French economist's book about wealth inequality becomes an unlikely bestseller
Joyce Park stashed this in Economics
A 700-page book about wealth inequality built on 200 years of tax records, written by a French economist who espouses a wealth tax... what could be a more unlikely recipe for a bestseller?
Excellent insights that capital return outgrows capital growth--as it should. As long as society maintains economic freedom and economic mobility, that shouldn't be a problem. The second boot to drop on that is return on dollars spent by free markets versus dollar ROI as taken out in taxes and spent by government. So, he's pegged the problem, but I really don't think the occupy people have the right solution. We've been trained to think that more government spending aids the economy and less hurts it (it does help the government collected statistics if you mesh them up--something called focusing on the carrot and not the finish line), but taking out high effect dollars for low effect or negative effect ones, doesn't seem to work.
So rather than government trying to supplement the differences, it might work better to even the playing field, so citizens will have a better chance at achieving their own financial success?
I wonder if there's any way structurally to separate the interests of entrepreneurs from those of inherited wealth, particularly 3rd generation+ inherited wealth. It makes me sad when a well-meaning entrepreneur in a field that is competitive and time-delimited -- technology -- ends up supporting the continued enrichment of someone like Jenna Bush whose wealth derives from her great-great-grandfather, Samuel P. Bush, who was born in 1863. It makes me happy when a successful entrepreneur, like Buffett or Gates, understands that the best thing they can do for their kids is to give them an inheritance that lets them do anything but does not let them do everything.
Greg and Janill, yes!
Joyce, wealthy people hate inheritance taxes, which force them to sell assets to cover the bill.
It's probably better for entrepreneurs to encourage the wealthy to invest the income generated by their assets, rather than force them to sell some of those assets or put all their income toward tax shelters.
Here's a recent Piketty interview.
Thank you for that interview! It is excellent.
There have been some American reviewers who have found your book to be very deterministic in assessing the inevitability of inequality and the challenges of constructing an effective response. Is there an undiscussed assumption about political economy behind the book?
But there is a whole continuum of possible policy response! I don’t recognize myself at all in these reviews… I am not fatalistic at all, I certainly don’t believe that it’s all or nothing response. What’s probably inevitable is [investment returns being] bigger than [economic growth], that’s economics. In terms of politics, everything is possible, nothing is inevitable. [The United States] has a property tax which is a pretty big wealth tax. I would prefer it to be a progressive tax that was proportional and I would prefer it to be on net wealth rather than the gross value of real estate—if you take someone whose house is $500,000 and they have a mortgage liability of $490,000, his net wealth is $10,000, I would propose he would pay no property tax, no wealth tax. Right now he is paying as much property tax as someone with no mortgage who inherited his apartment 20 years ago. My premise is not to tax to destroy the wealth of the wealthy, it’s to increase the wealth of the bottom and the middle class.
I am not terribly impressed by people who know for sure what will happen or not. What would they have said in 1900 or 1910? I’m sure many of them would have said there will never be a federal income tax because of the constitution. For a large country like the US—the US is one quarter of world GDP—the US has ample power to put sanctions on Swiss banks. You know, five years ago, people were saying it’s not possible to break bank secrecy in Switzerland, but you know, you put the right sanctions, you break it.
I admire those who make their own choice to not pass large amounts of cash onto their children, I believe Buffett and Gates are doing this. It really robs the children of purpose in their own lives, some will still seek out a purpose, but all too often trust fund adult kids lead pretty disastrous lives. It's one thing to pay for an Ivy league education, some might want to supplement a child who wants to work for a charity, or an adult child that is very dedicated with time to a cause.
How much should be passed on when one passes? How about not having to support your parents in their last years of life, as they have run through all their savings? Maybe that's a good enough inheritance? Maybe less than 100K in cash? Maybe a house that has to be sold and split amongst siblings? What if it's 10 Million cash? It does set up the rich to stay richer, but on the other hand the parents, you have to assume, have already paid taxes, so an inheritance tax would be double taxation? Not that their aren't other things that get double taxed. Maybe people could pay a small amount when they inherit over a certain amount, like over 500k?
I feel leveling the playing field, stop corporate welfare. Personally I'd rather see smaller companies, than only a few large ones that dominate the market, I think this comes about due to the power of being so big, the little guys should get more help to get off the ground, instead of a large established company getting handouts.
Something does need to be changed, because Capitalism on the course it's on now, is failing the majority.
Well that's enough rambling!
Although they won't pass on most of their wealth, Gates and Buffett are giving their children enough that they will want for nothing.
One problem with inheritance tax is that most things that get passed on -- like stocks and real estate -- are illiquid, so the recipient needs to liquidate some or all of it to pay the tax bill. That seems bad.
Stopping corporate welfare is also challenging because the biggest cheaters are the multinational corporations who can easily shift operations so that they have no U.S. tax bill.
But yeah, like you, I believe something needs to change. I think most people agree; it's just harder to come up with an answer because (1) there are entrenched interests that protect themselves, and (2) America is an oligarchy so we normals don't get to decide things anyway.
Yep, it's a tricky thing to fix, without creating a new loophole/imbalance somewhere else.
Every prior fix has created more loopholes and now the system is so complicated that only the wealthy can afford to understand it.
Also, the BENEFIT of oligarchy capitalism is VERY VERY important and big and immediate for wealthy people. The COST of oligarchy capitalism is diffuse, abstract, and long-term for the rest of us. Our brains don't do well with that setup. :/
That's the trick: spread the cost out so the people it costs barely can understand how much it's costing.
Somewhere exist algorithms that calculate, to the penny, how much chronic economic pain people will endure. There's are others that calculate how much/what types of distraction will long-tail our oblivion.
The problem is that people can go along with these situations for a long time, but obviously great inequality in distribution of resources is not very robust in a crisis. If enough people are starving or otherwise dying, "let them eat cake" leads to civil uprising.
In previous centuries when most people were small farmers, drought or flood was the usual kickoff to these things; these days, high unemployment seems to do the trick. Remember that when FDR wanted to raised the marginal tax rate to unprecedented levels for peacetime and institute Social Security, some of the wealthy screamed for his head -- but enough of them were afraid that a nation with 25% unemployment and high wealth inequality was heading towards civic breakdown that FDR's gestures towards sharing the pain were accepted.
I'm actually fascinated by the ways in which this formula might not work any more. FDR, despite coming from a very wealthy family, could clearly see that large numbers of people were not going to voluntarily starve for another man's economic theories. To an extent he pushed through social welfare programs for pragmatic reasons -- giving people a little bit so they didn't go Commie or otherwise destabilize society, and because early intervention almost always costs less in the long run than mass incarceration or hospitalization. I'm not sure that contemporary ideologues like Paul Ryan see the same thing with their drive to get rid of basic subsistence programs like unemployment insurance, food stamps, and school lunch programs.
The really fun part for me comes with new structural developments that might change the calculus of inequality and revolution. For instance: the wide use of antidepressants. Are they basically keeping people "happy enough" to endure problems they might otherwise see as political? Or what about disability payments, which seem to have become the way our country deals with underemployment? What about robots, which might be able to put us all out of work within a few decades? And of course the big one: environmental change.
Well said, and I'm sure antidepressants and disability payments maintain the current situation.
Robots, long term unemployment, and the environment have potential to disrupt the current situation.
15 Tycoons take on inheritance:
Cool, now I know the answer to the question: What do Nigella Lawson, George Lucas, Jackie Chan, and Michael Bloomberg have in common?
(I would love to see a Michael Bloomber/George Lucas Presidential/VP ticket in 2016.)
George Lucas as vice president?! That would be amazingly cool.