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Wealth and GPAs…

By JLP | May 21, 2011

A friend of mine posted this on facebook and I thought it was pretty funny. Watch and tell me what you think:

Students are fine with wealth distribution but not GPA distribution. Sure, they’re not identical but they are similar. Interesting…

Topics: Economics | 44 Comments »


44 Responses to “Wealth and GPAs…”

  1. RB Boren Says:
    May 21st, 2011 at 11:53 pm

    Yes it’s funny but GPA is more connected to merit than is wealth, so the analogy is weak.

  2. Jack Says:
    May 22nd, 2011 at 7:00 am

    How is wealth NOT connected to merit? In fact, people get wealthy by creating products and services that people want at a price they are willing to pay.

  3. Don Says:
    May 22nd, 2011 at 9:10 am

    A lot of wealth has to do with the luck effect. Perhaps this is true for grades to some extent, but I think it is less. Taleb’s “Fooled by Randomness” gives some pretty compelling arguments that we confuse luck for skill. We think we’ve earned the wealth we have, but the especially large payoffs are often due to luck.

    Taxes aren’t entirely about redistribution either. They’re about funding government. Our system of law and economy creates the environment that we work (and sometimes prosper in). People with a lot of wealth have more to lose, and might reasonably be expected to pay more for the services that the government provides.

  4. Matt Says:
    May 22nd, 2011 at 9:50 am

    Don summed this all up pretty well, so there’s probably little point in noting that this is a really dumb analogy. And Jack, while wealth can and often does have a high coincidence with merit, and almost as frequently has almost no coincidence at all. See Hilton, Paris. And do you really want to argue that the CEOs of Bank of America, Merrill Lynch, AIG, Countrywide, etc. MERITED their wealth?

  5. JLP Says:
    May 22nd, 2011 at 12:05 pm

    Matt,

    Why does it not surprise me that you would find this a poor analogy?

    I think it’s a great analogy. Taking something someone has worked for and earned and giving it to someone else is no different than our progressive tax structure.

    And Matt…how can you say something has a high coincidence of one thing and a high coincidence of something opposite? That makes little sense.

    Read The Millionaire Next Door and you’ll find that the bulk of American wealth is first generation. In other words, those who have wealth, worked their butts off for it (similar to those who earned their GPAs).

    I like this analogy and it doesn’t surprise me that a liberal would not like it.

    Don,

    Are you saying that the wealthy use more government than the poor? I think it’s just the opposite.

  6. Brian S. Says:
    May 22nd, 2011 at 5:28 pm

    “In other words, those who have wealth, worked their butts off for it (similar to those who earned their GPAs).”

    Except for the folks on Wall Street. They created nothing of value during the recent housing boom, and plundered the wealth of the weakest homeowners through their desire for bad loans and subprime mortgages.

  7. Jack Says:
    May 22nd, 2011 at 8:56 pm

    LUCK.

    That is why redistributionists CANNOT believe in God. If an omnipotent God exists, then everything we are and everything we have — including our intelligence, our drive, our inheritance, and all the benefits gained thereby — are from Him. For the resulting distribution to require correction by the state means that they think their judgment is better than God’s. Thus, they cannot believe in God.

    Christians, however, know that there is no such thing as luck.

    There are many professions that offer great rewards to very few. It is the hope that one will be one of those few that makes going into that profession look like a good idea.

    “And do you really want to argue that the CEOs of Bank of America, Merrill Lynch, AIG, Countrywide, etc. MERITED their wealth?”

    That is not MY call, nor is it yours. Those who paid them made that call — with their own money.

  8. pharmboy Says:
    May 23rd, 2011 at 12:05 am

    Maybe Paris Hilton didn’t work her butt off for her money, but I’m sure her grandfather did. Besides, in general, we’re not talking about taxing Paris Hilton. Far more tax revenue comes from INCOME taxes than inheritance taxes. The federal tax system doesn’t tax “the rich”, it taxes those who want to be rich.

