The Luck of the 1%

One of the biggest criticisms of the Occupy movement is that it's choosing the lazy way out. Surely the hippies in Zuccotti Park could be the next Mark Zuckerberg, if they would only work hard instead of marching around complaining about inequality. But how much does skill really account for great economic success? Perhaps much less than we'd like to think.

Research from the University of Minnesota found that the fortunes of the 1% could be wholly built on luck and that random chance alone can account for the dramatic (and increasing) disparity between the rich and the rest. Under this assumption, the 1% didn't rise to the top because they turned lead into gold, but because they were lucky enough to find the gold first.

"Everything in life is luck." -- Donald Trump
Americans can't easily reject the supremacy of personal ability, and attributing all success to blind luck overlooks the impact of one's attitude on one's fortunes. Luck isn't just a sprinkling of fairy dust over the heads of a few chosen champions. It's also part of a broader spectrum of personality traits -- and it can be improved, as Richard Wiseman discovered nearly a decade ago:

Lucky people generate their own good fortune via four basic principles. They are skilled at creating and noticing chance opportunities, make lucky decisions by listening to their intuition, create self-fulfilling prophecies via positive expectations, and adopt a resilient attitude that transforms bad luck into good.

Sounds a lot like a certain turtleneck-wearing rock-star CEO, doesn't it? But this lucky attitude can still be learned by others who consider themselves unlucky. Wiseman found that by internalizing these four principles, nearly anyone can improve their luck and lead more successful lives.

"Fate's distribution of long straws is wildly capricious." -- Warren Buffett
But if luck is controllable, why does great wealth remain elusive? As time goes on, reaching the heights of success might require increasing levels of luck. The UMinn study found that wealth, left unchecked over long periods of time, would eventually concentrate in an ever-shrinking pool of extremely fortunate people. The reality isn't far off. The 400 richest Americans, at the apex of the wealth pyramid, have seen their earnings grow far more rapidly than the rest of the country.

Sources: Internal Revenue Service, U.S. Department of Labor, and author's calculations.

If everyone else had received a similar pay raise in this time frame, the average American taxpayer would have earned about $330,000 in 2007. Total reported income in the United States increased by 71% from 1992 to 2007. However, average incomes increased 36%, while the top 400 saw their income rise 427%.

That's well beyond the incredible appreciation of the Dow (INDEX: ^DJI) over that time, which gained "only" 322% from the start of 1992 to the end of 2007. Those who receive a lucky windfall early tend to see their luck continue because they have more chances to get richer as the game goes on.

"I am what I am, and I'm a very lucky guy." -- Michael Bloomberg
Plenty of people believe that raw ability and dogged determination can make anyone rich, and that circumstances will never supersede attitude. Most people give Mark Zuckerberg tremendous credit for Facebook, and many believe he earned every penny. After all, he is the boy who built an empire from his dorm room. But what does it take to become Mark Zuckerberg? To be born in the United States, to have two doctors as parents, to get into Harvard, and to apply your prodigal skills as a computer programmer -- the rarity of these opportunities coming together requires incredible luck, perhaps far more so than talent.

Change any of these circumstances and he's no longer Facebook founder Mark Zuckerberg. Think about your own life. If a single variable had changed, how different would your world and your wealth be? Would Zuckerberg's success be yours? If you could have gone to Harvard in 1973, would you -- and not Steve Ballmer -- have met Bill Gates and become one of Microsoft's (Nasdaq: MSFT  ) largest shareholders?

"Like Warren … I was born at the right place and time." -- Bill Gates
The problem with luck's extremes is that they might shut out the vast majority. One potential doomsday scenario in the UMinn study saw the 1% increase their share of the nation's wealth from 40%, where it stands now, to 90%. This could happen in a century if nothing changes. In a capitalist world built on consumption, such imbalances are beyond unsustainable.

And more wealth in fewer hands creates greater social problems. Many studies have shown that the United States is already more unequal than most other developed economies, but not what that inequality does to its citizens. Richard Wilkinson's presentation at a TED talk earlier this year revealed that greater inequality -- not lower average incomes -- in a country leads to lower life expectancies, lower literacy, higher infant mortality, more homicides, higher imprisonment rates, more teenage births, greater levels of obesity, more prevalent mental illness, lower social mobility, less well-being for children, and even lower levels of trust between people. The good luck of the 1% becomes bad luck for the entire country.

The study's solution is simple: An inheritance tax on the very upper echelons -- the top 0.1%, for example -- could stop accumulation in its tracks without discouraging entrepreneurship. The proceeds of the tax, instead of filling government coffers, might instead go toward reducing tax rates for the rest of the nation or could be spent on various beneficial causes. Some prominent members of the 0.1% -- including Gates and Buffett -- haven't waited for the government to adopt this policy, instead pledging to donate much of their wealth to charities.

Gates and Buffet aren't alone in recognizing their immense good fortune. Many of their fellow rich and have joined Gates' Giving Pledge, which aims to commit the majority of each pledge's wealth to philanthropy. There are already 69 billionaire signatories, a remarkable achievement for a drive that launched only last year. When Gates finally leaves the world behind, it should mark his passing with much greater praise than was heaped on Steve Jobs this fall. His legacy will deserve it. The Giving Pledge might not address the outsized role of speculative finance in fueling inequality, but it's a far better beginning than anyone else has ever managed.

"I think the harder you work, the more luck you have." -- Dave Thomas
Recognizing the role of luck in the creation of wealth doesn't remove skill and dedication from the equation, but it should provide perspective. You might feel self-made, but no one reaches the top without a few things going just right at just the right time.

