2011-11-09
Entry tags:
Why it bothers me when people talk about money in percentiles.
Things like the 99%/quintiles/etc are ordinal rankings: they use the same math as the median. Average wealth/income uses the mean. When you have a distribution that has a hard stop on one end (due to both practical limits and bankruptcy), and no cap on the other end, you get what's called a long tail. So naturally the absolute gap between the top quintile and the second quintile is greater than that between any other quintile.
Additionally, the top quintile is the only one you can't leave by earning more money. Mathematically, the most you can ever raise the mean of a quntile is by ((income of lowest earner in the next highest quintile) - (income of lowest earner in quintile of interest))/(number of people in quintile), because once someone in the quintile earns enough to move into the next quintile, they stop contributing to that number. On the other hand, if someone in the top quintile earns more money, that's reflected in the numbers the way our intuition says it should. So comparing mean income between quintiles is only slightly more meaningful than saying "the average income of people earning $100,000-$110,000/year is more than twice that of people earning $40,000-$50,000/year."
I will listen to arguments that certain people are too poor and we need to address it, or that certain people are crooks and we need to address it. I believe that taxes should be progressive, although I don't think that automatically means no new taxes for people earning <$250,000/year. And as a libertarian, I am all about the argument that people above a certain threshold are using their money to buy power to buy more money without contributing anything to society, although my solution is probably not what the Occupy people want. But the only way to address the complaint that "the top quintile makes too much" (be it absolutely or proportionally) is to ban people from having too much money, even if it was acquired in fair exchanges from which both parties benefited. And I'm never going to agree with that.
Additionally, the top quintile is the only one you can't leave by earning more money. Mathematically, the most you can ever raise the mean of a quntile is by ((income of lowest earner in the next highest quintile) - (income of lowest earner in quintile of interest))/(number of people in quintile), because once someone in the quintile earns enough to move into the next quintile, they stop contributing to that number. On the other hand, if someone in the top quintile earns more money, that's reflected in the numbers the way our intuition says it should. So comparing mean income between quintiles is only slightly more meaningful than saying "the average income of people earning $100,000-$110,000/year is more than twice that of people earning $40,000-$50,000/year."
I will listen to arguments that certain people are too poor and we need to address it, or that certain people are crooks and we need to address it. I believe that taxes should be progressive, although I don't think that automatically means no new taxes for people earning <$250,000/year. And as a libertarian, I am all about the argument that people above a certain threshold are using their money to buy power to buy more money without contributing anything to society, although my solution is probably not what the Occupy people want. But the only way to address the complaint that "the top quintile makes too much" (be it absolutely or proportionally) is to ban people from having too much money, even if it was acquired in fair exchanges from which both parties benefited. And I'm never going to agree with that.