    And seriously, some of these comments are so full of crap. Plundering the weakest homeowners? For every greedy Wall Street banker, there was a greedy future homeowner hoping to cash in on the housing bubble too. And for every overpaid CEO there is a thousand UN-Earned Income Tax Credit recepients who used their tax refund check (courtesy of yours truly)this spring to buy a flat screen TV that’s bigger than mine.

  9. JLP Says:
    May 23rd, 2011 at 9:25 am

    I do find it humorous that people are so quick to blame the bankers for the credit crisis. Sure, they played a significant role but let’s not forget that that had people heeded solid financial principles, none of this would have happened. It’s the borrowers who are to be blamed for the houseing crisis.

  10. BG Says:
    May 23rd, 2011 at 9:53 am

    Grades are “spread-around” — any class you take where the teacher grades on a ‘curve’ is exactly that.

  11. Jack Says:
    May 23rd, 2011 at 10:09 am

    Not quite, BG. If there is a specified maximum for the grading scale — >90=A, >80=B, etc. — then grading on a curve could give a person with an 85 an A. However, no-one’s grade will go DOWN as a result of the curve.

    So the curve is more analogous to the government’s printing money and giving it to those who have little. Those who earn little are given more, and those who earn more have the value of what they earn lessened — i.e., grade inflation.

  12. Mary Kay Says:
    May 23rd, 2011 at 10:48 am

    I did not think the quality of the video was very good. Not the message, but the execution. For a number of year my husband, a college professor, has talked about this to the classes that he teaches. It never is well received. By the end of the semester many students have stopped attending lectures and their test scores and grades reflect that.

  13. Retired at 40 Says:
    May 23rd, 2011 at 12:02 pm

    Jack, you make some stupid comments but you have really outdone yourself this time.

    “Christians, however, know that there is no such thing as luck.”

    I suppose you think that God put you in the United States of America at your birth because he loved you a little extra as opposed to someone in a third world country who has no chance of making a decent living.

    The only difference between you and them is pure luck.

  14. Retired at 40 Says:
    May 23rd, 2011 at 12:18 pm

    This is a really pathetic analogy. There is no shortage of A’s to go around. Everyone can make an A, theoretically. There is a shortage of money and jobs though.

    We recently had 1,000,000 U.S. applicants for 60,000 jobs working the counter at McDonalds. Regardless of their merit, there were going to be 940,000 unemployed Americans at the end of the hiring process. And Republicans are going to blame them for being lazy for not getting the job.

  15. BG Says:
    May 23rd, 2011 at 12:46 pm

    “However, no-one’s grade will go DOWN as a result of the curve.”

    And the high-earners will still have much more take-home pay after the ‘tax curve’ too.

    Grading on a curve, and taxing higher income earners more are exactly the same thing. Grading on a curve helps the people with the lowest grades the most. If I earn an ‘A’ outright, someone else who should have gotten a ‘B’ might still get an ‘A’, etc.

    Likewise, higher earners who are taxed more**, aren’t affected if low earners get a break. High-earners take home pay is still higher than the take home pay of people who have lower pre-tax income.

    Now, if the tax were to make it possible for a lower pre-tax income person to have a higher post-tax income than a higher pre-tax earner: then there would be an issue.

    ** This is all hypothetical, of course, because Steve Jobs’ effective tax rate is already less than mine, and his take-home is order of magnitude higher.

  16. rreimer Says:
    May 23rd, 2011 at 12:59 pm

    Best points above:
    1 – the point of taxes is not to redistribute wealth, but to fund government actions. If you want the government to stop some or all of its social programs, then change the government. It is just doing what the law written by congress tells it to do.
    2 – There are enough A’s for everyone but not enough million dollar bank accounts. While my profs might have been wary of giving out all A’s to their classes, they were measuring us against an absolute standard; if we met it, we got the A. Can’t say the economy supports all workers achieving the same level, though. I imagine a good bit of inflation would kick in when the money supply extended that far.