Fool contributor Alex Planes holds no stake in any company mentioned here. Subscribe to him on Facebook, add him on Google+, or follow him on Twitter. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 04, 2011, at 3:03 PM, emferguson wrote:

    There's an expression for great success in life: "winning the birth lottery". Anytime we succeed at something, we like to think we were the fathers of ourselves. We look at our own circumstances, assume everyone's circumstances are the same, so if they struggle, it's their fault.

  • Report this Comment On November 04, 2011, at 3:18 PM, perfil wrote:

    The definition of Richard Wiseman considers "luck" attributes of one's personality, instead of random exogenous events. For those "unlucky" among the 99% I would recommend: dedicate time to create opportunities (and always observe them when they appear), develop and listen to you intuition, eliminate any negative expectation and think positively and finally, adopt a resilient attitude always believing that you can transform lemons into lemonade. Work hard and GOOD LUCK LAZY PEOPLE!!!!

  • Report this Comment On November 05, 2011, at 1:02 AM, CaptainWidget wrote:

    http://www.youtube.com/watch?v=MRpEV2tmYz4

    Watch this and respond please. Yes...people are lucky...so what? Does everyone in the world deserve an equal lot in life? And at what cost would you provide this?

    A 100% inheritance tax over X monies earned (and let's be real..that's the logical conclusion of your argument) would do nothing but convince 100% of people to stop working when they reached that point of wealth, or to waste it while they were alive.

    Pulling money out productive resources to spend it in the mad dash before you die of cancer is the last thing this economy needs. Production>Consumption, always.

    "Sorry employees...I'd love to keep this factory open, but I"m 75 and I'm going to die soon. Either I shut it down and spend the money or the government takes it all. I would have left it to my children to run.....BUT NOW IT'S A FIRESALE"

    I'm genuinely curious..where does this site find it's "experts"? Do you need any credentials, experience, or even common sense to do this job? These are getting worse and worse.....

  • Report this Comment On November 05, 2011, at 11:58 AM, Darwood11 wrote:

    The fact is, life is unfair. We can do everything right, and sometimes things will go terribly wrong, That's why people who sometimes live very healthy lifestyles die at 35, while others who smoke, drink and were "hellions" in their youth, live to 95.

    The fundamental complaint in our society is this. Government, and that includes politicians of all stripes, and the agencies they have created, have not done their jobs.

    Instead they have lined their personal pockets, and profited. The problem isn't business. The problem is the erosion of checks and balances in the system. "Crony capitalism" is the normal for too many in America.

    The politicians are the most vocal in denying this. It's taught in every law school to practice diversion, obfuscate and so on. Most of our political leaders are lawyers. It is no accident they are so proficient at avoiding responsibility.

    We also have a population which is so easily manipulated and controlled. It's somewhat interesting the the "Occupy" movement is in New York, and is a complaint of the locals, who need all of those financial businesses to survive. Curb Wall Street and not only would the city suffer, but so would the entire state.

    I was talking to a "New Yorker" about this earlier today, and their retort was "I'm a Midwesterner.'' They were born in the Midwest, but left to live in the New York area to get the big bucks about 30 years ago. They have done very, very well. But, they're about as Midwestern as George Soros.

    We need a government that gets back to business, and that will probably require a flat tax to replace the one which now "creates good luck" for many of us. We need to cut out the "tax breaks" and other stealth subsidies. This will be unpopular. For example, why should someone at 65 pay a lower real estate tax than someone at 45? Why various discounts based on age? The only rational answer is, so many of these people lived beyond their means while young, didn't save and now expect a handout to maintain their lifestyle.

    We need to educate children and instill in them critical thinking skills. It will take decades, and probably require that a current generation age and die, creating the opening for that. There is tremendous resistance, and it now has infected even the 20 somethings. "I did everything right, I went to college, borrowed $100K and expected a great job." But they haven't been tracking employment flows for the previous decade, and the changes in labor department statistics. Many of them got on the bandwagon, and went with the flow. Common sense would dictate that to get a job, one must have desirable skills. But the dysfunctional quasi-socialistic system we now live in rewards stupidity.

    The sad thing is, millions don't make these mistakes, or learn from the mistakes they do make. They go on to live normal lives, pay their taxes, and save for retirement. They never get noticed. I know people who have worked for 45 years, never once got an unemployment check, lived on beans when it got tough, and payed all of their taxes, and in the process raised fine kids who went to college, and are now working in the private sector, paying taxes and making a contribution to society. No, they'll never be "rich" unless they can save most of their earnings, and they aren't making above $125K a year. Like millions in this country, they are simply keeping their head downs and working.

    We are currently in a health care bubble, But everyone denies that, also.

    I suggest that denial is the primary problem. Avoid reality, expect that no matter what I do, it will always turn out to my advantage, and if not, find a loophole to exploit. If, after that things still haven't turned out, then exploit the law, and if necessary break it. If caught, hire a good lawyer. Is it "luck" that a guy with a nickle bag goes to jail for a period longer than many corrupt and convicted politicians? Or people who gamed the financial system?

    It isn't. The system is rigged.

    But most of us don't play that game. And most of us, when things get difficult, move on to a different job.

    Others prefer to march and complain.

    Life is a choice. For most of us, so is the outcome. But it's always easier to say "I was unlucky" than to take personal responsibility for our lives. Thank God most American's don't take that easy way out. That is the source of the resilience of this country, but I fear there are fewer of us with each passing month.

  • Report this Comment On November 05, 2011, at 1:08 PM, ChemBaby wrote:

    Nothing wrong with saying "I was unlucky" it sure is better than saying "I'm helpless".

    "I was unlucky" removes blame and helps someone move forward with optimism.

  • Report this Comment On November 05, 2011, at 3:13 PM, ershler wrote:

    Captain Widget,

    <<Production>Consumption, always.>>= A lot of unused stuff lying around.

