Why Inequality Matters
gatesnotes.com
gatesnotes.com
What you do see though, in the same Fortune 400 list is that 6 of the top 10 people on that list didn't build their companies (in the sense that Bill Gates did), they inherited them.
I don't know how much the current crop Kochs or Waltons are responsible for the current success of their ventures, but this is the type of thing I believe Piketty had in mind as much as the "parcels of land" approach. Also rent seeking is a problem distinct from a rentier class.
Can you argue convincingly that these people would have been just as successful without the advantages of their births? I suspect that would be quite difficult.
Look at the Bush and Kennedy dynasties in government.
That's a strange image.
But 10 out of the top ten did not have billionaires for grandparents. The Kochs and Waltons are second-generation billionaires. They're not the product of hundreds of years of steadily accumulating wealth. So there's a flaw in the thesis that wealth continues to grow. There's a significant amount of churn in the ranks of the superwealthy.
For that matter, does it matter if the names change? Distribution of wealth skewing towards a small number of people is still inequality in the sense that Piketty is talking about, even if the names of the people change every 10 years, let alone every few generations.
In other words I think what Piketty is getting at is if there is a decay term, it has to act fast enough that the wealth is distributed broadly before it is all collected up by some other small group of people, otherwise there is little functional difference to dynastic wealth.
Why shouldn't people be advantaged because of their birth? The most important thing to progenitors is usually their progeny. Many would even say securing privileges for their progeny is the reason they built what they did in the first place. If I work hard and build something, you can be assured I would want my son and 3 daughters to be able to share in the benefits, and I would hope that my work makes them more successful in their lives than they otherwise would've been. How is there any problem with that?
The real issue is that we don't want people to be unfairly advantaged and we don't want to have a system that builds exclusive monarchies and dynasties. We don't have such a system. You can still become a self-made man in the United States, and thousands of people do it every year.
I don't see how the system of inheritance we have now is unfair, except insofar as many people are jealous and want to take things neither they nor their parents have earned.
Piketty makes it clear that America is a special case because of all of the 'almost free' capital in terms of land and population growth that had existed over the last couple hundred years. But, he claims that America in the future will more resemble Europe of the last few hundred years.
Also, although Gates claims that half of the richest people in the US have gotten rich from their businesses (I haven't checked if that's true), he almost ignores the fact that most of these richest people have come from upper middle class background, at the least. He also ignores the huge number of richest people who have attained their wealth from financial instruments.
If you want the highlights, this economist article does as decent a job of summarizing 400+ pages as you can hope for in 4 paragraphs.
http://www.economist.com/blogs/economist-explains/2014/05/ec...
As for the content, the main take away, is his r > g argument which is illustrated by the following chart:
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F10.9.pdf
One of his other big ideas Bill hits on is his tax on captial. Bill proposes a tax on consumption instead.
> But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption.
Maybe not surprisingly since I work in finance, most of my colleges are on Bill's side and not Piketty's here. To be fair to Piketty, he chose a tax on capital because he's coming from a perspective of how do we prevent the accumulation of wealth over generations, where as Bill is coming at it from how do we raise enough taxes to pay for the the services the government needs to provide.
I would recommend reading this book, its clearly a labor of love for him and he's spent the time to back it up with data, just don't expect to agree with all his conclusions.
As far as I could tell this wasn't done as some kind of meta-commentary on anecdotes - just a massive lack of self-awareness
Bill, you didn't read far enough into the Forbes 400 article, which says:
"We didn’t include dispersed family fortunes. Those appeared on our America’s Richest Families list, which came out in July."
That money from 1780 is far from 'long gone.' In fact, most wealthy people started life rich and got richer, largely because they could afford to place bigger bets in life and take advantage of opportunities for labor-free capital gains that simply aren't available to people born without capital. Contrary to Gates' assertion, a 2012 study found that two thirds of the Forbes 400 were born wealthy (http://www.faireconomy.org/bornonthirdbase2012).
1. One guy is putting his capital into building his business 2. A woman who’s giving most of her wealth to charity 3. A third person is mostly consuming, spending a lot of money on things like a yacht and plane
All three actually spend their wealth. The problem with extreme inequality is that really wealthy people can invest, give and spent AND still sit on massive amount of wealth that get past to the next generation.
A progressive tax on consumption wouldn't be enough to fight this.
One core argument of Piketty is that the actual debate has been highly distorted by the massive wealth redistribution that happen in consequence of the first two world wars, something Gates doesn't acknowledge in his review.
[UPDATE] I overlooked the estate tax Gates proposed in his review.
A progressive tax on consumption wouldn't be enough to fight this.
Gates also specifically talks about an estate tax to prevent the wealth to pass to the next generation (at least, part of it).
I fully agree that we don’t want to live in an aristocratic society in which
already-wealthy families get richer simply by sitting on their laurels and
collecting what Piketty calls “rentier income”—that is, the returns people earn
when they let others use their money, land, or other property. But I don’t think
America is anything close to that.
Take a look at the Forbes 400 list of the wealthiest Americans. About half
the people on the list are entrepreneurs whose companies did very well
(thanks to hard work as well as a lot of luck). Contrary to Piketty’s
rentier hypothesis, I don’t see anyone on the list whose ancestors bought a
great parcel of land in 1780 and have been accumulating family wealth by
collecting rents ever since. In America, that old money is long gone—through
instability, inflation, taxes, philanthropy, and spending.
I agree with generally all of Gates' thoughts here, but there are two actors to consider when discussing how to address problems associated with inequality - the government, and those who own capital. There is an implicit assumption by both Gates and Piketty that a government is always powerful enough to control what portion of wealth flows to capital owners, and what portion flows to labor.
The risk with a powerful government that can do this is it can be bought. A perfect example of this is Gates own story with The Common Core. From everything I've read, his own foundation basically bankrolled the lobbying, acceptance, and implementation of this program, much to the dismay of many educators I know. As long as a democracy bequeaths power to its government, there will be moneyed interests lining up to tilt that power in their favor.
The other option is to limit the power the government has to control the flow of wealth. No one wants to buy a democracy that doesn't have any power to protect their interests. What ends up happening is wealthy actors have to figure out other ways to maintain their wealth - consumption in things like yachts and fancy cars goes down and investment goes up. As investment goes up, g goes up because that investment is creating more jobs and more competition for employees, and r goes down because the capital markets become flooded.
Next time, it could easily be someone who is using their own money to push a policy requiring iPads or Windows tablets into every classroom, or using their own money to fight off an anti-trust lawsuit being brought forward by the government.
I understand the concern over governments that are not acting in the best interest of the people. However, abstaining from the process seems a very shaky way to actually get it to act in an appropriate way.
More to the point, I thought the entire premise was that investment has been going up for the sake of investment lately. Which means the main people benefiting from the investment of the wealthy, are the wealthy that are investing.
This odd conflation of philanthropy with investment just smacks of rationalizing high earnings in an "I deserve it" blanket. Yes, more philanthropy is good. No, more investment isn't the same as more philanthropy.
And, no, we don't need to eliminate consumption any more than we need to eliminate investment. Or, rather, I don't know as that we do. (I'm not that bright, all told.) What I do think we need is to increase the benefit to everyone from investment and consumption (and philanthropy). Not just those that are controlling it.
Up until roughly 1903, the US didn't have any personal income taxes. There was a small business tax, and this was it. Gates' own example of old money no longer existing didn't really point to examples such as the Waltons, but to families who have had wealth for hundreds of years due to large estates. He's correct that this wealth no longer exists. My argument would be that it no longer exists because in the 1800s, neither the wealthy nor the labor class were taxed as individuals, r and g roughly equalized and the wealthy didn't maintain their wealth. This phenomenon of extreme inequality started to occur only in the early 1900s, the same time the US first implemented a personal income tax (thus taxing labor more so than wealth, lowering g and raising r).
Though, your argument falls more heavily on the mistake Gates seems to have also made. The type of wealth that the book refers to as "old wealth" really refers to a rentier based society. This is somewhat important, because much of what would have been the "old money" in the US was effectively disrupted by massive technology changes. It isn't that the old wealth just disappeared, it was not created in such a way that it sustained itself.
This is important, because wealth in the modern US does sustain itself. Quite heavily, even.
I acknowledge this. Keep in mind though that in economics it is extremely difficult to comprehensively analyze all the data relevant to your stated hypothesis. Gates points out several areas where Piketty's data falls short, and the amount of data Piketty collected and analyzed for his book is considered one of the strongest points of his thesis.
>This is important, because wealth in the modern US does sustain itself. Quite heavily, even.
Are you talking about Google, Apple, Walmart, etc, or financiers on Wall Street? Or could you expand in general on this? The companies I listed invest heavily in R&D (creating jobs and a better product for the consumer, and sustaining their wealth in the process). Aside from Warren Buffett, I'm under the impression most wealthy individuals in the financial services industry fail to maintain their wealth for the long term, although I don't have any specific examples on hand to support that point. Aside from this, if modern wealth sustains itself through natural processes, then great! We should be looking for ways to make other people just as wealthy, not figuring out ways to tear down those who have been successful.
I am genuinely interested in any discussions on this. Though, I will probably duck out of it soon, as it is beyond me. Please keep it going.
Regarding the investments, I am really talking about individual investors more than the companies. Find me someone with a couple hundred k in investments, and I posit you have found someone that will remain wealthy for some time. Probably long enough to pass it on to their children. Find me someone with a million in investments, and I am even more sure. More, they are in a position to make it so that most dollars they spend directly relate to some more dollars they will make.
I believe you are correct, historically. However, in recent times the wealthy are more and more made up from people that invested well. Pretty much period.
Consider your average home buyer. (Well, scratch that, consider your average successful home buyer.) The banks and lenders gain more from the purchase than the purchaser does. By a pretty large margin. If we look at the ones that go bust, this is even more true.
I agree that we don't need to tear down successful folk. I'm just not sure I've heard any plans that successfully help the less successful ones.
Mine as well, and neither of us have time to compile the data that Piketty has done. Appreciate your thoughtful criticisms.
Regardless, is very fun to consider ideas on this. Thank you for the thread!
This is the point I am trying to make...if this old money had been reinvesting in technology over the past 150 years, it might have been possible to maintain it. Fortunately in the US, the mechanisms were not in place for the government to help these rentiers maintain their wealth, and they weren't reinvesting in technology, so they are no longer wealthy.
No longer must you invest in a rail company and do all you can to make them do well. You can literally invest in the volatility of said rail company. Further, yes, you can invest in manipulating the government to make sure that company does well.
But, without the government, you could likely also just invest directly in competitors to keep them down such that said company still does well. I know, this would still be preferable to keep disallowed, but the hypothesis was an abstaining government. What level of activity counts as abstaining?
This is a big problem, and one that is exacerbated by a strong legal system (read - powerful government) that enables, supports, and protects the gains made from these investment vehicles while disproportionately minimizing their downside risks.
>But, without the government, you could likely also just invest directly in competitors to keep them down such that said company still does well.
This is entirely possible, but remember that as an investor, your dollars are competing against other investors' dollars. More often than not, you are also investing as a shareholder with many other shareholders who have interests in seeing that company succeed. While I think what you are saying is theoretically possible, I'm not sure it would be a common occurrence, unless you have evidence to demonstrate otherwise.
I don't know US history well enough to know who else other than Carnegie was in a position to retain wealth generated by technology 150 years ago.
The problem is that it's one man's perspective vs. a whole world of reality, and as such the model might not fit and in some areas cause more problems than good. So you end up with a multi-billionare like Gates being able to basically treat the entire US .edu system like his own testing lab.
(no comment on whether Common Core is good or not - most of thing things I hear about it seem positive)
This was the point I was trying to make. I agree I don't think in this case he's trying to serve his own personal benefit. However, given he used his money to to implement a program he wanted, it just demonstrates the opportunity exists to use your wealth to push programs that are to your own benefit.
Only if it is weak and has incentives to do so. Policies like Citizens' United weaken the government and permit capital to further influence politics.
That's one of the core ideologies UNDERLYING the great shift in wealth from poor to rich: that politics should have no say in wealth allocation.
What that ultimately means is that the rules of wealth allocation are decided by the wealthy without democratic oversight.
Hence here we are.
Please provide evidence or reasoning to back up why you think this causes money to flow from the poor to the rich.
However, if you cut taxes across the board, not just for the wealthy, the concentration of wealth does tend to even out. The statement 'Limit the power the government has to control the flow of wealth' in itself does not mean slashing taxes only for the wealthy. It means the government has limited power to decide who gets what, because what ultimately ends up happening, is the government ends up taking more for itself than providing for anyone else (look at the massive unfunded liabilities in Social Security and Medicare).
I don't see any reason or evidence for this, that is, for the proposition that ceteris paribus and independent of the distribution of tax burden, reducing the level of taxation promotes a more equal distribution of wealth.
Certainly, to the extent that a given distribution of taxation itself promotes inequality, reducing the level of taxation in with that distribution will mitigate that effect, but your proposition is equivalent to the proposition that every distribution of taxation promotes inequality compared to the absence of taxation, which I don't see any reason to believe.
> The statement 'Limit the power the government has to control the flow of wealth' in itself does not mean slashing taxes only for the wealthy. It means the government has limited power to decide who gets what
IOW, the thing called government is less the actual vehicle through which society is governed and more of a distracting figurehead for the masses, and the powerful govern through other means -- and still for their own benefit and others expense (but without even the need to provide a show of public participation and concern for the public interest.)
>Certainly, to the extent that a given distribution of taxation itself promotes inequality, reducing the level of taxation in with that distribution will mitigate that effect, but your proposition is equivalent to the proposition that every distribution of taxation promotes inequality compared to the absence of taxation, which I don't see any reason to believe.
I think you are saying taxes cause inequality, and the way we tax everyone can make inequality better or worse, but my argument is that the complete absence of taxation will always improve inequality. In another thread here I pointed out that inequality only became an issue in the 20th century around the same time the US government began taxing everyone directly through personal income taxes. This does not imply causation, but it is certainly a correlation. Yes, there are correlations as well that certain tax structures do reduce inequality, but a host of other macro-economic problems tend to correlate with timing of those same tax structures too.
Let's not forget the common risk that the government decides to do something else with that money it takes from the rich through taxes besides distribute it to the poor....such as start a war somewhere :-/
No, I'm not saying that. That's your argument.
> and the way we tax everyone can make inequality better or worse
Yes, I am saying that the way tax burdens are distributed can increase or decrease inequality.
> but my argument is that the complete absence of taxation will always improve inequality.
I recognize that that is your claim. What I don't see is a reason to accept that claim, in the form of evidence or even an explanatory theory of why one should expect it to be true.
> In another thread here I pointed out that inequality only became an issue in the 20th century around the same time the US government began taxing everyone directly through personal income taxes.
Yes, I saw that claim, as well. I'm not conviced that inequality only became an issue then, and even if it did there's a lot of competing explanations (e.g., the end of the frontier period (which, while it may not have actually impeded the growth of actual inequality, provided a distraction from it as an issue.)
But even if it was accepted that the adoption of the federal personal income tax was a contributing factor to actual inequality, that doesn't provide support for the claim that the mere existence of taxation causes inequality rather than that the particular distribution of taxes does so. First, because taxes in the US existed before federal personal income taxes were adopted, and, second, because even if they didn't, you couldn't, from one instance of taxation, differentiate between an effect of the particular form of taxation and an effect of taxation as such.
Another pretext/excuse for slashing taxes on the ultrawealthy.
>the concentration of wealth does tend to even out.
Except this was tried and that's not actually what happened.
A government can be bought?, your implicit assumption is that a government powerful enough will serve the interest of others and this is bad.
The problem for me is that a government powerful enough will serve their OWN interest, the personal interest of the people in power, and this is bad.
Part of my family comes from a former communist country.
In theory, it was "the government of the people", in practice it was the biggest concentration of power ever in so few hands, the politburo. And the people there had nothing to do with those that generated wealth.
In theory those in the politburo were not rich, in practice they could do or get whatever they wanted. Money was not needed for that.
Only one political party, only one company for the entire nation.
This meant you could be the best worker in the world, if someone high enough wants you to sweep streets, you seep streets or starve.
Not only that, if your brother mother or your sister does something the party does no like(like not getting in bed with someone up), you will pay for it too.
People in change of the police(Beria) will rape hundreds of young women and we will only know decades after with zero consequences to those that took part on it.
When taxes become too high, over 50% of what you earn, you become a slave of government. The problem is that for people like Piketty taxes are never high enough.
Mr Thomas Piketty is French. What we see in countries like France is that 60% of the economy is public. They become more and more communist-central planned.
Money is wasted in those societies in terrible malinvestments(like the Great Leap Forward or Qualitative easings), and they never have enough as they are the most incompetent people around until society collapse.
