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PG's simplified essay seems like attack on a strawman; he's mainly arguing that inequality is good, but then mostly everybody agrees with that. The issue peopl

by tomp 11y ago

PG's simplified essay seems like attack on a strawman; he's mainly arguing that inequality is good, but then mostly everybody agrees with that. The issue people see (and PG conveniently ignores) is increasing inequality - not locally increasing (i.e. an enterpreneur becoming rich because of a successful business idea), but globally increasing inequality, which happens because of rent-seeking, tax avoidance, buying political influence, monopolistic behaviour, corruption, nepotism, inheritance... Personally, I'm mostly concerned about the last one - inheritance. I don't have a problem with resourceful people being rich. But I see a danger of the wealth being concentrated over generations unless we introduce proper (non-avoidable) inheritance taxes.

zepto 11y ago
Inheritance taxes on their own will do nothing to change the situation because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners. Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures.
- dangerlibrary 11y ago
  I agree (and I suspect tomp would as well - it's generally best to give others the benefit of the doubt when they've been silent on an issue) that estate taxes are insufficient. I disagree with the implication that they are not a critical component of a solution.
  - zepto 11y ago
    They may be a critical component of a solution, but given what I said earlier about nepotism and clans, I'd argue that they would make things worse because they would further reduce the ability of the poor and middle classes to gain traction against those with corporate power. This is not dissimilar to the Soviet situation. So, even if they are a critical component, they are irrelevant unless someone can articulate how these other components would work.
- ThomPete 11y ago
  Maybe not but it's a fair tax especially for those who apply to the "just work hard and reap the benefits" Also you can actually guard against that even in corporate structures. Denmark is doing it. However it's not IMO a good thing (and not fair as it taxes the company and removes capital from that company)
  - pc86 11y ago
    Of course it's not fair. Someone works hard and earns a million dollars. At that point they've paid just about every tax imaginable on the money other than sales tax. What is the "fair" argument to taxing it again just because they die? If you honestly believe that governments should tax every dollar every time any event happens to it, that's a valid opinion, but let's not pretend it has anything to do with "fairness."
    - barrkel 11y ago
      My concept of fair is strongly related to my concept of justice, and I use Rawls' veil of ignorance as my standard thought experiment for judging just (and fair, WRT laws that are applied universally) scenarios. If the return to capital is much higher than the return to labour, then people who inherit a lot of wealth may gain more than people who expend the sweat of their brow. If society is very unequal, then this process may be highly exaggerated and the gains limited to a select few. From a veil of ignorance, not knowing where in the income distribution I would end up, would I like that world? Or would I prefer one that reduces the disparity (but not so much that it steeply dissuades people from trying to achive things)? The probability that I'd turn out in the very top end of an inequal distribution is slim; so naturally, what I, from a position if ignorance as to my actual position in the world, think is fair is a certain amount of tax, and yes, that includes - especially includes - inheritance tax.
    - ThomPete 11y ago
      You are not taxing them again (since they are dead) you are taxing their children/relatives who get the money without having done anything for it. Plus if you are rich enough a lot of those money were not taxed like a normally family but most probably through things like capital gains or just appreciation (real estate) which rarely is a product of your specific work but rather societies work to turn an area into something thats valuable by building infrastructure etc. When I buy something for my taxed money, whoever I give purchase it from is also being taxed on those already taxed money. So by your logic its not fair to tax that either either. If you buy the argument that we should tax businesses for the things they sell you are basically approving taxation of inheritance too.
- tomp 11y ago
  > because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners. That's OK, as long as the ownership of these structures is dispersed (as seems to be the case now for many public companies, which are owned by pension funds and/or sovereign wealth funds). That would also prevent nepotism.
  - zepto 11y ago
    Please explain how ownership would be dispersed and nepotism be prevented?
    - tomp 11y ago
      Tax inheritance => rich people inherit stock => they must sell stock to pay taxes => ownership dilutes.
      - zepto 11y ago
        Who buys the stock, and why wouldn't they organize into clans?
- samstave 11y ago
  Take a look at how the masters pull this off. I'm not claiming everything in this article is true - just pointing out how it is surmised that some families protect wealth in a way that transcends both death and taxes: http://www.icij.org/offshore/secret-files-reveal-rothschilds-offshore-domain http://www.icij.org/offshore/secret-files-reveal-rothschilds...
- adevine 11y ago
  This doesn't make sense to me. At the end of the day, all stock must be owned by actual people, even if it is through a network of other corporate entities and trusts. A corporation may transcend the death of its owners, but if I own 50% of a corporation, and I gift my shares to an heir (or even let them purchase it at a discount), the government will still take their cut.
  - sjg007 11y ago
    You have them owned by a trust and you replace trustees when they die.
    - adevine 11y ago
      It doesn't really work that way, at least in the US. While there are different ways to use trusts to minimize estate taxes, it's not like you can put all your assets in a trust, maintain control, and then when you die someone else is named the trustee and they get off tax-free.
  - sjg007 11y ago
    You have them owned by a trust and you replace trustees when they die.
  - zepto 11y ago
    Sure - let's assume for a moment that inheritance tax does work to distribute ownership. That simply removes 'ownership' as the instrument for control, positions within the corporate structure would then become the 'title' to the assets, and these would be passed down through nepotism and clan structures as I mentioned.
    - adevine 11y ago
