Money, Taxation and Randomness

There was an interesting (and rather typical) letter to the editor today in our local paper. Here’s one piece of it: “… productive members of the electorate are punished for being diligent in their pursuits and successful in their endeavors.”

It was, predictably, a call for lower taxes and support for candidates who run on lowering taxes. It went on to make silly claims like how America’s poor, who pay no taxes, hurt the economy and how countries with high taxes end up as socialist or communist. Few take that kind of nonsense seriously but many take that first claim very seriously. It’s a flawed claim, flawed at the deepest levels but it is still very seductive.

The first thing to note is that it’s factually wrong. The poor pay taxes, sales taxes, social security taxes, medicare taxes, automobile registration taxes, property taxes. In fact, they pay far more as a percentage of their income than others, especially the wealthy.

Second, most of those who have “made it” or, in the terms of the writer, are “productive,” “diligent” and “successful” believe that the “diligent” component is the reason for those “productive” and “successful” components. And this is where the problem lies — this proposition is both very true and very false. Yes, those who made it on their own, who found success in society mostly have been “diligent.” They’ve worked hard, studied, took risks, made good choices and should feel proud of their success. The rub is that an awful lot of other folks, including those who didn’t make it, also worked hard, studied, took risks and made good choices. There’s a lot of chancy stuff behind every success story — and every not-so-success story.

A case study here, mine. I got into the academic world because I chanced across a professor who was sympathetic to my style of thinking. I was brash and opinionated (still am, I guess). He thought it was amusing and asked me to come work with him. I ended up publishing, with him, a major research paper while still an undergraduate. With his support I got into a top-flight graduate program when my grades were so low that no such university would normally look at me (I had flunked out in my second year and barely graduated with a 2.3 GPA). If I hadn’t stumbled across him or if he was not so accommodating I sure as hell wouldn’t have ended up a successful researcher.

Every one of us has had moments like this in our lives, moments where choices were made external to us. Some of my many colleagues in academia ended up as highly respected thinkers and teachers, some not so.

Again, a personal note: On my way to Providence to start my graduate training I ended up sharing a U-Haul with an old friend. We drove to her family’s home to unload. I discovered, to my utter astonishment, that her father was a famous cognitive psychologist at Harvard and among the most respected theorists in the field. We became friends. I used to ride my motorcycle up to Cambridge regularly to meet with him and his students. He got me interested in a research area that became my life’s work. I developed a theoretical model that made me well-known.

If there had been no fluky friendship, no lucky encounter I probably would have ended up studying some utterly mundane topic that nobody really cared about rather than breaking ground into a new area of research. Did I work harder than my colleagues? Nope. Was I more diligent? I can say with not a shred of doubt in my mind, absolutely not.

Every successful, diligent, focused, hard-working, smart person would not be where they are without these random happenings. And every not-so-successful, diligent and hard-working slob had other random happenings.

Malcolm Gladwell’s book “Outliers” pursues this line of thinking to its logical extreme. It’s fascinating and a recommended read.

Finally, our letter writer also tossed in a line that often appears in conservative writings, the ironic claim that inheritance taxes should be reduced or eliminated. Inherited wealth isn’t wealth that came from diligent, hard work. It is, in fact, precisely the kind of wealth that he was arguing at the beginning of his rant should be taxed. Just for fun, here’s a list of the ten wealthiest people in America.

Bill Gates

Warren Buffett

Larry Ellison

Charles Koch

David Koch

Christy Walton

Jim Walton

Alice Walton

S. Robson Walton

Michael Bloomberg

Notice anything? Four of the ten are Walmart babies and inherited Sam Walton’s wealth and the Koch’s father was a millionaire businessman. Only two of those started with little or no family wealth, Bloomberg and Ellison. Ellison acknowledged that his wealth came from a fluke: he managed to get a contract with the CIA by a gentle misrepresentation of his software product and he used that edge to build Oracle. Bloomberg didn’t begin building wealth until he got fortunate enough to make partner at Salomon Brothers. Gates’ family was upper-middle class, Buffett’s father was a Congressman. And if anyone thinks they “made it on their own” they need to read their biographies. Intriguingly, the four on this list who started with the least (Gates, Buffett, Ellison and Bloomberg) are all committed to giving all or nearly all of their wealth to charities and foundations and all have called for higher taxation, particularly progressive tax codes.