If you can buy the government, then you are lucky, it means the power is not monopolized in only one place.
There have been a great many Democracies that have failed (although percentage-wise, I would guess they are on the whole more successful than other governing structures throughout history).
I agree that today the legal system today doesn't seem to apply fairly. I don't know history well enough to know if this was the case in the past.
The USA are somewhat of an edge case here due to their youth. Look at older countries, such as France (where Piketty and I are from) and you'll see a marked difference.
Hey look, I can toss around unsupported political assertions too!
> Maybe these "older countries" should try --for a century
> or two-- laissez-faire capitalism and a government
> limited to the protection of individual rights
Maybe some are fond of John Locke's Second Treatise of Government? of rights as an inalienable attribute of the ultimate minority, the individual? and of a government limited in purpose and scope so that it protects us, nothing more?
I like how he starts with the things he broadly agrees with. Even just agreeing that extremely uneven distribution is a problem and why, gives us a starting point. I personally take a slightly Marxist view on this. I don't think that extremely uneven distribution is politically stable, or compatible with democracy.
I am slightly doubtful of taxation as a solution. Taxation is stuck really. The problem is that most tax regimes are designed to maximize tax revenue while minimizing damage to the economy.
Consumption/sales taxes, income taxes and other middle class taxes are convenient in that they are very hard for people to avoid and they don't affect behavior much. marginal income tax of up to 60% is generally assumed to have a negligible effect on how much people work.
A 1% annual tax on wealth equates to a $10m annual cost of living in a country for a billionaire. Would they move (themselves and/or their wealth) to avoid it? Can some of that $10m be used to find ways of avoiding the rest of it?
I think that ultimately, wealth accumulation needs to change in order to change the structure of the economy.
Also, I like that Gates considers cultural norms, not just policy. What Gates & Buffet have committed to is a partial solution. If 20-30% of billionaires do this, it might be enough to change overall distribution somewhat.
In any case, more questions than answers.
I would speculate that one other mechanic has to do with time. For the vast majority of people there is a hard cap on wage income based on the hours they can possibly work in a day. People who have money to invest can put that to work for them offline, so to speak.
And at a certain threshhold a person can put their money to use to pay for specialized labor (tax attorneys, finance managers etc) to receive an even greater return.
But I'd like to have a better understanding of the year over year mechanics. Anyone have a good explanation. I'm willing to put in some effort.
Gates rightly (and self-servingly) also points out that Piketty does not consider philanthropy as a means to correct some of capitalism's imbalances. Here's a few of Gates' conclusions:
> Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn’t give enough weight to them.
> I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy—including food, clothing, housing, education, and health—and can add a lot of depth to our understanding of how people actually live. Particularly in rich societies, the income lens really doesn’t give you the sense of what needs to be fixed.
> Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.”
> I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.
But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.
Like Piketty, I’m also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. As Warren Buffett likes to say, that’s like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.” I believe we should maintain the estate tax and invest the proceeds in education and research—the best way to strengthen our country for the future.
I know this wasn't the main point of your post. Overall I agree very much with what you wrote. Especially your points on taxing labor vs. capital and your point on estate taxes. Even Reagan thought the tax on capital ought to be higher than the tax on labor.
Do you think that the free rider problem is corrected by state-run welfare programs? I'd be skeptical of such a claim, myself.
>There is also the issue where a very wealthy person has as their philanthropic cause something which few others think is a good choice of philanthropy. Such decisions should be made by society as a whole through their elected representatives.
If someone chooses to give their money to a cause that isn't widely recognized, is that really a problem? If they've zeroed in on an area that they feel has been neglected by "society" (which you use here in place of "government"), this could be quite a good thing for the beneficiaries.
It is true that philanthropic organizations can focus on areas neglected by government (society). This is a good thing. However, relying on the good will of others to do this voluntarily does not make for good public policy. I know you weren't advocating that a society use only charitable giving to provide for the needs of the poor. I suppose it is the case that I believe that government is more efficient than charities in terms of scale and sustainability. Hence my desire to rely more on government and taxation. I don't advocate relying solely on this mechanism and I'm not opposed to someone being very wealthy per se. A balance is needed and I don't know where the sweet spot is for the optimal solution.
The free rider problem in question was the issue of some very wealthy people deciding not to give anything to charity to help others. To avoid this particular free rider problem taxation can be used. This forces participation so to speak.
Considering "the war on poverty" is 50 years old with no end in sight. I think it's bold to claim that any government has adequately eradicated the symptoms of poverty.
And why to philanthropies need to scale? What's wrong with numerous hyperlocal philanthropies that treat the particular needs of their communities?
The problem with reliance on hyperlocal philanthropies means that location A may be populated by selfish jerks who given nothing to the least of their brethren while location B does.
http://www.gatesnotes.com/About-Bill-Gates/Catalytic-Philant...
He sees philanthropy as a way to address the areas that both markets and governments miss. Markets are good at greedy[0] optimization and growth, but are full of stupid coordination problems. Governments are good at solving some of those, but suffer from some of their own both internally and at global scale. Philanthropy, being basically rich people throwing away money on stuff they think matter, can cover some additional blind spots.
[0] - "greedy" as invoking computer science connotations, not "evil capitalist" connotations.
Tell that to the people feeding their families by working at the resort, or in the vineyard, or the tannery.
There is a demand for luxury goods, and there always will be. A tax in the consumption of those goods cuts into the wages of the non-wealthy involved in their production.
Of course, I'm just a tech nerd with zero finance/economy training, so let me know if I'm missing something obvious.
--Bertrand Russell, [In Praise of Idleness](http://www.zpub.com/notes/idle.html)
The American economy is over 70% consumption. This doesn't mean "increase consumption to increase the American economy." We will probably never get under 50% consumption, because we are a mature economy with creature comforts. But the more we invest, the more stuff our children will have.
Consumption is the easiest thing to gin up in the short term, so governments that are on rapid election cycles always can choose policies to bump them up. But, although I believe Keynesianism is correct when it says you should pump consumption to get out of a recession, I also believe Keynesianism is correct when it says you should not be encouraging consumption when not in a recession. You need to save when times are good and spend when times are bad.
If I send my money to a foreign company, the economy is global. It may or may not benefit my country, but it sure isn't being hoarded.
See, "investment" is such a loaded term. Somebody who uses their savings to open a restaurant is clearly making an "investment", and this form of investment is directly positive for the economy.
When you put your money into e.g. an index fund, the situation is much less clear. You help drive up stock prices, but this does not immediately say anything about the real world. At the same time, the counterfactual is that you would have spent this money on consumption, or to buy a new car, or whatever.
Those latter actions directly increase the demand that companies see, which encourages those companies to expand, i.e. to increase real world economic activity.
Don't get me wrong: individual saving is a wonderful thing, and there are all sorts of good reasons for it. But if nobody consumes, the economy has no reason to grow...
In theory, if I put $N into an equity, then someone else will get $N out, because efficient market and all that. That frees the same $N up for that other person to consume/invest.
In practice there is somewhat the detail of equities being bid up a bit by people wanting to own them.
If I buy stock post-IPO, that provides cash to someone else to either invest in additional stock or spend on consumables.
I don't agree that investing in any way relates to hoarding.
> the money used to buy a share has to go to the seller of the said share, who might in turn use it to consume
It's really simple:
1. When you spend your money on consumption, there is a guarantee that the money is used for real world economic activity.
2. When you spend your money on building your business (the restaurant example in my comment), there is a guarantee that the money is used for real world economic activity.
3. When you put your money into an index fund, there is no guarantee that the money is used for real world economic activity.
It might be used in this way via indirect channels, but there is no guarantee - after all, the money might just remain stationary in a bank account, of which there are many - and so the positive economic effect is most likely less than in the first two cases. (Again, the positive effect for me as an individual who saves is obvious; I'm talking about the effect on economic activity.)
If a business is already bound by the abilities of its personnel rather than availability of resources, the investment won't do anything at all. If you buy 50% of a business with cash that makes it now worth twice as much as it was worth before, you haven't done anything more than move the cash you own in your own name to the cash you own in the name of your business.
That's not spending. That's just playing a shell game with yourself.
Loans are similar in that you are exchanging current cash for future cash of roughly equal value.
To create a cash flow in the economy, there has to be a gradient between producer and consumer. Food flows from farmer to eater, so cash flows back from eater to farmer. The eater cannot resell his food to someone else after he has eaten it. The eater has to produce something--some form of good or service that someone else can consume--in order to pay the farmer. Maybe the farmer gets sore feet. The eater could sell foot massages. Goods and services flow in one direction, and the cash flows in equal amounts in the opposite direction. And it mostly balances out.
Money can't just move around. It also has to change owners.
Doesn't your use of "self-servingly" here apply to anyone who acts consistently on their beliefs?
If Gates (a) believes that philanthropy is ethical and effective, and he therefore both (b) engages in philanthropy and (c) advocates philanthropy, then (b) and (c) are separately consequent to (a) (which is a consistent principled stance); (c) is not due to (b) (which would be a self-serving rationalization).
I'm not overly fond of TED talks nowdays, but this one still sticks out as awesome. http://www.ted.com/talks/dan_pallotta_the_way_we_think_about...
Basically, I think the argument is more that we might be better off if philanthropy was viewed as just another form of consumption.
It doesn't seem that way to me -- the "self-servingly" is applicable because it's deflecting Piketty's general criticism away from Mr. Gates personally. I don't see how you generalized this.
The problem with Pikettys book is his solutions.
If only he had stayed away from that it would have had much bigger impact IMHO.
His solutions on the other hand are easily pulled apart and so that is what many discussions end up focusing on. This is unfortunate.
I fundamentally believe the issue of inequality to be an issue of technology and therefore also believe the solution to be a consequence of technology.
Anyway, taxing in this way imposes a moral judgement on the use of a person's wealth... I consider myself a pretty liberal person, but even I see a problem with 'punishing' a person for spending a million on a yacht rather than starving children. We can incentivize that by making it tax-deductible, but that does nothing to solve the problem of the income tax disparity. I work a lot of hours and my payroll taxes are much higher than capital gains taxes--as Buffett and others have pointed out, that's what's unfair but it won't change as long as the people who get their income from capital gains have the most power to influence politics.
Shinkei already put scare quotes around the word "punished" so any reasonable person should interpret that he does not mean "punish" in a formalized legal sense. His usage was a figure-of-speech and not citing any legal doctrine.
People can use <scarequotes>punish</scarequotes> the same way people can use <scarequotes>reward</scarequotes> when then say they felt "rewarded" with a tax credit for buying a hybrid electric car or installing solar panels. This is possible even though the word "reward" is nowhere stated in official USA tax code regarding those credits.
I'm not saying he attacked Shinkei. couchand criticized the message and not the messenger which is certainly acceptable. I'm pointing out that he's criticizing a figure-of-speech by stating to us the legal literal definition of "punish". Because couchand didn't parse Shinkei's "punish-as-in-sentiment", he made the mistake of equivocation[1] and talks about punishement-as-in-prison-sentence-from-illegal-tax-evasion.
It's as if someone says "butterflies in my stomach" and a nitpicker adds a ST-MrSpock/ST:TNG-Data type of literal reply. Mr Spock asks, "Why do people use the term 'butterflies'? Caterpillars cannot incubate in the human stomach and metamorphose into a butterflies." Most observers would find that response annoying instead of being relevant to the conversation about nervousness.
Sure, there can be other motives such as helping someone conquer stage fright but hopefully you agree that correcting someone with formal biology definitions of "butterflies" does not achieve that objective at all.
Your sentences are textbook examples of equivocating.
>People use the term punish when they feel like they've been punished.
Yes, they often do! Notice the word you just used to describe Shinkei's post? You wrote "feel" to describe "punish-as-in-sentiment-figure-of-speech". It's feelings/sentiments/perceptions etc.
Your attempted explanation after that was this:
>you're only punished if you fail to pay.
This is "you're only punished-as-in-assets-seized-or-go-to-jail if you evade taxes". It's a switch in semantics.
Because punish-as-in-sentiment is not equal in meaning to punish-as-in-jail, your proposed clarification is a non sequitur.
Since you're not aware of why one type of meaning (feelings) is not relevant to the other (jail), you are equivocating.
>I'm trying to figure out why people immediately think they are being punished by taxation somehow completely forgetting the [government services]
I know and it's understandable that you want to satisfy a curiosity. However, you'll just annoy people if you're equivocating 2 different meanings to justify your perspective while asking your question.
If someone says they feel "raped" by high taxes, you don't ape MrSpock and say "I see no genitals forcefully entering any orifice so I don't understand why people call it rape."
>they are an admission ticket to society.
They are not an "admission ticket". Admission tickets are pieces of paper that you submit to an usher or gate agent to be admitted to an event or airplane. (If you find that dissecting-figures-of-speech with literal definitions to be annoying, you've experienced firsthand why equivocation derails the discussion and is not helpful.)
Lastly, it seems like your answer to Shinkei was based on thinking he was against all taxes. If you read his post again, he was playing devil's-advocate for paying "punishment" taxes on a yacht. It's entirely reasonable for that type of person to raise taxes on himself for more police officers but feel punished for extra consumption taxes on luxury items since he's already paying sales tax on it.
You usually purchase an admission ticket without being coerced to do so. Tax forms are filled with threats about what will happen if you do not comply. So while "punish" may not be the right term, it isn't anything like an admission ticket.
By and large, the more you tax something, the more you discourage it.
In particular, in a discussion of wealth tax vs. consumption tax, you can't rely on the naive assumption that elasticity of consumption has a significant bearing on the net effect of a consumption tax.
See, e.g. http://ntj.tax.org/wwtax/ntjrec.nsf/4E562450B2F268D985256AFC...
They only have that power because the rest of the country is disorganized/divided and un-unionized. There's more than us than there is of them. Ultimately they will cede this power at some point - the question is simply when.
Here's why the latter makes more sense to me. It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work.
Of course, actually implementing this policy isn't quite trivial: it requires a running estimate of the risk-free rate of return that can be agreed on politically, and it requires knowing exactly when assets changed hands (down to the nanosecond, for HFT). But it's well within our computational capabilities at this point.
So, should people who just stick their money in the bank at 0% for some period of time be able to claim a small loss on it? I would be fine with that, actually.
1. Are you claiming that taking risk is a form of work? Because the correlation between risk and expected return holds up very well empirically, and it'd take a lot to convince me that buying shares of an S&P500 ETF is a form of work that I should be taxed on. Even if risk and expected return had no correlation, it'd still only require luck, not necessarily skill, to often realize returns higher than the risk-free rate--just purchase one share of each of 100 risky stocks, and I guarantee that you'll have a significant return on at least one of them.
2. There is a shockingly large body of evidence that excess returns, for the vast majority of people the vast majority of the time, are the spoils of luck, not work. Mutual fund managers, for example--whose literal job it is to earn excess returns--perform in aggregate roughly as well as the market, and the very best performers, at the extreme tail of the distribution, in one year are barely more likely than chance to do better than average the following year, and people in the bulk of the distribution are essentially flipping coins.[0] Again, these are people whose job it is to beat the market, and they're failing miserably.
3. In cases where people really are working for returns, I completely agree with you. This is income and should be taxed--as income. But in cases where someone is investing their own savings, they really are just trading a certain present value for an uncertain future value.
[0] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021
Yes, because you have to decide what risk to take.
> it'd take a lot to convince me that buying shares of an S&P500 ETF is a form of work that I should be taxed on
It would take a lot to convince me that you should pay a lower tax rate than I do on the money you make, just because the work you do is trading the stock market. (Essentially all my income is ordinary income.)
You may have a theory that says that your expected return from buying ETFs right now is higher than your expected return from buying T-bills. But if so, you had to do some work to develop that theory. In the absence of that work, the best predictor you have of the future value of the ETF is its present value.
> There is a shockingly large body of evidence that excess returns, for the vast majority of people the vast majority of the time, are the spoils of luck
Fine. I have even less problem with taxing luck than I do with taxing work.
> In cases where people really are working for returns, I completely agree with you. This is income and should be taxed--as income. But in cases where someone is investing their own savings, they really are just trading a certain present value for an uncertain future value.
Making money consistently in the market takes work. If you don't believe me, ask a trader.
But again, I don't care about the distinction between luck and work. I don't care what your effective hourly rate is. Taxation is based on the amount of income, not on the amount of work it took to obtain it.
Let me make that concrete. I have a side business, with a partner, that brings in a mid-five-figure annual amount that we split roughly equally. (It's a support contract for a product we used to work on, sold to one of the last people in the world using that product; the company we worked for that produced the product is defunct.) In recent years I have needed to spend about 10 hours a year on this business.
