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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.
Piketty did little to advance the debate on income equality; that debate was already alive and well before he published his book. The only thing it did was to supply some intellectual ammunition to those in favour of greater equality, but there are very few (if any) new arguments brought forth. I read his book and I agree with some of the ideas within, but as a whole this book is vastly overrated.
If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...
The rich, depending on how rich, spend ridiculously small percentages of their income. The poor spend every dime. A consumption tax will immediately transfer the bulk of taxation to the poor and middle class. The Ultra rich like the idea of consumption taxes because 99.999% of their money is sitting in long term trusts making 10% and will never ever get spent.
Contrast that with what Gates wrote:
thanks to the rise of the middle class in countries like China, Mexico, Colombia, Brazil, and Thailand, the world as a whole is actually becoming more egalitarian, and that positive global trend is likely to continue.
Well, ok, so that's the exact opposite of Piketty. He then attacks directly Piketty's point that wealthy people increase their wealth. He suggests that the also spend their money, both on consumption and philanthropy, and that rentier families tend to lose their money. To back up his point, he looks at the Forbes 400:
About half the people on the [Forbes 400] are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since.
Finally he goes on to give his own ideas about taxation. In other words, Gates is using this book as a stimulus for his own ideas, and he found it very stimulating.
And now I've done a review of Gate's review. I feel so meta.
"First they came for the slanderers and i said nothing."
The tax code already encourages people to go into debt. And to speculate, and to set up shell corporations around the globe. Apple borrows billions rather than re-patriating the billions they already have parked offshore. Because they can deduct the costs of borrowing, but have to pay taxes when they re-patriate.
And that's not an argument for not taxing corporate profits, it's an argument for closing stupid loopholes. Governments need revenue (yes, they do), and somebody's got to provide it. How much revenue is not relevant to this discussion of inequality - sure, you should spend more than you take in, okay. What matters is the best way to generate the money you spend in order to have a society that works well for the biggest portion of the population.
Gates' idea of a progressive consumption tax may address the issue as he sees it, but it's completely impractical to implement - as well as not really being very progressive, because as noted by others here, the richest people consume the smallest portions of their wealth. Perhaps the most efficient and fairest form of wealth taxation is the estate tax. To ask how that tax has been recast as the murder of all that's American (think of the family farms!!!! what family farms?) is to ask what's wrong with the corporate, think-tank formulated framing that the corporate, lazy media spit back unfiltered.
But at least Gates is acknowledging the problem, and laying blame where it belongs - at the feet of unregulated Capitalism.
Posted from my Android phone. Oh, I can change this? There, that's better...
(the economic experiment over the last 30 years seems to support this hypothesis). Thus, we must tweak our system so that it does not destroy the middle class.
Amazing that claims such as those in OP persist, given that the historical record is indisputable:
I dispute!
as our economy has become less capitalist, income inequality has been increasing at an ever-increasing pace.
I'm having trouble following this argument, but since it's been rated as "+5 Insightful" I suppose there's supposed to be some truth here.
I can only assume you are referring to the "last 30 years" (as in the quote from GP you are discussing) as a time when "our economy has become less capitalist."
Obviously one has always to define what "capitalist" means, but I suppose most people tend to equate it with economic freedom. And, well, we actually have indices designed to measure how this is changing, such as the Index of Economic Freedom, which is a scoring system created by the Heritage Foundation and the Wall Street Journal (and thus should presumably have some meaning for "capitalists," since they based their index on principles derived from Adam Smith).
So, let's look at their historical rankings for the past 20 years.
Basically, the U.S. has consistently ranked from 4th to 10th in the world in terms of economic freedom since this index was inaugurated in 1995. The overall world has become slightly more free over this period, so the U.S.'s small decline in ranking is over a period where its score has remained relatively consistent. (And if you want to visualize the data compared to other countries, you can do so here.)
I think most people would agree that the various policies of the U.S. in the 1980s led to greater economic freedom overall, and here we have stats designed by organizations at the heart of capitalism who say that we've been basically static since 1995.
Meanwhile, most indicators show that income inequality has been consistently increasing for at least the past 30 years in the United States.
We can talk about correlation/causation until the cows come home, but this much is simple: when there is a negative correlation, then capitalism isn't the cause.
