My post last August on “Inequality Talk is About Grabbing” got 215 comments, which may be a record. In that post I tried to explain why most inequality talk focuses on the small part of inequality that is financial inequality at a given time between the families of a nation. I suggested that the reason is that we think we could grab lots of money from the rich without much pain to the rest of us.
I wish people - including Robin - would be clear on the distinction betweeni) inequality of "earned by working" income ii) inequality of all income (including interest, property income, dividends etc)iii) inequality of wealthiv) inequality capital gains And yes of course there are grey areas. But it seems to me the inequality of household capital gains is almost certainly much more extreme than the inequality of "earned" income. Citing studies which state that factors leading to an inequality of "earned" income are the result of uncontrollable or even benign social trends is not a satisfactory response to concerns about inequalities of unearned income, wealth or capital gains.
I don't think targeting small businesses or anything complicated is necessary. Say you put a bunch of tax money in a diversified, low-risk ETF and pass a law saying it cannot be spent for 100 years, after which it is to be equally distributed to everyone. This ought to grow capital faster during the mean time than leaving it in private hands (where it might be spent on consumption or lost on risky ventures).
Ask anyone on the street about policies that reduce inequality by making everyone poorer, but with the rich losing slightly more than the poor. Who would possibly support such ideas? Only a maniac or someone with highly out of the norm values.
To be clear, I don't favor abstract equality for its own sake, but I still want to point out that your analogy is misleading: it conflates loss aversion with egalitarianism.
If you ask the man in the street whether he would favor egalitarian policies that made everyone's future less rich, I think many sane people (whom I nevertheless disagree with) would trade future social wealth for greater equality. (They're called populists.)
Again, I don't think technological progress is a simple function of research subsidies. And the consumer spending of the first and third world (or even upper and lower classes within the first world) are not equivalent. "First adopters" subsidize technological advance, and are typically among the more affluent first-worlders. Redistribution has incentive effects, which admittedly could be blunted if it came in the form of a per-capita head tax, but that's typically only discussed in economic theory and never mentioned as a political possibility.
Well, if research subsidies would stay the same and global growth would stay the same (remember it's about slower growth in the rich countries to make faster growth in the poor countries possible without increasing the global consumption of energy and natural resources) I'd say we should be really close to the same level of technological progress. You wouldn't really have to know what belongs to which part, it would sort itself out since global consumer spending would be roughly the same so private sector innovation doesn't have to slow down.
Does it matter much whether Bill Gates invests $10 in Wal Mart or Average Joe buys a $10 bottle of whiskey from Wal Mart?
Bill Gates investment could only be better if large, concentrated injections of capital are better, but why would that be the case (one could even argue that lots of smaller injections from people who are actually vested in the products itself is closer to the ideal free market, or, dare I say it, a prediction market)?
The whole point was that rich people save a larger fraction of their income, which over time creates more capital and makes more inequality. If you spread the capital around, you get less savings and so less capital later.
But this hardly describes the present situation, where huge amounts of wealth are withdrawn from circulation (and productive use) for financial speculation and where these huge "savings" cannot find productive outlets--as with the mortgage crisis, dumping capital in unproductive investments.
Isn't it clear that we face no dearth of savings but, rather, a lack of investment outlets? That there is, actually, an overproduction of capital?
"Technological progress is not some simple input/output mechanism where you insert money in one end and get progress out the other."
Of course not, but it is to the extent that rich countries intentionally foregoing (part of) their economic growth would hurt technological progress. That part of technological progress that is not coupled to GDP growth would not suffer from less GDP growth either so that's not the part Cahokia and myself were referring to.
"As Hanson has explained in his long-run future posts, technological progress will eventually just end."
Sure, but not this century and a century of the currently rich countries foregoing (part of) their economic growth is enough to bring the vast majority of very poor people to a high standard of living.
That may be true if you redistribute income in a discretionary form, but you can get around that by requiring that the income from this particular source mostly not be spent on anything other than new capital. Ownership of an asset need not equal control of its disposition.
So for example, say we have a public savings fund, equally owned by all citizens (shares being non-transferable). The only part of the income that would be sent to the citizen for spending or reinvestment at their discretion would be a very small portion of the growth roughly identical to the percentage spent on consumption by a typical person with high income -- the rest being, by law, continually reinvested in the fund.
In such a scenario, it seems like there should be equal growth in capital over time as there would be if wealthy individuals owned the capital.
The idea is to transfer the capital to the less wealthy individuals, not leave it with the government. An elegant solution would be a basic income for everyone (including the rich) over the age of 18 who is a citizen of the country. With the size of that basic income coupled to GPD and (adult) population size. Many governments would probably lose influence over their citizens compared to the current situation and those society would simultaneously become more equal and they'd have a hard theoretical limit on inequality. Pretty much anyone from libertarians to socialists could find something positive in such a solution.
it is a load that higher taxes result in less capital. Generally it results in more because the advantage to tax deferral becomes so great. Lower taxes encourage consumption because it becomes so much less expensive.
If China collapsed, Stephen would say: see, inequality and high savings rates are incompatible with growth.
If China keeps booming, Stephen says: see, China is committed to eventually not being among the highest savings, most unequal societies in the world, thus their growth boom continues. (Rational expectations and all that.)