      While I'm not a lawyer, it doesn't really work this way, at least in the US. The law defines "ownership" pretty clearly based on who has real control over an asset. You can't really pretend someone else is the owner if you have the real control over the disposition of an asset.
- bko 11y ago
  Inter-generational wealth is often wasted and doesn't last more than a few generations so perhaps it's not as big a problem as some make it out to be > Indeed, research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent [0] [0] http://www.wsj.com/articles/SB10001424127887324662404578334663271139552 http://www.wsj.com/articles/SB100014241278873246624045783346...
  - unprepare 11y ago
    Even if its only 10% (and 10% of a billion is still 100 million dollars) do you really think its reasonable that 100[1] years after my death my family should still be spending the money that I myself earned? To put that in perspective, people who died in 1916 are: Hetty Green - the 'witch of wall street' one of the first ever successful women investors Charles Taze Russell - the creator of a religion that would later be called 'Jehovahs Witnesses' Saint Albert Chmielowski - a Polish religious leader who was made a saint in 1989 Grigori Rasputin - a faith healer and friend of the last Tsar of Russia Nicholas II So we are talking about the modern day descendants of these people, still holding 10% of any wealth amassed over 100 years ago. If you honestly think it would be reasonable for the descendants of these people to still be living off the wealth amassed by their forebears, I guess I just disagree. [1]Wikpedia says a generation is in the low 20's in years, i'll assume 20 to keep from being seen as inflating the numbers
    - cLeEOGPw 11y ago
      > do you really think its reasonable that 100[1] years after my death my family should still be spending the money that I myself earned? Your thought process seem to be like this: a man earns huge amounts of money, then he has children who live ordinary lives, except they don't work, just spend money earned by father/grandfather. A real situation: a man creates a business that generates profit, his children inherit the business and continue working on/are shareholders of said business/ but the value of the business decreases over time. If you think it's unfair that someone can live rich life without working, while you can not, how would it be fair if someone earn money, but is not allowed to give it to his children? It just sounds like you are jealous.
- ZeroGravitas 11y ago
  > Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures. There is another theory which states that this has already happened. (credit/apologies to Douglas Adams)
chimeracoder 11y ago
> globally increasing inequality At a global level, inequality has not been increasing. Globalization has been a huge win for developing nations in this regard (and the people who have paid the price are low-wage workers in developed nations like the US). This is not to say that we have to conclude that globalization has been a good thing overall for developing nations - there are lots of problems it has caused for them at the same time. But it's tough to criticize it on the basis of increasing inequality globally, because it's done the exact opposite.
- tomp 11y ago
  Right, that's true. Then let's say "nationally increasing inequality". I'm pretty sure that emerging nations will follow (some are already following) the trends of concentration of capital very soon.
- ebbv 11y ago
  The global decrease in inequality is barely there, and some argue is an illusion due to the wealthiest individuals being adept at hiding their wealth. What is there is only due to India and China starting to have something resembling a middle class (but even so their standard of living would be unacceptable from someone who grew up in the US.) In the rest of the developed world (US, Europe, Japan, etc.) average wages have been totally left behind by the growth in wealth for the millionaire and billionaire class. In the US especially, average incomes have actually decreased when adjusted for inflation while the billionaires see tremendous growth year after year. It's horrendous.
  - chimeracoder 11y ago
    > What is there is only due to India and China starting to have something resembling a middle class (but even so their standard of living would be unacceptable from someone who grew up in the US.) I don't understand what you mean when you say it's "only" due to India and China starting to have a middle class. That is literally the definition of decreasing inequality globally: people who were previously below middle class have increased their standing. > (but even so their standard of living would be unacceptable from someone who grew up in the US.) As someone who actually has a very real sense of what middle-class standard-of-living in India actually is, I'd contest this claim. But even if we ignore that, the fact that a developed country's standard of living is still below the US's standard of living doesn't contradict the statement that the inequality has decreased, because the difference between the two is much smaller than it was 50 years ago.
jseliger 11y ago
Your statement here: "he's mainly arguing that inequality is good" is contradicted by the second paragraph of even his simplified version: But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good. His main point isn't that economic inequality is good, and he says as much.
- dangerlibrary 11y ago
  I would argue that a reading of the PG essay that doesn't describe it as a series of arguments for ignoring / tolerating / encouraging economic inequality is, at best, flawed.
- mattrepl 11y ago
  He states some causes are good and some are bad.
- vasilipupkin 11y ago
  the problem with PGs logic is that the serious argument is not about LEVEL of inequality being > 0, but rather that inequality has been INCREASING in the US. Ignoring this distinction is what makes PG's essay flawed. Nobody is seriously and in good faith arguing that the right level of inequality == 0
amelius 11y ago
> I'm mostly concerned about the last one - inheritance What about rent-seeking? Like the article notes, this is a way for the rich to become richer, without creating anything new. At least with "inheritance", there are "resourceful genes" passing from one generation to the next :)
- tomp 11y ago
