Ordre Spontané — The x% puzzle

Anyway, wherever you sit in the “heirs vs. entrepreneurs” debate, you have to admit that entrepreneurs exist. Even if you think that they only represent a small and declining share of the x%, you can’t deny that some people built their current fortune during their lifetime. So there is turnover in the x% which means that some people get out that group and are replaced by other who get in. Well, believe it not, there is a direct relationship between the level of that turnover and the amount by which the mean wealth of the x% outperforms the mean wealth of the whole population. That is, the less we live in a Piketty world (e.g. the higher the turnover amongst the x%), the faster the x% should enrich themselves relative to the rest of us.

This happens because of a well-known statistical bias called the survivor bias. Let me explain: imagine that, over a given year, just one wealthy man leaves the x% and is replaced by another one. It might happen because he lost money or because the made less money than others. At the end of the year, his declining fortune will impact the mean of the whole population but, since he didn’t “survived” in the x% (hence, the name), it won’t have any effect on the mean wealth of the x%. That is, comparing the mean wealth of the x% through time is an implicit selection process where you only select the winners and forget the losers [4].

In other words, there are two ways to explain why the mean wealth of the x% has grown faster than the mean wealth of the whole population. According to Piketty, it means that the richer you are in the first place, the faster your capital grows over time (hence, the dynastic wealth world he foresees). But it might also be the opposite: this phenomenon is exactly what we should expect to see in a world of high wealth turnover, a world where fortune rewards skills, hard work and risk taking. Quite symptomatically, Piketty and its numerous followers have completely dismissed that possibility.

Does alleged turnover at the top counter Piketty's argument?

(h/t Tyler Cowen at Marginal Revolution) Maybe instead of "hat tip," it should be "tip off."

Ordre Spontané
The x% puzzle
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