARS per year. That’s 25.33 standard deviations from the norm. The CRC tables don’t go that high. Neither does Excel. Breaking out some more heavy duty math software[3], I come up with 7e-142! That 7 times 10 to the negative 142 power! Multiply that by a 116 million and you get 8.6 times 10 to the negative 134 families making a million dollars in one year. The probability of even a single million dollar a year income is infinitesimal! The probability of elves and fairies is higher. Hollywood is indeed a fairyland!

Let’s drop down to $250,000. According to the normal distribution, there should only be 5 to 6 families making more than $250,000 per year! Go up to $300,000 and the number drops to a fraction: .0015 families. Where did all the high-power lawyers go? What about the specialized doctors?

OK, so I may be off in some of these calculations. Perhaps the standard deviation should be higher. Let’s say I’m off by a factor of two. That means we still only have 5 families making over half a million dollars. We still have no 7 figure incomes. CEOs and celebrities are still as improbable as an invasion of the flying saucer men next Wednesday.

The super rich defy the bell curve. They are way outside the norm. The tabloid readers worship and socialists seethe with envy. I, a scientist and liberator, shall debunk both The Secret and socialism. The real secret of the super rich is…nonlinearity.

I will explain further in my next post. Stay tuned.

Notes

[1] Full disclosure: I have not read The Bell Curve. I have only read the backwash.

[2] I haven’t read this book either, but I did listen to a talk by Murray on this subject.

[3] MATLAB or any MATLAB clone (such as Octave) does the trick. Here is my code:



mu = 50000;
sigma = 37500;
income = 300000;
sdev = (income - mu) / sigma;
x = sdev / sqrt(2);
y = .5 * erfc(x);
nRich = 116000000 * y;

The Super Rich Use “The Secret”…to Dupe the Masses

csm.blogs@gmail.com (Carl M.) — Thu, 27 Aug 2009 23:25:00 +0000

Attention all paranoids: you can put away your tin foil hats now. The Orbital Mind Control Radar has been out of commission for years (yet another legacy of the failed Bush Administration). Besides, the Insiders have found a much more powerful mind control tool: New Age gurus. Who needs public school, the FBI, the CIA, or the Orbital Mind Control Radar when New Age gurus can dupe the disgruntled into believing they are already rich and blaming their problems on their own stray thoughts. The elite can rest easy while the hapless masses waste their time – and their sanity – applying The Secret.

I have been wading my way through The Secret video for the last few nights, and I must give the creators credit: they do know how to stretch out a few simple ideas into an interminably long movie. But at least those ideas are wrong – for the most part.

The Secret begins with the same sort of conspiratorial silliness that I began with in the first paragraph, except they are serious. In their version the rich elite have been hiding The Secret from the masses throughout history – apparently solipsism, superstition, and wishful thinking were the tools of the rich and powerful throughout the centuries while the rest of humanity were duped into believing in physical reality. This is why the masses slave away learning science, engineering, economics, accounting, and other worthless disciplines while the Insiders happily visualize positive outcomes, follow hunches, and buy winning lottery tickets. That’s why you can find the world’s most rich and powerful people hanging out at the convenience store on Friday afternoons chatting about their fabulous weekend plans while playing Scratch and Win.

Or maybe not.

The writers of The Secret even had the gall to invoke the authority of history’s most enlightened thinkers – the very people who got us out of superstitious “New Age” thinking and into the very successful empirical mindset which dominates the West today. The Secret pulls their quotations out of context, most dishonestly. For example, Einstein was big on imagination, but Einstein was not wasting his time imagining what it would be like to be a great physicist! Einstein was imagining possible mechanisms to explain real physical phenomena. (Speaking of physics, I have forgotten way more quantum mechanics that all the so-called “quantum physicists” interviewed in the movie combined.)

This is not to say that The Secret contains nothing but falsehood. That wouldn’t fly. As C.S. Lewis noted decades ago, effective evil is goodness bent, not goodness broken. Lenin and Stalin were incredibly deadly because they mixed some good intentions toward the working class with their envy, hatred and bad economic theories. Adolph Hitler was dangerous because he mixed a good intention – the defeat of communism – with his anti-Semitism and fascism.

