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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.
Come and see the violence inherent in the system!
Faster! Faster! Faster would be better!
We charge the people doing the labor (income tax) and then *also* charge them on consumption? The people least able to pay?
This will end well.
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...
a progressive tax on consumption
Not sure how that's going to promote demand for goods and services. It looks to me like a recipe for rewarding not-spending. And not-spending is exactly what's sucking the liquidity out of the economy now, locking it up in the vaults of the wealthy, who refuse to spend at all unless it means that they wind up with ever more in their vaults, and construction of the (was this term ever more apt?) vicious cycle is complete.
As always, all IMO. Insert "I think" everywhere grammatically possible.
I do believe income inequality is the inevitable result of unchecked capitalism. It's not necessary by any means.
The cesspool just got a check and balance.
Brilliant idea. That way, instead of spending their money on things that people have to make, the wealthy will invest in owning a larger share of the world by way of financial instruments which produce more income.
This will, obviously, reduce inequality.
Lacking <sarcasm> tags,
It's the result of a lot of things, really. Income inequality was the result of unchecked feudalism, unchecked mercantilism, unchecked slavery, unchecked command economies, and even a lot of "traditional" economies.
Unfortunately, income equality is not a natural state of societies. It can be a goal for a system, but even that's not a guarantee.
Inequality in itself is not harmful. What difference does it make to me that someone in Ohio is driving a Rolls Royce while all I have is a Nissan?
The harm is in politicians stoking the flames of jealousy and trying to convince me that the person in the Rolls got themselves a higher standard of living by pushing me down, which is rubbish.
Steve Jobs didn't get rich by *taking* money from us. He got rich by giving us things we wanted more than the cost of a cellphone contract (and the same thing goes for Bill Gates). No zillionaire has the power to take anything from you - whether it be Warren Buffet or the Koch brothers. Only government has that power, and they most certainly use it.
That would be fantastic. Most of my spending goes to food (at fancy restaurants) and housing (mortgage on a million dollar mansion), so yay! No taxes for me!
(The above is not actually a true statement, sadly, just an example.)
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."
One should point out that Bill Gates lives in a state where we have zero state income tax, zero capital gains tax, and his dividends aren't taxed either when he donates them to his own charities.
The problem is that rich people already have massive assets that produce income - everyone else doesn't.
The median wealth of all African-Americans is about $200. Total.
The median wealth of all Hispanic-Americans is about $500. Total.
The median wealth of all rich corporate lawyer's sons whose mums served on charity boards and went to private schools and live in his house is $60 Billion.
-- Tigger warning: This post may contain tiggers! --
$640k/year should be be enough for anyone
The discussion started long ago: Thomas Piketty and Mises’s ‘The Anti-Capitalistic Mentality’
Without a middle class, there is no real economy. If our current system guarantees the destruction of the middle class, then our current system guarantees the destruction of the economy (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.
In the words of Henry Ford, "I pay my workers well so that they can afford to buy my cars."
Was a video I saw that addressed the degrees of this issue. That is, they started showing a graph of what people polled thought income inequality looked like in terms of relative distribution of wealth. They showed what people thought it should be, people of different ends of the political spectrum. Then they showed what people thought was a healthy or acceptable distribution..... and then the real one.
The thing is, everybody seems to agree that some inequality is ok. Everybody seems to agree that there is more inequality than there should be. Everybody also underestimates how much inequality there is, showing the real numbers were as far removed from what people thought it was as what they thought it was was from what they thought was ideal.
"I opened my eyes, and everything went dark again"
There is a TED talk from the author of the book Bill Gates is commenting about at https://www.youtube.com/watch?... pretty good watch
You forgot a simple head tax. One head tax based on your place of residence (or split among localities if you have more than one residence over the tax period based on time spent at each). There'd be one of these for city, county, state, and federal paid once a year. Pay one each quarter so they aren't all due at once. No other taxes other than severance taxes and perhaps excise taxes. No vehicle license taxes, no boat taxes, no property taxes, no sales taxes. Nothing else. No corporate income taxes. They really don't matter anyway as far as the corporation is concerned. They're charged off in the price of the products sold or the company goes broke. Every company in the food chain marks the taxes of the lower company in the food chain up to achieve a desired profit margin so they're especially bad. Just make sure that the taxes they no longer have to pay are taken out of the pricing structure as the taxed round of goods are sold. Apply the head tax without any age limit and make parents responsible for their kids taxes till they get to voting age.