  • Report this Comment On November 05, 2011, at 4:46 PM, DividendsBoom wrote:

    I sure am lucky I worked at a fast food restaurant in high school, and then even more in college to pay for college, so that when I graduated two years ago and couldn't find a high paying job I didn't have six years worth of debt from tuition including from classes I retook because i was unluckily hungover on all of the test days in addition to six years worth of debt from living expenses including mostly beer and a new car I didn't need. Instead I continued to do dishes at a restaurant, drove a cab on weekends, donate plasma, mow 6 lawns throughout the week, shovel my neighbors snow in the winter, find a church who needed somebody to shovel their snow, advertise myself on craigslist to do yard projects, help people move, and rake leaves, and the many other one-off jobs I've taken. Man I sure am lucky to have built up some wealth at this age such that I will be quite wealthy at a young age as long as my luck continues. Thank god for my luck, I have no idea where I would be without it.

  • Report this Comment On November 05, 2011, at 4:53 PM, DividendsBoom wrote:

    I am also lucky my palate doesn't require me to eat out every night and that instead it can stand eating cheap calories like mcdoubles from mcd and the peanut butter and bread I always have with me, and the crazy amount of eggs and bananas I eat, only lucky people can eat cheap food. Also only lucky people can survive without cable tv, not to mention the fact that only lucky people can drive used cars. Also only lucky people can stand to live in small cheap apartments.

  • Report this Comment On November 05, 2011, at 5:04 PM, DividendsBoom wrote:

    The income of the top 400 rising so fast is due to the fact that now there is a much larger global market for the most successful to rise to the top of. Success is global, markets are global. Additionally numbers are skewed by healthcare costs becoming pre-income, include those back in income and the gap would close some.

  • Report this Comment On November 05, 2011, at 5:09 PM, DividendsBoom wrote:

    I hear you Darwood I'm with you buddy

  • Report this Comment On November 05, 2011, at 8:51 PM, BMFPitt wrote:

    @CaptainWidget

    "A 100% inheritance tax over X monies earned (and let's be real..that's the logical conclusion of your argument)"

    Your logic is broken.

  • Report this Comment On November 05, 2011, at 8:56 PM, BMFPitt wrote:

    "But what does it take to become Mark Zuckerberg? To be born in the United States, to have two doctors as parents, to get into Harvard, and to apply your prodigal skills as a computer programmer -- the rarity of these opportunities coming together requires incredible luck, perhaps far more so than talent."

    So the basic premise of this article is that "luck" causes someone to choose to get a computer science degree? Well I'm glad that fate didn't stick me with a philosophy degree. I really dodged a bullet there.

  • Report this Comment On November 05, 2011, at 9:03 PM, Sunny7039 wrote:

    "Luck," huh? So this is the new spin that's being used to placate the majority?

    The Microsoft antitrust cases were all published, and if you ever read them, you would be quite surprised at the amount of sheer legal and other conniving that took place to create and maintain that monopoly.

    As for Apple, there are articles out this week that talk about the working conditions in Chinese factories that make Apple and other companies' electronic junk. The people who work there are phenomenally overworked and underpaid, and often physically and psychologically crippled in a matter of a few years. These are not conditions of freedom by any stretch. Apple doesn't mind if it exploits this.

    Ah, Trump. So, er, how many strategic bankruptcies has he filed? Whatever the number, it's that many more than I have (i.e., zero).

    When it comes to the banks, I hope that by now everyone knows they operate under the best regulatory climate that money can buy. Most people can't afford to buy that legal environment. Politicians have gotten expensive.

    So "luck" is the new word for cheating and stealing. Right. Sure. Just explain how it is that as soon as someone is "lucky," they take great pains to make sure the playing field is far from level for any potential competitors.* Don't they have faith in themselves? Where did all their "hard work" and "self-esteem" go? And so quickly, too.

    *What's interesting is that Adam Smith himself could answer this question easily. In short, real competition always brings down profit margins.

  • Report this Comment On November 05, 2011, at 9:09 PM, Sunny7039 wrote:

    BMFPitt, you make jokes about philosophy . . . but who do you think the screenwriters are? What do you imagine they studied? For example.

    Also, do you think it was primarily knowledge of computer science that led to Facebook . . . or knowledge of people? Of their desires, and aims, and vanities, and of how to appeal to them and sell to them most effectively?

  • Report this Comment On November 05, 2011, at 10:27 PM, BMFPitt wrote:

    @Sunny7039

    "BMFPitt, you make jokes about philosophy . . . but who do you think the screenwriters are? What do you imagine they studied?"

    Screenwriters in general? They may or may not have a degree. It's a pretty broad cross-section of people.

    "Also, do you think it was primarily knowledge of computer science that led to Facebook . . . or knowledge of people? Of their desires, and aims, and vanities, and of how to appeal to them and sell to them most effectively?"

    A knowledge of computer science and a basic amount of psychological knowledge held by a majority of Americans.

  • Report this Comment On November 05, 2011, at 10:52 PM, tsmurray67 wrote:

    @DividendsBoom :

    Sounds you worked very hard at being so lucky.

  • Report this Comment On November 06, 2011, at 2:43 AM, CaptainWidget wrote:

    <<Ershler: A lot of unused stuff lying around.>>

    Production facilitates consumption. The inverse is not true. If we consume more than we produce, we run out of stuff eventually. If we produce more than we consume, we're free to continue to consumer as things grow at a faster rate than they're destroyed. Consumption is a natural human behavior. You don't need to convince people to consume. It's in our blood. If something needs to be incentivized, it should be production.