I wouldn't call it life-changing, but it's a nice little piece of change and I feel very lucky to have it. But the IRS doesn't tax me at a lower rate just because luck was involved or because my effective hourly rate is so astronomical.
There is a big difference, of course, between this business and trading: I have no money invested in it that I could lose. But this points up what the real question here is: how much do we want to subsidize risk-taking as opposed to other kinds of productive activity? And I don't see why, at the moment, we would want to subsidize it at all. Our economy is already over-financialized, and this shows no sign of changing soon. I'm sure there are some macroeconomic circumstances in which incentivizing risk-taking would make sense, but the present day is not one of them.
You began this sub-thread by making the following claim:
> It's only at the risk-free rate of return that the two products you describe are of equal value. In order to realize returns higher than the risk-free rate, investors must do work. I think that the extra gain beyond the risk-free rate should be taxed as ordinary income, because that's really what it is: income produced by work.
With this in mind, look at the following table, based on historical returns since 1928:[0]
Stocks TBills TBonds
Arith avg. 11.50% 3.57% 5.21%
Geo avg. 9.55% 3.53% 4.93%
Std Dev 20.02% 3.06% 7.85%
1. Buy $1000 worth of equity ETFs. Sell them in 10 years. Expected value: $2,489.57. Expected tax paid: $223.44 (22%).
2. Buy $1000 worth of T bill ETFs. Sell them in 10 years. Expected value: $1,414.69. Expected tax paid: $62.20 (6.2%).
3. Buy $1000 worth of T bond ETFs. Sell them in 10 years. Expected value: $1,618.07. Expected tax paid: $92.71 (9.2%).
4. Hold $1000 worth of cash. Expected value: $1,000. Expected tax paid: $0 (0%).
Do these four products have unequal present values? No, they are equally valued at $1000, despite the fact that stocks have a higher expected return, because people are risk averse.
Are some of these products likely to realize returns higher than the risk-free rate? Yes--riskier assets typically pay a risk premium.[1]
Does investing in stocks require more work than investing in T bills or bonds? No.
Does investing in stocks require more work than investing in bonds, where "work" is defined as "possessing knowledge of, and acting on, the fact that higher risk assets typically have higher returns"? No, such knowledge is neither necessary nor sufficient. Unnecessary because plenty of people invest in stocks without any underlying research because they've been told to do so, or pay someone else to manage their money for them. Insufficient because plenty of people prefer the stability of lower-risk assets to stocks' higher expected return.
Look, I don't work in finance either. I'm a software developer. I try to save money, and when I do, I throw it into an ETF that tracks the market as a whole. I don't try to time the market. I don't try to identify growth markets or over- or under-performance of asset classes. If I wanted risk-free returns, I could use the time I spend logging into my brokerage account and buying equity ETFs to instead... log into my brokerage account and buy bond ETFs. Or I could use that time to log into a savings account and transfer money over from a checking account. I completely reject the idea that my personal decision to purchase stocks instead of bonds is work.
If you want to change your position to claim that taxation should discourage risk-taking, I strongly disagree, but that's a different argument entirely.
[0] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...
> I completely reject the idea that my personal decision to purchase stocks instead of bonds is work.
But you can see, can't you, that what active traders and investors do is work? I'm talking about the people who do select individual stocks and do attempt to time the market. To do that with any degree of success takes both skill and work.
And is what you're doing really different in kind from that activity? I understand that it's different in quantity; you're now just following a plan that you decided on previously, so the amount of work you're doing is very small by comparison. But is it really zero? You did a certain amount of reading and study before coming to the conclusion that your preferred strategy is to buy equity ETFs. Wasn't that work?
It certainly helps, but in a well-designed system philanthropy wouldn't be required. Philanthropy is a symptom rather than a cure.
You pose a great question though: would philanthropy exist in a well-designed system? To answer this we must first decide what "well-designed" means, but I'm sure everyone could agree that it would involve a system in which poverty does not exist (since poor people are the primary recipients of the vast majority of philanthropy). So then the question becomes: if there were no poor people, would we have philanthropy? I think we still would for the reasons I described above: at the end of the day, helping others makes us feel good about ourselves, and there are a lot of people who need help for whatever reason above and beyond a wealth transfer.
I'm convinced that it is only the good faith of enough actors that allows any system to function at all. Every tax or subsidy fixes one problem while creating another. Not to say we shouldn't have them---externalities should be addressed---but that a system "perfectly designed for outcomes humans like" is equivalent to creating strong AI that happens to run on a market economy.
Isn't that assuming that "market economy" is something "perfectly designed for outcomes humans like"? I disagree with treating current economic system as something inherently optimal - it has a lot of problems, all of which we can see even today. I agree with the equivalence to creating strong AI, but I don't think it would run on anything close to a market economy we have today.
We do a whole lot of stuff to satisfy Gnon---marketing, sales, firing people, etc. Sometimes that happens to also satisfy Elua, like when we get iPhones. But Gnon MUST be resisted sometimes, and I think philanthropy is one of those times.
Philanthropy is what happens when you manage to escape the reach of Gnon, even for a little while. People like Bill&Melinda are able to directly address the needs that neither markets nor governments can satisfy.
> I'm convinced that it is only the good faith of enough actors that allows any system to function at all.
I think that how many actors displaying good faith we accumulate in a single system is a degree to which we have control over Gnon. It's actually sad that as societies instead of working to increase trust in one another, we're trying to take it out of the equation. We're literally sacrificing our futures to Moloch in exchange for temporary security. The less a system is interruptable by humans enforcing human values, the more any error in encoding those values in the system is squeezing us (hence, FAI problem), and we're both aware of how such systems tend to evolve.
ETA
The way some people don't understand how we're screwing ourselves over with market economy reminds me of a thing I learned in high school physics class.
The equation for potential energy in a gravity field goes like E = -G m_a m_b / r, with r being the distance between the two attrated bodies. But when you're learning about gravity for the first time, you're being taught the E = mgh equation, where g is a constant acceleration and h is the height above the surface. In one case, energy is proportional to 1/r; in the other, it is proportional to r. So how do you reconcile those two views, and how is it that people didn't stumble upon the first equation before the second one, and that we can do a lot of good computations with it?
When you draw a graph of E(r) (first equation) you'll get a hyperbola. But if you zoom in hard enough, to the area of typical values of r we encounter daily, you'll see a straight line. Gravitational attraction linearizes pretty well in the range of parameters we're used to deal with every day.
In a similar way, there is a disconnect between human values and the market that is supposed to help optimize for them. They are aligned, but not perfectly. Many people seem to have zoomed in so far that they see a straight line where they should see a hyperbole, a growing deviation from desired course.
This is exactly what we're seeing today. To put it bluntly, market economy, or Moloch in general, has outlived its usefulness. It is optimizing values increasingly decoupled from our own, so it's high time to start thinking how to get rid of it.
People worried about inequality aren't (just) worried about the morality of consumption -- a fat cat sitting atop a mountain of cash drinking champagne and eating caviar while the peasants starve. They're worried about maintaining a democratic society, where everyone gets roughly an equal say in how things go. Highly concentrated wealth is a threat to that. Someone with enough money can single handedly change the course of politics (by funding candidates, lobbyists, or directly bribing various parties), public discourse (by controlling media corporations and through them who says what on TV or in print), and even science itself (by funding some researchers and not others).
The sleazy but short-sighted hedge fund manager bringing in a million plus a year but spending it all on yachts and McMansions isn't a threat. Bill Gates and Warren Buffett, the good investors, are the ones walking around with nukes. They could choose to blow us up at any time, and it's only through their continuing mercy that they haven't.
Wealth taxes are about disarming everyone -- good and evil -- for the safety of us all, not about morality.
What we say is simple - if you have a million dollars and 100 people to share it - rather than 1 person have 990,000 and the remaining 10,000 divided among 99 we want the 1st person to have 800,000 and the remaining 200,000 to be divided among the 99. That way, the first guy can have his $5,000 wine without paying any extra tax while we have our $50 wine. In the first scenario, the first guy still gets his $5,000 wine but the remaining can barely afford two meals a day.
The wealthy are obsolete and dangerous; we need to move on as a society from the forms that enable them.
Devil's advocate: the vast majority of productive people do the important everyday work, but don't perform major improvements in the state of the art. What about the inventors of life-changing technology? Would the vast majority of them invest years of their life in it if it only paid the same as getting a normal job?
Empirically, given that academia pays much less than working in the industry, yes.
> the vast majority of productive people do the important everyday work
I beg to differ. Most productive people do completely irrelevant everyday work: optimize or sell ads, or play wall-street poker with other people's money. Very few people do the actually important work (e.g. garbage collectors, farmers, scientists, teachers).
It seems in my experience that most people who invent life changing technology don't do it for the money; they do it because they like to create. Humans have an innate drive to create new things. While I think it makes sense to reward people who contribute to society, those rewards don't have to be unlimited.
Many of them used rhetoric about redistribution to placate the masses, yes. But there was little different but names in the methods for allocating capital in Czarist Russia and the Soviet Union: The decisions were in both cases taken by a privileged elite insulated from the effects of their decisions.
Any mechanism of government can and will be abused. Some such mechanisms like those of centrally planned economies are not only more likely to be abused, but more easy to abuse. Worse, they are so very often employed by the same people who think on the matter and decide we're just going to have to kill the people who don't agree with us.
The only thing that makes us better is if we take those lessons from history as a warning and prioritize liberty first. These mechanisms prioritize equal outcome, which is a fools errand. Doubly so in a leaky economy.
How your ideas could operate in other than a totalitarian state is not clear to me because you'd certainly never be able to implement them otherwise - thank goodness.
I know you are just throwing out hypothetical numbers but what kind of wealth distribution would you actually want? Wealth is already much more evenly distributed than the numbers you said you want.
Recently, capitalists aren't the ones disrupting the economy in the US, here in Brazil, in the PIIGS, or any other place that I looked. That position is always held by people with power, but little capacity of creating wealth themselves. At general, I think Bill Gates is right, and there's little scrutiny over the distributive phenomena in an economy.
If I had to choose, I'd tax consumption (with a VAT) and redistribute a fixed rate of it by a basic income. But that's mostly because of procedural simplicity and resistance to corruption. I don't think Piketty's ideas are complete enough to base a taxation system upon them.
He then thinks that this would lead to changes -- because his data, no matter how good you think it is, is arguable and possibly wrong.
Also, the transparency is a benefit, but so is the tax revenue. We should at least cover the expense of the program and consider if there are other taxes that should be reduced.
Add to that that the few people in power that do understand how data can improve policies normally have an idea what kind of improvement they'll get, and don't like it (they are in power, if they liked it, they'd already do it). While tax evasion is understood by everybody and weaken they power right now, in visible ways.
I've only read people writing ABOUT Piketty's book, and haven't seen anyone put it this way.
I'm from Brazil, and with the upcoming elections people have been all sorts of crazy down here, throwing around whatever "facts" they can find on the internet. One of the main points of disagreement between the two presidential candidates is income distribution, so "data" about it has been all over the news and conversations.
This kind of tax, if only to shed the faintest light on the matter, would definitely help. Even considering that the really wealthy people would not declare everything they have, there's only so much you can hide.
Thank you for this comment.
http://www.nakedcapitalism.com/2014/05/pikettys-wealth-tax-r...
Any time you're considering a tax system you have to consider the incentives it creates for people.
If you have a "wealth tax" then we have to consider how the rich will try to avoid it. First, people will convert from savings and investment to consumption. You ordinarily want to tax wasteful consumption and create an incentive for wealth creation, so that's doing the exact opposite. Second, people will convert wealth into forms that are either easy to hide from the government (e.g. gold bullion in a foreign bank vault) or are not considered wealth by the tax code or that have indeterminate market value. None of that is good.
Most importantly, the only way that a wealth tax is going to do what Piketty wants is if the rate is higher than the typical rate of return on capital. If it's lower then the effect can be no more than it would be by fiddling with the tax rate on capital returns. But if it's higher then the economic incentives it creates are catastrophic. It literally becomes more profitable to hoard cash in a mattress than invest it in anything that would disclose its existence to the government, or to move it all into foreign investments and take whatever steps necessary (up to and including renouncing citizenship) to eliminate any claim the country imposing the wealth tax has on it.
> If I had to choose, I'd tax consumption (with a VAT) and redistribute a fixed rate of it by a basic income. But that's mostly because of procedural simplicity and resistance to corruption.
This is actually a very strong alternative. VAT has an unintuitively strong similarity in effect to corporate income tax with the exception that it's much harder to avoid by diverting income to foreign subsidiaries because the VAT applies the same to imported goods as domestic. The existing corporate income tax is effectively a huge subsidy for goods imported from countries that have no or less corporate income tax.
And a basic income does exactly what you want in order to reduce the concentration of wealth: It gives people at the bottom and in the middle the ability to take the risks that promote upward mobility without having to worry about starving or freezing if it doesn't work out.
Note that one important reason why Piketty wants a wealth tax is that this would lead to much higher quality data on the wealth distribution (I haven't read the book, but he says so very clearly in his TED talk).
> But if it's higher then the economic incentives it creates are catastrophic.
Frankly, this sounds much too alarmist. First of all, the talk is always about a progressive wealth tax in the first place. That is, few people would be affected by the highest tier.
Second, if you think about the steady state, it's clear that wealth up to the level of the highest tier of taxation wouldn't be accumulated in the first place. [0] Yes, people would try to evade taxes, but they are already doing this today. [1] More likely, this would create incentives for donations.
As a final thought, the idea of using a VAT to finance a basic income is nice, but it doesn't help against wealth inequality, because poor people generally spend a much higher fraction of their disposable income on stuff on which VAT is paid.
[0] My intuition for this comes from income taxes: During the time when highest marginal rates were much higher than today, executives didn't bother bargaining for the ridiculously high salaries that they get today, and so few people really paid those highest rates.
[1] And if you're worried about people renouncing citizenship: I think we should grow a pair and get serious about exit taxes.
Using VAT to finance a basic income is only useless for redistributing income if income is already well distributed[1]. Otherwise, rich people will pay the majority of it (regressive or not) and poorer people will get better off. You are right that there's always a certain income that (if rich people do really invest it all) the combination will be regressive, but it can always be made big enough that it does not matter.
Also that's ignoring all the other benefits of both the VAT and basic income, in that they are cheaper than the alternatives to administer and easier to control, offer a safety net that actually works, incentive risk taking, creates no barrier for improvement at any level...
[1] Of course, the actual numbers will depend on the VAT rate, and the amount redistributed.
The problem with this argument is that it's based in the same fantasy land where people always report all of their out of state and internet purchases to their state of residence and pay sales tax on them.
> Frankly, this sounds much too alarmist. First of all, the talk is always about a progressive wealth tax in the first place. That is, few people would be affected by the highest tier.
That actually makes it worse. All the bad still applies to the people in the highest tier, but then you have the incentive to create criminal conspiracies for the purposes of tax avoidance, because putting assets in the name of someone with fewer assets will dramatically lower the tax rate. This creates a highly profitable arbitrage opportunity except for the fact that it would presumably be illegal, leaving an opportunity for criminal enterprise to step in.
> Second, if you think about the steady state, it's clear that wealth up to the level of the highest tier of taxation wouldn't be accumulated in the first place.
> My intuition for this comes from income taxes: During the time when highest marginal rates were much higher than today, executives didn't bother bargaining for the ridiculously high salaries that they get today, and so few people really paid those highest rates.
Those numbers are very misleading. The times when the highest marginal tax rates were higher also had dramatically different tax codes. In particular, "benefits" largely weren't taxed, so instead of a higher salary you would be provided with an expensive company car and whatever else necessary to provide the required level of compensation. It's the same principle as the existing corporate income tax: High nominal rates but the majority of large corporations don't pay those rates because there are widely known ways to avoid them.
It was also much more common back then for the executives to be the owners or their friends/relatives, so their "salaries" were only coming out of their own pockets anyway.
> Yes, people would try to evade taxes, but they are already doing this today.
Because the taxes we have today are also poorly conceived. What you want is a tax which applies to a very broad base and is difficult to avoid. VAT acquits itself very well on that front.
> And if you're worried about people renouncing citizenship: I think we should grow a pair and get serious about exit taxes.
Exit taxes are hopeless. Even putting aside how easy they are to avoid, the incentive that creates for the owners of growing businesses is extremely perverse: Renounce your citizenship now before you get any bigger and owe even more.
> As a final thought, the idea of using a VAT to finance a basic income is nice, but it doesn't help against wealth inequality, because poor people generally spend a much higher fraction of their disposable income on stuff on which VAT is paid.
This is a common flaw in thinking about taxation. What you spend the money on is just as important as how you raise it. Taking $50 from someone with a thousand dollars and $10 from someone with a hundred dollars but then giving them each $30 back is progressive notwithstanding that the effective tax rate on the person with a thousand dollars is much lower. At the end of the day the person who started with $100 now has $120 and the extra $20 came out of the pocket of the person with a thousand dollars. "Effective tax rate" is a totally meaningless number without "effective government benefits."