Visualization works as a way to motivate yourself, not to modify the universe. If you spend more time visualizing your goals instead of complaining about your problems, you are more likely to do something useful to make good things happen – at least, as long as you don’t expect your goals to simply manifest themselves while you kick back in your Lazy Boy.

“Manifestation” also appears to happen if you practice visualization. Scientific fact: the brain filters out most of what the senses receive well before the signals reach your conscious mind. This is why camouflage works. This is why many optical illusions work. You may have received several of these illusions as an email from a friend; they go around like chain letters. Visualization can help program your subconscious filters to bring different objective facts to your attention. “Manifestation” happens because your mind is not infinitely powerful. It has limited storage and processing power; it cannot handle all the data from your five senses, much less rearrange reality to your liking.

Speaking of low-level thought processes, positive statements of goals do work better than negative statements for programming reflexes and habits. “Remember your car keys” works better than “Don’t forget your car keys” if you want avoid getting locked out of your car. “Eat more raw veggies and dry tuna” works better than “Don’t eat donuts” if you are trying to lose weight. Statements in the negative require more processing. Negative thinking is great for contemplation, strategic planning and creative thought. It just works poorly for fast reactions. This is why nerds rarely make the varsity basketball squad.

Positive thinking, as in believing you will succeed, also has its uses. (Believing you already have when you don’t is pure silliness, however.) If you believe you will fail, you will not try, or you will put in a mediocre effort while focusing most of your energies on your fallback position. If you truly believe you will succeed, you can ditch your fallback position and other expensive insurance. This increases your chance of success. But it also increases the price of failure! Worse yet, if you are too positive, you can underestimate the work required. Excess positive thinking demotivates! I’ve seen it happen hundreds of times. (Just go to a typical college campus and note the parties. Things quiet down right before exams.)

Study the truly successful. Bill Gates is a multi-billionaire in large part because of his pessimism. He worried about potential competitors and took action early and aggressively. Andrew Grove, former CEO of a little company called Intel, has a book out titled Only the Paranoid Survive. Warren Buffet, a rather successful investor, buys companies on the assumption that the financial markets could collapse at any time, that he may find no buyer for years.

So, if you want to make more money, learn to make money. Get an MBA or at least read The Portable MBA. Master a useful skill and how to market it. Read a make money website which has actionable information instead of feel-good fluff.

But if you want to understand the super rich, those whose wealth defies the bell curve and boggles the imagination, come back here in a bit. I’m working on a series of posts that will expose the real secret of the super rich. Be forewarned: this series won’t be feel-good fluff; it will have graphs and even mathematics. If you want to grow rich, you might need to actually think.

Obama Unveils Massive New Subsidies for the Rich

csm.blogs@gmail.com (Carl M.) — Mon, 18 May 2009 08:00:00 +0000

On Thursday, May 7, President Obama unveiled his budget proposals for the rest of FY 2009 and for FY 2010. He described his priorities as: better health coverage for healthy young adults, more high voltage power lines to decorate the American landscape, record amounts of pork without using earmarks, and massive new subsidies for America’s super rich.

When questioned by an astounded press corps, Obama improvised, “After eight years of horrible ineptitude by the Bush Administration, I wondered why we still have so many Republicans remaining in the Senate. Why didn’t Al Franken win in a landslide? How could a Republican even come close – in Minnesota??

“Then I raised up my eyes and gazed heroically across our once-misgoverned land, searching for those who did not yet accept my message of ‘Change.’ And I beheld Billionaires for Bush marching the streets. My advisors told me it was impossible for us to convert America’s billionaires to the Democratic Party. I rebuked them, shouting, ‘YES, WE CAN!’

“No, it won’t be easy. Billionaires are different from the rest of us. Mere hundred million dollar pork barrel project barely register on their consciousness. That is why I am calling for 1.8 trillion dollars of direct subsidies for the rich in fiscal year 2009 and 1.2 trillion for fiscal year 2010.”

Later, Secretary of Health and Human Services, Kathleen Sebelius, took the podium and explained further, “America’s rich lost the most in the Bush financial crisis; they had the most to lose, after all. And our old money rich have been traumatized most of all: they lack the skills and drive necessary to recover on their own; there lives are purely driven by circumstances, ranging from their large inheritances to the recent financial catastrophe. To expect them to risk what they have left in a volatile financial market would be needlessly cruel.”