    And who cares if stuff sits around unused? The consumers get cheaper goods, and the companies that make them are forced to either become more efficient in their production of cheaper goods, or liquidate their assets into further, more productive uses.

    <<BMFPitt: Your logic is broken.>>

    No it's not. Inheritance tax does nothing but kill incentives to become rich. The "inheritance tax" is nothing more than a populist warcry for the rich to be eaten alive. The logical conclusion of the inheritance tax is "no one is allowed to make over this amount of money". That's great, then rich people will stop reinvesting their money after they hit the income cap and piss away everything. If you can explain how that's good for society I'm all ears......really.....

    It's a ridiculous idea, one barely worthy of uttering a retort. This is without a doubt the stupidest article I've ever read on this site.

  • Report this Comment On November 06, 2011, at 3:42 AM, Sunny7039 wrote:

    CaptainWidget, if you don't need to create incentives for consumption, you'll have to explain the entire advertising industry, the intrusion of ads into every part of the mass media and our daily lives, why most emails are advertising, why websites like Facebook have made their developers billionaires, why "reality show" stars are astoundingly rich, and so forth. Looks to me like someone is trying pretty hard to get other people to part with their money for the flimsiest of reasons. If consumption is in our blood as you say, why go to so much trouble to convince us not to control our appetites? Also, why is it that some people (me, for example, and my closest friends) don't really like to overspend, and have no problem controlling our "acquisitive impulse?" Where did my perfect credit report come from -- is there something wrong with my blood?

    As far as inheritance taxes go, you seem to think that they tax at a rate of 100% after a certain net worth is attained, to confiscate all the rest. That's preposterous. And you accuse others of illogic?

    It would make more sense to argue that an inheritance tax would perversely incentivize greater graft, corruption, and so forth, since to pass down $10M to one's descendents, one would have to accumulate $12M, etc. In any case, anyone who understands what these numbers mean couldn't possibly think as you do. A person with $10M in financial assets is set for life. They can easily make $1000 a day without ever going to work, or even worrying too much about "portfolio management." They can hire someone else to do it -- and hire someone else to keep an eye that person. What a laugh.

    What I would like to know is, if a CEO, CFO, and so forth, can make this kind of money, and more, in bonuses over a year or two, what earthly reason would they have to take a long-term view? They can run a company into the ground, essentially looting it, and walk away rich. Krugman actually pointed this out years ago, in an article called The Madoff Economy.

  • Report this Comment On November 06, 2011, at 10:59 AM, CaptainWidget wrote:

    Advertising convinces you to buy things you wouldn't otherwise know exists, and frames it in a positive light. But ultimately consumption is a mandate. Food, water, clothing, shelter...all necessities of consumption or you die. Why do people with no fiscal education spend every dime they make every month? Simple: That's their natural impulse, and they don't know any better.......You and your friends learned at some point the value of deferred consumption. Through school, mentors, your parents or (if you're lucky) your own mistakes you realized that saving money is good. But for the vast majority of people all throughout the world, that's not the case. Human's natural impulse is to consume, not to save. But saving 1 units of today's consumption allows you 1+ units of consumption in the future for you....or your children...

    And this is the point.....if people do something GOOD by saving money to pass on to their children, why should they be punished? Deferring consumption to facilitate production is advantageous for the economy. If you have 2 units of some good and consume them today, 2 units of goods are gone forever. Net harm to the overall economy. If you combine those 2 units of goods with your skills and talent, you can make 4 units of goods, 2 of which can be consumed at no net harm to the economy.

    The logical CONCLUSION of inheritance tax is to put a cap on wealthy. A maximum wage. Otherwise...what good does it do? If the STATED purpose is to prevent capital accumulation in a small group of individuals, does taxing their inheritance at 10% really do the job? Of course not. The STATED purpose is to prevent the rich from getting too rich...so the only LOGICAL conclusion is to limit to the total amount they can accrue before it's taken away. Otherwise it's just another ineffective money grab.

    CEO's are incentivized to take as many risks as they can while the money is cheap and the government guarantees are strong. Take cheap money and implicity government insurance out of the equation and CEO's would be forced to take moderate salaries and answer their actions to shareholders. This has nothing to do with an inheritance tax, I suspect you're just trying to convolute the argument and think of a reason to name drop econ-hack Paul Krugman

  • Report this Comment On November 06, 2011, at 2:17 PM, BMFPitt wrote:

    @CaptainWidget

    "The logical conclusion of the inheritance tax is 'no one is allowed to make over this amount of money'."

    You seem to be confusing 'logical conclusion' with 'reductio ad absurdum'. Common mistake among those who can't argue logically.

    "It's a ridiculous idea, one barely worthy of uttering a retort."

    Yeah, that's how strawman arguments tend to work.

  • Report this Comment On November 06, 2011, at 2:54 PM, Kauaicat wrote:

    This article is utter tripe, focusing only on the top 400 of the 1%, and using Zuckerberg as an example of "luck". He ignores the reasons for the success of the remaining hundreds of thousands of other 1%ers (to be in the 1%, one only needs to achieve an adjusted gross annual income of $380,354 per 2008 IRS stats). For the vast majority of 1%ers, there was no luck, just hard work and being careful with a buck.

    I know a little bit about being a "1%er", because I've been one. I did it by staying out of trouble in high school as 4 of my friends became heroin addicts. I did it by studying hard in college when I needed to, and doing my homework assignments, while working up to 3 part-time jobs at once. When I graduated from a relatively inexpensive university in my home town, I started at $7.50/hr working for a tyrannical boss in the engineering field. Nevertheless, I put up with this jerk for 6 1/2 years before leaving to start my own company. Despite being sued for taking some of his clients, costing me $75,000, I managed to stay afloat, and thrive by outworking the competition. For 15 years, I worked an average of 3500 hours per year - early mornings, nights, weekends, holidays, all-nighters to meet deadlines - whatever it took. Over that 15 years, I expanded my company to 4 offices with multiple partners. Ten years ago, I sold out, and "retired" to Hawaii, where I continue to work, albeit at a much more relaxed pace.