Comparing this to the current so-called progressive system is illuminating. For example, if a person making $500K makes an extra $5000 then they pay $1750 in taxes but don't lose eligibility for any benefits they were previously eligible for. If a person making $25K makes an extra $5000 then they pay $750 in taxes but also lose eligibility for more than $1000/year in need-based programs. In practical effect the marginal rate on the person making $25K is higher. Depending on what (and how many) programs they were previously eligible for, the rate can actually exceed 100% by simultaneously eliminating eligibility for multiple independent programs.
I do agree that wealth is a potent weapon, but that's why capitalism works best when markets, and politics are well regulated. The degree and form of regulation is a perennial problem, but it's an unavoidable one.
That being said, wealth redistribution doesn't necessarily need to mean less private sector capital investment. If you take a billion dollars away from someone who would have invested it and give a thousand each to a million people (whether through highway robbery or through raising taxes here and lowering them there), there's no reason they can't invest it all. Hell, they could invest it in a fund managed by the former billionaire, and you'd have the same amount of investment managed by the same people.
That situation is unlikely, but it also discounts the value of investments besides the sort that billionaires tend to make. While some redistributed wealth might be reinvested or 'wasted' on consumption, there are also be a lot of small investments that happen when you share the wealth. Children eat better, which improves their futures in pretty much every way. People start more small businesses, bodegas and farm stands and hair salons and startups. People spend money on education, for themselves and their children.
That sort of investment is also vital to our economic future, no less than the capital liquidity provided by the billionaires.
We do need investment in transport infrastructure, renewable energy, health in the developing world, etc; but that doesn't offer a direct return to the investor as the benefits are distributed. In those cases arguably the state can be better. Provided the money isn't siphoned away. This is more of a rule of law / public trust issue.
Do you have evidence for this claim?
If this is the case, shouldn't the countries with the biggest governments (as a percentage of total economy) also be the ones which grow the fastest, and if not, why? How can states be so efficient when they never admit to making mistakes, (almost never) give up on failed projects, or go out of business like private investors do?
I would also think that a system's efficiency would affect the economy as well as all other indices of interest (though perhaps in varying proportion), as a healthier, happier citizenry or one with more capital goods, and better investments would grow economically as well as in other metrics.
Right now it does. There is far too much money chasing too few investment opportunities. This is causing bubbles all over the place. Money that would have been productively invested were there demand is being funneled into property, gold, the equities market, fixed income & even bitcoin.
>Or do you think the state is a more efficient investor of capital?
Sometimes it is. It's a myth that the state is incapable of efficiently allocating capital and the private sector always does a better job. Sometimes the private sector does an atrocious job (e.g. see the massive overbuild of housing in the last decade).
Absolutely! The number of inventions that was created by government investments absolutely dwarfs the number of privately funded inventions. Internet, GPS, cancer research, nuclear power.. I've never heard a logical explanation to why companies should be more efficient than states. Everyone just seem to take it as a given because "everyone knows" that governments are buerucratic and inefficient.
Yet, the majority of important technological and scientific inventions usually come from free-market based capitalistic societies. I don't see countries like North Korea, Russia and China making any scientific and technological breakthroughs, and I think it's easy to argue that they have very powerful governments.
Private sector has and always will drive the majority of progress. How much exactly, usually varies by era and political structure of the global society, but the fact that the free market ultimately drives innovation is indisputable.
I'd go the other way in fact, if you are interested in redistributing wealth, you should encourage rich people to blow money on labor-intensive consumables. Using legal or social pressure to keep the rich from buying luxuries seems counterproductive to me.
Just FYI, the line of thought of Gates here is probably based on the idea that you need "capital" in order to have a productive work force. If the rich spend all their money for consumption, then there will not be enough capital available - or so the argument goes.
I personally don't buy the argument; I believe that it goes too far into abstract models, confuses finances for the real world, and (like so much of economics) ignores the existence of banks. If Bill Gates were to sell shares to finance frivolous consumption, this would obviously not cause the physical destruction of factories and machines etc.
At the same time, it would encourage the companies he buys from to expand their production and invest. Now, some people may wonder what investors/financiers those companies can find if all the rich guys sell their investments to consume. Well, those companies can always go to banks, which have an essentially unlimited capacity for funding real-world investments.
Spending money doesn't make it go away, it just gives it to someone else. If everyone spent all their money for consumption, and no one invested, that would probably be a bad thing, but short of actually punishing investment compared to other uses of money, its hard to see how that would happen.
Heck, its particular hardest to see how it would happen with the rich, anyhow. Simple declining marginal utility means that past a certain point, the additional present consumption that people find useful drops off and the value of securing an adequate future support base by investing money now vs. consuming more now increases with increasing income. The idea that we need to tax-favor investment even more than we currently do by taxing only consumption (rather than taxing income, but taxing the income from investment favorably compared to "ordinary income" and particularly favorably compared to labor income) seems to be based on a conception of human behavior that has no support at all in how humans, and particularly the rich, actually use their money in the status quo system.
What should we do about them?
How can Americans be so upset at their political situation without even discussing ways in which to change it? Unconstructive complaints is just whining.
Fighting politicians is like whack-a-mole - even if you get rid of bad ones, the replacements are often just as corrupt as the ones that got replaced.
Fight the corruption first.
You should be FAR more afraid of all the incompetent "big shot" politicians who somehow have access to power but, due to their insecurity and low IQ, only use it to benefit by taking from others. These are the plutocrats that rule America, Russia, Europe, regardless of your illusion of democracy. These are the people you should be worried about.
Yes, "supposed to", but the representation comes through the voting process, and not everyone votes, so they really represent the voters. And I assume you mean the voters are swayed by the advertising that buckets of cash pay for, since outright bribes are illegal.
The politician who rewards campaign contributors at the expense of voters is thrown out the next election. There's a check or power built into the system, but a lot of the time the new guy is bought off too. Usually the more competition and transparent the industry, the harder it is to buy off a politician. The less power a political office has, the less it will be bought off. There are all sorts of ways to fix this problem without limiting political speech.
Supposed by whom? Certainly, even ignoring ways in which the practice deviates from the overt design, the US government doesn't even pretend to be structured in a way in which all citizens have equal representation.
If you take that wealth and move it to the average person, even if their fundamental intelligence is equivalent, their experience, education, and exposure is going to be a lot lower.
"They're worried about maintaining a democratic society, where everyone gets roughly an equal say in how things go."
It's an unpopular opinion, but I don't think that everyone should have a roughly equal say in how things go. The average person isn't as well equipped to deal with large problems as the elite are. Everyone has different specialties, and different volumes of abilities. You wouldn't let an intern have an equal say as a senior engineer when designing the core infrastructure. You especially wouldn't let the janitor have an equal say - he's got no experience in desiging such things!
I'm always very uneasy about equality talks because all people are not equally suited to make global policy decisions. Nor are they equally incentivized to make the most informed and rational decisions.
I'm not saying that there isn't a problem or that we shouldn't do anything about it, but I am saying that I disagree with an egalitarian approach. We want the majority of decisions to be made by people who understand what they are deciding and have lots of experience, not to be made by individuals who mostly understand the topic from a single reddit thread. We want to make sure that the incentives of the people in power are aligned with the people who are not in power, but leveling the playing field is not an approach I find valuable.
The usual trouble with this sort of idea is who gets to decide the "elite" that makes the decisions. How do you prevent this group from becoming an insular clique and debar other people from similar opportunities etc.
Power, imho, has a tendency to be self-propogating; people who achieve it hold on to it far after it is useful and tend to bestow it on their proteges, irrespective of their suitability to the task etc. (Anyway it is an opinion; you may disagree)
There are a lot of broken incentives. If one of the elite comes to the realization that they are no longer the most useful person for the job, can we trust that they'll step down? Or will they hide this fact from everyone else and continue to enjoy their position of power?
These types of problems are not solved and it's important to keep looking for better solutions. I just don't think that "all people have equal say" is a better solution.
The problem is a basic political systems one: at some point, you need the consent of the governed. There are no stable systems on the record where a majority of those governed dislike the leadership. Either the oppressed are a minority (colonial Europe, slavery in the US) or the gov'ts are short-lived and unstable (on an order of 50-100 years, in the short term these can work). The most stable regimes that don't have majority support are ones that suppress free speech, which is hard to argue is operating "in everybody's best interest".
So, if you want a stable oligarchy that preserves some free speech, you need a group of "elites" that the whole society agrees is fit to lead them. I don't think the average voter believes themselves to be in the best position to run the country -- that's exactly why they vote for somebody else to do it.
But if you take voting out of the equation, you're trying to build a system where you have an elite that has support of the majority, without consulting the majority. At best, you have a system of guesswork that results in something similar to democracy (because the oligarchy are people the majority supports anyway). At worst, you have an unstable government.
As reference, the concept of integrated information was developed by Giulio Tononi but I applied it in a different field.
What is the proper alternative? I mostly agree that designing government by committee is unlikely to succeed, but the problem of choosing competent people for government roles is something we largely haven't solved in all our history.
Obviously we don't live in a world nearly static enough for this to occur. If so then the Zuck never would have made FB nor Carnegie would have left Ireland and we all would be worse off for it. Yes, these are historical issues. Lets try a future one.
Assume that Pablo is a UPS driver. Pablo notices that many times when he has to turn left to make a delivery, he spends a lot of the time waiting at a red left turn arrow light. Pablo, needing to make his metrics, decides to cross intersections and make Uturns and rights and all other sorts of maneuvers. Pablo shares his insights with his co-workers and friends. Everyone benefits from Pablo's insights, more packages are delivered, the company spends less fuel idling, everyone makes their metrics, etc.
Now in a world where the path was designed by Paco up at headquarters, Pablo could not make those alternative turns. If he did, he would have violated the paths that Paco designed and he would have faced repercussions. Why? Because Paco knows more than Pablo and Paco is the one responsible for designing the routes. You assume Paco has superior know how and experience and will be better. But Paco is just a man like everyone else, he makes mistakes and didn't see what Pablo was doing was beneficial. Not through malice, but just because Paco looks at google maps all day, not actual light cycles. It wasn't Paco's fault, nor was it Pablo's. It was just an oversight.
But in a world where we do not assume that the most experienced are also flawless, Pablo took it upon himself to fix the problem, and everyone is ok with that.
Multiply this example by thousands and you have a sense of what is going on out there. Also, sprinkle in some greed, malice, lies, sex and drugs, and all the other deadly sins and you get why we need democracy. It's because we all screw up, but if we screw up at least we can get each other out of it.
There is an excellent piece by Yvain that goes into deep details of those problems[0], so I won't be repeating him here much, but the world is full of such problems, and apparent stupidity of institutions and markets are usually result of inability to coordinate.
I'm not saying to give up democracy. But we have to appreciate that it has very troubling failure modes and that they're not theoretical.
Real-life democracy tends to be extremely impotent. It has tremendous operating costs (think of all the resources wasted in a zero-sum game of political campaigning), and in the end people still can't agree on things like building infrastructure (NIMBYsm) or creating laws that benefit the population. Again, I'm not saying "ditch democracy". But there is a huge trade-off between security of decentralization and effectiveness of centralization.
There's also the case that central planning doesn't suck that much - it sucks when done for humans by humans, because central planners operate at human speed. But consider that instead of Paco setting up routes, there is a computer named PCO, tasked with collecting real-time data from all drivers and optimizing routes. PCO may alter some of instructions it sends to drivers to explore the solution space, and it will quickly figure out that doing only rights leads to less fuel used. And then it may stumble upon other optimizations, like shifting delivery times in different parts of the city depending on traffic patterns - things that are impossible to figure out by Pablo, because they require global view.
I think that central planning got a bad name because of Soviet implementation, but with modern computing, maybe we should re-evaluate its costs and benefits.
[0] - http://slatestarcodex.com/2014/07/30/meditations-on-moloch/
You're position isn't all that strange, and it does cut right to the heart of the issue. Do we really want to live in a democratic society?
Part of the problem with addressing this question is that we've generally agreed the answer is, 'Yes'. Even if we're not always willing to fully live that way. No one wants to be labelled as undemocratic, non-westerners get their countries bombed when they get that label.
Another problem with this question is that the other systems of governance we've tried have mostly been worse. When you start trying to figure out how some people can have more say than others based on their merit you inevitably end up picking winners based on something other than general merit.
Who gets to be more important than the rest? How do you hold them accountable as a class if they're the only ones that can ever hold the reigns of power?
I appreciate your honesty about this, but your opinion also scares me. Because there is no way to achieve your perfect world without privileging the rights of some over the rights of others.
I also don't like your comparison of decision making in business to that of decision making in government. In business it is easier to determine good outcomes. If more money is made, we made the right decision. Government involves morality, and outcomes cannot be measured with amoral assumptions of correctness. One person's good outcome in government is another person's bad outcome relative to morality.
You're probably right when you say that the elite are better at holding the reigns of power than the rest of us. It's a very monarchist thing to say, but it's probably right in many contexts.
And like monarchies it's something that I believe we should fight to change. John Dewey recognized this, and made it his prime motivator for compulsory education in the United States. To train citizens for a functioning democracy.
Democracy to me isn't some state that we sit in and relish. It's something we focus on improving through constant education of ourselves and by teaching those around us.
Unfortunately this is so often true in a purely financially oriented point of view however it completely neglects moral obligations which SHOULD supersede financial incentives if need be.
Wealth redistribution doesn't necessarily mean taking money/wealth, literally, from wealthy and giving it away to poor. It includes, among others, subsidized education, free access to basic health care, nutritious food, potable water, eradication of epidemics, decent housing, decent retirement income and so on.
This is the problem I see in societies that are highly unequal (read US :-)) where in a democratically elected government is reduced to make way for capitalists. All or most of the above are controlled by multinational corporations whose sole motive is higher profits. So what ends up happening is that even a middle class family is just one calamity away (e.g., death of bread earner, a high cost health problem) from being pushed below poverty line. Even education for that matter has gotten privatized to an extent where only wealthy can afford good education; as various studies have shown education does make a significant difference when it comes to money earned over longer period. Or take 2008 recession where pension corpus of millions was reduced to zilch for no mistake of theirs.
Wealth distribution, at least in my mind, means that ensuring that most of the citizens are on level playing when it comes to basic necessities. Over and above that of course one must be rewarded as per their contribution to the society and hard work.
Poor are poor not just because they don't have money but also because they are unable to get out of it. They have to go through unspeakable ordeal just to get one meal a day and this places enormous cognitive load on the entire family. So of course children of poor, more often than not, remain poor as their basic intelligence itself gets suppressed due to lack of nutritious food, cognitive load etc.,
The book, "Poor Economics", was an eye opener for me in this regard. I once used to blame the poor for their situation but this book changed all of that. I would highly recommend it; to the extent that this should be made a mandatory reading in all colleges :-).
> We want to make sure that the incentives of the people in power are aligned with the people who are not in power.
This is really a tough ask. Unless decision makers, i.e., those in power, are accountable, every single day, to those not in power, decision makers will soon align themselves with private, capitalist corporations. You have a multi billion dollar arms manufacturer, oil corporations funding millions to election campaigns of US presidents. And then you have US citizens who get to vote once in five years; we also know that the voting itself can be rigged, public opinion can be swayed and etc., Now, whom do you think would the president side with? Oil corporation or US citizens? The answer is obvious! And so you will end up having Iraq war which is yet another way to funnel massive amount of tax payer money to private corporations; the cruel irony is that most of foot soldiers who are fighting the war and dying come from poor, disadvantaged families.
Democracy as it's played out in US (and India) today is a complete farce. The fact that executive powers and policy making is concentrated in so few a hands in itself is indicative that this isn't democracy. Instead of giving power to the few and somehow hoping that their interests are aligned with rest of the citizens what needs to be done is build strong institutions.
Democracy is fundamentally about strong institutions (court of law; education system; health care system; labor friendly laws) which are run and maintained by common citizens. Elected representatives' main job is do minor tweaks to the policies. This way the executive power remains with the commoner.
What has been happening is a very systemic eradication of these democratic institutions; privatized education, private health care; private police force; private fire fighters and so on. Once you have hallowed the core of democracy by privatizing it you are left with just a handful of elected representatives who wield enormous power over rest of the citizens. They of course end up serving private corporations. US is run and controlled, more or less, by just a handful of private corporations which are in turn owned by a hundred individuals. Election, democracy etc., is just to keep the citizens believing that they have a say in the way the society is run when the reality is completely opposite. India, following the foot steps of US, is getting there really fast.