Secretary of the Treasury, Timothy Geithner, explained the details of the plan, “America’s old money rich need to be sheltered from today’s harsh realities as rapidly as possible. That is why we have set up the Rich Idiot Proof Online Financial Fund. We have made it easier than ever for trust fund babies to move their wealth out of stocks, corporate bonds and other risky assets and into 100% safe U.S. government debt. And with today’s record high deficits, there’s plenty to go around.”

Fictional Dialog, Real Subsidies

OK, the above press conference is fictional, but the economic implications are real. Deficit spending is regressive. High deficits provide brain-dead guaranteed income for the super rich – especially valuable to the unproductive super-rich. High deficits mean lower wages and higher trade deficits as well. (More details in future posts.)

I’m picking on Obama because he’s the one in power now. That, and it made more sense for Bush to run high deficits; after all, high deficits are a subsidy to the country club wing of the Republican Party. With record high deficits the current administration is betraying its working class base.

So, my sincere message to any liberals left in the audience: please tell your leader to stop subsidizing the unproductive rich and soaking the working class. Tell him you want the truly progressive balanced budgets of the Clinton years.

Wall Street Millionaires Take Up Panhandling

csm.blogs@gmail.com (Carl M.) — Wed, 01 Oct 2008 13:36:00 +0000

Well, that business of insuring subprime loans was a bit of a bust. Time to take up something more profitable: panhandling.

(Click images to magnify.)

Oh, the indignity! This is really cutting into my yacht time. Pardon me, sir, can you spare a grand?

Yes, I am one of you. Just having a spot of bother with the Bentley payments. What? You are strapped too?

Hmmmm, let's try taking it to the people. I hear they like a good smile. It works on the television... Oh, a quarter! A few million of those and I'll make up for yesterday's losses

Very well. I hear the federal government has more money to spare. $700 billion ought to take care of me and all the lads at the club. Do be kind and ask your Congressman to get on with it.

And now for the punchline: even if the $700 billion dollar bailout goes through, this subsidy to the already rich will be less than the implicit subdies given out every year! I'll get to those subsidies in a future post. But first we'll need a couple of simple economics lessons for background. Stay tuned.

Paid to BE Rich

csm.blogs@gmail.com (Carl M.) — Sun, 28 Sep 2008 19:48:00 +0000

Republicans like to complain about welfare handouts: how they make people lazy, how they break down the family, how they lead to criminal behavior. Fair enough.

But what about the old money rich? They get checks in the mail without working as well: dividends, rent, interest, capital gains, trust fund stipends… You don’t much hear Republican activists complaining about such “unearned” income – unless the recipient happens to be married to the Democratic Party presidential nominee (Teresa Heinz Kerry).

Instead, Republicans tend to celebrate passive income. They complain of “death taxes” and “double taxation.” They often call for cuts or the repeal of the corporate income tax and capital gains taxes. According to many Republican politicians and advocates, you shouldn’t pay taxes on your income unless you had to work for it!

In all fairness to said Republicans, some of their arguments have merit. The U.S. savings rate is too low, and robbing those who make passive income would make it lower. Socking mourners with a huge tax bill is mean-spirited; an entire industry revolves around skirting death taxes. And yes, old money aristocrats do play an important role in a healthy society.

But old money aristocrats don’t need welfare from the government! Such is the core theme of this blog. The rich are subsidized for being rich. Well over a trillion dollars each year is diverted by the federal government towards boosting the rate of return for those who have money to invest. And that’s above and beyond so-called corporate welfare. States and localities raise this subsidy figure even higher. In other words, the rich receive at least as much largesse as the poor.

If you want to know what ails the middle class, you have come to the right place. Over the course of the next few months I’ll reveal the gigantic indirect subsidies to the old money rich. These subsidies come at the expense of wage earners and entrepreneurs alike. I’ll expose:

How the U.S. federal government directly subsidizes those with money to lend – to the tune of nearly a half trillion dollars so far in the current fiscal year.
A social welfare program that protects the old money rich from competition, to the tune of nearly $800 billion so far this fiscal year.
How state and local government subsidize old money investors and how the federal government encourages the practice.
How the federal government encourages debt servitude by the middle class, providing billions more for the money-lending class.
Some extremely easy ways to simplify the tax code while making it more progressive.
The ultimate tax reform; how the government would collect taxes if it were a fee for service business.
The useful functions performed by the old money rich, why simplistic soak-the-rich policies backfire.
The parasitic functions performed by the very rich, where soaking the rich can actually improve the economy.