  The problem with rent-seeking is that I don't really know what to do about it. Rent seeking seems to happen wherever there is some scarcity or monopoly (natural or artificial). E.g. patents (artificial), real estate, infrastructure (both natural). In the case of infrastructure, the answer is relatively simple - nationalize it (or strictly regulate it), and offer it to multiple operators at fair (and equal) prices. This is what is happening already in e.g. Europe (for electricity and mobile networks). It can even work for other scenarios - for example, when the Greeks were forced to "privatize" their airports, they didn't actually privatize them, they just rented them out for a number of years - that way, whenever the lease is up for renewal, there is still a market happening, so it's more competitive than ownership/monopoly. For patents/copyright, it's considerably more complex; I think we can all agree that current regimes in e.g. copyright law and software patents feature way too long monopolies, but it's not so clear if that's the case in other fields, especially farmacy. For real estate, it's hard to come up with any solutions. As long as there's a benefit to living close to other successful people, rents/prices in high-prodoctivity areas will keep on rising. Taxes could help (e.g. by making buy-to-let less profitable), but they won't solve the underlying issue. I'm hoping that eventually technology will improve to such an extent that there will be no advantage in living in the cities (i.e. remote working/communications technology or much faster transport). Are there any other worrying examples of rent-seeking that you had in mind?
PaulHoule 11y ago
We are all makers and takers. In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero. Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take. Competition of economic and other varieties is a key to a healthy society, yet, for business to exist competition must be imperfect.
- tomp 11y ago
  > In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero. Elementary economics fails (as many other social/economic theories) by assuming the ideal state; if the state is not ideal (i.e. the market is not competitve yet), there is a lot of profit to be had. This doesn't mean that you have to abuse monopoly powers to profit; you can simply be better (faster to innovate or spot opportunities) than your competition (until they catch up).
- chimeracoder 11y ago
  > In elementary macroeconomics you learn it is impossible to make a profit Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take. You're confusing two different definitions of profit. Economic profit includes opportunity cost (which includes the "compensation for the investment you make and the risks you take" that you're talking about). If the economic profit is zero, then everyone was compensated appropriately for all investments, risks, etc. Put another way, if the economic profit is zero, there is no better way you could have spent your money or your time (by definition, not by assumption). Accounting profit is what businesses deal with on a day-to-day basis. If the economic profit is zero, the accounting profit is positive. > yet, for business to exist competition must be imperfect. It is true in practice that competition is usually imperfect, but it's not true that this necessarily must be the case in order for businesses to exist.
circlefavshape 11y ago
> mostly everybody agrees with that What??? /me suddenly understands what's meant by "privilege"
- habosa 11y ago
  I think tomp is saying that most everyone agrees that society should have some inequality. It could be as little as "the employee of the month gets a dollar raise!", but most people would agree that a perfectly equal society is very hard to ensure and likely not desirable.
  - deleted 11y ago
    [deleted]
- tomp 11y ago
  Hm... can you find anyone who honestly disagrees with "inequality is good", and therefore claims that "inequality is bad" and so "equality is good" (and also proposes a reasonable and practical implemntation)? Even communists only preached, not practiced, this.
  - progressive_dad 11y ago
    Slavoj Zizek? http://keshek.tumblr.com/image/36898581401 http://keshek.tumblr.com/image/36898581401
  - Rusky 11y ago
    Depending on what you mean by "inequality" and "equality," loads of people. While I doubt you could find many people who want some artificial straw-man world where everyone is completely and totally equal in every way, you should have no trouble at all finding people upset about the vast difference in quality of life between the rich and poor of humanity.
    - tomp 11y ago
      > upset about the vast difference in quality of life between the rich and poor of humanity Absolutely; I am, for one. But that's not inequality, it's extreme inequality. Which I agree is a bad thing. But if you believe inequality is bad, then it must follow that you believe only complete equality (in the economic sense) is good. Which is so unrealistic that we can almost say it's a logical fallacy.
tomasien 11y ago
With you on inheritance, that seems like a great place to start. It would have no impact on startups and would have a great effect on the corruptive forces behind generational aristocracy. I've been thinking a lot about PGs assumption that you have to kill startups to decrease economic inequality. Is that really what's driving economic inequality's increase? Couldn't you quite likely have a world in which first generation entrepreneurs continue to be increasingly successful, but economic inequality doesn't increase lock-step with that? For example, decreasing generational wealth, more of the proceeds from the increasing number of technology enabled companies going to more people (this certainly is a major factor at Google now for example), poverty decreasing (as PG suggests should be our target), and more seems like a world in which these ideas could co-exist. It seems absolutely true that decreasing inequality for the sake of decreasing inequality's sake would be bad, which seems to be PGs point - you have to be targeting something that is specifically bad on its own, and perhaps which has a byproduct that is bad which is increasingly economic inequality. That seems right. But the idea that economic inequality will inevitably increase UNLESS we destroy the ability for people to start companies can't be correct.
bko 11y ago
I say this over and over again in all my comments on the subject, but wealth passed on through inheritance has fallen a lot. I don't know why its always assumed to be true that all this wealth that's driving inequality is inherited. It's not true. > Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today.[0] > There’s no doubt that entrepreneurship is thriving globally. Fully 1,191 members of the list are self-made billionaires, while just 230 inherited their wealth. Another 405 inherited at least a portion but are still working to increase their fortunes. [1] [0]http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/ http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a... [1] http://www.forbes.com/sites/kerryadolan/2015/03/02/inside-the-2015-forbes-billionaires-list-facts-and-figures/ http://www.forbes.com/sites/kerryadolan/2015/03/02/inside-th...
- adrianbg 11y ago
  Really interesting. I wonder how politicians would rate.
- tomp 11y ago