That seems like it should be true intuitively, but if it were true, you'd expect higher benefit levels to correlate with higher rates of getting out of poverty. The data points to the opposite happening.
For example: http://www.manhattan-institute.org/html/cr_17.htm
[0] http://www.rightwingwatch.org/content/manhattan-institute-po...
[1] http://www.manhattan-institute.org/southparkconservatives/
[2] http://en.wikipedia.org/wiki/Talk:Manhattan_Institute_for_Po...
Methinks that given the political bias of the study and the fact that it takes a particularly period for the American economy, that there's not much to learn from it.
Also, the fact that single mothers who were on welfare are now working is not actually a good indicator for me. I want the single mothers to have to raise their children in decent environments though maternal leave and good family policies, instead of seeing them work full-time out of necessity.
[1] http://www.ted.com/talks/lawrence_lessig_we_the_people_and_t...
What? How could you possibly describe it any other way? You take cash from a wealthy person, and you give it to other people, either in dirk react payments or sbisized/free services.
Argue about whether that is the correct/incorrect thing to do all you lie, but don't indulge in Orwellian doublespeak that says true is false.
If you disagree with someone, then reply to their post and try to have civilized discourse, don't just immediately try to censor them.
The herd instinct is getting stronger, and the rush to censor unfashionable opinions increases on HN. Which is funny, because one of the best essays by pg is 'what you can't say'. Closely followed by 'mind the gap'. Which essentially says that inequality is a sign of a healthy society, because lack of inequality shows the innovators and risk takers have gone elsewhere or closed up shop.
Maybe it was my tablet spelling mistakes in my post.
If you can, I encourage you to edit it.
Edit: also, your argument adscribing the "Orwellian" adjective to the previous post is very strong and can generate negative reactions (like a downvote).
Your views about these things aren't at all unfashionable on this site or in American society at large, and many who disagree with them still think they are reasonable and worth discussing. Your comment just didn't express your perspective very well!
To then complain about "orwellian" use of language in the next sentence is just taking the piss.
You could describe it in the many thoughtful ways in which the rest of the comment did describe it, for a start.
The comment it was in reply to also made it seem like the idea is to take wealth from a single wealthy individual and bestow it upon a single poor individual, noting that the newly wealthy individual probably doesn't know what to do with it (like many lottery winners). That is clearly not the intention of literally anybody who is in favor of some redistribution of wealth. Rather, they propose many different ways (some of which were mentioned by your parent comment) that wealth would be spread across many less wealthy people.
To really get to the truths behind this opinion, it is important to distinguish one's political goals from the politically implemented policies in pursuit of those goals.
I fully agree with you that the average person is not well equipped to decide on policies. However, the vast majority of people in the elite aren't equipped for that either! Look at somebody like Bill Gross, for example, who was removed from PIMCO after continuously making bad investments based on his misunderstanding of basic economic facts. I wouldn't want somebody like that calling the shots in government.
Honestly, I would expect the connection between wealth and quality of policy analysis to be relatively weak. Education is certainly a confounding variable, but not all education is equal. (A good computer scientist doesn't necessarily make a good economist.) In fact, in certain policy areas such as economics, being part of the elite - which usually means being a high-level executive - is probably a negative for the quality of your policy analysis, because executives see the world from a micro-economic perspective rather than from the macro perspective that is needed in politics.
In any case - I agree that a certain level of "elitism" is probably justified when it comes to the question of policy analysis, though you really have to be very careful who you think the "elite" is in that context.
However, if you leave politics up to an elite, then the goals of politics will also shift to match the goals of that elite, which is probably not a good representation of the goals of the overall population. And therein lies the real crux, because when it comes to deciding what the political goals should be, everybody really does have the same qualification. And this is ultimately the reason why democracy is the right way to go.
The tough problem is to establish institutions that translate democratically established goals into good policy.
Listening to the Walton heirs speak is a good way to be cured of any assumption that the economic elite might actually be smart. (And if you don't like listening to them speak, you can just read about the repeated DWI convictions.) That's 4 of the top 10 richest Americans right there.
The fundamental attribution error is very pervasive.
This is part of why (as dumb as the average person is) I'm not down with the "elite ruling class" idea, even if we're basically stuck with that now whether we like it or not (except the elites aren't really individuals but large corporate interests who essentially own large swaths of government actors who supposedly represent citizens).
But representative democracy breaks down when moneyed elites take control of the voting system. Then it's just elites all around with no input from the population.
Forget money as some sort of concept that breaks democracy by allowing people to game the system. The bigger problem you have to worry about is the smooth-talkers, the influential leaders and all their legions of followers. Their single influential vote, counts a whole lot more than yours, or ours, and that single vote means no equality.
Besides, having read the history of Athens, direct democracy can be described as mob rule, and there the problem of 51% of the population votes to kill off the 49% others was a very real problem. Every American probably can imagine the problems guilds created in medieval Europe, right ? Athens was a state where the equivalent of guilds could literally and legally decide to kill the competition (which they did, several times).
Besides, let's not lose sight of reality here. America would be a near-theocracy if it was a direct democracy.
Switzerland seems to work pretty well by direct democracy.
I do recall reading up on that recent referendum they had about the capping of CEO wages that didn't go through. But thanks for the heads up, I'll look into what they have going on over there with their flavor of democracy.
So something that comes up in any discussion like this (economics, politics, global climate change) is that there are several layers of questions to the debate. Some of the questions are matters of preference, some are matters of fact or science. For instance, on the topic of inequality & a wealth tax, we could have these questions:
* Is a democratic society desirable? (a matter of preference)
* Does inequality (in wealth) distort the democratic process? (a matter of fact)
* Does a wealth tax correct the inequality in a way which solves the problem? (a
matter of fact)
* Is the wealth tax the best way to solve the problem? (a matter of preference)
Now, to tie this around to your comment, I would clarify that what I mean by "a democratic society" is one where every person has an equal say in matters of preference. In a rational society, these are the only disagreements. I am happy to debate whether, if climate change is happening, we should do something about it. I have neither the desire nor the time to argue whether it is happening or whether it is man-made; these are matters of science and my preference matters not one bit.
The problem we have now is that both matters of fact and matters of preference are up for debate, and the extremely wealthy have a disproportionate say in both.
Things have gotten better in countries which have reduced inequality: https://www.youtube.com/watch?v=cZ7LzE3u7Bw
Don't confuse persons with populations. They are not the same thing. A person is very different from a population.
Just because a policy maker is capable of convincing the public that something is in their best interests, does not always mean that it is.
However the fact that they have to works enough of the time that democracy is working better than other systems of government so far by many measures.
I tend to disagree but I guess it depends on your definition of "Elite". If I define "Elite" as wealthy people than you are wrong. Most rich people, especially if the wealth is inherited, have little to no idea how to solve "large" problems and what are the problems in the world.
I give you two quotes to think about. Both quotes are not meant condescending but just shows how out of touch they were with the common people.
Finally I recalled the stopgap solution of a great princess who was told that the peasants had no bread, and who responded: "Let them eat brioche." (Queen Marie Antoinette)
"An ancient Chinese emperor who, being told that his subjects didn't have enough rice to eat, replied, 'Why don't they eat meat?' (何不食肉糜？)Emperor Hui of Jin in Zizhi Tongjian.
>I'm always very uneasy about equality talks because all people are not equally suited to make global policy decisions. Nor are they equally incentivized to make the most informed and rational decisions.
I completely agree with this, however I don't think the guiding principle behind having a democracy in the first place, is that you'll arrive at optimum (or even good) policy decisions, provided you give everyone a say. Rather, the franchise is supposed to serve as a check on the wealthy and the ruling class, so that they can not monopolize political power. If the disparity in wealth and power grows too great, they can circumvent even that, which is what we're seeing happen in the West now.
Do you have any empirical data to back that up? The lack of old money that Gates alludes to in his article seems to suggest otherwise.
Even with the advantages that simply having large amounts of wealth gives you (better education, easier access to seed capital for new ventures, better access to other influential people etc), surprisingly few of the modern day mega rich in the US started out with large amounts of wealth.
There's also plenty of evidence (such as http://www.businessweek.com/articles/2014-07-22/for-ceos-cor...) to suggest there's little, if any, correlation between how much a CEO earns and the success of a company.
> The average person isn't as well equipped to deal with large problems as the elite are.
I would agree that not everyone is equally well equipped to deal with large problems, but I don't see much evidence to suggest that there's much correlation between wealth and ability to successfully tackle the myriad problems facing the average society. Is a multi-millionaire businessman automatically better placed to decide on education policy than a teaching professional, or on the structure of a nations health service than medical professionals etc?
Gates looked at a list of the very wealthiest people and asked how many inherited their wealth. Even if the answer is 0%, we could still ask about other brackets. Eg, how likely are Gates' descendants to be in the bottom income bracket? How likely are the children of someone in the bottom bracket to be middle class?
You are assuming the elite are far wiser and more ethical than the broad masses. That is not at all well-evidenced.
I agree inasmuch as it applies to government and media, but when it comes to entrepreneurship I could not disagree more.
Making progress means taking some big risks. It is the nature of big risks that it's difficult to tell at the outset which ones will succeed and which will fail. But the people who are probably best qualified to predict this are the people who have succeeded before.
If people can't take the spoils of previous success to invest in their next idea, we don't get SpaceX, Tesla, or Y Combinator. Would Y Combinator be better run as a government program, run democratically and accountable to the general population? I don't think it would.
Many countries have preferential tax treatments for long term investment vehicles already.
But ignoring that: What is the evidence that this money is best spent by repeat entrepeneurs? Yes, there are some that do well. There's also a vast number of people that succeeds once and never again.
And consider that e.g. Tesla and SpaceX both have benefited immensely from government programs. Maybe society would be better off with wealth taxes were the proceeds were pumped into more programs like these, or even co-investment with private investors with an actual track record track record.
Well of course a government that attempts to do all that will be very powerful. And, of course people will spend large amounts of resources to influence a government with that level of power.
Once they have gained control over an industry, let's say steelworking or railroads, they become like feudal lords in that industry, setting wages and prices however they wish.
Power is subject to a positive feedback loop, whether it's political power or economic power. Having power makes it easier to gain more power. That's why it will always tend to concentrate in the hands of the few.
Government power in a democracy comes from a game of "artificial equality": elections in which every person has one vote, regardless of their power "in real life". (This is different from the economy, where your power is proportional to your wealth.) For this reason, it can act against the natural tendency towards concentration of power.
They're all in it for themselves. The key is to ensure that there isn't a big enough state to corrupt so they can consolidate and entrench their power.
A small state prevents monoloploies from being formed and from using those wielding power to consolidate their power. And then it doesn't matter how evil the guy who gets the top job is, because he just can't make a big difference.
At the heart of all this is how England managed to keep its Anglo-Saxon self-government traditions even after the continental Norman invasion and takeover. Because the Normans could only ever wield limited power at the state level, they could never fundamentally change the way the content was run at a local level. So citizen assemblies and English common law continued and was never replaced with continental law, the final iteration of which is based on napoleanic code. Thus in England, and her spun-off colonies, you're fundamentally free to do your own thing unless there is a specific law against it, while most other places state that you can only do something if there law explicitly states it.
This fantastic inheritance was all bequeathed to the citizens of those countries with legal systems based on common law precisely because England had a weak central government which reduced the ability of a king to control everyone, especially when that was a foreign king who had invaded.
Disagree. The good investor not only puts capital to work and creates wealth for others, he is also taking money out of the system. Since he is not consuming, the net effect of his increased capital hoard is to decrease prices across the board for everyone else. This can change once he decides to spend, but then he will pay consumption taxes like the others.
I find this idea of "disarming" rich people for "the safety of us all" to be itself highly dangerous, and a slippery slope. People should be punished according to the law for the illegal things they have done, not the things they could do.
So I think the notion of a slippery slope towards eugenics is absurd; that's like saying that dancing leads to lynching because both involve crowds of people and tend to happen at night. That's not to say that there isn't a slope towards, say, absolute communism or radically unfair property seizure, but that's way less scary.
In case you're curious how I came to that conclusion, here goes: in most cases (not involving criminal situations), private property is basically a store of our previously invested time. We spend a portion of our lives on learning skills and then applying those skills to certain ends, such as making money and acquiring property. If we assume that a human lifetime is finite, then reserving the right to redistribute private property and wealth is basically reserving the right to take the most valuable resource humans have - their time on this Earth.
So if I'm working 10 hours a day and I'm being taxed some 40% (through a combination of income, property and consumption tax), then it means I am working only 6 hours for myself and my own personal gain, and the remaining 4 hours in fact belong to someone else. Now, I apologize in advance for this loaded language, but to me, that is a form of slavery. No one has the right to demand, at gunpoint, that people give their time and person to an end that they don't care about and that doesn't directly improve their situation.
I feel very strongly about this, to the point where I left my country of birth (a European country with ridiculously high taxes), for a much better place where the taxes are much lower and more reasonable. It's a clear example of capital flight, on a smaller scale. I know my opinion is extremely unpopular in this day and age, but it is what it is. To me, strong property rights are some of the most basic human rights, no different than freedom of speech or association.
I think the origin of my socialism is that, honestly, I don't trust things. This is a topic that often comes up in Bitcoin threads: there is no such thing as a perfect store of value. There is no thing I can invest my time or money in that will not decay or depreciate over time. Currencies inflate. Houses fall down. Land fluctuates in value and can agriculturally fail. The gold supply inflates at a roughly constant rate of 1.5% as people dig more up. Uranium decays, albeit slowly.
On the other hand, I have a very positive view of social networks. I grew up in the middle of a strong safety net. My parents, my siblings, my aunts and uncles and cousins, we grew up close. If I needed help, they'd give it. If I lost everything today, they'd take me in for as long as I needed. Since then, I've acquired a few close friends who would help me out, with a job or a place to crash.
So even if I cannot trust my things not to betray me, having fifty people and all their resources there to catch me if I fall brings me a great deal of security and comfort. So I like the added layer of protection that comes from a safety net of 300 million people. I don't view taxes as something being taken from me, I view them as an investment I'm making in the only resource which has a chance of holding its own against time, no different than the time and money I invest in my kith and kin.
My issue with the concept of centralized power in the society is that it has a tendency to consolidate over time and if left unchecked, tyranny is almost inevitable. Sure, you trust your government now, but nation-states generally have a very ugly history of oppressing and even exterminating portions of their population every once in a while. I just don't believe that they can be trusted not to do it again. Not everyone is a good person, and many people in the higher rungs of power tend to have psychopathic tendencies.
So at the end of the day, you don't trust your physical assets not to betray you, but you tend to trust the society you live in. My mindset is completely opposite: I don't think that people can be trusted not to do bad things. You mentioned bitcoin, and I think this is one of the elements that it solves almost perfectly: it eliminates the need for trust, if used correctly. Strong gun rights solve the same problem, they almost completely eliminate the need for trust: I don't have to trust the society to respect my property rights, I just have to trust that most people are not crazy enough to try to get themselves shot.
I think socialism is a nice concept and I think that the idea of helping the less fortunate is commendable. The problem is that it has to rely on the coercive element (uniformed men with guns showing up at your door) if you disagree with the system.
Not to drag this out much longer; as someone who strongly believes in non-violence, self-ownership, self-governance and rejects most forms of collectivism, I can't agree with pointing guns at people in order to create a safety net for others. It defeats the spirit of charity and looks more like extortion and robbery. In my opinion, helping the less fortunate should a voluntary act that stems from one's desire to do good, rather than fear of being violated.
Second, if you believe law should only punish us for actually hurting people and not potentially hurting them, then you are against speed limits.
Third, taxes are not punishment any more than piracy is theft and abortion is murder.
Germany has roads without speed limits, and they're doing just fine.
> Third, taxes are not punishment any more than piracy is theft and abortion is murder.
When did I say "taxes are punishment"? I was responding to the idea that we should take away rich people's money to prevent them from having too much power, which I think is a terrible slippery slope. Direct quote from GP:
> Wealth taxes are about disarming everyone -- good and evil -- for the safety of us all, not about morality.
Edit:
> First, a pretty face, high IQ and physical strength do not translate into power the way, say, a hundred million dollars does. Sure you can hurt people if you're physically strong / attractive / smart, but not that many people.
They do if you go into politics or the military.
It's the fat cat guys are the ones that are draggin us all down.
When you say "disarm", you really mean "disarm all but the state". That is very scary to any libertarian-leaning people, even if you are using the word figuratively. It makes sense only if you if you believe the government is so nearly perfect that other influence is counterproductive.
Imagine if only the government had enough resources for science? Or worse, nobody could afford to make their political message heard, so only incumbants are viable?
No large state has shown that it deserves that much power. I'd rather see a bunch of ads I disagree with than see no non-state messages. I'd rather that some non-state actors had enough resources to try an ambitious project that is politically unpopular (think stem cells a decade ago).
