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Return to capital > growth of economy. This is the central dogma of Piketty's Capital.

AnthonyMouse 6y ago
> Return to capital > growth of economy. This is the central dogma of Piketty's Capital. The problem with this is taking it as a law of nature rather than an observed behavior over a specific period of history. And notably one with a stark lack of antitrust enforcement. Suppose you bust up monopolies and require companies to compete with each other. Then prices go down, which increases growth (lower price, higher demand), but decreases return on capital (lower margins). Is r > g still true then? Maybe not. I say we try it and find out.
- sooheon 6y ago
  I mean, it is kind of a law of nature, like gravity wells accumulating, that power and wealth beget power and wealth at a greater rate than the global mean. But yes, I agree, the whole idea of pointing out r > g is to advocate for policy changes that would counteract this. The question is which policies? It's easy to say "break up monopolies", much harder to devise elegant countermeasures that align interests across the whole spectrum and are robust to defection.
  - nwellnhof 6y ago
    > much harder to devise elegant countermeasures Here's a simple and elegant countermeasure. Don't allow people to inherit more than say $50M with an extremely progressive estate tax.
    - AnthonyMouse 6y ago
      That may be simple but it is neither elegant nor effective. The estate tax is a joke because it can be avoided through tax planning. The theory is that Richard Rich dies and then little Richie inherits the money but would lose 90% of it to the tax. What happens in practice is that when Richie is 18 years old he launches a company with a loan from his parents in the same line of business where they have expertise and contacts so that 20 years later he's a billionaire in his own right. Meanwhile all the usual tax avoidance strategies are happening with jurisdictional arbitrage and transfer pricing and self-dealing so that by the time the parents retire they still have all they need for a lavish retirement but the bulk of their assets have already been transferred to their children at a low tax rate. The problem isn't inheritance. It isn't taxes at all. It's market consolidation and regulatory capture which yields regulations that favor big businesses over small ones and incumbents over upstarts. Because small business and competition are the ways growth flows to the little guy.
      - nwellnhof 6y ago
        > What happens in practice is that when Richie is 18 years old he launches a company with a loan from his parents in the same line of business where they have expertise and contacts so that 20 years later he's a billionaire in his own right. It's not as simple as you make it sound. In every sane tax system, donations (even loans with lower than usual interest rates) are taxed just like inheritance. Of course, getting a million dollar loan at all makes a huge difference. But it's still no guarantee to build a successful business. The point is to make it a lot harder to bequeath obscene amounts of wealth.
        AnthonyMouse 6y ago
        > In every sane tax system, donations (even loans with lower than usual interest rates) are taxed just like inheritance. But it's not donations at all. It's, you vouch for this person with a customer who trusts you and correspondingly awards them a billion dollar contract. You take them on as a customer or supplier in a business with 4% margins, so that a 4% difference here and there on what prices you negotiate with them can shift ~100% of your profits to them. You teach them trade secrets that only successful companies in that line of business are privy to. There are a thousand ways to do it that don't show up on any tax form, and trying to exclude some only causes people to invent new ones. The real way to fix it is to make it easier for newcomers to compete with the incumbents so the incumbent companies fail or maintain thin margins and new ones are created at a fast enough rate that it's rare for them to exist at a large scale for generations on end to enable the long-term accumulation of capital.

> Return to capital > growth of economy. This is the central dogma of Piketty's Capital. The problem with this is taking it as a law of nature rather than an observed behavior over a specific period of history. And notably one with a stark lack of antitrust enforcement. Suppose you bust up monopolies and require companies to compete with each other. Then prices go down, which increases growth (lower price, higher demand), but decreases return on capital (lower margins). Is r > g still true then? Maybe not. I say we try it and find out.

sooheon 6y ago
I mean, it is kind of a law of nature, like gravity wells accumulating, that power and wealth beget power and wealth at a greater rate than the global mean. But yes, I agree, the whole idea of pointing out r > g is to advocate for policy changes that would counteract this. The question is which policies? It's easy to say "break up monopolies", much harder to devise elegant countermeasures that align interests across the whole spectrum and are robust to defection.
- nwellnhof 6y ago
  > much harder to devise elegant countermeasures Here's a simple and elegant countermeasure. Don't allow people to inherit more than say $50M with an extremely progressive estate tax.
  - AnthonyMouse 6y ago
    That may be simple but it is neither elegant nor effective. The estate tax is a joke because it can be avoided through tax planning. The theory is that Richard Rich dies and then little Richie inherits the money but would lose 90% of it to the tax. What happens in practice is that when Richie is 18 years old he launches a company with a loan from his parents in the same line of business where they have expertise and contacts so that 20 years later he's a billionaire in his own right. Meanwhile all the usual tax avoidance strategies are happening with jurisdictional arbitrage and transfer pricing and self-dealing so that by the time the parents retire they still have all they need for a lavish retirement but the bulk of their assets have already been transferred to their children at a low tax rate. The problem isn't inheritance. It isn't taxes at all. It's market consolidation and regulatory capture which yields regulations that favor big businesses over small ones and incumbents over upstarts. Because small business and competition are the ways growth flows to the little guy.
    - nwellnhof 6y ago
      > What happens in practice is that when Richie is 18 years old he launches a company with a loan from his parents in the same line of business where they have expertise and contacts so that 20 years later he's a billionaire in his own right. It's not as simple as you make it sound. In every sane tax system, donations (even loans with lower than usual interest rates) are taxed just like inheritance. Of course, getting a million dollar loan at all makes a huge difference. But it's still no guarantee to build a successful business. The point is to make it a lot harder to bequeath obscene amounts of wealth.
      - AnthonyMouse 6y ago
        > In every sane tax system, donations (even loans with lower than usual interest rates) are taxed just like inheritance. But it's not donations at all. It's, you vouch for this person with a customer who trusts you and correspondingly awards them a billion dollar contract. You take them on as a customer or supplier in a business with 4% margins, so that a 4% difference here and there on what prices you negotiate with them can shift ~100% of your profits to them. You teach them trade secrets that only successful companies in that line of business are privy to. There are a thousand ways to do it that don't show up on any tax form, and trying to exclude some only causes people to invent new ones. The real way to fix it is to make it easier for newcomers to compete with the incumbents so the incumbent companies fail or maintain thin margins and new ones are created at a fast enough rate that it's rare for them to exist at a large scale for generations on end to enable the long-term accumulation of capital.