I wish people - including Robin - would be clear on the distinction betweeni) inequality of "earned by working" income ii) inequality of all income (including interest, property income, dividends etc)iii) inequality of wealthiv) inequality capital gains And yes of course there are grey areas. But it seems to me the inequality of household capital gains is almost certainly much more extreme than the inequality of "earned" income. Citing studies which state that factors leading to an inequality of "earned" income are the result of uncontrollable or even benign social trends is not a satisfactory response to concerns about inequalities of unearned income, wealth or capital gains.
I don't think targeting small businesses or anything complicated is necessary. Say you put a bunch of tax money in a diversified, low-risk ETF and pass a law saying it cannot be spent for 100 years, after which it is to be equally distributed to everyone. This ought to grow capital faster during the mean time than leaving it in private hands (where it might be spent on consumption or lost on risky ventures).
Fair point.
Ask anyone on the street about policies that reduce inequality by making everyone poorer, but with the rich losing slightly more than the poor. Who would possibly support such ideas? Only a maniac or someone with highly out of the norm values.
To be clear, I don't favor abstract equality for its own sake, but I still want to point out that your analogy is misleading: it conflates loss aversion with egalitarianism.
If you ask the man in the street whether he would favor egalitarian policies that made everyone's future less rich, I think many sane people (whom I nevertheless disagree with) would trade future social wealth for greater equality. (They're called populists.)
Again, I don't think technological progress is a simple function of research subsidies. And the consumer spending of the first and third world (or even upper and lower classes within the first world) are not equivalent. "First adopters" subsidize technological advance, and are typically among the more affluent first-worlders. Redistribution has incentive effects, which admittedly could be blunted if it came in the form of a per-capita head tax, but that's typically only discussed in economic theory and never mentioned as a political possibility.
If you spread it around indiscriminately, maybe.
It remains the case that revenue from capital gains taxes can be targeted as, eg, seed capital for small businesses.
Some things don't work if you do them in a dumb way. However, doing them in a smart way is a reasonable alternative to not doing them at all.
Well, if research subsidies would stay the same and global growth would stay the same (remember it's about slower growth in the rich countries to make faster growth in the poor countries possible without increasing the global consumption of energy and natural resources) I'd say we should be really close to the same level of technological progress. You wouldn't really have to know what belongs to which part, it would sort itself out since global consumer spending would be roughly the same so private sector innovation doesn't have to slow down.
I don't think the parts are quite so easily separable.
Does it matter much whether Bill Gates invests $10 in Wal Mart or Average Joe buys a $10 bottle of whiskey from Wal Mart?
Bill Gates investment could only be better if large, concentrated injections of capital are better, but why would that be the case (one could even argue that lots of smaller injections from people who are actually vested in the products itself is closer to the ideal free market, or, dare I say it, a prediction market)?
The whole point was that rich people save a larger fraction of their income, which over time creates more capital and makes more inequality. If you spread the capital around, you get less savings and so less capital later.
But this hardly describes the present situation, where huge amounts of wealth are withdrawn from circulation (and productive use) for financial speculation and where these huge "savings" cannot find productive outlets--as with the mortgage crisis, dumping capital in unproductive investments.
Isn't it clear that we face no dearth of savings but, rather, a lack of investment outlets? That there is, actually, an overproduction of capital?
"Technological progress is not some simple input/output mechanism where you insert money in one end and get progress out the other."
Of course not, but it is to the extent that rich countries intentionally foregoing (part of) their economic growth would hurt technological progress. That part of technological progress that is not coupled to GDP growth would not suffer from less GDP growth either so that's not the part Cahokia and myself were referring to.
"As Hanson has explained in his long-run future posts, technological progress will eventually just end."
Sure, but not this century and a century of the currently rich countries foregoing (part of) their economic growth is enough to bring the vast majority of very poor people to a high standard of living.
That may be true if you redistribute income in a discretionary form, but you can get around that by requiring that the income from this particular source mostly not be spent on anything other than new capital. Ownership of an asset need not equal control of its disposition.
So for example, say we have a public savings fund, equally owned by all citizens (shares being non-transferable). The only part of the income that would be sent to the citizen for spending or reinvestment at their discretion would be a very small portion of the growth roughly identical to the percentage spent on consumption by a typical person with high income -- the rest being, by law, continually reinvested in the fund.
In such a scenario, it seems like there should be equal growth in capital over time as there would be if wealthy individuals owned the capital.
The idea is to transfer the capital to the less wealthy individuals, not leave it with the government. An elegant solution would be a basic income for everyone (including the rich) over the age of 18 who is a citizen of the country. With the size of that basic income coupled to GPD and (adult) population size. Many governments would probably lose influence over their citizens compared to the current situation and those society would simultaneously become more equal and they'd have a hard theoretical limit on inequality. Pretty much anyone from libertarians to socialists could find something positive in such a solution.
What it taxing capital primarily transfers capital stocks from private hands to the government, rather than reducing the total capital stock?
it is a load that higher taxes result in less capital. Generally it results in more because the advantage to tax deferral becomes so great. Lower taxes encourage consumption because it becomes so much less expensive.
If China collapsed, Stephen would say: see, inequality and high savings rates are incompatible with growth.
If China keeps booming, Stephen says: see, China is committed to eventually not being among the highest savings, most unequal societies in the world, thus their growth boom continues. (Rational expectations and all that.)