The problem with differentiating between the "good investor" and the "lavish lifestyle guy" is that the good investor is actually the one that you (rather, Piketty) need to be most worried about.
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.
As an example of that theory in action. Rupert Murdoch bought Fox broadcasting and both makes money from in and puts forth his personal ideology. Arguably he might have made more money with other investments, but it's been a vary solid investment. Monsanto is not just a major agricultural company they actively lobby for stronger patents. At a more pervasive level 'Climate Change' is not just science it's become a political debate with well moneyed people and organisations actively trying to influence things.
I just want to say that I agree with you in a more weighty manner than an upvote.
Great comment. Also, those of us who fight against inequality are not fighting for equality at all.
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 elephant that everybody pretends that isn't in the room is that what you just called weapons is the ability to create wealth. Do we really need to take it away from everybody?
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.
It's not evident in Gates's review, but one of Piketty's arguments for a wealth tax is just so we can get a better picture of wealth. He goes through great lengths to try to get data on it -- if there was a tax, even a small one, we'd have far greater transparency.
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.
Interesting argument, but surely you don't think the world needs less investment? So if you're going to tax away money that would otherwise be invested in creating businesses and jobs, what do you think should be done with it instead? Or do you think the state is a more efficient investor of capital?
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.
If your issue is the social problems associated with extreme inequality, it's ultimately just a question of whether the tradeoff is worth it, rather than whether it grows the GDP faster or slower. There are a million ways we could restructure society, with a million consequences for the economy and the social good. It's all a matter of picking the tradeoffs we can all live with.
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.
Investment in what, though?
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.
> 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.
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.
I think you're right.
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.
> If the rich spend all their money for consumption, then there will not be enough capital available - or so the argument goes.
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.
Currently, 436 people (Reps, Senators and President) control nearly 4 trillion dollars, the budget for this year.
What should we do about them?
Vote for or against them in the elections provided for the purpose?
That America's government does a poor job of representing American society is a separate problem. The way you solve that is by changing the voting system to proportional representation in both the congressional and presidential elections.
How can Americans be so upset at their political situation without even discussing ways in which to change it? Unconstructive complaints is just whining.
Devolve as much as we can. Split federal programs into state programs, then county-level programs, where the money is collected and spent on a much smaller scale.
One possible solution - add more representatives to make the power less consolidated.
Your number is way off (435+100+more than 1 executive branch), and furthermore, if you don't follow the money that influences these actors (lobbying, revolving door, non-blind blind trusts, etc) then you don't really understand what or who is driving those decisions.
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 shouldn't be afraid of the Gates and Buffetts of the world. These guys have found their place, they know their value and their worth and they know how to create wealth for themselves and for others. They are secure, confident, valuable human beings.
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.
What about the Kochs and Murdochs of this world? Since you mention Russia, what of the high level of corruption and organised crime that seems to be required to be rich there?
I think its telling you omit non-founding CEO's who have been placed at the heads of companies in nearly exactly the same fashion.
You can see this in action with Soros and the Koch brothers, both of whom have invested a lot of wealth to directly influence politics and social movements that further their political ideas. Even if you agree with one or the other's political goals, the fact that anyone can have that much sway over the governance of an ostensibly democratic society is a huge mess with serious risks to society and the common good.
Both those parties spend a lot, but you are begging the question of how much effect they have.
Their political ideas aren't their own, and I highly doubt they would put so much of their resources into them if there wasn't a large base of support there already. Government spending in the US as a percentage of GDP has almost flatlined since the early 90s. There was a spike recently, but the previous growth wasn't really sustainable with the quasi-free-market economy everyone (at least in the US) seems to prefer. The Soros' and Kochs' of the world are everywhere and always influencing things in both directions. I don't think this is a valid concern given the balance of power in our governments.
Many people have various political views. Allowing people with huge buckets of cash to use that cash to gain increased representation is fundamentally wrong. A representative government is supposed represent all of its constituents equally, but with the current pay-to-play/pay-to-propagandize/pay-to-astroturf regime it doesn't. We can't actually say with any degree of certainty that that the buckets of cash influencing politics are balancing out, since we haven't got a pristine state of thing to compare the current mess against, and there's plenty of evidence to suggest that huge buckets of cash have swayed things on many issues against the interests of the general public.
One thing that always bothers me about wealth distribution is that you can't simply move wealth around and expect things to get better. People who have wealth are going to be better with that wealth than people who don't. They grew up with wealthy people, have managed the wealth for a long time, have witnessed mistakes and successes, and overall have spent a lot of time contemplating wealth.
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.
> 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
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)
While a democracy bestows each citizen with a vote, it is just not true that everyone has a "roughly equal say in how things go". Power, influence and money are all unequal. Martin Luther King had more say in "how things go" than i ever will even though we each can only cast one vote each. The authority rests in each citizen equally but power will always be unequal
Not matter who or what you tax, you are still using force to extort money from those who have earned it. Capitalism represents free trade for equal value. If someone breaks a law that is a problem with the justice system not Capitalism.
> 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.
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.
It's easy enough to create systems that grants tax credits for investment vehicles as long as the returns are rolled over into new investments.
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.
What about the common libertarian viewpoint that we should limit the scope of government so that the rich guys don't have any significant political power to hijack? This comes without the slowing of economic growth that would be caused by higher taxes on capital.
Exactly. We only care about who controls Washington because the gov't has such a huge say over our lives. People claim to want less power in the hands of well connected companies and lobbyists. Then they claim they want government to keep them safe from highly unpredictable events, mandate the minimum and maximum amount of money people should get, provide good healthcare to everyone, prevent kids from being bullied at school, make sure everyone's internet is fast but not faster for one site than another, make sure my french fries only contain "good" fats, allow only certain vices like alcohol but not others like some drugs, etc.
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.
They still have economic power, and no political power to keep them somewhat in check. It's the Wild West.
The rich don't need the government to exert influence and rig the game in their favor. For example, they can:
- buy up their competitors to create monopolies
- use one monopoly to build another one (e.g. "if you buy our competitor's coal, you can't use our railroad")
- gain control over natural resources
- collude with their competitors
- abuse the legal system to kill competitors
- hire marketers and fund NGOs for propaganda purposes
- control the media
etc.
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.
> The problem with differentiating between the "good investor" and the "lavish lifestyle guy" is that the good investor is actually the one that you (rather, Piketty) need to be most worried about.
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.
Replace "wealth" with "intelligence", "attractiveness" or even "physical strength", and you get similar threats. Big, strong people could hurt us at any time, and "it's only through their continuing mercy that they haven't"; intelligent people could manipulate or persuade us, while attractive people could seduce us for their own benefit. And yet, we still let people go to the gym to work out and go to school and read books, even encourage them in most cases.
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.
Yeah but the smart investor should have an outsized say in how things are done because he's the one who wants society to be economically efficient.
It's the fat cat guys are the ones that are draggin us all down.
I disagree, but I upvoted because I think it perfectly highlights the real difference of opinion.
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).
>Wealth taxes are about disarming everyone -- good and evil -- for the safety of us all, not about morality.
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.