Let’s debate the opposite question of the other ongoing thread. I changed the numbers a little from the top 1% who earn around 400K to the top 0.1% who earn more than 7 million per year. I don’t want to get bogged down with debating about high earning professionals, but rather about those who are primarily owners in large businesses. I may be wrong, but it seems likely that the top 0.1% includes mostly people like Jeff Bezos, the Walton family, the Koch family, etc. as opposed to high earning professionals who are likely to be entertainers such (including athletes) such as Lebron James, Tom Brady, and Robert Downey Jr.
That being said, how well would society manage without those in the top 0.1%? Let’s say that a group of managers managed the assets. I assume, for example, that Wal-mart would keep running if the Waltons disappeared tomorrow. Same for Amazon and Jeff Bezos, Mark Cuban and the Dallas Mavericks, and so on. Profits would be used both to expand the business as well as give raises to the employees.
I realize that what I’ve described is a form of socialism. The question up for debate is what would happen if this was tried in the in the real world?
Many of these folks are smart and talented people, but Jeff Bezos is not 10 million times as smart and talented as some skilled plumber or electrician.
Sure. He could be one of the people who manage the large companies and make in the low 7 figures. Talented professionals should be well compensated for their hard work. It seems to me, however, that the majority of the 0.1% earn their money off of the hard work of others rather than their own hard work.
Well, to give an example from my own corner of the world I’ve got a business idea that was gaining traction with investment groups to create an IOT and SAS approach to better regulate distilleries but all I practically have is the ability to do the work and the knowledge to make it work. I don’t have capital (currently) it appears that we’ll need about a million dollars to build the initial software, write the regulations and build/buy the equipment to do most of the monitoring.
Banks aren’t willing to lend based on the risk profile and my “not having skin in the game” without the 0.1% we won’t have a better way to regulate distilleries and we will continue to see people die and property destroyed. I have several members of the 0.1% who are interested in the better regulation aspect and have agreed to bank roll the business as a 0% loan not because they are looking to be angel investors (we’re still to early phase for that) but simply to improve all of our lives.
I’m currently working with a member of the 0.1% to make ~500k gallons of hand sanitizer a week that is being sold at cost to various first responder groups. It costs almost $3mm per week upfront to get the ingredients to the blending facility and it’ll be another month after that before he gets paid. Without $12-15mm in ready capital this need wouldn’t be met. Banks are involved in this project but the 0.1% have put down 5mm in collateral to the banks to get the loan.
So we would have less new businesses and less things accomplished.
It sounds like you are talking about angel investors. Or as many affluent entrepreneurs call them Mom& Dad.
I think crowdfunding is a much better model for micro-venture capital than angel investors. The barriers to access are significantly smaller and the percentage of profits and control retained by the creator is higher. This encourages even more idea generation, doesn’t it?
The activity he described doesn’t fall under Reg CF, and A+ requires additional accounting and legal costs, SEC qualification, and much more wrt disclosures. Maybe we should open up crowdfunding opportunities, but that doesn’t mean some ideas won’t still benefit more from a fat check from one or three single entities.
Angel investors typically want large growth opportunities and are will to take on the increased risk associated with startup for it. When I’ve pitched previous business plans I had a full business model with growth projections and they were deemed not aggressive enough.
My regulatory project needs funds just to get the ball rolling and the plan is to bring in the angels for a first round once we have clients and a minimum viable product and at least an idea of costs and revenue.
Crowdfunding has some benefits but generally getting accredited investors gets you around a lot of head aches not to mention dealing with a bunch of “shareholders”. We could change the regulatory structure substantially to make crowd funding easier but I think more people would get scammed. The people I know who’ve tried to crowd source their distilleries have all failed and none of them were able to get millions they needed for the project. In my experience it is much easier to find one person with deep pockets and an interest in what you are trying to accomplish than 1,000 people with the same interest and the will to actually write a check.
But Jeff Bezos’ risk taking combined with his intelligence may be 10 million times as a skilled plumber or electrician.
It’s not just intelligence that make these super wealthy individual more wealthy than the rest of us. It’s their ability to take calculated risks that the 99.9% of others don’t take.
Bezos decided to start up a business that paid off. Most people aren’t willing to take those kinds of risks or they don’t have the intelligence to know when to take those risks.
You might keep the existing companies going. You have a lot lower chance of new such companies coming into existence. That doesn’t mean that economies need the ability for some to earn hundreds of millions per year - I would posit they don’t. But the ability to get significant payoffs for initiative and risk are key motivators to make new things happen. Again, though: significant == unlimited. Perhaps we should consider a “delta in net worth” tax. This should avoid many of the problems in a net worth tax, but capture income not currently taxed. Perhaps allow the payer to average over 5 years, including refunds, to accommodate the vagaries of equity bubbles. And make the tax-free part of this very significant (8 figures?)
Yep, he kept his chips on the table and let it ride for a long time. Remember when Amazon was losing money year after year and noone could figure out how it would ever make money. Then our culture changed and people preferred Amazon to brick and mortar. That’s when Amazon raised their prices and brick and mortar started price matching Amazon instead of the other way around.
Different nations have different tax brackets for the economic elite as well as various laws that shift wealth downward, but many of those nations seem to still have entrepreneurs.
From what I recall, one of the big reasons the US has so many entrepreneurs is because our tertiary educational system is the best on earth. The top minds all over the world come here to go to top universities, then they stay and start companies. That seems to be the big factor in why so many good companies are started her, more than other things.
Some of our best entrepreneurs were born here like Bezos, Gates, Buffett, etc but if western Europe had the worlds top tertiary educational system I’m sure many of them would’ve moved to Europe as teenagers and stayed there for life.
In one case I’m living. Why haven’t you talked about the other case. We just signed ~$60mm worth of ingredient contracts in the last 7 days. Without the ready capital to put down $12mm we wouldn’t have ingredients to make hand sanitizer and we’ve got other costs from trucking to co-packing and legal costs.
Without the 0.1% how would you suggest we crowd source that into an economy with 20% unemployment in two weeks?
Is there a sweet spot regarding financial capital? My impression is too much leads to bubbles that over-inflate and then burst. Also nations wtih a lower GINI coefficient still have functioning economies with fewer rich people and less rich rich people.
Of course there is a sweet spot but I have no idea where it is. Certainly having one person as the only one with a net worth over $10.4 mil (1% wealth) and them having $35T (total wealth of 1%) would be bad. They wouldn’t have the time to invest and it, getting ahold of them to get an investment would be virtually impossible and the money would practically be illiquid. On the other hand spreading the wealth equally amongst the 1% would result in about $22mm per household and they may be too low.
Because it had nothing to due with my post, it could be do dads and blots for all it matters. Technically I should have typed SAAS anyhow but it really doesn’t matter because aside from it being a real idea I’m working on my point could have worked the same if I made something up and said the company was making widgets. Would you have asked me what a widget is?