  There's inheritance and there's inheritance. I suspect most rich people don't actually inherit money/wealth (in the legal sense). Instead, they set up trust funds for the benefit of their families/children, and so protect the assets and avoid taxes at the same time. Also, with the sheer number of tax havens and offshore secret bank accounts available nowadays, I'm very sceptical that the official statistics are able to reflect the true concentration of wealth. Which is exactly the problem - there are so many loopholes and workarounds that we can't even imagine the true extent of wealth concentration!
  - bko 11y ago
    Perhaps there are wealthy people that, through hidden inheritance, should be on the list. But what this article looks at is the Forbes 400 richest. Unless there are some Vanderbilts hiding somewhere with billions in offshore accounts, then I would say that inheritance is not driving inequality as much as you think. Also, you have to consider that inheritance is often passed on is often wasted in a few generations. > Indeed, research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent [0] http://www.wsj.com/articles/SB10001424127887324662404578334663271139552 http://www.wsj.com/articles/SB100014241278873246624045783346...
xiaoma 11y ago
The thing I would add to your comment is that inequality in productivity is increasing. And this is actually is good reason for increasing inequality of wealth distribution. Rent-seeking, tax avoidance, buying political influence, monopolistic behavior, corruption and nepotism should go. I'm somewhat torn on the inheritance issue though. From the point of view of young children, inheritance is unfair. From the point of view of the people who worked very hard to build wealth, not being able to give it to the most important people in their lives is unfair.
- collyw 11y ago
  What about inheritance from those who haven't worked especially hard to build it?
- deleted 11y ago
  [deleted]
FLUX-YOU 11y ago
Non-avoidable seems very hard to do to me. Within the law, there only has to be one loophole per generation. Existing structures (I have no knowledge of this stuff) may hide the transfer of inheritance. It's really hard to look at every transaction and verify that it's not inheritance. That money can always leave for a different set of laws, so it might be convenient to go die in a different country. Crypto currencies would make it hard to identify any money coming back in as inheritance. Or people just simply leave the country and refuse to pay. How would we convince every country on the planet to enforce this tax? It may not even be permanent. These are long time lines so it's possible the tax will be there for one presidential cycle and gone the next. People with large amounts of inheritance can afford to wait.
- tomp 11y ago
  > How would we convince every country on the planet to enforce this tax? A simpler solution would be to prevent wealth being "exported" to countries that don't have the same tax regime (or alternatively, tax the wealth when it's being exported). What's happening right now with various tax havens/bank secrecy havens (Cayman Islands, various British isles, Switzerland) is ridiculous (from the point of view of the public; if makes perfect sense for the ruling elite, of course).
vasilipupkin 11y ago
Exactly. the issue is that economic growth over the last 20-30 years appears to be accruing at vastly different rates to different income brackets ( even if you remove top 1% out of the analysis ), not the starting level of inequality. Since it's the case even for say top 60% bracket vs 20% bottom bracket, having taken out the top 40%, it has little or nothing to do with startups.
ArkyBeagle 11y ago
I don't know why Paul couldn't use the term "consumer surplus" in the essay, because I ( perhaps erroneously ) see that as what he is defending. Let me define terms. "Profit" - nominally, returns above investment - can either be rents or a reflection of consumer surplus, or a mix of both. If there is a problem here, it is that we have a hard time distinguishing ... consumer-surplus-bearing-profit from rents. Because this isn't easy. We are also confused because monopolistic - monpsomistic, really - behavior as re the application of the Sherman Act against Standard Oil resulted in lowered end price for consumers. This is a WTF> rich environment. I suspect that if we worked harder at it, rather than relying on just-so stories, we'd be better at it. So to me, the whole argument looks like learned helplessness. As a culture, we seem to prefer to not be able to distinguish between them. As to the rest of your list, IMO ( and very aggressively-and-error-prone IMO ): - tax-avoidance is just inevitable, and there's arguably nothing wrong with it re: Tim Worstall's continued line of reasoning. The entire edifice of using taxes to modify behavior is rather nauseating. It is inherently a game and trying to de-gamify it seems utterly pointless. If you've ever had a conversation about tax-avoidance with a tax-avoider, it's clearly not much about the money any more. Milton Friedman talks in places about how it costs more to avoid most ( well-made ) taxes than to simply pay them - which is consistent with my observation. - Buying political influence is of dubious ... provenance - we, again, get just-so stories and bias confirmation instead of hard empirical work. "Access" isn't an obvious good, and seeking photos with famous people who happen to be politicians seems like seeking photos of yourself with famous people, to me. As a thought experiment - is there enough money in the world to make, say Ted Cruz, embrace, say, abortion? - corruption is well understood and easily preventable. It exists if and only if the public face of the polity presents the contradiction that we want a public servant to work for less than what their market value is. "Renormalizing" the ... values-field of the tax scheme is in order. To my ear, the (inevitable) corruption surrounding alcohol Prohibition in the US is the mechanism for parsing this out. There's little more to it than constructing good, sound models in which we price corruption and then do what we can to behave as if we mean that. - nepotism seems insoluble outside of somehow magically adding market pressure to make it unpleasant. It's also hard because we, at the same time, say "hire people you know from within your network because that information is expensive." But I suspect it's its own reward, from firsthand observation. - inheritance is empirically rather uninteresting outside of a handful of pathological cases. See how easy this is? I've solved the entire thing in a blog reply. HA! :)
gwright 11y ago
In the simplified essay, PG explicitly states that some causes of economic inequality are bad: > But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good. He is not "conveniently" ignoring that point.