Funny, I'd call that a moral imperative, and go on to say that consumption is good. Even when it's on gaudy-ass McMansions, consumption usually means, more or less, that someone, somewhere, is actually having fun with his life. We ought to be encouraging that rather than encouraging nonstop accumulation of liquid financial wealth in the guise of the Virtue of Thrift.
Investing and consumption should be treated equally.
Investing is not inherently 'better' than consumption. Both create jobs. Both are done for selfish reasons.
The only difference is that shifting the tax burden to consumption instead of investing is inherently regressive - since the poor spend more than they save and the rich save more than they spend.
Saving is its own reward. It doesn't need added tax incentives. Having added tax incentives is just another way of covertly favoring the rich.
Who do you favor with the tax system? The guy who successfully invested in the startup and reaped massive rewards AND the guy who invested in a pets.com? Or the guy who blew all the money on cocaine AND the one who spent it on a private education for their kids (tax treatment: consumption)?
Oh, please. The poor don't benefit from philanthropy. The poor benefit from a more balanced system. This reeks of justification.
As a third-generation American, I find the estate tax, even in its current form, extremely offensive, because it strives to reset every generation to zero instead of letting families establish themselves over time by building on the sacrifice and efforts of the parents.
The current level of taxation, even though it's been recently, "graciously" increased, greatly extends the runway for families to achieve true financial independence. Currently, $5.3M and above estates fall under the 40% tax. That's far too small of an estate and far too large of a tax.
People will say, "wow five million dollars, that's a lot!" Not really. Three heirs take home a million each - pay off a house and student loan debt for their families - god forbid they don't have something like outstanding medical bills - and sock away a partial retirement fund with the rest. Not enough to quit working and start their own business, or invest in anything riskier than an index fund.
You might say that's not a bad deal. It's certainly better than nothing. But this, "oh, it's just a lottery" attitude is nonsense. If your parents started with nothing and are leaving you $5M, chances are you watched them bust their asses for forty years, and only got to see them a couple hours a day - at times, if at all. That doesn't sound like much of a lottery ticket to me.
To top it all off, it's a double tax. That money has already been taxed, as far as the family as a unit is concerned. And wiping the slates clean every generation greatly reduces the ability of a family to weather multi-decade economic cycles. I hate to have climbed on my soapbox, but a statement like that only makes sense if you consider the family a method of perpetuating a shared set of values over hundreds of years - and if you can't, I find that sad.
I have little sympathy for those who the estate tax hits
She then burned through the entirety of her share paying for her stay in a nursing home when she couldn't speak or wipe her own ass, so the taxpayers didn't have to.
Everything's not as simple as you think.
The estate tax issue is not in any way related to the issue of health care for the elderly.
If the government took most of that money, this grandmother would have burnt through the remaining money quickly and ended up on government-assisted healthcare with much less choice about the kinds and quality of care. It's very pertinent.
It appears to be possible from what you've said about your grandmother's situation that even if her inheritance was not taxed at all she would have still ended up using up all of her savings on care. If your point wasn't that you believed she should have been able to pass along the millions to her children while receiving care at the expense of society then I don't see how it was relevant.
I just thought the downvotes were uncalled for. And I think your threshold for what's a reasonable estate is both arbitrary and too low.
$5 million sounds like a lot, but give it a decade. Many family businesses are already valued over $5 million. Should functioning businesses be liquidated because the founder died? Soon, family homes in places like NYC, SF, and DC will be within spitting distance of $5 million. Should the family have to get a new mortgage or move because grandma died?
Besides, I don't have confidence that the general fund of the federal government would better spend that money than someone seeking health and indirectly pouring money into better medical science and technology.
A net $6m estate would pay about 4% (264k), not 40%.
If I work very hard and earn $100,000 in a year I get taxed. If someone else dies and I inherit $100,000 (in the U.S.) there is no tax. In case 1 a person works for it and pays tax and in case 2 there is no tax. Consider another case. Suppose I walk down the street and find $100,000. I have to pay tax on it. (At least I'm supposed to pay tax on it.) Estate taxes are too little in this country.
A family can perpetuate a shared set of values over hundreds of years without leaving $x million to the children.
"The deceased is considered to have sold all of his or her capital property for fair market value immediately prior to death. This includes, with certain exceptions, all the deceased person’s non-registered assets (personal belongings, cars, investments, business assets, etc.).
If any of these assets have gone up in value since their acquisition, the estate will owe taxes on the capital gain in the year of death. Capital gain is the difference between the fair market value of the item when purchased and the fair market value item of the same item at the date of death."
See this website:
In Canada, if you die with $20M in cash, you are free to give it to heirs with no tax penalty.
Yes really. I have many issues with the estate tax (and I also have many issues with not having an estate tax), but when you find yourself complaining about how little a million dollars is, you really need to stop before you lose your entire audience.
An estate worth $5M, which is then taxed at 40%, the remainder of which is distributed amongst any number of heirs, each of whom may then be obligated to pay an additional income tax on that - ends up being far less.
Especially in a country where you're expected to pay for your own education, health care, and retirement.
In much of Europe the first two and a good chunk of the third are largely provided as public goods. Establishing a reliable "floor" standard in all three makes it much easier for people to truly stand on their own merits rather than being handicapped by parental poverty.
That's not how the estate tax works. The first $5 million (or so) is not taxed.
> where you're expected to pay for your own education, health care, and retirement
You can pay for your kids' education directly, no estate tax involved. You can put significant amount of money into 529 savings accounts for your kids and your grandkids, effectively increasing estate tax limitations if (like most upper class) education is a place where you will expend significant resources.
Hitting all your points in order:
1) 1 million dollars is a lot of money to come out of nowhere. It's simply dishonest to pretend that isn't a life changing amount for a middle class family. At the very least it's going to be like you said- modest home paid off(100-500k), car loans all paid off(50k), and student loans paid off(300k if your kids went to expensive schools and you have 3 of them). I'm really not seeing why anyone should be entitled to never work again simply because their parents made a lot of money. (With that said, my parents didn't choose to bury themselves in debt and could have retired instantly if they received this inheritance when combined with the investments they already had)
2) It's absolutely a lottery. Trying to cloud this issue with "oh well the parents potentially weren't there as much and that emotional cost is easily worth a few million" is disingenuous. It makes the assumption that money has no influence on the quality of the child's upbringing and "time spent with kids/day" is the only metric worth mentioning.
3) Being taxed when you're dead isn't a tax to me. At all. I understand this is a personal opinion but you should have the same understanding regarding your own opinion here. When I'm dead I no longer feel entitled to anything I gained in my lifetime- it's not like I'm ever going to use it again. I also don't feel my kids are entitled to it just because they happened to be born (effectively via lottery) to me.
To suffice:
Let the fruit of my efforts benefit society/humanity as a whole. It was my goal in life and ought to be in death.
And 'wealth' isn't all gold buried in the back yard. Its also investments in businesses (either stocks or directly) as a corporation or even a proprietorship. Who runs the restaurant after you die? The government? Preposterous.
On your last point- a traditional corporation won't fail if one person dies as the issue of ownership is inherently divested from any individual person. Stocks are one of the easiest assets to liquidate on this planet- I'm not seeing an issue there. The restaurant? It would be sold. If I have a family member who I actually think could run it adequately they would be able to purchase it like anybody else and I would encourage them to do so while I was still alive.
More Polyanna thinking that anything you can make up in a minute, won't be gamed to death by anybody and everybody. Why? Because almost everybody wants to increase the chances of their children/heirs succeeding. Its built into the species.
Obviously such a system would need significant safeguards- this is something we're both fully aware of as intelligent human beings. Mentioning them now is just a strawman unless stated as the overall opinion "it's 100% impossible to stop abuse".
On your last point, I find it silly to assert that a belief in humanities ability to overrule animal instincts is somehow "Pollyanna thinking". Everything we've achieved thus far as a species has been based on that belief.
But everything in the tax law is a testament to how this is playing out in reality. Try as you might, 10,000 lawyers will push their pointy noses through loopholes to benefit their clients, which is everybody.
[1] http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ...
You could own 5 restaurants of that size and not pay estate tax.
[1] http://sellingrestaurants.com/news/how-much-is-a-restaurant-...
Just because something is idealistic doesn't mean it's incorrect.
> You trust the govt to spend your wealth, more than say a relative?
Dear God yes.
Because, their parents earned it. People slog their bones off, make a lot of sacrifices and after a life time of work get to such a position.
If some body's parents doesn't want to leave a inheritance, or don't to earn or whatever. I would leave that at calling it as their personal decision.
>>It's absolutely a lottery.
Its really strange to see the way you like to put it like absolutely no real effort was involved in building that wealth at all.
Their PARENTS earned it. Not the kids. That's my entire point- I don't think children should be entitled to assets their parents "slogged their bones off for" simply because they won the lottery of being born with those parents.
You disagree and that's fine, I was merely presenting the other side of this debate (and the one I personally sit on the side of).
If there is no incentive to get rich, or benefit by making money over a long term for you or your descendants the very motivation to contribute something valuable and make money along the way, goes away. So after a time you will be left wondering why a few capable people aren't sacrificing their lives making up for every body else.
Welcome to Soviet Russia!
Large estate taxation schemes always need to carve out exceptions for ag and then the loophole-thread pulling begins.
I work, I get paid, my money is taxed. I buy a chocolate bar, the sale is taxed The money that is spent on the chocolate bar goes in part to the shop who makes a profit (that is taxed) and to the company that made the chocolate bar who make a profit (that is taxed). The company pays the worker that made the chocolate bar (that is taxed) Etc, etc, etc.
Transaction are always being taxed - that's how the tax system works.
Finally, there are many incorrect statements in the description of the estate tax above that would probably lead you to believe that you have to pay 40% of 5.3m, which is not true
1. You get deductions (like outstanding mortgages and medical bills)
2. You pay the tax on the net OVER 5.3m.
So, in the case described above, the estate tax would be $0.
Also, Companies actually contribute more in taxes than people like to admit. They pay workers' wages..and those wages include tax money that goes to the government.
That's still a tax on the workers' wages, not a tax on the company. If we shifted all income tax into a payroll tax, then by your definition workers aren't taxed at all? Anything that increases the cost of employing a worker will reduce the marginal net benefit of employing that worker, which will result in either lower salaries, fewer employees or both.
My point is that they are providing the income that is taxed and used by the government.
Capital Gains? The company increased its value.
Dividends? Comes out of earned revenue.
Sales Tax? Comes out of sales by the company.
Tell that to Twitter employees
An estate of 5 million pays $0 in estate tax. The tax is on the amount (net of deductions) OVER 5.34 million.
A net $6m estate would pay about 4% (264k), not 40%.
What about all the people who make the super-yatchs for the wealthy. Or the all the contractors employed to make the luxury towers in downtowns across the world. Tens of thousands if not millions of people directly gain (and likely from the middle and lower classes) from the spending of the lavish-lifestyler.
Who is to judge if this big-spenders behavior is somehow something we should curtail. Instead, we should fear the money hoarder, who keeps large amounts of capitol out of the market, hides it in tax shelters in Ireland, or re-invests it in ways to achieve political gain at the expense of society.
I'm not so sure philanthropy should should have a morally superior reward status in the tax code, when we can't really calculate the effects of spending enough to truly show what is most beneficial to society.
What, like all ten thousand of them, across the entire globe?
Or the all the contractors employed to make the luxury towers in downtowns across the world
What, like all the semi-legal immigrants and blue-collar workers? Those people often are barely getting by, and it's kind of feast-or-famine work.
A cynical person would say that's pretty much what the Gates Foundation accomplishes.
Cash flows. It circulates. And as long as it keeps moving, there is usually enough for everybody.
Wealth inequality is like a small group of people continually siphoning water into bottomless private cisterns. Eventually, the rest of the world becomes a desert. The problem isn't that the cisterns exist, it's that the water flowing out is nowhere near the amount flowing in.
I see the problem as too much lending and investing and not enough spending among the wealthy. It's like demanding that the people whom you charge to drink your water can only piss in your toilets. When you spend the money, you give up control over what happens to it next, and that is what allows the next guy to spend it freely. When you lend or invest, that next guy still owes you. No businesses can afford to cater to him, because the money he has isn't really his.
That's why the lavish spender is not the problem. When he eats a $500 steak, that money goes out to support servers and busboys and chefs and butchers and cattle ranchers. And it goes from them to television actors and book authors and electricity workers and personal trainers and dog walkers and auto mechanics. The cash flows. It circulates.
With the guy that buys a 50% stake in the restaurant with his cash, without providing any actual competitive advantage to the business, that money doesn't actually help anyone unless the previous owner can improve the business with it. Except now he has half as much incentive to do so. All those people down the chain only earn money if the restaurant can sell more steaks. If putting your name on the front door doesn't convince more people to walk through it, buying part of the business is not benefiting anyone except the new part-owner.
That's why I oppose both consumption taxes and income taxes. Both discourage the free flow of cash through the economy.
A tax based on the increase in one's personal wealth would be far more useful. It discourages only excessive hoarding. Philanthropy that yields control of the cash is the best, as the services and goods obtained don't even count against your own balance sheet.
The big spender is actually the good guy, provided that he is still able to spend as much as he earns. That's the real job creator. His willingness to spend money is what makes people want to sell him goods and services. If he only invests, those businesses still need to find actual customers who are willing to spend their money.
Unfair to whom? And why is that unfair?
Is it fair to a kid born to a rich parent that they must simply be punished because they were born to rich parents?
A lot of people work hard all their lives to give a better life to their children. Having children is a huge investment in time, emotionally and other things which can never quantified by merely calling it a lottery. Parents not just contribute their genes but so many other things.
There fore they also tend to invest in their future not just through things like education but through other means as well.
That's the whole point in investments anyway, you build on top of what you make in the past. If I can't keep what I have earned for my own kids, why should I even make a effort to earn it at the first place?
News flash: Billionaire who spends 0.01% of his money advocates consumption tax! Cats living with other cats! Water found to be wet!
Down less fortunate birth (from same initial ancestor) fighting in the civil war as a conscript.
This is debatable. For one, aristocracy is not exactly this, as it is a system based on the notion of privilege, not just wealth. Concretely, it often means the same but still, using the word is quite misleading.
Secondly, one may argue that people, and thus families, should have the right to build stuff in the very long term, that is in a multi-generational way. Even if this thing they build is merely a framework of financial comfort. I doubt anyone would question the morality of offering gifts to children. So it's not clear to me why it would be wrong to give a child the means not to worry about money in life, and do it recursively through centuries.
Buying the yacht is a little bit like digging useless holes, because it's basically a very costly form of recreation that doesn't do much for society. Ideally, money goes into things that both employ and have desirable second-order effects.
I heartily agree with this. However, you could be understimating positive secondary effects. Private space travel, for example, is subsidized in part by rich people spending on luxury goods (trips to space, hobby projects, etc.).
And besides, most of the people concerned about inequality in this thread want to see a more progressive tax that seems to be an end to itself. To be charitable, I'm sure they would like to see those taxes applied to re-distributive programs, but it's not clear to me that those programs won't also lack the "desirable second-order effects" you are looking for. In reality, taxes go to the general fund and then get spent on whatever the federal government wants to spend it on.
Really? I always considered this kind of spending a good thing for society. Other businesses and people get that money, they create technology, materials and processes that would likely not exist otherwise, there's still tax being paid along the way and we get a bit of cultural heritage as a bonus (castles, boats, planes, cars, the Sistine Chapel, a lot of paintings - all of which exists only because some rich man decided he wanted it).
Taxing luxury is a mistake and a potential slippery slope IMO. IIRC, the US tried it in the past with disappointing results.
And oddly chimes very well with my own views on Piketty. (Yeah, me and billg, great minds you know:-)
The Tl;dr is perhaps rd >g is a better formula where d is rate of decay of wealth. And "yes we need a wealth tax, can we make policy to differentiate between good wealth (used for socially beneficial purposes) and bad wealth (yachts, coke and hookers)
I agree but that is a solution to late - "if we have robber barons we should encourage them to be philanthropists" is missing opportunities to use regulation and competition and externality pricing to flatten the profits accruing to monopoly holders and so reduce the amount of wealth horsing in the first place.
That said nice piece, and billg still gets my vote for top ten nicest billionaire.
The reason the rich get to choose is because it is their money. Just as you can decide, today, to donate your money to the charity of your choosing. And really, this isn't any different from asking why the rich (or you or me) get to decide which car or house to buy.
If government is failing to give your money to areas where you think it should go, perhaps this is what is anti-democratic.
This presumes that most, if not all of the money gained by the rich is justly earned. I would take serious issue with this.