Adjust each rate once a year to cover the expected budget for next year and how you did the year before and in some cases to try to reduce the existing debt to saner levels over some predetermined time period. Takes care of eliminating a lot of law, a lot of law breakers, and a lot of law enforcers in one fell swoop. No more grey transactions. No more figuring out ways to hide money. No real good way to cheat (although there might have to be a way to track the homeless or people living in motels or hotels or RV or campsites while working - still easier than the shelves of IRS regulations we have now.) Apply it to everyone permanently in the country (legally or illegally). It's foreigner friendly since foreign tourists wouldn't have to pay sales taxes.
Everything else is just hand waving and hoping. Until everyone - and I mean everyone - is paying for the government and its services, so they will have some incentive to actually elect good people to office who won't run the (fill in the blank for the level of government) into the ground by spending more than they are taking in and will reign in their over use of government services, we're doomed.
The more social engineering that people try to do to this basic premise, the worse off we all as a whole get. If you don't believe it, just look at the US real time debt clock. The founding fathers had it right.
Is it tough on big families? Yes it is. Is it tough on the poor? Yes it is. But it is absolutely fair. And for the record - I feel neither poor nor rich, but I do have a big family, and I'd still support it.
I'm not claiming to be an economist, but I'd imagine there are some big problems with taxing consumption as well. As people will point out, taxing something often has the effect of discouraging it. Depending on how you structure the tax, it could encourage a pack-rat mentality, where people just stuff their money away. That's not all bad, since it serves a purpose of encouraging savings, but when you cut consumption, you have the potential of also cutting economic growth. In addition, a tax on consumption might hit poorer people, since everyone has a minimum amount that they must consume. For example, poor people and rich people both need to spend a minimum of $[X]/year on food just to survive. As the amount of income increases, that $[X] becomes a vanishingly small percentage of income for rich people, while it remains a substantial amount of money for the very poor.
Taxing consumption could also (again, depending on how it's structured) simply drive money out of the US. In its simplest form, it would become much cheaper to make money in the US (since income and capital gains wouldn't be taxed) while making it much more expensive to spend money here. The "smart thing to do" would be to make your fortune here and spend it elsewhere, where the tax is not on consumption.
And that also doesn't begin to confront the source of a lot of the problem: wealth and power represent a self-reinforcing cycle. To oversimplify a bit: Poor people have no power to promote their own interests, while rich people can use their economic power to develop other forms of power, which they can, in turn, use to reinforce their economic power. The obvious example of this is that they can contribute money to politicians, supporting politicians who will support their economic interests. Those politicians can change trade policy to benefit the wealthy person's business, or rewrite the tax code to allow the wealthy person to avoid paying taxes.
If we started taxing based on consumption, how long do you think it would take for an exception to be written into the tax code for private yachts?
And this immediately raises the question in my mind, how to we anticipate tracking "consumption" and deciding what should and should not be counted as "consumption"?
Now, I'm not ruling out the possibility of someone developing a plan that deals with these issues appropriately. But I've heard the suggestion of taxing consumption before, and I've never heard an adequate explanation of how all of these things would be addressed. It seems a bit... I don't know the right word-- silly? creepy? Well, it seems noteworthy to me that Bill Gates starts and finishes his argument by talking about how rich people should be treated differently based on how charitable they are. It suggests that his main motivation is to argue, "I'm one of the good ones. You should leave me alone and let me keep more of my money. Yes, yes, by all means, tax rich people more to deal with this income inequality issue, just so long as you don't tax me."
Supply and demand informs us that a decrease in the value of dollars can be caused in two ways:
An increase in the supply of dollars or
A decrease in the demand for dollars
As the population grows, the number of people who want dollars will increase not decrease, so inflation wouldn't generally be due to falling demand. It must therefore be due to an increase in supply. It must be caused by an increase in supply - somebody's printing money. Who has the capability to print new money? The federal government and their assigns. The government can pay it's bills by just writing itself an IOU, creating new money. That allows the government to pay for products and services without openly voting for an tax.
So it pays for government services, at the cost of devaluing savings. Thus, it's effectively a tax on saving.
It is NOT fair in any way shape or way. It simply refuses to admit the many many benefits that the wealthy get from the government, that the poor don't.
The poor don't care if the government is overthrown and someone confiscates half the wealth. The wealthy do.
The poor don't care if their house burns down (and no one dies), the wealthy do. (at least not to the same extent - they are left as poor as they started).
The poor don't benefit from police as much as the wealthy do. (Think about what happens when they are both arrested for a similar crime, or how much you lose if someone steals from you.)
The poor don't benefit from transportation infrastructure, the wealthy do, they don't travel or ship as much.
The wealthy can call up government officials and get stuff done, the poor can't.