by tomp 11y ago

zepto 11y ago

Inheritance taxes on their own will do nothing to change the situation because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners. Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures.

dangerlibrary 11y ago
I agree (and I suspect tomp would as well - it's generally best to give others the benefit of the doubt when they've been silent on an issue) that estate taxes are insufficient. I disagree with the implication that they are not a critical component of a solution.
- zepto 11y ago
  They may be a critical component of a solution, but given what I said earlier about nepotism and clans, I'd argue that they would make things worse because they would further reduce the ability of the poor and middle classes to gain traction against those with corporate power. This is not dissimilar to the Soviet situation. So, even if they are a critical component, they are irrelevant unless someone can articulate how these other components would work.
ThomPete 11y ago
Maybe not but it's a fair tax especially for those who apply to the "just work hard and reap the benefits" Also you can actually guard against that even in corporate structures. Denmark is doing it. However it's not IMO a good thing (and not fair as it taxes the company and removes capital from that company)
- pc86 11y ago
  Of course it's not fair. Someone works hard and earns a million dollars. At that point they've paid just about every tax imaginable on the money other than sales tax. What is the "fair" argument to taxing it again just because they die? If you honestly believe that governments should tax every dollar every time any event happens to it, that's a valid opinion, but let's not pretend it has anything to do with "fairness."
  - barrkel 11y ago
    My concept of fair is strongly related to my concept of justice, and I use Rawls' veil of ignorance as my standard thought experiment for judging just (and fair, WRT laws that are applied universally) scenarios. If the return to capital is much higher than the return to labour, then people who inherit a lot of wealth may gain more than people who expend the sweat of their brow. If society is very unequal, then this process may be highly exaggerated and the gains limited to a select few. From a veil of ignorance, not knowing where in the income distribution I would end up, would I like that world? Or would I prefer one that reduces the disparity (but not so much that it steeply dissuades people from trying to achive things)? The probability that I'd turn out in the very top end of an inequal distribution is slim; so naturally, what I, from a position if ignorance as to my actual position in the world, think is fair is a certain amount of tax, and yes, that includes - especially includes - inheritance tax.
  - ThomPete 11y ago
    You are not taxing them again (since they are dead) you are taxing their children/relatives who get the money without having done anything for it. Plus if you are rich enough a lot of those money were not taxed like a normally family but most probably through things like capital gains or just appreciation (real estate) which rarely is a product of your specific work but rather societies work to turn an area into something thats valuable by building infrastructure etc. When I buy something for my taxed money, whoever I give purchase it from is also being taxed on those already taxed money. So by your logic its not fair to tax that either either. If you buy the argument that we should tax businesses for the things they sell you are basically approving taxation of inheritance too.
tomp 11y ago
> because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners. That's OK, as long as the ownership of these structures is dispersed (as seems to be the case now for many public companies, which are owned by pension funds and/or sovereign wealth funds). That would also prevent nepotism.
- zepto 11y ago
  Please explain how ownership would be dispersed and nepotism be prevented?
  - tomp 11y ago
    Tax inheritance => rich people inherit stock => they must sell stock to pay taxes => ownership dilutes.
    - zepto 11y ago
      Who buys the stock, and why wouldn't they organize into clans?
samstave 11y ago
Take a look at how the masters pull this off. I'm not claiming everything in this article is true - just pointing out how it is surmised that some families protect wealth in a way that transcends both death and taxes: http://www.icij.org/offshore/secret-files-reveal-rothschilds-offshore-domain http://www.icij.org/offshore/secret-files-reveal-rothschilds...
adevine 11y ago
This doesn't make sense to me. At the end of the day, all stock must be owned by actual people, even if it is through a network of other corporate entities and trusts. A corporation may transcend the death of its owners, but if I own 50% of a corporation, and I gift my shares to an heir (or even let them purchase it at a discount), the government will still take their cut.
- sjg007 11y ago
  You have them owned by a trust and you replace trustees when they die.
  - adevine 11y ago
    It doesn't really work that way, at least in the US. While there are different ways to use trusts to minimize estate taxes, it's not like you can put all your assets in a trust, maintain control, and then when you die someone else is named the trustee and they get off tax-free.
- sjg007 11y ago
  You have them owned by a trust and you replace trustees when they die.
- zepto 11y ago
  Sure - let's assume for a moment that inheritance tax does work to distribute ownership. That simply removes 'ownership' as the instrument for control, positions within the corporate structure would then become the 'title' to the assets, and these would be passed down through nepotism and clan structures as I mentioned.
  - adevine 11y ago
    While I'm not a lawyer, it doesn't really work this way, at least in the US. The law defines "ownership" pretty clearly based on who has real control over an asset. You can't really pretend someone else is the owner if you have the real control over the disposition of an asset.
bko 11y ago
Inter-generational wealth is often wasted and doesn't last more than a few generations so perhaps it's not as big a problem as some make it out to be > Indeed, research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent [0] [0] http://www.wsj.com/articles/SB10001424127887324662404578334663271139552 http://www.wsj.com/articles/SB100014241278873246624045783346...
- unprepare 11y ago
  Even if its only 10% (and 10% of a billion is still 100 million dollars) do you really think its reasonable that 100[1] years after my death my family should still be spending the money that I myself earned? To put that in perspective, people who died in 1916 are: Hetty Green - the 'witch of wall street' one of the first ever successful women investors Charles Taze Russell - the creator of a religion that would later be called 'Jehovahs Witnesses' Saint Albert Chmielowski - a Polish religious leader who was made a saint in 1989 Grigori Rasputin - a faith healer and friend of the last Tsar of Russia Nicholas II So we are talking about the modern day descendants of these people, still holding 10% of any wealth amassed over 100 years ago. If you honestly think it would be reasonable for the descendants of these people to still be living off the wealth amassed by their forebears, I guess I just disagree. [1]Wikpedia says a generation is in the low 20's in years, i'll assume 20 to keep from being seen as inflating the numbers
  - cLeEOGPw 11y ago
    > do you really think its reasonable that 100[1] years after my death my family should still be spending the money that I myself earned? Your thought process seem to be like this: a man earns huge amounts of money, then he has children who live ordinary lives, except they don't work, just spend money earned by father/grandfather. A real situation: a man creates a business that generates profit, his children inherit the business and continue working on/are shareholders of said business/ but the value of the business decreases over time. If you think it's unfair that someone can live rich life without working, while you can not, how would it be fair if someone earn money, but is not allowed to give it to his children? It just sounds like you are jealous.
ZeroGravitas 11y ago
> Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures. There is another theory which states that this has already happened. (credit/apologies to Douglas Adams)