And if I get enough readership to this blog, I might just throw in some more goodies such as:

How to turn the tide away from wage serfdom.
How to productively reduce the U.S. trade deficit.
How to tame the frantic consumer society, so we can all get a taste of the relaxed lifestyle of the old money rich.
How more people can get rich.

That last one might have surprised you. This is not your typical socialist or progressive blog. This is a liberal blog, in the oldest sense of the word. It is a blog for liberty and against aristocracy. Too many people forget that Adam Smith was a liberal, both in the sense of liberty and in the modern sense of being progressive. He wrote on how to reduce the rate of profit and increase wage rates. Most modern liberals have forgotten these lessons, and today unwittingly side with the modern aristocrats. I hope to clear up this confusion and help create a society that is neither socialist nor capitalist in the current sense.

I want to help create a society where it is easier to get rich, but harder to stay rich.

Privacy Policy

csm.blogs@gmail.com (Carl M.) — Thu, 25 Sep 2008 20:21:00 +0000

Time to get the legalese out of the way. (If you are looking for content, skip this article. If you like reading privacy policies, read on.)

The Internet affords a certain amount of privacy, but it is not complete. All web servers note your IP address, and thus server logs can infer that person x saw y set of pages. While this IP address does not by itself identify an individual, it does identify the city that individual’s service provider (ISP) is located. Also, the HTTP protocol includes the link that brought you to a particular page, so I can tell which page contained the hyperlink person x came from, but not what x browsed before.

In these days of big services (like Blogger, Google, etc.) and third party widgets (contextual ads, etc.), certain third parties can significant information could be gathered about your browsing habits across many web sites. I’ll link below to the relevant third parties below.

So, herein I describe what I do with such information and I’ll point you to the services I use so you can read their respective privacy policies.

Email Policy:

I hate spam as much as you do. If you send me an email (csm.blogs@gmail.com), then I’ll do my best to guard your address. I won’t sell or rent it, and I’ll endeavor to avoid cc’ing you to strangers (but accidents do happen). I don’t have any newsletters at the moment, so email traffic back from me should be light and personal. Should I start a newsletter in the future, you might get an invite, but you will have to actively opt in to be subscribed. I publicize my gmail address here because of gmail’s spam filtering ability. If you email me, you might get a reply from one of my other addresses (@holisticpolitics.org or @quiz2d.com). Rest assured, such an email would be from me, no leak occurred. It’s just that I’m not a big fan of web email except for its superior spam fighting capability.

Gmail’s privacy policy is here .

StatCounter:

Like many bloggers, I like to see what kind of traffic I am getting, and where it comes from. I use StatCounter for this purpose. Go to their site to see what kind of information I get to see. I’ll summarize: I get to see how many pages served, where people are coming from, what cities their ISPs are in, and what pages are read by the same person. StatCounter does use cookies when allowed.

I use this information mainly to see how many pages are being read, where I am getting links from, and which keyword phrases bring people to this site. Once in a while I do look at the recent visitor activity; it’s nice to see when someone likes my writings enough to stay and read multiple pages. In general I cannot link such data to a particular person, but if you send me an email right after reading a bunch of pages, I might put 2 and 2 together. Whoop tee do. I might correctly guess which hyperlink brought you to this site and which pages you read before wrote me. I doubt such information will be embarrassing. And I’ll likely forget the info pretty quickly anyway as I’m a busy man.

If such things give you qualms, don’t read blogs. Or use a proxy server, block the DNS addresses and cookies of the various statistics services, or whatnot. Bloggers write to be read, so they tend to look at their stats.

StatCounter’s privacy policy can be found here .

Blogger

This blog is hosted by blogger. Blogger’s privacy policy can be found here .

Feedburner

I use Feedburner to manage feeds and provide some other widgets (Digg this, etc.). Feedburner’s privacy policy can be found here .

Contextual Ads

I don’t have contextual ads…yet. Should I add them, the ad server will also have orts of information about your IP address’ browsing habits. I intend to add a link to the ad service’s privacy policy here. (On the off chance I forget, it should be an easy lookup for you.)

