Monday, August 15, 2011

Shared Sacrifice

This article was all over the internet this week.

The Oracle of Omaha, Warren Buffet, thinks things are out of balance.

He paid $6.94M in taxes last year. This accounts for 17% of his income.

Some would say he paid more than his fair share - that amount of money is huge.

Others would say he paid less than his fair share - many middle-class Americans (this one included) pay in the 30% range.

It's one of the age-old questions: who pays for the social security net for when shit hits the fan? Because it will, for all of us, in some way, eventually.

There is a common statistical anlysis tool called a Pareto Chart. It says 20% of 'stuff' causes 80% of the effect. Therefore, your efforts should be spent on addressing the top 20% of 'stuff' because that will get you a long ways towards addressing 80% of the solution.

A history on Pareto - and completely applicable for this application:

Vilfredo Pareto's original observation was in connection with population and wealth. Pareto noticed that 80% of Italy's land was owned by 20% of the population. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.

Because of the scale-invariant nature of the power law relationship, the relationship applies also to subsets of the income range. Even if we take the ten wealthiest individuals in the world, we see that the top three (Warren Buffett, Carlos Slim HelĂș, and Bill Gates) own as much as the next seven put together.

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