chimeracoder 11y ago

> globally increasing inequality At a global level, inequality has not been increasing. Globalization has been a huge win for developing nations in this regard (and the people who have paid the price are low-wage workers in developed nations like the US). This is not to say that we have to conclude that globalization has been a good thing overall for developing nations - there are lots of problems it has caused for them at the same time. But it's tough to criticize it on the basis of increasing inequality globally, because it's done the exact opposite.

tomp 11y ago
Right, that's true. Then let's say "nationally increasing inequality". I'm pretty sure that emerging nations will follow (some are already following) the trends of concentration of capital very soon.
ebbv 11y ago
The global decrease in inequality is barely there, and some argue is an illusion due to the wealthiest individuals being adept at hiding their wealth. What is there is only due to India and China starting to have something resembling a middle class (but even so their standard of living would be unacceptable from someone who grew up in the US.) In the rest of the developed world (US, Europe, Japan, etc.) average wages have been totally left behind by the growth in wealth for the millionaire and billionaire class. In the US especially, average incomes have actually decreased when adjusted for inflation while the billionaires see tremendous growth year after year. It's horrendous.
- chimeracoder 11y ago
  > What is there is only due to India and China starting to have something resembling a middle class (but even so their standard of living would be unacceptable from someone who grew up in the US.) I don't understand what you mean when you say it's "only" due to India and China starting to have a middle class. That is literally the definition of decreasing inequality globally: people who were previously below middle class have increased their standing. > (but even so their standard of living would be unacceptable from someone who grew up in the US.) As someone who actually has a very real sense of what middle-class standard-of-living in India actually is, I'd contest this claim. But even if we ignore that, the fact that a developed country's standard of living is still below the US's standard of living doesn't contradict the statement that the inequality has decreased, because the difference between the two is much smaller than it was 50 years ago.

jseliger 11y ago

Your statement here: "he's mainly arguing that inequality is good" is contradicted by the second paragraph of even his simplified version: But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good. His main point isn't that economic inequality is good, and he says as much.

dangerlibrary 11y ago
I would argue that a reading of the PG essay that doesn't describe it as a series of arguments for ignoring / tolerating / encouraging economic inequality is, at best, flawed.
mattrepl 11y ago
He states some causes are good and some are bad.
vasilipupkin 11y ago
the problem with PGs logic is that the serious argument is not about LEVEL of inequality being > 0, but rather that inequality has been INCREASING in the US. Ignoring this distinction is what makes PG's essay flawed. Nobody is seriously and in good faith arguing that the right level of inequality == 0

amelius 11y ago

> I'm mostly concerned about the last one - inheritance What about rent-seeking? Like the article notes, this is a way for the rich to become richer, without creating anything new. At least with "inheritance", there are "resourceful genes" passing from one generation to the next :)

tomp 11y ago
The problem with rent-seeking is that I don't really know what to do about it. Rent seeking seems to happen wherever there is some scarcity or monopoly (natural or artificial). E.g. patents (artificial), real estate, infrastructure (both natural). In the case of infrastructure, the answer is relatively simple - nationalize it (or strictly regulate it), and offer it to multiple operators at fair (and equal) prices. This is what is happening already in e.g. Europe (for electricity and mobile networks). It can even work for other scenarios - for example, when the Greeks were forced to "privatize" their airports, they didn't actually privatize them, they just rented them out for a number of years - that way, whenever the lease is up for renewal, there is still a market happening, so it's more competitive than ownership/monopoly. For patents/copyright, it's considerably more complex; I think we can all agree that current regimes in e.g. copyright law and software patents feature way too long monopolies, but it's not so clear if that's the case in other fields, especially farmacy. For real estate, it's hard to come up with any solutions. As long as there's a benefit to living close to other successful people, rents/prices in high-prodoctivity areas will keep on rising. Taxes could help (e.g. by making buy-to-let less profitable), but they won't solve the underlying issue. I'm hoping that eventually technology will improve to such an extent that there will be no advantage in living in the cities (i.e. remote working/communications technology or much faster transport). Are there any other worrying examples of rent-seeking that you had in mind?