    And my story is hardly unique among my circle of friends. My best friend from high school lost his father when he was 6, grew up in a duplex with his mother and 3 siblings, and only had a 2.8 GPA in high school. He was able to get into college on an athletic scholarship and qualified for a scholastic scholarship after one year and quit sports. After graduating with an accounting degree, he eventually started an accounting firm and then became a real estate developer. His work ethic exceeded even mine, and he is a 1%er.

    Does any of this sound like luck? Was Andrew Carnegie, an uneducated Scottish immigrant who became the wealthiest man in the U.S. lucky? No, in the words of Branch Rickey, "good luck is the residue of design"

  • Report this Comment On November 06, 2011, at 2:56 PM, lowmaple wrote:

    Did someone mentionflat tax? I work with people who I know have skills I don't and so are earning more than me. not LUCK. Apply yourself and you'll do better. Doesn't mean you'll be a billionaire but you will earn more unless of course a meteor strikes you down.

  • Report this Comment On November 06, 2011, at 4:32 PM, catoismymotor wrote:

    The most practical definition of luck I've read is: Luck is when opportunity meets a prepared mind.

    Warren Buffett application of this idea:

    WB knows insurance companies (Prepared Mind) and sees that GEICO is up for sale at a favorable price (Opportunity). He believes the purchase will be good for his company, as it has been, for decades (Luck).

    WB can pin the label of luck on his success all he wants but don't let him fool you into thinking that his success has come easily. Not all of his purchases work out.

  • Report this Comment On November 06, 2011, at 6:08 PM, MrChapel wrote:

    After reading this article my reaction is

    WHAHAHAHAHAHAHAHAHAHA!!!!!!!!

    So, now it's luck, hm? What, do we need a new Department for the Redistribution of Luck?

    Alex, I don't know what kind of study you've done, if you have a degree in some esoteric field or are just trying to be a satirist. Or are you really serious? I take it you're a follower of the OWS crowd? The same ones who threatened to levitate a building? Defecate on cars?

    Personally, I don't care about Zuckerberg or Buffett or any of the other people who make a lot of money. If they're smart enough to do so, good for them, it is the fruit of their labor. Hard work is supposed to pay of. What seems like luck is actually a mixture of perseverance, smarts (not education), the ability to notice opportunities and the ability most importantly, to grasp those opportunities. Why not education? Because over half of the people who have a degree, whether it be something in the hard sciences or something like Minority Women Studies, are morons, whose only ability is to regurgitate what their professors told them. They have no idea of what critical thinking entails nor of how to apply logical thinking.

    Your article (and the current Occupy-movement) are nothing more than attempts to cover up the fact that you want to stifle and ultimately destroy the very essence of what everybody should strife for, what the rest of the world so hates about the United States and that is the possibility that a street kid can become the next Carnegie or Hearst or Rockefeller or Gates. You want to destroy the possibility of the American Dream, of Rags to Riches and replace it with mediocrity.

    Are the problems? Hell Yes! A Tax Code that is both labyrinthian and stygian, Financial institutions who are 'Too Big To Fail' and should be split up as well as a return to Glass-Steagal. An education system that is broken, where it's more important to teach children about the history of Lesbian, Gay and Trans-gendered people than it is to be proficient in math, physics, geography, history, logical thinking, economics and such while spending more than most other industrialized nations on education per child. Where politicians award their fundraising friends and family members massive paydays on the taxpayer's dime. These things need to be addressed, instead of shifting the blame of personal failures onto others who grab chances, who work hard, who try to seize that American Dream.

    Luck?

    Here's an idea for you, Alex, try and get your hands on Scrooge McDuck's Number One Dime. After all, according to him, that's the first dime he earned and it is his lucky dime, responsible for his wealth. Once you've made your wealth with that dime, hand it over to another 'unlucky' person so they too have a chance at luck. In the meantime, the rest of us will do what we've always done, namely work hard and try to seize chances as they appear.

  • Report this Comment On November 06, 2011, at 7:33 PM, CaptainWidget wrote:

    @BMFPitt

    "You seem to be confusing 'logical conclusion' with 'reductio ad absurdum'. Common mistake among those who can't argue logically."

    Using latin names for logical fallacies they just learned on Wikipedia is a common mistake among those who can't argue logically.

    If an inheritance tax doesn't tax 100%, how does it stop wealth accumulation (the stated goal of the article)? I'm just curious......because if it's not exactly 100%....the top .01% will still be able to accumulate more wealth than the rest of the 99.9%....

    Besides it doesn't need to be 100% to be an awful idea. 100% is just the rate it universally stop productivity. But any inheritance tax will stop some productivity. What is the point of that?

  • Report this Comment On November 06, 2011, at 7:46 PM, whereaminow wrote:

    Nothing in the article (and probably nothing in the study) actually explains how the affairs of everyone will actually be improved by taking from the lucky by force, against their will. Nor does it say who the money would be given to. Nor does it address the cost of such a system of redistribution.

    Nor does it point out that we already have increased by fantastic amounts how much wealth is redistributed and yet that doesn't seem to be helping.

    In fact, the society of actual laissez faire capitalism (not crony and fascist corporatism, which is what America has today) had far less disparity between the richest 1% and the other arbitrarily chosen number used to represent the rest of us.

    And really, that's neither here nor there, since no one can actually show me why it is better that we have equalized incomes or why it is morally preferable to achieve that outcome through violence.

