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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.
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.
There only idea that matters is the core thesis that r>g.
Everything else comes down to framing that. And Gates' consumption tax idea kinda does the opposite of addressing that. It's regressive as hell to tax the people who need things more than those who can just sit on their money and let it grow. You buy the land, and eat marginal gains on laborer/robot creation. And those laborers are going to lose out since their own budget is mostly going to things that are consumption taxed, leaving them with very little to invest in their own capital.
Every long-term 21st century economic policy needs to look at r>g and find a healthy stabilization point where r=g that allows free flow from labor to investor and back and work towards it.
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.
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."
$640k/year should be be enough for anyone
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
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.
It does seem to be negatively correlated with economic growth.
That depends, doesn't it, on whether the shift in income from wages to capital kept your income from growing over your working lifetime. If inequality has a net positive sum great enough for "trickle down" to lift all boats rather than just the yachts, well and good. If it's a negative sum (the top gets increases, the bottom loses money) then the picture changes.
This isn't an ideological question, but an empiracal one.
Lacking <sarcasm> tags,
"The King has taken nothing from us peasants, all the land belonged to the Crown before we were born. If He were not so generous as to allow us to work the land (albeit at the cost of everything we can produce beyond bare subsistence) then we would have no way to survive at all, and so we praise and bless Him."
Inequality is harmful when it persists without merit.
That is, the Walton family has made a lot of money from Wal-Mart, but the wealth of the youngest Waltons isn't money that they earned, it's money that came to them because of how they were born.
Sounds like a landed gentry, to me. I have zero problems with Warren Buffet being rich, but it seems unreasonable that his children would also be multi-multi-billionaires just because he made a lot of good decisions. And Buffet agrees with me, since he's giving away most of his money and leaving his children with a lot, but not much in comparison to the total value of his fortune.
The vastly wealthy horde money over generations, and the fact is that money begets money. If you have a million dollars and invest it in something that returns 7% a year, you can live off of that forever if you're careful. You don't have to work or do anything at all--money and markets do all the work for you. If you're a multi-millionaire, you've made some money by your efforts but far more because after you have a lot, the rest is easier to come by.
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.
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..."
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.
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."