PaulHoule 11y ago

We are all makers and takers. In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero. Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take. Competition of economic and other varieties is a key to a healthy society, yet, for business to exist competition must be imperfect.

tomp 11y ago
> In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero. Elementary economics fails (as many other social/economic theories) by assuming the ideal state; if the state is not ideal (i.e. the market is not competitve yet), there is a lot of profit to be had. This doesn't mean that you have to abuse monopoly powers to profit; you can simply be better (faster to innovate or spot opportunities) than your competition (until they catch up).
chimeracoder 11y ago
> In elementary macroeconomics you learn it is impossible to make a profit Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take. You're confusing two different definitions of profit. Economic profit includes opportunity cost (which includes the "compensation for the investment you make and the risks you take" that you're talking about). If the economic profit is zero, then everyone was compensated appropriately for all investments, risks, etc. Put another way, if the economic profit is zero, there is no better way you could have spent your money or your time (by definition, not by assumption). Accounting profit is what businesses deal with on a day-to-day basis. If the economic profit is zero, the accounting profit is positive. > yet, for business to exist competition must be imperfect. It is true in practice that competition is usually imperfect, but it's not true that this necessarily must be the case in order for businesses to exist.

circlefavshape 11y ago

> mostly everybody agrees with that What??? /me suddenly understands what's meant by "privilege"

habosa 11y ago
I think tomp is saying that most everyone agrees that society should have some inequality. It could be as little as "the employee of the month gets a dollar raise!", but most people would agree that a perfectly equal society is very hard to ensure and likely not desirable.
- deleted 11y ago
  [deleted]
tomp 11y ago
Hm... can you find anyone who honestly disagrees with "inequality is good", and therefore claims that "inequality is bad" and so "equality is good" (and also proposes a reasonable and practical implemntation)? Even communists only preached, not practiced, this.
- progressive_dad 11y ago
  Slavoj Zizek? http://keshek.tumblr.com/image/36898581401 http://keshek.tumblr.com/image/36898581401
- Rusky 11y ago
  Depending on what you mean by "inequality" and "equality," loads of people. While I doubt you could find many people who want some artificial straw-man world where everyone is completely and totally equal in every way, you should have no trouble at all finding people upset about the vast difference in quality of life between the rich and poor of humanity.
  - tomp 11y ago
    > upset about the vast difference in quality of life between the rich and poor of humanity Absolutely; I am, for one. But that's not inequality, it's extreme inequality. Which I agree is a bad thing. But if you believe inequality is bad, then it must follow that you believe only complete equality (in the economic sense) is good. Which is so unrealistic that we can almost say it's a logical fallacy.

tomasien 11y ago

With you on inheritance, that seems like a great place to start. It would have no impact on startups and would have a great effect on the corruptive forces behind generational aristocracy. I've been thinking a lot about PGs assumption that you have to kill startups to decrease economic inequality. Is that really what's driving economic inequality's increase? Couldn't you quite likely have a world in which first generation entrepreneurs continue to be increasingly successful, but economic inequality doesn't increase lock-step with that? For example, decreasing generational wealth, more of the proceeds from the increasing number of technology enabled companies going to more people (this certainly is a major factor at Google now for example), poverty decreasing (as PG suggests should be our target), and more seems like a world in which these ideas could co-exist. It seems absolutely true that decreasing inequality for the sake of decreasing inequality's sake would be bad, which seems to be PGs point - you have to be targeting something that is specifically bad on its own, and perhaps which has a byproduct that is bad which is increasingly economic inequality. That seems right. But the idea that economic inequality will inevitably increase UNLESS we destroy the ability for people to start companies can't be correct.

bko 11y ago

I say this over and over again in all my comments on the subject, but wealth passed on through inheritance has fallen a lot. I don't know why its always assumed to be true that all this wealth that's driving inequality is inherited. It's not true. > Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today.[0] > There’s no doubt that entrepreneurship is thriving globally. Fully 1,191 members of the list are self-made billionaires, while just 230 inherited their wealth. Another 405 inherited at least a portion but are still working to increase their fortunes. [1] [0]http://www.forbes.com/sites/afontevecchia/2014/10/03/there-are-more-self-made-billionaires-in-the-forbes-400-than-ever-before/ http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a... [1] http://www.forbes.com/sites/kerryadolan/2015/03/02/inside-the-2015-forbes-billionaires-list-facts-and-figures/ http://www.forbes.com/sites/kerryadolan/2015/03/02/inside-th...