    In the end, it's just another excuse for a study, it appears. Maybe this is why university work is not valued in the marketplace. Let's remember that Zuckerberg was "lucky" enough to drop out of school, like many other "lucky" millionaires that are college dropouts.

    Perhaps the real lucky part is avoiding schools that put out these kinds of studies.

    David

  • Report this Comment On November 07, 2011, at 8:48 AM, BMFPitt wrote:

    @CaptainWidget

    "If an inheritance tax doesn't tax 100%, how does it stop wealth accumulation (the stated goal of the article)?"

    Wealth does a pretty good job of dispersing after a few generations with or without a tax in most cases, and just because you have a pathological need to believe that the author wants to end all wealth accumulation doesn't make it true.

    "I'm just curious......because if it's not exactly 100%....the top .01% will still be able to accumulate more wealth than the rest of the 99.9%...."

    1) Not likely.

    2) So what if they did?

    "Besides it doesn't need to be 100% to be an awful idea. 100% is just the rate it universally stop productivity. But any inheritance tax will stop some productivity. What is the point of that?"

    Because money is fungible. You are implicitly stating that the transfer of wealth due to someone dying is sacred, so the transfer of wealth through commerce must be taxed at a higher rate to make up the difference. Since the cost of government does not change by repealing the inheritance tax. So who wants to stop productivity here, exactly?

  • Report this Comment On November 07, 2011, at 11:13 AM, WikiCPA wrote:

    Taxes will always be tailored around the wealthy. It is structured that way to incenticize accumulation. Won't change, you are a fool if you believe it will.

  • Report this Comment On November 07, 2011, at 12:20 PM, FleaBagger wrote:

    I haven't read all the comments, but has anyone asked, or better yet, answered, whether causation was ever proved for "greater inequality -- not lower average incomes -- in a country leads to lower life expectancies, lower literacy, higher infant mortality, more homicides, [etc.]"? We go about touting observational studies that show all kinds of correlations and assume the causality is unidirectional and congruent with our existing beliefs, leading us away from ever finding alternative explanations of the data, for instance that many of these factors lead to higher income inequality as well as to each other (if causality from income inequality hasn't been demonstrated).

  • Report this Comment On November 07, 2011, at 1:12 PM, slpmn wrote:

    The problem is the writer uses terrible examples to demonstrate the notion that luck can be a big determining factor in success. Zuckerburg, Buffett, Gates - those people were not lucky! Steve Jobs was not lucky! But those are special cases.

    There are people who create their own wealth out of intelligence, hard work, and creativity, but that is not the only way it happens. Many, many, many people (some of the wealthiest, in fact) are wealthy for no other reason than the fact their parents were wealthy. The single biggest predictor of one's future wealth is the wealth level of one's parents. Who your parents are is luck. Where you are born is luck.

    On investing - if you have a thousand portfolios constructed by monkies with markers taped to their hands (paws?) and the stock market pages taped to the wall, you will get a distribution of returns that looks similar to the distribution of professionals. Some terrible, most similar to the broad market, and some excellent. That's luck.

    If you get to college and your roommate's dad is CFO of a successful company and you land a plum job there - that's luck. If you get a job at a company and your boss happens to be a terrific guy who puts you on the fast track, that's luck.

    If you're CEO in a country and era in which boards of directors think nothing of transferring massive amounts of shareholder wealth to you annually, regardless of performance - that's luck.

    None of this is to say that intelligence, creativity, and hard work aren't rewarded in this country - they are and should be. Likewise, disinterest, stupidity, and sloth should be and are penalized.

    We need to accept, however, that not all success is determined by Darwinistic survival of the fittest. Some (much?) of it is blind, dumb luck. Why don't people like to accept this? Because the flip side is that many people (maybe you) are unlucky. And no matter what they do, that won't change. And who want's to acknowledge that?

  • Report this Comment On November 07, 2011, at 1:12 PM, diverdon56 wrote:

    Who do you think you are deciding to call my labor luck, and proclaim that the Government has more of a right to it than I have to decide to pass it on to my children.

    Once government decides that it has more right to the product of my labor than I have why would I bother to create a surplus of wealth beyond what I can use in my life. Your stupidity would destroy farms and businesses across this land.

    This is a very stupid article. This kind of fuzzy, feel good nonsense has no place in a news letter I pay for advice. Unless the Gardener brothers want to loose me as a customer they stop this kind of nonsense.

  • Report this Comment On November 07, 2011, at 2:00 PM, RenegadeIAm wrote:

    To quote the brilliant Thomas Sowell:

    ------------------------

    [The top 1%] is not an enduring class of people. Nor are people in other income brackets predetermined to stay there. Most of the people in the top 1 percent at any given time are there for only one year.

    Anyone who sells an average home in San Francisco can get into the top 1 percent in income — for that year.

    Other one-time spikes in income account for most of the people in that top 1 percent.

    -------------------------

    Let's stop acting like the "1%" is some kind of permanent ruling class. It's not. It's you and I at some point in our lives.

  • Report this Comment On November 07, 2011, at 2:31 PM, CaptainWidget wrote:

    @BMFPitt

    "Because money is fungible. You are implicitly stating that the transfer of wealth due to someone dying is sacred, so the transfer of wealth through commerce must be taxed at a higher rate to make up the difference. Since the cost of government does not change by repealing the inheritance tax. So who wants to stop productivity here, exactly?"

    I'm EXPLICITLY stating that the transfer of wealth in any means by wholly voluntary methods is anathema.

