Hacker News Reader

Comment by PaulDavisThe1st | Hacker News Reader

Two societies. In each one, someone buys $20 of art supplies, paints a masterpiece and it sells for $100,000.

In one society, a marginal tax rate system taxes the artist with an upper rate of 92%, and they end up retaining about $50,000 of the income, with the rest flowing back into the control of the society (via its government).

In the other society, a margin tax rate system taxes the artist with an upper rate of 28%, and they end up retaining about $70,000 of the income. In this society, the artist retains control over twice as much of the income as flows back into the control of society.

"Wealth concentration" is not a policy related to markets, production, and trade. It's a policy related to taxation.

View on HN

> "Wealth concentration" is not a policy related to markets, production, and trade. It's a policy related to taxation.

I agree with most of what you say, but the pre-tax results of income are not some single natural outcome, but the results of policies about business, economy, education, healthcare, international relations, trade, immigration, monetary policy (of course), regulation, government budget, etc. - pretty much everything.

Those things can be adjusted to result in less or more wealth concentration.

They also depend heavily on capital gains tax in particular.

While the fact that the artist ended up selling a piece of art for $100k is absolutely reliant on the full totality of the social context .. what happens next is where wealth concentration does or does not happen. And that is (to a good approximation) almost entirely the realm of tax policy.

That is why I gave two different societies as examples - both have managed to construct a social context where this happens, but what happens next is different in each of them.

Put more crudely, wealth concentration is about not taxing high levels of income at high marginal rates. It is not about the specifics of how those high levels of income arise, who they happen to, etc. etc.

In the first society, the probability of the artist completing and selling that masterpiece is correspondingly lower, since money is a strong motivator and even artists have bills to pay.

Thus the first society tends to create less value overall, since value creators are demotivated by punishing taxation. Because of that, prospective buyers for that piece of art will be overall poorer so they will bid less for it, pushing the artist's reward even lower.

The first society ends up poorer than the second, from its own policy. And that’s how you get inequality between nations, which you can’t “redistribute” away. Which inequality sooner or later leads to wars, as we can clearly see these days.

The example is bad because nobody thinks of $100k as "concentrated wealth" and your argument has some purchase at those numbers.

At $100 million, $1 billion, $10 billion, or $100 billion, the argument you put forth does not make sense.

There is no motivational quantum for attaining the second, or third, or fourth billion, much less the 200th.

Incidentally, most of the people who might be considered to be concentrating wealth do not and have not done so primarily on the basis of their labor and creativity like in the example. There is no credible argument that Jim Walton ($119 billion net worth) ever built or created anything of value anywhere near commensurate with his wealth. His path from $30 billion to nearly $120 billion had nothing to do with rewarding him for value creation.

> There is no motivational quantum for attaining the second, or third, or fourth billion, much less the 200th.

That's probably correct. However, if you tax $100b at 40%, then the person has only $60b to invest in creating more wealth.

But in the meantime, the state has $40b of wealth under its control to invest.

And while the $100B winner may have had some insight that contributed to the $100B, there also had to be a $100B winner in an economy structured the way ours is. Consequently, we don't really know whether there's a reason to prefer their investment choices over the ones the state will make.

It currently remains unclear, for example, whether what Musk or Bezos have done with their vast wealth thus far will, in the medium or long term turn out to be a net benefit to society (it certainly has not been so in the short tem).

The belief in the business genius really is overblown. Yes, some folks are better at it than others, but when we run the economy like a casino, there will always be big winners no matter what personal qualities the players bring to the game.

> the state has $40b of wealth under its control to invest.

Defense spending is not an investment in the economy, neither are entitlements.

The returns on government investments that are legitimate investments, however, are quite a bit less than the returns on the investments of rich people. The reason is simple - people who get rich off of investments are very, very good at it. Government bureaucrats are not.

Government investments are socialism, which have an inglorious history of poor returns.

> The belief in the business genius really is overblown

4 out of 5 business ventures fail. The survivors tend to be pretty good at it. You'd be very hard pressed to find a dummy who grew a business to a billion dollars. The ones who have done it more than once are very, very rare. (Like Steve Jobs, who did it 3 times.) If you want to argue that Jobs, Gates, Musk, Bezos, etc., just fell into it, go right ahead!

> In the first society, the probability of the artist completing and selling that masterpiece is correspondingly lower, since money is a strong motivator and even artists have bills to pay.

I live near the (supposedly) largest art market in the USA, and I know a large number of artists here for whom two things are true:

1. they cannot make a living from just their art. 2. they will create art whether they make a living from or not.

Thus, the claim that taxes on their art income act as a disincentive to create just holds zero water for me. In fact, less than zero. It betrays a fundamental lack of understanding of why all the artists I admire actually do what they do.

This also applies to most of the people I admire in almost every field. I don't know of any example where the motivation was such that increased taxation would have acted as a disincentive. That's true even for Bezos @ amzn.

Taking advantage of self-driven people and stealing the results of their hard work is something communist dictators tried quite hard. Also brainwashing people to work their asses off for some other reason than the selfish one.

It didn’t work. The society produced less and less value, crappier and crappier quality, uglier and uglier and grayer and grayer.

If you think that Bezos was motivated to create amazon because the taxes were just-so, you're delusional.

There are numerous books on this topic. Obviously not everyone agrees with them, but Alfie Kohn's "Punished by Rewards" is an excellent starting point for reading about what we know about the connections between motivation, creativity and rewards.

Also, none of my artist friends would say that they were being "taking advantage of". I have no idea why you'd try to connect the situation I've described in the US art world to communist dictators, other to make some facile point that isn't relevant or even correct.

Reply on news.ycombinator.com