adrianbg 11y ago
Really interesting. I wonder how politicians would rate.
tomp 11y ago
There's inheritance and there's inheritance. I suspect most rich people don't actually inherit money/wealth (in the legal sense). Instead, they set up trust funds for the benefit of their families/children, and so protect the assets and avoid taxes at the same time. Also, with the sheer number of tax havens and offshore secret bank accounts available nowadays, I'm very sceptical that the official statistics are able to reflect the true concentration of wealth. Which is exactly the problem - there are so many loopholes and workarounds that we can't even imagine the true extent of wealth concentration!
- bko 11y ago
  Perhaps there are wealthy people that, through hidden inheritance, should be on the list. But what this article looks at is the Forbes 400 richest. Unless there are some Vanderbilts hiding somewhere with billions in offshore accounts, then I would say that inheritance is not driving inequality as much as you think. Also, you have to consider that inheritance is often passed on is often wasted in a few generations. > Indeed, research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent [0] http://www.wsj.com/articles/SB10001424127887324662404578334663271139552 http://www.wsj.com/articles/SB100014241278873246624045783346...

xiaoma 11y ago

The thing I would add to your comment is that inequality in productivity is increasing. And this is actually is good reason for increasing inequality of wealth distribution. Rent-seeking, tax avoidance, buying political influence, monopolistic behavior, corruption and nepotism should go. I'm somewhat torn on the inheritance issue though. From the point of view of young children, inheritance is unfair. From the point of view of the people who worked very hard to build wealth, not being able to give it to the most important people in their lives is unfair.

collyw 11y ago
What about inheritance from those who haven't worked especially hard to build it?
deleted 11y ago
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FLUX-YOU 11y ago

Non-avoidable seems very hard to do to me. Within the law, there only has to be one loophole per generation. Existing structures (I have no knowledge of this stuff) may hide the transfer of inheritance. It's really hard to look at every transaction and verify that it's not inheritance. That money can always leave for a different set of laws, so it might be convenient to go die in a different country. Crypto currencies would make it hard to identify any money coming back in as inheritance. Or people just simply leave the country and refuse to pay. How would we convince every country on the planet to enforce this tax? It may not even be permanent. These are long time lines so it's possible the tax will be there for one presidential cycle and gone the next. People with large amounts of inheritance can afford to wait.

tomp 11y ago
> How would we convince every country on the planet to enforce this tax? A simpler solution would be to prevent wealth being "exported" to countries that don't have the same tax regime (or alternatively, tax the wealth when it's being exported). What's happening right now with various tax havens/bank secrecy havens (Cayman Islands, various British isles, Switzerland) is ridiculous (from the point of view of the public; if makes perfect sense for the ruling elite, of course).

vasilipupkin 11y ago

Exactly. the issue is that economic growth over the last 20-30 years appears to be accruing at vastly different rates to different income brackets ( even if you remove top 1% out of the analysis ), not the starting level of inequality. Since it's the case even for say top 60% bracket vs 20% bottom bracket, having taken out the top 40%, it has little or nothing to do with startups.

ArkyBeagle 11y ago

I don't know why Paul couldn't use the term "consumer surplus" in the essay, because I ( perhaps erroneously ) see that as what he is defending. Let me define terms. "Profit" - nominally, returns above investment - can either be rents or a reflection of consumer surplus, or a mix of both. If there is a problem here, it is that we have a hard time distinguishing ... consumer-surplus-bearing-profit from rents. Because this isn't easy. We are also confused because monopolistic - monpsomistic, really - behavior as re the application of the Sherman Act against Standard Oil resulted in lowered end price for consumers. This is a WTF> rich environment. I suspect that if we worked harder at it, rather than relying on just-so stories, we'd be better at it. So to me, the whole argument looks like learned helplessness. As a culture, we seem to prefer to not be able to distinguish between them. As to the rest of your list, IMO ( and very aggressively-and-error-prone IMO ): - tax-avoidance is just inevitable, and there's arguably nothing wrong with it re: Tim Worstall's continued line of reasoning. The entire edifice of using taxes to modify behavior is rather nauseating. It is inherently a game and trying to de-gamify it seems utterly pointless. If you've ever had a conversation about tax-avoidance with a tax-avoider, it's clearly not much about the money any more. Milton Friedman talks in places about how it costs more to avoid most ( well-made ) taxes than to simply pay them - which is consistent with my observation. - Buying political influence is of dubious ... provenance - we, again, get just-so stories and bias confirmation instead of hard empirical work. "Access" isn't an obvious good, and seeking photos with famous people who happen to be politicians seems like seeking photos of yourself with famous people, to me. As a thought experiment - is there enough money in the world to make, say Ted Cruz, embrace, say, abortion? - corruption is well understood and easily preventable. It exists if and only if the public face of the polity presents the contradiction that we want a public servant to work for less than what their market value is. "Renormalizing" the ... values-field of the tax scheme is in order. To my ear, the (inevitable) corruption surrounding alcohol Prohibition in the US is the mechanism for parsing this out. There's little more to it than constructing good, sound models in which we price corruption and then do what we can to behave as if we mean that. - nepotism seems insoluble outside of somehow magically adding market pressure to make it unpleasant. It's also hard because we, at the same time, say "hire people you know from within your network because that information is expensive." But I suspect it's its own reward, from firsthand observation. - inheritance is empirically rather uninteresting outside of a handful of pathological cases. See how easy this is? I've solved the entire thing in a blog reply. HA! :)

gwright 11y ago

In the simplified essay, PG explicitly states that some causes of economic inequality are bad: > But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good. He is not "conveniently" ignoring that point.