Your idea is ultimate regressive, and you fail to see the problem with it. Worse, arguing with someone like you is irrelevant because you don't care about right and wrong, and your sense of fairness is so radically warped that you have no idea that the far majority of people in the world disagree with it. It's like you said you don't see anything wrong with slavery.
The basic problem is you do NOT understand the very concept of 'fair'. Fair means an equal chance. That means when you get more, you pay more, and the wealthy get SO much more, they have to PAY so much more. It means that children are not penalized for mistakes or stupidity of their parents. No that child gets nothing because his parents had a big family, or just couldn't afford college.
Until you learn the real meaning behind the world 'fair', the rest of the world will laugh at what you think is fair.
excitingthingstodo.blogspot.com
It's harmful, especially to children, when there are people living on such low wage that they can't afford to eat or go to the doctor.
Many people believe that it is an ethical imperative when such conditions exist in a country where billionaires also exist that the inequality be reduced to the point where the poorest people are no longer starving or dying of easily preventable illness.
OK, here's your answer, as simplified as I can make it based on your premise:
Because the guy with the net worth of $100 is unable to contribute to the economy. He is too poor to pay taxes, he's too poor to buy food for his family and therefore has to rely on government help to feed his children.
Meanwhile, the rich guy with the net worth of $5000 has used his immense wealth to manipulate politics and has a sneaky accountant, so he also pays practically no taxes, compared to the middle class.
So it's up to you and me, the guys with a net worth of let's say $250, to help out the poor guy with the net worth of $100. But that $5000 guy is cutting our jobs and shipping them to india, so we have an ever shrinking population of $250 net worth people, and a growing segment of $100 net worth people, since the only jobs available are minimum wage.
Following me so far? With less and less people buying socks and shoes and food, and paying taxes, the economy shrinks. Meanwhile the very rich do not go to walmart and buy 10,000 pairs of jeans, so their contributions to the overall economy are minor compared to their immense wealth.
Please see the documentary "Inequality for all", you can find it on netflix streaming, and it will describe it a way that everyone can understand, even Fox News watchers.
If telephones are outlawed, then only outlaws will have telephones.
Income inequality is bad because it limits economic freedom. The reasoning is as follows:
The guy with $5000 can do a lot more than the guy with only $100. A lot more, but not 50x more, because economic freedom doesn't scale linearly with wealth. Perhaps working with "real" numbers will help illustrate this point. If you have an annual income of $15K (minimum wage, full time), you can't do much. I'd argue that you can't even live on that kind of money, but apparently many people do, so let's just say you can't do much. If you have an annual income of $150K you can do quite a bit. You can raise a family, you can travel the world, you can choose from a wide variety of leisure activities. If you have an annual income of $1.5M, you have a few new options opening up. At $15M, you're really not opening up too many new opportunities. At $150M, I suppose the selection of megayachts you can choose from is a bit larger, but overall your quality of life isn't significantly different. And so the story continues.
The income enjoyed by a single $150M/year earner (and I use the word "earn" very loosely here) provides quite a bit of economic freedom of one individual. However, it could instead provide nearly as much economic freedom to ten individuals were it to be split evenly among them. Furthermore, it could instead provide just-a-bit-less economic freedom to a hundred individuals. It's evident that concentration of wealth does not optimally maximize economic freedom across a society, and consequently stratification of wealth ought to be anathema to libertarians. Of course, many "libertarians" I see on here are more concerned with government involvement in environmental policy than with something that actually has a meaningful (if not the most meaningful) impact on individual freedom: money.
Chuuch. Preach. Tabernacle.
From http://en.wikipedia.org/wiki/E...
"Effects of inequality researchers have found include higher rates of health and social problems, and lower rates of social goods,[81] a lower level of economic utility in society from resources devoted on high-end consumption,[82] and even a lower level of economic growth when human capital is neglected for high-end consumption.[83] For the top 21 industrialised countries, counting each person equally, life expectancy is lower in more unequal countries..."
The problem which I see with comments on both sides of this thread is the assumption that one can hoard money, or that money can be put somewhere where it "just sits." The problem is that, unless Mr. Gates, et al. are taking CASH (paper) and making stacks of it in their basement/attic/wherever the money isn't just sitting anywhere.
Even if they just put it in a bank account (which is about the closest to making a pile out of it) it is then circulated through the economy via increased ability for the banks to loan, etc. (Ok, I am oversimplifying, but the point is still accurate.) More likely is that thier money has been invested somewhere. The reason that the rich can make more money in investments than the comparitively less-well-off is that you have to have a certain amount of money to be legally allowed to invest in the riskier investments, which are the ones which pay off big (or fail big). That risk of big failure is restricted to the rich exactly because they are less likely to be "hurt" by a failure, so if they get conned, they can afford it.