Case by case, you may or may not have a point. Is the alternative to have the state take the money and spend as it wishes? In such a case, is the money "justly earned" if it was taken by force?
It helps to think of states as machines that print money which they spend at one end and run an incinerator into which they put all of your taxes at the other.
The clear implication of this is that:
* Spending is inflationary
* Taxes are there to clamp down on inflation.
* Taxes are there to change behavior in a socially conscious way (e.g. tax cigarettes to reduce smoking // tax breaks for wind farms).
Your cash is debt. It is not something you own like a house. It is a social relationship subject to intermediation by the government under democratic oversight.
That isn't necessarily a universally-accepted idea. Democratic systems have the machinery of accountability, but some of us are not completely convinced that it works; surely not as-advertised.
I know that some will regard the wealth of the rich as having been acquired by some means of trickery or even coercion. And that may even be true in some cases. But it is true of taxation nearly 100% of the time, as states must use the threat of force to acquire that money.
As a thought experiment, imagine that taxation became completely voluntary tomorrow. What percentage of its former revenue does the government make?
Suddenly, the government has to compete with other entities for money. Government doesn't know the competition game, so how well would it fare? It would be an interesting experiment, though it would undoubtedly cause some short-term chaos.
Of course it's possible to set arbitrary rules under which a government doesn't form, or corporations provide something better, but those rules end up being very arbitrary.
I'd love to hear about it.
>No-one descended from the heavens and imposed our current governmental system; what we have now is what people did.
"What people did", isn't what you or I did, necessarily. Are you making the classic HN error of assuming that every reader lives in your country (usually the US)? Or do you think that every government is legitimate, no matter what, so long as it is not overthrown?
>If you remove the government, people band together into organizations that behave the same way: first you get something like a union where people pay dues and get certain benefits, their decision making structure evolves, and eventually the organization decides to cover everyone and force everyone to contribute. (It's been quite amusing to watch this happening in miniature in eve online)
Eve Online is not a great example, imo, for a few reasons. First the corporation tax is built into the game's mechanics. It is assumed that this is must be how all corporations will work. But that's less of an issue than.. Two, corporation membership is indeed voluntary. It is exceptionally easy to leave a corp (minus a potential 24 hour stasis). Even if you're deep in nullsec, you can get out. If you die trying, no big deal. This is nothing like living in a modern state, where even leaving said state can be subject to prohibitive border controls. And getting shot by an agent of the state doesn't exactly follow by you ending up in a station where your clone was located. The involuntary nature of the state and the very real consequences of what it does immediately separates it from something akin to an Eve corp.
>Of course it's possible to set arbitrary rules under which a government doesn't form, or corporations provide something better, but those rules end up being very arbitrary.
I don't think there's any doubt that if a government suddenly didn't exist, or could no longer pay its bills that we'd see alternative institutions take up the slack in certain areas. But it isn't necessarily a state entity that would do so, and this is clearly a main point of disagreement here.
There are levels between "do nothing" and "overthrow". I don't think legitimacy is a binary thing.
> I don't think there's any doubt that if a government suddenly didn't exist, or could no longer pay its bills that we'd see alternative institutions take up the slack in certain areas. But it isn't necessarily a state entity that would do so, and this is clearly a main point of disagreement here.
I think (in this arbitrary and unrealistic scenario) those "alternative institutions" would be or rapidly become very governmentlike; whether they would be institutions with a flag and a seat the united nations is not terribly important. Honestly I don't see much difference even today between governments, large NGOs, and large corporations; all have similar decisionmaking processes and act in similar ways (though as I said, I think accountability is better for governments - and probably even worse for large NGOs). Some people consider a "monopoly on violence" to be a qualitative difference between government and non-government large organizations, but these "alternative institutions" in your scenario would definitely have to be willing to back up their policies with force, so they'd be governmentlike in that respect too.
Here is how it works:
Since many people have more time than money, they should be required to donate a certain amount of time towards volunteering at working on public projects for the government. This could include: construction, cleaning up trash on the highway, fix roads, etc.
An elected government would get to figure out where the volunteers get to allocate their time. I think this would be a great benefit to our society.
"Just as there is only one best charity, there is only one best way to donate to that charity. Whether you volunteer versus donate money versus raise awareness is your own choice, but that choice has consequences. If a high-powered lawyer who makes $1,000 an hour chooses to take an hour off to help clean up litter on the beach, he's wasted the opportunity to work overtime that day, make $1,000, donate to a charity that will hire a hundred poor people for $10/hour to clean up litter, and end up with a hundred times more litter removed."
http://lesswrong.com/lw/3gj/efficient_charity_do_unto_others...
In fact, why have money at all, lets just let the government take care of everyone and not let anyone own businesses or property or anything. Oh wait, because this is a horrible idea and removes a main motivation for people to actually work and contribute to society. What you are suggesting is communism, not democracy.
Democracy doesn't mean that people can't choose to do what they want to do with their money. It just means that the government representing the people has been elected by the people (at least in a representative democracy, like the United States). It doesn't mean that the government should make all the decisions for everyone or control how they spend their money.
Even if it is just a special sales tax that targets the rich only, discouraging spending by people with money can hardly be a good thing; that's how recession happen and the rich will continue to capture a bigger share of the total wealth. For an economy to flourish we need the wealth to flow from individual to individual. If all the water on earth is stuck in the ocean we'd have serious problem. Same with wealth.
1. Like income tax you have various 'bands' 2. The more you spend/consume they higher the band you are in 3. Lower bands pay less 4. Someone with little money buying just the essentials consumes e.g. $10,000 per year. Band 1 (a tax of say 10%) starts above $10,000 and thus this person is exempt. 5. If you buy Ferrari's, mansions etc. and consume $5m per year you would be in one of the higher bands and would pay a higher tax rate (say 40%).
In other words the little people keep all their money as it's only spent on essentials. People who have disposable income pay back a percentage of what they spend.
Your argument that it would discourage spending and be bad for the economy is fine but I don't think it would hit as bad as you think. Say I can afford to spend $1m on a car but because of the 40% consumption tax it will actually work out as $1.4m at the end of the year will I still buy that car? Chances are that $0.4m isn't a big deal to me. Sure I might not like it but I probably have enough disposable income that I'll pay it.
The key is getting the tax bands correct so that your disposable income is still high enough that after the tax you will still buy the item. You will have less purchasing power but the money going into the tax system could be used to offset the decline in economic growth.
In New York, there's no tax on clothing and shoes under $110 (at least that was the number when I lived there a few years ago). If you're buying stuff that costs more than that, then you can probably afford the tax, since there plenty of completely fashionable and functional items that cost far less.
In many (most?) places, there's no sales tax on most foods you'd buy in a supermarket, but there is on prepared foods and restaurant meals.
You could probably take these even further by raising the taxes on more expensive clothing items. If you're buying a $1,000 purse or eating a $500 meal, you can probably afford a higher tax rate.
It would probably be challenging to apply a progressive sales tax to everything, but it's certainly possible for many purchases.
But the bigger problem isn't the proportion of consumption being taxed, but that the very rich actually consume very little of their income (which implies higher taxes for everyone else). To be fair to Bill Gates, he also favours high taxes on intragenerational transfers of all that accumulated wealth and is busy giving his own self-made fortune away. But even then, consumption taxes miss one of the biggest, if not the biggest benefits to holding large amounts of wealth.... being able to choose exactly when, if and on what terms you spend your "work" time. A person who consumes $100k per annum in interest income from their professionally-managed wealth fund which is so big they never have to worry about their future is much, much better off in real terms than somebody spending a little over $100k from a salary they spend 50% of their waking hours earning not to mention many hours worrying about what would happen if they lost that job.
Obviously the status quo income tax isn't ideal in that respect either, and ramping up tax on capital gains has the side effect of harming good companies' chances of getting funded, but that's why Piketty favours taxing the entire capital base rather than only capital which happens to be spent on luxury shoes or earning a decent return on investment.
Gates and Pickety agree on the estate tax which would help for people trying to sit on their wealth and simply pass it along to their heirs. Of course the estate tax needs some improvements.
Not that I really disagree with the point here, but I can't help but wonder whether or not the people in the categories he listed exist in large enough numbers to get out of the noise category. Heck, I would think there are about as many literal lottery winners as there are folks in this category.
Yes, what you invest in you tend to get more of. But, each capital transfer does not destroy the capital. So, if you are buying a yacht, that capital goes to the designer, the builders, the welders, the suppliers, etc. Now, the point is that these people now have their own choices to do something with the capital received. Some of it will go for food, some of it will go for BBQ grills, some of it will go for big screen TV's. And, then the people receiving that capital will make their choices ad infinitum.
(Perhaps a performance artist alighting a million dollars in cash would actually destroy capital. They are undoubtedly more examples of waste)
I guess I can still see the incentives that would be built into a tax system (as they are built into ANY tax system) to alleviate what may otherwise be burdens on government into encouraging more social utility. But, I just wanted to emphasize that it is not that luxury spending has NO social utility, it just diffuses the social utility into multiple second order spending decisions.
I think philanthropy is great, but only few people are doing it. And those who do it, don’t do it effectively, do it too late, or focus on the symptoms rather on the causes, which are much harder to deal with. Philanthropy has become an accessory or a career suffix for those have got lucky.
Gates talks about the middle class in China and else where is getting bigger. True, but philanthropic has little to do with this improvement. Aggressive and central economic management, and free trade policy with the US helped above mentioned countries to sustain a healthy middle income class in China, Mexico, Colombia.
Capital = purchases expected to generate a profit. Labor = purchases expected to generate work. It need not generate a profit necessarily - e.g. paying someone to mow your lawn. Consumption = purchases expected to generate pleasure, or avoid pain.
I'm sure the basis of these distinctions rest on some idea of social utility - that trying to turn a profit has more social utility than eating a Twinkie. Maybe we should examine that assumption also.
And consider how these notions entangle themselves in practice. A company car intended for non-personal use is considered an asset to the company, and treated as capital. But a similar car used for commuting is considered a consumption item.
Mr Gates,
I am hoping you posted this not only to express your opinion, but to engage in conversation. And it appears you certainly are.
My criticism with your response is that philanthropy distorts economic resources through a similar mechanism that consumption does.
That is, by dictate.
I believe in the idea that people who are affected by decisions made should have a say in those decisions. This is the value of democracy.
And just like consumption of fine wine and jewelry distorts the economy to produce more of those things, philanthropy moves vast economic resources for what I would call "the pet projects of philanthropists". Typically the people affected by the philanthropic expenditures have no say. More often than not, no democracy processes take place.
A king who lives a modest lifestyle, who spends all his wealth on what HE thinks is just and good, is still a king. And I hold contempt for his arrogance.
Not saying that monarchy is better than democracy. Democracy is best at protecting rights, which is the function of government. But as for making the world a better place, really, individuals are probably best at that.
If so, let me ask you a question. Do you feel that you have a say in decisions that affect you day to day?
If the answer is no, I feel it isn't fair to blame the problems we have on democracy.
As for what the system the USA has, well, these guys think it is a Plutocracy http://politicalgates.blogspot.com/2011/12/citigroup-plutono...
--- Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so. --
Governments of course could play a constructive role into many things just the way my son could spend more time doing math instead of watching cartoons. The sad problem about human beings is that unless they get something out of it they wont do anything. Government have a strong incentive to tax everyone more and more in the name of inequality and environment but they have 0 incentive to anything about inequality using that money.
I would rather live in a world with extreme inequality rather than a world where government is trying to bring "equality".
In theory I like the idea of a "tax on consumption", because it suggests a penalty on conspicuous consumption and wasteful spending. In practice, taxes on consumption are seen as regressive, ie. they affect the poor more than the rich. Is there a way to tax "bad" consumption, without penalizing people who "consume" a large proportion of their income simply because they don't have much of it? I'm picturing some byzantine tax code system where functionaries make value judgements about the morality of various kinds of goods.
Personally, I'm unconvinced that there is any real practical advantage to consumption taxes, and think a better simplification is the smaller change of having a progressive tax on income without undermining progressivity by favoring capital income. At any target revenue level this enables lower taxes on working people which enables more peoe to become at least small scale capitalists, rather than taxing working people extra to reward those people who have already accumulated or inherited the wealth to live off capital rather than labor.
If you want a penalty on conspicuous consumption then simply levy taxes on items which count as conspicuous consumption - yachts, private jets, houses > $2 million USD, super cars, etc.
It would probably not be a huge list and it wouldn't be a complicated rule. You might miss one or two exceptions, but that's okay.
It would be a LOT simpler than going the other way - taxing everything consumed in the economy and then making exceptions for conspicuous consumption.
The government figured these measures would bring in X dollars in new revenue. It actually brought in much less, about 0.5X, as the purchasers of luxury goods changed their behavior. After the cost of unemployment benefits to people - thousands in the boat-building industry, among others, lost their jobs - the luxury tax ended up being a net negative for the government. It was repealed a couple of years later.
The economy's too complex for us to experiment on without unintended and unanticipated side effects. That doesn't mean we should never experiment with it - as long as we do it cautiously - but we should at least learn some lessons from the experiments we've already conducted.
B) Like I said below: the function of a tax is not to bring in revenue, and counting it a success or not because it brought in above "X" amount of revenue is staggeringly dumb. Taxes are there to disincentivize undesirable behavior and clamp down on inflation, not raise funds. Governments sovereign in their own currency are not revenue constrained.
C) The effect removing that tax had on jobs was almost negligible. Look at overall unemployment during that time. Didn't budge.
>The economy's too complex for us
Hm. Apologetics for the ultra-wealthy...
Gates: "Far more people—including many rentiers who invested their family wealth in the auto industry—saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite."
Also, you could compare philanthropy with the "foreign aid" that western countries give to poorer ones for decades now. Did it help? In many cases, it made things worse, because the money did not help the people to help themselves, but made them addicted to the aid.
The point is also that philanthropy -- as it might silence the own conscience -- is often the overflow of the overflow. We give, because we have more than we need and than we give what we need least. But what people really need, is not somebody that throws pennies in your hat, so you can buy some old bread -- but what they really need, are equal chances -- to be able to visit the same universities, to have the same jobs and to earn the same money as other people with the same talents.
You might argue: But Bill also fought his way from "rags to riches" -- no, that is not right. Bill already was born in a well being family and visiting visited Harvard College. With such a background, it is much easier to come from rich to riches, as if you come from Uganda slums (or even Harlem).
Where philanthropy fails is when its not matched to cultures. Building schools for girls in countries that won't tolerate that - they get closed soon after you leave. Or educating local doctors, who immediately leave the country for a better job in America.
But what can philanthropists do? You can't make people change to suit your goals.
What I mean: Philanthropy does not help, when the reasons of poverty are not removed. Biggest philanthropy will not help, when it is the result of extreme redistribution of money. The philanthropy of the monks in the middle ages did not help, because the monks where part of the system of inequality, where few owned all and the rest had to live on .... sometimes philanthropy.
The difference between what he owns now and than is not as huge as the difference between somebody whose parents could afford Harvard and somebody who is raised in Harlem, because he has not the same starting condition.
There is a saying: The first million (billion, 100k, ...) is the most difficult one.
It's fine to have a progressive tax. That progressive tax becomes useless if you gut entitlement spending and instead spend on programs or services where the money ends up back in major corporations hands (defense spending, private contracting etc.)
In order for a progressive tax to be corrective it has to put the money to work for people in the lower end of the tax curve.
It's difficult to do so, because it's hard to say what can benefit a person who is wealthy already.
I mean I can point to data that suggests that people who earn better wages, get headstart, have libraries in their community, get a college education, etc are less likely to commit crimes, but your wealth probably means that you can afford good security.
I can say that in a more egalitarian society, vaccinations would be free, and thus you are your children are less likely to get diseases, but you have good health care, and so this isn't a huge issue.
So I guess the best way is to point out that in a more egalitarian society with free or low cost education and funding for research, general progress in the sciences would happen faster. You get better medicine, better technology, can potentially live longer. Also such an economy will grow more quickly, and while if there were more stringent taxes you may not gain as much of the pie as you could, a bigger pie would cancel that out.
Of course buying yourself things you don't need delivers less value to society than commerce or philanthropy. Of course. Absolutely.
But maybe...
Maybe buying yourself things gives you the chance to have unique experiences. Maybe hitting golf balls into the ocean from the deck of your megayacht gives you the relaxing moment you need to figure out how to boost profits by 300%. Maybe doing a ton of blow and driving a Jaguar give you the necessary experiences to write awesome rock tunes that inspire millions. Maybe if Galileo Galilei hadn't bought himself a lump of clear glass in 1609 we wouldn't know about space.
>>>A rich person, will only spend a small fraction of it's income, so in the end, proportionally, poor people end paying more taxes then rich people, and that's actually something that's hurting poor people here.
