With all the Occupy protests going around demanding that the 1% pay its “fair share,” it’s reasonable to go back and revisit the reasons for and against raising taxes Wall Street traders. The main reason cited by conservatives and free marketers for not taxing capital gains is that the market will function more efficiently when the rewards go to the individuals who were smart enough to pick winning stocks. Whatever the winners choose to do with the money they earned, so the argument goes, will likely be more efficient use of that money going forward than any other use it’s put to by people with less knowledge of how to make that sum earn more.
But not so fast my friend. Daniel Kahneman studied the investment choices (thanks to Steve Hsu for the link) of 25 wealth advisers for a period of 8 years and found that year to year correlations in how they ranked against each other came out to 0.01, or effectively zero. It means there is no skill differentiation in financial investment decisions made at the highest levels, or in other words, winners lucked out.