  17. Jack Says:
    May 23rd, 2011 at 1:29 pm

    “I suppose you think that God put you in the United States of America at your birth because….”

    I do not presume to know the BECAUSE part. I only know that He did put me here. I also know that Jesus said, “[It] is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.” (Matt. 19:24) My greatest fear is that when I die Jesus will say to me, “You have had your reward.”

  18. Retired at 40 Says:
    May 23rd, 2011 at 1:34 pm

    That’s right. Jesus also said you should give all your possessions to the poor. I believe that is redistribution isn’t it?

  19. JLP Says:
    May 23rd, 2011 at 1:35 pm

    Regardless of what the naysayers think, I think this is a good analogy. No, it’s not perfect but it’s good in that it implies taking something a student has a higher GPA and giving it to someone who has a lower GPA. This is exactly what the government does through taxes.

    I would venture to guess that the “redistribution portion” of taxes is higher than the “funding of government portion.”

  20. JLP Says:
    May 23rd, 2011 at 1:44 pm

    Retired,

    Jesus did not say that.

  21. JLP Says:
    May 23rd, 2011 at 1:47 pm

    Let me rephrase that…

    Jesus did say that but He said it to the rich young ruler who felt he was “good enough.” Jesus used that example to show that we are never “good enough” and that there’s always something else we can do.

    Jesus also said that the poor will always be with us.

  22. Jack Says:
    May 23rd, 2011 at 1:47 pm

    > Grading on a curve helps the people with the
    > lowest grades the most.

    And it harms those with the highest grades by devaluing that grade. That is why I contend that grading on a curve is akin to printing money and giving more money to those will less income — it will cause inflation and devalue what the wealthy have.

    Progressive taxation and redistribution is akin to taking the A down to a B so that you can raise an F to a D, and taking a B down to a B- so you can raise a C- to a C.

    > This is all hypothetical, of course, because
    > Steve Jobs’ effective tax rate is already less
    > than mine, and his take-home is order of
    > magnitude higher.

    Again, you are trying to argue from the specific (you vs. Steve Jobs) to the general (low-income earners vs. high-income earners). This is a common logical fallacy.

  23. Jack Says:
    May 23rd, 2011 at 1:48 pm

    “Jesus also said you should give all your possessions to the poor. I believe that is redistribution isn’t it?”

    The difference is that Jesus said that you should GIVE, not that someone else should TAKE.

  24. Retired at 40 Says:
    May 23rd, 2011 at 1:55 pm

    I’d say both God and Jesus are pretty big on redistribution.

    As has been pointed out, the object of progressive taxation is not to redistribute wealth. It is to fund the government.

    The flat tax is a ideal world idea. If we lived in an ideal world, where there was peace and harmony and everyone earned more than enough to live on, we could have flat taxes.

    But as long as we are going to have a gigantic military, corporate welfare, public education and social programs, we are going to need progressive taxation. Try doing away with any of those and some of the first people you will have to fight are Republicans.

  25. Jack Says:
    May 23rd, 2011 at 2:00 pm

    > I’d say both God and Jesus are pretty big on redistribution.

    You can say anything you want, but can you back it up with references to anything in the Bible?

    > If we lived in an ideal world, where there was
    > peace and harmony and everyone earned more than
    > enough to live on….

    Then there would be no need for government at all.

    > But as long as we are going to have a gigantic
    > military, corporate welfare, public education
    > and social programs, we are going to need
    > progressive taxation.

    Non sequitur. Those things can all be funded through a flat tax, too.

  26. Retired at 40 Says:
    May 23rd, 2011 at 2:02 pm

    Yes, they could. But it would be a high one.