Except there's no negative correlation, certainly not in the past 30 years you seem to be responding to. Economic freedom in the U.S. is pretty darn high compared to most countries in the world, and it's been consistently scored high for the past few decades.
That's not to say that capitalism is the sole or major cause of income inequality, but the "negative correlation" you claim is not borne out by the actual data.
The summary has it wrong. Piketty argument is not against "unchecked capitalism." His argument is that lower growth leads to wealth inequity, which implies a host of social ills such as increased income inequity, class stratification, etc. He goes on to argue that the current golden period of income equity and class mobility – 1950s to the 1980s was due to a golden period of growth. He believes that we are returning to a more normal growth rate of 2% - which was the norm for the past 300 years. If we can't increase the growth rate – which he thinks we can't – the only way to avoid the social ills is wealth redistribution via taxation.
I think his arguments that lower growth leads to greater wealth inequity are very persuasive. He has posted his very extensive research on his website. I think his other points are valid and interesting but I give them less weight.
If you're using "make" as a term for earning money through wages, then most rich people "make" money. They may also make more money by investing money wisely, whether it be stocks, starting businesses, etc... If you think that rich people "get their hands on" money by just stealing it from the poor, you're delusional.
As delusional as imagining I said something I didn't, as you just did? But no, gaining from the creation of value, such as the financial sector does, is not creation of value. If you want to make an argument that it facilitates it, fine, and appropriate relevance (and compensation) for this could be discussed.
Can a scientist/engineer/lawyer organize and run a huge company composed of lawyers, engineers, and scientists?
Yes. One requires extensive knowledge and by definition the ability to manifest value-add directly by that knowledge, that knowledge being the core relevant thing to a company doing it. The part distinctive to the executive role requires a $50 filing of Articles of Incorporation and pre-existing access to wealth or "contacts" for it. There's no question here that in terms of -ability-, the people with the skills can do that, the reverse is definitely not necessarily true. If we are discussion CEO's whose income is validated -insofar as- they are acting as one of the other categories, that is not contrary to my premise. Mostly, however, the market is determined simply by inequality of opportunity, and the business structures derived directly from that--having little to do with any kind of "meritocracy" principles you seem to be alluding to.
~ Whence do you come, slayer of men, or where are you going, conqueror of space?
There's a reason that top CEOs get paid what they do. Without them, there is no functioning company.
By that standard, there are probably dozens or even hundreds of employees who should be paid top dollar at a given company. Many if not most workers at companies are specialists at what they do, and without them, the company probably would not be able to function.
Most businesses don't tend to hire a lot of interchangeable nobodies with no expectation that they have or will ever have skills that would be important to the function of the company -- except maybe for really crappy entry-level positions that require no training or experience. Everybody else in the company has a good chance of serving some function -- otherwise, why bother employing them?
Sure, some or even most get paid what we think of as more than they're actually worth, but those companies are in a position to pay them so much because of their CEO.
Actually, several recent studies (like this one) seem to suggest that larger salaries and benefits may actually HURT a company's chances of getting a valuable CEO.
If they're not good enough, they get fired - it happens all of the time.
Yeah, actually the CEOs, like heads of federal government organizations, tend NOT to be fired because they're "not good enough." They get fired because bad stuff happens. It doesn't really matter if they are responsible when the company fails to perform -- it could be a bad economy or a bad business to begin with or crappy products or actual bad management at the top... if the business does bad enough, the CEO takes the blame.
That's pretty much the CEO's job: make random decisions and take the blame for really big problems (even when it's not his fault).
I'm not at all saying that there aren't good CEOs out there. But I think you're vastly overestimating how important their talents are compared to other people at companies. If you start reading around in some recent studies on this stuff, you'll find some folks who understand randomness and probability noting that claiming that CEOs largely get promoted or hired or fired according to random whims of the economy. Yes, they can make really terrible decisions or really good ones, but often those are mostly just lucky. And if they're lucky, they get promoted or hired at an even bigger company, if they aren't, they get fired.
It's mostly the mid-level management folks where you tend to find a sprinkling of real talent that is driving the company forward on an everyday basis. CEOs with exorbitant salaries are just a fixture in companies because we think we need them. I think the jury is actually out about whether that's the best form of governance for successful companies -- in many cases, you'd probably be just as good choosing any random CEO at that level (or maybe even just putting a magic 8-ball at the helm).