    The "cost of governance" is whatever they manage to pull out of the citizens pockets. The "value of governance" in the US is massively less than the cost. The cost of governance could easily be less than the tax receipts in this country...hell it could easily be less than the non-income tax receipts in this country. And yet...here with are with a 15 trillion dollar debt.....

    Every penny the government takes is wasted. It's in their nature. They have no reinvestment program, they see no price signals, and are not CAPABLE of producing something of value at a price under the cost of value. The best they can do is provide a service that everyone wants without putting undue burden on their citizens in the process....but no one would call that productivity. They're not producing new goods or services, they simply transfer it. So...every penny you give the government is gone forever...wasted.

    So if nothing is created by the government, why do they need MORE capital? It's just a money-sink. Every penny get is pissed away. That capital EXITS the productive free market to pay for a destructive government. So who wants to stifle productivity?

    You...I'm guessing......if you're arguing we should be giving the Federal government more money.....either that or you're just a fool and honestly think that would be a positive...

  • Report this Comment On November 07, 2011, at 2:59 PM, mikecart1 wrote:

    Anyone that uses luck as the excuse to why they got it good or bad obviously has not and probably never will find the meaning of life and more importantly how to play the Game. I pity da fool. The real way to get rich is off one simple entity: INFORMATION. Information is greater than anything else in the world. Information gets you the money, the career, the life, the women, the networking abilities, the opportunities, and most importantly it creates what everyone seems to believe is so impossible to have: Luck.

    People are clueless by default.

  • Report this Comment On November 07, 2011, at 3:05 PM, diverdon56 wrote:

    Is this socialist author Alex Planes is paid from our news letter fees?

  • Report this Comment On November 07, 2011, at 3:14 PM, Gato337 wrote:

    Maybe 'luck' is the wrong word here because it has such strong positive connotations, perhaps "chance" would be a better choice.

    Its not to belittle the acheivements of the 'self-made man', but to recognize that what separates the adequately successful (middle/upper-middle class, 50-99th percentile) from the wildly-successful (the 1%) is often actually beyond their control. They were in the right place at the right time, with the right opportunities and presence of mind to pursue them.

    My grandfather is a self-made man, was dirt poor and worked up to be a mid-level executive at Conoco. But, after serving at the end of WWII, if he had not had the opportunity to go to college and become a petroleum engineer (thanks to the G.I. BILL) and had many nice people help him along the way (like providing him room+board for some custodial work at a nearby church), he would not be the man he is today. (oh and it also definitely helps that he was a white male). He is very proud of where he is now, and still living well at 87. However, what if the G.I. Bill never passed? What if he was born a black man? Would he also be working in the rubber factory that his mom worked at for 60 years? Or would he be as successfull as he is now? Maybe! its definitely possible! However, the barriers to success would have been that much greater.

  • Report this Comment On November 07, 2011, at 3:15 PM, Gato337 wrote:

    I was born into a white, upper-middle class family with married parents, one with a bachelor's deg, and one with a masters in accounting. My closest relatives are mostly engineers, 1 doctor, and 1 CPA.

    All of these factors were in place even before I was born. My race, socio-economic status, family status, and family education level, all pretty much statistically 'give' me better chances at a successful adult life. I was born into a position of great opportunity in this world. Its not because "I deserve it" or "I'm special," but purely by 'chance.' So I hope that I can do well with what I've been given; I work hard every day to live up to the opportunities I was given at birth (and after).

    I always think of the adage: "With great power comes great responsibility." Its not that I was born with 'great power,' per se, but (at the risk of sounding too conceited) that I was handed a privileged position in this world. So from that position, I have the power to potentially influence this world for the better. I plan to give back to this world that has been so kind to me, and contribute to our society in a (hopefully) meaningful way.

    Call me a hopelessly romantic ideologue, too young to know any better, but I feel that it can be very powerful to admit that individual successes cannot be solely attributed to my individual skill, prowess, and determination. Rather, my successes (and anyone elses' for that matter) are shared with all the other inhabitants of this big green and blue orb.

    Ultimately, what affects part affects the whole - so if my 'lucky birthright' put me in a position of socioeconomic wealth and power at birth, then it is my karmic duty to humanity to restore the balance, and contribute as much as I've been given (or more).

  • Report this Comment On November 07, 2011, at 3:29 PM, boogaloog wrote:

    @CaptainWidget

    You wrote:

    "Every penny the government takes is wasted. It's in their nature. They have no reinvestment program, they see no price signals, and are not CAPABLE of producing something of value at a price under the cost of value. The best they can do is provide a service that everyone wants without putting undue burden on their citizens in the process....but no one would call that productivity. They're not producing new goods or services, they simply transfer it. So...every penny you give the government is gone forever...wasted."

    Where exactly did the money go? Seems to me that it simply went to someone else who is working hard to be a success (teacher, consttuction worker, etc). And that person uses the money to buy goods in my (or your) place of business. And then I pay tax on some of that money, which again goes through this cycle.

    If you have a valid point to make, make it in the reasoned manner you seem capable of. Don't just spout rhetoric.

  • Report this Comment On November 07, 2011, at 4:10 PM, CaptainWidget wrote:

    "Where exactly did the money go? Seems to me that it simply went to someone else who is working hard to be a success (teacher, consttuction worker, etc). And that person uses the money to buy goods in my (or your) place of business. And then I pay tax on some of that money, which again goes through this cycle."

    Just because someone is working doesn't mean they're working productively. The logical conclusion of that argument is, if we wanted full employment, we could just half the county to dig ditches with spoons and the other half to fill up those ditches with spoons.