Update (April 2009)! Google has now implemented "interest-based advertising." That is, Google is now tracking your path across the web through the cookies placed by Adsense (and possibly other services). This allows Google to serve ads based on your interests vs. just the info on the page you are looking at. If this disturbs you, you can opt out of this and other similar ad tracking systems.

The Rich Get Richer…

csm.blogs@gmail.com (Carl M.) — Mon, 01 Sep 2008 13:45:00 +0000

And the poor demand more welfare.

Come to think of it, the middle class wants more welfare too. Many are calling for universal healthcare, a graduated tax code, and more.

And so the United States waddles towards fascism. Or maybe socialism. It depends on which party is in power. Either way, the prospects are bleak for lovers of liberty, until we fix the underlying dynamic.

More Liberty Requires More Equality!

Liberty, oligarchy and democracy are mutually exclusive. You might have two out of three, but not all three at once.

You can have oligarchy and democracy at the same time – if the government gives out enough largesse to keep the plebeians happy. It’s happening now in the United States. Government has ballooned during the past century. In other First World nations, the process is further along. In Western Europe, everyone is a welfare recipient.

You can have oligarchy and economic freedom at the same time – if you dispense with democracy. Lichenstein and Dubai come to mind. Another example would be Hong Kong when it was ruled by the British. The United States managed to have small government and democracy at the same time because: 1. The right to vote was limited to property owners. 2. We had an open frontier so ambitious wage serfs could become property owners. Once suffrage was extended to the poor and the frontier closed, government ballooned.

Actually, I was a bit too optimistic in the previous two paragraphs. While Western Europe is still theoretically democratic, the European Union bureaucracy is taking over. And while small principalities sometimes flirt with market economies, they often do not. Furthermore, civil liberty and oligarchy do not mix. Protection of a wide wealth gap requires a police state.

Liberty requires equality. Not complete equality, for we are all different. But liberty requires a wealth gap that is somewhat proportionate to our relative abilities and ambitions. In most countries the wealth gap is far larger. Ability and ambition produce wealth, and once wealthy, the rich get paid further for being rich. Differences magnify. Envy expands. Theft ensues.

When the party of The People gets in power, the government does the stealing. The legislature levies steeply progressive taxes, and doles it out as it sees fit. The poor get paid to be poor. The middle class loses its independence by living on entitlements.

When the party of the productive gets in power, the government cracks down on the poor. We get outrageously long jail terms, Three Strikes laws, drug wars. And we get yet more police state fun, such as that taste of totalitarianism you experience at the airport – unless you can afford our own private jet.

With bipartisanship, we get a contradictory mess. The income tax gets riddled with loopholes. The tort system hammers the productive and acts as a lottery for the lucky poor while at the same time the legal system is too expensive for the poor to use unless the stakes are high enough to justify contingency payments. The government pays the rich and punishes the rich.

In all scenarios, government grows.

The Secret Subsidy

Those who love liberty must first pursue equality. Either that, or they must dispense with democracy and hope for well-behaved dictatorships or private protection corporations.

This seems a contradictory strategy. Socialists were the chief enemies of liberty during the past century, after all. Their pursuit of equality at any price led to police states, gulags, and mass starvation.

We who love liberty can do better. The formula for more equality can be found in Adam Smith’s book. Mercantilism still lives. The rich may be taxed, but they are also subsidized – heavily. I am not talking about “corporate welfare” here; that’s small potatoes. Each year the government redirects a trillion dollars towards those who already have money.

A trillion dollars, every year!

This is a gigantic subsidy, and hardly anyone talks about it. About the only ones who talk about this subsidy are the conspiracy theorists, who pin the blame for this subsidy on robber baron families, the British crown and/or Jewish bankers.

Piffle!

This gigantic subsidy is supported by millions: Democrats, Republicans, liberals, conservatives, college professors, union members, soccer moms, and more. Maybe the old money super-rich have secret meetings to keep the gravy train going, or maybe not. It doesn’t matter. They could be easily out-voted. The real “conspiracy” is a “conspiracy of ignorance.” The victims vote for welfare for the rich.

Over the next few months I will expose this gigantic subsidy. I will also point out smaller subsidies for the rich, and ways by which the government holds down the poor. Fix these and we will have true meritocracy, true equality of opportunity. And we will have liberty in the process.

Stay tuned.