^^^This seems to actually be a sensible argument for there being a problem with a simple flat consumption tax.
A solution might be to have a progressive tax on consumption which becomes more meaningful when levels of spending on consumption reaches a level beyond that of the lower 33% of the populace or something like this. The problem would be figuring out how to apply this tax since it couldn't be done through the sales tax as it currently exists.
It's a fair point that a flat tax, in a vacuum, is harder on the poor, but we're not in a vacuum.
There are plenty of dynamics which would still be at play that would be capable of incentivizing the appropriate people to work in response to needed labor. (eg. landlord responsibilities to apartment tenants)
Surely the 4th is the most important - the one who is NOT spending most of their money.
so in his example, investors and philanthropists have more volatility around the potential effects of their wealth, so the multiplier can be >1, <1, or =1, but the key is that it can be >1, which means that it can be value generating. consumers' multipliers are necessarily <= 1.
as an aside, i'm also intrigued by the idea of economic velocity as an indicator of economic health (as opposed to the gini coefficient, which is a rather static measure) that's tangentially related to the idea of economic inequality. of course, for capital to have a stabilizing effect on the economy, it needs to have a high dispersion coefficient, but that's another discussion.
Also, using 1910-1940 period as an example to show that Piketty is wrong doesn't make much sense given that Piketty's data show that inequality have actually lowered in that particular period.
I don't understand this. I mean you just get poor much quicker when you have less wealth. I understand that you don't stay rich, but it secures your kid's futures.
And when does inequality start doing more harm than good?
40% of youth in the USA today do not even have that, and as such, have virtually no chance at all of being able to even play in the capitalist economy. They will be successful if they avoid homelessness and hunger, which will be a daily struggle.
Gates, Buffett, and others who claim to be philanthropists work from a point of ignorance, believing that all youth at least have their basic needs covered by this society. They are blind. Piketty at least acknowledges the underclasses.
These so-called philanthropists depend on the existence of a permanent underclass to support their "charity".
I was raised on the edges of this underclass and even today, after 20 years in the business doing quite well, I worry every day that I will soon be homeless or hungry. I have no inheritance to count on,other than debt from my family. The idea of taking a couple of months without income to make a startup is laughable- how would I eat and make my house payment? Most of the peers from my youth are on public assistance, in jail, ill, or worse. They are easy prey for the tech titans, who fill their eyes with glittery visions that make them forget their hunger and cold. This is in the Bay Area, mind you, less than 20 miles from the Valley.
Gates' idea of a consumption tax would heavily penalize these people, who have been enslaved into a consumer lifestyle by the wealthy who exercise control over their lives.
The whole "inequality" debate laments the demise of the middle class. But it never acknowledges the permanent underclass that is a necessary component of a society that can take the time for the inequality debate.
I got out, though you never lose the psychic clutches of abject poverty. Most folks never get out.
I watch friends in the Bay Area spend everything-save nothing and then call the homeless kids in the Haight lazy bums. I have a savings but if the tech bubble did burst there's a very real chance I could end up home. My family doesn't have wealth and some of my siblings are already homeless.
Can you source your 40% figure? The only child poverty number I found is 21.8% for 2012. [1]
For those in poverty, can you provide more insight to why you think they have "virtually no chance at all of being able to even play in the capitalist economy"? I think everyone would agree they are at a disadvantage, but there are several people on the Forbes 400 this year who came out of poverty. Both of my parents came out of poverty, even you said you made it out of poverty.
Can you provide some anecdotal insight to your peers who fell "prey for the tech titans, who fill their eyes with glittery visions that make them forget their hunger and cold."
[1] http://web.stanford.edu/group/scspi/sotu/SOTU_2014_CPI.pdf
> who fill their eyes
My presumption is that he is referring to the movement towards digital/virtual consumption and away from physical consumption. The rich and poor entertain themselves in much the same way now, but that doesn't give us a way out of the trend:
http://rick.bookstaber.com/2013/11/live-to-eat-eat-to-live.h...
Maybe poor kids will have more access to tools now, but will those tools be relevant in their economic age? Musicians and artists have had all these amazing tools - but is anyone making a living off of them?
That came out of the blue... can you expand on that? [Note also that Gates said a progressive consumption tax.]
I like a progressive consumption tax because (I currently believe, anyway) that it's harder to avoid than an income tax. Income can happen anywhere in the world, but if you are living here then you are consuming here. You can keep trying to defer income through clever accounting, but that seems harder to do with consumption (if you have a yacht today, you pay taxes today).
It also takes away most arguments about class warfare. A wealthy person can't just call themselves a "job creator" and oppose taxes while floating around on a yacht and running a business into the ground. If they do, it will be obvious the taxes are for their yacht, and not their job-creating ability.
Gates didn't come from a middle-class background but from an upper-class one. His father was a highly successful lawyer and cofounder of Shidler & King (then Preston Gates & Ellis, now K&L Gates), his maternal grandfather was an affluent banker (national bank president) and his mother was a Seattle power serving on the boards of United Way, UW, US West (then Pacific Northwest Bell), First Interstate Bank and others.
Maybe it's a British thing, but to me class is only minimally about money, so you can't just say the Gates family are rich so they're upper class.
In Britain you can be penniless but still be upper class, or a billionaire but still working class. Take David Beckham - rich but working class. You can probably find some destitute Baronets somewhere who are definitely still upper class.
Professional people (as people who are predominantly workers, but usually not on living paycheck-to-paycheck and often with small capital holdings that may suffice for a comfortable retirement) are general middle class, yes.
> The US doesn't really have an upper class at all
The US actually does have an upper class, people who are primarily capitalists rather than workers.
> In Britain you can be penniless but still be upper class, or a billionaire but still working class.
You seem to be describing a pre-capitalist, essentially feudal view of class (in a capitalist society, meaningful class distinctions still aren't exactly about money, per se, but more where that money comes from, though there's a relation between the two -- you can't be penniless and be maintaining a comfortable standard of living primarily from capital -- whereas in a feudal class system its more about station of birth independent of money, though, in societies where such a class distinction is meaningful rather than a mere historical artifact, there's a close association between that station and both money and how you get it.)
But then do you have a different term for what I'm talking about? What would you call someone who comes from a well known family lineage, speaks with a refined accent, was privately educated, went to Harvard, listens to classical music, collects french poetry first editions, but earns a pittance as faculty in the classics department at a college somewhere and has no savings or investments?
They don't earn anything, but you can't lump them in with a poor fast food worker can you? What term do you use for this in the US, if you don't call it 'class'? If the UK they would absolutely be upper class. What would you call them?
Here's an insight into the British class system for you: some Army regiments are essentially segregated by the class of their officers. A state school educated officer could join the Royal Tank Regiment but would probably never join the King's Royal Hussars. Of course this is unspoken.
He'd be middle class in the US, mostly because of his income. He's got connections but still middle class. A fast food worker would be lower class. A fast food worker who went to Harvard, with all those connections and hobbies, would largely be the same. But that's an incredibly contrived example. Class distinctions work because of general income-hobby-family background correlations that generally exist.
Also, there isn't much of a "refined accent" in the US that I'm aware of. At least nothing as marked as cockney vs british.
In french I believe the upper class you are referring to would be called "aristocratie" or "noblesse", while the capitalist upper class would be called "bourgeoisie". I know there are similar words in English but I'm not sure if they carry the same meaning.
There's a meaningful economic class distinction to be made, probably, between a tenured faculty member at a university and a fast food worker, even if somehow their income ends up similar (the former having greater economic security than the latter, likely).
But I think the distinction you are making is more about subculture than economic class. This particular axis of subculture may sometimes be referred to as "class" (particularly by the people on the "higher" end of it) -- though its probably less common in the US to do so than it would be in Britain -- but its really a largely orthogonal concept to economic class distinctions. Not completely independent though, as -- as many axes of subcultural variations do -- it can have important relations to social networking opportunities that play a role in economic opportunities.
This is clearly even more visible, and arguably more substantive, in the United Kingdom -- where, in addition to the kind of examples you cite, there are, for instance, still hereditary peers in the House of Lords, and, heck, still a House of Lords -- than the United States.
Needless to say there are also plenty of "uneducated" plumbers whose skills earn them well above the national average wage whilst many marketing graduates embark on serial unpaid internships updating Twitter feeds in the hope someone will eventually deem their university-enhanced flair for on-brand 140 character communication worth paying for.
In the UK more so than most places "economic class" owes as much to Veblenesque notions of the luxury status of jobs as it does to how much employees actually earn and whether real opportunities for progression exist.
Blue collar: an individual whose earnings are derived primarily from physical labor, following someone else's instructions. Blue collar workers are often paid via hourly wages.
Brown collar: a subset of blue collar. The differentiating factor is that these people work outdoors. The brown is often explained by dirt on the collar, but in reality, most people who use this term use it because this type of worker is overwhelmingly likely to be a dark-skinned person.
Khaki collar: a subset of blue collar. Used for military jobs.
White collar: an individual whose earnings are derived primarily from labor requiring specialized knowledge or skills. White collar workers are often paid via weekly salary.
Tailored collar: a subset of white collar, except restricted to executive management, and possibly their immediate subordinates, depending on the size of the business.
Rich: an individual whose earnings are derived primarily from business ownership and investment returns. Rich people may also work in one of the aforementioned categories, but most prefer to enjoy leisure activities, volunteer for charitable causes, manage their own property portfolio, or pursue political goals.
Additionally, we have some terms for class-related nuances.
Ghetto/Barrio/Trailer Trash/Crab Bucket: this person grew up in the lower class, and exhibits many of the negative qualities of people raised in an impoverished, survival-oriented environment. These people are overwhelmingly ignorant of the social norms respected by higher classes.
Trust Fund Baby: this person grew up in the upper class, and exhibits many of the negative qualities of people raised in an affluent, self-realization-oriented environment. These people are overwhelmingly ignorant of the social norms respected by lower classes.
Welfare Queen/Welfare King: this person has no desire to earn their living, and survives primarily on government benefits. Ironically, these people often continue to receive benefits even as people who would rather work than be on the dole are cut off, because they are experts in gaming the bureaucracy.
Beltway Bandit: Welfare Royalty of the incorporated business variety. So named for the Beltway bypass highway around Washington, D.C.
Ivory Tower/Academian: this person was raised to value education above all else, and somehow managed to not learn anything of actual value. Usually white collar, but poor.
Hack: this person only does their job because it pays well. Often compensates for job dissatisfaction and high earned income via conspicuous consumption and being a dick to co-workers.
Wage Slave: contrasts with Hack, in that they are paid only enough to survive and continue working. These people would like to do something else, but cannot afford to support themselves at their preferred job. In the US, this is often someone who would have attended college, but could not afford it. May also be a person who graduated college, but cannot earn enough in their chosen field to pay off their student loans.
Brick/Backroom Boy: this person is absolutely competent and reliable in their job, and perform high-value work, so naturally other people stand on top of them and steal their credit.
Rainmaker: contrasts with Brick, in that they actually get some recognition for the value they produce. Often the top-producing salespeople at a company are recognized as Rainmakers.
the BASIC needs of survival
Puh-leese. Who do you think is buying this? There's no way that figure is anywhere near accurate for people living in "abject poverty".
>Gates, Buffett, and others who claim to be philanthropists work from a point of ignorance, believing that all youth at least have their basic needs covered by this society.
You are aware that the Gates Foundation spends the majority of its resources in Africa, trying to get medicine to the thousands of children that die from ailments that are easily treatable in the US? Almost any child in the US looks massively privileged by comparison. The fact that almost all of our children live to adulthood is a testament to that.
>The idea of taking a couple of months without income to make a startup is laughable- how would I eat and make my house payment?
I don't really know what you're getting at here. Since you were poor growing up, you're too terrified to ever take the risk involved in a startup? Most people are, no matter their economic background. Most startup founders are taking the same kind of risk and don't have years of savings to live off of, but they gather the balls and do it anyway. You're attributing too much of this to your disadvantaged upbringing.
The problem with this line of thinking is that yachts and planes don't grow on trees. They're built and maintained by people who have jobs (typically well paid jobs) because someone with wealth is paying for it.
So, to me at least, there is only one type of wealthy person who doesn't add value and that is the hoarder.
George Reisman has offered a thorough critique [1] of Piketty's arguments -- arguing across a range of topics, from David Ricardo's insights in the role and formation of capital to the meaning and value of inequality in both income and wealth.
[1] http://georgereismansblog.blogspot.com/2014/07/pikettys-capi...
One of the problems is that people get different r's. Just look at VC firms. A pension fund that invests in venture capital funds gets mediocre returns: nothing much better than they'd get from an index fund, and often less. VC partners collect 2-and-20 and get to allocate favors (because it can benefit their careers to make decisions that are suboptimal for the portfolio, and they often do). The "real r" in that engine might be higher (if VCs focused on technical excellence rather than their own careers, I think we'd see quite a respectable r) but the delivered r is mediocre. That's just one example.
To go further, and I don't know how to solve this: if you have good relationships with various counterparties (especially, banks) you can get a low-risk r > 15% in arbitrage. Contrary to stereotype, arbitrage is neither risky (it's low in risk, and most arbitrage blow-ups occur because some hotshot trader got bored and started taking unauthorized positions) nor is it socially harmful (it provides liquidity to markets, which is a good thing). It is, however, not open to most people.
There are many things that cause "wealth decay" or normalization. I'll name four. Hyperinflation and violent revolution are the most disruptive (sorry San Francisco, but disruption is a bad thing). Taxation is the smoothest but can be ineffective (loopholes). Wealth management is yet a fourth: at some point, a large fortune has management overhead and, as its owners become less interested in day-to-day running of the money, much of that excess "r" goes to the agents than to them.
As for "r >? g", I'd prefer two things. First: I'd like that everyone have access to the same r, but I don't know how to achieve that. Second, g isn't constant. World economic growth is 4.5% per year. I believe that it could be 8% or 10% with some heavy R&D investment, and with better (and, quite frankly, smarter) people running the world. The all-time record high for world GDP growth is 5.7% in the 1960s, but we have so much more technology, and the shape of economic growth is (while I don't believe in a "singularity" of the theatrical sense) faster-than-exponential.
Even now, we have a world in which programmers (not 10x or 2.0+ engineers, but just regular programmers) become 10-12% more productive each year due to tool improvements. Motivated, ambitious programmers can do 30% per year. The bad news is that it's almost impossible for a programmer to grow her income at any rate near that. In fact, as she becomes more experienced, she's also more specialized and dependent on her employers (or clients) for great projects. They'll pay her pennies on the dollar relative to what she's worth, that charge being for the "favor" of allocating the good work. The reason why 10x engineers only make 1.3-1.5x salaries (until they become consultants, at which point it's more like 2-3x) is that their employers are very good at playing the "we can give you a raise, or we can give you career-positive work" game.
The software economy is at the fore of what's happening to other industries, but people in most sectors are a good deal poorer. We're comfortable upper-working class people complaining about our slide into the upper-middle-working class, but people outside of tech don't have anything to lose.
What we actually need to focus on is g, and r_labor. We want a high r_capital and an even higher r_labor. Sadly, badly managed economic growth tends to make r_labor negative. That happened in the American 1920s with agricultural commodities (contributing to spiral rural poverty, which led to the Great Depression) and it's happening to all human labor in the 2010s.
The interview question on stages nowadays seems to be what does someone believe in that is not commonly believed, and I supposed the out idea now is the people who control production, the people who own capital are not interested in economy growing as fast as it sustainably can. They want a slower rate of growth in order to maintain more control of the system. This idea not only goes against current economic thinking, and investor's chasing of maximum returns, it's an anti-Marxist idea as well. It seems to be happening though. It's why people like Paul Allen and Nathan Myhrvold pour money into patent companies. It's why the joint chiefs of staff beg the Congress to cut funding for old Cold War tank factories every time the military budget comes up, but the billions for useless tanks, or the hundreds of billions for the designed by committee F-35 boondoggle etc.
As Marx notes, something like a "war on poverty" is a joke, since people are not only purposefully kept poor but purposefully thrown into poverty, like during the enclosure of the commons in Europe. A surplus army of labor is a major tool to keep workers from keeping more of the wealth they create.
Sooner or later, the good ship USS Wall Street will inevitably run aground, and the economy will grind to a halt in a way that will make modern Greece or 1930s USA look good. Then it will just be a question of what working class people and professionals do in their new situation. It's not really the working class people, who are familiar enough with reality, who one has to wonder about, it's more the US professional classes, who are more highly indoctrinated than probably any group of people in the world. I hold my mouth in awe as I hear US professionals pontificating about things going on half-way around the world in which they know absolutely nothing about. NPR is ultimately a heavier propaganda outlet than Der Stürmer, Правда or Fox News.