In any case, their accumulation of cash is still working in the economy, providing start-up loans to new businesses so that people can be hired, etc.
As to the non- or anti- productive examples given by the parent post: Just because sometimes a business has to downsize to better match the current economy, doesn't mean anything nefarious is happening. If you are making more product than you can sell, then you are making too much product. A stock buyback does affect the stock price, but it is essentially just the company becomming owned by fewer people, the people who sell the stock back have been compensated for their prior ownership, and are free to buy something else with their money. There may be a point to questioning the bubble speculation, but to fix that would be to further disallow smaller investors and only allow the richer investors to risk the bubble. Even in that case, every new industry may just be a bubble, and is a gamble, until it proves that it isn't. If you outlaw risk (overstated), then you will never have anything new (also overstated, but you get the point. I hope.).
McFly777
- - -
"What do people mean when they say the computer went down on them?" -Marilyn Pittman
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.
The "progressive" tax was not part of US tax law until more recent times. Read tax laws from 1890-1970, it should take all of an hour to read them all, probably twice.
I did a hefty amount of writing on the subject many years ago, and I'll give you a hint. Historical Tax law and rate schedules are freely available from a .gov site and anything ending in .com should be scrutinized heavily (including Wiki). If I had the material handy I would be happy to provide the links, but alas you can find them easy enough by adding ".gov" to your search. Like this one.
This is the original text of the United States Revenue Act of 1913, which was the first income tax passed after the ratification of the 16th amendment:
http://legisworks.org/sal/38/s...
The section on income tax starts on Pg. 53 (of the PDF) and explicitly includes marginal tax brackets. Back then it was an additional 1% of your income in each successive bracket.
Marginal tax brackets have been a part of American income tax since it first became constitutional.
If we're going to be pedantic about words, we also need to distinguish a "free market" from "capitalism". Too often self-identified proponents of "capitalism" are really just proponents of free markets, and use "capitalism" as if all it means is "free market".
A free market an economic arrangement where all exchanges are made voluntarily, without coercion.
Capitalism is an economic arrangement where those who own capital can extract surplus value from the labor of those who don't own such capital.
Both contemporary opponents and proponents of either assume that each entails the other:that without some kind or coerced redistribution, those with more capital will exploit those with less, and the only choice is between those two evils. But in principle the two concepts can come apart. The hard question is how.
My proposed answer is that what allows a free market (good) to become capitalism (bad) is the legal enforcement of any contract where someone allows the temporary use of their capital in exchange for a permanent transfer of some other capital. In other words, rent, including the rent on money that we call "interest", or in general, to use a more archaic but etymologically illustrative term, "usury": the charging of a fee for usage. Such contracts allow those who have more capital than they need for their personal use, who can thus afford to lend it out, to extract value from those who need to use more capital than they have, who thus have to borrow it. This creates an "uphill" flow of wealth from those who already have less of it to those who already have more of it.
In the absence of such contracts of usury, the only way someone with more wealth than is personally useful to them to get some value for it would be to sell it off. And, as is already the case, the only thing that those without enough wealth can trade for anything of value is their labor. The natural effect you would expect, in a free market without usury, would be that those with more capital would benefit from it by trading it for labor from others, gaining luxury (not needing to labor themselves) at the cost of their capital; and the laborers, in turn, would gradually accrue capital in exchange for their labor, and this free trade of capital for labor would gradually equalize the capitalists and the laborers, until each had enough capital for their own use, and had to labor upon it themselves. Some natural variation in wealth would still exist due to the natural differences in productivity of different people, but there would be no run-away concentration of wealth independent of productive activity that we have now.
Introduce usury into that system though, as we have now, and suddenly those with more wealth can lend their excess to those with less wealth, for a fee, which fee they can then use to pay for the labor of those who have less, who in turn are having to trade their labor to pay the fees for the use of the wealth of those who have more. In this way, usury creates an "upward" flow of wealth canceling the natural "downward" flow that a free market would be expected to have, and allowing those with more wealth to live perpetually off the labor of those with less wealth, without ever having to actually lose any wealth in exchange. It's not an insurmountable effect, it is still possible for the poor to accrue wealth or the rich to lose it all, but you have to be exceptionally competent or exceptionally incompetent to do each, respectively. For an average person, having wealth makes it easy to keep and gain wealth, and lacking it makes that exceedingly difficult. And I think we have usury — rent and interest — to blame for that. Without it, free markets would be inherently "socialist", as in for the public good, as one would naturally expect.
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."