  27. BG Says:
    May 23rd, 2011 at 2:02 pm

    Retired@40) That is exactly what Jesus said for a would-be disciple (who had wealth and wanted to know what he needed to do to get into heaven): give all the possessions to the poor AND follow me.

    I don’t think the meaning is that everyone must give all their possessions to the poor, and you are automatically ‘saved’. For me, that passage means you need to give up your false gods (wealth in this guys case), before you can meet the one true God — so it doesn’t only apply to wealth/money, though that is probably the best/strongest example that applies to a lot of people.

    JLP) I do think the analogy is valid: especially when one considers the grading curve.

  28. BG Says:
    May 23rd, 2011 at 2:06 pm

    Jack said: “Again, you are trying to argue from the specific (you vs. Steve Jobs) to the general (low-income earners vs. high-income earners). This is a common logical fallacy.”

    In logic, the only thing I need to prove a false-hood is a single example: which I gave.

    Taxes need to go up on the highest earners, not from some sort of feel-good distribution of wealth argument; but instead their taxes need to go up just to level the playing field (Steve Jobs has a lower effective tax rate than me, yet his take-home pay is THREE orders of magnitude higher).

  29. Jack Says:
    May 23rd, 2011 at 2:14 pm

    The assertion was that, IN GENERAL, those with higher incomes pay a higher percentage of their income in taxes, not that ALL do.

    “Taxes need to go up on the highest earners… just to level the playing field.”

    A generalization — “the highest earners.”

    “Steve Jobs has a lower effective tax rate than me….”

    A specific case (and poor grammar) — Steve Jobs compared to you.

    What you are asking for is a law that affects everyone, because you don’t like a SINGLE CASE OUTCOME of the current law.

  30. Retired at 40 Says:
    May 23rd, 2011 at 2:50 pm

    I just looked at my tax return back when I made over $100,00 for a couple of years. I paid $18,000 in taxes on year and $16,000 the other. That was about 15% on even that level of income. How low do you think your taxes are going to be with a flat tax? You guys are clueless.

  31. BG Says:
    May 23rd, 2011 at 2:51 pm

    Jack) I gave the example proving the false-hood. It is not my problem that you can’t generalize the example, by identifying the economic class for Steve Jobs, and thus his peers.

  32. Jack Says:
    May 23rd, 2011 at 2:54 pm

    I’m not terribly concerned with what will happen to my taxes personally. Rather, I am interested in what makes sense economically. For the greatest growth, we should stop punishing success, and stop taxing corporate income.

  33. Retired at 40 Says:
    May 23rd, 2011 at 2:55 pm

    Ha, ha. Well, you WOULD be if it ever happened. Like I said, ideal world stuff.

  34. Jack Says:
    May 23rd, 2011 at 2:55 pm

    The corollary is that we should also stop rewarding failure. If you punish people for making good decisions, and reward them for making poor decisions, you cannot expect people to make good decisions.

  35. BG Says:
    May 23rd, 2011 at 2:57 pm

    Jack wants us to not tax corporations, because they create the jobs, and not tax the “rich” because that would be punishing success.

    Therefore, Jack wants a 0% tax rate on the rich who own corporations.

    I, on the other hand, feel that everyone should be taxed exactly the same, relative to their wealth.

  36. Retired at 40 Says:
    May 23rd, 2011 at 2:58 pm

    I really don’t know how you would improve the economy by taking the average American that just gets by on a monthly basis and taxing them an extra $300 to $500 per month. That seems like a recipe for financial disaster.

  37. Jack Says:
    May 23rd, 2011 at 3:29 pm

    Now, BG resorts to the ALL OR NOTHING fallacy.

    I never said the rich should not be taxed. Corporate income should not be taxed because it is wasteful and inefficient to do so. Corporations are nothing but groups of people pooling their money together for a business venture. So tax those people when the money gets back to them. Meanwhile, let the corporations put that money back into the business.

    Taxing the rich MORE THAN the poor is punishing success. All PEOPLE should be taxed according to their income.