    To be a productive job, the value of the product of that job needs to be greater than the resources that went into the creation of said product. If I hire someone to build one widget an hour at $5 an hour, and put $5 worth of resources into the creation of that widget, and sell it for $15 dollars, I've created value. If that widget is only worth $7 however, then I'll eventually go out of business. The government however doesn't care if it wastes $3, it just continues to produce the widget until it takes enough $3 checks from every man, woman, and child in the country to bankrupt us all.......Simply put, the government has no incentive to create value.....

    Without price signals, there's no way to know your costs or your value. To the government, costs don't matter on the front end. They simply transfer more wealth from the private market to their tax coffers to cover any lack of funds (or deficit spend). And value on the back end doesn't matter, since no one is voluntarily buying their products, they can continue to create inferior goods.

    When the government gets your money, it gets spent in areas that fail to produce a valuable good to the market. If what they were producing had value, people would buy it without the IRS and police combo putting a gun to their head and forcing them to purchase.

  • Report this Comment On November 07, 2011, at 4:13 PM, TMFDukenewkirk wrote:

    First off, for all spouting fire at this article, it's purpose is to generate interest. Done.

    Second, yes inheritance tax is stupid if we intend to continue living in a capitalist society for the many reasons others have already pointed out here.

    Finally, anyone, absolutely anyone, no matter how many jobs you've worked, how many heroine addict buddies you've watched waste their lives, while you haven't, consider yourselves incredibly lucky all the same. The fact you have a computer to read this article on, or even access to one, does mean you are, in fact, incredibly lucky. The fact you have 'time' to read this article and comment on it, means you are incredibly lucky. The fact you weren't born in the hills of the Congo, haven't had to watch a militant group come into your village, rape and kill your mother and murder your father in front of you, means you are incredibly lucky. Certainly pat yourselves on the back if you haven't been stupid and wasted that good fortune, but don't deny you haven't got a lot of it.

  • Report this Comment On November 07, 2011, at 5:04 PM, GrumpyOldGuy wrote:

    Rarely have I read anything so misleading as this article. If you win the lottery or inherit millions, that is luck. If two people with similar starting positions in life end up in wildly dissimilar positions later in life, the difference almost always is personal drive and desire.

    I know a lot of millionares and so do you. Most worked hard, saved and invested, did not "have to have the latest stuff" and became wealthy. And yes, a few of them were lucky, one even winning a few million in the lottery.

    My advice is to stop whining about the 1%. We live in one of a very few countrys where upward mobility is not only possible, it's expected.

  • Report this Comment On November 07, 2011, at 5:09 PM, CaptainWidget wrote:

    They're voicing their concerns about how their money is being spent before they walk with it (like I did 6 months ago). Unlike government spend, all spending on site must be voluntary. If Motley Fool doesn't produce a product that their customers enjoy, they'll go out of business (unlike the government).

    I'm sure the Motley Fool corp enjoys the feedback, positive, negative, or otherwise, that their paying customers have about who they hire to write articles here and how it affects their current customer base.

  • Report this Comment On November 08, 2011, at 10:55 PM, MichaelDSimms wrote:

    Indeed, I believe in luck. I was lucky enough to be born into the greatest nation in my life time. I was lucky enough to be healthy enough to be accepted into the USAF, and was trained into a vocation was is now in demand. I have traveled the world in include 8 years in Europe, 3 years in the Pacific and 9 years in the U.S. I have lived and worked in 3 war zones and never ended up with a so much as a scratch. I have 3 healthy intelligent children, and a wife of 27 years. However I believe at least some luck is brought upon choices that we make in life. Sometimes the less traveled path gives the best views and the opportunity for the greatest growth.

  • Report this Comment On November 09, 2011, at 2:22 PM, pgrage wrote:

    SIPMN: I think you hit the nail on the head.

    Allow me to invoke another's thoughts here as a start, then I'll add my own:

    .

    Seven Deadly Sins (M. K. Gandhi)

    -Wealth Without Work

    -Pleasure Without Conscience

    -Knowledge Without Character

    -Commerce (Business) Without Morality (Ethics)

    -Science Without Humanity

    -Religion Without Sacrifice

    -Politics Without Principle

    .

    I ask myself, why would Gandhi place "Wealth Without Work" first on his list of deadly sins? Warren Buffet refused to pass on the vast majority of his assets to his heirs (paying only for college studies and grad school). The trust fund kids, old and new, are parasites that mock the American work ethic and tear forcefully at the ties that bind our society. Bill, Warren and Mohandas learned this lesson .... will we?

  • Report this Comment On November 10, 2011, at 2:58 PM, ershler wrote:

    Captain Widget,

    Sorry I didn't respond right away but I still don't understand why you think it is always better to overproduce everything. It still think it would be better to strive for production to equal consumption. Since consumption can't be perfectly predicted sometimes it is better to over produce and sometimes it is better to under produce your estimate, but that depends on the specifics of the items you are producing

  • Report this Comment On November 11, 2011, at 4:32 PM, Tsinky wrote:

    This article speaks a simple, powerful truth. The fact that so many on this thread deny this truth so vehemently is as interesting as the article itself. I've been trying to understand why.

    Is it the hubris to believe that they've succeeded by their own effort and skill alone - reminiscent of the expression "He's a self-made man, and he worships his creator"?

    Or are they afraid to entertain the possibility that their fate may rely on factors and events over which they have no control?

    Arrogance and insecurity are two sides of the same coin.

    The role of luck in determining success doesn't mean there's no point in trying. The baseball executive Branch Rickey famously said, "Luck is the residue of design" - meaning that, if you work hard and keep improving yourself, you put yourself in position to succeed.

    If you're lucky.

  • Report this Comment On November 14, 2011, at 7:13 AM, Pr0metheus wrote:

    I can't become the next social media CEO because my parents couldn't afford to send me to Harvard?

    You do realize that computer programming skills are taught at colleges across the country, don't you?

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