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Bill Gates: Piketty's Attack on Income Inequality Is Right
New submitter rvw sends word that Bill Gates has posted a review of Capital in the Twenty-First Century, an acclaimed book by economist Thomas Piketty about how income equality is a necessary result of unchecked capitalism. Gates, one of the most successful capitalists of our time, agrees with Piketty's most important conclusions. That said, he also finds parts of the book to be flawed and incomplete, but says Piketty has started vital debate on these issues. Gates writes,
Yes, some level of inequality is built in to capitalism. As Piketty argues, it is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good? That's something we should have a public discussion about, and it's great that Piketty helped advance that discussion in such a serious way. ... 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.
Hopefully (probably?) what he means is that the only taxes are on consumption.
I don't want to achieve immortality through my work. I want to achieve it by not dying. - Woody Allen
The Fair Tax solves this by giving everyone a subsidy equal to the amount of taxes that would be paid at a certain income level (directly related to the poverty line, I believe). Everyone essentially pays no taxes on necessary food/housing/etc... So it's actually better for the poor than the middle and upper classes. I'm sure that most consumption tax proposals do something similar.
I don't want to achieve immortality through my work. I want to achieve it by not dying. - Woody Allen
Except that the rich spend much less of their income on stuff other than groceries/rent/mortgage than the poor and middle class. Making those exclusions helps the poor, but still shifts the burden toward middle class and lower-income households.
The founder of Capitalism was very clear that the failure of Mercantilism was due to unregulated monopolies which resulted in a 2 class system. The upper class could, and did, fix prices to maximize profits creating false scarcities and reducing wages in the labor pool. Capitalism was intended to be regulated to prevent a two class system, yet we have seen large reductions in our regulations over the last few decades. Hence, we are moving further toward yet another two class system which will end in predictable results if not checked.
I kind of agree with you, but don't agree that you have only two variables. Capitalism is supposed to have a third variable which can move toward either end of the scale. The mobile variable is supposed to increase productivity and allow class mobility. The stability factors are supposed to be the top and bottom ends, primarily due to what Socrates discussed with the Artisan and economics.
Paraphrasing Socrates pretty heavily here, but the logic will remain. Jobs paying too little result in a labor shortage and hopeless class of society. Jobs paying too much result in not just a lack of productivity by the wealthier class, but frees the same people to meddle in everyone else' affairs to gain until the point at which revolt is necessary to balance society again. The Government's job is to ensure that people are secure, which having no caps on wealth does not allow.
As we have seen deregulation occur, we have also seen wealth disparity change drastically in favor of those who already have wealth. Meanwhile the middle class has been reduced drastically and rates of poverty have increased dramatically in the US.
Before anyone claims "but that is unfair to rich people" Consider that up until Nixon, anyone making 1,000,000 a year in personal pay was paying 90% income tax (true since income tax was implemented). In 1968, making 100,000 a year was a very healthy wage, many times the average and very few making 1M/yr complained. Reagan reduced taxes further, so any wealthy person paying into the tax system paid a lesser rate than the average worker. Today, we have a guy admitting to make millions and pay 9% tax(Rupert Murdoch), compared to a person making 100K paying 30% tax. (It should go without saying that the income tax incentive was not just to prevent massive personal wealth, but to ensure that profits from companies went back into the company instead of a person's pocket).
Nixon promised that reducing taxes on the Rich would stimulate the economy, and Reagan claimed the same thing. Yet we have not seen any such stimulation and wealth disparity has moved in the exact opposite direction as promised.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
I have yet to see someone actually explain why income inequality by itself is a bad thing.
It isn't. But excessive income inequality can be.
History is full of examples, like feudalism. Basically, really concentrated money tends to go with really concentrated power, and that rarely ends up well for the poor people.
When I hear folks talking about this, what I really hear is, "since one person doesn't need that much money to live, the government should take the difference and use it to make MY life better,"
Yeah, the only people who say that are truly crazy extreme egalitarians, not the majority of political and economic theorists.
Very few people talk about taking "the difference" and redistributing things until we're all equal. In such a situation, there's no incentive for anyone to work harder or do better than anyone else, and thus innovation fails. This is bad for everyone, but especially the poor, who tend to benefit the most from continued improvements in overall infrastructure, standard everyday access to things that lead to a better quality of life, etc.
One of the more popular formulations in political theory is John Rawls's "difference principle" (or "Maximin" principle). In Rawls's formulation of Justice as Fairness, he discusses two primary criteria for a just society: (1) basic liberty, and (2) basic equality. The second does not imply that everyone has equal outcomes, but rather incorporates two additional elements: (1) equal opportunity for everyone, and (2) inequality will not lead to degradation of the worst-off (this is the "difference principle").
There's a lot to the theory, but the basic idea is that allowing some inequality gives an incentive for innovation and hard work and in general improving society overall, which will include benefits for the poorest members.
But at some point, the additional accumulation of wealth among the richest will stop raising the standard of living among the poorest and can even decrease it.
Rawls postulates that inequality is beneficial as long as that inequality is raising the overall standard of living for everyone. When greater inequality ceases to do so, it's no longer just. You can think about this on a smaller scale in terms of running a business -- to some degree, paying management and executives more will draw more talented and skilled people who will make the company do well, and if the company does well, all employees will reap the benefits in terms of better salaries, working conditions, and job stability. But at some point executives can become a drain on the companies resources if they take too much, which hurts everyone else, but generally especially those at the bottom.
And that is generally the point at which we should say that we need to tax the rich a little more or put in place some sort of regulations to redistribute some to the worst-off.
Someone explain this harm to me, because from where I'm standing in a first world country, it seems to be just so much complaining over sour grapes.
In the real world, not everyone is born equal. Some people are smarter, or have more valuable natural talents, or whatever. That's the justification for Rawls -- he says to imagine you had to design a just and fair society without knowing in advance where you'd fall within it. (Rawls calls this the "original position" or the "veil of ignorance.") You might be the smartest and most talented person, or you might be a complete idiot compared to everyone else in that society. You just don't know.
And if you were in a position, how would you come up with fair rules for society? You probably wouldn't want to set up a system so if you were the dumbest person that you could be enslaved and exploited for your entire life, right?
Rawls thus formulates his "difference principle," which allows inequality to exist for the talented or skilled, but only if it results in society's improvement overall.