    “…average American that just gets by…”

    How is it that the average American “just gets by” on an income that would be well above average in the rest of the industrialized world, and is decadent luxury to the rest of the world? How is it that the Average American “just gets by” in a house that is twice the size of the average house in 1970 AND has central A/C? (And he probably has two cars with A/C, too.)

  38. Retired at 40 Says:
    May 23rd, 2011 at 3:40 pm

    Jack, you are venturing further and further into your idealized world. Many Americans do just barely get by whether you think they should or not.

    Admittedly, they could stop drinking bottled water, playing computer games, watching cable TV, buying and leasing new cars. They could stop eating out so much and buying Starbuck coffee.

    But then if they did all that, what would happen to our capitalist system and those corporate profits you want to protect? Wouldn’t they decline dramatically?

  39. Jack Says:
    May 23rd, 2011 at 3:52 pm

    > Many Americans do just barely get by whether you
    > think they should or not.

    Of course they “just get by,” because that is how they have structured their finances. They buy the most house they can afford, the most car they can afford, and the most expensive food they can afford, until they can afford no more and they are “just getting by.”

    Now, if instead they saved 10% of their income, then that money would go to investment in business — either directly or indirectly. (Very few people simply hoard their cash.)

  40. Retired at 40 Says:
    May 23rd, 2011 at 3:58 pm

    How are they going to save 10% of their income when you are going to tax them an extra 15%?

    Let me get this straight. You want to tax the average American an additional $300 to $500, dramatically reduce their spending and turn off the AC and sweat it out.

    What about this leads you to believe that it is going to improve the economy? This is a society based on consumer spending. We are not an agricultural society any more.

  41. BG Says:
    May 23rd, 2011 at 4:36 pm

    “…Meanwhile, let the corporations put that money back into the business…”

    You mean, put that money back to influencing elections.

  42. Jack Says:
    May 23rd, 2011 at 8:47 pm

    > How are they going to save 10% of their income
    > when you are going to tax them an extra 15%?

    Find me someone working 40 hours a week, and I will show you someone living on 25% less. Show me someone working 40 hours a week, and I will show you someone working 50.

    > How are they going to save 10% of their income
    > when you are going to tax them an extra 15%?

    > You want to tax the average American an
    > additional $300 to $500….

    Quite a bit more than that. The median household income is $50k. 20% of that is $10,000. As BG points out, they’re already paying about 15% in payroll taxes. That would go away, so it would be about an extra $2500 for the median household. (BTW, BG, when the payroll tax is eliminated, Congress can require that wages go up accordingly.)

    > This is a society based on consumer spending.

    It also requires investments to create the things for the consumers to buy.

    I do not recommend sudden jolts to the system. Corporate income taxes can be eliminated immediately with no negative effects (unless you are an accountant or corporate tax attorney). The transition to a flat tax or a national sales tax would need to be more gradual. That said, I will not support any national sales tax without repeal of the 16th Amendment — otherwise we will just have BOTH taxes.

  43. Jack Says:
    May 23rd, 2011 at 8:48 pm

    > You mean, put that money back to influencing elections.

    When BG is called on all his logical fallacies, he likes to throw in a red herring.

  44. clocks Says:
    May 23rd, 2011 at 9:25 pm

    JLP – Funny video, and it shows how some many young people just don’t get it. It would seem many democrats think all rich people got their money from luck, dirty business dealings, and other forms of corruption.

    I maybe only know one or two people I would call rich, and a few more I would consider “well off”. None of them inherited money, or obtained the wealth through luck. They all have intense work ethics, solid people skills, and usually are pretty sharp.

    I hope to be well off myself some day, but if I achieve that goal, it will only be through living well below my means and investing wisely. Will I be punished for living that way, as I may appear “rich” when I retire?

    Thanks for the blog, and showing that there are still a few logical people left out there. As always, your thoughts and comments are right on the money.

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